Document ID: SEC-2014-0030-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2014-01-07T05:00Z

[Federal Register Volume 79, Number 4 (Tuesday, January 7, 2014)]
[Notices]
[Pages 863-865]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-31604]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71213; File No. SR-ISE-2013-70]

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

 December 31, 2013.
    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 December 23, 2013, 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 its Schedule of Fees to waive CMM 
membership application fees for affiliated CMMs, and to charge an 
incremental annual regulatory fee for such CMMs. 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 waive Competitive 
Market Maker (``CMM'') membership application fees for affiliated CMMs, 
i.e., CMMs that share common ownership with another CMM, and to charge 
an incremental annual regulatory fee for such CMMs. The Exchange 
believes that these changes, which will lower the cost of maintaining 
separate CMM memberships for affiliated CMMs, will encourage current 
CMMs to register additional broker dealer entities as necessary to act 
as Alternative Primary Market Makers (``Alternative PMMs'') on the ISE.
    The Exchange currently operates an Alternative PMM program whereby 
the ISE appoints CMMs that meet certain qualifications to serve as 
Alternative PMMs for options products that have not been allocated to a 
willing PMM.\3\ The purpose of this program is to enable the Exchange 
to list new products, or continue trading listed products, that are not 
supported by a PMM, by offering such allocations to appropriately 
qualified CMMs that will have all of the responsibilities and 
privileges of a PMM under ISE Rules with respect to appointed options 
classes. Each broker dealer entity acting as an Alternative PMM, 
however, must be registered as a CMM on the ISE. Due to capital and 
other business requirements a CMM may need to house their Alternative 
PMM appointments in a separate affiliated broker dealer entity, which 
would be required to maintain a separate CMM membership on the ISE.
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    \3\ See Exchange Act Release No. 59250 (January 14, 2009), 74 FR 
4062 (January 22, 2009) (ISE-2008-90). PMM allocations are voluntary 
and require the consent of the PMM being allocated the options 
class. See ISE Rule 802.
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    Currently, since these affiliated entities operate as distinct 
members these firms must pay a one-time CMM application fee of $5,500 
for each entity. As the incremental cost associated with processing an 
affiliate's membership application is negligible, and given the 
significant benefits of attracting CMMs willing to quote unallocated 
options classes as Alternative PMMs, the Exchange is proposing to waive 
the application fee for CMM applicants that share at least 75% common 
ownership with another CMM as reflected on each

[[Page 864]]

firm's Form BD, Schedule A. The waiver will apply only to the one-time 
CMM membership application fee, and the affiliated CMM will be subject 
to all other fees, such as network and access fees.
    The Exchange also charges CMMs an annual regulatory fee in order to 
cover the cost of surveilling these members and performing other 
regulatory responsibilities. For a CMM that is not also a Primary 
Market Maker (``PMM'') this regulatory fee is $5,000 per year for the 
first CMM membership and $1,000 per year for each additional CMM 
membership. The lower fee charged for additional CMM memberships after 
the first reflects the lower incremental cost to the Exchange of 
surveilling such additional memberships. As with additional CMM 
memberships within the same entity, the Exchange does not have to 
dedicate the same level of resources to surveilling the activities of 
affiliated CMMs. The Exchange therefore proposes to only charge the 
higher $5,000 per year regulatory fee for the first CMM membership 
within each group of affiliated companies. Affiliated CMMs will pay the 
$1,000 per year incremental regulatory fee charged for additional CMM 
memberships after the first. The Exchange is not proposing any changes 
to the annual regulatory fee for CMMs that are also PMMs as that fee, 
which is $1,000 per year for each CMM membership, already reflects the 
incremental regulatory costs of surveilling such members. Again, the 
Exchange believes that this change will benefit all market participants 
that trade on the Exchange by attracting additional CMMs to act as 
Alternative PMMs in options classes not allocated to a PMM.
2. Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\4\ in general, and Section 
6(b)(4) of the Act,\5\ 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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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that it is fair and equitable to waive the 
membership application fee for affiliated CMMs due to the negligible 
cost associated with processing membership applications from such 
members. This waiver will allow affiliated CMMs to become members 
without incurring additional ``start-up'' fees that do not reflect the 
limited resources expended by the ISE in processing their applications, 
and will thereby encourage current CMMs to register additional 
affiliated CMMs as necessary to act as Alternative PMMs. The Exchange 
similarly believes that it is fair and equitable to charge an 
incremental regulatory fee to affiliated CMMs due to the incremental 
cost of regulating these members. This treatment is consistent with how 
the ISE currently charges regulatory fees for additional CMM 
memberships within the same entity, and the Exchange is merely 
extending this treatment to additional CMM memberships that are held 
within the same affiliated group of companies. By charging the higher 
initial regulatory fee to only the first CMM membership within each 
group of affiliated companies, the ISE believes that it is more 
accurately reflecting the costs associated with regulating affiliated 
members. Moreover, the Exchange believes that this change will 
encourage more affiliated CMMs to maintain memberships on the Exchange 
as necessary to support the Alternative PMM program, which, in turn, 
will benefit all market participants that trade on the ISE. The 
Exchange does not believe that it is unfairly discriminatory to apply 
the proposed application fee waiver and incremental regulatory fee only 
to CMMs. As explained above, these fee changes are being proposed in 
order to encourage CMMs to seek Alternative PMM appointments. The 
Exchange believes that reducing the membership application and 
regulatory costs for affiliated CMMs will encourage more CMMs to 
register additional affiliated broker dealers as CMMs in order to quote 
options classes as Alternative PMMs. Greater participation in the 
Alternative PMM program will benefit all market participants that trade 
on the Exchange as it will allow the ISE to list additional options 
products, which will be supported by the Alternative PMMs. Alternative 
PMMs have all the responsibilities of regular PMMs, including, among 
other things, conducting the opening rotation on a daily basis and 
providing continuous quotations in appointed options classes.

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

    In accordance with Section 6(b)(8) of the Act,\6\ 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 proposed 
rule change should have little competitive impact as it merely aligns 
the CMM membership application and regulatory fees with the cost of 
processing these applications and regulating these members. While the 
proposed rule change only applies to CMMs, the Exchange does not 
believe that this will impose a significant burden on competition as 
all market participants that trade on the Exchange will benefit from 
the resulting allocation of options classes to Alternative PMMs. 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 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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    \6\ 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 \7\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\8\ because it establishes a due, fee, or other charge 
imposed by ISE.
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    \7\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \8\ 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:

[[Page 865]]

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-2013-70 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2013-70. 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-2013-70 and should be submitted by 
January 28, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-31604 Filed 1-6-14; 8:45 am]
BILLING CODE 8011-01-P [FEDREG][VOL]*[/VOL][NO]*[/NO][DATE]*[/
DATE][NOTICES]