Document ID: SEC-2014-1005-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2014-06-18T04:00Z

[Federal Register Volume 79, Number 117 (Wednesday, June 18, 2014)]
[Notices]
[Pages 34812-34814]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-14200]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72379; File No. SR-ISE-2014-30]

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

June 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 June 2, 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 proposes to amend the Schedule of Fees to increase (1) the 
route-out fee applicable to Priority Customer orders, and (2) the 
Priority Customer taker fee in Select Symbols for members that do not 
meet a new total affiliated Priority Customer ADV threshold. 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 the proposed rule change is to amend the Schedule of 
Fees to increase (1) the route-out fee applicable to Priority Customer 
\3\ orders, and (2) the Priority Customer taker fee in Select Symbols 
\4\ for members that do not meet a new total affiliated Priority 
Customer average daily volume (``ADV'') threshold, each as described in 
more detail below. The fee changes discussed apply to both Standard 
Options and Mini Options traded on the Exchange. The Exchange's 
Schedule of Fees has separate tables for fees applicable to Standard 
Options and Mini Options. The Exchange notes that while the discussion 
below relates to fees for Standard Options, the fees for Mini Options, 
which are not discussed below, are and shall continue to be 1/10th of 
the fees for Standard Options.
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    \3\ A ``Priority Customer'' is 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), as defined in ISE Rule 100(a)(37A).
    \4\ ``Select Symbols'' are options overlying all symbols listed 
on the ISE that are in the Penny Pilot Program.
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1. Priority Customer Route-Out Fee

    The Exchange charges a fee of $0.40 per contract and $0.55 per 
contract for executions of Priority Customer and Professional Customer 
\5\ orders, respectively, for orders that are routed to one or more 
exchanges in connection with the Options Order Protection and Locked/
Crossed Market Plan. This fee is charged in lieu of the regular taker 
fee. The Exchange now proposes to increase the Priority Customer route-
out fee for orders subject to linkage handling to $0.45 per contract. 
The route-out fee for Professional Customer orders will remain at its 
current rate. The route-out fee offsets costs incurred by the Exchange 
in connection with using unaffiliated broker-dealers to access other 
exchanges for linkage executions. The proposed fee better reflects the 
costs to the Exchange associated with routing orders to away markets.
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    \5\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
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2. Priority Customer Taker Fee in Select Symbols

    The Exchange currently assesses per contract transaction fees and 
provides rebates to market participants that add liquidity to or remove 
liquidity from the Exchange (``maker/taker fees and rebates'') in 
Select Symbols. The taker fee for removing liquidity in Select Symbols 
is $0.42 per contract for Market Maker \6\ and Market Maker Plus \7\ 
orders,

[[Page 34813]]

$0.45 per contract for Non-ISE Market Maker,\8\ Firm Proprietary \9\/
Broker-Dealer,\10\ and Professional Customer orders, and $0.25 per 
contract for Priority Customer orders. The Exchange now proposes to 
increase the Priority Customer taker fee to $0.30 per contract for 
members that do not meet a new Priority Customer ADV threshold. In 
particular, members that do not execute a total affiliated Priority 
Customer ADV of at least 200,000 contracts in a given month will pay a 
Priority Customer taker fee of $0.30 per contract. Members that execute 
a total affiliated Priority Customer ADV of 200,000 or more contracts 
will continue to pay the current taker fee of $0.25 per contract. The 
Exchange is not proposing to modify the taker fees for any other market 
participants, which will remain at their current respective rates.
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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).
    \7\ 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.
    \8\ A ``Non-ISE Market Maker'' is a market maker as defined in 
Section 3(a)(38) of the Securities Exchange Act of 1934, as amended, 
registered in the same options class on another options exchange.
    \9\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \10\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
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    In connection with the above change, the Exchange further proposes 
to include the definition of total affiliated Priority Customer ADV in 
a separate footnote.\11\ Currently, this definition is contained in 
footnote 11, which provides a higher Market Maker Plus maker rebate for 
Market Makers that achieve Market Maker Plus with a total affiliated 
Priority Customer ADV that equals or exceeds 200,000 contracts in a 
given month. As this definition is also applicable to the new 
discounted Priority Customer taker fee, the Exchange believes that it 
is appropriate to include it in a separate footnote. The Exchange is 
not proposing any substantive change to the definition of total 
affiliated Priority Customer ADV, which will continue to be calculated 
in the way that it is today for the Market Maker Plus tier 
calculation.\12\
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    \11\ The Exchange also notes that certain reserved footnotes 
from a previous filing are still referenced in the body of Schedule 
of Fees. See Securities Exchange Act Release No. 71554 (February 14, 
2014), 79 FR 9783 (February 20, 2014) (SR-ISE-2014-08). The Exchange 
proposes to remove these old references, which point to reserved 
footnotes that are now being replaced with new text in this filing.
    \12\ As currently calculated, Priority Customer ADV includes all 
volume in all symbols and order types. All eligible volume from 
affiliated Members will be aggregated in determining total 
affiliated Priority Customer ADV, provided there is at least 75% 
common ownership between the Members as reflected on each Member's 
Form BD, Schedule A. For purposes of determining total affiliated 
Priority Customer ADV, any day that the market is not open for the 
entire trading day may be excluded from such calculation. Volume in 
Standard Options and Mini Options will be combined to calculate 
Priority Customer ADV but Members will be charged or rebated for all 
Standard Options traded at the Standard Option rate and for all Mini 
Options traded at the Mini Option rate.
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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,\13\ in general, and 
Section 6(b)(4) of the Act,\14\ 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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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
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1. Priority Customer Route-Out Fee

    The Exchange believes the proposed Priority Customer route-out fee 
is reasonable and equitable as it provides the Exchange the ability to 
recover costs associated with using unaffiliated broker-dealers to 
route Priority Customer orders to other exchanges for linkage 
executions. The Exchange notes that a number of other exchanges 
currently charge a variety of routing related fees associated with 
orders that are subject to linkage handling. The Exchange also believes 
that the proposed fees are not unfairly discriminatory because these 
fees would be uniformly applied to all Priority Customer orders. In 
addition, the fees charged for Priority Customer linkage executions 
will continue to be lower than the fees charged to Professional 
Customer orders.

2. Priority Customer Taker Fee in Select Symbols

    The Exchange is proposing to adopt a volume-based taker fee 
structure for Priority Customer orders in Select Symbols. Under the 
proposed structure, members that execute a Priority Customer ADV of 
200,000 contracts or more in a calendar month will be eligible for a 
discounted taker fee. The Exchange currently provides a similar 
incentive as part of its Market Maker Plus program for members whose 
affiliates execute a total affiliated Priority Customer ADV of at least 
200,000 contracts in a given month. The Exchange believes that charging 
lower fees to Priority Customer orders from members that execute more 
Priority Customer volume on the ISE is reasonable and equitable as this 
will attract additional Priority Customer order flow to the Exchange, 
which will ultimately benefit all market participants that trade on the 
ISE. The Exchange also believes that the new tiered taker fee is not 
unfairly discriminatory because all members can achieve the lower fee 
for their Priority Customer orders by executing the required Priority 
Customer volume on the ISE. Furthermore, while the Exchange is 
increasing the taker fee in Select Symbols for Priority Customer orders 
executed by members that do not meet the new volume threshold, these 
members will continue to pay taker fees for their Priority Customer 
orders that are lower than the fees charged to other market 
participants on the ISE, and that are within the range of fees assessed 
by other options exchanges.
    Finally, as noted above, the Exchange is proposing to move the 
definition of total affiliated Priority Customer ADV to a separate 
footnote. The Exchange believes that this non-substantive change is 
appropriate to eliminate investor confusion since this definition will 
now apply to Priority Customer taker fees as discussed here.
    The Exchange notes that it has determined to charge fees in Mini 
Options at a rate that is 1/10th the rate of fees and rebates the 
Exchange provides for trading in Standard Options. The Exchange 
believes it is reasonable and equitable and not unfairly discriminatory 
to assess lower fees to provide market participants an incentive to 
trade Mini Options on the Exchange. The Exchange believes the proposed 
fees are reasonable and equitable in light of the fact that Mini 
Options have a smaller exercise and assignment value, specifically 1/
10th that of a standard option contract, and, as such, is providing 
fees for Mini Options that are 1/10th of those applicable to Standard 
Options.

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

    In accordance with Section 6(b)(8) of the Act,\15\ 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 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

[[Page 34814]]

that the proposed fee changes reflect this competitive environment.
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    \15\ 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 \16\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\17\ because it establishes a due, fee, or other charge 
imposed by ISE.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 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-2014-30 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-2014-30. 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-2014-30, and should be 
submitted on or before July 9, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14200 Filed 6-17-14; 8:45 am]
BILLING CODE 8011-01-P