[Federal Register Volume 75, Number 27 (Wednesday, February 10, 2010)]
[Notices]
[Pages 6782-6784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-2957]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61491; File No. SR-ISE-2010-11]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Order Granting Accelerated Approval to a 
Proposed Rule Change Relating to the Amounts That Direct Edge ECN, in 
Its Capacity as an Introducing Broker for Non-ISE Members, Passes 
Through to Such Non-ISE Members

February 4, 2010.
    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 29, 2010, 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 self-regulatory organization. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons, and is approving the proposal on an accelerated basis.
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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 Exchange proposes to modify the amounts that Direct Edge ECN 
(``DECN''), in its capacity as an introducing broker for non-ISE 
Members, passes through to such non-ISE Members.
    The text of the proposed rule change is available on the Exchange's 
Internet Web site at http://www.ise.com.

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 III 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
    DECN, a facility of ISE, operates two trading platforms, EDGX and 
EDGA. On January 29, 2010, the ISE filed for immediate effectiveness a 
proposed rule change to amend Direct Edge ECN's (``DECN'') fee schedule 
for ISE Members \3\ to simplify its fee schedule by (i) re-introducing 
a rebate; \4\ (ii)

[[Page 6783]]

adding a fee for stocks priced less than $1 that remove liquidity on 
EDGA; \5\ (iii) eliminating certain tables on the fee schedule; \6\ and 
(iv) making typographical and clarifying changes to the fee 
schedule.\7\ The changes made pursuant to SR-ISE-2010-10 became 
operative on February 1, 2010.
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    \3\ References to ISE Members in this filing refer to DECN 
Subscribers who are ISE Members.
    \4\ In SR-ISE-2009-68, the Exchange amended the criteria for 
meeting the Ultra Tier by allowing ISE Members to receive a $0.0032 
rebate per share for securities priced at or above $1.00 when ISE 
Members add liquidity on EDGX if the attributed MPID posts 1% of the 
total consolidated volume (``TCV'') in average daily volume 
(``ADV''). TCV is defined as volume reported by all exchanges and 
trade reporting facilities to the consolidated transaction reporting 
plans for Tape A, B, and C securities. See Securities Exchange Act 
Release No. 60769 (October 2, 2009), 74 FR 51903 (October 8, 
2009)(SR-ISE-2009-68). In SR-ISE-2010-10, the Exchange re-introduced 
an Ultra Tier rebate of $0.0031 per share for competitive reasons.
    The Ultra Tier rebate ($0.0031 per share), which is a higher 
rebate than the next best rebate ($0.0029 per share) for adding 
liquidity on EDGX, is also more difficult to reach, as a higher 
volume threshold is required based on recent TCV figures. For 
example, 1% of the average TCV for January 2010 (8.9 billion) was 
approximately 89 million shares.
    This threshold far exceeds the criteria (no minimum share volume 
requirement) to meet the next best rebate of $0.0029 per share. In 
addition, the higher rebate also results in part from lower 
administrative costs associated with higher volume.
    \5\ In SR-ISE-2010-10, the Exchange added a fee to its schedule 
to provide that stocks priced less than $1 will be charged 0.20% of 
the dollar value if they do not meet the minimum average daily share 
volume of 50,000 shares on EDGA to qualify for the removal rate. A 
conforming footnote 1 was added in the first table on the fee 
schedule (next to the word ``Free'') for removing liquidity in 
stocks less than $1.00 on EDGA.
    \6\ In SR-ISE-2010-10, in order to further simplify its fee 
schedule for Members, the Exchange deleted the table on the fee 
schedule entitled ``Fees per Share for Special Order Types'' as the 
Exchange believed that the information on this schedule was 
repetitive of the information in the ``liquidity flags and 
associated fees'' table below it. As a result of this deletion, the 
Exchange relocated footnote numbers 4 and 5. Footnote 4 was 
relocated to ``Flag E'' and also added to ``Flag 5'' to clarify it. 
Footnote 5 was relocated to ``Flag O.'' These are the corresponding 
areas where these references belong.
    \7\ Effective January 1, 2010, DECN adjusted its pricing model 
to be more consistent with other exchanges (even though DECN is not 
an exchange), by de-linking the pricing structures of DECN to 
eliminate pricing offers that are contingent on activity across both 
platforms. See Securities Exchange Act Release No. 61289 (January 5, 
2010), 75 FR 1674 (January 12, 2010) (SR-ISE-2009-108). Secondly, 
the Exchange simplified its fee schedule in order to provide Members 
with greater consistency and transparency during the period that the 
EDGA and EDGX Exchanges are preparing to launch, when volume will be 
transitioning from DECN to the EDGA and EDGX Exchanges (assuming 
their respective Form 1 applications are approved by the 
Commission). On May 7, 2009, each of EDGA Exchange, Inc. and EDGX 
Exchange, Inc. (the ``EDGA and EDGX Exchanges'') filed their 
respective Form 1 applications to register as a national securities 
exchange (``Form 1'') pursuant to Section 6 of the Securities 
Exchange Act of 1934. On July 30, 2009, the Exchanges filed 
Amendment No. 1 to the Form 1 Application. On September 17, 2009, 
the Form 1 was published in the Federal Register for notice and 
comment. See Securities Exchange Act Release No. 60651 (September 
11, 2009), 74 FR 47827 (September 17, 2009). The Exchange believes 
that these same goals were also advanced for the most part in SR-
ISE-2010-10, which made technical and clarifying changes to DECN's 
fee schedule.
    In SR-ISE-2009-108, to effectuate the foregoing, the Exchange 
deleted certain charges in footnote 1 of the fee schedule, including 
one whereby ISE Members were charged $0.0002 per share to add 
liquidity on EDGA unless the attributed MPID added a minimum average 
daily share volume, measured monthly, of at least 50,000,000 shares 
on EDGA. Prior to January 1, 2010, any attributed MPID meeting the 
aforementioned minimum was not charged to add liquidity on EDGA. 
Since this charge was deleted from footnote 1, in SR-ISE-2010-10, 
the Exchange deleted the corresponding footnote 1 from flags B, V, 
Y, 3, and 4 from the EDGA column as this footnote no longer applies.
    In addition, in SR-ISE-2010-10, the Exchange re-worded the first 
sentence in footnote 1 to clarify that adding can include placing 
hidden orders.
    In SR-ISE-2009-108, for securities priced less than $1, the 
Exchange changed the fee for adding liquidity on EDGX from free to a 
rebate of 0.15% of the dollar value of the transaction. In SR-ISE-
2010-10, the Exchange corrected a typographical error on its current 
schedule by adding parenthesis around the ``0.15% of dollar value'' 
to clarify that this was a rebate, and not a charge, for adding 
liquidity on EDGX in securities priced less than $1.
    In SR-ISE-2010-10, for Flag P, the Exchange corrected a 
typographical error on the schedule by inverting the columns that 
were displayed. For EDGX, flag P was corrected to read ``N/A'' and 
for EDGA it was corrected to read a rebate of $0.0025 per share 
(i.e., (0.0025)).
    In SR-ISE-2010-10, the Exchange also clarified Footnote 3. The 
second sentence of this footnote states that the ``rebate for adding 
liquidity on the NYSE of $0.0010 per share.'' This information was 
already conveyed in Flag F and was deleted in order to simplify and 
clarify the fee schedule. The first sentence of footnote 3 was also 
deleted as it is repetitive of the amended third sentence in 
footnote 3 (``stocks prices below $1.00 on the NYSE are charged 
$0.0018 per share when removing liquidity.'') As a result, on Flag 
J, footnote 3 was deleted as the reference no longer applies. 
However, footnote 3 was relocated to Flag D in order to further 
clarify it.
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    In its capacity as a member of ISE, DECN currently serves as an 
introducing broker for the non-ISE Member subscribers of DECN to access 
EDGX and EDGA. DECN, as an ISE Member and introducing broker, receives 
rebates and is assessed charges from DECN for transactions it executes 
on EDGX or EDGA in its capacity as introducing broker for non-ISE 
Members. Since the amounts of such rebates and charges were changed 
pursuant to SR-ISE-2010-10, DECN wishes to make corresponding changes 
to the amounts it passes through to non-ISE Member subscribers of DECN 
for which it acts as introducing broker. As a result, the per share 
amounts that non-ISE Member subscribers receive and are charged will be 
the same as the amounts that ISE Members receive and are charged.
    ISE is seeking accelerated approval of this proposed rule change, 
as well an effective date of February 1, 2010. ISE represents that this 
proposal will ensure that both ISE Members and non-ISE Members (by 
virtue of the pass-through described above) will in effect receive and 
be charged equivalent amounts and that the imposition of such amounts 
will begin on the same February 1, 2010 start date.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\8\ in general, and 
furthers the objectives of Section 6(b)(4),\9\ 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. In particular, this proposal will ensure that dues, 
fees and other charges imposed on ISE Members are equitably allocated 
to both ISE Members and non-ISE Members (by virtue of the pass-through 
described above).
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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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. 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-2010-11 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 20549-1090.

All submissions should refer to File Number SR-ISE-2010-11. 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

[[Page 6784]]

post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission,\10\ 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 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-2010-11 and should be submitted on or before March 
3, 2010.
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    \10\ The text of the proposed rule change is available on ISE's 
Web site at http://www.ise.com, on the Commission's Web site at 
http://www.sec.gov, at ISE, and at the Commission's Public Reference 
Room.
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IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\11\ 
Specifically, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(4) \12\ of the Act, which requires that 
the rules of a national securities exchange provide for the equitable 
allocation of reasonable dues, fees, and other charges among members 
and issuers and other persons using its facilities.
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    \11\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C 78c(f).
    \12\ 15 U.S.C. 78f(b)(4).
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    As described more fully above, ISE recently amended DECN's fee 
schedule for ISE Members pursuant to SR-ISE-2010-10 (the ``Member Fee 
Filing''). The fee changes made pursuant to the Member Fee Filing 
became operative on February 1, 2010. DECN receives rebates and is 
charged fees for transactions it executes on EGDX or EDGA in its 
capacity as an introducing broker for its non-ISE member subscribers. 
The current proposal, which will apply retroactively to February 1, 
2010, will allow DECN to pass through the revised rebates and fees to 
the non-ISE member subscribers for which it acts an introducing broker. 
The Commission finds that the proposal is consistent with the Act 
because it will provide rebates and charge fees to non-ISE member 
subscribers that are equivalent to those established for ISE member 
subscribers in the Member Fee Filing.\13\
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    \13\ Id.
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    ISE has requested that the Commission find good cause for approving 
the proposed rule change prior to the thirtieth day after publication 
of notice of filing thereof in the Federal Register. As discussed 
above, the proposal will allow DECN to pass through to non-ISE member 
subscribers the revised rebate and fees established for ISE member 
subscribers in the Member Fee Filing, resulting in equivalent rebates 
and fees for ISE member and non-member subscribers. In addition, 
because the proposal will apply the revised rebates and fees 
retroactively to February 1, 2010, the revised rebates and fees will 
have the same effective date, thereby promoting consistency in the 
DECN's fee schedule. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act, for approving the proposed 
rule change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-ISE-2010-11) be, and hereby 
is, approved on an accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
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pursuant to delegated authority.\15\

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-2957 Filed 2-9-10; 8:45 am]
BILLING CODE 8011-01-P