Document ID: SEC-2007-0833-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: International Securities Exchange, LLC
Posted Date: 2007-06-18T04:00Z

[Federal Register: June 18, 2007 (Volume 72, Number 116)]
[Notices]               
[Page 33549-33550]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18jn07-91]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55895; File No. SR-ISE-2007-38]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change Relating to Payment for Order Flow Fees

June 11, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 1, 2007, the International Securities Exchange, LLC (``ISE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by the 
Exchange. ISE has designated this proposal as one establishing or 
changing a due, fee, or other charge imposed by ISE under Section 
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ 
which renders the proposal effective upon filing with the Commission. 
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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 its Schedule of Fees to reduce the 
payment for order flow (``PFOF'') fees for options on issues that trade 
as part of the Penny Pilot (``Pilot'').\5\ The text of the proposed 
rule change is available at the Exchange, the Commission's Public 
Reference Room, and http://www.iseoptions.com.

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    \5\ See Securities Exchange Act Release No. 54603 (October 16, 
2006), 71 FR 62024 (October 20, 2006) (SR-ISE-2006-62) (Notice of 
Filing of Proposed Rule Change to Implement a Pilot Program To Quote 
and To Trade Options in Pennies).
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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 Exchange 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. ISE has substantially 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
    On January 26, 2007, ISE and all of the other options exchanges 
commenced the Pilot for the quoting and trading of specified options 
contracts in $.01 increments. The Exchange currently operates a PFOF 
program as approved by the Commission.\6\ This program is funded 
through a fee, currently set at $0.65 per contract, paid by Exchange 
market makers for each customer contract they execute. All funds 
collected by the Exchange are administered by specified market 
makers.\7\ PFOF fees collected by the Exchange that are not distributed 
are rebated back to the market makers. Subsequent to the commencement 
of the Pilot, the Exchange amended its Schedule of Fees by reducing the 
PFOF fees for issues that trade as part of the Pilot from $0.65 per 
contract to $0.25 per contract (``Pilot PFOF Fees'').\8\
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    \6\ See Securities Exchange Act Release No. 43833 (January 10, 
2001), 66 FR 7822 (January 25, 2001) (SR-ISE-2000-10).
    \7\ Initially only Primary Market Makers administered PFOF 
pools. However, the Exchange recently amended its PFOF program to 
allow a preferenced Competitive Market Maker (``CMM'') to administer 
the PFOF funds collected by the Exchange with respect to orders in a 
group of options classes preferenced to that CMM. See Securities 
Exchange Act Release No. 53127 (January 13, 2006), 71 FR 3582 
(January 23, 2006) (SR-ISE-2005-57).
    \8\ See Exchange Act Release No. 55271 (February 12, 2007), 72 
FR 7699 (February 16, 2007) (SR-ISE-2007-08) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change Relating to 
Payment for Order Flow Fees).
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    The Exchange now proposes to reduce the Pilot PFOF Fees from $0.25 
per contract to $0.10 per contract for transactions in all Pilot 
issues. This fee reduction shall also apply to other issues that become 
a part of the Pilot in the event the Pilot is expanded beyond the 
current 13 securities. The Exchange notes that quoting and trading in 
one cent increments pursuant to the Pilot has resulted in narrower 
spreads in the 13 Pilot securities. PFOF, as a result, has become less 
of a competitive factor in the Pilot securities. The Exchange thus 
believes that while it is prudent for it to maintain its PFOF fee, 
$0.10 per contract is an appropriate PFOF rate relative to the trading 
increments in these instruments.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \9\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \10\ in particular, because it 
is an equitable allocation of reasonable dues, fees, and other charges 
among exchange members and other persons using exchange facilities. In 
particular, the Exchange believes that lowering PFOF fees further in 
Pilot issues would enhance competition.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change has been designated as a fee 
change pursuant to Section 19(b)(3)(A)(ii) of the

[[Page 33550]]

Act \11\ and Rule 19b-4(f)(2) \12\ thereunder, because it establishes 
or changes a due, fee, or other charge imposed by the Exchange. 
Accordingly, the proposal will take effect upon filing with the 
Commission. At any time within 60 days of the filing of such proposed 
rule change the Commission may summarily abrogate 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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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
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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 e-mail to rule-comments@sec.gov. Please include 

File Number SR-ISE-2007-38 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2007-38. This file 
number should be included on the subject line if e-mail 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 inspection and 
copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of 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-2007-38 and should be submitted on or before July 9, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-11625 Filed 6-15-07; 8:45 am]

BILLING CODE 8010-01-P