Document ID: SEC-2009-1436-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Order Granting Accelerated Approval to a Proposed Rule Change Relating to the Amounts That Direct Edge ECN, in Its Capacity as an Introducing Broker for Non-ISE Members, Passes Through to Such Non-ISE Members
Posted Date: 2009-10-08T04:00Z

[Federal Register: October 8, 2009 (Volume 74, Number 194)]
[Notices]               
[Page 51898-51899]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08oc09-94]                         

[[Page 51898]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60770; File No. SR-ISE-2009-69]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Order Granting Accelerated Approval to a 
Proposed Rule Change Relating to the Amounts That Direct Edge ECN, in 
Its Capacity as an Introducing Broker for Non-ISE Members, Passes 
Through to Such Non-ISE Members

October 2, 2009.
    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, 2009, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
ISE. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons, and is approving the 
proposal on an accelerated basis.
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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 Exchange proposes to modify the amounts that Direct Edge ECN 
(``DECN''), in its capacity as an introducing broker for non-ISE 
Members, passes through to such non-ISE Members.
    The text of the proposed rule change is available on the Exchange's 
Internet Web site at http://www.ise.com.

 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 III 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
    DECN, a facility of ISE, operates two trading platforms, EDGX and 
EDGA. On September 30, 2009, the ISE filed for immediate effectiveness 
a proposed rule change to: (i) Amend DECN's fee schedule for ISE 
Members \3\ to adopt new fees and rebates and associated flags; \4\ 
(ii) amend the criteria for meeting the Ultra Tier; \5\ (iii) to amend 
the descriptions of certain flags in the schedule; \6\ and (iv) to 
amend its fee schedule to reflect pass through charges of other market 
centers.\7\ The fee changes made pursuant to SR-ISE-2009-68 became 
operative on October 1, 2009.
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    \3\ References to ISE Members in this filing refer to DECN 
Subscribers who are ISE Members.
    \4\ In SR-ISE-2009-68, the Exchange also adopted additional fees 
and rebates and associated flags. First, the Exchange added new fee 
categories for the INET order type. When a member routes to Nasdaq 
using the INET order type and removes liquidity on Tapes A or C, the 
member incurs a fee of $0.0030 on either EDGA or EDGX. Such 
situation yields new Flag ``L''. The INET order type sweeps the EDGA 
or EDGX book, and routes the remainder to Nasdaq. If the order is 
marketable, it will remove liquidity from the EDGA or EDGX book, as 
applicable, first. If the order is non-marketable, the order will 
post on Nasdaq. With regards to a Member's use of the INET order 
type for Tapes A or C securities, Members routing an average daily 
volume (``ADV''): (i) Less than 5,000,000 shares are charged $0.0030 
per share, as described in the schedule; (ii) equal to or greater 
than 5,000,000 shares but less than 20,000,000 shares are charged 
$0.0027 per share; (iii) equal to or greater than 20,000,000 shares 
but less than 30,000,001 shares are charged $0.0026 per share; and 
(iv) equal to or greater than 30,000,001 shares are charged $0.0025 
per share. The rates, in all cases, are calculated for shares 
removed from Nasdaq. The Exchange believes that these tier-based 
rates incent Members to sweep the EDGA or EDGX book first and then 
offer a discounted rate to Nasdaq's rates if the remainder of the 
order is routed to Nasdaq. These discounted rates arise in part from 
reduced administrative costs associated with certain volume levels.
    Similarly, the Exchange also added an additional fee category 
for the INET order type when a member routes to Nasdaq using the 
INET order type and removes liquidity on Tape B. Such situation 
yields new flag ``2''. With regards to a Member's use of the INET 
order type for Tape B securities, Members routing an ADV: (i) Less 
than 20,000,000 shares are charged $0.0030 per share, as described 
in the schedule; (ii) equal to or greater than 20,000,000 but less 
than 30,000,001 shares are charged $0.0029 per share; and (iii) 
equal to or greater than 30,000,001 shares are charged $0.0028 per 
share.
    Furthermore, the Exchange adopted a new rebate. Members receive 
a rebate of $0.0032 per share for all liquidity posted on EDGX if 
they add or route at least 10,000,000 shares of ADV to EDGX prior to 
9:30 a.m. EST or after 4 p.m. EST (includes all flags except N and 
W) and add a minimum of 75,000,000 shares of ADV on EDGX in total, 
including during both market hours and pre and post-trading hours. 
This rebate is designed to reward members who add or route 
significant order flow to EDGX both during market hours and pre and 
post-trading hours. It is also designed to increase the liquidity of 
the pre and post markets.
    \5\ In SR-ISE-2009-68, the Exchange amended the criteria for 
meeting the Ultra Tier by allowing ISE Members to receive a $0.0032 
rebate per share for securities priced at or above $1.00 when ISE 
Members add liquidity on EDGX if the attributed MPID posts 1% of the 
Total Consolidated Volume (``TCV'') in ADV. TCV is defined as volume 
reported by all exchanges and trade reporting facilities to the 
consolidated transaction reporting plans for Tape A, B, and C 
securities. The Ultra Tier rebate ($0.0032 per share), which is a 
higher rebate than the Super Tier ($0.0030 per share), is also more 
difficult to reach than the Super Tier rebate, as a higher volume 
threshold is required based on recent TCV figures. For example, 1% 
of the average TCV for July 2009 (8.8 billion) was approximately 88 
million shares. This threshold far exceeds the criteria to meet the 
Super Tier rebate. In addition, the higher rebate also results in 
part from lower administrative costs associated with higher volume.
    Previously, ISE Members were provided a $0.0032 rebate per share 
for securities priced at or above $1.00 when ISE Members added 
liquidity on EDGX if the attributed MPID satisfied one of the 
following criteria on a daily basis, measured monthly: (i) Adding 
100,000,000 shares or more on EDGX; or (ii) adding 50,000,000 shares 
or more of liquidity to EDGX, so long as added liquidity on EDGX is 
at least 20,000,000 shares greater than the previous calendar month. 
In SR-ISE-2009-68, the Exchange also deleted the Full Sweep Tier, 
which provided a $0.0035 rebate per share for liquidity added on 
EDGX if the attributed MPID added 50,000,000 shares or more on a 
daily basis, measured monthly, by using the ROUT routing strategy.
    \6\ In SR-ISE-2009-68, the Exchange also amended the 
descriptions of the ``N'' and ``W'' flags to display which Tape 
liquidity is removed from. For the ``N'' flag, the Exchange amended 
the description to state that liquidity is removed from Tapes B & C. 
For the ``W'' flag, the Exchange amended the description to state 
that liquidity is removed from Tape A.
    \7\ In SR-ISE-2009-68, the Exchange amended its fee schedule to 
pass through to ISE members the actual transaction fees assessed by 
away markets. Specifically, the Exchange amended its fees schedule 
to reflect Nasdaq's reduction in rebate from 0.0006 to 0.0001 for 
removing liquidity from Nasdaq OMX BX.
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    In its capacity as a member of ISE, DECN currently serves as an 
introducing broker for the non-ISE Member subscribers of DECN to access 
EDGX and EDGA. DECN, as an ISE Member and introducing broker, receives 
rebates and is assessed charges from DECN for transactions it executes 
on EDGX or EDGA in its capacity as introducing broker for non-ISE 
Members. Since the amounts of such rebates and charges were changed 
pursuant to SR-ISE-2009-68, DECN wishes to make corresponding changes 
to the amounts it passes through to non-ISE Member subscribers of DECN 
for which it acts as introducing broker. As a result, the per share 
amounts that non-ISE Member subscribers receive and are charged will be 
the same as the amounts that ISE Members receive and are charged.
    ISE is seeking accelerated approval of this proposed rule change, 
as well a retroactive effective date of October 1, 2009. ISE represents 
that this proposal

[[Page 51899]]

will ensure that both ISE Members and non-ISE Members (by virtue of the 
pass-through described above) will in effect receive and be charged 
equivalent amounts and that the imposition of such amounts will begin 
on the same October 1, 2009 start date.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\8\ in general, and 
furthers the objectives of Section 6(b)(4),\9\ 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. In particular, this proposal will ensure that dues, 
fees and other charges imposed on ISE Members are equitably allocated 
to both ISE Members and non-ISE Members (by virtue of the pass-through 
described above).
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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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. 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 No. SR-ISE-2009-69 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-2009-69. 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 Commissions 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 inspection and copying 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 ISE. 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-2009-69 and should be submitted on 
or before October 29, 2009.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\10\ 
Specifically, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(4) \11\ of the Act, which requires that 
the rules of a national securities exchange provide for the equitable 
allocation of reasonable dues, fees, and other charges among members 
and issuers and other persons using its facilities.
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    \10\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(4).
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    As described more fully above, ISE recently amended DECN's fee 
schedule for ISE Members to, among other things, amend the criteria for 
meeting the Ultra Tier rebate, delete the Full Sweep Tier, adopt fees 
in connection with the use of INET routing strategies, and to adopt a 
new rebate for liquidity posted on EDGX during pre and post hours 
trading.\12\ The fee changes made pursuant to the Member Fee Filing 
became operative on October 1, 2009. DECN receives rebates and is 
charged fees for transactions it executes on EGDX or EDGA in its 
capacity as an introducing broker for its non-ISE member subscribers.
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    \12\ See File No. SR-ISE-2009-68 (the ``Member Fee Filing'').
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    The current proposal, which will apply retroactively to October 1, 
2009, will allow DECN to pass through the revised rebates and fees to 
the non-ISE member subscribers for which it acts an introducing broker. 
The Commission finds that the proposal is consistent with the Act 
because it will provide rebates and charge fees to non-ISE member 
subscribers that are equivalent to those established for ISE member 
subscribers in the Member Fee Filing.\13\
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    \13\ Id.
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    ISE has requested that the Commission find good cause for approving 
the proposed rule change prior to the thirtieth day after publication 
of notice of filing thereof in the Federal Register. As discussed 
above, the proposal will allow DECN to pass through to non-ISE member 
subscribers the revised rebate and fees established for ISE member 
subscribers in the Member Fee Filing, resulting in equivalent rebates 
and fees for ISE member and non-member subscribers. In addition, 
because the proposal will apply the revised rebates and fees 
retroactively to October 1, 2009, the revised rebates and fees will 
have the same effective date, thereby promoting consistency in the 
DECN's fee schedule. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act, for approving the proposed 
rule change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-ISE-2009-69) be, and hereby 
is, approved on an accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-24264 Filed 10-7-09; 8:45 am]

BILLING CODE 8011-01-P