[Federal Register Volume 77, Number 103 (Tuesday, May 29, 2012)]
[Notices]
[Pages 31680-31682]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-12927]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67039; File No. SR-ISE-2012-39]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend the Qualification Standards for Market Makers To
Receive a Rebate
May 22, 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 15, 2012, the International Securities
Exchange, LLC (the ``Exchange'' or the ``ISE'') filed with the
Securities and Exchange Commission (``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 the qualification standards for
market makers to receive a rebate under the Exchange's modified maker/
taker pricing structure. 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 amend the
qualification standards for market makers to receive a rebate under the
Exchange's maker/taker pricing structure. The Exchange currently
assesses per contract transaction fees and provides 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 maker/taker fees and rebates apply to the following
categories of market participants: (i) Market Maker; \4\ (ii) Market
Maker Plus; (iii) Non-ISE Market Maker; \5\ (iv) Firm Proprietary; (v)
Customer (Professional);\6\ (vi) Priority Customer,\7\ 100 or more
contracts; and (vii) Priority Customer, less than 100 contracts.
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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\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule
100(a)(25).
\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.
\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).
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In order to promote and encourage liquidity in the Select Symbols,
the Exchange currently offers a $0.10 per contract rebate to Market
Makers if the quotes they sent to the Exchange qualify the Market Maker
to become a Market Maker Plus.\8\ A Market Maker Plus is a Market Maker
who is on the National Best Bid or National Best Offer (NBBO) 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 for all expiration months in that symbol
during the current trading month.\9\
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\8\ 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).
\9\ See Securities Exchange Act Release No. 62507 (July 15,
2010), 75 FR 42802 (July 22, 2010) (SR-ISE-2010-68).
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The Exchange now proposes to amend the Market Maker Plus
qualification standards in order for a Market Maker to qualify for the
$0.10 per contract rebate when providing liquidity (making) in the
Select Symbols. Specifically, ISE proposes to exclude from the NBBO
calculation a Market Maker's single best and single worst overall
quoting days in a symbol if doing so qualifies the Market Maker for the
rebate. In effect, this variation to the current qualification
standards will give a Market Maker the better of the NBBO average of
all days in a month or the NBBO average of the month excluding the best
and worst days, on a per symbol basis. The Exchange believes this
proposed change will further encourage Market Makers to continue to
quote aggressively in a class throughout the entire month despite an
individual poor-performing day.
The Exchange currently 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 per symbol 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 in
that symbol executed by
[[Page 31681]]
that Market Maker as a maker during that month. The Exchange will
continue to monitor each Market Maker's quoting statistics to determine
whether a Market Maker qualifies for a rebate under the standards
proposed herein.
The Exchange also currently 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 current stated criteria.
Again, the Exchange will continue to provide Market Makers a daily
report so that Market Makers can track their quoting activity to
determine whether or not they qualify for the Market Maker Plus rebate.
The Exchange believes the proposed rule change will also encourage
Market Makers to post tighter markets in the Select Symbols and thereby
increase liquidity and attract additional order flow to the Exchange.
The Exchange has designated this proposal to be operative on June
1, 2012.
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 \10\ in
general, and furthers the objectives of Section 6(b)(4) of the Exchange
Act \11\ 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 the Select Symbols.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that it is reasonable and equitable to
provide rebates to Market Makers 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 a rebate to Market Makers who meet
the Exchange's stated quoting criteria, and is now merely proposing to
broaden the qualification standards (not quoting requirements) that
Market Makers have to meet in order to qualify for the rebate.
The Exchange believes that amending the qualification standards for
Market Makers to qualify for a rebate will encourage these market
participants to continue to post tighter markets in the Select Symbols
and thereby increase liquidity and attract additional order flow to the
Exchange. The Market Maker Plus rebate employed by the Exchange has
proven to be an effective incentive for Market Makers to provide
liquidity in the Select Symbols. The Exchange further believes that the
Exchange's Market Maker Plus rebate is not unfairly discriminatory
because this rebate program is consistent with rebates that exist today
at other options exchanges. The Exchange believes that the Market Maker
Plus rebate is a competitive rebate and equivalent to incentives
provided by other exchanges and is therefore reasonable and equitably
allocated to those members that direct orders to the Exchange rather
than to a competing exchange. The Exchange operates in a highly
competitive market in which market participants can readily direct
order flow to another exchange if they deem rebate levels at a
particular exchange to be low.
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.\12\ 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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\12\ 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-2012-39 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-2012-39. 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-2012-39 and should be
submitted on or before June 19, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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[[Page 31682]]
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-12927 Filed 5-25-12; 8:45 am]
BILLING CODE 8011-01-P