Document ID: SEC-2012-0459-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2012-03-20T04:00Z

[Federal Register Volume 77, Number 54 (Tuesday, March 20, 2012)]
[Notices]
[Pages 16304-16307]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-6620]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66596; File No. SR-ISE-2012-18]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Increase Certain Rebates for Certain Complex Orders

March 14, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on March 1, 2012, the International Securities 
Exchange, LLC (the ``Exchange'' or the ``ISE'') filed with the 
Securities and Exchange Commission (the ``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the Exchange. 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 increase certain rebate amounts for certain 
complex orders. 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.

[[Page 16305]]

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
    The Exchange currently assesses per contract transaction charges 
and credits to market participants that add or remove liquidity from 
the Exchange (``maker/taker fees'') in a number of options classes (the 
``Select Symbols'').\3\ The Exchange's maker/taker fees are applicable 
to regular and complex orders executed in the Select Symbols. The 
maker/taker fees for complex orders in the Select Symbols also apply to 
all symbols that are in the Penny Pilot program.\4\ The Exchange also 
currently assesses maker/taker fees for complex orders in symbols that 
are in the Penny Pilot program but are not a Select Symbol (``Non-
Select Penny Pilot Symbols'') \5\ and for complex orders in all symbols 
that are not in the Penny Pilot Program (``Non-Penny Pilot 
Symbols'').\6\ Maker/taker fees (and rebates) for complex orders are 
assessed on the following order-type categories: ISE Market Maker,\7\ 
Market Maker Plus,\8\ Firm Proprietary, Customer (Professional),\9\ 
Non-ISE Market Maker,\10\ and Priority Customer.\11\ The Exchange is 
proposing to increase certain rebates for certain complex orders, as 
follows.
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    \3\ Options classes subject to maker/taker fees are identified 
by their ticker symbol on the Exchange's Schedule of Fees.
    \4\ See Exchange Act Release Nos. 65021 (August 3, 2011), 76 FR 
48933 (August 9, 2011) (SR-ISE-2011-45); and 65550 (October 13, 
2011), 76 FR 64984 (October 19, 2011) (SR-ISE-2011-65).
    \5\ See Exchange Act Release No. 65724 (November 10, 2011), 76 
FR 71413 (November 17, 2011) (SR-ISE-2011-72).
    \6\ See Exchange Act Release Nos. 66084 (January 3, 2012), 77 FR 
1103 (January 9, 2012) (SR-ISE-2011-84); and 66392 (February 14, 
2012), 77 FR 10016 (February 21, 2012) (SR-ISE-2012-06).
    \7\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \8\ A Market Maker Plus is an ISE Market Maker who is on the 
National Best Bid or National Best Offer 80% of the time for series 
trading between $0.03 and $5.00 (for options whose underlying 
stock's previous trading day's last sale price was less than or 
equal to $100) and between $0.10 and $5.00 (for options whose 
underlying stock's previous trading day's last sale price was 
greater than $100) in premium in each of the front two expiration 
months and 80% of the time for series trading between $0.03 and 
$5.00 (for options whose underlying stock's previous trading day's 
last sale price was less than or equal to $100) and between $0.10 
and $5.00 (for options whose underlying stock's previous trading 
day's last sale price was greater than $100) in premium across all 
expiration months in order to receive the rebate. The Exchange 
determines whether a Market Maker qualifies as a Market Maker Plus 
at the end of each month by looking back at each Market Maker's 
quoting statistics during that month. If at the end of the month, a 
Market Maker meets the Exchange's stated criteria, the Exchange 
rebates $0.10 per contract for transactions executed by that Market 
Maker during that month. The Exchange provides Market Makers a 
report on a daily basis with quoting statistics so that Market 
Makers can determine whether or not they are meeting the Exchange's 
stated criteria.
    \9\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \10\ A Non-ISE Market Maker, or Far Away Market Maker 
(``FARMM''), is a market maker as defined in Section 3(a)(38) of the 
Securities Exchange Act of 1934, as amended (``Exchange Act''), 
registered in the same options class on another options exchange.
    \11\ A Priority Customer is defined in ISE Rule 100(a)(37A) as a 
person or entity that is not a broker/dealer in securities, and does 
not place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s).
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    In the Select Symbols, the Exchange currently provides a rebate of 
$0.30 per contract, per leg, for Priority Customer complex orders when 
these orders trade with non-Priority Customer complex orders in the 
complex orderbook. In order to enhance the Exchange's competitive 
position and to incentivize Members to increase the amount of Priority 
Customer complex orders that they send to the Exchange, the Exchange is 
proposing to increase the base amount of that rebate to $0.32 per 
contract. Additionally, the Exchange is proposing to increase the 
amount of that rebate even further, on a month-by-month and Member-by-
Member basis, if such Member achieves a certain average daily volume 
(ADV) of Priority Customer complex order contracts executed during the 
calendar month, as follows: if the Member achieves an ADV of 75,000 
Priority Customer complex order contracts, the rebate amount shall be 
$0.33 per contract per leg; if the Member achieves an ADV of 125,000 
Priority Customer complex order contracts, the rebate amount shall be 
$0.34 per contract per leg. The highest rebate amount achieved by the 
Member for the current calendar month shall apply retroactively to all 
Priority Customer complex order contracts that trade with non-Priority 
Customer complex orders in the complex orderbook executed by the Member 
during such calendar month.
    In the Non-Select Penny Pilot Symbols, the Exchange currently 
provides a rebate of $0.25 per contract, per leg, for Priority Customer 
complex orders when these orders trade with non-Priority Customer 
complex orders in the complex orderbook. In order to enhance the 
Exchange's competitive position and to incentivize Members to increase 
the amount of Priority Customer complex orders that they send to the 
Exchange, the Exchange is proposing to increase the base amount of that 
rebate to $0.26 per contract. Additionally, the Exchange is proposing 
increase [sic] the amount of that rebate even further, on a month-by-
month and Member-by-Member basis, if such Member achieves a certain 
average daily volume (ADV) of Priority Customer complex order contracts 
executed during the calendar month, as follows: if the Member achieves 
an ADV of 75,000 Priority Customer complex order contracts, the rebate 
amount shall be $0.28 per contract per leg; if the Member achieves an 
ADV of 125,000 Priority Customer complex order contracts, the rebate 
amount shall be $0.30 per contract per leg. The highest rebate amount 
achieved by the Member for the current calendar month shall apply 
retroactively to all Priority Customer complex order contracts that 
trade with non-Priority Customer complex orders in the complex 
orderbook executed by the Member during such calendar month.
    In the Non-Penny Pilot Symbols, the Exchange currently provides a 
rebate of $0.50 per contract, per leg, for Priority Customer complex 
orders when these orders trade with non-Priority Customer complex 
orders in the complex orderbook. In order to enhance the Exchange's 
competitive position and to incentivize Members to increase the amount 
of Priority Customer complex orders that they send to the Exchange, the 
Exchange is proposing to increase the base amount of that rebate to 
$0.52 per contract. Additionally, the Exchange is proposing increase 
[sic] the amount of that rebate even further, on a month-by-month and 
Member-by-Member basis, if such Member achieves a certain average daily 
volume (ADV) of Priority Customer complex order contracts executed 
during the calendar month, as follows: if the Member achieves an ADV of 
75,000 Priority Customer complex order contracts, the rebate amount 
shall be $0.54 per contract per leg; if the Member achieves an ADV of 
125,000 Priority Customer complex order contracts, the rebate amount 
shall be

[[Page 16306]]

$0.56 per contract per leg. The highest rebate amount achieved by the 
Member for the current calendar month shall apply retroactively to all 
Priority Customer complex order contracts that trade with non-Priority 
Customer complex orders in the complex orderbook executed by the Member 
during such calendar month.
    Finally, the Exchange does not currently provide a rebate for 
Priority Customer complex orders when these orders trade against quotes 
or orders in the regular orderbook. In order to enhance the Exchange's 
competitive position and to incentivize Members to increase the amount 
of Priority Customer complex orders that they send to the Exchange, the 
Exchange is proposing to provide a rebate of $0.06 per contract, per 
leg, for Priority Customer complex orders, regardless of size, when 
these orders trade against quotes or orders in the regular orderbook. 
This rebate shall apply in the Select Symbols, Non-Select Penny Pilot 
Symbols, and Non-Penny Pilot Symbols. For the avoidance of doubt, this 
rebate is not included in the ADV incentive program described above for 
Priority Customer complex orders executed in the complex orderbook.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Exchange Act \12\ in 
general, and furthers the objectives of Section 6(b)(4) of the Exchange 
Act \13\ in particular, in that it is an equitable allocation of 
reasonable dues, fees and other charges among Exchange members and 
other persons using its facilities. The impact of the proposal upon the 
net fees paid by a particular market participant will depend on a 
number of variables, most important of which will be its propensity to 
interact with and respond to certain types of orders.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that it is reasonable and equitable to 
provide rebates for Priority Customer complex orders when these orders 
trade with Non-Priority Customer complex orders in the complex order 
book because paying a rebate would continue to attract additional order 
flow to the Exchange and create liquidity in the symbols that are 
subject to the rebate, which the Exchange believes ultimately will 
benefit all market participants who trade on ISE. The Exchange already 
provides these types of rebates, and is now merely proposing to 
increase those rebate amounts. The Exchange believes that the proposed 
rebates are competitive with rebates provided by other exchanges and 
are therefore reasonable and equitably allocated to those members that 
direct orders to the Exchange rather than to a competing exchange.
    The Exchange is also establishing a volume-based incentive program, 
designed to encourage Members to send their Priority Customer complex 
orders to the Exchange. The concept of a volume-based incentive program 
is not novel. The Exchange notes that it currently has other incentive 
programs to promote and encourage growth in specific business areas. 
For example, the Exchange has lower fees (or no fees) for customer 
orders; \14\ and tiered pricing that reduces rates for ISE Market 
Makers based on the level of business they bring to the Exchange.\15\ 
This proposed rule change targets a particular segment in which the 
Exchange seeks to attract greater order flow. The Exchange also has a 
volume-based rebate program in place for Qualified Contingent Cross 
(``QCC'') and Solicitation orders, which gives Members who trade a 
minimum of 200,000 qualifying contracts in QCC and Solicitation orders 
on the Exchange a benefit by way of a rebate. This program is similar 
to the proposed program in that once a Member reaches an established 
volume threshold, all of the trading activity in the specified order 
type by that Member will be subject to the corresponding rebate.
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    \14\ For example, the customer fee is $0.00 per contract for 
products other than Singly Listed Indexes, Singly Listed ETFs and FX 
Options. For Singly Listed Options, Singly Listed ETFs and FX 
Options, the customer fee is $0.18 per contract. The Exchange also 
currently has an incentive plan in place for certain specific FX 
Options which has its own pricing. See ISE Schedule of Fees.
    \15\ The Exchange currently has a sliding scale fee structure 
that ranges from $0.01 per contract to $0.18 per contract depending 
on the level of volume a Member trades on the Exchange in a month.
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    The Exchange also believes that it is reasonable and equitable to 
provide rebates for Priority Customer complex orders when these orders 
trade against quotes or orders in the regular orderbook because paying 
a rebate, in those instances, would also attract additional order flow 
to the Exchange. The Exchange notes that the rebate amount is the same 
for all symbols, including Select Symbols, Non-Select Penny Pilot 
Symbols, and Non-Penny Pilot Symbols.
    The complex order pricing employed by the Exchange has proven to be 
an effective pricing mechanism and attractive to Exchange participants 
and their customers. The Exchange believes that increasing its complex 
order rebates will attract additional complex order business.
    The Exchange further believes that the Exchange's complex order 
rebates are not unfairly discriminatory because the fee structure is 
consistent with fee structures that exist today at other options 
exchanges. Additionally, the Exchange believes that the proposed 
rebates are fair, equitable and not unfairly discriminatory because the 
proposed rebates are consistent with price differentiation that exists 
today at other option exchanges. The Exchange operates in a highly 
competitive market in which market participants can readily direct 
order flow to another exchange if they deem fee levels at a particular 
exchange to be excessive. With this proposed rebate change, the 
Exchange believes it remains an attractive venue for market 
participants to trade complex orders.

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 Exchange 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Exchange Act.\16\ At any time within 60 days of 
the filing of such proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Exchange Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing,

[[Page 16307]]

including whether the proposed rule change is consistent with the 
Exchange Act. Comments may be submitted by any of the following 
methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2012-18 on the subject line.

Paper Comments

     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-2012-18. This file 
number should be included on the subject line if email 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, 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, 100 F Street NE., 
Washington, DC 20549, 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-2012-18 and should be 
submitted on or before April 10, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-6620 Filed 3-19-12; 8:45 am]
BILLING CODE 8011-01-P