[Federal Register Volume 75, Number 92 (Thursday, May 13, 2010)]
[Notices]
[Pages 27034-27036]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-11398]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62051; File No. SR-ISE-2010-38]


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

May 6, 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 April 30, 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 website 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.\3\ The changes made pursuant to SR-ISE-2010-37 became operative 
on May 1, 2010. On April 30, 2010, the ISE filed for immediate 
effectiveness a proposed rule change to amend Direct Edge ECN's 
(``DECN'') fee schedule for ISE Members \4\ to: (i) Change the rates 
for

[[Page 27035]]

routing in securities priced less than $1.00 to certain away market 
centers; \5\ (ii) reintroduce the rebate on securities priced less than 
$1.00 that add liquidity to EDGX; \6\ (iii) increase the rebate for 
Members meeting the Ultra Tier; \7\ and (iv) pass through rebates/fees 
from other market centers.\8\ The changes made pursuant to SR-ISE-2010-
37 became operative on May 1, 2010.
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    \3\ This fee filing relates to the trading facility operated by 
ISE and not EDGA Exchange, Inc. and EDGX Exchange, Inc. Direct Edge 
ECN LLC (EDGA and EDGX) will cease to operate in its capacity as an 
electronic communications network following the commencement of 
operations of EDGA Exchange, Inc. and EDGX Exchange, Inc. as 
national securities exchanges.
    \4\ References to ISE Members in this filing refer to DECN 
Subscribers who are ISE Members.
    \5\ In SR-ISE-2010-37, the Exchange amended the routing rates to 
certain away market centers associated with the removal of liquidity 
from EDGA and EDGX in securities priced less than $1.00. For orders 
in securities priced less than $1.00 that are routed to Nasdaq BX in 
Tapes A & C securities and that remove liquidity, orders were 
charged the Exchange's standard routing charge for securities less 
than $1.00 (0.30% of the total dollar value of the transaction, both 
on EDGA and EDGX). As a result of a decrease in fees by Nasdaq OMX 
when removing liquidity in securities priced less than $1.00, the 
Exchange amended its fee schedule in order to charge 0.10% of the 
total dollar value of the transaction (instead of 0.30%) when orders 
were routed to Nasdaq BX in Tapes A & C securities and removed 
liquidity. This has been indicated by footnote number 3 on the 
existing ``C'' flag. A conforming amendment has also been made to 
the fee schedule to append footnote number 3 to indicate an 
exception to the standard rate (0.30% of dollar value) for routing 
liquidity in securities priced less than $1.00. See Nasdaq OMX 
Equity Trader Alert, 2010-27 (April 19, 2010) (``Firms will 
be charged 0.10% (i.e., 10 basis points) of the total dollar value 
of the transaction when removing liquidity in stocks with prices 
below $1.00'').
     Additionally, in SR-ISE-2010-37, the Exchange amended its fee 
schedule to charge 0.20% of the total dollar value of the 
transaction when orders are routed to Nasdaq and remove liquidity in 
securities on all Tapes, or orders are routed to Nasdaq using the 
INET order type and remove liquidity in securities on all Tapes. 
(The INET order type sweeps the EDGA or EDGX book and removes 
liquidity from Nasdaq, if the order is marketable, or posts on 
Nasdaq, if the order is non-marketable.) This has been indicated by 
footnote number 3 being appended to the existing ``J,'' ``L,'' and 
``2'' flags. A conforming amendment has also been made to the fee 
schedule to append footnote number 3 to indicate an exception to the 
standard rate (0.30% of dollar value) for routing liquidity in 
securities priced less than $1.00.
     The Exchange believes that this rate change will seek to 
incentivize the removal of liquidity from EDGA and EDGX in 
securities priced less than $1.00 that are routed to certain away 
market centers.
    \6\ There was no rebate for adding liquidity on EDGX in 
securities priced less than $1.00. In SR-ISE-2010-37, the Exchange 
re-introduced a rebate of $0.00003 per share for orders that add 
liquidity to EDGX in securities priced less than $1.00. The Exchange 
believes that this rebate was appropriate as it represented 30% of 
the minimum price increment for securities priced less than $1.00 
($0.0001) and effectively aligned the rebate with access fee caps 
under Regulation NMS. The Access Rule of Regulation NMS limits the 
fees any trading center can charge, or allow to be charged, for 
accessing its protected quotations, both displayed and reserve size, 
to no more than $0.003 per share. See Rule 610(c) of Regulation NMS, 
Securities and Exchange Act Release No. 51808 (June 9, 2005), 70 FR 
37496 (June 29, 2005).
    \7\ The Exchange's fee schedule provided Members can qualify for 
a rebate of $0.0031 per share for all liquidity posted on EDGX if 
they add or route at least 5,000,000 shares of average daily volume 
prior to 9:30 a.m. or after 4 p.m. (includes all flags except 6) and 
add a minimum of 50,000,000 shares of average daily volume on EDGX 
in total, including during both market hours and pre and post-
trading hours. In SR-ISE-2010-37, effective May 1, 2010, the 
Exchange increased this rebate to $0.0032 per share to further 
incentivize posting liquidity to EDGX. In addition, the higher 
rebate also resulted, in part, from lower administrative costs 
associated with higher volume.
    \8\ The NYSE recently announced changes, effective May 2010, 
that it will increase the fee for removing liquidity in Tape A 
securities to $0.0021 per share (from 0.0018 per share) and increase 
the rebate for trading in Tape A securities to $0.0013 per share 
(from $0.0010 per share). In SR-ISE-2010-37, Flag D, which indicates 
orders that are routed or re-routed to NYSE, and remove liquidity, 
was amended to reflect the charge of $0.0021 per share. A conforming 
amendment was also made to Flag F (routed to NYSE, adds liquidity) 
to increase the rebate to $0.0013 per share. Footnote 3 was amended 
to reflect NYSE's fee change for trading in securities with a per 
share price below $1.00 (from $0.0018 per share to $0.0021 per 
share). In addition, the ``Q'' flag, which denotes an order type 
(ROUC) that routes to the NYSE, was increased from $0.0015 per share 
to $0.0018 per share on EDGA and EDGX to reflect the increase.
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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-2010-37, 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 as an effective date of May 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 May 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,\9\ in general, and 
furthers the objectives of Section 6(b)(4),\10\ 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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    \9\ 15 U.S.C. 78f.
    \10\ 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-2010-38 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-2010-38. 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,\11\ all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written

[[Page 27036]]

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-2010-38 and should be submitted on or before June 3, 
2010.
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    \11\ 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.\12\ 
Specifically, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(4) \13\ 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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    \12\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C 78c(f).
    \13\ 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-2010-37 (the ``Member Fee 
Filing''). The fee changes made pursuant to the Member Fee Filing 
became operative on May 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 May 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.\14\
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    \14\ 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 May 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,\15\ that the proposed rule change (SR-ISE-2010-38) be, and hereby 
is, approved on an accelerated basis.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-11398 Filed 5-12-10; 8:45 am]
BILLING CODE 8010-01-P