[Federal Register Volume 77, Number 35 (Wednesday, February 22, 2012)]
[Notices]
[Pages 10579-10581]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-4084]



[[Page 10579]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66406; File No. SR-ISE-2012-07]


 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

February 16, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on February 1, 2012, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 101 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.
---------------------------------------------------------------------------

    \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 [sic] 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'') registered in the same options class on another 
options exchange. See Schedule of Fees, page 4.
---------------------------------------------------------------------------

    The Exchange also recently adopted fees for complex orders in two 
of the most actively-traded index option products, the NASDAQ 100 Index 
option (``NDX'') and the Russell 2000 Index option (``RUT'').\7\ 
Specifically, the Exchange charges ISE market maker orders, firm 
proprietary orders and Customer (Professional Orders) $0.25 per 
contract for providing liquidity on the Complex Order Book in NDX and 
RUT and $0.70 per contract for taking liquidity from the Complex Order 
Book in NDX and RUT. Non-ISE Market Makers are charged $0.25 per 
contract for providing liquidity and $0.75 per contract for taking 
liquidity from the Complex Order Book in NDX and RUT. ISE market makers 
who remove liquidity from the Complex Order Book in NDX and RUT by 
trading with orders that are preferenced to them are charged $0.68 per 
contract. Priority Customer orders are not charged a fee for trading in 
the Complex Order Book in NDX and RUT and receive a rebate of $0.50 per 
contract when those orders trade with non-Priority Customer orders in 
the Complex Order Book in NDX and RUT.
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 66084 (January 3, 
2012), 77 FR 1103 (January 9, 2012) (SR-ISE-2011-84).
---------------------------------------------------------------------------

    Further, pursuant to Securities and Exchange Commission (``SEC'') 
approval, the Exchange allows market makers to enter quotations for 
complex order strategies in the Complex Order Book.\8\ 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 recently amended fees that apply to transactions 
in the Complex Order Book in the following three symbols: XOP, XLB and 
EFA.\9\ Specifically, the Exchange amended its maker fees for complex 
orders in these three symbols when these orders interact with Priority 
Customers.\10\ In SR-ISE-2011-81, the Exchange increased 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 also increased 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 did not 
make any change to fees for Priority Customer orders that trade in the 
Complex Order Book.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 65548 (October 13, 
2011), 76 FR 64980 (October 19, 2011) (SR-ISE-2011-39).
    \9\ See Securities Exchange Act Release No. 65958 (December 15, 
2011), 76 FR 79236 (December 21, 2011) (SR-ISE-2011-81). The 
Exchange notes that XOP is currently in the Penny Pilot program and 
XLB and EFA are currently Select Symbols.
    \10\ 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).
---------------------------------------------------------------------------

    Further, for Priority Customer complex orders in XOP, the Exchange 
currently provides a rebate of $0.25 per contract ($0.30 per contract 
for XLB and EFA) when these orders trade with non-Priority Customer 
orders in the Complex Order Book.
    Further, the Exchange provides ISE market makers with a two cent 
discount when trading against orders that are preferenced to them. 
Prior to SR-ISE-2011-81, this discount was only applicable when ISE 
Market Makers removed liquidity from the Complex Order Book. Pursuant 
to SR-ISE-2011-

[[Page 10580]]

81, the Exchange began to provide this fee discount when ISE Market 
Makers added or removed liquidity from the Complex Order Book. As a 
result, the Exchange currently provides this fee discount when ISE 
market makers add or remove liquidity from the Complex Order Book in 
XOP, XLB and EFA. Specifically, ISE market makers that add or remove 
liquidity in XLB and EFA in the Complex Order Book are charged $0.30 
per contract ($0.28 per contract in XOP) when trading with orders that 
are preferenced to them.
    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,\11\ Price Improvement 
Mechanism \12\ and Solicited Order Mechanism.\13\ This rebate currently 
applies to all complex orders in symbols that are subject to the 
Exchange's maker/taker fees. For the Facilitation and Solicited Order 
Mechanisms, the rebate is currently $0.15 per contract. For the Price 
Improvement Mechanism, the rebate is currently $0.25 per contract. 
Accordingly, a per contract rebate at the current levels currently 
applies 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.
---------------------------------------------------------------------------

    \11\ See Exchange Act Release No. 61869 (April 7, 2010), 75 FR 
19449 (April 14, 2010) (SR-ISE-2010-25).
    \12\ 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).
    \13\ See Exchange Act Release No. 63283 (November 9, 2010), 75 
FR 70059 (November 16, 2010) (SR-ISE-2010-106).
---------------------------------------------------------------------------

    The Exchange now proposes to extend the fees for complex orders 
adopted in SR-ISE-2011-81 to the following additional seven symbols: 
AA, ABX, MSFT, MU, NVDA, VZ, and WFC.\14\ The Exchange proposes to 
expand the pricing structure and fees applicable to these orders in a 
manner that is gradual and measured. For that reason, the Exchange 
selected symbols that have moderate trading activity. In this case, 
each of the seven symbols selected by the Exchange has an average daily 
trading volume in complex orders of 500 contracts to 10,000 contracts 
on the Exchange.
---------------------------------------------------------------------------

    \14\ The Exchange notes that AA, ABX, MSFT, MU, NVDA, VZ, and 
WFC are currently Select Symbols.
---------------------------------------------------------------------------

    Specifically, the Exchange proposes to increase its maker fee from 
$0.10 per contract to $0.32 per contract in AA, ABX, MSFT, MU, NVDA, 
VZ, and WFC 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 $0.32 per contract in AA, ABX, MSFT, MU, NVDA, 
VZ, and WFC for Non-ISE Market Makers orders when these orders interact 
with Priority Customer orders. The Exchange does not propose any change 
to fees for Priority Customer orders that trade in the Complex Order 
Book.
    Further, the Exchange provides ISE market makers with a two cent 
discount when trading against orders that are preferenced to them. 
Accordingly, the Exchange currently provides this fee discount when ISE 
Market Makers add or remove liquidity from the Complex Order Book in 
AA, ABX, MSFT, MU, NVDA, VZ, and WFC.\15\ Specifically, ISE market 
makers that add or remove liquidity in AA, ABX, MSFT, MU, NVDA, VZ, and 
WFC in the Complex Order Book are charged $0.30 per contract when 
trading with orders that are preferenced to them.
---------------------------------------------------------------------------

    \15\ ISE acknowledged that it does not currently provide this 
fee discount for the seven symbols included in this proposal. 
Instead, the proposal establishes this discount for these seven 
symbols. Telephone conversation among Boris Ilyevsky, Managing 
Director, ISE; Samir Patel, Assistant General Counsel, ISE; Victoria 
Crane, Assistant Director, Commission; Yvonne Fraticelli, Special 
Counsel, Commission; and Kathleen Gross, Counsel, Commission on 
February 13, 2012.
---------------------------------------------------------------------------

    Further, for Priority Customer complex orders in AA, ABX, MSFT, MU, 
NVDA, VZ, and WFC, the Exchange currently provides a rebate of $0.30 
per contract when these orders trade with non-Priority Customer orders 
in the Complex Order Book. The Exchange does not propose any change to 
this rebate.
    Finally, as noted above, 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, Price 
Improvement Mechanism and Solicited Order Mechanism. This rebate 
currently applies to all complex orders in symbols that are subject to 
the Exchange's maker/taker fees. For the Facilitation and Solicited 
Order Mechanisms, the rebate is currently $0.15 per contract. For the 
Price Improvement Mechanism, the rebate is currently $0.25 per 
contract. Accordingly, a per contract rebate at the current levels 
currently applies to those contracts in AA, ABX, MSFT, MU, NVDA, VZ, 
and WFC that do not trade with the contra order in the Exchange's 
Facilitation Mechanism, Price Improvement Mechanism and Solicited Order 
Mechanism. The Exchange does not propose any change to this rebate.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Act \16\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \17\ 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 AA, ABX, MSFT, MU, NVDA, VZ, and WFC in 
the Complex Order Book.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that increasing the fees applicable to orders 
executed in the Complex Order Book when trading against Priority 
Customers in AA, ABX, MSFT, MU, NVDA, VZ, and WFC 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 $0.32 per 
contract for AA, ABX, MSFT, MU, NVDA, VZ, and WFC 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. For example, the `make' fee for a 
broker/dealer complex order in MSFT when trading against a Priority 
Customer at NASDAQ OMX PHLX (``PHLX'') is $0.20 per contract \18\ while 
the same order that is electronically delivered at the Chicago Board 
Options Exchange (``CBOE'') is $0.45 per contract.\19\ Furthermore, one 
of the primary goals of this fee change, as well as the fees adopted in 
SR-ISE-2011-81, is to maintain the attractive and competitive economics 
for Priority Customer

[[Page 10581]]

complex orders, while introducing an enhancement to the way complex 
orders trade on the Exchange.
---------------------------------------------------------------------------

    \18\ See PHLX Fee Schedule, Section I, Part B., at http://www.nasdaqtrader.com/content/marketregulation/membership/phlx/feesched.pdf.
    \19\ See CBOE Fees Schedule, Section 1.VI. at http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf.
---------------------------------------------------------------------------

    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.
    The Exchange believes that it is reasonable and equitable to charge 
the fees proposed herein as they are already applicable to complex 
orders in XOP, XLB and EFA; with this proposed rule change, the 
Exchange is simply extending its current fees to an additional seven 
symbols. 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. 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.\20\ 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.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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 Exchange 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-2012-07 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-2012-07. 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 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-2012-07 and should be 
submitted on or before March 14, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-4084 Filed 2-21-12; 8:45 am]
BILLING CODE 8011-01-P