[Federal Register Volume 72, Number 32 (Friday, February 16, 2007)]
[Notices]
[Pages 7699-7701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-2793]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55271; File No. SR-ISE-2007-08]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change as Modified by Amendment No. 1 Thereto Relating to Payment for 
Order Flow Fees

February 12, 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 January 26, 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. On February 1, 2007, the ISE submitted 
Amendment No. 1 to the proposed rule change. 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, as amended, from 
interested persons.

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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change
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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)(1)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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    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
    The Exchange is proposing to amend its Schedule of Fees in 
conjunction with the introduction of the Pilot by reducing the PFOF 
fees for options on issues that trade as part of the Pilot. The Pilot 
is scheduled to begin on January 26, 2007. The following issues will be 
included in the Pilot: Agilent Technologies (A), Advanced Micro Devices 
(AMD), Caterpillar (CAT), Flextronics International (FLEX), General 
Electric (GE), Intel (INTC), iShares Russell 2000 Index fund (IWM), 
Microsoft (MSFT), Nasdaq-100 Index Tracking Stock (QQQQ), Semiconductor 
Holders Trust (SMH), Sun Microsystems (SUNW), Texas Instruments (TXN), 
and Whole Foods Markets (WFMI).
    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. The Exchange now proposes to reduce the PFOF fees to $0.25 per 
contract for transactions in all options on Pilot issues. This fee 
reduction would 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 believes that quoting and trading in one cent 
increments pursuant to the Pilot would narrow spreads, resulting in 
PFOF being less of a competitive factor. Thus, the Exchange believes it 
is prudent for it to maintain its PFOF fee, but at a lower level in 
options on Pilot issues.
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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 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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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \8\ in general, and Section 6(b)(4) of the 
Act \9\ 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 in options on Pilot issues would 
enhance competition.
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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

    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 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.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(2).
    \12\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change, the 
Commission considers the period to commence on February 1, 2007, the 
date on which the Exchange filed Amendment No. 1.
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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-2007-08 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2007-08. 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

[[Page 7701]]

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-2007-08 and should be 
submitted on or before March 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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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-2793 Filed 2-15-07; 8:45 am]
BILLING CODE 8010-01-P