[Federal Register Volume 77, Number 70 (Wednesday, April 11, 2012)]
[Notices]
[Pages 21833-21834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-8711]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66746; File No. SR-ISE-2012-28]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Increase the Route-Out Fee for Priority Customer Orders and 
Modify the Rebate for Primary Market Makers That Send Intermarket Sweep 
Orders

April 5, 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 March 30, 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.
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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 raise a fee related to the execution of 
Priority Customer orders subject to linkage handling. 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 purpose of this proposed rule change is to raise a fee related 
to the execution of Priority Customer \3\ orders subject to linkage 
handling (``Linkage Fee'').
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    \3\ Pursuant to ISE Rule 100(37A), a Priority Customer is a 
person or entity that is not a broker or 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.
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    On August 31, 2009, the Exchange implemented the new Options Order 
Protection and Locked/Crossed Market Plan (``Distributive Linkage'') 
and the use of Intermarket Sweep Orders (``ISOs''). Consistent with 
Distributive Linkage and pursuant to ISE rules, the Exchange's Primary 
Market Makers (``PMMs'') have an obligation to address customer \4\ 
orders when there is a better market displayed on another exchange. 
ISE's PMMs meet this obligation via the use of ISOs. In meeting their 
obligations, PMMs may incur fees when they send ISOs, especially when 
sending ISOs to exchanges that charge ``taker'' fees. To minimize the 
PMM's financial burden and help offset such fees, the ISE amended its 
schedule of fees on October 1, 2009 to adopt a rebate for the PMM of 
$0.20 per contract on all ISO orders sent to an away exchange 
(regardless of the fee charged by the exchange where the ISO order sent 
away was executed).\5\ With the costs associated with servicing 
Priority Customer orders that must be executed at another exchange 
coupled with the cost of funding the existing fee credit, the Exchange 
recently adopted the Linkage Fee, at a rate of $0.25 per contract, for 
executions that result from the PMM routing ISOs to another exchange in 
a limited number of symbols.\6\ The Linkage Fee is only charged for 
Priority Customer orders that are routed to an away exchange in symbols 
that are subject to the Exchange's modified maker/taker pricing model. 
These symbols, which currently number 101, are identified on the 
Exchange's Schedule of Fees as Select Symbols. Priority Customer orders 
that are routed out to another exchange are charged the Linkage Fee at 
the current rate instead of the standard taker fee applicable to the 
Select Symbols.
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    \4\ Pursuant to ISE Rule 1900(f) of the Distributive Linkage 
rules, a customer is an individual or organization that is not a 
broker-dealer.
    \5\ See Securities and Exchange Act Release No. 60791 (October 
5, 2009), 74 FR 52521 (October 13, 2009) (SR-ISE-2009-74).
    \6\ See Securities and Exchange Act Release No. 66589 (March 14, 
2012), 76 [sic] FR 16311 (March 20, 2012) (SR-ISE-2012-13).
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    The Linkage Fee allows the Exchange to equitably assess reasonable 
fees incurred for processing such orders, and permit the Exchange to 
recoup administrative and other costs. However, because the fees 
assessed by other exchanges vary considerably, the Exchange has 
determined that instead of providing PMMs with a rebate of $0.20 per 
contract, it will now simply rebate to PMMs the actual transaction fee 
assessed by the exchange to which the order is routed, while requiring 
the PMM to make every effort, all things being equal, to route the 
order to the lowest cost away market. Furthermore, as a result of 
recent fee changes, notably the taker fee increases adopted by NASDAQ 
OMX PHLX, Inc.,\7\ the overall cost to PMMs has risen significantly and 
will likely cause the overall rebate level to the PMMs incurred by the 
Exchange to rise also. To offset this increased rebate, the Exchange 
also proposes to increase the Linkage Fee from $0.25 per contract to 
$0.35 per contract.
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    \7\ See Securities and Exchange Act Release No. 66367 (February 
9, 2012), 77 FR 8934 (February 15, 2012) (SR-Phlx-2012-15).
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    The Exchange notes that it currently has a similar fee and credit 
for Customer (Professional) orders. Specifically, the Exchange 
currently charges PMMs a fee of $0.45 per contract for executions of 
Customer (Professional) orders that are routed to one or more exchanges 
in connection with Distributive Linkage, and also provides PMMs with a 
credit equal to the fee charged by the destination exchange for such 
Customer (Professional) orders, but not more than

[[Page 21834]]

$0.45 per contract.\8\ This routing fee and credit applies to all the 
symbols that are traded on the Exchange.
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    \8\ See Securities and Exchange Act Release No. 61855 (April 6, 
2010), 75 FR 19441 (April 14, 2010) (SR-ISE-2010-26).
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    The Exchange has designated this proposal to be operative on April 
2, 2012.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (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. In particular, the Exchange believes charging a route-
out fee for Priority Customer orders is reasonable if doing so provides 
the Exchange the ability to recover the costs of funding a credit the 
Exchange provides to its PMMs, who, in the course of meeting their 
obligation, are incurring a financial burden. The Exchange further 
believes it is equitable and reasonable to assess the proposed fee to 
recoup costs associated with routing Priority Customer orders to away 
markets. The Exchange also believes that the proposed fees are 
equitable and not unfairly discriminatory because the fees would be 
uniformly applied to all Priority Customer orders. ISE notes that a 
number of other exchanges currently charge a variety of routing related 
fees associated with customer and non-customer orders that are subject 
to linkage handling. The Exchange further notes that the fees proposed 
herein are substantially lower than the level of fees charged by some 
of the Exchange's competitors.\9\ And, as noted above, the Exchange 
already provides a credit equal to the fee charged by a destination 
exchange for Customer (Professional) orders, although that credit is 
currently capped at $0.45 per contract.
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    \9\ See NASDAQ OMX PHLX Fee Schedule, Section V.
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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 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.\10\ 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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    \10\ 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 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-2012-28 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-2012-28. 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-2012-28 and should be 
submitted on or before May 2, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-8711 Filed 4-10-12; 8:45 am]
BILLING CODE 8011-01-P