Document ID: SEC-2011-1764-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2011-11-17T05:00Z

[Federal Register Volume 76, Number 222 (Thursday, November 17, 2011)]
[Notices]
[Pages 71413-71415]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29672]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65724; File No. SR-ISE-2011-72]

 Self-Regulatory Organizations; International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend Transaction Fees and Rebates for Certain Complex 
Orders Executed on the Exchange

November 10, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that, on October 28, 2011, the International Securities Exchange, 
LLC (the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change as 
described in Items I and II 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 is proposing to amend certain transaction fees and rebates. 
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 currently assesses per contract transaction charges 
and credits to market participants that add or remove liquidity from 
the Exchange (``maker/taker fees'') in a number of options classes (the 
``Select Symbols'').\3\ The Exchange's maker/taker fees are applicable 
to regular and complex orders executed in the Select Symbols.\4\ The 
fees and rebates for complex orders in the Select Symbols also apply to 
all symbols that are in the Penny Pilot program.\5\
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    \3\ Options classes subject to maker/taker fees are identified 
by their ticker symbol on the Exchange's Schedule of Fees.
    \4\ The Exchange has also adopted fees and rebates for complex 
orders in a subset of the Select Symbols (``Designated Symbols'') 
that are different from the fees for complex orders in the Select 
Symbols. These Designated Symbols are AAPL, BAC, C, F, GLD, INTC, 
IWM, JPM, QQQ, SLV, SPY and XLF. See Exchange Act Release Nos. [sic] 
65084 (August 10, 2011), 76 FR 50805 (August 16, 2011) (SR-ISE-2011-
49).
    \5\ See Exchange Act Release Nos. 65021 (August 3, 2011), 76 FR 
48933 (August 9, 2011) (SR-ISE-2011-45); and 65550 (October 13, 
2011), 76 FR 64984 (October 19, 2011) (SR-ISE-2011-65).
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    For complex orders in the Select Symbols and in symbols that are in 
the Penny Pilot program but excluding the Designated Symbols, the 
Exchange currently charges a ``take'' fee of: (i) $0.30 per contract 
for ISE Market Maker,\6\ Market Maker Plus,\7\ Firm Proprietary and 
Customer (Professional) \8\ orders; and (ii) $0.35 per contract for 
Non-ISE Market Maker \9\ orders. Priority Customer \10\ orders are not 
charged a ``take'' fee for complex orders. For complex orders in these 
same symbols, the Exchange currently charges a ``make'' fee of: (i) 
$0.10 per contract for ISE Market Maker, Market Maker Plus, Firm 
Proprietary and Customer (Professional) orders; and (ii) $0.20 per 
contract for Non-ISE Market Maker orders. Priority Customer orders are 
not charged a ``make'' fee for complex orders.
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    \6\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25). Market Makers who remove liquidity in the Select Symbols 
from the Complex Order Book by trading with orders preferenced to 
them are currently charged $0.28 per contract.
    \7\ A Market Maker Plus is an ISE Market Maker who is on the 
National Best Bid or National Best Offer 80% of the time for series 
trading between $0.03 and $5.00 (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 $5.00 (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 and 80% of the time for series trading between $0.03 and 
$5.00 (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 $5.00 (for options whose underlying stock's previous trading 
day's last sale price was greater than $100) in premium across all 
expiration months in order to receive the rebate. The Exchange 
determines whether a Market Maker qualifies as a Market Maker Plus 
at the end of each month by looking back at each Market Maker's 
quoting statistics during that month. If at the end of the month, a 
Market Maker meets the Exchange's stated criteria, the Exchange 
rebates $0.10 per contract for transactions executed by that Market 
Maker during that month. The Exchange provides Market Makers a 
report on a daily basis with quoting statistics so that Market 
Makers can determine whether or not they are meeting the Exchange's 
stated criteria.
    \8\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \9\ 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, as amended (``Exchange Act''), 
registered in the same options class on another options exchange.
    \10\ A Priority Customer is defined in ISE Rule 100(a)(37A) as a 
person or entity that is not a broker/dealer in securities, and does 
not place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s).
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    For complex orders in the Designated Symbols, the Exchange 
currently charges a ``take'' fee of: (i) $0.31 per contract for ISE 
Market Maker, Market Maker Plus, Firm Proprietary and Customer 
(Professional) orders; and (ii) $0.36 per contract for Non-ISE Market 
Maker orders. Priority Customer orders are not charged a ``take'' fee 
for complex orders in the Designated Symbols. The ``make'' fee for 
complex orders in the Designated Symbols is the same as the ``make'' 
fee the Exchange currently charges for the Select Symbols and symbols 
that are in the Penny Pilot program noted above. Priority Customer 
orders are not charged a ``make'' fee for complex orders in the 
Designated Symbols.
    The Exchange now proposes to increase the ``take'' fee for complex 
orders in both the Select Symbols and the Designated Symbols to (i) 
$0.32 per contract for ISE Market Maker, Market

[[Page 71414]]

Maker Plus, Firm Proprietary and Customer (Professional) orders; and 
(ii) $0.36 for Non-ISE Market Maker orders. With this proposed fee 
change, the Exchange seeks to standardize the ``take'' fee charged for 
complex orders in the Select Symbols and the Designated Symbols and, as 
a result, proposes to remove the table identifying the Designated 
Symbols from its Schedule of Fees as it is no longer necessary to 
separately identify the ``take'' fee for Designated Symbols from the 
``take'' fee for the Select Symbols because all Select Symbols are now 
charged one rate.
    Further, for Priority Customer complex orders in the Select Symbols 
and in the symbols that are in the Penny Pilot program but excluding 
the Designated Symbols, the Exchange currently provides a rebate of 
$0.25 per contract when these orders trade with non-customer orders in 
the complex order book. For Priority Customer complex orders in the 
Designated Symbols, the Exchange currently provides a rebate of $0.27 
per contract when these orders trade with non-customer orders in the 
complex order book. The Exchange now proposes to increase the rebate 
for Priority Customer complex orders in the Select Symbols and the 
Designated Symbols to $0.30 per contract when these orders trade with 
non-customer orders in the complex order book. With this proposed fee 
change, the Exchange seeks to standardize the rebate for Priority 
Customer complex orders in both the Select Symbols and the Designated 
Symbols when these orders trade with non-customer orders in the complex 
order book and proposes to reflect this change in footnote 3 on the 
Schedule of Fees.
    The Exchange does not propose to change the rebate for Priority 
Customer complex orders in the symbols that are in the Penny Pilot 
program but are not a Select Symbol (``Non-Select Penny Pilot 
Symbols'') when these orders trade with non-customer orders in the 
complex order book. That rebate shall remain at $0.25 per contract. In 
order to distinguish this established rebate from the newly proposed 
rebate for Priority Customer complex orders in the Select Symbols, the 
rebate for Non-Select Penny Pilot Symbols is now reflected in the 
proposed new text in footnote 11 on the Schedule of Fees.
    Additionally, ISE Market Makers who remove liquidity in the Select 
Symbols from the complex order book by trading with orders that are 
preferenced to them are currently charged $0.28 per contract. Further, 
ISE Market Makers who remove liquidity in the Designated Symbols from 
the complex order book by trading with orders that are preferenced to 
them are currently charged $0.29 per contract. The Exchange now 
proposes to increase the fee charged to ISE Market Makers who remove 
liquidity in the Select Symbols and the Designated Symbols from the 
complex order book by trading with orders that are preferenced to them 
to a single rate of $0.30 per contract. Thereby, once again, 
standardizing the fee charged to ISE Market Makers who remove liquidity 
from the complex order book by trading with orders that are preferenced 
to them in both the Select Symbols and the Designated Symbols.
    The Exchange proposes a fee of $0.28 per contract for ISE Market 
Makers who remove liquidity in the Non-Select Penny Pilot Symbols from 
the complex order book by trading with orders that are preferenced to 
them. In order to distinguish this fee from the fee that is applicable 
to ISE Market Makers who remove liquidity from the complex order book 
in the Select Symbols by trading with orders preferenced to them, the 
fee charged to ISE Market Makers who remove liquidity in the Non-Select 
Penny Pilot Symbols from the complex order book by trading with orders 
that are preferenced to them is now reflected in proposed footnote 12 
on the Schedule of Fees.
    Further, the Exchange does not propose any changes to the fees and 
rebates for complex orders in Non-Select Penny Pilot Symbols. The 
Exchange currently charges a ``take'' fee of (i) $0.30 per contract for 
ISE Market Maker, Market Maker Plus, Firm Proprietary and Customer 
(Professional) orders; and (ii) $0.35 per contract for Non-ISE Market 
Maker orders. Priority Customer orders are not charged a ``take'' fee 
for complex orders in Non-Select Penny Pilot Symbols. For complex 
orders in these same symbols, the Exchange currently charges a ``make'' 
fee of: (i) $0.10 per contract for ISE Market Maker, Market Maker Plus, 
Firm Proprietary and Customer (Professional) orders; and (ii) $0.20 per 
contract for Non-ISE Market Maker orders. Priority Customer orders are 
not charged a ``make'' fee for complex orders in any of the symbols 
that are in the Penny Pilot program. The Exchange proposes only to 
create a table in the Schedule of Fees to identify these fees more 
clearly.
    The Exchange also proposes to amend the heading of its fee schedule 
to clarify that the fees in this section of the Schedule of Fees apply 
to Select Symbols and complex orders for symbols that are in the Penny 
Pilot program. Additionally, the Exchange is proposing to amend the 
headers in the table to reflect the changes discussed herein and to add 
additional columns to reflect the fees for adding and removing 
liquidity in complex orders for Non-Select Penny Pilot Symbols. 
Further, the Exchange proposes to clarify that the term ``Symbols'' in 
fact refers to ``Select Symbols'' where appropriate throughout this 
section of the Schedule of Fees.
    The Exchange has designated this proposal to be operative on 
November 1, 2011.
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 \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 impact of the proposal upon the 
net fees paid by a particular market participant will depend on a 
number of variables, most important of which will be its propensity to 
interact with and respond to certain types of orders.
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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 its proposal to assess a $0.32 per 
contract ``take'' fee for ISE Market Maker, Market Maker Plus, Firm 
Proprietary and Customer (Professional) orders in the Select Symbols 
that are subject to the Exchange's maker/taker fees is reasonable 
because the fee is within the range of fees assessed by other exchanges 
employing similar pricing schemes and in some cases, is lower that the 
fees assessed by other exchanges. For example, NASDAQ OMX PHLX, Inc. 
(``PHLX'') recently announced a fee increase for removing liquidity in 
complex orders from $0.29 to $0.32 per contract for Specialist orders 
and from $0.30 to $0.35 per contract for Firm and Professional 
orders.\13\ Therefore, while ISE is proposing a fee increase, the 
resulting fee remains lower than the fee change proposed by PHLX for 
similar orders. Finally, ISE's proposed increase for Non-ISE Market 
Maker orders to $0.36 per contract is a nominal increase over the rate 
currently in place at PHLX. PHLX currently charges $0.35 per contract 
for these orders.\14\
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    \13\ See OTA 63--PHLX and NOM Update Pricing Effective 
Tuesday, November 1, 2011, available at http://www.nasdaqtrader.com/TraderNews.aspx?id=OTA2011-63.
    \14\ Id.
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    The Exchange believes that it is reasonable and equitable to 
provide a rebate for Priority Customer complex

[[Page 71415]]

orders when these orders trade with non-customer orders in the complex 
order book because paying a rebate would continue to attract additional 
order flow to the Exchange and create liquidity in the symbols that are 
subject to the rebate, which the Exchange believes ultimately will 
benefit all market participants who trade on ISE. The Exchange already 
provides this rebate and is now proposing to increase the rebate. The 
Exchange believes that the proposed rebate for options overlying the 
symbols that are subject to the Exchange's maker/taker fees is 
competitive with fees charged by other exchanges and is therefore 
reasonable and equitably allocated to those members that direct orders 
to the Exchange rather than to a competing exchange. The proposed 
increased rebate of $0.30 per contract for Priority Customer complex 
orders is identical to the rebate level recently announced by PHLX.\15\
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    \15\ Id.
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    The Exchange notes that PHLX currently assesses a fee for complex 
orders for certain symbols that are preferenced to market makers at 
that exchange at a rate of $0.27 per contract. For complex orders that 
are not preferenced to market makers that remove liquidity in those 
symbols, PHLX charges a take fee of $0.29 per contract. In its recent 
announcement, PHLX proposes to increase the fee for preferenced market 
makers from $0.27 per contract to $0.30 per contract and, for non-
preferenced market makers, from $0.29 per contract to $0.32 per 
contract.\16\ ISE notes that with this proposed fee change, the 
Exchange, while increasing this fee, will maintain the same two cent 
differential that is currently in place at PHLX.\17\
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    \16\ Id.
    \17\ See PHLX Fee Schedule at http://www.nasdaqtrader.com/content/marketregulation/membership/phlx/feesched.pdf.
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    The complex order pricing employed by the Exchange has proven to be 
an effective pricing mechanism and attractive to Exchange participants 
and their customers. The Exchange believes that changing certain 
aspects of its maker/taker fees and rebates will attract additional 
complex order business while at the same time creating standardization 
in complex order pricing across symbols that make up the majority of 
the daily volume in options trading.
    The Exchange further believes that the Exchange's maker/taker fees 
are not unfairly discriminatory because the fee structure is consistent 
with fee structures that exist today at other options exchanges. 
Additionally, the Exchange believes that the proposed fees are fair, 
equitable and not unfairly discriminatory because the proposed fees are 
consistent with price differentiation that exists today at other option 
exchanges. The Exchange operates in a highly competitive market in 
which market participants can readily direct order flow to another 
exchange if they deem fee levels at a particular exchange to be 
excessive. With this proposed fee change, the Exchange believes it 
remains an attractive venue for market participants to trade complex 
orders.

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.\18\ 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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    \18\ 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-2011-72 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-2011-72. 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 
a.m. and 3 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-2011-72 and should be 
submitted on or before December 8, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-29672 Filed 11-16-11; 8:45 am]
BILLING CODE 8011-01-P