Document ID: SEC-2012-1348-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2012-08-15T04:00Z

[Federal Register Volume 77, Number 158 (Wednesday, August 15, 2012)]
[Notices]
[Pages 49049-49054]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19979]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67628; File No. SR-ISE-2012-71]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend Fees for Certain Regular and Complex Orders Executed on 
the Exchange

August 9, 2012.
    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, 2012, the International Securities Exchange, LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (the ``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 is proposing to amend transaction fees for certain regular 
and 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 a per contract transaction charge 
and provides rebates to market participants that add or remove 
liquidity from the Exchange (``maker/taker fees and rebates'') in a 
number of options classes (the ``Select Symbols'').\3\ For removing 
liquidity in the Select Symbols, the Exchange currently charges a taker 
fee of: (i) $0.29 per contract for Market Maker \4\ and Market Maker 
Plus \5\ orders, (ii) $0.35 per contract for Non-ISE Market Maker \6\ 
orders, (iii) $0.30 per contract for Firm Proprietary/Broker-Dealer and 
Professional Customer \7\ orders, and (iv) $0.20 per contract for 
Priority

[[Page 49050]]

Customer \8\ orders. The Exchange now proposes to increase the taker 
fee for: (i) Market Maker and Market Maker Plus orders in the Select 
Symbols from $0.29 per contract to $0.32 per contract, (ii) Non-ISE 
Market Maker orders in the Select Symbols from $0.35 per contract to 
$0.36 per contract, (iii) Firm Proprietary/Broker-Dealer and 
Professional Customer orders in the Select Symbols from $0.30 per 
contract to $0.33 per contract, and (iv) Priority Customer orders in 
the Select Symbols from $0.20 per contract to $0.25 per contract.
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    \3\ Options classes subject to maker/taker fees and rebates are 
identified by their ticker symbol on the Exchange's Schedule of 
Fees.
    \4\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \5\ A Market Maker Plus is an ISE 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. A Market Maker's single best 
and single worst overall quoting days each month, on a per symbol 
basis, are excluded in calculating whether a Market Maker qualifies 
for this rebate, if doing so qualifies a Market Maker for the 
rebate. 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 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, registered in the same 
options class on another options exchange.
    \7\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
    \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).
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    For complex orders in the Select Symbols (excluding SPY), the 
Exchange currently charges a taker fee of: (i) $0.35 per contract for 
Market Maker, Firm Proprietary/Broker-Dealer and Professional Customer 
orders, and (ii) $0.38 per contract for Non-ISE Market Maker orders. 
Priority Customer orders are not charged a taker fee for complex orders 
in the Select Symbols (excluding SPY). The Exchange now proposes to 
increase the complex order taker fee in the Select Symbols (excluding 
SPY) for: (i) Market Maker, Firm Proprietary/Broker-Dealer and 
Professional Customer orders, from $0.35 per contract to $0.37 per 
contract, and (ii) Non-ISE Market Maker orders, from $0.38 per contract 
to $0.39 per contract. The Exchange is not proposing any change to the 
complex order taker fee for Priority Customer orders in the Select 
Symbols (excluding SPY).
    With this proposed rule change, the Exchange proposes to adopt a 
new column for taker fees for SPY as those fees are distinct and also 
to provide market participants greater clarity with regards to fees for 
SPY.\9\ Specifically, for complex orders in SPY, the Exchange currently 
charges a taker fee of: (i) $0.35 per contract for Market Maker, Firm 
Proprietary/Broker-Dealer and Professional Customer orders, and (ii) 
$0.39 per contract for Non-ISE Market Maker orders. Priority Customer 
orders are not charged a taker fee for complex orders in SPY. The 
Exchange now proposes to increase the complex order taker fee in SPY 
for: (i) Market Maker, Firm Proprietary/Broker-Dealer and Professional 
Customer orders, from $0.35 per contract to $0.38 per contract, and 
(ii) Non-ISE Market Maker orders, from $0.39 per contract to $0.40 per 
contract. The Exchange is not proposing any change to the complex order 
taker fee for Priority Customer orders in SPY.
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    \9\ The Exchange notes that its Schedule of Fees has a separate 
column for rebates payable for complex orders in SPY. The Exchange 
proposes to adopt a similar distinct column for taker fees for 
complex orders in SPY.
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    With the proposed adoption of a new column for SPY, the column that 
previously reflected taker fees for SPY and Non-Select Penny Pilot 
Symbols will now display taker fees for Non-Select Penny Pilot Symbols 
only. For complex orders in the Non-Select Penny Pilot Symbols, the 
Exchange currently charges a taker fee of: (i) $0.35 per contract for 
Market Maker, Firm Proprietary/Broker-Dealer and Professional Customer 
orders, and (ii) $0.39 per contract for Non-ISE Market Maker orders. 
Priority Customer orders are not charged a taker fee for complex orders 
in the Non-Select Penny Pilot Symbols. The Exchange now proposes to 
increase the complex order taker fee in the Non-Select Penny Pilot 
Symbols for Market Maker, Firm Proprietary/Broker-Dealer and 
Professional Customer orders, from $0.35 per contract to $0.37 per 
contract. The Exchange is not proposing any change to the complex order 
taker fee for Non-ISE Market Maker and Priority Customer orders in the 
Non-Select Penny Pilot Symbols.
    For complex orders in the Non-Penny Pilot Symbols, the Exchange 
currently charges a taker fee of: (i) $0.75 per contract for Market 
Maker, Firm Proprietary/Broker-Dealer and Professional Customer orders, 
and (ii) $0.78 per contract for Non-ISE Market Maker orders. Priority 
Customer orders are not charged a taker fee for complex orders in the 
Non-Penny Pilot Symbols. The Exchange now proposes to increase the 
complex order taker fee in the Non-Penny Pilot Symbols for: (i) Market 
Maker, Firm Proprietary/Broker-Dealer and Professional Customer orders, 
from $0.75 per contract to $0.80 per contract, and (ii) Non-ISE Market 
Maker orders, from $0.78 per contract to $0.83 per contract. The 
Exchange is not proposing any change to the complex order taker fee for 
Priority Customer orders in the Non-Penny Pilot Symbols.
    Additionally, the Exchange provides Market Makers with a two cent 
discount when trading against Priority Customer orders that are 
preferenced to them. This discount is applicable when Market Makers 
remove liquidity from the complex order book in the Select Symbols, in 
SPY, in the Non-Select Penny Pilot Symbols and in the Non-Penny Pilot 
Symbols. Market Makers that remove liquidity in the Select Symbols, in 
SPY, in the Non-Select Penny Pilot Symbols and in the Non-Penny Pilot 
Symbols from the complex order book by trading with Priority Customer 
orders that are preferenced to them will continue to receive a two cent 
discount.
    Further, the Exchange currently provides volume-based tiered 
rebates for Priority Customer complex orders in the Select Symbols 
(excluding SPY), in SPY, in the Non-Select Penny Pilot Symbols and in 
the Non-Penny Pilot Symbols when these orders trade with non-Priority 
Customer orders in the complex order book. In order to enhance the 
Exchange's competitive position and to incentivize Members to increase 
the amount of Priority Customer complex orders in the Select Symbols 
(excluding SPY), in SPY, in the Non-Select Penny Pilot Symbols and in 
the Non-Penny Pilot Symbols that they send to the Exchange, the 
Exchange now proposes to increase the rebate levels for these volume-
based tiers. In the Select Symbols (excluding SPY), the Exchange 
currently provides a rebate of $0.32 per contract, per leg, for 
Priority Customer complex orders when these orders trade with non-
Priority Customer complex orders in the complex order book. 
Additionally, Members who achieve a certain level of average daily 
volume (ADV) of executed Priority Customer complex order contracts 
across all symbols during a calendar month are provided a rebate of 
$0.33 per contract, per leg, in these symbols, if a Member achieves an 
ADV of 75,000 Priority Customer complex order contracts; $0.34 per 
contract, per leg, in these symbols, if a Member achieves an ADV of 
125,000 Priority Customer complex order contracts; and $0.35 per 
contract, per leg, in these symbols, if a Member achieves an ADV of 
250,000 Priority Customer complex order contracts. The highest rebate 
amount achieved by the Member for the current calendar month applies 
retroactively to all Priority Customer complex order contracts that 
trade with non-Priority Customer complex orders in the complex order 
book executed by the Member during such calendar month. The Exchange 
now proposes to increase the rebate levels applicable to the Select 
Symbols (excluding SPY), as follows: (i) Increase the base rebate 
level, from $0.32 per contract, per leg, to $0.34 per contract, per 
leg, (ii) increase the rebate level, from $0.33 per contract, per leg, 
to $0.36 per contract, per leg, for Members who achieve an ADV of 
75,000 Priority Customer complex order contracts, (iii) increase the 
rebate level, from $0.34 per contract, per leg, to $0.37 per contract, 
per leg, for Members who achieve an ADV of 125,000 Priority Customer 
complex order contracts, and (iv) increase the rebate level, from $0.35 
per

[[Page 49051]]

contract, per leg, to $0.38 per contract, per leg, for Members who 
achieve an ADV of 250,000 Priority Customer complex order contracts.
    In SPY, the Exchange currently provides a rebate of $0.33 per 
contract, per leg, for Priority Customer complex orders when these 
orders trade with non-Priority Customer complex orders in the complex 
order book. Additionally, Members who achieve a certain level of ADV of 
executed Priority Customer complex order contracts in SPY during a 
calendar month are provided a rebate of $0.34 per contract, per leg, if 
a Member achieves an ADV of 75,000 Priority Customer complex order 
contracts; $0.35 per contract, per leg, if a Member achieves an ADV of 
125,000 Priority Customer complex order contracts; and $0.36 per 
contract, per leg, if a Member achieves an ADV of 250,000 Priority 
Customer complex order contracts. The highest rebate amount achieved by 
the Member for the current calendar month applies retroactively to all 
Priority Customer complex order contracts that trade with non-Priority 
Customer complex orders in the complex order book executed by the 
Member during such calendar month. The Exchange now proposes to 
increase the rebate levels applicable to SPY, as follows: (i) Increase 
the base rebate level, from $0.33 per contract, per leg, to $0.36 per 
contract, per leg, (ii) increase the rebate level, from $0.34 per 
contract, per leg, to $0.37 per contract, per leg, for Members who 
achieve an ADV of 75,000 Priority Customer complex order contracts, 
(iii) increase the rebate level, from $0.35 per contract, per leg, to 
$0.38 per contract, per leg, for Members who achieve an ADV of 125,000 
Priority Customer complex order contracts, and (iv) increase the rebate 
level, from $0.36 per contract, per leg, to $0.39 per contract, per 
leg, for Members who achieve an ADV of 250,000 Priority Customer 
complex order contracts.
    In Non-Select Penny Pilot Symbols, the Exchange currently provides 
a rebate of $0.29 per contract, per leg, for Priority Customer complex 
orders when these orders trade with non-Priority Customer complex 
orders in the complex order book. Additionally, Members who achieve a 
certain level of ADV of executed Priority Customer complex order 
contracts in the Non-Select Penny Pilot Symbols during a calendar month 
are provided a rebate of $0.31 per contract, per leg, in these symbols, 
if a Member achieves an ADV of 75,000 Priority Customer complex order 
contracts; $0.33 per contract, per leg, in these symbols, if a Member 
achieves an ADV of 125,000 Priority Customer complex order contracts; 
and $0.34 per contract, per leg, in these symbols, if a Member achieves 
an ADV of 250,000 Priority Customer complex order contracts. Again, the 
highest rebate amount achieved by the Member for the current calendar 
month applies retroactively to all Priority Customer complex order 
contracts that trade with non-Priority Customer complex orders in the 
complex order book executed by the Member during such calendar month. 
The Exchange now proposes to increase the rebate levels applicable to 
the Non-Select Penny Pilot Symbols, as follows: (i) Increase the base 
rebate level, from $0.29 per contract, per leg, to $0.33 per contract, 
per leg, (ii) increase the rebate level, from $0.31 per contract, per 
leg, to $0.34 per contract, per leg, for Members who achieve an ADV of 
75,000 Priority Customer complex order contracts, (iii) increase the 
rebate level, from $0.33 per contract, per leg, to $0.36 per contract, 
per leg, for Members who achieve an ADV of 125,000 Priority Customer 
complex order contracts, and (iv) increase the rebate level, from $0.34 
per contract, per leg, to $0.37 per contract, per leg, for Members who 
achieve an ADV of 250,000 Priority Customer complex order contracts.
    In the Non-Penny Pilot Symbols, the Exchange currently provides a 
rebate of $0.62 per contract, per leg, for Priority Customer complex 
orders when these orders trade with non-Priority Customer complex 
orders in the complex order book. Additionally, Members who achieve a 
certain level of ADV of executed Priority Customer complex order 
contracts in the Non-Penny Pilot Symbols during a calendar month are 
provided a rebate of $0.64 per contract, per leg, in these symbols, if 
a Member achieves an ADV of 75,000 Priority Customer complex order 
contracts; $0.66 per contract, per leg, in these symbols, if a Member 
achieves an ADV of 125,000 Priority Customer complex order contracts; 
and $0.67 per contract, per leg, in these symbols, if a Member achieves 
an ADV of 250,000 Priority Customer complex order contracts. Again, the 
highest rebate amount achieved by the Member for the current calendar 
month applies retroactively to all Priority Customer complex order 
contracts that trade with non-Priority Customer complex orders in the 
complex order book executed by the Member during such calendar month. 
The Exchange now proposes to increase the rebate levels applicable to 
the Non-Penny Pilot Symbols, as follows: (i) Increase the base rebate 
level, from $0.62 per contract, per leg, to $0.66 per contract, per 
leg, (ii) increase the rebate level, from $0.64 per contract, per leg, 
to $0.70 per contract, per leg, for Members who achieve an ADV of 
75,000 Priority Customer complex order contracts, (iii) increase the 
rebate level, from $0.66 per contract, per leg, to $0.74 per contract, 
per leg, for Members who achieve an ADV of 125,000 Priority Customer 
complex order contracts, and (iv) increase the rebate level, from $0.67 
per contract, per leg, to $0.76 per contract, per leg, for Members who 
achieve an ADV of 250,000 Priority Customer complex order contracts.
    Further, the Exchange currently provides a rebate of $0.06 per 
contract, per leg, for Priority Customer complex orders in all symbols 
traded on the Exchange (excluding SPY) when these orders trade against 
quotes or orders in the regular orderbook. In order to enhance the 
Exchange's competitive position and to incentivize Members to increase 
the amount of Priority Customer complex orders that they send to the 
Exchange, the Exchange is proposing to adopt volume-based tiers similar 
to the volume-based tiers currently in place for complex orders that 
trade with non-Priority Customer complex orders in the complex order 
book. While keeping the base rebate at $0.06 per contract, per leg, the 
Exchange proposes to adopt increased rebates, as follows: (i) Increase 
the rebate level, from $0.06 per contract, per leg, to $0.07 per 
contract, per leg, for Members who achieve an ADV of 75,000 executed 
Priority Customer complex contracts, (ii) increase the rebate level, 
from $0.06 per contract, per leg, to $0.08 per contract, per leg, for 
Members who achieve an ADV of 125,000 executed Priority Customer 
complex contracts, and (iii) increase the rebate level, from $0.06 per 
contract, per leg, to $0.09 per contract, per leg, for Members who 
achieve an ADV of 250,000 executed Priority Customer complex contracts. 
The highest rebate amount achieved by the Member for the current 
calendar month shall apply retroactively to all Priority Customer 
complex order contracts that trade against quotes or orders in the 
regular orderbook during such calendar month.
    For SPY, the Exchange currently provides a rebate of $0.07 per 
contract, per leg, for Priority Customer complex orders when these 
orders trade against quotes or orders in the regular orderbook. The 
Exchange now proposes to adopt volume-based tiers for options on SPY, 
similar to the volume-based tiers currently in place for complex orders 
that trade with non-Priority Customer complex orders in the complex 
order book. While keeping the

[[Page 49052]]

base rebate at $0.07 per contract, per leg, the Exchange proposes to 
adopt increased rebates, as follows: (i) Increase the rebate level, 
from $0.07 per contract, per leg, to $0.08 per contract, per leg, for 
Members who achieve an ADV of 75,000 executed Priority Customer complex 
contracts, (ii) increase the rebate level, from $0.07 per contract, per 
leg, to $0.09 per contract, per leg, for Members who achieve an ADV of 
125,000 executed Priority Customer complex contracts, and (iii) 
increase the rebate level, from $0.07 per contract, per leg, to $0.10 
per contract, per leg, for Members who achieve an ADV of 250,000 
executed Priority Customer complex contracts. Again, the highest rebate 
amount achieved by the Member for the current calendar month shall 
apply retroactively to all Priority Customer complex order contracts in 
SPY that trade against quotes or orders in the regular orderbook during 
such calendar month.
    Finally, pursuant to Securities and Exchange Commission (``SEC'') 
approval, the Exchange currently allows Market Makers to enter 
quotations for complex order strategies in the complex order book.\10\ 
Given this enhancement to the complex order functionality, and in order 
to maintain a competitive fee and rebate structure for Priority 
Customer orders, the Exchange has adopted maker fees that apply to 
transactions in the complex order book when they interact with Priority 
Customer orders in options overlying AA, ABX, EFA, GLD, MSFT, MU, NVDA, 
VXX, VZ, WFC, XLB and XOP (``Complex Quoting Symbols''). Specifically, 
the Exchange currently charges a maker fee of $0.35 per contract for 
Market Maker, Non-ISE Market Maker, Firm Proprietary/Broker-Dealer and 
Professional Customer orders when these orders interact with Priority 
Customer orders in the Complex Quoting Symbols. Priority Customer 
orders in the Complex Quoting Symbols that trade in the complex order 
book are not charged a fee and do not receive a rebate when interacting 
with other Priority Customer orders.
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    \10\ See Securities Exchange Act Release No. 65548 (October 13, 
2011), 76 FR 64980 (October 19, 2011) (SR-ISE-2011-39).
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    The Exchange now proposes to increase the maker fee for Market 
Maker, Non-ISE Market Maker, Firm Proprietary/Broker-Dealer and 
Professional Customer orders in the Complex Quoting Symbols from $0.35 
per contract to $0.37 per contract when these orders interact with 
Priority Customer orders in the complex order book. The Exchange does 
not propose any change to fees for Priority Customer orders in the 
Complex Quoting Symbols that trade in the complex order book. 
Additionally, the Exchange provides Market Makers with a two cent 
discount when trading against Priority Customer orders that are 
preferenced to them. This discount is applicable when Market Makers add 
or remove liquidity from the complex order book in the Complex Quoting 
Symbols. The Exchange does not propose any change to this discount. As 
such, Market Makers will continue to receive the two cent discount.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Securities and Exchange Act 
of 1934 (the ``Act'') \11\ in general, and furthers the objectives of 
Section 6(b)(4) of the Act \12\ 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 
Select Symbols, the Non-Select Penny Pilot Symbols, the Non-Penny Pilot 
Symbols, the Complex Quoting Symbols and SPY.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that its proposal to assess a $0.32 per 
contract taker fee for regular Market Maker and Market Maker Plus 
orders in the Select Symbols is reasonable and equitably allocated 
because the fee is within the range of fees assessed by other exchanges 
employing similar pricing schemes. For example, NASDAQ OMX PHLX, Inc. 
(``PHLX'') currently charges $0.39 per contract for Specialist and 
Market Maker orders in its regular order book.\13\ The Exchange also 
notes that with this proposed rule change, the fee charged to regular 
Market Maker and Market Maker Plus orders in the Select Symbols will 
remain lower than the fee currently charged by the Exchange to certain 
other market participants.
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    \13\ See PHLX Fee Schedule at http://www.nasdaqtrader.com/content/marketregulation/membership/phlx/feesched.pdf.
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    The Exchange also believes that its proposal to assess a $0.33 per 
contract taker fee for regular Firm Proprietary/Broker-Dealer and 
Professional Customer orders and $0.36 per contract taker fee for 
regular Non-ISE Market Maker orders in the Select Symbols is reasonable 
and equitably allocated because the fee is also within the range of 
fees assessed by other exchanges employing similar pricing schemes. By 
comparison, the proposed fees assessed to regular Firm Proprietary/
Broker-Dealer and Professional Customer orders and to regular Non-ISE 
Market Maker orders are lower than the rates assessed by PHLX for 
similar orders. PHLX currently charges a taker fee of $0.45 per 
contract for equivalent orders in its regular order book.\14\
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    \14\ Id.
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    The Exchange also believes that its proposal to assess a $0.25 per 
contract taker fee for all regular Priority Customer orders in the 
Select Symbols is reasonable and equitably allocated because the fee is 
within the range of fees assessed by other exchanges employing similar 
pricing schemes. The proposed fee is substantially lower than the $0.39 
per contract taker fee currently charged by PHLX for Customer orders in 
its regular order book.\15\ Therefore, while ISE is proposing a fee 
increase, the resulting fee remains lower than the fee currently 
charged by PHLX. Further, the proposed increase will bring this fee 
closer to the fee the Exchange currently charges to other market 
participants. The Exchange also notes, however, that with this proposed 
rule change, the fee charged to regular Priority Customer orders will 
remain lower (as it historically has always been) than the fee 
currently charged by the Exchange to other market participants.
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    \15\ Id.
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    The Exchange believes that the price differentiation between the 
various market participants is justified because Market Makers have 
obligations to the market that the other market participants do not. 
The Exchange believes that, in this instance, it is equitable to assess 
a higher fee to market participants that do not have the quoting 
requirements that Exchange Market Makers have. While ISE is proposing 
fee increases for Market Maker, Market Maker Plus, Non-ISE Market 
Maker, Firm Proprietary/Broker-Dealer, Professional Customer and 
Priority Customer orders in the Select Symbols, the resulting fees 
remain lower than the fees currently charged by PHLX for similar 
orders.
    The Exchange believes that its proposal to assess a $0.37 per 
contract taker fee for Market Maker, Firm Proprietary/Broker-Dealer and 
Professional Customer complex orders, and $0.39 per contract for Non-
ISE Market Maker complex orders, in the Select Symbols (excluding SPY) 
is reasonable and equitably allocated because the fee is within the 
range of

[[Page 49053]]

fees assessed by other exchanges employing similar pricing schemes and 
in some cases, is lower that the fees assessed by other exchanges. For 
example, PHLX currently charges $0.39 per contract for removing 
liquidity in complex orders for Specialist, Market Maker, Firm, Broker-
Dealer and Professional orders.\16\ Therefore, while ISE is proposing a 
fee increase for Market Maker, Firm Proprietary/Broker-Dealer and 
Professional Customer orders, the resulting fee will remain lower than 
the fee currently charged by PHLX for similar orders, while the 
resulting fee from the proposed fee increase for Non-ISE Market Maker 
orders will be equal to the fee currently charged by PHLX for similar 
orders. In addition, the Exchange believes that charging Non-ISE Market 
Maker orders a higher rate than the fee charged to Market Maker, Firm 
Proprietary/Broker-Dealer and Professional Customer complex orders is 
appropriate and not unfairly discriminatory because Non-ISE Market 
Makers are not subject to many of the non-transaction based fees that 
these other categories of membership are subject to, e.g., membership 
fees, access fees, API/Session fees, market data fees, etc. Therefore, 
in this instance, it is appropriate and not unfairly discriminatory to 
assess a higher transaction fee to Non-ISE Market Makers because the 
Exchange incurs costs associated with these types of orders that are 
not recovered by non-transaction based fees paid by members.
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    \16\ Id.
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    The Exchange believes that its proposal to increase the taker fee 
to $0.38 per contract for ISE Market Maker, Firm Proprietary/Broker-
Dealer and Professional Customer complex orders, and to increase the 
taker fee to $0.40 per contract for Non-ISE Market Maker complex 
orders, in SPY is reasonable because the fee is within the range of 
fees assessed by other exchanges employing similar pricing schemes. For 
example, PHLX currently charges $0.39 per contract for removing 
liquidity in complex orders in SPY for Specialist, Market Maker, Firm, 
Broker-Dealer and Professional orders.\17\ Therefore, while ISE is 
proposing fees increases for Market Maker, Firm Proprietary/Broker-
Dealer and Professional Customer complex orders, the resulting fees 
will remain lower than the fees currently charged by PHLX for similar 
orders, while the resulting fee from the proposed fee increase for Non-
ISE Market Maker complex orders will only be marginally higher than the 
fee currently charged by PHLX for similar orders. In addition, the 
Exchange believes that charging Non-ISE Market Maker complex orders a 
higher rate than the fee charged to Market Maker, Firm Proprietary/
Broker-Dealer and Professional Customer complex orders in SPY is 
appropriate and not unfairly discriminatory because Non-ISE Market 
Makers are not subject to many of the non-transaction based fees that 
these other categories of membership are subject to, e.g., membership 
fees, access fees, API/Session fees, market data fees, etc. Therefore, 
in this instance, it is appropriate and not unfairly discriminatory to 
assess a higher transaction fee on Non-ISE Market Makers because the 
Exchange incurs costs associated with these types of orders that are 
not recovered by non-transaction based fees paid by members.
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    \17\ Id.
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    The Exchange believes that its proposal to assess a $0.37 per 
contract taker fee for Market Maker, Firm Proprietary/Broker-Dealer and 
Professional Customer complex orders in the Non-Select Penny Pilot 
Symbols is reasonable and equitably allocated because the fee is within 
the range of fees assessed by other exchanges employing similar pricing 
schemes. For example, PHLX currently charges $0.22 per contract plus a 
payment for order flow fee of $0.25 per contract (applicable to 
customer orders), for a total rate of $0.47 per contract for adding and 
removing liquidity in complex orders for Specialist and Market Maker 
orders and charges anywhere from $0.25 per contract to $0.45 per 
contract for Firm, Broker-Dealer and Professional orders.\18\
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    \18\ Id.
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    The Exchange believes it is reasonable and equitable to charge 
Market Maker, Firm Proprietary/Broker-Dealer and Professional Customer 
complex orders a taker fee of $0.80 per contract, and to charge Non-ISE 
Market Maker orders a taker fee of $0.83 per contract for complex 
orders in the Non-Penny Pilot Symbols because the Exchange is seeking 
to recoup the cost associated with paying a higher per contract rebate 
to Priority Customers. In addition, the Exchange believes that charging 
Non-ISE Market Maker orders a higher rate than the fee charged to 
Market Maker, Firm Proprietary/Broker-Dealer and Professional Customer 
complex orders in the Non-Penny Pilot Symbols is appropriate and not 
unfairly discriminatory because Non-ISE Market Makers are not subject 
to many of the non-transaction based fees that these other categories 
of membership are subject to, e.g., membership fees, access fees, API/
Session fees, market data fees, etc. Therefore, in this instance, it is 
appropriate and not unfairly discriminatory to assess a higher 
transaction fee on Non-ISE Market Makers because the Exchange incurs 
costs associated with these types of orders that are not recovered by 
non-transaction based fees paid by members.
    The Exchange believes that increasing the fees applicable to orders 
executed in the complex order book when trading against Priority 
Customer orders in the Complex Quoting Symbols is appropriate given the 
functionality developed by the Exchange that allows market makers to 
quote in the complex order book. Specifically, the Exchange believes 
that its proposal to assess a maker fee of $0.37 per contract for the 
Complex Quoting Symbols when orders in these symbols interact with 
Priority Customer orders is reasonable and equitable because the fee is 
within the range of fees assessed by other exchanges employing similar 
pricing schemes. In fact, the proposed fee is considerably less than 
that charged by other exchanges. For example, the maker fee for a 
broker-dealer complex order in XOP at PHLX is $0.60 per contract \19\ 
while the same order that is electronically delivered at the Chicago 
Board Options Exchange (``CBOE'') is $0.45 per contract.\20\ 
Additionally, one of the primary goals of this fee change is to 
maintain the attractive and competitive economics for Priority Customer 
complex orders, in light of the enhanced manner in which complex orders 
now trade on the Exchange.
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    \19\ Id.
    \20\ See CBOE Fees Schedule, at http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf.
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    The Exchange believes that it is reasonable and equitable to 
provide a two cent discount to Market Makers on preferenced orders as 
an incentive for them to quote in the complex order book. Accordingly, 
Market Makers who remove liquidity in the Select Symbols, the Non-
Select Penny Pilot Symbols, the Non-Penny Pilot Symbols, the Complex 
Quoting Symbols and SPY from the complex order book will be charged 
$0.02 less per contract when trading with Priority Customer orders that 
are preferenced to them. ISE notes that with this proposed fee change, 
the Exchange will continue to maintain a two cent differential that was 
previously in place.
    The Exchange believes that it is reasonable and equitable to 
provide rebates for Priority Customer complex orders when these orders 
trade with Non-Priority Customer complex orders in the complex order 
book because

[[Page 49054]]

paying a rebate would continue to attract additional order flow to the 
Exchange and create liquidity in the symbols that are subject to the 
rebate, which the Exchange believes ultimately will benefit all market 
participants who trade on ISE. The Exchange already provides these 
types of rebates, and is now merely proposing to increase those rebate 
amounts. The Exchange believes that the proposed rebates are 
competitive with rebates provided by other exchanges and are therefore 
reasonable and equitably allocated to those members that direct orders 
to the Exchange rather than to a competing exchange.
    The Exchange also believes that it is reasonable and equitable to 
provide rebates for Priority Customer complex orders when these orders 
trade against quotes or orders in the regular orderbook. Again, the 
Exchange already provides this rebate and is now proposing to increase 
those rebate amounts through volume-based tiers. The Exchange believes 
paying these rebates would also attract additional order flow to the 
Exchange.
    The complex order pricing employed by the Exchange has proven to be 
an effective pricing mechanism and attractive to Exchange participants 
and their customers. The Exchange believes that this proposed rule 
change will continue to attract additional complex order business in 
the symbols that are subject of this proposed rule change.
    Moreover, 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 
options exchanges. Additionally, the Exchange believes it remains an 
attractive venue for market participants to direct their order flow in 
the symbols that are subject to this proposed rule change as its fees 
are 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. For the reasons noted above, the Exchange believes that the 
proposed fees are fair, equitable and not unfairly discriminatory.

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.\21\ 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.
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    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2012-71 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-2012-71. 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 
a.m. and 3 p.m. Copies of the 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-2012-71 and should be 
submitted on or before September 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19979 Filed 8-14-12; 8:45 am]
BILLING CODE 8011-01-P