Document ID: SEC-2012-0949-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2012-06-14T04:00Z

[Federal Register Volume 77, Number 115 (Thursday, June 14, 2012)]
[Notices]
[Pages 35727-35729]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14531]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67166; File No. SR-ISE-2012-48]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Regarding Rebates for Certain Complex Orders

June 8, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on June 1, 2012, 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 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 make a change to 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 currently assesses per contract transaction fees 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\ The Exchange's maker/taker 
fees and rebates are applicable to regular and complex orders executed 
in the Select Symbols. The Exchange also currently assesses maker/taker 
fees and rebates for complex orders in symbols that are in the Penny 
Pilot program but are not a Select Symbol (``Non-Select Penny Pilot 
Symbols'') \4\ and for complex orders in all symbols that are not in 
the Penny Pilot Program (``Non-Penny Pilot Symbols'').\5\ Maker/taker 
fees and rebates for complex orders are assessed on the following 
order-type categories: ISE Market Maker,\6\ Market Maker Plus,\7\ Firm 
Proprietary, Customer (Professional),\8\ Non-ISE Market Maker,\9\ and 
Priority Customer.\10\ The Exchange is proposing to increase certain 
rebate amounts for complex orders in options on the Select Symbols, the 
Non-Select Penny Pilot Symbols, the Non-Penny Pilot Symbols and in 
options on one Select Symbol--SPY--which has a distinct rebate amount.
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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\ See Exchange Act Release No. 65724 (November 10, 2011), 76 
FR 71413 (November 17, 2011) (SR-ISE-2011-72).
    \5\ See Exchange Act Release Nos. 66084 (January 3, 2012), 77 FR 
1103 (January 9, 2012) (SR-ISE-2011-84); 66392 (February 14, 2012), 
77 FR 10016 (February 21, 2012) (SR-ISE-2012-06); and 66961 (May 10, 
2012), 77 FR 28914 (May 16, 2012) (SR-ISE-2012-38).
    \6\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \7\ A Market Maker Plus is 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.
    \8\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \9\ 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.
    \10\ 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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    Specifically, the Exchange now proposes to increase certain rebates 
associated with complex order volume tiers. In the Select Symbols, the 
Exchange currently provides a base 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 can earn a higher rebate amount by achieving 
certain average daily volume (ADV) thresholds on a month-to-month 
basis, as follows: If a Member achieves an ADV of 75,000 Priority 
Customer complex order contracts, the rebate amount for such option 
contracts is $0.33 per contract per leg; if a Member achieves an ADV of 
125,000 Priority Customer complex order contracts, the rebate amount 
for such option contracts is $0.34 per contract per leg. The Exchange 
now proposes to adopt a new tier for Priority Customer complex order 
contracts in the Select Symbols of 250,000 contracts such that if a 
Member achieves an ADV of 250,000 Priority Customer complex order 
contracts, the rebate amount for such option contracts shall be $0.345 
per contract per leg. The highest rebate amount achieved by a Member 
for the current calendar month shall apply retroactively to all 
Priority Customer complex order contracts that trade with non-Priority 
Customer complex orders in the complex order book executed by a Member 
during such calendar month.
    In the Non-Select Penny Pilot Symbols, the Exchange currently 
provides a base rebate of $0.28 per contract, per leg, for Priority 
Customer complex orders when these orders trade with non-Priority 
Customer complex orders in the complex order book.

[[Page 35728]]

Additionally, Members can earn a higher rebate amount on a month-to-
month basis, as follows: If a Member achieves an ADV of 75,000 Priority 
Customer complex order contracts, the rebate amount for such option 
contracts is $0.30 per contract per leg; if the Member achieves an ADV 
of 125,000 Priority Customer complex order contracts, the rebate amount 
for such option contracts is $0.32 per contract per leg. The Exchange 
now proposes to adopt a new tier for Priority Customer complex order 
contracts in the Non-Select Penny Pilot Symbols of 250,000 contracts 
such that if a Member achieves an ADV of 250,000 Priority Customer 
complex order contracts, the rebate amount for such option contracts 
shall be $0.325 per contract per leg. The highest rebate amount 
achieved by a Member for the current calendar month shall apply 
retroactively to all Priority Customer complex order contracts that 
trade with non-Priority Customer complex orders in the complex order 
book executed by a Member during such calendar month.
    In the Non-Penny Pilot Symbols, the Exchange currently provides a 
base rebate of $0.57 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 can 
earn a higher rebate amount on a month-to-month basis, as follows: If a 
Member achieves an ADV of 75,000 Priority Customer complex order 
contracts, the rebate amount for such option contracts is $0.59 per 
contract per leg; if the Member achieves an ADV of 125,000 Priority 
Customer complex order contracts, the rebate amount for such option 
contracts is $0.61 per contract per leg. The Exchange now proposes to 
adopt a new tier for Priority Customer complex order contracts in the 
Non-Penny Pilot Symbols of 250,000 contracts such that if a Member 
achieves an ADV of 250,000 Priority Customer complex order contracts, 
the rebate amount for such option contracts shall be $0.615 per 
contract per leg. The highest rebate amount achieved by a Member for 
the current calendar month shall apply retroactively to all Priority 
Customer complex order contracts that trade with non-Priority Customer 
complex orders in the complex order book executed by a Member during 
such calendar month.
    Finally, for SPY, the Exchange currently provides a base 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 can earn a higher rebate 
amount on a month-to-month basis, as follows: If a Member achieves an 
ADV of 75,000 Priority Customer complex order contracts, the rebate 
amount for such option contracts is $0.34 per contract per leg; if the 
Member achieves an ADV of 125,000 Priority Customer complex order 
contracts, the rebate amount for such option contracts is $0.35 per 
contract per leg. The Exchange now proposes to adopt a new tier for 
Priority Customer complex order contracts in SPY of 250,000 contracts 
such that if a Member achieves an ADV of 250,000 Priority Customer 
complex order contracts, the rebate amount for such option contracts 
shall be $0.355 per contract per leg. The highest rebate amount 
achieved by a Member for the current calendar month shall apply 
retroactively to all Priority Customer complex order contracts that 
trade with non-Priority Customer complex orders in the complex order 
book executed by a Member during such calendar month.
    The Exchange is not proposing any other changes in this filing.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Exchange Act \11\ in 
general, and furthers the objectives of Section 6(b)(4) of the Exchange 
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 
interact with and respond to certain types of orders.
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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 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 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 has 
already established a volume-based incentive program, and is now merely 
proposing to adopt an additional tier to that program. 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 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 increasing its complex 
order rebates will attract additional complex order business.
    The Exchange further believes that the Exchange's maker/taker fees 
and rebates are not unfairly discriminatory because those structures 
are consistent with fee structures that exist today at other options 
exchanges. Additionally, the Exchange believes that the proposed 
rebates are fair, equitable and not unfairly discriminatory because the 
proposed rebates are consistent with price differentiation that exists 
today at other option exchanges. The Exchange operates in a highly 
competitive market in which market participants can readily direct 
order flow to another exchange if they deem rebate levels at a 
particular exchange to be low. With this proposed rebate change, the 
Exchange believes it remains an attractive venue for market 
participants to trade complex orders.

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 Exchange 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 Exchange Act.\13\ 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 Exchange Act. If the

[[Page 35729]]

Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule should be approved 
or disapproved.
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    \13\ 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 Exchange 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-2012-48 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-2012-48. 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 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-2012-48 and should be 
submitted on or before July 5, 2012.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14531 Filed 6-13-12; 8:45 am]
BILLING CODE 8011-01-P