[Federal Register Volume 77, Number 95 (Wednesday, May 16, 2012)]
[Notices]
[Pages 28917-28919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-11796]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66962; File No. SR-ISE-2012-35]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend Transaction Fees and Rebates for Complex Orders 
Executed on the Exchange

May 10, 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 May 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.
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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 transaction fees and rebates for 
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 per contract transaction fees and 
rebates to market participants that add or remove liquidity from the 
Exchange (``maker/taker fees and rebates'') in a number of options 
classes (the ``Select Symbols'').\3\ The Exchange's maker/taker fees 
and rebates are applicable to regular and complex orders executed in 
the Select Symbols. The Exchange also currently assesses maker/taker 
fees and rebates for complex orders in symbols that are in the Penny 
Pilot program but are not a Select Symbol (Non-Select Penny Pilot 
Symbols) \4\ and for complex orders in all symbols that are not in the 
Penny Pilot Program (``Non-Penny Pilot Symbols'').\5\ The purpose of 
this proposed rule change is to amend maker/taker fees and rebates for 
complex orders in the Non-Penny Pilot Symbols.
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    \3\ Options classes subject to maker/taker fees are identified 
by their ticker symbol on the Exchange's Schedule of Fees.
    \4\ See Exchange Act Release No. 65724 (November 10, 2011), 76 
FR 71413 (November 17, 2011) (SR-ISE-2011-72).
    \5\ See Exchange Act Release Nos. 66084 (January 3, 2012), 77 FR 
1103 (January 9, 2012) (SR-ISE-2011-84); and 66392 (February 14, 
2012), 77 FR 10016 (February 21, 2012) (SR-ISE-2012-06).
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    For complex orders in the Non-Penny Pilot Symbols, the Exchange 
currently charges a ``taker'' fee of: (i) $0.70 per contract for ISE 
Market Maker,\6\ Firm Proprietary and Customer (Professional) \7\ 
orders; and (ii) $0.75 per contract for Non-ISE Market Maker \8\ 
orders. Priority Customer \9\ orders are not charged a ``taker'' fee 
for complex orders in the Non-Penny Pilot Symbols. For complex orders 
in these same symbols, the Exchange currently charges a ``maker'' fee 
of $0.10 per contract for ISE Market Maker, Non-ISE Market Maker, Firm 
Proprietary and Customer (Professional) orders. Priority Customer 
orders are not charged a ``maker'' fee for complex orders in these 
symbols.
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    \6\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \7\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \8\ 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.
    \9\ 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).
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    The Exchange now proposes to increase the ``taker'' fee for complex 
orders in the Non-Penny Pilot Symbols to (i) $0.73 per contract for ISE 
Market Maker, Firm Proprietary and Customer (Professional) orders; and 
(ii) $0.78 per contract for Non-ISE Market Maker orders.
    For responses to special orders in the Non-Penny Pilot Symbols,\10\ 
ISE currently charges $0.70 per contract for ISE Market Maker, Firm 
Proprietary and Customer (Professional) orders. For Non-ISE Market 
Maker orders, this fee is currently $0.75 per contract. The Exchange 
now proposes to increase the fee for responses to special orders in the 
Non-Penny Pilot Symbols to $0.73 per contract for ISE Market Maker, 
Firm Proprietary and Customer (Professional) orders, and to $0.78 per 
contract for Non-ISE Market Maker orders.
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    \10\ A response to a special order is any contra-side interest 
submitted after the commencement of an auction in the Exchange's 
Facilitation Mechanism, Solicited Order Mechanism, Block Order 
Mechanism and Price Improvement Mechanism. This fee applies to ISE 
Market Maker, Non-ISE Market Maker, Firm Proprietary, Customer 
(Professional) and Priority Customer interest.
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    Further, the Exchange currently provides volume-based tiered 
rebates for Priority Customer complex orders in the Non-Penny Pilot 
Symbols when these orders trade with non-Priority Customer orders in 
the complex order book. Specifically, the Exchange currently provides a 
rebate of $0.52 per contract, per leg, for Priority Customer complex 
orders when these orders trade with non-Priority Customer complex 
orders in the complex order book. Additionally, Members who achieve 
certain average daily volume (ADV) of Priority Customer complex order 
contracts across all symbols executed during a calendar month are 
provided a rebate of $0.54 per contract per leg, if a Member achieves 
an ADV of 75,000 Priority Customer complex order contracts, and $0.56 
per contract per leg, if a Member achieves an ADV of 125,000 Priority 
Customer complex order contracts. The highest rebate amount achieved by 
the Member for the current calendar month applies retroactively to all 
Priority Customer complex order contracts that trade with non-Priority 
Customer complex orders in the complex order book executed by the 
Member during such calendar month.
    In order to enhance the Exchange's competitive position and to 
incentivize Members to increase the amount of Priority Customer complex 
orders that

[[Page 28918]]

they send to the Exchange, the Exchange now proposes to increase the 
base amount of the rebate to $0.57 per contract. Additionally, the 
Exchange proposes to increase the amount of that rebate even further, 
on a month-by-month and Member-by-Member basis, if such Member achieves 
an ADV of Priority Customer complex order contracts across all symbols 
executed during the calendar month, as follows: if the Member achieves 
an ADV of 75,000 Priority Customer complex order contracts, the rebate 
amount shall be $0.59 per contract per leg; if the Member achieves an 
ADV of 125,000 Priority Customer complex order contracts, the rebate 
amount shall be $0.61 per contract per leg.
    Additionally, ISE Market Makers who remove liquidity in the Non-
Penny Pilot Symbols from the complex order book by trading with orders 
that are preferenced to them are currently charged $0.68 per contract. 
With the proposed increase to the ``taker'' fees for complex orders in 
the Non-Penny Pilot Symbols noted above, the Exchange also proposes to 
increase the fee charged to ISE Market Makers who remove liquidity in 
these symbols to $0.71 per contract when trading with orders that are 
preferenced to them in the Non-Penny Pilot Symbols.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Exchange Act \11\ in 
general, and furthers the objectives of Section 6(b)(4) of the Exchange 
Act \12\ 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 
interact with and respond to certain types of orders.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that it is reasonable and equitable to 
provide rebates for Priority Customer complex orders when these orders 
trade with Non-Priority Customer complex orders in the complex order 
book because paying a rebate would continue to attract additional order 
flow to the Exchange and create liquidity in the symbols that are 
subject to the rebate, which the Exchange believes ultimately will 
benefit all market participants who trade on ISE. The Exchange already 
provides these types of rebates, and is now merely proposing to 
increase those rebate amounts. The Exchange believes that the proposed 
rebates are competitive with rebates provided by other exchanges and 
are therefore reasonable and equitably allocated to those members that 
direct orders to the Exchange rather than to a competing exchange.
    The Exchange believes it is reasonable and equitable to charge ISE 
Market Maker, Firm Proprietary and Customer (Professional) orders a 
``taker'' fee of $0.73 per contract ($0.78 per contract for Non-ISE 
Market Maker orders) for complex orders in the Non-Penny Pilot Symbols 
because the Exchange is seeking to recoup the cost associated with 
paying increased rebates for Priority Customer complex orders. The 
Exchange further believes it is reasonable and equitable to charge ISE 
Market Maker, Firm Proprietary and Customer (Professional) orders a fee 
of $0.73 per contract ($0.78 per contract for Non-ISE Market Maker 
orders) when such members are responding to special orders because a 
response to a special order is akin to taking liquidity, thus the 
Exchange is proposing an identical fee for taking liquidity in the Non-
Penny Pilot Symbols. The Exchange believes the proposed fees are also 
reasonable and equitably allocated because they are within the range of 
fees assessed by other exchanges employing similar pricing schemes. In 
addition, the Exchange believes that charging Non-ISE Market Maker 
orders a higher rate than the fee charged to ISE Market Maker, Firm 
Proprietary and Customer (Professional) orders is appropriate and not 
unfairly discriminatory because Non-ISE Market Makers are not subject 
to many of the non-transaction based fees that these other categories 
of membership are subject to, e.g., membership fees, access fees, API/
Session fees, market data fees, etc. Therefore, it is appropriate and 
not unfairly discriminatory to assess a higher transaction fee on Non-
ISE Market Makers because the Exchange incurs costs associated with 
these types of orders that are not recovered by non-transaction based 
fees paid by members.
    The Exchange believes that it is reasonable and equitable to 
provide a two cent discount to ISE Market Makers on preferenced orders 
as an incentive for them to quote in the complex order book. The 
Exchange notes that PHLX currently provides a similar discount, albeit 
the differential at that exchange is five cents. Accordingly, ISE 
Market Makers who remove liquidity in the Non-Penny Pilot Symbols from 
the complex order book will be charged $0.71 per contract when trading 
with orders that are preferenced to them. The Exchange notes that with 
this proposed fee change, the Exchange, while increasing this fee, will 
continue to maintain a two cent differential that was previously in 
place.
    The complex order pricing employed by the Exchange has proven to be 
an effective pricing mechanism and attractive to Exchange participants 
and their customers. The Exchange believes that increasing its complex 
order rebates will attract additional complex order business. The 
Exchange further believes that the Exchange's complex order rebates and 
its maker/taker fees are not unfairly discriminatory because these fee 
structures are consistent with fee structures that exist today at other 
options exchanges. Additionally, the Exchange believes that the 
proposed fees and rebates are fair, equitable and not unfairly 
discriminatory because the proposed fees and rebates are consistent 
with price differentiation that exists today at other option exchanges. 
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. With this 
proposed rebate change, the Exchange believes it remains an attractive 
venue for market participants to trade complex orders.

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.\13\ 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

[[Page 28919]]

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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    \13\ 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-2012-35 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-2012-35. 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 
10:00 a.m. and 3:00 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-2012-35 and should be 
submitted on or before June 6, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-11796 Filed 5-15-12; 8:45 am]
BILLING CODE 8011-01-P