Document ID: SEC-2013-0787-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2013-04-24T04:00Z

[Federal Register Volume 78, Number 79 (Wednesday, April 24, 2013)]
[Notices]
[Pages 24265-24269]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-09654]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69394; File No. SR-ISE-2013-33]

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

April 18, 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 April 12, 2013, the International Securities Exchange, LLC (the 
``Exchange'' or the

[[Page 24266]]

``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 the 
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 
from the Exchange (``maker/taker fees and rebates'') in all symbols 
that are in the Penny Pilot program (``Select Symbols''). The 
Exchange's maker/taker fees and rebates are applicable to regular and 
complex orders executed in the Select Symbols. The fee changes 
discussed below apply to both standard options and mini options traded 
on the Exchange. The Exchange's Schedule of Fees has separate tables 
for fees and rebates applicable to standard options and mini options. 
The Exchange notes that while the discussion below notes the fees and 
rebates for standard options, the fees and rebates for mini options, 
which are not discussed below, are and shall continue to be \1/10\th of 
the fees and rebates for standard options.\3\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 69270 (April 2, 
2013), 78 FR 20988 (April 8, 2013) (SR-ISE-2013-28).
---------------------------------------------------------------------------

    For regular orders that remove liquidity in the Select Symbols, the 
Exchange currently charges a taker fee of: (i) $0.32 per contract for 
Market Maker \4\ and Market Maker Plus \5\ orders, (ii) $0.36 per 
contract for Non-ISE Market Maker \6\ orders, (iii) $0.33 per contract 
for Firm Proprietary/Broker-Dealer and Professional Customer \7\ 
orders, and (iv) $0.25 per contract for Priority Customer \8\ orders. 
The Exchange now proposes to increase the taker fee for: (i) Market 
Maker and Market Maker Plus orders in the Select Symbols from $0.32 per 
contract to $0.34 per contract, (ii) Non-ISE Market Maker orders in the 
Select Symbols from $0.36 per contract to $0.38 per contract, (iii) 
Firm Proprietary/Broker-Dealer and Professional Customer orders in the 
Select Symbols from $0.33 per contract to $0.35 per contract, and (iv) 
Priority Customer orders in the Select Symbols from $0.25 per contract 
to $0.28 per contract.
---------------------------------------------------------------------------

    \4\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \5\ In order to promote and encourage liquidity in the Select 
Symbols, the Exchange currently offers a $0.10 per contract rebate 
to Market Makers if the quotes they send to the Exchange qualify the 
Market Maker to become a Market Maker Plus. 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 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, is excluded in 
calculating whether a Market Maker qualifies for this rebate, if 
doing so will qualify a Market Maker for the rebate. 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 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.
    \7\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
    \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).
---------------------------------------------------------------------------

    For regular orders in Non-Select Symbols,\9\ the Exchange currently 
charges an execution fee of: (i) $0.18 per contract for Market Maker 
orders; (ii) $0.20 per contract for Market Maker (for orders sent by 
Electronic Access Members), Firm Proprietary/Broker-Dealer and 
Professional Customer orders; (iii) $0.45 per contract for Non-ISE 
Market Maker orders; and (iv) $0.00 per contract for Priority Customer 
orders (for Singly Listed Symbols, this fee is $0.20 per contract). The 
Exchange now proposes to increase the execution fee for Firm 
Proprietary/Broker-Dealer and Professional Customer orders, from $0.20 
per contract to $0.30 per contract. The Exchange is not proposing any 
change to the execution fee for other market participants.
---------------------------------------------------------------------------

    \9\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
---------------------------------------------------------------------------

    For Responses to Crossing Orders in Non-Select Symbols, the 
Exchange currently charges a fee of: (i) $0.18 per contract for Market 
Maker orders; (ii) $0.20 per contract for Market Maker (for orders sent 
by Electronic Access Members), Firm Proprietary/Broker-Dealer and 
Professional Customer orders; (iii) $0.45 per contract for Non-ISE 
Market Maker orders; and (iv) $0.20 per contract for Priority Customer 
and Priority Customer (Singly Listed Symbols) orders. The Exchange now 
proposes to increase the Fee for Responses to Crossing Orders for Firm 
Proprietary/Broker-Dealer and Professional Customer orders, from $0.20 
per contract to $0.30 per contract. The Exchange is not proposing any 
change to the Fee for Responses to Crossing Orders for other market 
participants.
    For FX Options, the Exchange currently charges an execution fee of: 
(i) $0.18 per contract for Market Maker and Priority Customer orders; 
(ii) $0.20 per contract for Market Maker (for orders sent by Electronic 
Access Members), Firm Proprietary/Broker-Dealer and Professional 
Customer orders; (iii) $0.45 per contract for Non-ISE Market Maker 
orders; (iv) $0.40 per contract for Priority Customer orders in Early 
Adopter FX Option Symbols; and (v) $0.00 per contract for Early Adopter 
Market Maker orders. The Exchange now proposes to increase the 
execution fee for Firm Proprietary/Broker-Dealer and Professional 
Customer orders, from $0.20 per contract to $0.30 per contract. The 
Exchange is not proposing any change to the execution fee for other 
market participants.
    For Responses to Crossing Orders in FX Options, the Exchange 
currently charges a fee of: (i) $0.18 per contract for

[[Page 24267]]

Market Maker orders; (ii) $0.20 per contract for Market Maker (for 
orders sent by Electronic Access Members), Firm Proprietary/Broker-
Dealer, Professional Customer and Priority Customer orders; (iii) $0.45 
per contract for Non-ISE Market Maker orders; (iv) $0.40 per contract 
for Priority Customer in Early Adopter FX Option Symbols; and (v) $0.00 
per contract for Early Adopter Market Maker orders. The Exchange now 
proposes to increase the Fee for Responses to Crossing Orders for Firm 
Proprietary/Broker-Dealer and Professional Customer orders, from $0.20 
per contract to $0.30 per contract. The Exchange is not proposing any 
change to the Fee for Responses to Crossing Orders for other market 
participants.
    Since the rate changes to the Schedule of Fees pursuant to this 
proposal will be effective upon filing, for the transactions occurring 
in April 2013 prior to the effective date of this filing members will 
be assessed the rates in effect immediately prior to those proposed by 
this filing. For transactions occurring in April 2013 on and after the 
effective date of this filing, members will be assessed the rates 
proposed by this filing.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Securities and Exchange Act 
of 1934 (the ``Act'') \10\ in general, and furthers the objectives of 
Section 6(b)(4) of the Act \11\ 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange has determined to charge fees and provide rebates for 
regular orders in mini options at a rate that is \1/10\th the rate of 
fees and rebates 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 and rebates to 
provide market participants an incentive to trade mini options on the 
Exchange. The Exchange believes the proposed fees and rebates are 
reasonable and equitable in light of the fact that mini options have a 
smaller exercise and assignment value, specifically \1/10\th that of a 
standard option contract, and, as such, levying fees that are \1/10\th 
of what market participants pay today.
    The Exchange believes that its proposal to assess a $0.34 per 
contract taker fee for regular Market Maker and Market Maker Plus 
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. For example, NASDAQ Options Market 
(``NOM'') currently charges a taker fee of $0.48 per contract to NOM 
Market Maker orders in Penny Pilot options in its regular order 
book.\12\ The Exchange also notes that with this proposed rule change, 
the fee charged to regular Market Maker and Market Maker Plus orders in 
the Select Symbols will remain lower than the fee currently charged by 
the Exchange to certain other market participants.
---------------------------------------------------------------------------

    \12\ See NOM fee schedule at http://nasdaq.cchwallstreet..com/
NASDAQ.Tools/.Platform.Viewer.asp?.selectednode=chp.--1.--1.--
15&.manual=%2Fnasdaq.%2Fmain.%2Fnasdaq.-optionsrules%2F.
---------------------------------------------------------------------------

    The Exchange also believes that its proposal to assess a $0.35 per 
contract taker fee for regular Firm Proprietary/Broker-Dealer and 
Professional Customer orders and $0.38 per contract taker fee for 
regular Non-ISE Market Maker orders in the Select Symbols is reasonable 
and equitably allocated because the fee is also within the range of 
fees assessed by other exchanges employing similar pricing schemes. By 
comparison, the proposed fees assessed to regular Firm Proprietary/
Broker-Dealer and Professional Customer orders and to regular Non-ISE 
Market Maker orders are lower than the rates assessed by NOM for 
similar orders. NOM currently charges a taker fee of $0.48 per contract 
for equivalent orders in its regular order book.\13\
---------------------------------------------------------------------------

    \13\ Id.
---------------------------------------------------------------------------

    The Exchange also believes that its proposal to assess a $0.28 per 
contract taker fee for all regular 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 $0.45 
per contract taker fee currently charged by NOM for Customer orders in 
its regular order book.\14\ Therefore, while ISE is proposing a fee 
increase, the resulting fee remains lower than the fee currently 
charged by NOM. The Exchange also notes that with this proposed rule 
change, the fee charged to regular Priority Customer orders will remain 
lower (as it historically has always been) than the fee currently 
charged by the Exchange to other market participants.
---------------------------------------------------------------------------

    \14\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable and equitable to charge a 
fee of $0.30 per contract for regular Firm Proprietary/Broker-Dealer 
orders and regular Professional Customer orders in Non-Select Symbols 
and in FX Options and also when such members are responding to crossing 
orders because the fee is also within the range of fees assessed by 
other exchanges employing similar pricing schemes. By comparison, the 
proposed fees assessed to regular Firm Proprietary/Broker-Dealer and 
Professional Customer orders are lower than the rates assessed by NOM 
for similar orders. NOM currently charges a taker fee of $0.89 per 
contract in Non-Penny Pilot options in its regular order book.\15\ The 
Exchange notes that an execution resulting from a response to a 
crossing order is akin to an execution and therefore its proposal to 
establish execution fees and fees for responses to crossing orders that 
are identical is reasonable and equitable. The Exchange believes its 
proposal to increase the execution fee and fee for responses to 
crossing orders for regular orders in Non-Select Symbols and FX Options 
is not unfairly discriminatory because the proposed fees would apply 
uniformly to all regular Firm Proprietary/Broker-Dealer and 
Professional Customer orders in the same manner.
---------------------------------------------------------------------------

    \15\ Id.
---------------------------------------------------------------------------

    The Exchange believes that the price differentiation between the 
various market participants is justified. As for Priority Customers, 
for the most part, the Exchange does not charge Priority Customers a 
fee (Priority Customers have traditionally traded options on the 
Exchange without a fee) and to the extent they pay a transaction fee, 
those fees are lower than fees charged to other market participants. 
The Exchange believes charging lower fees, or no fees, to Priority 
Customer orders attracts that order flow to the Exchange and thereby 
creates liquidity to the benefit of all market participants who trade 
on the Exchange. With respect to fees to Non-ISE Market Maker orders, 
the Exchange believes that charging Non-ISE Market Maker orders a 
higher rate than the fee charged to Market Maker, Firm Proprietary/
Broker-Dealer and Professional Customer regular orders is appropriate 
and not unfairly discriminatory because Non-ISE Market Makers are not 
subject to many of the non-transaction based fees that these other 
categories of membership are subject to, e.g., membership fees, access 
fees, API/Session fees, market data fees, etc. Therefore, the Exchange 
believes it

[[Page 24268]]

is appropriate and not unfairly discriminatory to assess a higher 
transaction fee to Non-ISE Market Makers because the Exchange incurs 
costs associated with these types of orders that are not recovered by 
non-transaction based fees paid by members. With respect to fees for 
Market Maker orders, the Exchange believes that the price 
differentiation between the various market participants is appropriate 
and not unfairly discriminatory because Market Makers have different 
requirements and obligations to the Exchange that the other market 
participants do not (such as quoting requirements and paying 
membership-related non-transaction fees). The Exchange believes that it 
is equitable and not unfairly discriminatory to assess a higher fee to 
market participants that do not have such requirements and obligations 
that Exchange Market Makers do.
    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. Additionally, the Exchange believes it remains an 
attractive venue for market participants to direct their order flow in 
the symbols that are subject to this proposed rule change as its fees 
are 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

    ISE 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 believes the 
proposed fee change does not impose a burden on competition because the 
proposed taker fee increase for regular orders in Select Symbols is 
consistent with fees charged by other exchanges. The Exchange believes 
the proposed new taker fees for regular orders in Select Symbols does 
not impose a burden on competition because the rate increase applies to 
all market participants on the Exchange. Further, by raising the 
proposed taker fee for regular orders in Select Symbols by similar 
amounts (with the exception for Priority Customers, who have 
historically paid lower or no fees and will continue to pay lower fees 
with this proposed rule change), the proposed new taker fees for 
regular orders in Select Symbols does not impose a burden on 
competition because all participants are affected to the same extent.
    Similarly, the proposed increase to the execution fee and the fee 
for responses to crossing orders is not a burden on competition because 
it will uniformly apply to all Firm Proprietary/Broker-Dealer and 
Professional Customer orders that transact in regular orders in Non-
Select Symbols and in FX Options. The Exchange believes the proposed 
execution fee and the proposed new fee for responses to crossing orders 
for regular orders in Non-Select Symbols and FX Options does not impose 
a burden on competition because it sets the same rate for all Firm 
Proprietary/Broker Dealer and Professional Customer orders. Further, by 
raising the proposed execution fee and the proposed fee for responses 
to crossing orders for regular orders in Non-Select Symbols and FX 
Options by similar amounts, the proposed execution fee and the proposed 
fee for responses to crossing orders for regular orders in Non-Select 
Symbols and FX Options does not impose a burden on competition because 
all Firm Proprietary/Broker-Dealer and Professional Customer orders are 
affected to the same extent.
    The Exchange notes that it 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 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 \16\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\17\ because it establishes a due, fee, or other charge 
imposed by ISE.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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 Number SR-ISE-2013-33 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-2013-33. 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

[[Page 24269]]

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 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-2013-33, and should be submitted on or before May 
15, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-09654 Filed 4-23-13; 8:45 am]
BILLING CODE 8011-01-P