Document ID: SEC-2009-0652-0001
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, as Modified by Amendment No. 1, 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: 2009-05-14T04:00Z

[Federal Register: May 14, 2009 (Volume 74, Number 92)]
[Notices]               
[Page 22792-22794]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14my09-88]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59887; File No. SR-ISE-2009-24]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Order Granting Accelerated Approval to a 
Proposed Rule Change, as Modified by Amendment No. 1, 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

May 7, 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 May 6, 2009, the International Securities Exchange, LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change. On May 7, 2009, 
the Exchange filed Amendment No. 1 to the proposed rule change. The 
proposed rule change, as modified by Amendment No. 1, is 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, as modified by Amendment No. 1, 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

[[Page 22793]]

(``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 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
    DECN, a facility of ISE, operates two trading platforms, EDGX and 
EDGA. On May 1, 2009, the ISE filed for immediate effectiveness a 
proposed rule change to amend DECN's fee schedule for ISE Members \3\ 
to increase the per share rebate in securities reported to Tape A and 
Tape C from $0.0029 to $0.003 for orders that add liquidity on EDGX if 
the ISE Member satisfies any of the following three criteria on a daily 
basis, measured monthly: (i) Adding 40,000,000 shares or more on either 
EDGX, EDGA or EDGX and EDGA combined; (ii) adding 20,000,000 shares or 
more on either EDGX, EDGA or EDGX and EDGA combined and routing 
20,000,000 shares or more through EDGA; or (iii) adding 10,000,000 
shares or more of liquidity to EDGX, so long as added liquidity on EDGX 
is at least 5,000,000 shares greater than the previous calendar 
month.\4\ DECN is a member of ISE as well as a facility of ISE. The 
rebate described above is referred to as a ``Super Tier Rebate'' on the 
DECN fee schedule.
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    \3\ References to ISE Members in this filing refer to DECN 
Subscribers who are ISE Members.
    \4\ See SR-ISE-2009-23.
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    In an effort to increase volume on EDGA, DECN currently offers 
volume discounts for ISE Members who route 20,000,000 shares or more on 
a daily basis, measured monthly, to Nasdaq through EDGA using order 
types that are solely eligible for routing to Nasdaq. Prior to SR-ISE-
2009-23, orders were charged at $0.0025 per share with respect to EDGA 
routed volume. ISE Members routing 30,000,000 shares per day were 
charged $0.0024 per share with respect to EDGA routed volume. Recently, 
Nasdaq has amended its pricing by increasing its fee for orders that 
remove liquidity by $0.0004.\5\ Accordingly, in SR-ISE-2009-23, the 
Exchange amended the DECN volume discounts that apply to ISE Members by 
increasing each volume discount fee by $0.0004, which changed the fee 
to $0.0029 per share and $0.0028 per share, respectively.
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    \5\ See Securities and Exchange Commission Release No. 59843 
(April 29, 2009), 74 FR 21046 (May 6, 2009) (SR-NASDAQ-2009-035).
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    On April 1, 2009, the Exchange amended the DECN fee schedule to 
reduce the rebate from $0.0035 per share to $0.003 per share for orders 
that add liquidity on EDGX in securities priced at or above $1.00 that 
are reported to Tape B by ISE Members.\6\ In connection with this 
amendment, a portion of the corresponding footnote on the DECN fee 
schedule should have been deleted, but such deletion was overlooked at 
the time of the filing. The relevant portion of the footnote states 
``In the event that Direct Edge offers a rebate higher than $0.0029 per 
share for subscribers who do not meet the criteria for the Super Tier, 
then those who meet the aforementioned criteria will receive the higher 
rebate.'' In SR-ISE-2009-23, the Exchange deleted this language as 
Direct Edge is no longer offering this incentive.
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    \6\ See Securities and Exchange Commission Release Nos. 59692 
(April 2, 2009), 74 FR 16024 (April 8, 2009) (SR-ISE-2009-17).
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    In SR-ISE-2009-23, the Exchange also made certain clarifying 
changes to DECN's fee schedule. DECN's fee schedule includes a 
description of liquidity flags and associated fees. Flag D is appended 
to orders that are routed to and executed on the New York Stock 
Exchange (``NYSE''). Such orders are charged a fee on the NYSE because 
the order is removing liquidity. The fee assessed to this order is then 
passed back to the ISE Member that originated the order. In SR-ISE-
2009-23, the Exchange amended the description of Flag D to include, not 
just orders that are routed to NYSE, but also orders that are re-routed 
to NYSE. Meaning, the order that originates at DECN may get routed to 
another market center for execution, but that market center may re-
route the order to NYSE, where the order ultimately receives an 
execution that results in a removal of liquidity. In this circumstance, 
the fee assessed to the order will still be passed back to the ISE 
Member that originated the order as if such order was originally routed 
to NYSE.
    Finally, in SR-ISE-2009-23, the Exchange deleted a portion of a 
footnote on DECN's fee schedule that provides for a lower charge to ISE 
Members whose orders in securities that are reported to Tape A and Tape 
C first get routed to Nasdaq Stock Market (``Nasdaq'') and then get re-
routed by Nasdaq. In this circumstance, the ISE Member would be charged 
a fee of $0.0026 per share for removing liquidity in Tape A and Tape C 
securities regardless of where the order ultimately gets executed and 
regardless of what the executing market center charges Nasdaq. Whereas, 
orders that get routed to any other market center and then re-routed by 
that market center get charged a fee of $0.003 per share when the order 
removes liquidity. In SR-ISE-2009-23, the Exchange proposed to delete 
the portion of the footnote that provides for this exception because 
Nasdaq has raised their fee to $0.003 per share for all orders that get 
routed to Nasdaq and then re-routed by Nasdaq.
    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 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 were changed pursuant to SR-ISE-2009-23, 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 
will be the same as the amounts that ISE Members receive.
    ISE is seeking accelerated approval of this proposed rule change, 
as well as a retroactive effective date of May 1, 2009. ISE represents 
that this proposal will ensure that both ISE Members and non-ISE 
Members (by virtue of the pass-through described above) will in effect 
receive equivalent amounts and that the imposition of such amounts will 
begin on the same May 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,\7\ in general, and 
furthers the objectives of Section 6(b)(4),\8\ in particular, in that 
it is designed to provide for the equitable allocation of reasonable 
dues, fees and

[[Page 22794]]

other charges among its members and other persons using its facilities. 
In particular, this proposal will ensure that both ISE Members and non-
ISE Members (by virtue of the pass-through described above) will 
receive equivalent rebates.
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    \7\ 15 U.S.C. 78f.
    \8\ 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-2009-24 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-2009-24. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room. 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-2009-24 and should be submitted by June 4, 2009.

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

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\9\ 
Specifically, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(4),\10\ 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 any facilities.
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    \9\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(4).
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    ISE recently amended DECN's fee schedule to increase the Super Tier 
Rebate in securities reported to Tape A and Tape C and revise other 
rebates and fees.\11\ DECN receives rebates and charges 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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    \11\ See Securities Exchange Act Release No. 34-59888 (May 7, 
2009) (notice of filing and immediate effectiveness of File No. SR-
ISE-2009-23) (the ``Member Fee Filing'').
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    The current proposal, which will apply retroactively to May 1, 
2009, will allow DECN to pass through the revised rebates and fees to 
the non-ISE member subscribers for which it acts as 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.\12\
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    \12\ See note 11, supra.
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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 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 May 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 thereof in the Federal Register.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change, as amended (SR-ISE-2009-24) be, 
and hereby is, approved on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-11229 Filed 5-13-09; 8:45 am]

BILLING CODE 8010-01-P