[Federal Register Volume 76, Number 245 (Wednesday, December 21, 2011)]
[Notices]
[Pages 79236-79238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-32569]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65958; File No. SR-ISE-2011-81]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Fees for Certain Complex Orders Executed on the 
Exchange

December 15, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'' or the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that, on November 30, 2011, the International 
Securities Exchange, LLC (the ``Exchange'' or the ``ISE'') filed with 
the Securities and Exchange Commission (the ``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 fees for certain complex orders 
executed on the Exchange. 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 Exchange currently assesses a per contract transaction fee to 
market participants that add or remove liquidity in the Complex Order 
Book (``maker/taker fees'') in symbols that are in the Penny Pilot 
program. Included therein is a subset of 103 symbols that are assessed 
a slightly higher taker fee (the ``Select Symbols'').\3\ Specifically, 
the Exchange charges ISE market maker orders,\4\ firm proprietary 
orders and Customer (Professional Orders) \5\ $0.10 per contract for 
providing liquidity on the Complex Order Book and $0.30 per contract 
($0.32 per contract in the Select Symbols) for taking liquidity from 
the Complex Order Book. ISE market makers who take liquidity from the 
Complex Order Book by trading with orders that are preferenced to them 
are charged $0.28 per contract ($0.30 per contract in the Select 
Symbols). Non-ISE Market Makers \6\ are currently charged $0.20 per 
contract for providing liquidity and $0.35 per contract ($0.36 per 
contract in the Select Symbols) for taking liquidity from the Complex 
Order Book. Priority Customer orders are not charged a fee for trading 
in the Complex Order Book and receive a rebate of $0.25 per contract 
($0.30 per contract in the Select Symbols) when those orders trade with 
non-customer orders in the Complex Order Book.
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    \3\ The Select Symbols are identified by their ticker symbol on 
the Exchange's Schedule of Fees.
    \4\ The term ``market makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \5\ The term ``Professional Order'' means an order that is for 
the account of a person or entity that is not a Priority Customer. 
See ISR Rule 100(a)(37C).
    \6\ The term ``Non-ISE Market Maker'' means a market maker as 
defined in Section 3(a)(38) of the Securities Exchange Act of 1934 
(the ``Act'') [sic] registered in the same options class on another 
options exchange. See Schedule of Fees, page 4.
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    The Exchange recently received approval to allow market makers to 
enter quotations for complex order strategies in the Complex Order 
Book.\7\ Given this enhancement to the complex order functionality, and 
in order to maintain a competitive fee and rebate structure for 
Priority Customer orders, the Exchange now proposes to amend the fees 
that apply to transactions in the Complex Order Book in the following 
three symbols: XOP, XLB and EFA.\8\ Specifically, the Exchange proposes 
to amend its maker fee for complex orders in these three symbols when 
these orders interact with Priority Customers.\9\ The Exchange proposes 
to increase its maker fee from $0.10 per contract to $0.30 per contract 
in XOP ($0.32 per contract in XLB and EFA) for ISE market maker orders, 
firm proprietary orders, and Customer (Professional Orders) when these 
orders interact with Priority Customer orders. The Exchange proposes to 
increase its maker fee from $0.20 per contract to $0.30 per contract in 
XOP ($0.32 per contract in XLB and EFA) for Non-ISE Market Makers 
orders when these orders interact with Priority Customer orders. The 
Exchange is not proposing any change to fees for Priority Customer 
orders that trade in the Complex Order Book.
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    \7\ See Securities Exchange Act Release No. 65548 (October 13, 
2011), 76 FR 64980 (October 19, 2011) (SR-ISE-2011-39).
    \8\ The Exchange notes that XOP is currently in the Penny Pilot 
program and XLB and EFA are currently Select Symbols.
    \9\ The term ``Priority Customer'' means a person or entity that 
(i) is not a broker or dealer in securities, and (ii) does not place 
more than 390 orders in listed options per day on average during a 
calendar month for its own beneficial account. See ISE Rule 
100(a)(37A).
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    Further, for Priority Customer complex orders in symbols that are 
in the Penny Pilot program, the Exchange currently provides a rebate of 
$0.25 per contract ($0.30 per contract for Select Symbols) when these 
orders trade with non-customer orders in the Complex Order Book. The 
Exchange proposes to continue this rebate incentive. As such, Priority 
Customer complex orders in XOP will continue to receive a rebate of 
$0.25 per contract when these orders trade with non-customer orders in 
the Complex Order Book, while Priority Customer complex orders in XLB 
and EFA will continue to receive a rebate of $0.30 per contract when 
these orders trade with non-customer orders in the Complex Order Book.
    Additionally, to incentivize members to trade in the Exchange's 
various auction mechanisms, the Exchange currently provides a per 
contract rebate to those contracts that do not trade with the contra 
order in the Exchange's Facilitation Mechanism,\10\ Price Improvement 
Mechanism \11\ and Solicited Order Mechanism.\12\ This rebate currently 
applies to all complex orders in symbols that are subject to the 
Exchange's maker/taker fees. To clarify the applicability of this 
rebate, the Exchange proposes to add footnote 2 to the Complex Order 
Maker Fee (Each Leg) for Select Symbols column and the Complex Order 
Taker Fee (Each Leg) for Select Symbols column on the Exchange's 
Schedule of Fees. For the Facilitation and Solicited Order

[[Page 79237]]

Mechanisms, the rebate is currently $0.15 per contract. For the Price 
Improvement Mechanism, the rebate is currently $0.25 per contract. The 
Exchange proposes to continue this rebate incentive also. As such, a 
per contract rebate at the current levels will continue to apply to 
those contracts in XOP, XLB, and EFA that do not trade with the contra 
order in the Exchange's Facilitation Mechanism, Price Improvement 
Mechanism and Solicited Order Mechanism.
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    \10\ See Exchange Act Release No. 61869 (April 7, 2010), 75 FR 
19449 (April 14, 2010) (SR-ISE-2010-25).
    \11\ See Exchange Act Release No. 62048 (May 6, 2010), 75 FR 
26830 (May 12, 2010) (SR-ISE-2010-43). The Exchange subsequently 
increased this rebate to $0.25 per contract. See Exchange Act 
Release No. 63283 (November 9, 2010), 75 FR 70059 (November 16, 
2010) (SR-ISE-2010-106).
    \12\ See Exchange Act Release No. 63283 (November 9, 2010), 75 
FR 70059 (November 16, 2010) (SR-ISE-2010-106).
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    The Exchange also proposes to continue providing ISE market makers 
with a two cent discount when trading against orders that are 
preferenced to them. Currently, this discount is only applicable when 
ISE Market Makers remove liquidity from the Complex Order Book. The 
Exchange now proposes to provide this fee discount when ISE Market 
Makers add or remove liquidity from the Complex Order Book in XOP, XLB 
and EFA. Accordingly, ISE market makers that add or remove liquidity in 
XLB and EFA in the Complex Order Book will be charged $0.30 per 
contract ($0.28 per contract in XOP) when trading with orders that are 
preferenced to them.
    The Exchange proposes to make these fee changes operative on 
December 1, 2011.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Act \13\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \14\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees and other charges among Exchange 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 Penny Pilot Symbols and the Select 
Symbols in the Complex Order Book, as applicable.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that increasing the fees applicable to orders 
executed in the Complex Order Book when trading against Priority 
Customers in XOP, XLB and EFA is appropriate given the new 
functionality that allows market makers to quote in the Complex Order 
Book. Additionally, the Exchange's fees remain competitive with fees 
charged by other exchanges and are therefore reasonable and equitably 
allocated to those members that opt to direct orders to the Exchange 
rather than to a competing exchange. Specifically, the Exchange 
believes that its proposal to assess a make fee of $0.30 per contract 
for XOP and $0.32 for XLB and EFA when orders in these symbols interact 
with Priority Customers is reasonable and equitable because the fee is 
within the range of fees assessed by other exchanges employing similar 
pricing schemes.
    The Exchange also believes that it is reasonable and equitable to 
provide a two cent discount to ISE market makers on preferenced orders 
because this will provide an incentive for market makers to quote in 
the Complex Order Book. The Exchange believes that it is reasonable and 
equitable to continue to provide rebates for Priority Customer complex 
orders because paying a rebate will continue to attract additional 
order flow to the Exchange and thereby create liquidity that ultimately 
will benefit all market participants who trade on the Exchange.
    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 other 
options exchanges. Additionally, the Exchange believes it remains an 
attractive venue for market participants to trade complex orders 
despite its proposed fee change as its fees remain competitive with 
those charged by other exchanges for similar trading strategies. The 
Exchange operates in a highly competitive market in which market 
participants can readily direct order flow to another exchange if they 
deem fee levels at a particular exchange to be excessive. For the 
reasons noted above, the Exchange believes that the proposed fees are 
fair, equitable and not unfairly discriminatory.

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 Exchange 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)(A)(ii) of the Exchange Act.\15\ 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 Exchange Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 email to [email protected]. Please include 
File Number SR-ISE-2011-81 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-2011-81. This file 
number should be included on the subject line if email 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

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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-2011-81 and should be submitted on or before January 
11, 2012.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32569 Filed 12-20-11; 8:45 am]
BILLING CODE 8011-01-P