Document ID: SEC-2012-0447-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2012-03-19T04:00Z

[Federal Register Volume 77, Number 53 (Monday, March 19, 2012)]
[Notices]
[Pages 16106-16108]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-6497]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66582; File No. SR-ISE-2012-16]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change To Amend ISE Rule 722 
(Complex Orders) To Provide Its Members With a Choice in Executing 
Broker-Dealers for the Stock Leg(s) of Stock-Option Orders

March 13, 2012.
    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 February 29, 2012, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (``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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Rule 722 (Complex Orders) to allow 
Members to execute the stock legs of stock-option orders through a 
broker-dealer of their choosing.
    The text of the proposed rule change is available on the Exchange's 
Internet Web site at 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 the 
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.

[[Page 16107]]

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

    Purpose--Under the ISE's current procedure for executing stock-
options orders, ISE Members may elect to have the ISE electronically 
communicate the stock leg(s) of a stock-option order to a designated 
broker-dealer for execution. To participate in the automated process, 
the ISE Member must have entered into a customer agreement with the 
designated broker-dealer. The ISE Member is responsible for fees and 
other charges the designated broker-dealer imposes from executing the 
trades, and the ISE receives no fees related to the stock portion of 
the stock-option trade.
    The Exchange is now proposing to amend its Rule 722 to expand the 
service offered to ISE Members by accommodating multiple potential 
execution brokers. Under the proposal, the Exchange will connect to 
multiple broker-dealers for the execution of the stock component of 
stock-option orders. The Exchange will route orders to the broker-
dealers using routing logic that takes into consideration objective 
factors, such as execution cost, speed of execution and fill rates, and 
ISE Members will have the ability to indicate preferred execution 
venues. The Exchange will have no financial arrangements with the 
executing broker-dealers with respect to routing the stock leg(s) of 
stock-option orders.
    As is currently required, after the stock leg(s) of the orders are 
routed to a broker-dealer for execution, that broker-dealer will be 
responsible for determining whether the order may be executed in 
accordance with the applicable rules, such as the Regulation NMS trade-
through rules. As with the current procedure, the stock-option order 
will not be executed on the ISE if the broker-dealer cannot execute the 
equity orders at the designated price.
    ISE Members will continue to be required to enter into an agreement 
with the broker-dealer(s) to which their orders can be routed, and the 
Exchange's routing logic will only route orders to the broker-dealers 
with whom they have agreements. In this respect, ISE Members will 
continue to be required to enter into an agreement with the designated 
broker-dealer that the Exchange currently routes the stock-leg(s) to so 
that a [sic] there is at least one common available broker-dealer 
through which the matched stock-leg(s) may be executed.\3\
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    \3\ In many cases, stock-option orders that are matched on the 
ISE have two different Members on the trade. The Exchange is not 
able to execute the stock legs of such a transaction unless both 
Members have an agreement with the broker-dealer to which the stock 
legs are routed.
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    The Exchange also proposes to remove from its rules provisions 
related to the non-automatic execution of stock-option orders. Members 
have found the automatic execution of stock-option orders to be 
preferable and no longer enter stock-option orders for non-automatic 
execution.
    Basis--The Exchange believes that the proposed rule change is 
consistent with the provisions of Section 6 of the Act,\4\ in general, 
and with Section 6(b)(5) of the Act,\5\ in particular, in that the 
proposal is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system and, in general, to protect investors and the public interest. 
Specifically, providing the ISE Members with multiple broker-dealers 
through which they may choose to have the stock leg(s) of their stock-
option order routed will enable Members to avail themselves of pricing 
discounts. The Exchange believes that this will encourage members to 
route stock-option orders to the ISE, thus increasing the liquidity for 
stock-option orders executed on the ISE. Additionally, the Exchange 
believes it is fair and reasonable and not discriminatory to remove 
from the rules the ability for Members to execute stock-option orders 
in a non-automated manner, as there is no demand from Members for this 
execution alternative.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(5).
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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 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be 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-2012-16 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-2012-16. 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

[[Page 16108]]

a.m. and 3 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-2012-16 and should be 
submitted on or before April 9, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-6497 Filed 3-16-12; 8:45 am]
BILLING CODE 8011-01-P