[Federal Register Volume 73, Number 243 (Wednesday, December 17, 2008)]
[Notices]
[Pages 76689-76690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-29902]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59072; File No. SR-ISE-2008-92]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change as Modified by Amendment No. 1 Thereto Relating to Cancellation
Fees
December 10, 2008.
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 November 28, 2008, 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 prepared by the ISE.
On December 9, 2008, the ISE filed Amendment No. 1 to the proposed rule
change. The Commission is publishing this notice to solicit comments on
the proposed rule change, as amended, 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 amend its Schedule of Fees regarding its
cancellation fee. 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 amend the ISE's
cancellation fee. The Exchange currently has a cancellation fee of
$2.00 that applies to Electronic Access Members (``EAMs'') that
cancelled at least 500 orders in a month, for each order cancellation
in excess of the total number of orders such member executed that
month. Further, all orders from the same clearing EAM executed in the
same underlying symbol at the same price within a 30 second period are
aggregated and counted as one executed order for purposes of this fee.
This fee is currently charged only to customer orders; broker-dealer
orders, including non-member market maker (FARMM) orders, are excluded
from this fee.
Historically, some customers sought to avoid the cancellation fee
by executing large quantities of small orders in inexpensive, out of
the money options to offset their cancellation
[[Page 76690]]
activity in actively traded, at the money strikes where they conduct
the majority of their profitable business. In response, the Exchange
adopted a 30 second aggregation window when calculating the fee,
wherein all orders executed by the same clearing customer of a Member
firm, in the same underlying symbol and at the same price within 30
seconds are aggregated and counted as one execution.\3\ While adopting
the 30 second window reduced the incentive for these customers to enter
multiple orders in rapid succession at the same price and, at that
time, in the same series,\4\ cancelled orders continued to be an issue.
Additionally, the recent downturn in the market has resulted in
thousands of out of the money options across hundreds of symbols,
creating new opportunities for some customers to enter small orders at
different price levels during the 30 second time period, allowing for
more cancellation activity in at the money strikes.
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\3\ See Securities Exchange Act Release No. 53862 (May 24,
2006), 71 FR 31244 (June 1, 2006).
\4\ Earlier this year, in SR-ISE-2008-81, ISE amended the manner
in which it calculates the fee by aggregating orders in the same
underlying symbol in place of aggregating orders in the same series.
See Securities Exchange Act Release No. 58898 (November 4, 2008), 73
FR 67238 (November 13, 2008).
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Recognizing that order cancels and trades often happen in large
numbers, the purpose of this fee is to focus on activity that is truly
excessive and uses bandwidth and system capacity while fairly
allocating costs among Members. The Exchange has made efforts in the
past to recover system capacity and bandwidth costs relative to the
level of cancel and order entry activity by periodically raising its
cancellation fee.\5\ Despite these efforts, the level of canceled
orders continues to remain high, being offset by small order activity
in deep out of the money options. This in turn has further increased
capacity and bandwidth demands. As a result, ISE's receipt of cancel
fees has been reduced to a level where they no longer represent a fair
share of the Exchange's capacity costs.
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\5\ See Securities Exchange Act Release Nos. 54321 (August 15,
2006), 71 FR 49496 (August 23, 2006); 55422 (March 8, 2007), 72 FR
12645 (March 16, 2007); 57467 (March 11, 2008), 73 FR 14291 (March
17, 2008); and 58692 (September 30, 2008), 73 FR 59006 (October 8,
2008).
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In order to ease system congestion caused by cancelled orders, the
Exchange proposes to amend the manner by which it calculates its
current cancel fee by extending the current 30 second window to 300
seconds. ISE believes that extending the aggregation window to five
minutes will result in a reduction in the number of orders that are
sent to the Exchange to create offsetting trades.
The Exchange believes this proposed fee change is justified to
address the level of cancellation activity and its effect on system
congestion. This proposed fee change will be operative on December 1,
2008.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(4) that an exchange have an equitable
allocation of reasonable dues, fees and other charges among its members
and other persons using its facilities. In particular, the Exchange
believes amending the 30 second window to 300 seconds is necessary to
address the current level of cancellation activity and its effect on
system congestion.
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 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 establishes or changes a
due, fee, or other charge imposed by the Exchange, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \6\ and Rule 19b-
4(f)(2) \7\ thereunder. At any time within 60 days of the filing of the
proposed rule change the Commission may summarily abrogate such
proposed 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.\8\
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\6\ 15 U.S.C. 78s(b)(3)(A).
\7\ 17 CFR 19b-4(f)(2).
\8\ For purposes of calculating the sixty-day abrogation period,
the Commission considers the period to commence on December 9, 2008,
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-2008-92 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2008-92. 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, 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 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-2008-92 and should
be submitted on or before January 7, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-29902 Filed 12-16-08; 8:45 am]
BILLING CODE 8011-01-P