Document ID: SEC-2015-0502-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2015-03-24T04:00Z

[Federal Register Volume 80, Number 56 (Tuesday, March 24, 2015)]
[Notices]
[Pages 15646-15650]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-06621]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74525; File No. SR-ISE-2015-09]

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

March 18, 2015.
    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 March 12, 2015, 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, 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 proposes to amend the Schedule of Fees as described in more 
detail below. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.ise.com), at the principal office of

[[Page 15647]]

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 proposes to amend the Schedule of Fees to (1) provide 
more favorable Priority Customer \3\ complex order rebates, (2) charge 
all legs for complex Crossing Orders,\4\ (3) apply Foreign Exchange 
(``FX'') Option fees and rebates to complex orders in FX Option 
Symbols,\5\ including Early Adopter FX Option Symbols,\6\ and (4) 
eliminate the Market Maker Plus \7\ large size rebate for BAC, SPY, and 
IWM. Each of the proposed changes is described in more detail below.
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    \3\ A ``Priority Customer'' is 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), as defined in Rule 100(a)(37A).
    \4\ A ``Crossing Order'' is an order executed in the Exchange's 
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement 
Mechanism (``PIM'') or submitted as a Qualified Contingent Cross 
(``QCC'') order. For purposes of the fee schedule, orders executed 
in the Block Order Mechanism are also considered Crossing Orders.
    \5\ ``FX Option Symbols'' are options overlying AUM, GBP, EUU 
and NDO.
    \6\ ``Early Adopter FX Option Symbols'' are options overlying 
NZD, PZO, SKA, BRB, AUX, BPX, CDD, EUI, YUK and SFC.
    \7\ A Market Maker Plus is a Market Maker who is on the National 
Best Bid or National Best Offer at least 80% of the time for series 
trading between $0.03 and $3.00 (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 $3.00 (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. A Market Maker's single best and single worst quoting days 
each month based on the front two expiration months, on a per symbol 
basis, will be excluded in calculating whether a Market Maker 
qualifies for the Market Maker Plus rebate, if doing so will qualify 
a Market Maker for the rebate.
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1. Priority Customer Complex Order Rebates
    The Exchange currently provides volume-based tiered rebates for 
Priority Customer complex orders when these orders trade with non-
Priority Customer orders in the complex order book, or trade with 
quotes and orders on the regular order book. These complex order 
rebates are provided to members based on the member's average daily 
volume (``ADV'') in Priority Customer complex orders in six volume 
tiers as follows: 0 to 29,999 contracts (Tier 1), 30,000 to 74,999 
contracts (Tier 2), 75,000 to 124,999 contracts (Tier 3), 125,000 to 
224,999 contracts (Tier 4), 225,000 to 299,999 contracts (Tier 5), and 
300,000 or more contracts (Tier 6).\8\ The Exchange now proposes to 
decrease the volume requirements necessary for achieving higher 
Priority Customer complex order rebates. The proposed ADV thresholds 
are as follows: 0 to 29,999 contracts (Tier 1), 30,000 to 59,999 
contracts (Tier 2), 60,000 to 99,999 contracts (Tier 3), 100,000 to 
149,999 contracts (Tier 4), 150,000 to 199,999 contracts (Tier 5), and 
200,000 or more contracts (Tier 6).
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    \8\ The rebate for the highest tier volume achieved is applied 
retroactively to all Priority Customer Complex volume once the 
threshold has been reached. For purposes of determining Priority 
Customer Complex ADV, any day that the complex order book is not 
open for the entire trading day may be excluded from such 
calculation; provided that the Exchange will only remove the day for 
members that would have a lower ADV with the day included.
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    In addition, the Exchange proposes to increase the rebates provided 
for Priority Customer complex orders. Currently, Priority Customer 
complex orders receive a rebate of $0.30 per contract in Select Symbols 
\9\ and $0.63 per contract in Non-Select Symbols \10\ for Tier 1, $0.35 
per contract in Select Symbols and $0.71 per contract in Non-Select 
Symbols for Tier 2, $0.39 per contract in Select Symbols and $0.75 per 
contract in Non-Select Symbols for Tier 3, $0.41 per contract in Select 
Symbols and $0.80 per contract in Non-Select Symbols for Tier 4, $0.43 
per contract in Select Symbols and $0.82 per contract in Non-Select 
Symbols for Tier 5, and $0.45 per contract in Select Symbols and $0.83 
per contract in Non-Select Symbols for Tier 6.\11\ The Exchange now 
proposes to increase the rebate in Select Symbols to $0.40 per contract 
for Tier 3, $0.43 per contract for Tier 4, $0.45 per contract for Tier 
5, and $0.46 per contact for Tier 6. For Non-Select Symbols the rebate 
will be increased to $0.78 per contract for Tier 3. Other rebate 
amounts will remain unchanged from their current levels.
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    \9\ ``Select Symbols'' are options overlying all symbols listed 
on the ISE that are in the Penny Pilot Program.
    \10\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
    \11\ These rebates are provided per contract per leg if the 
order trades with non-Priority Customer orders in the complex order 
book, or trades with quotes and orders on the regular order book.
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2. Fee for Complex Crossing Orders
    The Exchange charges Market Maker,\12\ Non-ISE Market Maker,\13\ 
Firm Proprietary \14\/Broker-Dealer,\15\ and Professional Customer \16\ 
orders a fee for complex Crossing Orders of $0.20 per contract. This 
fee applies to complex Crossing Orders except for PIM orders of 100 or 
fewer contracts (which are subject to a separate fee) and is charged 
for all legs for PIM orders and for the largest leg only for all other 
Crossing Orders. The Exchange now proposes to charge for all legs for 
all Crossing Orders, including QCC orders and orders entered into the 
PIM, Facilitation, Block and Solicited Order Mechanisms. Firm 
Proprietary and Non-ISE Market Maker contracts traded will remain 
subject to the Crossing Fee Cap, as provided in Section IV.H.\17\
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    \12\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Rule 
100(a)(25).
    \13\ A ``Non-ISE Market Maker'' is a market maker as defined in 
Section 3(a)(38) of the Securities Exchange Act of 1934, as amended, 
registered in the same options class on another options exchange.
    \14\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \15\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \16\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \17\ The Exchange notes that the relevant citation to the 
Crossing Fee Cap currently refers mistakenly to Section VI, which 
was renumbered Section IV in connection with the delisting of Mini 
Options on ISE, and also uses a previous name ``Firm Fee Cap''. The 
Exchange proposes to update this section and make corresponding 
changes to other outdated references to the Crossing Fee Cap, as 
well as to Market Maker Discount Tiers, which are both now located 
in Section IV.
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3. Complex FX Option Fees and Rebates
    ISE charges fees and provides rebates for orders in FX Option 
Symbols, including Early Adopter FX Option Symbols, executed on the 
Exchange. While the Schedule of Fees has separate fees and rebates in 
Section III applicable to simple orders in FX option classes, the 
complex order fees and rebates for Non-Select Symbols in Section II 
currently apply to complex orders in these symbols. The Exchange now 
proposes to apply the FX option fees and rebates in Section III to all 
trades executed in FX option classes, including both simple and complex 
orders. The

[[Page 15648]]

proposed fees, which already apply to simple orders in FX option 
classes, are briefly described below.
    Maker/Taker Fees and Rebates: Currently, non-Priority Customer 
complex orders in FX option classes are charged a fee for removing 
liquidity that ranges from $0.85 per contract for Market Maker orders 
to $0.87 per contract for Non-ISE Market Maker, Firm Proprietary/
Broker-Dealer and Professional Customer orders. The same rates 
similarly apply when these market participants provide liquidity to 
Priority Customer orders. Otherwise, the applicable maker fee is $0.10 
per contract for Market Maker, Firm Proprietary/Broker-Dealer, and 
Professional Customer orders and $0.20 per contract for Non-ISE Market 
Maker orders. Priority Customer complex orders are not currently 
charged a fee for adding or removing liquidity in FX option classes. 
Instead, these orders are eligible for a tiered volume based rebate of 
$0.63 per contract to $0.83 per contract when trading with non-Priority 
Customer orders in the complex order book, or trading with quotes and 
orders on the regular order book. With the proposed change, members 
will pay a fee, regardless of adding or removing liquidity, of $0.22 
per contract for Market Maker orders (subject to tier discounts),\18\ 
$0.20 for Market Maker orders sent by an Electronic Access Member 
(``EAM''), $0.45 per contract for Non-ISE Market Maker orders, $0.30 
per contract for Firm Proprietary/Broker-Dealer and Professional 
Customer orders, and $0.40 per contract for Priority Customer orders. 
Early Adopter Market Makers participate in a revenue sharing 
arrangement as described in footnote 2 to Section III, and will not be 
liable for FX option fees.
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    \18\ The Exchange proposes to clarify in Section IV.C., which 
describes the relevant market maker discount tiers, that both simple 
and complex orders in FX options classes are now subject to these 
tiers pursuant to footnote 3 of Section III.
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    Fee for Crossing Orders: Currently, non-Priority Customer complex 
orders in FX option classes are charged a fee for Crossing Orders of 
$0.20 per contract, or $0.03 to $0.05 per contract for PIM orders of 
100 or fewer contracts. With the proposed change, the fee for Crossing 
Orders in FX option classes will be $0.22 per contract for Market Maker 
orders (subject to tier discounts),\19\ $0.20 per contract for Market 
Maker orders sent by an EAM, Non-ISE Market Maker orders, Firm 
Proprietary/Broker-Dealer orders, and Professional Customer orders, 
and, finally, $0.40 per contract for Priority Customer orders. For PIM 
orders of 100 or fewer contracts, the proposed fee would be $0.03 to 
$0.05 per contract for non-Priority Customer orders and $0.40 per 
contract for Priority Customer orders. Again, Early Adopter Market 
Makers will not be charged a fee.
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    \19\ See id.
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    Response Fees and Break-Up Rebates: Currently, the fee for 
responses to complex Crossing Orders in FX option classes is $0.90 per 
contract for Market Maker orders and $0.95 per contract for all other 
market participants. Non-Market Maker orders also receive a PIM break-
up rebate of $0.80 per contract. With the proposed change, all market 
participants, except for Early Adopter Market Makers, will pay a fee 
for responses to complex Crossing Orders in FX option classes of $0.45 
per contract. In addition, non-Market Maker complex orders in these 
symbols will be eligible for a PIM break-up rebate of $0.15 per 
contract.
4. Market Maker Plus Large Size Rebate for BAC, SPY, and IWM
    In order to promote and encourage liquidity in Select Symbols, the 
Exchange currently offers Market Makers who meet the quoting 
requirements for Market Maker Plus enhanced rebates for adding 
liquidity in those symbols. In May 2014, the Exchange introduced a new 
Market Maker Plus rebate for members that meet specified quotation size 
requirements on a trade by trade basis in three actively traded Select 
Symbols: BAC, SPY, and IWM.\20\ In particular, Market Makers who 
qualify as Market Maker Plus in BAC, SPY, and IWM currently earn a 
rebate of $0.25 per contract if at the time of the trade their 
displayed quantity, in the traded series, is at least 1,000 contracts. 
The Exchange now proposes to eliminate this Market Maker Plus large 
size rebate.
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    \20\ See Securities Exchange Act Release No. 72163 (May 14, 
2014), 79 FR 28985 (May 20, 2014) (SR-ISE-2014-27).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\21\ in general, and 
Section 6(b)(4) of the Act,\22\ 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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    \21\ 15 U.S.C. 78f.
    \22\ 15 U.S.C. 78f(b)(4).
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1. Priority Customer Complex Order Rebates
    The Exchange believes that it is reasonable and equitable to 
decrease the volume requirements necessary to achieve the Priority 
Customer complex order rebates, and increase the rebate amounts, as 
these proposed changes are designed to attract additional Priority 
Customer complex order volume to the Exchange. The Exchange already 
provides volume-based tiered rebates for Priority Customer complex 
orders, and believes that increasing the rebates and lowering the 
associated volume thresholds will incentivize members to send 
additional order flow to the ISE in order to achieve these rebates for 
their Priority Customer complex order volume, creating additional 
liquidity to the benefit of all members that trade complex orders on 
the Exchange.
    The Exchange further believes that it is equitable and not unfairly 
discriminatory to continue to provide a rebate only for Priority 
Customer complex orders. 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, who will generally 
submit a higher number of orders (many of which do not result in 
executions) than Priority Customers.
2. Fee for Complex Crossing Orders
    The Exchange believes that it is reasonable and equitable to charge 
for all legs for all Crossing Orders, including QCC orders and orders 
entered into the PIM, Facilitation, Block and Solicited Order 
Mechanisms. While this is a fee increase for members that execute 
complex Crossing Orders (other than PIM orders), the Exchange believes 
that this change is warranted as the current practice effectively 
discounts the fee charged for complex Crossing Orders to zero after the 
largest leg, effectively subsidizing complex Crossing Orders with 
numerous legs. The Exchange no longer believes that this subsidy is 
appropriate, and has therefore chosen to discontinue it for all complex 
Crossing Orders as it has already done for PIM orders. The Exchange 
does not believe that this proposed change is unfairly discriminatory 
as it would apply equally to all market participants that trade complex 
Crossing Orders on the Exchange.
3. Complex FX Option Fees
    The Exchange believes that it is reasonable and equitable to charge 
the same fees for complex orders in FX Option Symbols and Early Adopter 
FX Option Symbols as the Exchange

[[Page 15649]]

currently charges for simple orders in these symbols. The Exchange 
believes that the current table of FX option fees and rebates in 
Section III of the Schedule of Fees is appropriate for both simple and 
complex orders.\23\ Charging the same fees across the board in these 
proprietary products will simplify the Schedule of Fees to the benefit 
of members and investors. The Exchange does not believe that this 
proposed change is unfairly discriminatory as members are already 
assessed fees and rebates for simple orders in FX option classes based 
on Section III of the Schedule of Fees. The proposed change will merely 
ensure that these members pay the same fees for complex orders in these 
symbols as well. For the majority of market participants this means 
that fees will be lower, and in some cases significantly lower. Certain 
fees, including, for example, fees charged for Priority Customer 
orders, however, will be increased with the proposed change. While 
Priority Customer orders generally receive several benefits for trading 
on ISE, the Exchange does not believe that it is unfairly 
discriminatory to reduce some of those benefits here. In this regard, 
the Exchange notes that the proposed fee for Priority Customer complex 
FX option orders is within the range of fees currently charged by some 
of the Exchange's competitors, including NASDAQ OMX PHLX, LLC 
(``Phlx'').\24\ Similarly, the Exchange notes that PIM break-up rebates 
would be reduced with the proposed rule change. The Exchange believes 
that this is reasonable, equitable, and not unfairly discriminatory as 
the proposed break-up rebates are set at a level that the Exchange 
believes will continue to provide an appropriate incentive for members.
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    \23\ The Exchange notes that the proposed change to Section 
IV.C. is intended solely to clarify that market maker discount tiers 
will be extended to complex orders in FX option classes consistent 
with the meaning of footnote 3 to Section III.
    \24\ See Phlx Pricing Schedule, Section III, Singly Listed 
Options.
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4. Market Maker Plus Large Size Rebate for BAC, SPY, and IWM
    The Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to eliminate the Market Maker Plus large size 
rebate as the Exchange does not believe that this program has satisfied 
its intended goals. When ISE introduced this program, the Exchange was 
hopeful that the higher rebate would encourage Market Makers to post 
deeper size in these actively traded symbols. After running this 
program for several months, the Exchange does not believe that the 
large size rebate has been an effective incentive for Market Makers. 
The Exchange therefore believes that it is appropriate to discontinue 
the large size rebate at this time.

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

    In accordance with Section 6(b)(8) of the Act,\25\ 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. The transaction 
fee changes amend various fees and rebates and are designed to attract 
additional order flow to the Exchange. The Exchange believes that the 
proposed fees and rebates are competitive with fees and rebates offered 
to orders executed on other options 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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    \25\ 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)(ii) of the Act \26\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\27\ because it establishes a due, fee, or other charge 
imposed by ISE.
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    \26\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \27\ 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 Number SR-ISE-2015-09 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-2015-09. 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 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-2015-09 and should be 
submitted by April 14, 2015.

[[Page 15650]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-06621 Filed 3-23-15; 8:45 am]
BILLING CODE 8011-01-P