Document ID: SEC-2012-1981-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2012-12-04T05:00Z

[Federal Register Volume 77, Number 233 (Tuesday, December 4, 2012)]
[Notices]
[Pages 71850-71852]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29218]

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

SECURITIES AND EXCHANGE COMMISSION

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Make Available a New Market Data Offering

November 28, 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 November 15, 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 Exchange. 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 Exchange proposes to make available, through its member MEB 
Options LLC (``MEB''), a new market data offering referred to as 
``Spread Crawler.'' The text of the proposed rule change is available 
on the Exchange's Web site 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 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. 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, Proposed Rule Change

1. Purpose
    The Exchange proposes to make available, through MEB, a new market 
data offering referred to as ``Spread Crawler,'' which will serialize 
spread book data produced by certain U.S. options exchanges and provide 
electronic alerts based on end-user defined filters (the ``Service''). 
Spread Crawler, which was developed by MEB, listens to a streaming data 
feed from all of the U.S. options exchanges that broadcast open complex 
option orders (i.e. ISE, CBOE, C2, AMEX, ARCA, and PHLX) together with 
their instrument definition (i.e. option legs) over various multi-cast 
channels in a FIX format. Spread Crawler then serializes this enormous 
amount of data and turns each record back into a formal structure so it 
contains details of both sides of the order (i.e. bid and/or offer), as 
well as the instrument definition. In addition to actual order detail, 
this structure would contain the current option and underlying stock 
National Best Bid or Offer (``NBBO''), together with a calculated 
theoretical value based on the midpoint of the NBBO (``Order Object''). 
The Order Object is then run through MEB's filtering technology which 
applies filtering rules to each record based on a registered end-user 
input (i.e. custom-set parameters for particular symbols or industry 
sectors, minimum/maximum sizes, edge and specific expirations, etc.) to 
determine which registered end-user(s), if any, would be interested in 
seeing this order. These filtering rules are contained in a relational 
database and are maintained by the registered end-user through the 
Spread Crawler Web site where they can add or update individual 
parameters in real-time. From the matching list of registered end-
users, Spread Crawler then creates and transmits individual alerts that 
outline details of the order in an electronic format selected by the 
registered end-user (i.e. email, instant messaging, etc.).
    The Exchange has entered into an agreement with MEB to offer Spread 
Crawler to both ISE members and non-ISE members on a subscription 
basis. Under the Agreement, MEB will operate and maintain the Service 
and the Exchange will provide certain marketing, first line technical 
support, accounting and contract administration services for Spread 
Crawler. In exchange for the provision of such services, the Exchange 
will receive a percentage of the total monthly subscription fees 
received by MEB from parties who have subscribed to the Service.
    While Spread Crawler will be provided exclusively through the 
Exchange to both ISE members and non-ISE members, the Exchange 
represents that it would enter into a similar arrangement for a similar 
market data offering with any third party, including another ISE 
member, on the same terms and conditions as the arrangement with MEB, 
should any such third party request to do so. Furthermore, because MEB 
does not rely solely on the ISE complex option orders data feed to 
provide the Service and instead utilizes a general aggregation of data 
from all of the U.S. options exchanges that broadcast open complex 
option orders, any third party (regardless of whether it is an ISE-
member or non-ISE member) may develop and/or establish a similar market 
data offering, with or without ISE's participation, and increase the 
competitive landscape for such market data offerings. In addition, the 
Exchange confirms that: (i) MEB has not (and will not) receive any 
preferential treatment as a result of being a ISE member which acts as 
a service provider to other ISE members and non-ISE members pursuant to 
this arrangement; (ii) MEB will not have any special, different, or 
preferential access to the Exchange's data as a result of this 
arrangement; and (iii) ISE, in the context of being one of

[[Page 71851]]

the marketplaces at which complex option orders may be executed as a 
result of the Service, will not receive any preferential treatment or 
informational advantage over any other exchange or marketplace at which 
complex option orders may be executed with respect to the way the 
Exchange is represented as part of the Service, or any resulting alerts 
transmitted by the Service to a subscriber.
    The Exchange believes the Service provides valuable information 
that can help users make informed investment decisions. The Exchange 
will make Spread Crawler available to both ISE members and non-ISE 
members on a subscription basis later this year and will submit a 
separate proposal to establish fees for this market data offering. ISE 
expects to launch the Service, through MEB, during the fourth quarter 
of 2012.
 2. Statutory Basis
    The Exchange believe that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\3\ in general, and with 
Section 6(b)(5) of the Act,\4\ 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 national market system, and, in 
general, to protect investors and the public interest, and is not 
designed to permit unfair discrimination between customers.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f.
    \4\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposed rule change would allow the Exchange, through MEB, to 
offer a new market data service on a voluntary and non-discriminatory 
basis. Specifically, the Exchange believes that the Service is: (i) 
Voluntary on the part of the Exchange, which is not required to offer 
the Service and the subscription to the Service is not necessary to 
execute complex orders on the Exchange; (ii) voluntary on the part of 
prospective subscribers who are not required to use the Service and it 
is not necessary to subscribe to such Service in order to execute 
complex orders on the Exchange; and (iii) non-discriminatory as the 
Service is made available on a subscription basis to both ISE members 
and non-ISE members as a ``one-size fits all'' offering in which all 
subscribers, regardless of whether each such subscriber is an ISE 
member or non-ISE member, are subject to the same terms and conditions, 
receive the same level of service (i.e. there are no differing or 
advanced/upgraded levels of service or other ability to receive the 
data contained in the Service faster or differently than other 
subscribers), and receive alerts based on each user's input.
    By offering the Service through an exchange environment in 
partnership with MEB, the Exchange believes that it will be promoting 
just and equitable principles of trade, fostering cooperation and 
coordination with persons engaged in regulating and processing 
information with respect to, and facilitating transactions in 
securities, and removing impediments to and perfecting the mechanism of 
a free and open market and national market system by: (i) Increasing 
the transparency associated with this product by converting it into an 
exchange-offered product versus a broker-dealer offered product through 
the wider dissemination and distribution of useful proprietary data; 
(ii) clarifying the non-discriminatory availability of such proprietary 
data to market participants; (iii) increasing availability as the data 
will be made available to a broader range of market participants (i.e. 
by offering exchange-wide distribution, this will significantly enhance 
the current distribution of this product as it is now currently only 
distributed by a single broker-dealer); and (iv) providing to 
subscribers of the Service, both ISE members and non-ISE members, a 
mechanism for managing the complexity of analyzing real-time complex 
order book data from multiple exchanges with high efficiency which will 
allow them to make more efficient trading decisions. As such, through 
this proposed rule change, the Exchange is making a voluntary decision 
to make this data available in order to improve market quality, to 
attract order flow, and to increase the transparency and the 
availability of certain proprietary market data.

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

    ISE does not believe that this proposed rule change will 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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) \5\ of the Act and Rule 19b-4(f)(6) thereunder.\6\
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing.\7\ 
However, Rule 19b-4(f)(6)(iii) \8\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay so that it may offer the 
Service immediately. The Exchange believes that a waiver of the 
operative delay is consistent with the protection of investors and the 
public interest because it will allow the Exchange, through MEB, to 
bring an existing product that is currently offered in the marketplace 
as a non-exchange-offered product to market as an exchange-offered 
product in an exchange environment which will: (i) Improve market 
quality through the wider dissemination and distribution of useful 
proprietary data and also by clarifying the non-discriminatory 
availability of such proprietary data to market participants; (ii) 
increase transparency by bringing the Service to an exchange 
environment which will allow the data to be made available to a broader 
range of market participants; (iii) allow users of the Service, both 
ISE members and non-ISE members, to manage the complexity of analyzing 
real-time spread book data from multiple exchanges with high efficiency 
and

[[Page 71852]]

allow them to make more efficient trading decisions; and (iv) help 
attract new users and new order flow to the Exchange, thereby improving 
the Exchange's ability to compete in the market for options order flow 
and executions. Allowing the Exchange to bring the Service to the 
market without delay would provide market participants with the 
potential benefits of the Service as soon as possible. The Commission 
believes that waiver of the operative delay is consistent with investor 
protection and the public interest. Therefore, the Commission is hereby 
waiving the 30-day operative delay.\9\
---------------------------------------------------------------------------

    \7\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
ISE has satisfied this requirement.
    \8\ Id.
    \9\ For purposes only of waiving the 30-day operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the 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.

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-2012-75 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.

All submissions should refer to File Number SR-ISE-2012-75. 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 
10:00 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 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-2012-75 and should be 
submitted on or before December 26, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29218 Filed 12-3-12; 8:45 am]
BILLING CODE 8011-01-P