Document ID: SEC-2012-0952-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2012-06-14T04:00Z

[Federal Register Volume 77, Number 115 (Thursday, June 14, 2012)]
[Notices]
[Pages 35723-35725]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14533]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67168; File No. SR-ISE-2012-46]

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

June 8, 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 June 1, 2012, 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 and II 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 eliminate three fees from its Schedule of Fees. 
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 purpose of this proposed rule change is to eliminate three fees 
from the Exchange's Schedule of Fees. First, the Exchange currently has 
a fee of $0.25 per contract applicable to customers that transact in 
complex orders, i.e., customer complex orders that interact with 
complex orders residing on the complex order book thereby taking 
liquidity from the complex order book (``Complex Order Taker Fee'').\3\ 
This fee was introduced before the Exchange introduced the Professional 
Customer category with the intent to charge non-broker dealer customers 
that use highly developed trading systems and are quickly able to hit 
the bid or lift an offer thereby taking liquidity, i.e., interacting 
with complex orders resident on the complex order book. The Exchange 
adopted this fee to put Professional Customers on more equal footing 
with broker dealer orders that were already subject to this fee. The 
purpose of this fee was not to charge retail investors, who are now 
known on the Exchange as Priority Customers, and therefore the Exchange 
adopted a waiver from this fee for the first 1,000 orders that a 
Member, acting on behalf of one or more of its customers, transacts in 
one month that takes liquidity from the complex order book. Now that 
the Exchange is able to distinguish between Priority and non-Priority 
Customers, the Exchange believes this fee is no longer necessary and 
proposes to eliminate it.
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    \3\ See Exchange Act Release Nos. 34-54751 (November 14, 2006), 
71 FR 67667 (November 22, 2006) (SR-ISE-2006-56); 55247 (February 6, 
2007), 72 FR 7099 (February 14, 2007) (SR-ISE-2007-03); 59576 (March 
13, 2009), 74 FR 11982 (March 20, 2009) (SR-ISE-2009-07); and 60778 
(October 2, 2009), 74 FR 51896 (October 8, 2009) (SR-ISE-2009-72).
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    In 2010, the Exchange began assessing per contract transaction fees 
and rebates to market participants that add or remove liquidity from 
the Exchange (``maker/taker fees and rebates'') \4\ in a number of 
options classes (the ``Select

[[Page 35724]]

Symbols'').\5\ The Exchange's maker/taker fees and rebates are 
applicable to regular and complex orders executed in the Select 
Symbols. The Exchange subsequently adopted maker/taker fees and rebates 
for complex orders in symbols that are in the Penny Pilot program but 
are not a Select Symbol (Non-Select Penny Pilot Symbols) \6\ and then 
adopted maker/taker fees and rebates for complex orders in all symbols 
that are not in the Penny Pilot Program (``Non-Penny Pilot 
Symbols'').\7\ Now that the Exchange has adopted maker/taker fees and 
rebates, which are designed to attract complex orders to the Exchange, 
and has a specific taker fee for Customer (Professional) complex 
orders, the Complex Order Taker Fee has become a disincentive for 
Members to execute Priority Customer complex orders to take advantage 
of rebates offered by the Exchange because once Priority Customers 
orders reach the 1,000 order threshold, those orders become subject to 
the Complex Order Taker Fee. As noted above, the Exchange did not 
intend to charge Priority Customer orders the Complex Order Taker Fee 
and this proposed rule change will fully accomplish that goal. 
Therefore, the Exchange proposes to eliminate this fee and remove it 
from its Schedule of Fees.
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    \4\ See Exchange Act Release No. 61869 (April 7, 2010), 75 FR 
19449 (April 14, 2010) (SR-ISE-2010-25).
    \5\ The Select Symbols are identified by their ticker symbol on 
the Exchange's Schedule of Fees.
    \6\ See Exchange Act Release No. 65724 (November 10, 2011), 76 
FR 71413 (November 17, 2011) (SR-ISE-2011-72).
    \7\ 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).
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    Second, the Exchange currently has a fee pursuant to which Exchange 
Primary Market Makers (PMMs) are subject to a minimum fee of $50,000 
per options group (``Minimum PMM Fee''). To the extent that aggregate 
execution fees in a group or bin of options do not total at least 
$50,000 per month, the PMM for that bin must pay a fee representing the 
difference between $50,000 and the aggregate actual execution fees. The 
Exchange adopted this fee during its early years in order to encourage 
PMMs to ramp up their operations as quickly as possible and to avoid a 
potential revenue shortfall. ISE's PMMs have been fully operating all 
of their PMM trading rights for a number of years and generate revenue 
greater than the Minimum PMM Fee. The Exchange does not believe there 
is a need for this fee any more. Therefore, the Exchange proposes to 
eliminate this fee and remove it from its Schedule of Fees.
    Finally, when the Exchange adopted its maker/taker fees and 
rebates, it also adopted a distinction between small size Priority 
Customer orders, i.e., Priority Customer orders of less than 100 
contracts, and large size Priority Customer orders, i.e., Priority 
Customer orders of 100 or more contracts.\8\ The purpose for this 
distinction was to allow the Exchange to charge small size Priority 
Customer orders and large size Priority Customer orders different 
rates. And for a period of time, the Exchange charged a higher fee for 
large size Priority Customer orders.\9\ However, in January 2011, the 
Exchange standardized the fee for Priority Customer orders \10\ and no 
longer charges different rates for these orders. The Exchange now 
proposes to eliminate this distinction from its Schedule of Fees and 
will continue to apply the same level of fees to Priority Customer 
orders, regardless of size.
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    \8\ See supra note 4 [sic].
    \9\ See supra note 4 [sic].
    \10\ See Exchange Act Release No. 63664 (January 6, 2011), 76 FR 
2170 (January 12, 2011) (SR-ISE-2010-120).
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2. Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Securities and Exchange Act 
of 1934 (the ``Exchange Act'') \11\ in general, and furthers the 
objectives of Section 6(b)(4) of the Exchange Act \12\ 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 it is reasonable to remove the three 
fees that are the subject of this proposed rule change from the 
Exchange's Schedule of Fees because they are either no longer 
applicable, in the case of the Minimum PMM fee and the fee for Priority 
Customer orders, or are a disincentive for order flow, as in the case 
of the Complex Order Taker Fee. The Complex Order Taker Fee, since its 
adoption, was intended for Professional Customer orders, as evidenced 
by the waiver the Exchange adopted that waived this fee for the first 
1,000 orders from customers that take liquidity from the complex order 
book. The presumption was that Priority Customer orders would not 
exceed this threshold and thus would not be subject to the fee. This 
proposed rule change accomplishes that goal because Professional 
Customer complex orders that take liquidity are now charged a fee under 
the Exchange's maker/taker fees and by removing this fee from the 
Exchange's Schedule of Fees, Priority Customer orders will no longer be 
subject to this fee.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that this proposed rule change which seeks to 
amend the text of the Schedule of Fees to clarify the applicability of 
certain fees is also both reasonable and equitable because Members 
would benefit from clear guidance in the rule text describing the 
manner in which the Exchange would assess fees. The Exchange further 
believes the proposed rule change is reasonable because removing these 
fees from the Schedule of Fees will provide clarity and greater 
transparency regarding the Exchange's fees. The Exchange notes that the 
proposed rule change is also equitably allocated and not unfairly 
discriminatory in that it treats similarly situated market participants 
in the same manner, i.e. the removal of the three fees will impact all 
market participants equally on the Exchange.

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.\13\ 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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    \13\ 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

[[Page 35725]]

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 No. SR-ISE-2012-46 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-2012-46. 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-2012-46 and should be 
submitted on or before July 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14533 Filed 6-13-12; 8:45 am]
BILLING CODE 8011-01-P