Document ID: SEC-2012-1089-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2012-07-06T04:00Z

[Federal Register Volume 77, Number 130 (Friday, July 6, 2012)]
[Notices]
[Pages 40136-40139]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16520]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67316; File No. SR-ISE-2012-59]

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

June 29, 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 21, 2012, 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 proposes to amend fees for certain complex orders executed 
on the Exchange. 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 in 
the Complex Order Book (``maker/taker fees and rebates'') in a number 
of options classes (the ``Select Symbols'').\3\
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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.
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    For complex orders in the Select Symbols (excluding SPY), the 
Exchange currently charges a ``taker'' fee of: (i) $0.34 per contract 
for ISE Market Maker,\4\ Market Maker Plus,\5\ Firm

[[Page 40137]]

Proprietary and Customer (Professional) \6\ orders; and (ii) $0.38 per 
contract for Non-ISE Market Maker \7\ orders. Priority Customer \8\ 
orders in the Select Symbols (excluding SPY) are not charged a 
``taker'' fee for trading in the Complex Order Book and receive a base 
rebate of $0.32 per contract (and may receive a rebate of up to $0.345 
per contract if certain volume thresholds are met) when those orders 
trade with non-Priority Customer orders in the Complex Order Book.
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    \4\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \5\ 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.
    \6\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \7\ 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.
    \8\ 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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    For complex orders in SPY, the Exchange currently charges a 
``taker'' fee of: (i) $0.35 per contract for ISE Market Maker, Market 
Maker Plus, Firm Proprietary and Customer (Professional) orders; and 
(ii) $0.39 per contract for Non-ISE Market Maker orders. Priority 
Customer \9\ orders in SPY are not charged a ``taker'' fee for trading 
in the Complex Order Book and receive a base rebate of $0.33 per 
contract (and may receive a rebate of up to $0.355 per contract if 
certain volume thresholds are met) when those orders trade with non-
Priority Customer orders in the Complex Order Book.
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    \9\ 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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    For complex orders in Select Symbols (including SPY), the Exchange 
currently charges a ``maker'' fee of: (i) $0.10 per contract for ISE 
Market Maker, Firm Proprietary and Customer (Professional) orders; and 
(ii) $0.20 per contract for Non-ISE Market Maker orders. Priority 
Customer orders are not charged a ``maker'' fee for complex orders in 
the Select Symbols (including SPY).
    Further, pursuant to Securities and Exchange Commission (``SEC'') 
approval, the Exchange allows Market Makers to enter quotations for 
complex order strategies in the Complex Order Book.\10\ Given this 
enhancement to the complex order functionality, and in order to 
maintain a competitive fee and rebate structure for Priority Customer 
orders, the Exchange has adopted distinct ``maker'' fees for complex 
orders in a select group of symbols when these orders interact with 
Priority Customer orders (``Complex Quoting Symbols).\11\ Specifically, 
the Exchange currently charges a ``maker'' fee of $0.32 per contract 
for XLB, EFA, AA, ABX, MSFT, MU, NVDA, VZ and WFC ($0.30 per contract 
for XOP) for Market Maker, Non-ISE Market Maker, Firm Proprietary and 
Customer (Professional) complex orders when these orders trade against 
Priority Customer orders. Priority Customer orders are not charged a 
``maker'' fee for complex orders in the Complex Quoting Symbols.
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    \10\ See Securities Exchange Act Release No. 65548 (October 13, 
2011), 76 FR 64980 (October 19, 2011) (SR-ISE-2011-39).
    \11\ The Complex Quoting Symbols are XLB, EFA, AA, ABX, MSFT, 
MU, NVDA, VZ, WFC and XOP. See Securities Exchange Act Release Nos. 
65958 (December 15, 2011), 76 FR 79236 (December 21, 2011) (SR-ISE-
2011-81); and 66406 (February 12, 2012), 77 FR 10579 (February 22, 
2012) (SR-ISE-2012-07). The Exchange notes that XLB, EFA, AA, ABX, 
MSFT, MU, NVDA, VZ, WFC are currently Select Symbols while XOP is 
not.
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    Further, for Priority Customer complex orders in XLB, EFA, AA, ABX, 
MSFT, MU, NVDA, VZ and WFC, all of which are Select Symbols, the 
Exchange currently provides a base rebate of $0.32 per contract (and 
may receive a rebate of up to $0.345 per contract if certain volume 
thresholds are met) when those orders trade with non-Priority Customer 
orders in the Complex Order Book. For Priority Customer complex orders 
in XOP, which is not a Select Symbols, the Exchange currently provides 
a base rebate of $0.28 per contract (and may receive a rebate of up to 
$0.325 per contract if certain volume thresholds are met) when those 
orders trade with non-Priority Customer orders in the Complex Order 
Book.
    Further, the Exchange provides ISE Market Makers with a two cent 
discount when trading against orders that are preferenced to them. This 
discount is applicable when ISE Market Makers add or remove liquidity 
in the Complex Quoting Symbols from the Complex Order Book. 
Specifically, ISE Market Makers that add liquidity in XLB, EFA, AA, 
ABX, MSFT, MU, NVDA, VZ and WFC from the Complex Order Book by trading 
with Priority Customer orders that are preferenced to them are charged 
$0.30 per contract ($0.28 per contract in XOP). ISE Market Makers that 
remove liquidity in XLB, EFA, AA, ABX, MSFT, MU, NVDA, VZ and WFC from 
the Complex Order Book by trading with Priority Customer orders that 
are preferenced to them are charged $0.32 per contract ($0.33 per 
contract in XOP).
    The Exchange now proposes to extend the fees for complex orders in 
the Complex Quoting Symbols to the following additional two symbols: 
GLD and VXX.\12\ The Exchange proposes to expand the pricing structure 
and fees applicable to these orders in a manner that is gradual and 
measured. For that reason, the Exchange has previously selected symbols 
that have moderate trading activity and each of the Complex Quoting 
Symbols have an average daily trading volume in complex orders of 500 
contracts to 10,000 contracts on the Exchange. The Exchange notes that 
GLD and VXX also meet this threshold and for that reason, the Exchange 
has decided to expand Complex Quoting Symbols to include these two 
additional symbols.
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    \12\ The Exchange notes that GLD and VXX are currently Select 
Symbols.
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    With this proposed rule change, the Exchange will charge a 
``maker'' fee of $0.32 per contract for Market Maker, Non-ISE Market 
Maker, Firm Proprietary and Customer (Professional) complex orders when 
these orders trade against Priority Customer orders. The Exchange does 
not propose any change to fees for Priority Customer orders in GLD and 
VXX that trade in the Complex Order Book. Additionally, Priority 
Customer complex orders in GLD and VXX will receive a base rebate of 
$0.32 per contract (and may receive a rebate of up to $0.345 per 
contract if certain volume thresholds are met) when these orders trade 
with non-Priority Customer orders in the Complex Order Book. Finally, 
ISE Market Makers that add or remove liquidity in GLD and VXX in the 
Complex Order Book will be charged $0.30 per contract when trading with 
orders that are preferenced to them.
    Finally, as noted above, the Exchange provides ISE Market Makers 
with a two cent discount when trading against orders that are 
preferenced to them. The Exchange believes this discount is better 
represented if the Exchange notes that ISE Market Makers receive a 
discount of $0.02 per contract when trading against Priority Customer 
orders preferenced to them in the Complex Order Book instead of noting 
the actual discounted fee. The Exchange believes it will be easier for 
market participants to track the discount with the proposed new 
language in light of the fee changes the Exchange undertakes each month 
in response to competitive pricing changes

[[Page 40138]]

in the marketplace. Thus, the Exchange proposes to amend the text of 
each footnote that reflects the discounted fee by replacing the actual 
fee amount with language that notes that ISE Market Makers will receive 
a two cent discount when trading against orders that are preferenced to 
them.
    The Exchange has designated this proposal to be operative on July 
2, 2012.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Act \13\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \14\ 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 add or remove 
liquidity in options overlying the Complex Quoting Symbols in the 
Complex Order Book.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that extending the fees applicable to orders 
executed in the Complex Order Book when trading against Priority 
Customers in the Complex Quoting Symbols is appropriate given the new 
functionality that allows Market Makers to quote in the Complex Order 
Book. Additionally, the Exchange's fees remain competitive with fees 
charged by other exchanges and are therefore reasonable and equitably 
allocated to those members that opt to direct orders to the Exchange 
rather than to a competing exchange. Specifically, the Exchange 
believes that its proposal to assess a `make' fee of $0.32 per contract 
for GLD and VXX when orders in these symbols interact with Priority 
Customers is reasonable and equitable because the fee is within the 
range of fees assessed by other exchanges employing similar pricing 
schemes. For example, the `make' fee for a broker/dealer complex order 
in GLD when trading against a Priority Customer at NASDAQ OMX PHLX 
(``PHLX'') is $0.20 per contract \15\ while the same order that is 
electronically delivered at the Chicago Board Options Exchange 
(``CBOE'') is $0.45 per contract.\16\ Furthermore, one of the primary 
goals of this fee change is to maintain the attractive and competitive 
economics for Priority Customer complex orders, while introducing an 
enhancement to the way complex orders trade on the Exchange.
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    \15\ See PHLX Fee Schedule, Section I, Part B., at http://www.nasdaqtrader.com/content/marketregulation/membership/phlx/feesched.pdf.
    \16\ See CBOE Fees Schedule, Section 1.VI. at http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf.
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    The Exchange also believes that it is reasonable and equitable to 
provide a two cent discount to ISE Market Makers on preferenced orders 
because this will provide an incentive for Market Makers to quote in 
the Complex Order Book. The Exchange believes that it is reasonable and 
equitable to continue to provide rebates for Priority Customer complex 
orders because paying a rebate will continue to attract additional 
order flow to the Exchange and thereby create liquidity that ultimately 
will benefit all market participants who trade on the Exchange. The 
Exchange believes it is reasonable and equitable to amend the text of 
the footnotes regarding the two cent discount provided to ISE Market 
Makers in the Exchange's Schedule of Fees because doing so will reflect 
the discounted rate more accurately in light of the number of fee 
changes the Exchange undertakes in response to competitive pricing 
changes made by its competitors. The Exchange believes Exchange Members 
will benefit from clear guidance in the rule text describing the level 
of the discount the Exchange provides. The Exchange further believes 
the proposed rule change is reasonable because amending the relevant 
footnotes will provide clarity and greater transparency regarding the 
Exchange's fees and rebates. The Exchange notes that the proposed rule 
change is also equitably allocated and not unfairly discriminatory in 
that it treats similarly situated market participants in the same 
manner.
    The Exchange believes that it is reasonable and equitable to charge 
the fees proposed herein as they are already applicable to complex 
orders in the Complex Quoting Symbols; with this proposed rule change, 
the Exchange is simply extending its current fees to an additional two 
symbols. 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 this 
proposed rule change will continue to attract additional complex order 
business in the Complex Quoting Symbols traded on the Exchange. 
Moreover, 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 
options exchanges. 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. For the reasons noted above, the 
Exchange believes that the proposed fees are fair, equitable and not 
unfairly discriminatory.

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.\17\ 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 Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.
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    \17\ 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

[[Page 40139]]

     Send an email to rule-comments@sec.gov. Please 
include File Number SR-ISE-2012-59 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-2012-59. 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-2012-59 and should be 
submitted on or before July 27, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16520 Filed 7-5-12; 8:45 am]
BILLING CODE 8011-01-P