Document ID: SEC-2014-1794-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2014-10-27T04:00Z

[Federal Register Volume 79, Number 207 (Monday, October 27, 2014)]
[Notices]
[Pages 63992-63994]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-25430]

[[Page 63992]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73394; File No. SR-ISE-2014-50]

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

October 21, 2014.
    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 October 10, 2014, 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 Substance 
of the Proposed Rule Change

    The ISE is proposing to amend its Schedule of Fees to increase the 
route-out fee applicable to Professional Customer orders in Non-Select 
Symbols, and adopt a route-out fee for Non-Customer orders routed to 
away markets. 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 purpose of the proposed rule change is to amend the Schedule of 
Fees to increase the route-out fee applicable to Professional Customer 
orders in Non-Select Symbols,\3\ and adopt a route-out fee for Non-
Customer orders \4\ routed to away markets. The Exchange's Schedule of 
Fees has separate fees applicable to Standard Options and Mini Options. 
The Exchange notes that while the discussion below relates to fees for 
Standard Options, the fees for Mini Options, which are not discussed 
below, are and shall continue to be 1/10th of the fees for Standard 
Options.
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    \3\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
    \4\ A Non-Customer Order is an order for the account of a person 
or entity that is a broker or dealer in securities. See ISE Rules 
100(a)(27)-(28).
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    The Exchange presently charges a route-out fee applicable to 
Priority Customer \5\ and Professional Customer \6\ orders routed to 
away markets pursuant to the Options Order Protection and Locked/
Crossed Market Plan (the ``Plan''). Specifically, the Exchange charges 
a route-out fee of $0.45 per contract for Priority Customer orders and 
$0.55 per contract for Professional Customer orders in all symbols. The 
Exchange now proposes to increase the route-out fee for Professional 
Customer orders in Non-Select Symbols to $0.95 per contract to reduce 
the negative economics associated with executing these orders on other 
options exchanges. Professional Customer orders in Select Symbols and 
Priority Customer orders will continue to pay route-out fees at their 
respective rates described above.
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    \5\ 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).
    \6\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
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    On July 31, 2014 the Exchange filed a proposed rule change that 
introduced linkage routing for Non-Customer orders, which became 
effective on September 1, 2014.\7\ In connection with this new 
functionality, the Exchange now proposes to adopt a route-out fee for 
Non-Customer orders routed to other options exchanges. The proposed 
route-out fee will be $0.55 per contract in Select Symbols,\8\ and 
$0.95 per contract in Non-Select Symbols, in line with the rates 
described above for Professional Customer orders, and will be 
applicable to all Market Maker,\9\ Non-ISE Market Maker,\10\ and Firm 
Proprietary \11\/Broker-Dealer \12\ orders routed to away markets 
pursuant to the Plan.
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    \7\ See Securities Exchange Act Release No. 72816 (August 12, 
2014), 79 FR 48811 (August 18, 2014) (SR-ISE-2014-37).
    \8\ ``Select Symbols'' are options overlying all symbols listed 
on the ISE that are in the Penny Pilot Program.
    \9\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \10\ 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 registered in the same options class 
on another options exchange.
    \11\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \12\ A Broker-Dealer order is an order submitted by a Member for 
a non-Member broker-dealer account.
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    In connection with the proposed fee changes described above, the 
Exchange also proposes to reformat its route-out fee table to include 
separate columns for Select Symbols and Non-Select Symbols, as well as 
for Standard Options and Mini Options, and to reduce the number of 
duplicative footnotes.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\13\ in general, and 
Section 6(b)(4) of the Act,\14\ 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.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the proposed route-out fees 
are reasonable and equitable as they offset costs incurred by the 
Exchange in connection with using unaffiliated broker-dealers to access 
other exchanges for linkage executions. Other options exchanges, such 
as the NASDAQ Options Market (``NOM'') and NYSE Arca Options 
(``Arca''), have fees for taking liquidity that are as high as $0.89 
per contract for Professional Customer orders in Non-Select 
Symbols.\15\ It has thus become necessary for the Exchange to raise the 
route-out fees applicable to these orders to recoup the higher costs 
associated with executing orders on these markets. Furthermore, as the 
Exchange recently expanded its linkage routing capabilities to include 
Non-Customer orders, the Exchange believes

[[Page 63993]]

that it is appropriate to adopt corresponding fees at this time. The 
route-out fees proposed herein for Non-Customer orders are lower than 
those charged by some of the Exchange's competitors, including, for 
example, NASDAQ OMX PHLX (``PHLX''), which charges a fee of $0.97 per 
contract for routing Non-Customer orders to away markets.\16\
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    \15\ See NOM Chapter XV Options Pricing, Sec. 2 NASDAQ Options 
Market--Fees and Rebates; Arca Options Fees and Charges, Trade-
Related Charges for Standard Options.
    \16\ See PHLX Fee Schedule, Section V, Routing Fees.
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    Furthermore, the Exchange believes that the proposed fees are not 
unfairly discriminatory because these fees would be uniformly applied, 
as appropriate, to all Professional Customer and Non-Customer orders. 
As has historically been the case, Priority Customer orders will 
continue to pay lower route-out fees than orders from other market 
participants, including Professional Customer and, now, Non-Customer 
orders. The Exchange believes that it is equitable and not unfairly 
discriminatory to charge lower fees for Priority Customer orders than 
Professional Customer and Non-Customer orders as a Priority Customer is 
by definition not a broker or 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). This limitation does 
not apply to participants whose behavior is substantially similar to 
that of market professionals, including Professional Customers and Non-
Customers, who will generally submit a higher number of orders (many of 
which do not result in executions) than Priority Customers. Moreover, 
the Exchange notes that Priority Customer orders are often charged 
lower taker fees than Professional Customer and Non-Customer orders on 
other options exchanges, meaning that the execution costs to the 
Exchange for routing these orders is correspondingly lower. As such, 
the Exchange believes that it is equitable and not unfairly 
discriminatory to pass on this cost savings to the firms entering these 
orders.
    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 and 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, levying fees 
that are 1/10th of what market participants pay to trade Standard 
Options. As a result, routing fees for Mini Options will continue to be 
charged at 1/10th the rate of fees of Standard Options.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket or intramarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act as 
it simply adjusts Professional Customer route-out fees to be consistent 
with the costs associated with routing orders to away markets, and 
adopts fees for routing Non-Customer orders to other options exchanges, 
in connection with the introduction of linkage routing for those 
orders. The Exchange 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 to remain competitive with other 
exchanges. For the reasons described above, the Exchange believes that 
the proposed fee change 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 \17\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\18\ because it establishes a due, fee, or other charge 
imposed by ISE.
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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 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 No. SR-ISE-2014-50 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2014-50. 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 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-2014-50 and should be 
submitted by November 17, 2014.

[[Page 63994]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-25430 Filed 10-24-14; 8:45 am]
BILLING CODE 8011-01-P