Document ID: SEC-2011-1604-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2011-10-19T04:00Z

[Federal Register Volume 76, Number 202 (Wednesday, October 19, 2011)]
[Notices]
[Pages 64984-64986]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26992]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65550; File No. SR-ISE-2011-65]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Fees and Rebates for Certain Orders Executed on the 
Exchange

October 13, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on September 30, 2011, 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 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 amend fees and rebates for certain complex 
orders executed on the Exchange. The text of

[[Page 64985]]

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 charges 
and credits to market participants that add or remove liquidity from 
the Exchange (``maker/taker fees'') in a number of options classes (the 
``Select Symbols'').\3\ The Exchange's maker/taker fees are applicable 
to regular and complex orders executed in the Select Symbols.\4\ 
Recently, the Exchange extended the fees and rebates for complex orders 
applicable to the Select Symbols to all symbols that are in the Penny 
Pilot program.\5\
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    \3\ Options classes subject to maker/taker fees are identified 
by their ticker symbol on the Exchange's Schedule of Fees.
    \4\ The Exchange has also adopted fees and rebates for complex 
orders in a select number of option classes (``Designated Symbols'') 
that are distinct from the fees for complex orders in the Select 
Symbols. These Designated Symbols are identified by their ticker 
symbol on the Exchange's Schedule of Fees. See Exchange Act Release 
Nos. 65084 (August 10, 2011), 76 FR 50805 (August 16, 2011) (SR-ISE-
2011-49).
    \5\ See Exchange Act Release No. 65021 (August 3, 2011), 76 FR 
48933 (August 9, 2011) (SR-ISE-2011-45).
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    For complex orders in the Select Symbols and in symbols that are in 
the Penny Pilot program but excluding the Designated Symbols, the 
Exchange currently charges a ``take'' fee of: (i) $0.30 per contract 
for Market Maker,\6\ Market Maker Plus,\7\ Firm Proprietary and 
Customer (Professional) \8\ orders; and (ii) $0.35 per contract for 
Non-ISE Market Maker \9\ orders. Priority Customer \10\ orders, 
regardless of size, are not charged a take fee for complex orders. For 
these same symbols, the Exchange currently charges a ``make'' fee of: 
(i) $0.10 per contract for Market Maker, Market Maker Plus, Firm 
Proprietary and Customer (Professional) orders; and (ii) $0.20 per 
contract for Non-ISE Market Maker orders. Priority Customer orders, 
regardless of size, are not charged a make fee for complex orders.
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    \6\ Market Makers who remove liquidity in the Select Symbols 
from the Complex Order Book by trading with orders preferenced to 
them are charged $0.28 per contract.
    \7\ A Market Maker Plus is a 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. 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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    Further, for Priority Customer complex orders in the Select Symbols 
and in the symbols that are in the Penny Pilot program but excluding 
the Designated Symbols, the Exchange currently provides a rebate of 
$0.25 per contract when these orders trade with non-customer orders in 
the Complex Order Book.
    Additionally, the Exchange currently provides certain rebates that 
are applicable to executions in the Select Symbols. Specifically, to 
incentivize members to trade in the Exchange's various auction 
mechanisms, the Exchange currently provides a per contract rebate to 
those contracts that do not trade with the contra order in the 
Exchange's Facilitation Mechanism,\11\ Price Improvement Mechanism \12\ 
and Solicited Order Mechanism.\13\ For the Facilitation and Solicited 
Order Mechanisms, the rebate is currently $0.15 per contract. For the 
Price Improvement Mechanism, the rebate is currently $0.25 per 
contract. The Exchange now proposes to extend these rebates to complex 
special orders in the symbols that are in the Penny Pilot program.
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    \11\ See Exchange Act Release No. 61869 (April 7, 2010), 75 FR 
19449 (April 14, 2010) (SR-ISE-2010-25).
    \12\ See Exchange Act Release No. 62048 (May 6, 2010), 75 FR 
26830 (May 12, 2010) (SR-ISE-2010-43). The Exchange subsequently 
increased this rebate to $0.25 per contract. See Exchange Act 
Release No. 63283 (November 9, 2010), 75 FR 70059 (November 16, 
2010) (SR-ISE-2010-106).
    \13\ See Exchange Act Release No. 63283 (November 9, 2010), 75 
FR 70059 (November 16, 2010) (SR-ISE-2010-106).
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    Further, the Exchange currently has a ``take'' fee of $0.40 per 
contract \14\ for Market Maker Plus, Market Maker, Non-ISE Market 
Maker, Firm Proprietary, Customer (Professional) and Priority Customer 
interest that responds to special orders.\15\ The Exchange now proposes 
to extend this $0.40 per contract ``take'' fee to complex special 
orders in the symbols that are in the Penny Pilot program.
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    \14\ Id.
    \15\ A special order is an order submitted for execution in the 
Exchange's Facilitation Mechanism, Solicited Order Mechanism, Block 
Order Mechanism and Price Improvement Mechanism. A response to a 
special order is any contra-side interest submitted after the 
commencement of an auction in the Exchange's Facilitation Mechanism, 
Solicited Order Mechanism, Block Order Mechanism and Price 
Improvement Mechanism.
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    The Exchange has designated this proposal to be operative on 
October 3, 2011.
 2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Act \16\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \17\ 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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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that it is reasonable and equitable to 
provide a rebate for complex contracts that do not trade with the 
contra order in the Exchange's various auction mechanisms because 
paying a rebate would continue to attract additional order flow to the 
Exchange and thereby create liquidity in

[[Page 64986]]

these additional symbols, i.e., the Penny Pilot symbols, that 
ultimately will benefit all market participants who trade on the 
Exchange. The Exchange already provides this rebate for executions in 
the Select Symbols and is now proposing to extend the rebate to complex 
orders transacted in the Exchange's various auction mechanisms in the 
symbols that are in the Penny Pilot program.
    The Exchange also believes that the proposed extension of the 
special order response fee for complex orders in the symbols that are 
in the Penny Pilot symbols will allow the Exchange to remain 
competitive with fees charged by other exchanges and are therefore 
reasonable and equitably allocated. The Exchange believes that the 
proposed extension of the special order response fee to complex orders 
in the symbols that are in the 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.\18\
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    \18\ The Boston Options Exchange currently assesses a similar 
fee. See Exchange Act Release No. 62632 (August 3, 2010), 75 FR 
47869 (August 9, 2010) (Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change To Amend the Fee Schedule of the Boston 
Options Exchange Facility) (SR-BX-2010-049).
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    The Exchange believes that its fees and credits remain competitive 
with fees charged by other exchanges and therefore are reasonable and 
equitably allocated to those members that opt to 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 extending certain aspects of its maker/taker 
pricing structure will attract additional complex order business while 
at the same time create standardization in complex order pricing across 
symbols that make up the majority of daily volume in options trading. 
The Exchange further believes that the amounts of the proposed fees are 
reasonable because they are identical to fees assessed by the Exchange 
for execution of complex orders in the Select Symbols.
    The Exchange further believes that the Exchange's maker/taker fees 
are not unfairly discriminatory because the fee structure is consistent 
with fee structures that exists today at other options exchanges. 
Additionally, 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 option 
exchanges. Finally, the Exchange believes it remains an attractive 
venue for market participants to trade complex orders despite its 
proposed fee change as its fees remain 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.

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.\19\ At any time within 60 days of the 
filing of the 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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    \19\ 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-ISE-2011-65 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-2011-65. 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 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-2011-65 and should be 
submitted on or before November 9, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-26992 Filed 10-18-11; 8:45 am]
BILLING CODE 8011-01-P