[Federal Register Volume 75, Number 100 (Tuesday, May 25, 2010)]
[Notices]
[Pages 29381-29383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-12506]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62117; File No. SR-ISE-2010-34]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating to Fees for the 
ISE Order Feed

May 18, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 11, 2010, the International Securities Exchange, LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission the proposed rule change as described in Items I, II, and 
III below, which items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE is proposing to amend its Schedule of Fees to adopt 
subscription fees for the sale of a new market data offering called the 
ISE Order Feed. The text of the proposed rule change is available on 
the Exchange's Web site (http://www.ise.com), at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in sections A, B and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    ISE proposes to amend its Schedule of Fees to adopt subscription 
fees for the sale of the ISE Order Feed. These proposed fee changes 
will be operative on July 1, 2010, pending regulatory approval.
    The ISE Order Feed provides real-time updates every time a new 
limit order that is not immediately executable at the best bid/offer 
(BBO) is placed on the ISE order book. This feed does not include 
market orders, immediate or cancel (IOC) orders, quotes or any non-
displayed interest.
    While the Options Price Reporting Authority (OPRA) feed provides 
aggregated ISE BBO order information, the ISE Order Feed provides each 
individual order. The information included on the ISE Order Feed 
includes the order type (buy/sell), the order price, the order size, 
and customer indicator (which reflects whether the order is a customer 
order), as well as details for each instrument series, including the 
symbols (series and underlying security), put or call indicator, the 
expiration and the strike price of the series.
    The ISE BBO on the OPRA feed includes all quotes provided by ISE 
market makers and all orders provided by members which are then 
aggregated

[[Page 29382]]

at the BBO. The ISE Order Feed, on the other hand, includes each 
individual limit order rather than only the aggregated volume of all 
orders. The ISE Order Feed does not include quote traffic, which will 
result in much less data for subscribers to process and less bandwidth 
than feeds that provide aggregated quotes and orders.
    The Exchange currently does not charge fees for the ISE Order Feed. 
This market data offering will be made available to both members and 
non-members on a subscription basis. The Exchange proposes to charge 
distributors \3\ of the ISE Order Feed (i) $2,000 per month and will 
not charge distributors a monthly fee per controlled device \4\ as long 
the ISE Order Feed is for internal use only, (ii) $2,000 per month and 
$10 per external controlled device per month (a) if the ISE Order Feed 
is redistributed externally by a subscriber, or (b) if the ISE Order 
Feed is redistributed internally and externally. For subscribers who 
redistribute the ISE Order Feed externally, or redistribute the ISE 
Order Feed internally and externally, the Exchange proposes to limit 
for any one month the combined maximum amount of fees payable to 
$2,500. For example, a firm that subscribes to the ISE Order Feed and 
then redistributes it to 40 clients will pay $2,400 per month ($2,000 
for the feed and $400 for the controlled device ($10 x 40)). If that 
same firm redistributes the data to 100 clients, the fee for that firm 
will be capped at $2,500, resulting in a savings of $500.
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    \3\ A ``distributor'' is any firm that receives the ISE Order 
Feed directly from ISE or indirectly through a ``redistributor'' and 
then distributes it either internally or externally. All 
distributors will be required by the Exchange to execute an ISE 
distributor agreement. ``Redistributors'' include market data 
vendors and connectivity providers such as extranets and private 
network providers.
    \4\ A ``controlled device'' is as any device that a distributor 
of the ISE Order Feed permits to access the information in the ISE 
Order Feed.
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2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Exchange 
Act'') for this proposed rule change is the requirement under Section 
6(b)(4), that an exchange have an equitable allocation of reasonable 
dues, fees and other charges among its members and other persons using 
its facilities. The Exchange believes introduction of the new product 
will provide market participants with an opportunity to obtain 
additional data in furtherance of their investment decisions.
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\5\ in general, and with 
Sections 6(b)(4) of the Act,\6\ in particular, in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility or 
system which ISE operates or controls.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed rule change is also 
consistent with the provisions of Section 6(b)(5) of the Act,\7\ in 
that it is designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest; and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers, or to regulate by virtue of 
any authority conferred by the Act matters not related to the purposes 
of the Act or the administration of the Exchange.
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    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is also 
consistent with Section 6(b)(8) of the Act \8\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, as set forth in more detail 
below.
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    \8\ 15 U.S.C. 78f(b)(8).
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    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations and broker-dealers increased authority and flexibility to 
offer new and unique market data to the public. It was believed that 
this authority would expand the amount of data available to consumers, 
and also spur innovation and competition for the provision of market 
data.
    The Commission has recently issued an order firmly establishing 
that in reviewing non-core data products such as the ISE Order Feed, 
the Commission will utilize a market-based approach that relies 
primarily on competitive forces to determine the terms on which non-
core data is made available to investors.\9\ The Commission adopted a 
two-part test:
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    \9\ See Securities Exchange Act Release No. 57917 (Dec. 2, 2008) 
(``NetCoalition Order'' resolving File No. SR-NYSEArca-2006-21).

    The first is to ask whether the exchange was subject to 
significant competitive forces in setting the terms of its proposal 
for non-core data, including the level of any fees. If an exchange 
was subject to significant competitive forces in setting the terms 
of a proposal, the Commission will approve the proposal unless it 
determines that there is a substantial countervailing basis to find 
that the terms nevertheless fail to meet an applicable requirement 
of the Exchange Act or the rules thereunder. If, however, the 
exchange was not subject to significant competitive forces in 
setting the terms of a proposal for non-core data, the Commission 
will require the exchange to provide a substantial basis, other than 
competitive forces, in its proposed rule change demonstrating that 
the terms of the proposal are equitable, fair, reasonable, and not 
unreasonably discriminatory.\10\
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    \10\ Id. at 48-49.

This standard begins from the premise that no Commission rule requires 
exchanges or market participants either to distribute non-core data to 
the public or to display non-core data to investors.\11\
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    \11\ Id. at 4.
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    In its NetCoalition Order the Commission concluded that ``at least 
two broad types of significant competitive forces applied to NYSE Arca 
in setting the terms of its proposal to distribute the ArcaBook data: 
(1) NYSE Arca's compelling need to attract order flow from market 
participants; and (2) the availability to market participants of 
alternatives to purchasing the ArcaBook data. The Commission conducted 
an exhaustive 14-page review of these two competitive forces before 
concluding that the availability of alternatives, as well as the 
compelling need to attract order flow, imposed significant competitive 
pressure on that exchange's need to act equitably, fairly, and 
reasonably in setting the terms of the fees for its non-core data 
product.\12\
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    \12\ Id. at 51-65. The Commission then spent an additional 36 
pages (65-101) analyzing and refuting comments challenging the 
Commission's competition analysis.
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    The market data provided in the ISE Order Feed is non-core data 
that is governed by the same analysis the Commission set forth in the 
NetCoalition Order. As with the NYSE Arca depth-of-book product, no 
rules require ISE or any other exchange to offer this data; nor are 
vendors required to purchase or display this data.
    Additionally, ISE is constrained by the same two competitive forces 
in the options market as the Commission found was present in the 
NetCoalition Order. First, ISE has a compelling need to attract order 
flow from market participants in order to maintain its share of trading 
volume. This compelling need to attract order flow imposes significant 
pressure on ISE to act reasonably in setting the fees for its market 
data offerings, particularly given that the market participants that 
will pay such fees often will be the same

[[Page 29383]]

market participants from whom ISE must attract order flow. These market 
participants include broker-dealers that control the handling of a 
large volume of customer and proprietary order flow. Given the 
portability of order flow from one exchange to another, any exchange 
that sought to charge unreasonably high market data fees would risk 
alienating many of the same customers on whose orders it depends for 
competitive survival.
    Second, the Exchange is constrained in pricing the ISE Order Feed 
by the availability to market participants of alternatives to 
purchasing ISE's market data offerings. ISE must consider the extent to 
which market participants would choose one or more alternatives instead 
of purchasing the exchange's data. Other exchanges, including some who 
may enjoy greater market share than ISE, are potential competitors as 
they too sell similar market data offerings that market participants 
may choose to purchase instead. For example, NASDAQ OMX PHLX (``PHLX'') 
has filed a proposed rule change to adopt fees for a market data 
product that includes a data feed that is similar to the ISE Order 
Feed.\13\ The PHLX' Specialized Order Feed, which PHLX has proposed to 
integrate into its TOPO Plus Orders market data offering, includes 
``real-time information to keep track of single order book(s).'' \14\ 
Further, the NetCoalition Order notes that one of the principal market 
data reforms adopted by the Commission was to authorize the independent 
distribution of data by broker/dealers. If one or more broker/dealers 
determine that the cost of subscribing to the ISE Order Feed is too 
high, they are entitled to independently distribute their own order 
data and may do so with or without charging a fee.\15\
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    \13\ See Securities Exchange Act Release No. 61878 (April 8, 
2010), 75 FR 20023 (April 16, 2010) (SR-PHLX-2010-48).
    \14\ Id.
    \15\ NetCoalition Order at 63.
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    In the aftermath of the NetCoalition Order, the Exchange believes 
that the competition among exchanges for order flow and the competition 
among exchanges for market data products subject ISE's proposed market 
data offerings to significant competitive forces. In addition, the 
Exchange believes that no substantial countervailing basis exists to 
support a finding that the proposed fees fail to meet the requirement 
of the Act. In sum, the availability of alternative sources of 
information impose significant competitive pressures on the ISE Order 
Feed and ISE's compelling need to attract order flow impose significant 
competitive pressure on the Exchange to act equitably, fairly, and 
reasonably in setting its fees.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (a) By order approve such proposed rule change, or
    (b) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#9be9eef7feb6f8f4f6f6fef5efe8dbe8fef8b5fcf4ed"><span class="__cf_email__" data-cfemail="2755524b420a44484a4a424953546754424409404851">[email protected]</span></a>. Please include 
File Number SR-ISE-2010-34 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-ISE-2010-34. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission,\16\ all subsequent 
amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for Web site viewing and printing in the Commission's Public 
Reference Room, on official business days between the hours of 10 a.m. 
and 3 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISE-2010-34 and should be 
submitted on or before June 15, 2010.
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    \16\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov/rules/sro.shtml.
    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-12506 Filed 5-24-10; 8:45 am]
BILLING CODE 8010-01-P


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