Document ID: SEC-2010-1107-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2010-07-22T04:00Z

[Federal Register Volume 75, Number 140 (Thursday, July 22, 2010)]
[Notices]
[Pages 42802-42804]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-17928]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62507; File No. SR-ISE-2010-68]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend the Qualification Standards for Market Makers To 
Receive a Rebate for Adding Liquidity

July 15, 2010.
    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 June 28, 2010, 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

[[Page 42803]]

organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE is proposing to amend the qualification standards for 
market makers to receive a rebate under the Exchange's maker/taker 
pricing program. 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, at the Commission's Public Reference Room, and on the 
Commission's Web site at http://www.sec.gov.

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 
qualification standards for market makers to receive a rebate under the 
Exchange's maker/taker pricing program. The Exchange recently adopted 
transaction fees and rebates for adding and removing liquidity 
(``maker/taker fees'').\3\ The maker/taker fees currently apply to 
trading in a select number of options classes \4\ to the following 
categories of market participants: (i) Market Maker; (ii) Market Maker 
Plus; (iii) Non-ISE Market Maker; \5\ (iv) Firm Proprietary; (v) 
Customer (Professional); \6\ (vi) Priority Customer,\7\ 100 or more 
contracts; and (vii) Priority Customer, less than 100 contracts.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release Nos. 61869 (April 7, 
2010), 75 FR 19449 (April 14, 2010); 62048 (May 6, 2010), 75 FR 
26830 (May 12, 2010); and 62319 (June 17, 2010), 75 FR 36134 (June 
24, 2010).
    \4\ As of June 1, 2010, the following options classes were 
subject to maker/taker fees: QQQQ, BAC, C, SPY, IWM, XLF, AAPL, GE, 
JPM, INTC, GS, RIMM, T, VZ, UNG, FCX, CSCO, DIA, AMZN, X, AA, AIG, 
AXP, BBY, CAT, CHK, DNDN, EEM, EFA, EWZ, F, FAS, FAZ, FSLR, GDX, 
GLD, IYR, MGM, MS, MSFT, MU, PALM, PBR, PG, POT, RIG, SDS, SLV, XLE, 
and XOM. On June 28, 2010, the Exchange submitted a proposed rule 
change, SR-ISE-2010-65, to be effective on July 1, 2010, to add the 
following 30 options classes to be included in the Exchange's maker/
taker fee schedule: ABX, BMY, BP, COP, DELL, DRYS, FXI, HAL, IBM, 
KO, LVS, MCD, MO, MON, NOK, ORCL, PFE, QCOM, S, SLB, SMH, SNDK, TBT, 
USO, V, VALE, WFT, XLI, XRT, and YHOO.
    \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, as amended (``Exchange Act''), 
registered in the same options class on another options exchange.
    \6\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \7\ 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).
---------------------------------------------------------------------------

    In order to promote and encourage liquidity in options classes that 
are subject to maker/taker fees, the Exchange currently offers a $0.10 
per contract rebate for Market Maker Plus orders sent to the 
Exchange.\8\ A Market Maker Plus is currently defined by the Exchange 
as a 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 in 
premium in each of the front two expiration months and 80% of the time 
for all series trading between $0.03 and $5.00 in premium for all 
expiration months for that symbol during the current trading month.\9\
---------------------------------------------------------------------------

    \8\ The concept of incenting market makers with a rebate is not 
novel. In 2008, the CBOE established a program for its Hybrid Agency 
Liaison whereby it provides a $0.20 per contact rebate to its market 
makers provided that at least 80% of the market maker's quotes in a 
class during a month are on one side of the national best bid or 
offer. Market makers not meeting CBOE's criteria are not eligible to 
receive a rebate. See Securities Exchange Act Release No. 57231 
(January 30, 2008), 73 FR 6752 (February 5, 2008). The CBOE has 
since lowered the criteria from 80% to 60%. See Securities Exchange 
Act Release No. 57470 (March 11, 2008), 73 FR 14514 (March 18, 
2008).
    \9\ See Securities Exchange Act Release No. 62282 (June 11, 
2010), 75 FR 34499 (June 17, 2010).
---------------------------------------------------------------------------

    The Exchange now proposes to amend the qualification standards in 
order for a market maker to qualify for the $0.10 per contract rebate. 
Specifically, the Exchange proposes to define a Market Maker Plus as a 
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 for that 
symbol during the current trading month.
    The Exchange currently 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 current stated criteria, 
the Exchange rebates $0.10 per contract for transactions executed by 
that market maker during that month. The Exchange will continue to 
monitor each market maker's quoting statistics to determine whether a 
market maker qualifies for a rebate under the standards proposed 
herein.
    The Exchange also currently 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 current stated criteria. 
Again, the Exchange will continue to provide market makers a daily 
report so that market makers can determine whether or not they are 
meeting the Exchange's new quoting requirement to qualify for a rebate.
    The Exchange believes the proposed rule change will encourage 
market makers to post tighter markets in the options classes that are 
subject to maker/taker fees and thereby increase liquidity and attract 
order flow to the Exchange.
    The Exchange has designated this proposal to be operative on July 
1, 2010.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
the requirement under Section 6(b)(4) that an exchange have an 
equitable allocation of reasonable dues, fees and other charges among 
its 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 add or remove liquidity in the options classes that are 
subject to the Exchange's maker/taker fees. 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. The Exchange believes that

[[Page 42804]]

the fees it charges for options classes that are subject to the 
Exchange's maker/taker fees remain competitive with fees charged by 
other exchanges and therefore continue to be reasonable and equitably 
allocated to those members that opt to direct orders to the Exchange 
rather than to a competing exchange. The Exchange further believes that 
amending the qualification standards for market makers to qualify for a 
rebate will encourage these market participants to post tighter markets 
in the options classes that are subject to the Exchange's maker/taker 
fees and thereby increase liquidity and attract order flow to 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 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) of the Act \10\ and Rule 19b-4(f)(2) \11\ thereunder. At any 
time within 60 days of the filing of such proposed rule change, the 
Commission may summarily abrogate 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-ISE-2010-68 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2010-68. This file 
number should be included on the subject line if e-mail 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 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 publicly available. All 
submissions should refer to File Number SR-ISE-2010-68 and should be 
submitted on or before August 12, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-17928 Filed 7-21-10; 8:45 am]
BILLING CODE 8010-01-P