[Federal Register Volume 71, Number 140 (Friday, July 21, 2006)]
[Notices]
[Pages 41488-41489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-11570]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54152; File No. SR-ISE-2006-36]


Self-Regulatory Organizations; International Securities Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Payment for Order Flow Fee Changes

July 14, 2006.
    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 July 3, 2006, the International Securities Exchange, Inc. (``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 prepared by the Exchange. The ISE 
has designated this proposal as one changing a fee imposed by the 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 proposes to amend its Schedule of Fees regarding the 
payment for order flow fees collected by the Exchange. The text of the 
proposed rule change is available on the ISE's Web site at http://www.iseoptions.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 ISE included statements 
concerning the purpose of and basis for the proposed

[[Page 41489]]

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 ISE 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 ISE is proposing to amend its Schedule of Fees regarding the 
payment for order flow (``PFOF'') fees collected by the Exchange. The 
Exchange states that it currently operates a PFOF program as approved 
by the Commission.\5\ The PFOF program is funded through a fee, 
currently set at $0.55 per contract, paid by Exchange market makers for 
each customer contract they execute. Currently, all funds collected by 
the Exchange are administered by specified market makers.\6\ PFOF fees 
collected by the Exchange that are not distributed are rebated back to 
the market makers.
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    \5\ See Securities Exchange Act Release No. 43833 (January 10, 
2001), 66 FR 7822 (January 25, 2001) (SR-ISE-00-10).
    \6\ The Exchange states that initially only Primary Market 
Makers administered PFOF pools. However, the Exchange recently 
amended its PFOF program to allow a 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).
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    The Exchange proposes to increase its PFOF fee to $0.65 per 
contract to match the fee that the Chicago Board Options Exchange, 
Incorporated (``CBOE''), under the PFOF program it administers, 
currently charges its members. Additionally, the Exchange states that 
Complex Orders \7\ are currently exempt from the ISE's PFOF fee. The 
Exchange represents that other options exchanges, however, notably 
CBOE, do not provide a similar exception. Accordingly, and also for 
competitive reasons, the Exchange proposes to charge a PFOF fee on 
Complex Orders traded on the ISE.
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    \7\ See Securities Exchange Act Release No. 46646 (October 11, 
2002), 67 FR 64428 (October 18, 2002) (Approving SR-ISE-2002-20, 
ISE's Complex Order Rule, on a permanent basis).
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    The ISE states that it is committed to matching other exchanges' 
PFOF programs in order to maintain its competitive position. The ISE 
states that its Board has provided management with delegated authority 
to increase the ISE's PFOF fee further in the event that increases in 
the PFOF fee of other exchanges present competitive challenges to the 
ISE.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \8\ in general, and furthers the objectives of Section 
6(b)(4) of the Act \9\ in particular, in that it is an equitable 
allocation of reasonable dues, fees, and other charges among ISE 
members and other persons using its facilities.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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

    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 proposed rule change has been designated as a fee 
change pursuant to Section 19(b)(3)(A)(ii) of the Act \10\ and Rule 
19b-4(f)(2) \11\ 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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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 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 [email protected]. Please include 
File Number SR-ISE-2006-36 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 20549-9303.

All submissions should refer to File Number SR-ISE-2006-36. 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 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-2006-36 and should be submitted on or before August 
11, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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 Jill M. Peterson,
 Assistant Secretary.
 [FR Doc. E6-11570 Filed 7-20-06; 8:45 am]
BILLING CODE 8010-01-P