Document ID: SEC-2015-0171-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2015-01-28T05:00Z

[Federal Register Volume 80, Number 18 (Wednesday, January 28, 2015)]
[Notices]
[Pages 4600-4603]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-01509]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74117; File No. SR-ISE-2015-03]

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

January 22, 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 January 8, 2015, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange 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 to (1) increase the 
route-out fee applicable to Priority Customer orders routed to away 
markets, (2) adopt a stock handling fee for stock-option orders 
executed against other stock-option orders in the complex order book, 
(3) increase the Crossing Fee Cap subject to a discount for members 
that agree in advance to pay the full amount regardless of actual 
trading volume, and (4) remove certain obsolete text related to PrecISE 
fees. 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.

[[Page 4601]]

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 (1) increase 
the route-out fee applicable to Priority Customer orders routed to away 
markets, (2) adopt a stock handling fee for stock-option orders 
executed against other stock-option orders in the complex order book, 
(3) increase the Crossing Fee Cap subject to a discount for members 
that agree in advance to pay the full amount regardless of actual 
trading volume, and (4) remove certain obsolete text related to PrecISE 
fees. Each of the proposed changes is described in more detail below. 
The Exchange's Schedule of Fees has separate fees applicable to 
Standard Options and Mini Options. The Exchange notes that while the 
discussion below relates to fees for Standard Options, the fees for 
Mini Options, which are not discussed below, are and shall continue to 
be 1/10th of the fees for Standard Options.
I. Route-Out Fees
    The Exchange presently charges a route-out fee applicable to orders 
routed to away markets pursuant to the Options Order Protection and 
Locked/Crossed Market Plan (the ``Plan''). For Market Maker,\3\ Non-ISE 
Market Maker,\4\ and Firm Proprietary \5\/Broker-Dealer,\6\ and 
Professional Customer \7\ orders the route-out fee is $0.55 per 
contract in Select Symbols,\8\ and $0.95 per contract in Non-Select 
Symbols.\9\ For Priority Customer \10\ orders in both Select and Non-
Select Symbols the route-out fee is $0.45 per contract. The Exchange 
now proposes to increase the route-out fee to $0.48 per contract for 
Priority Customer orders in all symbols. The route-out fee for all 
other market participant types will remain at their current rates 
described above.
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    \3\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \4\ A Non-ISE Market Maker, or Far Away Market Maker 
(``FARMM''), is a market maker as defined in Section 3(a)(38) of the 
Securities Exchange Act of 1934 registered in the same options class 
on another options exchange.
    \5\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \6\ A Broker-Dealer order is an order submitted by a Member for 
a non-Member broker-dealer account.
    \7\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
    \8\ ``Select Symbols'' are options overlying all symbols listed 
on the ISE that are in the Penny Pilot Program.
    \9\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
    \10\ 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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II. Stock Handling Fee for Stock-Option Orders
    When an ISE member enters a stock-option order,\11\ the Exchange 
electronically communicates the stock leg of the order to one or more 
broker-dealers for execution pursuant to Supplementary Material .02 to 
Rule 722. Currently, the Exchange provides this stock routing 
functionality as a free service to members, and simply passes-through 
fees charged by the broker-dealer.\12\ The Exchange now proposes to 
introduce a stock handling fee of $0.0010 per share for the stock leg 
of stock-option orders executed against other stock-option orders in 
the complex order book.\13\ This amount will include any fees charged 
by the stock venue that prints the trade, and an amount intended to 
compensate the Exchange for matching these stock-option orders against 
other stock-option orders on the complex order book. A maximum of $50 
per trade will be assessed under this fee in order to ensure that 
market participants do not pay extremely large fees for the execution 
of the stock legs of stock-option orders. The Exchange will continue to 
bill pass-through fees for the stock leg of stock-option orders that 
trade against liquidity on the stock venue, instead of being matched in 
the complex order book.
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    \11\ See ISE Rule 722(a)(2).
    \12\ The Exchange charges for execution of the options leg(s) of 
stock-option orders.
    \13\ The Exchange notes that this stock handling fee, which is 
for the stock leg of stock-option orders and is therefore charged 
per share rather than per contract, is the same regardless of 
whether the options leg(s) is for Standard or Mini Option contracts.
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III. Crossing Fee Cap
    The Exchange currently has a Crossing Fee Cap of $65,000 per month 
which applies to Firm Proprietary and Non[hyphen]ISE Market Maker 
transactions that are part of the originating or contra side of a 
Crossing Order \14\ executed by a member or its affiliate, provided 
there is at least 75% common ownership between the firms as reflected 
on each firm's Form BD, Schedule A.\15\ The Exchange now proposes to 
increase the Crossing Fee Cap to $75,000 per month; provided, however, 
that members that commit in advance to paying the full Crossing Fee Cap 
at the end of each month will instead have these fees capped at the 
current $65,000 per month. Members that commit to the discounted 
Crossing Fee Cap must indicate their desire to do so prior to the start 
of the month in a form determined by the Exchange. By committing to the 
Crossing Fee Cap, members agree to pay the full $65,000 per month 
regardless of actual trading volume.
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    \14\ Crossing Orders are contracts that are submitted as part of 
a Facilitation, Solicitation, PIM, Block or QCC order.
    \15\ Fees for Responses to Crossing Orders and surcharge fees 
for licensed products are not included in the calculation of the 
monthly fee cap.
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IV. PrecISE Fee Waiver: Obsolete Text
    On October 15, 2014 the Exchange filed an immediately effective 
proposed rule change that adopted a limited waiver of PrecISE 
Trade[supreg] (``PrecISE'') fees for Electronic Access Members 
(``EAMs'') and sponsored customers that execute a high volume of 
Crossing Orders in a given month.\16\ As the proposed rule change was 
filed in the middle of a calendar month, the PrecISE waiver for the 
first billing cycle was based on a prorated volume threshold for 
crossing volume executed from October 16, 2014 to October 31, 2014. As 
the first billing cycle has now passed, the Exchange proposes to remove 
this outdated reference from the Schedule of Fees.
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    \16\ See Securities Exchange Act Release No. 73440 (October 27, 
2014), 79 FR 64857 (October 31, 2014) (SR-ISE-2014-48).
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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,\17\ in general, and 
Section 6(b)(4) of the Act,\18\ 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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    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b)(4).

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[[Page 4602]]

I. Route-Out Fees
    The Exchange believes the proposed route-out fees are reasonable 
and equitable as they offset costs incurred by the Exchange in 
connection with using unaffiliated broker-dealers (``Linkage 
Handlers'') to access other exchanges for linkage executions pursuant 
to Supplementary Material .03 to Rule 1901. Due to increasing taker 
fees for accessing liquidity on other markets, the Exchange must 
periodically raise its route-out fees to recoup the higher costs 
associated with executing orders on away markets. Other exchanges 
currently charge a variety of routing related fees associated with 
orders that are subject to linkage handling. The route-out fees 
proposed herein are within the range of fees charged by these 
competitor exchanges. Furthermore, the Exchange believes that the 
proposed fees are not unfairly discriminatory because these fees would 
be uniformly applied to all Priority Customer orders routed to away 
markets. As has historically been the case, Priority Customer orders 
will continue to pay lower route-out fees than orders from other market 
participants, including Professional Customers. The Exchange believes 
that it is equitable and not unfairly discriminatory to charge lower 
fees for Priority Customer orders as 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. Moreover, the Exchange 
notes that Priority Customer orders are often charged lower taker fees 
on other options exchanges, meaning that the execution costs to the 
Exchange for routing these orders is correspondingly lower. As such, 
the Exchange believes that it is equitable and not unfairly 
discriminatory to pass on this cost savings to the firms entering these 
orders.
II. Stock Handling Fee for Stock-Option Orders
    The Exchange believes the proposed stock handling fee for stock-
option orders is reasonable and equitable as the proposed fee will 
cover the costs of developing and maintaining the systems that allow 
for the matching and processing of the stock legs of stock-option 
orders executed in the complex order book, and fees assessed to the 
Exchange by broker-dealers contracted to provide stock execution 
services. The Exchange notes that the Chicago Board Options Exchange, 
Inc. (``CBOE'') also charges a similar stock handling fee of $0.0010 
per share (capped at $50 per order).\19\ The Exchange believes that it 
is reasonable and equitable to charge a similar fee for the execution 
of stock-option orders on the ISE. In addition, the Exchange believes 
that the proposed fee is not unfairly discriminatory as it will be 
uniformly applied to all members that execute stock-option orders on 
the Exchange.
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    \19\ See Securities Exchange Act Release No. 67383 (July 10, 
2012), 77 FR 41841 (July 16, 2012) (SR-CBOE-2012-063).
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III. Crossing Fee Cap
    The Exchange believes that it is reasonable and equitable to 
increase the Crossing Fee Cap, and introduce a discount for members 
that agree to pay the full Crossing Fee Cap at the end of each month, 
as these changes are intended to incentivize members to bring Crossing 
Order flow to the Exchange. Members that do not elect to pay the 
discounted rate in full at the end of each month will remain eligible 
to have their fees capped at $75,000--the level previously available on 
the Exchange before the Crossing Fee Cap was lowered to its current 
level in August 2014--while also retaining the current benefit of a 
waived service fee for the execution of orders above the cap.\20\ At 
the same time, members that commit to their Crossing Order fees in 
advance will receive a discounted rate, which will encourage members to 
bring their Crossing Order flow to the ISE, to the benefit of all 
members and investors that trade on the Exchange. Furthermore, the 
Exchange believes that the proposed changes to the Crossing Fee Cap are 
not unfairly discriminatory because all members will have the option to 
make the required commitment in order to qualify for the discounted 
Crossing Fee Cap. The Crossing Fee Cap will be uniformly applied to 
members based on their election.
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    \20\ See Securities Exchange Act Release No. 72817 (August 12, 
2014), 79 FR 48801 (August 18, 2014) (SR-ISE-2014-39).
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IV. PrecISE Fee Waiver: Obsolete Text
    The Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to remove text in the Schedule of Fees related 
to PrecISE fees for the billing period that ended on November 15, 2014 
as this date has passed. Removing the obsolete text will increase the 
clarity of the Schedule of Fees to the benefit of members and investors 
that trade on the ISE.
    The Exchange notes that it has determined to charge fees and 
provide rebates in Mini Options at a rate that is 1/10th the rate of 
fees and rebates the Exchange provides for trading in Standard Options. 
The Exchange believes it is reasonable and equitable and not unfairly 
discriminatory to assess lower fees and rebates to provide market 
participants an incentive to trade Mini Options on the Exchange. The 
Exchange believes the proposed fees and rebates are reasonable and 
equitable in light of the fact that Mini Options have a smaller 
exercise and assignment value, specifically 1/10th that of a standard 
option contract, and, as such, is providing fees and rebates for Mini 
Options that are 1/10th of those applicable to Standard Options.

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

    In accordance with Section 6(b)(8) of the Act,\21\ 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 proposed 
fees are similar to--and within the range of--fees charged by the 
Exchange's competitors. 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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    \21\ 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 \22\ and

[[Page 4603]]

subparagraph (f)(2) of Rule 19b-4 thereunder,\23\ because it 
establishes a due, fee, or other charge imposed by ISE.
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    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \23\ 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 No. SR-ISE-2015-03 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2015-03. 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-2015-03 and should be 
submitted on or before February 18, 2015.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Brent J. Fields,
Secretary.
[FR Doc. 2015-01509 Filed 1-27-15; 8:45 am]
BILLING CODE 8011-01-P