Document ID: SEC-2014-1390-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2014-08-18T04:00Z

[Federal Register Volume 79, Number 159 (Monday, August 18, 2014)]
[Notices]
[Pages 48801-48804]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-19475]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72817; File No. SR-ISE-2014-39]

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

August 12, 2014.
    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 August 1, 2014, 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 the 
Substance of the Proposed Rule Change

    The ISE is proposing to amend the Schedule of Fees 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 purpose of this proposed rule change is to amend the Schedule 
of Fees to lower the Crossing Fee Cap,\3\ waive cancellation fees, 
adjust complex order fees and rebates, and modify fees and rebates for 
orders that trade against complex orders legging into the regular order 
book. Each of these proposed changes is described in more detail below. 
The Exchange's Schedule of Fees has separate tables for fees and 
rebates applicable to Standard Options and Mini Options. The Exchange 
notes that while the discussion below relates to fees and rebates for 
Standard Options, the fees and rebates for Mini Options, which are not 
discussed below, are and shall continue to be 1/10th of the fees and 
rebates for Standard Options.
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    \3\ The Crossing Fee Cap is currently called the ``Firm'' Fee 
Cap. The Exchange proposes to change this to Crossing Fee Cap as the 
cap applies to both Firm Proprietary and Non-ISE Market Maker 
transactions as described in Section I below.
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I. Crossing Fee Cap

    The Exchange currently has a Crossing Fee Cap of $75,000 per month 
which applies to Firm Proprietary \4\ and Non[hyphen]ISE Market Maker 
\5\ transactions that are part of the originating or contra side of a 
Crossing Order \6\ executed by a member or its affiliate, provided 
there is at least 75% common ownership between the firms as reflected 
on each firm's Form BD, Schedule A.\7\ Once a member has reached the 
Crossing Fee Cap, the Exchange charges a service fee of $0.01 per side 
in lieu of regular transaction fees. This service fee applies to Firm 
Proprietary and Non[hyphen]ISE market Maker orders in all ISE products 
for all crossing transactions above the fee cap. The Exchange now 
proposes to lower the Firm Fee Cap to $65,000 per month and waive the 
service fee.
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    \4\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \5\ A Non-ISE Market Maker, or Far Away Market Maker 
(``FARMM''), is a market maker as defined in Section 3(a)(38) of the 
Securities Exchange Act of 1934 registered in the same options class 
on another options exchange.
    \6\ Crossing Orders are contracts that are submitted as part of 
a Facilitation, Solicitation, PIM, Block or QCC order.
    \7\ Fees for Responses to Crossing Orders, surcharge fees for 
licensed products, and the related service fee, which is only 
charged to members that have reached the fee cap, are not included 
in the calculation of the monthly fee cap.

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[[Page 48802]]

II. Cancellation Fees

    The Exchange currently has a cancellation fee of $2.00 per order 
that applies to Electronic Access Members (``EAMs'') that cancelled at 
least 500 Priority Customer options orders in a month for itself or for 
an introducing broker. The cancellation fee applies to each order 
cancellation in excess of the total number of orders executed for the 
EAM or introducing broker that month,\8\ except for the cancellation of 
options orders that improve ISE's disseminated quotes at the time the 
orders were entered. The Exchange now proposes to waive the 
cancellation fee.
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    \8\ Priority Customer options orders executed in the same 
underlying symbol at the same price within a 300 second period are 
aggregated and counted as one executed order for purposes of the 
fee.
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III. Priority Customer Complex Order Rebates

    The Exchange currently provides volume-based tiered rebates for 
Priority Customer complex orders when these orders trade with non-
Priority Customer orders in the complex order book, or trade with 
quotes and orders on the regular order book. These complex order 
rebates are provided to Members in six tiers based on the Member's 
average daily volume (``ADV'') in Priority Customer complex contracts 
as shown in the tables below:

   Priority Customer Rebate for Orders That Trade With Non-Priority Customer Orders in the Complex Order Book
----------------------------------------------------------------------------------------------------------------
                                                                  Select symbols
                  Priority customer complex ADV                     (excluding          SPY         Non-Select
                                                                       SPY)                           symbols
----------------------------------------------------------------------------------------------------------------
Tier 1; 0-29,999................................................         ($0.33)         ($0.36)         ($0.66)
Tier 2; 30,000-74,999...........................................         ($0.37)         ($0.40)         ($0.75)
Tier 3; 75,000-124,999..........................................         ($0.39)         ($0.41)         ($0.78)
Tier 4; 125,000-224,999.........................................         ($0.41)         ($0.42)         ($0.80)
Tier 5; 225,000-299,999.........................................         ($0.43)         ($0.44)         ($0.83)
Tier 6; 300,000+................................................         ($0.44)         ($0.45)         ($0.84)
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Priority Customer Rebate for Orders That Trade With Quotes and Orders on
                         the Regular Order Book
------------------------------------------------------------------------
                                            All symbols
      Priority customer complex ADV         (excluding          SPY
                                               SPY)
------------------------------------------------------------------------
Tier 1; 0-29,999........................         ($0.06)         ($0.07)
Tier 2; 30,000-74,999...................         ($0.14)         ($0.15)
Tier 3; 75,000-124,999..................         ($0.15)         ($0.16)
Tier 4; 125,000-224,999.................         ($0.19)         ($0.20)
Tier 5; 225,000-299,999.................         ($0.21)         ($0.22)
Tier 6; 300,000+........................         ($0.22)         ($0.23)
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    The Exchange now proposes to adopt new Priority Customer complex 
order rebates that are the same regardless of whether the order trades 
with non-Priority Customer orders in the complex order book, or trades 
with quotes and orders in the regular order book. In Select Symbols 
(including SPY),\9\ the proposed rebate is $0.30 per contract for Tier 
1, $0.35 per contract for Tier 2, $0.39 per contract for Tier 3, $0.41 
per contract for Tier 4, $0.43 per contract for Tier 5, and $0.45 per 
contract for Tier 6. In Non-Select Symbols, the proposed rebate is 
$0.63 per contract for Tier 1, $0.71 per contract for Tier 2, $0.75 per 
contract for Tier 3, $0.80 per contract for Tier 4, $0.82 per contract 
for Tier 5, and $0.83 per contract for Tier 6.
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    \9\ The Exchange is eliminating the special rebates currently 
provided for SPY.
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IV. Complex Order Maker/Taker Fees in Select Symbols

    The Exchange is proposing to adjust fees charged to non-Priority 
Customer complex orders in Select Symbols.\10\ In particular, the 
Exchange proposes to adjust the maker fees charged for trading against 
Priority Customer complex orders,\11\ and taker fees charged for 
trading against all client categories (collectively, ``maker/taker 
fees''). Currently, the Exchange charges Market Maker \12\ orders 
maker/taker fees of $0.42 per contract in Select Symbols (excluding 
SPY), and $0.43 per contract for SPY, subject to a discount of $0.02 
per contract for trading against Priority Customer complex orders that 
are preferenced to the Market Maker. For Non-ISE Market Maker, Firm 
Proprietary/Broker Dealer,\13\ and Professional Customer \14\ orders 
the Exchange charges maker/taker fees of $0.44 per contract for Select 
Symbols (excluding SPY), and $0.45 per contract for SPY. The Exchange 
now proposes to adjust its fees such that the maker/taker fees in all 
Select Symbols (including SPY) \15\ will be $0.43 per contract for 
Market Maker orders (subject to the preference discount described 
above), and $0.44 for Non-ISE Market Maker, Firm Proprietary/Broker 
Dealer, and Professional Customer orders. As is the case today, 
Priority Customers complex orders will not pay any maker/taker fees, 
and will instead receive rebates as described in Section III above. In 
addition, the Exchange currently charges a separate fee for Non-
Priority Customer complex orders that add liquidity in Complex Quoting 
Symbols, i.e., symbols in which Market Makers can enter quotes in the 
complex order

[[Page 48803]]

book, which today is $0.42 per contract. The Exchange proposes to raise 
this fee to $0.43 per contract in line with the changes to maker/taker 
fees for Market Maker orders described above.
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    \10\ The Exchange is not proposing to change the fees for non-
Select Symbols.
    \11\ The Exchange separately charges maker fees for non-Priority 
Customer complex orders that do not trade against Priority Customer 
complex orders. These fees are not discussed in this filing.
    \12\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \13\ A Broker-Dealer order is an order submitted by a Member for 
a non-Member broker-dealer account.
    \14\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
    \15\ With the proposed change, there will no longer be separate 
maker/taker fees charged for SPY, which will now be subject to the 
same maker/taker fees as other Select Symbols.
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V. Market Maker Plus Trading With Complex Orders in Select Symbols

    The Exchange is proposing to adjust fees and rebates for Market 
Maker Plus \16\ orders in Select Symbols when trading against complex 
orders that leg in to the regular order book. Currently, Market Makers 
qualifying for Market Maker Plus pay no fee and receive no rebate when 
providing liquidity to a Priority Customer complex order that legs in 
to the regular order book. In addition, a Market Maker that has 
achieved Market Maker Plus is entitled to a rebate of $0.20 per 
contract in Select Symbols when providing liquidity to orders entered 
in the regular order book or non-Priority Customer orders that leg in 
from the complex order book. The Exchange also pays a higher rebate of 
$0.22 per contract to Market Makers that meet the quoting requirements 
for Market Maker Plus and are affiliated with an EAM that executes a 
total affiliated Priority Customer ADV of 200,000 contracts or more in 
a calendar month, and $0.25 per contract in BAC, SPY, and IWM if at the 
time of the trade the Market Maker's displayed quantity, in the traded 
series, is at least 1,000 contracts. The Exchange now proposes to 
charge a fee of $0.10 per contract for all Market Maker Plus orders 
that trade against Priority Customer complex orders that leg into the 
regular order book. The Exchange will neither charge a fee nor offer a 
rebate for Market Maker Plus orders that trade against non-Priority 
Customer complex orders that leg into the regular order book.
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    \16\ A Market Maker Plus is a Market Maker who is on the 
National Best Bid or National Best Offer at least 80% of the time 
for series trading between $0.03 and $3.00 (for options whose 
underlying stock's previous trading day's last sale price was less 
than or equal to $100) and between $0.10 and $3.00 (for options 
whose underlying stock's previous trading day's last sale price was 
greater than $100) in premium in each of the front two expiration 
months. A Market Maker's single best and single worst quoting days 
each month based on the front two expiration months, on a per symbol 
basis, will be excluded in calculating whether a Market Maker 
qualifies for this rebate, if doing so will qualify a Market Maker 
for the rebate.
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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,\17\ in general, and 
Section 6(b)(4) of the Act,\18\ 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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    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b)(4).
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I. Firm Fee Cap

    The Exchange believes that it is reasonable and equitable to lower 
the Crossing Fee Cap \19\ and eliminate the service fee because these 
proposed changes will potentially lower transaction fees for members 
executing Crossing Orders on the ISE. In the current lower volume 
environment it is more difficult for members to reach the cap at its 
current level. The Exchange believes the proposed fee change will 
benefit market participants by potentially lowering their fees while 
allowing the Exchange to remain competitive with other exchanges that 
offer similar fee cap programs.\20\ The Exchange further believes that 
the proposed fee change is not unfairly discriminatory because it would 
uniformly apply to all members engaged in proprietary trading in option 
classes traded on the ISE.
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    \19\ The Exchange notes that the name change to Crossing Fee Cap 
is a non-substantive change intended to increase clarity for members 
and investors.
    \20\ For example, the Miami International Securities Exchange 
LLC (``MIAX'') recently adopted a monthly firm fee cap of $60,000 
with no applicable service fee. See Securities Exchange Act Release 
No. 72583 (July 10, 2014), 79 FR 41612 (July 16, 2014) (SR-MIAX-
2014-37).
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II. Cancellation Fees

    The Exchange believes that it is reasonable and equitable to waive 
the cancellation fee. The cancellation fee was originally introduced in 
response to capacity concerns stemming from members generating 
significant order traffic that did not result in executed trades due to 
orders being cancelled at high rates. In the time since the 
cancellation fee was adopted, the fee has become less important in 
reducing overuse of ISE infrastructure due to the Exchange adopting a 
designation for Professional Customer orders, which are now no longer 
lumped together with Priority Customer orders. As such, the Exchange 
believes that this fee, which may inadvertently discourage some 
legitimate Priority Customer orders entered using a member's algorithm, 
may no longer be necessary. The Exchange does not believe that the 
proposed change is unfairly discriminatory as it applies equally to all 
ISE members, who will no longer be subject to any cancellation fees.

III. Priority Customer Complex Order Rebates

    The Exchange believes that the proposed changes to Priority 
Customer complex order rebates are reasonable and equitable as they are 
designed to attract additional order flow to the ISE by offering an 
attractive set of rebates to members. Although the Exchange is 
proposing a small reduction in the rebate provided to some Priority 
Customer complex orders that trade in the complex order book, Priority 
Customer complex orders that trade on the regular order book will now 
receive rebates that are significantly higher than their current 
rates.\21\ The Exchange expects that the overall effect of the changes 
to complex order rebates will be to increase rebates provided to 
Priority Customer complex orders, and thereby attract this order flow 
to the ISE. With respect to the elimination of special rebates for SPY, 
the Exchange notes that SPY, which is a Select Symbol, will now receive 
the same rebates as other Select Symbols. In addition, since the 
applicable rebate will no longer depend on whether the order happens to 
leg in to the regular order book, the Exchange believes that members 
will now benefit from greater certainty with respect to the rebates 
provided for sending Priority Customer complex orders to the ISE. The 
Exchange also continues to believe that it is not unfairly 
discriminatory to offer rebates to Priority Customer complex orders for 
members that bring a specified volume of Priority Customer contracts to 
the ISE. The Exchange already has volume-based rebates for Priority 
Customer complex orders, and is merely adjusting rebate amounts and 
simplifying how these rebates are provided. All members can receive the 
proposed Priority Customer rebates by executing the required volume of 
Priority Customer complex orders on the Exchange.
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    \21\ The proposed rebates can be as much as $0.61 per contract 
higher than the current rate for Priority Customer complex orders 
that trade with quotes and orders on the regular order book.
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IV. Complex Order Maker/Taker Fees in Select Symbols

    The Exchange believes that the proposed changes to the complex 
order maker/taker fees are reasonable and equitable as the ISE is 
simplifying its fees by eliminating the special fees charged for SPY. 
The proposed fees are generally consistent with the prior level of fees 
charged on the Exchange for these products. The proposed maker/taker 
fee changes are also not unfairly discriminatory as all market 
participants

[[Page 48804]]

in the same client category will pay the same fees. With the proposed 
changes, Priority Customers will continue to pay no maker/taker 
fees,\22\ and Market Makers will continue to receive a small discount 
compared to other market participants.
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    \22\ Priority Customer complex orders receive rebates as 
described in Section III above.
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V. Market Maker Plus Trading With Complex Orders in Select Symbols

    The Exchange believes that the proposed Market Maker Plus fees for 
orders that provide liquidity to complex orders that leg in from the 
complex order book are reasonable and equitable as these changes are 
designed to offset rebates associated with Priority Customer complex 
orders on the other side of these trades. Without these changes, the 
Exchange could end up paying significant rebates not offset by fees on 
the other side of the trade when Market Makers that achieve Market 
Maker Plus trade against complex orders that leg in to the regular 
order book. For example, a complex order in a Select Symbol executed 
for a Priority Customer would receive a rebate of up to $0.45 per 
contract for the highest tier, which would be paid entirely by the 
Exchange as there is no corresponding fee charged to the Market Maker 
that executes this order. The proposed Market Maker Plus changes reduce 
but do not eliminate the negative economics associated with Priority 
Customer complex orders that leg in to the regular market and trade 
with Market Maker Plus orders. The Exchange does not believe that the 
proposed Market Maker Plus changes are unfairly discriminatory as the 
proposed fees for trading against legged in orders from Priority and 
non-Priority Customers remain lower than or equal to the fees charged 
to other Market Makers on the Exchange, who pay a maker fee of $0.10 
per contract for providing liquidity in Select Symbols.

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

    In accordance with Section 6(b)(8) of the Act,\23\ 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. To the contrary, 
the Exchange believes that the proposed fee changes are pro-competitive 
as they are intended to attract additional order flow to the ISE. While 
the Exchange is increasing certain fees and decreasing others, the ISE 
believes that the proposed changes are overall more favorable to 
members, and will allow the ISE to compete effectively with other 
options markets. 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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    \23\ 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 \24\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\25\ because it establishes a due, fee, or other charge 
imposed by ISE.
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    \24\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \25\ 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 Number SR-ISE-2014-39 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-2014-39. 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 such 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-2014-39, and should be 
submitted on or before September 8, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-19475 Filed 8-15-14; 8:45 am]
BILLING CODE 8011-01-P