Document ID: SEC-2006-0820-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: International Securities Exchange, Inc.
Posted Date: 2006-06-27T04:00Z

[Federal Register: June 27, 2006 (Volume 71, Number 123)]
[Notices]               
[Page 36575-36576]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jn06-75]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54016; File No. SR-ISE-2006-32]

 
Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change and Amendment No. 1 Thereto Relating to Fee Changes

June 19, 2006.
    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 June 1, 2006, the International Securities Exchange, Inc. (ISE or 
Exchange) filed with the Securities and Exchange Commission 
(Commission) the proposed rule change as described in Items I, II, and 
III below, which Items have been prepared by the ISE. On June 15, 2006, 
ISE filed Amendment No. 1 to the proposed rule change.\3\ The ISE has 
designated this proposal as one establishing or changing a due, fee, or 
other charge imposed by the ISE under Section 19(b)(3)(A)(ii) of the 
Act,\4\ and Rule 19b-4(f)(2) thereunder,\5\ which renders the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change, as 
amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 deleted brackets included in the initial 
Exhibit 5. The brackets reflected a proposed rule change in SR-ISE-
2006-30, which was originally submitted under Section 19(b)(3)(A) of 
the Act, rejected by the Commission, and subsequently re-filed by 
the Exchange under Section 19(b)(2) of the Act. The Exchange also 
made clarifying changes to the purpose section of the filing. The 
correction to Exhibit 5 and the clarifications to the purpose 
section of the original filing do not affect the fees covered by 
this filing.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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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 the threshold average daily volume 
(ADV) levels for the reduction and waiver of execution fees and the 
waiver of comparison fees with respect to trading options on the Nasdaq 
100 Index Tracking Stock[reg] (QQQQ) and transactions executed in the 
Exchange's Facilitation Mechanism.
    The text of the proposed rule change, as amended, is available on 
the ISE's Web site (http://www.iseoptions.com/legal/proposed_rule_changes.asp
), at the principal office of the ISE, 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 ISE 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 ISE 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 purpose of this proposed rule change is to increase the 
threshold ADV levels for the reduction and waiver of execution fees and 
the waiver of comparison fees in the Exchange's Schedule of Fees for 
(i) trading options in the QQQQ and (ii) transactions executed through 
the Exchange's Facilitation Mechanism. In November 2003, on a pilot 
basis, the Exchange adopted a reduction and a waiver of execution fees 
and a waiver of comparison fees for QQQQ options.\6\ In September 2004, 
again on a pilot basis, the Exchange adopted a similar reduction and a 
waiver of execution fees and a waiver of comparison fees on 
transactions executed through the Exchange's Facilitation Mechanism.\7\
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    \6\ See Securities Exchange Act Release No. 49147 (January 29, 
2004), 69 FR 5629 (February 5, 2004). See also Securities Exchange 
Act Release Nos. 49853 (June 14, 2004), 69 FR 35087 (June 23, 2004) 
(extending the pilot program until November 30, 2004); 50900 
(December 21, 2004), 69 FR 78075 (December 29, 2004) (extending the 
pilot program until November 30, 2005); and 52934 (December 9, 
2005), 70 FR 74859 (December 16, 2005) (extending the pilot program 
until November 30, 2006).
    \7\ See Securities Exchange Act Release Nos. 50658 (November 12, 
2004), 69 FR 67768 (November 19, 2004); and 52934, supra note 6 
(extending the pilot program until November 30, 2006). The 
Facilitation Mechanism is a process by which Electronic Access 
Members facilitate block-size orders. Options traded in the 
Facilitation Mechanism are treated as Firm Proprietary orders and, 
as such, are subject to an execution and comparison fee of $0.15 and 
$0.03 per contract per side, respectively.
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Discount on QQQQ Execution and Comparison Fees
    Under the current QQQQ pilot program, when a member's monthly ADV 
in QQQQ options reaches 8,000 contracts, the member's execution fee for 
the next 2,000 contracts is reduced by $0.10 per contract.\8\ Further, 
when a member's monthly ADV in QQQQ options reaches 10,000 contracts, 
the Exchange waives the entire execution fee and the comparison fee for 
each QQQQ option contract traded thereafter. The Exchange states that 
its volume in QQQQ options traded has increased as a result of this 
pilot program. As a result, ISE now proposes to increase the threshold 
ADV levels at which the fee reduction and waiver for QQQQ options 
traded apply, such that the $0.10 per contract fee reduction shall 
apply for the next 2,000 contracts when a member's monthly ADV in QQQQ 
options reaches 10,000 contracts. Further, when a member's monthly ADV 
reaches 12,000 contracts, the Exchange will waive the entire execution 
fee and the comparison fee for each QQQQ option contract traded 
thereafter.
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    \8\ This execution fee and any reduction or waiver thereof is 
applicable to Firm Proprietary orders and ISE Market Maker orders. 
For ISE Market Maker orders, the execution fee is currently between 
$0.21 and $0.12 per contract side, depending on the Exchange Average 
Daily Volume, and the comparison fee is currently $0.03 per contract 
per side.
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Discount on Facilitation Mechanism Fees
    With respect to the Exchange's Facilitation Mechanism, the 
structure of

[[Page 36576]]

the reduction and waiver of the execution fee for the Facilitation 
Mechanism (``facilitation execution fee'') and the waiver of the 
comparison fee are similar to the structure of the reduction and waiver 
of the QQQQ execution fee and the waiver of the comparison fee noted 
above. That is, when a member's monthly ADV in the Facilitation 
Mechanism reached 8,000 contracts, the member's facilitation execution 
fee for the next 2,000 contracts transacted in the Facilitation 
Mechanism is reduced by $0.10 per contract.\9\ Further, when a member's 
monthly ADV in the Facilitation Mechanism reaches 10,000 contracts, the 
Exchange waives the entire facilitation execution fee and the 
comparison fee for each contract transacted in the Facilitation 
Mechanism thereafter. The Exchange believes that the current pilot 
program has also encouraged members to use the Facilitation Mechanism, 
illustrated by its increased volume. As such, the Exchange now also 
proposes to increase the threshold ADV levels at which the fee 
reduction and waiver for options traded in the Facilitation Mechanism 
apply, such that the $0.10 per contract fee reduction shall apply for 
the next 5,000 contracts when a member's monthly ADV in the 
Facilitation Mechanism reaches 15,000 contracts. Further, when a 
member's monthly ADV reaches 20,000 contracts, the Exchange will waive 
the entire execution fee and the comparison fee for each option 
contract traded in the Facilitation Mechanism thereafter.
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    \9\ This execution fee and any reduction or waiver thereof is 
applicable only to Firm Proprietary orders. See supra note 7.
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    The Exchange believes that the proposed increases of the threshold 
levels will allow it to maintain its competitiveness in trading QQQQ 
options and encourage continued use by members of the Facilitation 
Mechanism.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b)(4) of the Act,\10\ which requires that an 
exchange have an equitable allocation of reasonable dues, fees, and 
other charges among its members and other persons using its facilities. 
In particular, these fees would extend current reductions and waivers.
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    \10\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(2) \12\ thereunder 
because it changes a fee imposed by the Exchange. At any time within 60 
days of the filing of such amended proposed rule change, the Commission 
may summarily abrogate 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 Act.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 19b-4(f)(2).
    \13\ The effective date of the original proposed rule is June 1, 
2006. The effective date of Amendment No. 1 is June 15, 2006. For 
purposes of calculating the 60-day period within which the 
Commission may summarily abrograte the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on June 15, 2006, the date on which the ISE submitted 
Amendment No. 1 See 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment from (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File No. SR-ISE-2006-32 on the subject line.

Paper Comments

    Send paper comments in triplicate to Nancy M. Morris, Secretary, 
Securities and Exchange Commission, Station Place, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2006-32. 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: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 inspection and copying in the 
Commission's Public Reference Room. Copies of such filings also will be 
available for inspection and copying at the principal office of the 
ISE. 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-
2006-32 and should be submitted on or before July 18, 2006.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06-5677 Filed 6-26-06; 8:45 am]

BILLING CODE 8010-01-M