Document ID: SEC-2012-0877-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2012-06-06T04:00Z

[Federal Register Volume 77, Number 109 (Wednesday, June 6, 2012)]
[Notices]
[Pages 33535-33537]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13643]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67087; File No. SR-ISE-2012-43]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to the Options Regulatory Fee

May 31, 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 May 25, 2012, the International Securities 
Exchange, LLC (the ``Exchange'' or the ``ISE'') 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 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 proposes to increase its Options Regulatory Fee. 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.

[[Page 33536]]

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 amend the Options 
Regulatory Fee (``ORF'') to increase it from $0.0035 per contract to 
$0.0042 per contract in order to recoup increased regulatory expenses 
while also ensuring that the ORF will not exceed costs.
    The ORF is assessed by the Exchange to each member for all options 
transactions executed or cleared by the member that are cleared by The 
Options Clearing Corporation (``OCC'') in the customer range, i.e., 
transactions that clear in the customer account of the member's 
clearing firm at OCC, regardless of the marketplace of execution. In 
other words, ISE imposes the ORF on all customer-range transactions 
executed by a member, even if the transactions do not take place on the 
Exchange.\3\ The ORF also is charged for customer-range transactions 
that are not executed by an ISE member but are ultimately cleared by an 
ISE member. In the case where an ISE member executes a transaction and 
an ISE member clears the transaction, the ORF is assessed to the member 
who executed the transaction. In the case where a non-ISE member 
executes a transaction and an ISE member clears the transaction, the 
ORF is assessed to the ISE member who clears the transaction.
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    \3\ Exchange rules require each member to submit trade 
information in order to allow the Exchange to properly prioritize 
and match orders and quotations and report resulting transactions to 
the OCC. See ISE Rule 712. The Exchange represents that it has 
surveillances in place to verify that members comply with the rule.
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    The dues and fees paid by members go into the general funds of the 
Exchange, a portion of which is used to help pay the costs of 
regulation. The Exchange monitors the amount of revenue collected from 
the ORF to ensure that it, in combination with other regulatory fees 
and fines, does not exceed regulatory costs. The ORF is collected 
indirectly from members through their clearing firms by OCC on behalf 
of the Exchange.
    The ORF is designed to recover a material portion of the costs to 
the Exchange of the supervision and regulation of its members, 
including performing routine surveillances, investigations, as well as 
policy, rulemaking, interpretive and enforcement activities. The 
Exchange believes that revenue generated from the ORF, when combined 
with all of the Exchange's other regulatory fees, will cover a material 
portion, but not all, of the Exchange's regulatory costs. The Exchange 
notes that its regulatory responsibilities with respect to member 
compliance with options sales practice rules have been allocated to 
FINRA under a 17d-2 agreement. The ORF is not designed to cover the 
cost of options sales practice regulation. The Exchange will continue 
to monitor the amount of revenue collected from the ORF to ensure that 
it, in combination with its other regulatory fees and fines, does not 
exceed regulatory costs. If the Exchange determines regulatory revenues 
exceed regulatory costs, the Exchange will adjust the ORF by submitting 
a fee filing change to the Commission. The Exchange has designated this 
proposal to be operative on June 1, 2012.
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 \4\ in 
general, and furthers the objectives of Section 6(b)(4) of the Exchange 
Act \5\ 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 Exchange believes that the 
proposed fee change is reasonable because the Exchange's collection of 
the ORF has declined due to a decrease in industry volume and the 
adjustment would serve to provide the Exchange with additional ORF. The 
additional ORF will help offset regulatory expenses, but does not 
exceed regulatory costs.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the ORF is equitable and not unfairly 
discriminatory because it is objectively allocated to Exchange members 
in that it would continue to be charged to all members on all of their 
transactions that clear as customer at OCC. Moreover, the Exchange 
believes the ORF ensures fairness by assessing higher fees to those 
member firms that require more Exchange regulatory services based on 
the amount of customer options business they conduct. Regulating 
customer trading activity is more labor intensive and requires greater 
expenditure of human and technical resources than regulating non-
customer trading activity. Surveillance and regulation of non-customer 
trading activity tends to be more automated and less labor-intensive. 
As a result, the costs associated with administering the customer 
component of the Exchange's overall regulatory program are anticipated 
to be higher than the costs associated with administering the non-
customer component of its regulatory program. As such, the Exchange 
proposes assessing higher fees to those firms that will require more 
Exchange regulatory services based on the amount of customer options 
business they conduct. The ORF is not charged for orders that clear in 
categories other than the customer range (e.g., market maker orders) 
because members incur the costs of owning memberships and through their 
memberships are charged transaction fees, dues and other fees which go 
into the general funds of the Exchange, a portion of which is used to 
help pay the costs of regulation.
    As previously stated, OCC collects the ORF on behalf of ISE through 
each member's clearing firm. In addition, the ORF seeks to recover the 
costs of supervising and regulating members, including performing 
routine surveillances, investigations, as well as policy, rulemaking, 
interpretive and enforcement activities. The Exchange will continue to 
monitor the amount of revenue collected from the ORF to ensure that it, 
in combination with its other regulatory fees and fines, does not 
exceed regulatory costs. If the Exchange determines regulatory revenues 
exceed regulatory costs, the Exchange will adjust the ORF by submitting 
a fee filing change to the Commission.

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.\6\ 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

[[Page 33537]]

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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    \6\ 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, 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-2012-43 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-2012-43. 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 
10:00 a.m. and 3:00 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-2012-43 and should be 
submitted on or before June 27, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-13643 Filed 6-5-12; 8:45 am]
BILLING CODE 8011-01-P