[Federal Register Volume 75, Number 157 (Monday, August 16, 2010)]
[Notices]
[Pages 50015-50017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-20147]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62665; File No. SR-ISE-2010-82]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Fees and Rebates for Adding and Removing Liquidity

August 9, 2010.
    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 August 2, 2010, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the Exchange. 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.
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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 transaction fees and rebates for 
adding and removing liquidity. 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, on the Commission's Web site at 
http://www.sec.gov, 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 Exchange proposes to increase liquidity and attract order flow 
by amending its transaction fees and rebates for adding and removing 
liquidity (``maker/taker fees'').\3\ The Exchange's maker/taker fees 
currently apply to the following categories of market participants:
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    \3\ These fees are similar to the ``maker/taker'' fees currently 
assessed by NASDAQ OMX PHLX (``PHLX''). PHLX currently charges a fee 
for removing liquidity to the following class of market 
participants: (i) Customer, (ii) Directed Participant, (iii) 
Specialist, ROT, SQT and RSQT, (iv) Firm, (v) Broker-Dealer, and 
(vi) Professional. PHLX also provides a rebate for adding liquidity 
to the following class of market participants: (i) Customer, (ii) 
Directed Participant, (iii) Specialist, ROT, SQT and RSQT, and (iv) 
Professional. PHLX also charges a fee for adding liquidity to the 
following class of market participants: (i) Firm, and (ii) Broker-
Dealer. See Securities Exchange Act Release Nos. 61684 (March 10, 
2010), 75 FR 13189 (March 18, 2010); 61932 (April 16, 2010), 75 FR 
21375 (April 23, 2010); 61961 (April 22, 2010), 75 FR 22881 (April 
30, 2010); and 62472 (July 8, 2010), 75 FR 41250 (July 15, 2010).
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    (i) Market Maker; (ii) Market Maker Plus; \4\ (iii) Non-ISE Market 
Maker; \5\ (iv) Firm Proprietary;
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    \4\ A Market Maker Plus is a market maker who is on the National 
Best Bid or National Best Offer 80% of the time for series trading 
between $0.03 and $5.00 (for options whose underlying stock's 
previous trading day's last sale price was less than or equal to 
$100) and between $0.10 and $5.00 (for options whose underlying 
stock's previous trading day's last sale price was greater than 
$100) in premium in each of the front two expiration months and 80% 
of the time for series trading between $0.03 and $5.00 (for options 
whose underlying stock's previous trading day's last sale price was 
less than or equal to $100) and between $0.10 and $5.00 (for options 
whose underlying stock's previous trading day's last sale price was 
greater than $100) in premium across all expiration months in order 
to receive the rebate. The Exchange determines whether a market 
maker qualifies as a Market Maker Plus at the end of each month by 
looking back at each market maker's quoting statistics during that 
month. If at the end of the month, a market maker meets the 
Exchange's stated criteria, the Exchange rebates $0.10 per contract 
for transactions executed by that market maker during that month. 
The Exchange provides market makers a report on a daily basis with 
quoting statistics so that market makers can determine whether or 
not they are meeting the Exchange's stated criteria.
    \5\ A Non-ISE Market Maker, or Far Away Market Maker 
(``FARMM''), is a market maker as defined in Section 3(a)(38) of the 
Securities Exchange Act of 1934, as amended (``Exchange Act''), 
registered in the same options class on another options exchange.
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    (v) Customer (Professional); \6\ (vi) Priority Customer,\7\ 100 or 
more contracts; and (vii) Priority Customer, less than 100 
contracts.\8\
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    \6\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \7\ A Priority Customer is defined in ISE Rule 100(a)(37A) as a 
person or entity that is not a broker/dealer in securities, and does 
not place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s).
    \8\ The Chicago Board Options Exchange (``CBOE'') currently 
makes a similar distinction between large size customer orders that 
are fee liable and small size customer orders whose fees are waived. 
CBOE currently waives fees for customer orders of 99 contracts or 
less in options on exchange-traded funds (``ETFs'') and Holding 
Company Depositary Receipts (``HOLDRs'') and charges a transaction 
fee for customer orders that exceed 99 contracts. See Securities 
Exchange Act Release No. 59892 (May 8, 2009), 74 FR 22790 (May 14, 
2009).
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Current Transaction Charges for Adding and Removing Liquidity

    The Exchange currently assesses a per contract transaction charge 
to market participants that remove, or ``take,'' liquidity from the 
Exchange in the following options classes: PowerShares QQQ trust 
(``QQQQ''), Bank of America Corporation (``BAC''), Citigroup, Inc. 
(``C''), Standard and Poor's Depositary Receipts/SPDRs (``SPY''), 
iShares Russell 2000 (``IWM''), Financial Select Sector SPDR (``XLF''), 
Apple, Inc. (``AAPL''), General Electric Company (``GE''), JPMorgan 
Chase & Co. (``JPM''), Intel Corporation (``INTC''), Goldman Sachs 
Group, Inc. (``GS''), Research in Motion Limited (``RIMM''), AT&T, Inc. 
(``T''), Verizon Communications, Inc. (``VZ''), United States Natural 
Gas Fund (``UNG''), Freeport-McMoRan Copper & Gold, Inc. (``FCX''), 
Cisco Systems, Inc. (``CSCO''), Diamonds Trust, Series 1 (``DIA''), 
Amazon.com, Inc. (``AMZN''), United States Steel Corporation (``X''), 
Alcoa Inc. (``AA''), American International Group, Inc. (``AIG''), 
American Express Company (``AXP''), Best Buy Company (``BBY''), 
Caterpillar, Inc. (``CAT''), Chesapeake Energy Corporation (``CHK''), 
Dendreon Corporation (``DNDN''), iShares MSCI Emerging Markets Index 
Fund (``EEM''), iShares MSCI EAFE Index Fund (``EFA''), iShares MSCI 
Brazil Index Fund (``EWZ''), Ford Motor Company (``F''), Direxion 
Shares Financial Bull (``FAS''), Direxion Shares Financial Bear 
(``FAZ''), First Solar, Inc. (``FSLR''), Market Vectors ETF Gold Miners 
(``GDX''), SPDR Gold Trust (``GLD''), iShares DJ US Real Estate Index 
Fund (``IYR''), MGM Mirage (``MGM''), Morgan Stanley (``MS''), 
Microsoft Corporation (``MSFT''), Micron Technology, Inc. (``MU''), 
Palm, Inc. (``PALM''), Petroleo Brasileiro S.A. (``PBR''), The Procter 
& Gamble Company (``PG''), Potash Corporation of Saskatchewan 
(``POT''), Transocean Ltd. (``RIG''), ProShares UltraShort S&P 500 
(``SDS''), iShares Silver Trust (``SLV''), Energy Select Sector SPDR 
Fund (``XLE''), Exxon Mobil Corporation (``XOM''), Barrick Gold 
Corporation (``ABX''), Bristol-Myers Squibb Company (``BMY''), BP 
p.l.c. (``BP''), ConocoPhillips (``COP''), Dell Computer Corporation 
(``DELL''), Dryships Inc. (``DRYS''), iShares Trust FTSE/Xinhua China 
25 Index Fund (``FXI''), Halliburton Company (``HAL''), International 
Business Machines Corporation (``IBM''), The Coca-Cola

[[Page 50016]]

Company (``KO''), Las Vegas Sands Corp. (``LVS''), McDonald's 
Corporation (``MCD''), Altria Group Inc. (``MO''), Monsanto Company 
(``MON''), Nokia Oyj (``NOK''), Oracle Corporation (``ORCL''), Pfizer 
Inc. (``PFE''), QUALCOMM Inc (``QCOM''), Sprint Corporation (``S''), 
Schlumberger Limited (``SLB''), Semiconductor HOLDRs Trust (``SMH''), 
SanDisk Corporation (``SNDK''), Proshares Ultrashort Lehman (``TBT''), 
United States Oil Fund (``USO''), Visa Inc (``V''), Companhia Vale Do 
Rio Doce (``VALE''), Weatherford International Inc. (``WFT''), 
Industrial Select Sector SPDR (``XLI''), SPDR S&P Retail ETF (``XRT''), 
and Yahoo! Inc. (``YHOO'') (the ``Select Symbols''). The per contract 
transaction charge depends on the category of market participant 
submitting an order or quote to the Exchange that removes liquidity.\9\ 
Priority Customer Complex orders, regardless of size, are not assessed 
a fee for removing liquidity.
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    \9\ Although these options classes will no longer be subject to 
the tiered market maker transaction fees, the volume from these 
options classes will continue to be used in the calculation of the 
tiers so that this new pricing does not affect a market maker's fee 
in all other names.
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    The Exchange also currently assesses transaction charges for adding 
liquidity in options on the Select Symbols. Priority Customer orders, 
regardless of size, and Market Maker Plus orders are not assessed a fee 
for adding liquidity.

Current Rebates

    In order to promote and encourage liquidity in options classes that 
are subject to maker/taker fees, the Exchange currently offers a $0.10 
per contract rebate for Market Maker Plus orders sent to the 
Exchange.\10\ Further, in order to incentivize members to direct retail 
orders to the Exchange, Priority Customer Complex orders, regardless of 
size, currently receive a rebate of $0.15 per contract on all legs when 
these orders trade with non-customer orders in the Exchange's Complex 
Orderbook. Additionally, the Exchange's Facilitation Mechanism has an 
auction which allows for participation in a trade by members other than 
the member who entered the trade. To incentivize members, the Exchange 
currently offers a rebate of $0.15 per contract to contracts that do 
not trade with the contra order in the Facilitation Mechanism. This 
rebate is also offered to contracts that do not trade with the contra 
order in the Price Improvement Mechanism.
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    \10\ The concept of incenting market makers with a rebate is not 
novel. In 2008, the CBOE established a program for its Hybrid Agency 
Liaison whereby it provides a $0.20 per contact rebate to its market 
makers provided that at least 80% of the market maker's quotes in a 
class during a month are on one side of the national best bid or 
offer. Market makers not meeting CBOE's criteria are not eligible to 
receive a rebate. See Securities Exchange Act Release No. 57231 
(January 30, 2008), 73 FR 6752 (February 5, 2008). The CBOE has 
since lowered the criteria from 80% to 60%. See Securities Exchange 
Act Release No. 57470 (March 11, 2008), 73 FR 14514 (March 18, 
2008).
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Fee Changes

    The Exchange proposes to remove the following options class from 
the Exchange's maker/taker fee schedule: PALM.
    Additionally, the Exchange currently assesses transaction charges 
for each leg of Complex Orders that remove liquidity in the Select 
Symbols, as follows: (i) $0.25 per contract for Market Maker, Market 
Maker Plus, Firm Proprietary and Customer (Professional) orders; and 
(ii) $0.35 per contract for Non-ISE Market Maker orders. Priority 
Customer Complex orders, regardless of size, are not assessed a fee for 
removing liquidity. The Exchange proposes to increase the transaction 
charge for Market Maker, Market Maker Plus, Firm Proprietary and 
Customer (Professional) orders from $0.25 per contract to $0.27 per 
contract for each leg of Complex Orders that remove liquidity in the 
Select Symbols. However, ISE market makers who remove liquidity in the 
Select Symbols from the Complex Orderbook by trading with orders that 
are preferenced to them will continue to be charged $0.25 per contract. 
The fee for Non-ISE Market Maker orders and Priority Customer Complex 
orders will remain at their current levels.
    Finally, as an incentive for members to direct customer order flow 
to the Exchange, Priority Customer Complex orders, regardless of size, 
currently receive a rebate of $0.15 per contract on all legs when these 
orders trade with non-customer orders in the Exchange's Complex Order 
Book. The Exchange proposes to increase this rebate from $0.15 per 
contract to $0.20 per contract.

Other Fees

    Fees for orders executed in the Exchange's Facilitation, Solicited 
Order, Price Improvement and Block Order Mechanisms are for contracts 
that are part of the originating or contra order.
     Complex orders executed in the Facilitation and Solicited 
Order Mechanisms are charged fees only for the leg of the trade 
consisting of the most contracts.
     Payment for Order Flow fees will not be collected on 
transactions in options overlying the Select Symbols.\11\
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    \11\ ISE currently has a payment-for-order-flow (``PFOF'') 
program that helps the Exchange's market makers establish PFOF 
arrangements with an Electronic Access Member (``EAM'') in exchange 
for that EAM preferencing some or all of its order flow to that 
market maker. This program is funded through a fee paid by Exchange 
market makers for each customer contract they execute, and is 
administered by both Primary Market Makers (``PMM'') and Competitive 
Market Makers (``CMM''), depending to whom the order is preferenced.
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     The Cancellation Fee will continue to apply to options 
overlying the Select Symbols.\12\
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    \12\ The Exchange assesses a Cancellation Fee of $2.00 to EAMs 
that cancel at least 500 orders in a month, for each order 
cancellation in excess of the total number of orders such member 
executed that month. All orders from the same clearing EAM executed 
in the same underlying symbol at the same price within a 300 second 
period are aggregated and counted as one executed order for purposes 
of this fee. This fee is charged only to customer orders.
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     The Exchange has a $0.20 per contract fee credit for 
members who, pursuant to Supplementary Material .02 to Rule 803, 
execute a transaction in the Exchange's flash auction as a response to 
orders from persons who are not broker/dealers and who are not Priority 
Customers.\13\ For options overlying the Select Symbols, the Exchange 
provides a $0.10 per contract fee credit for members who execute a 
transaction in the Exchange's flash auction as a response to orders 
from persons who are not broker/dealers and who are not Priority 
Customers.
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    \13\ See Securities Exchange Act Release No. 61731 (March 18, 
2010), 75 FR 14233 (March 24, 2010).
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     The Exchange has a $0.20 per contract fee for market maker 
orders sent to the Exchange by EAMs.\14\ Market maker orders sent to 
the Exchange by EAMs will be assessed a fee of $0.25 per contract for 
removing liquidity in options overlying the Select Symbols and $0.10 
per contract for adding liquidity in options overlying the Select 
Symbols.
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    \14\ See Securities Exchange Act Release No. 60817 (October 13, 
2009), 74 FR 54111 (October 21, 2009).
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    The Exchange has designated this proposal to be operative on August 
2, 2010.
2. Statutory Basis
    The basis under the Exchange 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. The impact of the 
proposal upon the net fees paid by a particular market participant will 
depend on a number of variables, most important of which will be its 
propensity to add or remove liquidity in options overlying the Select 
Symbols. The Exchange operates in a highly competitive market in which 
market participants can readily direct order flow to another exchange 
if they deem

[[Page 50017]]

fee levels at a particular exchange to be excessive. The Exchange 
believes that the proposed fees it charges for options overlying the 
Select Symbols remain competitive with fees charged by other exchanges 
and therefore continue to be reasonable and equitably allocated to 
those members that opt to direct orders to the Exchange rather than to 
a competing exchange. In particular, the Exchange believes increasing 
the rebate for Priority Customer Complex orders will attract additional 
order flow to the Exchange. As to the proposed fee change for taking 
liquidity from the Complex Order Book, the Exchange believes the 
proposed increase is reasonable and equitable in that the increase 
applies to all market participants that were previously subject to this 
fee. Moreover, the Exchange believes that the proposed fees are fair, 
equitable and not unfairly discriminatory because the proposed fees are 
consistent with price differentiation that exists today at all option 
exchanges. Additionally, the Exchange believes it remains an attractive 
venue for market participants to trade complex orders despite the 
proposed nominal fee increase as its fees are still lower than fees 
charged by other options exchanges. PHLX, For example, currently 
charges Broker-Dealers and Firms $0.45 per contract for removing 
liquidity from its Complex Order Live Auction.\15\
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    \15\ See PHLX Fee Schedule. See also Securities Exchange Act 
Release No. 61398 (January 22, 2010), 75 FR 4884 (January 29, 2010) 
(SR-PHLX-2009-116).
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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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3) of the Act \16\ and Rule 19b-4(f)(2) \17\ thereunder. At any 
time within 60 days of the filing of such proposed rule change, the 
Commission summarily may temporarily suspend 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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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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-2010-82 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-2010-82. 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 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 Exchange. 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-2010-82 and should be 
submitted on or before September 7, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20147 Filed 8-13-10; 8:45 am]
BILLING CODE 8010-01-P