Document ID: SEC-2010-0915-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2010-06-24T04:00Z

[Federal Register: June 24, 2010 (Volume 75, Number 121)]
[Notices]               
[Page 36134-36136]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24jn10-87]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62319; File No. SR-ISE-2010-57]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change Relating to Fees and Rebates for Adding and Removing Liquidity

June 17, 2010.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 1, 2010, the International Securities Exchange, LLC (the 
``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III 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 its Schedule of Fees in order to 
increase the number of options classes to be included in the Exchange's 
current schedule of transaction fees and rebates for adding and 
removing liquidity. 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 Exchange proposes to increase liquidity and attract order flow 
by amending its transaction fees and rebates for adding and removing 
liquidity (``maker/taker fees'').\3\ The Exchange's maker/taker fees 
currently apply to the following categories of market participants: (i) 
Market Maker; (ii) Market Maker Plus; \4\ (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.\8\
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    \3\ These fees are similar to the ``maker/taker'' fees currently 
assessed by NASDAQ OMX PHLX (``PHLX''). PHLX currently charges a fee 
for removing liquidity to the following class of market 
participants: (i) Customer, (ii) Directed Participant, (iii) 
Specialist, ROT, SQT and RSQT, (iv) Firm, (v) Broker-Dealer, and 
(vi) Professional. PHLX also provides a rebate for adding liquidity 
to the following class of market participants: (i) Customer, (ii) 
Directed Participant, (iii) Specialist, ROT, SQT and RSQT, and (iv) 
Professional. See Securities Exchange Act Release Nos. 61684 (March 
10, 2010), 75 FR 13189 (March 18, 2010); 61932 (April 16, 2010), 75 
FR 21375 (April 23, 2010); and 61961 (April 22, 2010), 75 FR 22881 
(April 30, 2010).
    \4\ A Market Maker Plus is a market maker who is on the National 
Best Bid or National Best Offer 80% of the time in that symbol 
during the current trading month for series trading between $0.03 
and $5.00 in premium. 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 80% 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 80% 
criteria. On May 26, 2010, the Exchange submitted a proposed rule 
change, SR-ISE-2010-54, to be effective on June 1, 2010, to amend 
the qualification standards for market makers to receive the $0.10 
per contract rebate. Pursuant to that proposed rule change, a market 
maker must be 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 order to receive the 
rebate.
    \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).
    \8\ The Chicago Board Options Exchange (``CBOE'') currently 
makes a similar distinction between large size customer orders that 
are fee liable and small size customer orders whose fees are waived. 
CBOE currently waives fees for customer orders of 99 contracts or 
less in options on exchange-traded funds (``ETFs'') and Holding 
Company Depositary Receipts (``HOLDRs'') and charges a transaction 
fee for customer orders that exceed 99 contracts. See Securities 
Exchange Act Release No. 59892 (May 8, 2009), 74 FR 22790 (May 14, 
2009).
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Current Transaction Charges for Adding and Removing Liquidity
    The Exchange currently assesses a per contract transaction charge 
to market participants that remove, or ``take,'' liquidity from the 
Exchange in the following 20 options classes: PowerShares QQQ trust 
(``QQQQ''), Bank of America Corporation (``BAC''), Citigroup, Inc. 
(``C''), Standard and Poor's Depositary Receipts/SPDRs (``SPY''), 
iShares Russell 2000 (``IWM''), Financial Select Sector SPDR (``XLF''), 
Apple, Inc. (``AAPL''), General Electric Company (``GE''), JPMorgan 
Chase & Co. (``JPM''), Intel Corporation (``INTC''), Goldman Sachs 
Group, Inc. (``GS''), Research in Motion Limited (``RIMM''), AT&T, Inc. 
(``T''), Verizon

[[Page 36135]]

Communications, Inc. (``VZ''), United States Natural Gas Fund 
(``UNG''), Freeport-McMoRan Copper & Gold, Inc. (``FCX''), Cisco 
Systems, Inc. (``CSCO''), Diamonds Trust, Series 1 (``DIA''), 
Amazon.com, Inc. (``AMZN'') and United States Steel Corporation 
(``X''). The per contract transaction charge depends on the category of 
market participant submitting an order or quote to the Exchange that 
removes liquidity.\9\ Priority Customer Complex orders, regardless of 
size, are not assessed a fee for removing liquidity.
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    \9\ Although these options classes will no longer be subject to 
the tiered market maker transaction fees, the volume from these 
options classes will continue to be used in the calculation of the 
tiers so that this new pricing does not affect a market maker's fee 
in all other names.
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    The Exchange also currently assesses transaction charges for adding 
liquidity in options on QQQQ, BAC, C, SPY, IWM, XLF, AAPL, GE, JPM, 
INTC, GS, RIMM, T, VZ, UNG, FCX, CSCO, DIA, AMZN and X. Priority 
Customer orders, regardless of size, and Market Maker Plus orders are 
not assessed a fee for adding liquidity.
Current Rebates
    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.\10\ Further, in order to incentivize members to direct retail 
orders to the Exchange, Priority Customer Complex orders, regardless of 
size, currently receive a rebate of $0.15 per contract on all legs when 
these orders trade with non-customer orders in the Exchange's Complex 
Orderbook. Additionally, the Exchange's Facilitation Mechanism has an 
auction which allows for participation in a trade by members other than 
the member who entered the trade. To incentivize members, the Exchange 
currently offers a rebate of $0.15 per contract to contracts that do 
not trade with the contra order in the Facilitation Mechanism.
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    \10\ 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).
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Fee Changes
    The Exchange proposes to add the following 30 options classes to be 
included in the Exchange's maker/taker fee schedule: Alcoa Inc. 
(``AA''), American International Group, Inc. (``AIG''), American 
Express Company (``AXP''), Best Buy Company (``BBY''), Caterpillar, 
Inc. (``CAT''), Chesapeake Energy Corporation (``CHK''), Dendreon 
Corporation (``DNDN''), iShares MSCI Emerging Markets Index Fund 
(``EEM''), iShares MSCI EAFE Index Fund (``EFA''), iShares MSCI Brazil 
Index Fund (``EWZ''), Ford Motor Company (``F''), Direxion Shares 
Financial Bull (``FAS''), Direxion Shares Financial Bear (``FAZ''), 
First Solar, Inc. (``FSLR''), Market Vectors ETF Gold Miners (``GDX''), 
SPDR Gold Trust (``GLD''), iShares DJ US Real Estate Index Fund 
(``IYR''), MGM Mirage (``MGM''), Morgan Stanley (``MS''), Microsoft 
Corporation (``MSFT''), Micron Technology, Inc. (``MU''), Palm, Inc. 
(``PALM''), Petroleo Brasileiro S.A. (``PBR''), The Procter & Gamble 
Company (``PG''), Potash Corporation of Saskatchewan (``POT''), 
Transocean Ltd. (``RIG''), ProShares UltraShort S&P 500 (``SDS''), 
iShares Silver Trust (``SLV''), Energy Select Sector SPDR Fund 
(``XLE''), and Exxon Mobil Corporation (``XOM'').
Other Fees
     Fees for orders executed in the Exchange's Facilitation, 
Solicited Order, Price Improvement and Block Order Mechanisms are for 
contracts that are part of the originating or contra order.
     Complex orders executed in the Facilitation and Solicited 
Order Mechanisms are charged fees only for the leg of the trade 
consisting of the most contracts.
     Payment for Order Flow fees will not be collected on 
transactions on 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 options.\11\
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    \11\ ISE currently has a payment-for-order-flow (``PFOF'') 
program that helps the Exchange's market makers establish PFOF 
arrangements with an Electronic Access Member (``EAM'') in exchange 
for that EAM preferencing some or all of its order flow to that 
market maker. This program is funded through a fee paid by Exchange 
market makers for each customer contract they execute, and is 
administered by both Primary Market Makers (``PMM'') and Competitive 
Market Makers (``CMM''), depending to whom the order is preferenced.
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     The Cancellation Fee will continue to apply in 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 options.\12\
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    \12\ The Exchange assesses a Cancellation Fee of $2.00 to EAMs 
that cancel at least 500 orders in a month, for each order 
cancellation in excess of the total number of orders such member 
executed that month. All orders from the same clearing EAM executed 
in the same underlying symbol at the same price within a 300-second 
period are aggregated and counted as one executed order for purposes 
of this fee. This fee is charged only to customer orders.
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     The Exchange has a $0.20 per contract fee credit for 
members who, pursuant to Supplementary Material .02 to Rule 803, 
execute a transaction in the Exchange's flash auction as a response to 
orders from persons who are not broker/dealers and who are not Priority 
Customers.\13\ For 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 options, the 
Exchange proposes to lower the per contract fee credit for members who 
execute a transaction in the Exchange's flash auction as a response to 
orders from persons who are not broker/dealers and who are not Priority 
Customers to $0.10 per contract.
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    \13\ See Securities Exchange Act Release No. 61731 (March 18, 
2010), 75 FR 14233 (March 24, 2010).
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     The Exchange has a $0.20 per contract fee for market maker 
orders sent to the Exchange by EAMs.\14\ Market maker orders sent to 
the Exchange by EAMs will be assessed a fee of $0.25 per contract for 
removing liquidity in 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 options and 
$0.10 per contract for adding liquidity in 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 options.
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    \14\ See Securities Exchange Act Release No. 60817 (October 13, 
2009), 74 FR 54111 (October 21, 2009).
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    The Exchange has designated this proposal to be operative on June 
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

[[Page 36136]]

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, the most important of which will be its propensity 
to add or remove liquidity in 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 
options. 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 the proposed fees it charges for options 
overlying 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 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.

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 \15\ and Rule 19b-4(f)(2) \16\ 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.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(2).
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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 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-2010-57 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2010-57. 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-2010-57 and should be 
submitted on or before July 15, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-15280 Filed 6-23-10; 8:45 am]
BILLING CODE 8010-01-P