Document ID: SEC-2013-1807-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2013-10-22T04:00Z

[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62901-62903]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24646]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70647; File No. SR-ISE-2013-50]

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

October 9, 2013.
    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 September 30, 2013, 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 its Schedule of Fees. 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 is proposing to amend its Schedule of Fees to: (1) 
decrease the discount applicable to Market Makers \3\ when they trade 
against Priority Customer \4\ complex orders that are preferenced to 
them on the Exchange; (2) increase the fees that it charges for 
executions of Priority Customer orders in non-Early Adopter Foreign 
Currency (``FX'') Option Symbols to be equal to the fees charged for 
executions of orders in Early Adopter FX Option Symbols; and (3) 
increase the fees for Priority Customer orders routed to another 
exchange for execution.
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    \3\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \4\ 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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[[Page 62902]]

    On January 29, 2013, the Commission approved \5\ [sic] SR-ISE-2013-
05, on a one-year pilot basis, with such fees being operative from 
January 17, 2013 (``Approval Order'')[sic].\6\ Specifically, the 
Approval Order [sic] permits a $0.05 fee differential between Market 
Makers that receive preferenced complex orders and those that do not 
receive preferenced complex orders in classes that can be listed and 
traded on more than one options exchange.\7\ The Exchange proposes to 
reduce the fee differential from $0.05 to $0.02 per contract, which was 
the applicable fee differential on the Exchange prior to the Approval 
Order [sic].\8\ Accordingly, Market Makers that add or remove liquidity 
from the complex order book by trading against Priority Customer 
complex orders that are preferenced to them will be charged: (i) $0.37 
per contract in Select Symbols (including SPY), i.e. the regular rate 
of $0.39 per contract with a $0.02 per contract discount; and (ii) 
$0.80 per contract in Non-Select Symbols, i.e. the regular rate of 
$0.82 per contract with a $0.02 per contract discount.
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    \5\ The Commission notes that SR-ISE-2013-05 was immediately 
effective upon filing. Accordingly, the Commission did not approve 
SR-ISE-2013-05.
    \6\ See Securities Exchange Act Release No. 68760 (Jan. 29, 
2013), 78 FR 7844 (Feb. 4, 2013) (SR-ISE-2013-05).
    \7\ Market Makers may be categorized as preferenced Market 
Makers when such Market Makers execute against a Priority Customer 
order preferenced to them for execution by an order flow provider. 
The current $0.05 per contract discount also applies to a group of 
symbols in which Market Makers can enter quotes in the complex order 
book (``Complex Quoting Symbols''). The discount applicable to the 
Complex Quoting Symbols is found on the Exchange's Schedule of Fees. 
See Section II. Complex Order Fees and Rebates, footnote 4. This 
proposed rule change also applies to the Complex Quoting Symbols.
    \8\ The Exchange notes that NASDAQ OMX PHLX, Inc. (``PHLX'') 
recently reduced its own differential back to $0.02 per contract 
from its prior rate of $0.05 per contract. See Securities Exchange 
Act Release No. 69768 (June 14, 2013), 78 FR 37250 (June 20, 2013) 
(SR-Phlx-2013-61).
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    The Exchange is also proposing to amend its Schedule of Fees to 
increase the fees for Priority Customer orders in FX options. 
Currently, Priority Customers pay a fee in non-Early Adopter FX Option 
Symbols of $0.18 per contract for non-Crossing Orders and Crossing 
Orders, and $0.20 per contract for Responses to Crossing Orders. In 
Early Adopter FX Option Symbols, this fee is $0.40 per contract for 
non-Crossing Orders, Crossing Orders, and Responses to Crossing Orders. 
The Exchange is now proposing to increase the fee for Priority Customer 
orders for non-Early Adopter FX Option Symbols to $0.40 per contract to 
be in line with the fees currently charged for Priority Customer orders 
in Early Adopter FX Option Symbols.
    The Exchange is further proposing to amend its Schedule of Fees to 
increase the route-out fee applicable to Priority Customers orders. The 
Exchange currently charges a fee of $0.38 per contract for executions 
of Priority Customer orders in Standard Options in all symbols that are 
routed to one or more exchanges in connection with the Options Order 
Protection and Locked/Crossed Market Plan. For Mini Options, this fee 
is currently $0.038 per contract. In order to offset costs associated 
with routing orders to other exchanges, the Exchange now proposes to 
increase the route-out fee for Priority Customer orders to $0.40 per 
contract for Standard Options and $0.040 per contract for Mini Options. 
The route-out fee offsets costs incurred by the Exchange in connection 
with using unaffiliated broker-dealers to access other exchanges for 
linkage executions, and is therefore appropriate.
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'') \9\ in general, and furthers the objectives of 
Section 6(b)(4) of the Act \10\ 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that reducing the current discount applicable 
to Market Makers when they trade against Priority Customer complex 
orders that are preferenced to them from $0.05 to $0.02 per contact is 
reasonable, equitable, and not unfairly discriminatory because reducing 
the discount for preferenced orders will narrow the fee differential 
between Market Makers that receive preferenced orders and those that do 
not. The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to continue to assess lower fees to preferenced 
Market Makers that add or remove liquidity from the complex order book 
by trading against Priority Customer orders that are preferenced to 
them because preferenced Market Makers are subject to heightened and 
burdensome quoting obligations that do not apply to non-preferenced 
Market Makers or to other market participants.\11\
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    \11\ Preferenced Market Makers are required to continuously 
quote at least 90% of the series of an options class, whereas non-
preferenced market makers are required to quote only 60% of the 
series of an options class. See ISE Rule 804(e).
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    The Exchange believes that its proposal to increase the fee for 
Priority Customer orders in non-Early Adopter FX Option Symbols to 
$0.40 per contract is reasonable and equitably allocated because the 
proposed fee is identical to the fee currently charged by the Exchange 
for Early Adopter FX Option Symbols. With this proposed rule change, 
Priority Customers will be charged the same fee regardless of whether 
they place orders in Early Adopter or non-Early Adopter FX Option 
Symbols.
    The Exchange believes the proposed 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 
also believes that the proposed fees are not unfairly discriminatory 
because these fees would be uniformly applied to all Priority Customer 
orders routed to other exchanges. As fees to access liquidity for 
Priority Customer orders have risen at other exchanges, it has become 
necessary for the Exchange to raise routing fees in order to recoup the 
higher costs. The Exchange notes that a number of other exchanges 
currently charge a variety of routing related fees associated with 
customer and non-customer orders that are subject to linkage handling. 
The Exchange also notes that the fees proposed herein are within the 
range of fees charged by some of the Exchange's competitors.\12\
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    \12\ See PHLX Fee Schedule, Section V, Routing Fees; and Chicago 
Board Options Exchange (``CBOE'') Fees Schedule, Linkage Fees.
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    The Exchange has determined to charge fees for regular orders in 
Mini Options at a rate that is 1/10th the rate of fees the Exchange 
currently provides for trading in Standard Options. The Exchange 
believes it is reasonable, 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 levying fees that are 
1/10th of what market participants pay to trade Standard Options.

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

    The Exchange does not believe that the proposed rule will impose 
any

[[Page 62903]]

burden on competition that is not necessary or appropriate in the 
furtherance of the purposes of the Exchange Act.
    The Exchange is proposing to decrease the fee differential between 
Market Makers that receive preferenced orders and those that do not 
receive preferenced orders. The Exchange believes that decreasing this 
fee differential does not create an undue burden on competition. The 
differential is similar to the differential currently in place at the 
PHLX and furthermore reduces intra-market competition by reducing the 
differential between preferenced and non-preferenced market makers.
    The Exchange believes the proposed fee for Priority Customer orders 
in non-Early Adopter FX Option Symbols does not impose a burden on 
competition because it will apply a uniform fee to Priority Customer 
orders in all FX Option symbols traded on the Exchange. Even though 
these options are solely listed on ISE, the Exchange operates in a 
highly competitive market, comprised of twelve exchanges, any of which 
can determine to trade similar products.\13\
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    \13\ At least one other exchange currently trades foreign 
currency options. While PHLX World Currency Options[supreg] are not 
fungible with FX Options, they provide investors with a choice to 
trade in a competing product. See PHLX World Currency 
Options[supreg] at http://www.nasdaqtrader.com/Micro.aspx?id=PHLXFOREXOptions.
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    With respect to increasing the Priority Customer route-out fee, the 
Exchange believes the proposed fee change does not impose a burden on 
competition because the proposed fee is consistent with fees charged by 
other exchanges and will uniformly apply to all Priority Customer 
orders in Standard Options and Mini Options that are routed out to 
other exchanges for linkage executions. The Exchange notes that Members 
can and do route these orders to other markets or specify that ISE not 
route orders away on their behalf.
    The Exchange notes that it 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 and rebates to remain 
competitive with other exchanges. For the reasons described above, the 
Exchange believes that the proposed fee changes reflects this 
competitive environment.

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 \14\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\15\ because it establishes a due, fee, or other charge 
imposed by ISE.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 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-2013-50 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-2013-50. 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 offices 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-2013-50, 
and should be submitted on or before November 12, 2013.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24646 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P