Document ID: SEC-2012-0457-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2012-03-20T04:00Z

[Federal Register Volume 77, Number 54 (Tuesday, March 20, 2012)]
[Notices]
[Pages 16295-16298]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-6621]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66597; File No. SR-ISE-2012-17]

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

March 14, 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 March 1, 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 is proposing to amend certain transaction 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.

[[Page 16296]]

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. The 
maker/taker fees for complex orders in the Select Symbols also apply to 
all symbols that are in the Penny Pilot program.\4\ The Exchange also 
currently assesses maker/taker fees for complex orders in symbols that 
are in the Penny Pilot program but are not a Select Symbol (Non-Select 
Penny Pilot Symbols) \5\ and for complex orders in all symbols that are 
not in the Penny Pilot Program (``Non-Penny Pilot Symbols'').\6\
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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\ See Exchange Act Release Nos. 65021 (August 3, 2011), 76 FR 
48933 (August 9, 2011) (SR-ISE-2011-45); and 65550 (October 13, 
2011), 76 FR 64984 (October 19, 2011) (SR-ISE-2011-65).
    \5\ See Exchange Act Release No. 65724 (November 10, 2011), 76 
FR 71413 (November 17, 2011) (SR-ISE-2011-72).
    \6\ See Exchange Act Release Nos. 66084 (January 3, 2012), 77 FR 
1103 (January 9, 2012) (SR-ISE-2011-84); and 66392 (February 14, 
2012), 77 FR 10016 (February 21, 2012) (SR-ISE-2012-06).
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    For complex orders in the Select Symbols, the Exchange currently 
charges a ``taker'' fee of: (i) $0.32 per contract for ISE Market 
Maker,\7\ Market Maker Plus,\8\ Firm Proprietary and Customer 
(Professional) \9\ orders; and (ii) $0.36 per contract for Non-ISE 
Market Maker \10\ orders. Priority Customer \11\ orders are not charged 
a ``taker'' fee for complex orders in the Select Symbols. For complex 
orders in these same symbols, the Exchange currently charges a 
``maker'' fee of: (i) $0.10 per contract for ISE 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 are not charged a ``maker'' fee for complex orders in 
these symbols.
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    \7\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \8\ 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. 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.
    \9\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \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, as amended (``Exchange Act''), 
registered in the same options class on another options exchange.
    \11\ 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 the Non-Select Penny Pilot Symbols, the 
Exchange currently charges a ``taker'' fee of: (i) $0.30 per contract 
for ISE Market Maker, Market Maker Plus, Firm Proprietary and Customer 
(Professional) orders; and (ii) $0.35 per contract for Non-ISE Market 
Maker orders. Priority Customer orders are not charged a ``taker'' fee 
for complex orders in the Non-Select Penny Pilot Symbols. For complex 
orders in these same symbols, the Exchange currently charges a 
``maker'' fee of: (i) $0.10 per contract for ISE 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 are not charged a ``maker'' fee for complex orders in 
these symbols.
    For complex orders in the Non-Penny Pilot Symbols, the Exchange 
currently charges a ``taker'' fee of: (i) $0.60 per contract for ISE 
Market Maker, Firm Proprietary and Customer (Professional) orders; and 
(ii) $0.65 per contract for Non-ISE Market Maker orders. Priority 
Customer orders are not charged a ``taker'' fee for complex orders in 
the Non-Penny Pilot Symbols. For complex orders in these same symbols, 
the Exchange currently charges a ``maker'' fee of $0.10 per contract 
for ISE Market Maker, Non-ISE Market Maker, Firm Proprietary and 
Customer (Professional) orders. Priority Customer orders are not 
charged a ``maker'' fee for complex orders in these symbols.
    The Exchange now proposes to increase the ``taker'' fee for complex 
orders in the Select Symbols and in the Non-Select Penny Pilot Symbols 
to (i) $0.34 per contract for ISE Market Maker, Market Maker Plus, Firm 
Proprietary and Customer (Professional) orders; and (ii) $0.38 for Non-
ISE Market Maker orders. With this proposed fee change, the Exchange 
seeks to standardize the ``taker'' fee charged for complex orders in 
the Select Symbols and in the Non-Select Penny Pilot Symbols. The 
Exchange also proposes to increase the ``taker'' fee for complex orders 
in the Non-Penny Pilot Symbols to (i) $0.70 per contract for Market 
Maker, Firm Proprietary and Customer (Professional) orders; and (ii) 
$0.75 per contract for Non-ISE Market Maker orders.
    Additionally, ISE Market Makers who remove liquidity from the 
complex order book by trading with orders that are preferenced to them 
are currently charged as follows: (i) In the Select Symbols, $0.30 per 
contract; (ii) in the Non-Select Penny Pilot Symbols, $0.28 per 
contract; and (iii) in the Non-Penny Pilot Symbols, $0.58 per contract. 
With the proposed increase to the ``taker'' fees for complex orders in 
the Select Symbols, the Non-Select Penny Pilot Symbols and the Non-
Penny Pilot Symbols noted above, the Exchange also proposes to increase 
the fee charged to ISE Market Makers who remove liquidity in these 
symbols as follows: (i) To $0.32 per contract in the Select Symbols and 
in the Non-Select Penny Pilot Symbols (thereby, once again, 
standardizing the fee charged to ISE Market Makers who remove liquidity 
from the complex order book by trading with orders that are preferenced 
to them in both the Select Symbols and the Non-Select Penny Pilot 
Symbols); and (ii) to $0.68 per contract in the Non-Penny Pilot 
Symbols.
    For responses to special orders in the Non-Penny Pilot Symbols,\12\ 
ISE

[[Page 16297]]

currently charges $0.60 per contract for Customer (Professional), Firm 
Proprietary and ISE Market Maker orders. For Non-ISE Market Maker 
orders, this fee is currently $0.65 per contract. The Exchange now 
proposes to increase the fee for responses to special orders in the 
Non-Penny Pilot Symbols to $0.70 per contract for Customer 
(Professional Orders), Firm Proprietary and ISE Market Maker orders, 
and to $0.75 per contract for Non-ISE Market Maker orders.
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    \12\ 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. This fee applies to 
Market Maker, Non-ISE Market Maker, Firm Proprietary and Customer 
(Professional) interest.
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    The Exchange notes that it currently provides rebates that are 
applicable to complex orders in the Select Symbols, in the Non-Select 
Penny Pilot Symbols and in the Non-Penny Pilot Symbols. The Exchange is 
not proposing any changes to these rebates in this filing.\13\
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    \13\ The Exchange has submitted a separate proposed rule change 
that proposes changes to the rebate programs currently in place at 
the Exchange for complex orders and proposes to adopt volume-based 
tiered rebates for Priority Customer complex orders. See SR-ISE-
2012-18.
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    With this proposed rule change, the Exchange also seeks to increase 
the ``taker'' fee for certain customer orders that remove liquidity in 
the Select Symbols. The Exchange currently charges a ``taker'' fee of 
$0.15 per contract for regular, or non-complex, Priority Customer 
orders in the Select Symbols, regardless of size. The Exchange now 
proposes to increase the ``taker'' fee for regular, or non-complex, 
Priority Customer orders in the Select Symbols, regardless of size, 
from $0.15 per contract to $0.20 per contract.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Exchange Act \14\ in 
general, and furthers the objectives of Section 6(b)(4) of the Exchange 
Act \15\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that its proposal to assess a $0.34 per 
contract ``taker'' fee for ISE Market Maker, Market Maker Plus, Firm 
Proprietary and Customer (Professional) orders in the Select Symbols 
and in the Non-Select Penny Pilot Symbols that are subject to the 
Exchange's maker/taker fees is reasonable because the fee is within the 
range of fees assessed by other exchanges employing similar pricing 
schemes and in some cases, is lower that the fees assessed by other 
exchanges. For example, NASDAQ OMX PHLX, Inc. (``PHLX'') recently 
announced a proposed fee increase to $0.37 per contract for removing 
liquidity in complex orders for Specialist orders and to $0.38 per 
contract for Firm and Professional orders.\16\ Therefore, while ISE is 
proposing a fee increase for ISE Market Maker, Market Maker Plus, Firm 
Proprietary and Customer (Professional) orders, the resulting fee 
remains lower than the fee proposed by PHLX for similar orders. ISE's 
proposed increase for Non-ISE Market Maker orders to $0.38 per contract 
will result in both exchanges charging a similar rate for these 
orders.\17\
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    \16\ See PHLX Options Trader Alert 2012-14 at http://www.nasdaqtrader.com/MicroNews.aspx?id=OTA2012-14.
    \17\ Id.
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    The Exchange further believes it is reasonable and equitable to 
charge ISE Market Maker, Firm Proprietary and Customer (Professional) 
orders a ``taker'' fee of $0.70 per contract ($0.75 per contract for 
Non-ISE Market Maker orders) for complex orders in the Non-Penny Pilot 
Symbols because the Exchange is seeking to recoup the cost associated 
with paying a rebate of $0.50 per contract to Priority Customers. The 
Exchange believes it is reasonable and equitable to charge ISE Market 
Maker, Firm Proprietary and Customer (Professional) orders a fee of 
$0.70 per contract ($0.75 per contract for Non-ISE Market Maker orders) 
when such members are responding to special orders because a response 
to a special order is akin to taking liquidity, thus the Exchange is 
proposing to [sic] an identical fee for taking liquidity in the Non-
Penny Pilot Symbols. The Exchange has historically maintained a 
differential in the fees it charges ISE Market Makers from those it 
charges to Non-ISE Market Makers. The Exchange believes it is 
reasonable and equitable to treat these two groups of market 
participants differently because each has different commitments and 
obligations to the Exchange. ISE Market Makers, in particular, have 
quoting obligations and pay the Exchange non-transaction fees. Non-ISE 
Market Makers do not have any such obligations or financial 
commitments.
    The Exchange believes that it is reasonable and equitable to 
provide a two cent discount to ISE Market Makers on preferenced orders 
as an incentive for them to quote in the Complex Order Book. The 
Exchange notes that PHLX currently provides a similar two cent 
discount. Accordingly, ISE Market Makers who remove liquidity in the 
Select Symbols and in the Non-Select Penny Pilot Symbols from the 
Complex Order Book will be charged $0.32 per contract when trading with 
orders that are preferenced to them. ISE Market Makers who remove 
liquidity in the Non-Penny Pilot Symbols from the Complex Order Book 
will be charged $0.68 per contract when trading with orders that are 
preferenced to them. ISE notes that with this proposed fee change, the 
Exchange, while increasing this fee, will maintain the same two cent 
differential that is also currently in place at PHLX.\18\
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    \18\ Id.
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    While the Exchange is not proposing any change in this filing \19\ 
to the rebates that are currently applicable to complex orders in the 
Select Symbols, in the Non-Select Penny Pilot Symbols and in the Non-
Penny Pilot Symbols, the Exchange believes that it is reasonable and 
equitable to continue to provide a rebate for Priority Customer complex 
orders when these orders trade with non-Priority Customer orders in the 
Complex Order Book because paying a rebate would continue to attract 
additional order flow to the Exchange and create liquidity in the 
symbols that are subject to the rebate, which the Exchange believes 
ultimately will benefit all market participants who trade on ISE.
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    \19\ See supra note 13.
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    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 while 
at the same time create standardization in complex order pricing across 
symbols that make up the majority of the daily volume in options 
trading.
    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 exist 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. The Exchange operates in a highly competitive market

[[Page 16298]]

in which market participants can readily direct order flow to another 
exchange if they deem fee levels at a particular exchange to be 
excessive. With this proposed fee change, the Exchange believes it 
remains an attractive venue for market participants to trade complex 
orders.
    The Exchange also believes that its proposal to assess a $0.20 per 
contract ``taker'' fee for all regular, or non-complex, Priority 
Customer orders in the Select Symbols is reasonable and equitably 
allocated because the fee is within the range of fees assessed by other 
exchanges employing similar pricing schemes. The proposed fee is 
substantially lower than the $0.39 per contract fee currently charged 
by PHLX for Customer orders that remove liquidity in a number of 
symbols that are subject to that exchange's maker/taker fees.\20\ 
Therefore, while ISE is proposing a fee increase, the resulting fee 
remains lower than the fee currently charged by PHLX. Further, the 
proposed increase will bring this fee closer to the fee the Exchange 
currently charges to other market participants that employ a similar 
trading strategy. The Exchange also notes, however, that with this 
proposed rule change, the fee charged to regular, or non-complex, 
Priority Customer orders will remain lower (as it historically has 
always been) than the fee currently charged by the Exchange to other 
market participants.
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    \20\ See PHLX Fee Schedule at http://www.nasdaqtrader.com/content/marketregulation/membership/phlx/feesched.pdf.
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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 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.\21\ 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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    \21\ 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
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2012-17 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-2012-17. 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 
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-2012-17 and should be 
submitted on or before April 10, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-6621 Filed 3-19-12; 8:45 am]
BILLING CODE 8011-01-P