Document ID: SEC-2005-0440-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: International Securities Exchange, Inc.
Posted Date: 2005-12-27T05:00Z

[Federal Register: December 27, 2005 (Volume 70, Number 247)]
[Notices]
[Page 76475-76477]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27de05-71]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52983; File No. SR-ISE-2005-047]

Self-Regulatory Organizations; International Securities Exchange,
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change and Amendment No. 1 Thereto To Adopt a Flat Execution Fee For
Public Customer Orders in ``Premium Products'' and Firm Proprietary
Orders, and To Incorporate the Current Facilitation Mechanism Fee Into
the Flat Execution Fee For Firm Proprietary Orders

December 20, 2005.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 1, 2005, 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 December 7, 2005, the Exchange filed Amendment No. 1 to the proposed
rule change.\3\ The ISE filed the proposal as a ``non-controversial''
proposed rule change pursuant to section 19(b)(3)(A)(iii) 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\ In Amendment No. 1, ISE explained further its basis for the
proposed flat execution fee and its reason for eliminating the
Facilitation Mechanism fee. Amendment No. 1 also corrected several
minor errors. For purposes of calculating the 60-day period within
which the Commission may summarily abrogate the proposed rule change
the Commission considers the period to commence on December 7, 2005,
the date on which the ISE filed Amendment No. 1. See 15 U.S.C.
78s(b)(3)(C).
    \4\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \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 proposes to amend its Schedule of Fees to (i) adopt a flat
execution fee for Public Customer Orders \6\ in ``Premium Products''
(as defined in the Schedule of Fees) and firm proprietary orders; and
(ii)

[[Page 76476]]

incorporate the current Facilitation Mechanism fee into the flat
execution fee for firm proprietary orders. The text of the proposed
rule change is available at the Exchange and at the Commission's Public
Reference Room, and at the Exchange's Web site (http://www.iseoptions.com/legal/proposed_rule_changes.asp
).

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    \6\ A Public Customer Order is defined in ISE Rule 100(a)(33) as
an order for the account of a Public Customer. A Public Customer is
defined in ISE Rule 100(a)(32) as a person that is not a broker or
dealer in securities.
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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 proposal. The text of these
statements may be examined at the places specified in Item IV below.
The Exchange 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's Schedule of Fees currently contains a formula that
determines the amount of the execution fee to be charged to all order
types, i.e., Public Customer (for certain index-based products), firm
proprietary and market maker, based on the Exchange's average daily
volume during the previous month. Under the current formula, the
execution fee can range anywhere between $0.12 per contract to $0.21
per contract, depending on the Exchange's average daily volume during
the previous month. The Exchange proposes to change this structure so
that Public Customer Orders in ``Premium Products'' \7\ and firm
proprietary orders pay a flat execution fee of $0.15 per contract.\8\
Public Customer Orders in products other than Premium Products will
continue to be subject to a flat execution fee of $0.05, although that
fee is currently waived until June 30, 2006. ISE market makers will
continue to be charged the variable fee under the current formula. A
$0.03 per contract comparison fee shall continue to apply to all these
order types, unless specifically waived in the Schedule of Fees.
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    \7\ The ISE proposes to define the term ``Premium Products'' in
the Schedule of Fees as options on DIA, IBB, IEF, IJH, IJR, IWM,
IWN, IWO, NYC, NY, OEF, OIH, SHY, SMH, SPY, TLT, XLB, XLE, XLF, XLI,
XLU, BYT, HSX, HVY, IXK, IXX, IXZ, JLO, MID, MNX, MSH, NDX, OOG,
RMN, RND, RUF, RUI, RUT, SIN, and SML.
    \8\ These fees will be charged only to Exchange members.
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    Additionally, the Exchange proposes to delete the separate
Facilitation Mechanism fee line item. Previously, there was a separate
line item in the Schedule of Fees for orders executed in that
mechanism: Orders executed in the Facilitation Mechanism were charged
the lower of the standard execution fee or $0.15 per contract.
Historically, fees charged for trades executed in the Facilitation
Mechanism were carved out on the Schedule of Fees as a separate line
item because, as a matter of inducement for members to transact in the
Facilitation Mechanism, these fees were lower than the standard
execution fees. Over time, as the standard execution fees decreased, as
a result of increased volume, the two fees became identical.
Accordingly, the Exchange now proposes to eliminate the separate line
item for orders executed in the Facilitation Mechanism because it is no
longer necessary when there is a flat $0.15 fee for firm proprietary
order and public customer orders in Premium Products.
    As a matter of ``housekeeping,'' in addition to using ``Premium
Products'' as a defined word throughout the Schedule of Fees, the
Exchange proposes to identify each product that appears on the Schedule
of Fees by its ticker symbol alone rather than by its name and ticker
symbol.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with the requirements of section 6(b)(4) of the Act,\9\ 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. The Exchange believes the proposed fees are reasonable
because they closely correlate to the variable execution fees charged
to market maker and firm proprietary orders over the course of the last
12 months. For example, for nine months during 2005, the variable
execution fees charged to market maker and firm proprietary orders were
$0.15 per contract, and for 3 months during 2005, these same fees were
$0.14 per contract. The Exchange further believes that the proposed fee
changes will enable the ISE to continue offering competitively priced
products and services.
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    \9\ 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 will 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 neither solicited nor received comments on the
proposed rule change. The ISE 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 proposed rule change has become effective pursuant to
section 19(b)(3)(A)(ii) of the Act,\10\ and paragraph (f)(2) of Rule
19b-4 thereunder \11\ because it establishes or changes a due, fee, or
other charge. At any time within 60-days of the filing of the 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.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(2).
    \12\ See footnote 3, supra.
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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 is consistent with the 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 e-mail to rule-comments@sec.gov. Please include

File Number SR-ISE-2005-047 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.

All submissions should refer to File Number SR-ISE-2005-047. This file
number should be included on the subject line if e-mail is used. To
help the

[[Page 76477]]

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 inspection and copying in the
Commission's Public Reference Room. Copies of such filing also will be
available for inspection and copying at 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-2005-047 and should be submitted on
or before January 17, 2006.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-7844 Filed 12-23-05; 8:45 am]

BILLING CODE 8010-01-P