Document ID: SEC-2011-1146-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2011-08-09T04:00Z

[Federal Register Volume 76, Number 153 (Tuesday, August 9, 2011)]
[Notices]
[Pages 48933-48935]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20099]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65021; File No. SR-ISE-2011-45]

 Self-Regulatory Organizations; International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Fees for Complex Orders

August 3, 2011.
    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, 2011, the International Securities Exchange, LLC (the 
``Exchange'' or ``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.
---------------------------------------------------------------------------

    \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 fees for certain complex orders 
executed on the Exchange. 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\
---------------------------------------------------------------------------

    \3\ Options classes subject to maker/taker fees are identified 
by their ticker symbol on the Exchange's Schedule of Fees. See 
Securities Exchange Act Release Nos. 61869 (April 7, 2010), 75 FR 
19449 (April 14, 2010) (SR-ISE-2010-25), 62048 (May 6, 2010), 75 FR 
26830 (May 12, 2010) (SR-ISE-2010-43), 62282 (June 11, 2010), 75 FR 
34499 (June 17, 2010) (SR-ISE-2010-54), 62319 (June 17, 2010), 75 FR 
36134 (June 24, 2010) (SR-ISE-2010-57), 62508 (July 15, 2010), 75 FR 
42809 (July 22, 2010) (SR-ISE-2010-65), 62507 (July 15, 2010), 75 FR 
42802 (July 22, 2010) (SR-ISE-2010-68), 62665 (August 9, 2010), 75 
FR 50015 (August 16, 2010) (SR-ISE-2010-82), 62805 (August 31, 
2010), 75 FR 54682 (September 8, 2010) (SR-ISE-2010-90), 63283 
(November 9, 2010), 75 FR 70059 (November 16, 2010) (SR-ISE-2010-
106), 63534 (December 13, 2010), 75 FR 79433 (December 20, 2010) 
(SR-ISE-2010-114); 63664 (January 6, 2011), 76 FR 2170 (January 12, 
2011) (SR-ISE-2010-120); and 64303 (April 15, 2011), 76 FR 22425 
(April 21, 2011) (SR-ISE-2011-18).
---------------------------------------------------------------------------

    For complex orders in the Select Symbols, the Exchange currently 
charges a ``take'' fee of: (i) $0.30 per contract for Market Maker,\4\ 
Market Maker Plus,\5\ Firm Proprietary and

[[Page 48934]]

Customer (Professional) \6\ orders; and (ii) $0.35 per contract for 
Non-ISE Market Maker \7\ orders. Priority Customer \8\ orders are not 
charged a take fee for complex orders. For complex orders, the Exchange 
currently charges a ``make'' fee of: (i) $0.10 per contract for 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.
---------------------------------------------------------------------------

    \4\ Market Makers who remove liquidity in the Select Symbols 
from the Complex Order Book by trading with orders preferenced to 
them are charged $0.28 per contract.
    \5\ A Market Maker Plus is 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 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.
    \6\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \7\ 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.
    \8\ 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).
---------------------------------------------------------------------------

    Additionally, the Exchange provides a rebate of $0.25 per contract 
to Priority Customer complex orders that trade with non-customer orders 
in the Complex Order Book.
    The Exchange now proposes to extend the fees and credits for 
complex orders applicable to the Select Symbols to all symbols that are 
in the Penny Pilot Program.\9\ Thus, pursuant to this proposed rule 
change, for complex orders in the Penny Pilot Symbols, the Exchange 
will charge a ``take'' fee of: (i) $0.30 per contract for 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 will not be charged a take fee for complex orders. For 
complex orders in the Penny Pilot Symbols, the Exchange will charge a 
``make'' fee of: (i) $0.10 per contract for 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 will not be charged a make fee for complex orders.
---------------------------------------------------------------------------

    \9\ The Penny Pilot Program, which commenced on January 26, 
2007, permits ISE and all of the other options exchanges to quote 
certain option classes in pennies. The current pilot is scheduled to 
expire on December 31, 2011. The following options classes are 
currently in the Penny Pilot Program: A, AA, AAPL, ABK, ABT, ABX, 
ACAS, ACI, ADBE, ADM, ADSK, AEM, AET, AFL, AGO, AIG, AKAM, AKS, ALL, 
AMAT, AMD, AMED, AMGN, AMLN, AMR, AMZN, ANF, ANR, APA, APC, APOL, 
APWR, ARNA, ATPG, ATVI, AUY, AXP, BA, BAC, BAX, BBBY, BBD, BBT, BBY, 
BCRX, BHI, BHP, BIDU, BK, BMY, BP, BPOP, BRCD, BRCM, BRKB, BSX, BTU, 
BUCY, BX, C, CAT, CB, CELG, CENX, CF, CHK, CI, CIEN, CIT, CL, CLF, 
CMA, CMCSA, CNX, COF, COP, COST, CREE, CRM, CSCO, CSX, CTIC, CVS, 
CVX, CX, DAL, DCTH, DD, DE, DELL, DHI, DIA, DIS, DNDN, DO, DOW, 
DRYS, DTV, DVN, EBAY, EEM, EFA, EK, EMC, ENER, EOG, EP, ERTS, ESI, 
ESRX, ETFC, EWJ, EWT, EWW, EWY, EWZ, F, FAS, FAZ, FCX, FDX, FFIV, 
FIS, FITB, FLEX, FNM, FRE, FSLR, FWLT, FXE, FXI, FXP, GDX, GE, GFI, 
GG, GGP, GILD, GIS, GLD, GLW, GM, GMCR, GME, GNW, GPS, GRMN, GS, 
HAL, HBAN, HBC, HD, HES, HGSI, HIG, HK, HL, HOG, HON, HOT, HPQ, HSY, 
IBM, IBN, INTC, IOC, IP, ITMN, IWM, IYR, JCP, JDSU, JNJ, JNPR, JOYG, 
JPM, JWN, KBH, KEY, KFT, KGC, KMP, KO, KRE, LCC, LDK, LEAP, LEN, 
LLY, LNC, LO, LOW, LVS, M, MA, MBI, MCD, MCO, MCP, MDT, MDVN, MEE, 
MET, MGM, MJN, MMM, MMR, MNKD, MNX, MO, MON, MOS, MRK, MRO, MRVL, 
MS, MSFT, MSI, MT, MTG, MU, MYL, NBR, NE, NEM, NFLX, NKE, NLY, NOK, 
NOV, NTAP, NUE, NVDA, NYX, OIH, ORCL, OXY, PARD, PBR, PCL, PCX, PEP, 
PFE, PG, PHM, PM, PNC, POT, PRU, PXP, QCOM, QID, QLD, QQQ, RCL, RF, 
RIG, RIMM, RMBS, RSH, RTN, RVBD, S, SBUX, SD, SDS, SEED, SHLD, SIRI, 
SKF, SLB, SLM, SLV, SLW, SMH, SNDK, SO, SPG, SPWRA, SPY, SQNM, SRS, 
SSO, STEC, STI, STP, STT, STX, SU, SUN, SVNT, SWN, SYMC, T, TBT, 
TCK, TEVA, TGT, TIF, TIVO, TLB, TLT, TM, TSL, TSO, TWX, TXN, TXT, 
TYC, TZA, UAL, UNG, UNH, UNP, UPS, URE, USB, USO, UTX, UUP, UYG, V, 
VALE, VLO, VRSN, VVUS, VXX, VZ, WAG, WDC, WFC, WFM, WFR, WFT, WHR, 
WIN, WLP, WLT, WMB, WMT, WYNN, X, XHB, XL, XLB, XLE, XLF, XLI, XLK, 
XLNX, XLP, XLU, XLV, XLY, XME, XOM, XOP, XRT, XRX, YHOO, YRCW, YUM 
and ZION (the ``Penny Pilot Symbols'').
---------------------------------------------------------------------------

    Additionally, the Exchange currently provides a rebate of $0.25 per 
contract to Priority Customer complex orders that trade with non-
customer orders in the Complex Order Book and proposes to extend this 
rebate to the Penny Pilot Symbols. Finally, the Exchange currently 
charges a Payment for Order Flow (PFOF) fee of $0.25 per contract for 
each customer order executed in the Penny Pilot Symbols, including 
complex orders. As part of this proposed rule change, the Exchange 
proposes not to charge a PFOF fee for customer complex orders 
transacted in the Penny Pilot Symbols.
    The Exchange has designated this proposal to be operative on August 
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 Act \10\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \11\ 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 add or remove 
liquidity in options overlying the symbols that are subject to the 
Exchange's maker/taker fees.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that its complex order fees and credits 
remain competitive with fees charged by other exchanges and therefore 
are reasonable and equitably allocated to those members that opt to 
direct orders to the Exchange rather than to a competing exchange. The 
Exchange believes that its proposal to extend its complex order pricing 
to all Penny Pilot Symbols is reasonable because doing so will attract 
additional order flow to the Exchange. The complex order pricing 
employed by the Exchange for the Select Symbols has proven to be an 
effective pricing mechanism and attractive to Exchange participants and 
their customers. The Exchange believes extending that pricing structure 
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 daily volume in options trading. The Exchange 
further believes that the amounts of the proposed fees are reasonable 
because they are identical to fees assessed by the Exchange for 
execution of complex orders in the Select Symbols.
    The Exchange believes it is reasonable to eliminate the PFOF fee 
for customer complex orders in the Penny Pilot Symbols because the 
Exchange does not charge a PFOF fee for symbols that are subject to the 
Exchange's maker/taker pricing, i.e., the Select Symbols. PFOF fees are 
pricing incentives offered by exchanges to attract order flow. Since 
the Exchange is proposing to adopt maker/taker pricing for complex 
orders, which provides incentives to attract order flow in the form of 
rebates, the Exchanges does not have a need to charge PFOF fees for 
these orders.
    The Exchange also believes that extending the maker/taker pricing 
to complex orders in the Penny Pilot Symbols is reasonable and 
equitable because the Exchange is not changing its maker/taker pricing 
structure; it is merely extending it to additional symbols, i.e., Penny 
Pilot Symbols. The Exchange also believes that eliminating

[[Page 48935]]

the PFOF fee for complex orders in the Penny Pilot Symbols is 
reasonable and equitable because it will benefit customers. 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.
    Finally, 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. Additionally, the Exchange believes it remains an attractive 
venue for market participants to trade complex orders despite its 
proposed fee change as its fees remain competitive with those charged 
by other exchanges for similar trading strategies. 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.

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)(A)(ii) of the Act.\12\ 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.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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-2011-45 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-2011-45. 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 filings 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 No. SR-ISE-2011-45 and should be 
submitted on or before August 30, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20099 Filed 8-8-11; 8:45 am]
BILLING CODE 8011-01-P