Document ID: SEC-2013-1987-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2013-11-20T05:00Z

[Federal Register Volume 78, Number 224 (Wednesday, November 20, 2013)]
[Notices]
[Pages 69718-69720]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27752]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70872; File No. SR-ISE-2013-57]

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

November 14, 2013.
    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 November 1, 2013, 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 
and II 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 proposes to amend 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 purpose of this proposed rule change is to amend the Exchange's 
Schedule of Fees to increase the Market Maker Plus rebate for Market 
Makers \3\ that meet certain additional qualification standards. The 
Exchange assesses a per contract transaction charge and provides 
rebates to market participants that add or remove liquidity from the 
Exchange (``maker/taker fees and rebates'') in all symbols that are in 
the Penny Pilot program (``Select Symbols''). In order to promote and 
encourage liquidity in Select Symbols, the Exchange currently offers 
Market Makers that meet the quoting requirements for Market Maker Plus 
a rebate of $0.10 per contract in Standard Options, and $0.010 per 
contract in Mini Options, for adding liquidity in those symbols.\4\ The 
Exchange now proposes to pay a higher rebate of $0.12 per contract and 
$0.012 per contract for Standard and Mini Options, respectively, to 
Market Makers that meet the quoting requirements for Market Maker Plus 
and are affiliated with an Electronic Access Member that executes a 
total affiliated Priority Customer \5\ average daily volume (``ADV'') 
of 200,000 contracts in a calendar month.\6\

[[Page 69719]]

ISE Market Makers that qualify as Market Maker Plus, but whose 
affiliates do not meet the minimum Priority Customer ADV threshold, 
will continue to earn a rebate of $0.10 per contract for Standard 
Options and $0.010 per contract for Mini Options.
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    \3\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \4\ A Market Maker qualifies for Market Maker Plus if it 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 for all 
expiration months in that symbol during the current trading 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 Market Maker Plus, if doing so 
will qualify a Market Maker for the rebate.
    \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\ Priority Customer ADV includes all volume in all symbols and 
order types. Volume in Standard Options and Mini Options will be 
combined to calculate Priority Customer ADV but Market Makers will 
be rebated for all Standard Options traded at the Standard Option 
rebate amount and for all the Mini Options traded at the Mini Option 
rebate amount.
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    All eligible volume from affiliated Members will be aggregated in 
determining total affiliated Priority Customer ADV, provided there is 
at least 75% common ownership between the Members as reflected on each 
Member's Form BD, Schedule A. The Exchange believes that aggregating 
Priority Customer ADV across Members that share at least 75% common 
ownership will allow Members to continue to execute orders on the 
Exchange through separate broker-dealer entities for different types of 
volume, while still qualifying for the benefit of the new higher Market 
Maker Plus rebate based on volume being executed across such entities. 
The requirement that affiliates share at least 75% common ownership is 
consistent with the definition of ``affiliate'' adopted on the Topaz 
Exchange, LLC and other options exchanges,\7\ and as proposed today in 
another filing with respect to the ISE's Firm Fee Cap.\8\
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    \7\ See e.g. Securities Exchange Act Release No. 70670 (October 
11, 2013), 78 FR 62815 (October 22, 2013) (SR-Topaz-2013-08).
    \8\ See SR-ISE-56 [sic] (November 1, 2013).
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    The exchange is also proposing that, for purposes of determining 
total affiliated Priority Customer ADV, any day that the market is not 
open for the entire trading day may be excluded from such calculation. 
This is consistent with the Exchange's rules for calculating ADV in 
connection with tiered rebates for Priority Customer complex orders,\9\ 
and would allow the Exchange to exclude days where the Exchange 
declares a trading halt in all securities or honors a market-wide 
trading halt declared by another market.\10\ The Exchange will provide 
a notice, and post it on the Exchange's Web site, to inform Members of 
any day that is to be excluded from its ADV calculations in connection 
with this proposed rule change.
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    \9\ See Securities Exchange Act Release No. 70657 (October 10, 
2013), 78 FR 62899 (October 22, 2013) (SR-ISE-2013-51).
    \10\ The Exchange will not be excluding days on which the 
Exchange closes early for holiday observance from its ADV 
calculation.
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2. Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\11\ in general, and 
Section 6(b)(4) of the Act,\12\ 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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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange already provides a rebate to Market Makers that meet 
the Exchange's stated quoting criteria, and is now proposing to pay a 
higher rebate to certain Market Makers that meet an additional 
affiliated Priority Customer ADV threshold. The Exchange believes that 
providing higher rebates to Market Makers whose affiliated companies 
execute more Priority Customer volume on the ISE will attract 
additional Priority Customer order flow to the Exchange, which will 
ultimately benefit all market participants that trade on the ISE. The 
proposed rebate will also provide Market Makers an extra incentive to 
qualify for Market Maker Plus in additional symbols. The Exchange 
believes the proposed rule change will encourage Market Makers to post 
tighter markets in Select Symbols and thereby maintain liquidity and 
attract additional order flow to the Exchange. The Market Maker Plus 
rebate is competitive with incentives provided by other exchanges, and 
has proven to be an effective incentive for Market Makers to provide 
liquidity in Select Symbols. Furthermore, the Exchange believes that 
the new Market Maker Plus rebate is not unfairly discriminatory because 
all Market Makers can achieve the new higher rebate by satisfying the 
current quoting requirements and executing the required Priority 
Customer volume on the ISE through its [sic] affiliates.
    The language permitting aggregation of volume amongst corporate 
affiliates for purposes of the total affiliated Priority Customer ADV 
calculation is intended to avoid disparate treatment of firms that have 
divided their various business activities between separate corporate 
entities as compared to firms that operate those business activities 
within a single corporate entity. By way of example, many firms that 
are Members of the Exchange operate several different business lines 
within the same corporate entity. In contrast, other firms may be part 
of a corporate structure that separates those business lines into 
different corporate affiliates, either for business, compliance or 
historical reasons. Those corporate affiliates, in turn, are required 
to maintain separate memberships with the Exchange in order to access 
the Exchange. The Exchange believes that corporate affiliates should be 
aggregated in determining whether Members qualify for this new Market 
Maker Plus rebate. The Exchange notes that the proposed definition of 
``affiliate'' is consistent with definitions used by other options 
exchanges, including the Topaz Exchange, LLC, the Chicago Board Options 
Exchange, Inc., and the MIAX Options Exchange.\13\
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    \13\ See ISE Gemini Schedule of Fees, Section I, Regular Order 
Fees and Rebates for Standard Options, and Section II, Regular Order 
Fees and Rebates for Mini Options; CBOE Fee Schedule, Volume 
Incentive Program (VIP); MIAX Fee Schedule, Transaction Fees, 
Exchange Fees, Priority Customer Rebate Program.
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    The Exchange believes that it is equitable and reasonable to permit 
the Exchange to eliminate from the calculation days on which the market 
is not open the entire trading day because it preserves the Exchange's 
intent behind adopting volume-based pricing. In particular, the 
Exchange notes that it if it did not have the ability to exclude 
aberrant low volume days when calculating ADV for the month, Members 
may experience an unintended cost increase due to the artificially low 
trading volume on those days. Moreover, as stated above, this is 
consistent with the Exchange's rules for calculating ADV in connection 
with tiered rebates for Priority Customer complex orders.
    The Exchange notes that it has determined to charge fees and 
provide rebates in Mini Options at a rate that is 1/10th the rate of 
fees and rebates the Exchange provides for trading in Standard Options. 
The Exchange believes it is reasonable and equitable and not unfairly 
discriminatory to assess lower fees and rebates to provide market 
participants an incentive to trade Mini Options on the Exchange. The 
Exchange believes the proposed rebates 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, is providing rebates for Mini Options that are 
1/10th of those applicable to Standard Options.

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

    In accordance with Section 6(b)(8) of the Act,\14\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act. The Exchange does not believe the proposed fee 
change will impose a burden on intramarket competition because the 
proposed rebate applies

[[Page 69720]]

equally to all Market Makers that satisfy the quoting requirements and 
whose affiliates execute the required Priority Customer volume on the 
ISE. With respect to intermarket competition, the Exchange believes 
that this new Market Maker Plus rebate is competitive with incentives 
provided by other exchanges. 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 and 
rebates to remain competitive with other exchanges. For the reasons 
described above, the Exchange believes that the proposed fee changes 
reflect this competitive environment.
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    \14\ 15 U.S.C. 78f(b)(8).
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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) of the Act \15\ and paragraph (f) of Rule 19b-4 
thereunder.\16\ 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.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f).
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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 email to rule-comments@sec.gov. Please include 
File No. SR-ISE-2013-57 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2013-57. 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 Commissions 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-2013-57 and should be submitted by 
December 11, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27752 Filed 11-19-13; 8:45 am]
BILLING CODE 8011-01-P