Document ID: SEC-2012-0105-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2012-01-23T05:00Z

[Federal Register Volume 77, Number 14 (Monday, January 23, 2012)]
[Notices]
[Pages 3295-3297]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-1175]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66169; File No. SR-ISE-2012-01]

 Self-Regulatory Organizations; International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Fees and Rebates

January 17, 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 January 3, 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 (i) amend the threshold levels and rebate 
amounts for Qualified Contingent Cross (``QCC'') orders and 
Solicitation orders, (ii) lower the service fee for QCC orders in the 
Exchange's fee cap program, and (iii) increase the ``take'' fee for 
certain customer orders that remove liquidity in a select group of 
options classes. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to (i) amend the 
threshold levels and rebate amounts for QCC and Solicitation orders, 
and (ii) lower the service fee for QCC orders in the Exchange's fee cap 
program, both of which are designed to encourage Members to submit 
greater numbers of QCC orders and Solicitation orders to the Exchange. 
The Exchange currently provides a rebate to Members who reach a certain 
volume threshold in QCC orders and/or Solicitation orders during a 
month.\3\ Once a Member reaches the volume threshold, the Exchange 
provides a rebate to that Member for all of its QCC and Solicitation 
traded contracts for that month. The rebate is paid to the Member 
entering a qualifying order, i.e., a QCC order and/or a Solicitation 
order. The rebate applies to QCC orders and Solicitation orders in all 
symbols traded on the Exchange. Additionally, the threshold levels are 
based on the originating side so if, for example, a Member submits a 
Solicitation order for 1,000 contracts, all 1,000 contracts are counted 
to reach the established threshold even if the order is broken up and 
executed with multiple counter parties.
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    \3\ See Exchange Act Release Nos. 65087 (August 10, 2011), 76 FR 
50783 (August 16, 2011) (SR-ISE-2011-47); 65583 (October 18, 2011), 
76 FR 65555 (October 21, 2011) (SR-ISE-2011-68); 65705 (November 8, 
2011), 76 FR 70789 (November 15, 2011) (SR-ISE-2011-70); and 65898 
(December 6, 2011), 76 FR 77279 (December 12, 2011) (SR-ISE-2011-
78).
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    The current volume threshold and corresponding rebate per contract 
is:

------------------------------------------------------------------------
                                                              Rebate per
                 Originating contract sides                    contract
------------------------------------------------------------------------
0-199,999..................................................        $0.00
200,000-999,999............................................         0.02
1,000,000-1,699,999........................................         0.03
1,700,000-1,999,999........................................         0.04
2,000,000+.................................................         0.05
------------------------------------------------------------------------

    The Exchange now proposes to amend the current tiers by: (1) 
Increasing the rebate amount for the second tier (200,000-999,999 
contracts) from $0.02 per contract to $0.05 per contract; (2) adjusting 
the third tier (1,000,000-1,699,999 contracts) so that it becomes 
1,000,000-1,599,999 contracts and increasing the rebate amount for the 
adjusted third tier from $0.03 per contract to $0.08 per contract; (3) 
eliminating the fourth tier (1,700,000-1,999,999 contracts), in its 
entirety; and (4) adjusting the last tier (2,000,000+ contracts) so 
that it becomes 1,600,000+ contracts and increasing the rebate amount 
for the adjusted last tier from $0.05 per contract to $0.10 per 
contract. With the proposed changes to the tiers, the Exchange is 
attempting to strike the right balance between the number of qualifying 
contracts and its corresponding rebate to ensure that the incentive 
program achieves its intended purpose of attracting greater order flow 
from its Members. The proposed changes to this tier-based rebate 
program is also a competitive response to recent changes proposed by a 
competitor exchange to rebates it offers for QCC transactions executed 
on that exchange.\4\
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    \4\ See Options Trader Alert 2011--72 NASDAQ OMX PHLX, 
Inc. (``PHLX'') and Nasdaq Options Market (``NOM'') Update Pricing 
Effective January 3, 2012.
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    With the proposed amended tiers, the volume threshold and 
corresponding rebate per contract will be as follows:

------------------------------------------------------------------------
                                                              Rebate per
                 Originating contract sides                    contract
------------------------------------------------------------------------
0-199,999..................................................        $0.00
200,000-999,999............................................         0.05

[[Page 3296]]

 
1,000,000-1,599,999........................................         0.08
1,600,000+.................................................         0.10
------------------------------------------------------------------------

    Further, the Exchange currently has a monthly fee cap program for 
Member firms on all proprietary trading, with certain exclusions, in 
all products traded on the Exchange.\5\ Pursuant to the fee cap 
program, a service fee of $0.01 per side applies to all transactions 
that are eligible for the fee cap. For QCC orders, the service fee is 
$0.05 per side. The service fee applies once a Member reaches the fee 
cap level and applies to every contract side included in and above the 
fee cap. A Member who does not reach the monthly fee cap is not charged 
the service fee. Once the fee cap is reached, the service fee applies 
to both Firm Proprietary and other account designations in all ISE 
products in addition to those transactions that were included in 
reaching the monthly fee cap. The service fee is not calculated in 
reaching the fee cap. The Exchange now proposes to lower the service 
fee for QCC orders from $0.05 per side to $0.01 per side, so that QCC 
orders are effectively charged the same service fee as all other orders 
that are assessed a service fee.
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    \5\ See Exchange Act Release Nos. 64270 (April 8, 2011), 76 FR 
20754 (April 13, 2011) (SR-ISE-2011-13).
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    Finally, with this proposed rule change, the Exchange also seeks to 
increase the ``take'' fee for certain customer orders that remove 
liquidity in a select group of options classes. The Exchange currently 
assesses a per contract transaction charge to market participants that 
add or remove liquidity from the Exchange (``maker/taker fees'') in a 
number of options classes (the ``Select Symbols'').\6\ For removing 
liquidity in the Select Symbols, the Exchange currently charges a 
``take'' fee of: (i) $0.12 per contract for Priority Customer \7\ 
regular orders, regardless of size. The Exchange now proposes to 
increase the ``take'' fee for Priority Customer regular orders, 
regardless of size, in the Select Symbols from $0.12 per contract to 
$0.15 per contract.
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    \6\ Options classes subject to maker/taker fees are identified 
by their ticker symbol on the Exchange's Schedule of Fees.
    \7\ 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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2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Securities Exchange Act of 
1934 (``Exchange Act'') \8\ in general, and furthers the objectives of 
Section 6(b)(4) of the Exchange Act \9\ in particular, in that it is an 
equitable allocation of reasonable dues, fees and other charges among 
Exchange Members. The Exchange believes that the proposed fee change 
will generally allow the Exchange and its Members to better compete for 
order flow and thus enhance competition. Specifically, the Exchange 
believes that its proposal, which among other things, adjusts the 
threshold levels for Members to qualify for the highest per contract 
rebate payable, is reasonable as it will encourage Members who direct 
their QCC and Solicitation orders to the Exchange to continue to do so 
instead of sending this order flow to a competing exchange. The 
Exchange believes that with the proposed amended tiers, more Members 
are now likely to qualify for higher rebates for sending their QCC and 
Solicitation orders to the Exchange.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange notes that it currently has other incentive programs 
to promote and encourage growth in specific business areas. For 
example, the Exchange has lower fees (or no fees) for customer orders; 
\10\ and tiered pricing that reduces rates for market makers based on 
the level of business they bring to the Exchange.\11\ This proposed 
rule change targets a particular segment in which the Exchange seeks to 
garnish greater order flow. The Exchange further believes that the 
rebate currently in place for QCC and Solicitation orders is reasonable 
because it is designed to give Members who trade a minimum of 200,000 
qualifying contracts in QCC and Solicitation orders on the Exchange a 
benefit by way of a lower transaction fee. As noted above, once a 
Member reaches an established volume threshold, all of the trading 
activity in the specified order type by that Member will be subject to 
the corresponding rebate.
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    \10\ For example, the customer fee is $0.00 per contract for 
products other than Singly Listed Indexes, Singly Listed ETFs and FX 
Options. For Singly Listed Options, Singly Listed ETFs and FX 
Options, the customer fee is $0.18 per contract. The Exchange also 
currently has an incentive plan in place for certain specific FX 
Options which has its own pricing. See ISE Schedule of Fees.
    \11\ The Exchange currently has a sliding scale fee structure 
that ranges from $0.01 per contract to $0.18 per contract depending 
on the level of volume a Member trades on the Exchange in a month.
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    The Exchange also believes that its rebate program for QCC and 
Solicitation orders is equitable because it would uniformly apply to 
all Members engaged in QCC and Solicitation trading in all option 
classes traded on the Exchange. The Exchange further believes that its 
fees and credits remain competitive with fees charged by other 
exchanges and therefore are reasonable and equitably allocated to those 
members that opt to direct orders to the Exchange rather than to a 
competing exchange. The QCC and Solicitation rebate program employed by 
the Exchange has proven to be an effective pricing mechanism and 
attractive to Exchange participants and their customers.
    The Exchange believes that its proposal to lower the service fee 
from $0.05 per side to $0.01 per side is equitable and reasonable as it 
will standardize the service fees charged by the Exchange for orders 
that are subject to the Exchange's fee cap program. Further, the 
Exchange believes that its proposal to lower the service fee for QCC 
orders under the Exchange's fee cap program will generally allow the 
Exchange to better compete for QCC orders and thus enhance competition.
    The Exchange also believes that its proposal to assess a $0.15 per 
contract ``take'' fee for all Priority Customer regular 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 $0.29 
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.\12\ The Exchange notes that PHLX has 
proposed to increase this fee from $0.29 per contract to $0.31 per 
contract, effective January 3, 2012.\13\ Therefore, while ISE is 
proposing a fee increase, the resulting fee remains lower than the fee 
change proposed by PHLX for similar orders. 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 Priority Customer regular orders will 
remain lower (as it historically has

[[Page 3297]]

always been) than the fee currently charged by the Exchange to other 
market participants.
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    \12\ See PHLX Fee Schedule at http://www.nasdaqtrader.com/content/marketregulation/membership/phlx/feesched.pdf.
    \13\ See Options Trader Alert 2011--71 PHLX and NOM 
Update Pricing Effective January 3, 2012.
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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.\14\ 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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    \14\ 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-2012-01 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-2012-01. 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-2012-01 and should be 
submitted on or before February 13, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-1175 Filed 1-20-12; 8:45 am]
BILLING CODE 8011-01-P