Document ID: SEC-2015-1965-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2015-11-23T05:00Z

[Federal Register Volume 80, Number 225 (Monday, November 23, 2015)]
[Notices]
[Pages 73034-73035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-29706]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76451; File No. SR-ISE-2015-37)

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend the Schedule of Fees

November 17, 2015.
    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 November 2, 2015, 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 proposes to amend the Schedule of Fees to introduce a per 
trade and per month fee cap for strategy orders as described in more 
detail below. 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
    The Exchange proposes to amend the Schedule of Fees to introduce a 
strategy fee cap program that provides a cap on Market Maker, Non-ISE 
Market Maker, Firm Proprietary/Broker-Dealer, and Professional Customer 
fees charged for six types of strategy trades: Reversals, conversions, 
jelly rolls, mergers, short stock interest, and box spreads. These 
strategy trades are defined below:
    ``Reversal''--A reversal strategy is defined as transactions that 
employ calls, puts and the underlying security to lock in a nearly risk 
free profit. Reversals are established by combining a short security 
position with a short put and a long call position that shares the same 
strike and expiration.
    ``Conversion''--A conversion strategy is defined as transactions 
that employ calls, puts and the underlying security to lock in a nearly 
risk free profit. Conversions employ long positions in the underlying 
security that accompany long puts and short calls sharing the same 
strike and expiration.
    ``Jelly Roll''--A jelly roll strategy is defined as a long calendar 
call spread combined with the same short calendar put spread, or vice 
versa. This option strategy aims to profit from a time value spread 
through the purchase and sale of two call and two put options, each 
with different expiration dates. A jelly roll is created by entering 
into two separate positions simultaneously. One position involves 
buying a put and selling a call with the same strike price and 
expiration. The second position involves selling a put and buying a 
call, with the same strike price, but a different expiration from the 
first position.
    ``Merger''--A merger strategy is defined as transactions done to 
achieve a merger arbitrage involving the purchase, sale and exercise of 
options of the same class and expiration date, each executed prior to 
the date on which shareholders of record are required to elect their 
respective form of consideration, i.e., cash or stock.
    ``Short Stock Interest''--A short stock interest strategy is 
defined as transactions done to achieve a short stock interest 
arbitrage involving the purchase, sale and exercise of in-the-money 
options of the same class.
    ``Box Spread''--A box spread strategy is defined as transactions 
involving a long call option and a short put option at one strike, 
combined with a short call option and long put at a different strike, 
to create synthetic long and synthetic short stock positions, 
respectively.
    Because the strategy trades referenced above are commonly executed 
in large volumes with profit margins that are generally narrow, the 
Exchange proposes to cap the transaction fees associated with such 
executions at $750 per trade for orders executed on the same day in the 
same option class.\3\ In addition, strategy trades will be subject to a 
monthly cap of $25,000 per member for all strategy executions. All 
eligible volume from affiliated members will be aggregated for purposes 
of the fee cap, provided there is at least 75% common ownership between 
the members as reflected on each member's Form BD, Schedule A. If a 
member submits an order that qualifies for the per trade or per month 
fee cap for strategy orders, only the amount actually paid for those 
trades (i.e., the capped amounts) will be counted towards the Crossing 
Fee Cap, if applicable.\4\
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    \3\ Members must submit a form provided by the Exchange to 
identify their strategy trades.
    \4\ For example, if a member submits a strategy order that would 
normally incur a fee of $2,000 but is capped at $750 per trade, only 
the $750 that is actually paid by the member is counted towards the 
Crossing Fee Cap, if applicable.
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    Several other options exchanges offer similar strategy cap programs 
that reduce members' fees when executing strategy trades.\5\ The 
Exchange believes that by adopting a similar program to lower fees for 
strategy trades, the Exchange will be able to attract additional 
liquidity to the benefit of all market participants that trade on the 
Exchange.
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    \5\ See e.g. Nasdaq OMX Phlx (``Phlx'') Schedule of Fees, 
Section II, Multiply Listed Options Fees, Strategies Defined.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\6\ in general, and Section 
6(b)(4) of the Act,\7\ in particular, in that it is designed to provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its members and other persons using its facilities.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that it is reasonable and equitable to 
introduce a per trade and per month fee cap for strategy trades as this 
will reduce the fees charged to members that execute their strategy 
trades on the Exchange. The proposed strategy fee cap is designed to 
compete with fee caps in place on other options exchanges. By lowering 
the cost of strategy executions on the Exchange, the Exchange intends 
to attract this order flow, which will

[[Page 73035]]

increase available liquidity to the benefit all members and investors 
that trade on the Exchange. The Exchange further believes that adopting 
a fee cap for strategy trades is not unfairly discriminatory because 
all Market Maker, Non-ISE Market Maker, Firm Proprietary/Broker-Dealer, 
and Professional Customer that execute strategy trades on the Exchange 
will have an opportunity to benefit from this cap. The Exchange does 
not believe that it is unfairly discriminatory not to apply a similar 
cap for Priority Customer orders as Priority Customers do not generally 
enter strategy orders, which involve large volume trades, and already 
receive free or heavily discounted execution fees and therefore would 
not benefit from a strategy trade fee cap.
    The Exchange also believes that it is reasonable equitable and not 
unfairly discriminatory to aggregate affiliates for purposes of the 
monthly fee cap for strategy orders as the language permitting 
aggregation of volume amongst corporate affiliates is intended to avoid 
disparate treatment of firms that have divided their various business 
activities between separate corporate entities as compared to firms 
that operate those business activities within a single corporate 
entity. In this regard, the Exchange notes that the proposed definition 
of ``affiliate'' is consistent with the definition used in other parts 
of the Schedule of Fees.

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

    In accordance with Section 6(b)(8) of the Act,\8\ the Exchange does 
not believe that the proposed rule change will impose any burden on 
intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
believes that the proposed strategy cap is pro-competitive as it is 
designed to compete with strategy caps already in place on other 
markets, and will lower the fees charged to members that execute 
strategy trades on the Exchange. The Exchange operates in a highly 
competitive market in which market participants can readily direct 
their order flow to competing venues. In such an environment, the 
Exchange must continually review, and consider adjusting, its fees and 
rebates to remain competitive with other exchanges. For the reasons 
described above, the Exchange believes that the proposed fee changes 
reflect this competitive environment.
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    \8\ 15 U.S.C. 78f(b)(8).
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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 Act \9\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\10\ because it establishes a due, fee, or other charge 
imposed by ISE.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
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    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 Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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

     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 No. SR-ISE-2015-37 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2015-37. 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 Commissions 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 10:00 a.m. and 
3:00 p.m. Copies of such filing 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-2015-37 and should be submitted by 
December 14, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-29706 Filed 11-20-15; 8:45 am]
 BILLING CODE 8011-01-P