[Federal Register Volume 77, Number 115 (Thursday, June 14, 2012)]
[Notices]
[Pages 35729-35731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-14532]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67167; File No. SR-ISE-2012-47]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Regarding Fees

June 8, 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 June 1, 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.
---------------------------------------------------------------------------

    \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 change the treatment of certain orders 
executed in the Exchange's Facilitation and Solicited Order Mechanisms. 
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
    In 2010, the Exchange began assessing per contract transaction fees 
and rebates to market participants that add or remove liquidity from 
the Exchange (``maker/taker fees and rebates'') \3\ in a number of 
options classes (the ``Select Symbols'').\4\ The Exchange's maker/taker 
fees and rebates are applicable to regular and complex orders executed 
in the Select Symbols. The Exchange subsequently adopted 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'') \5\ and then adopted maker/taker fees and rebates for 
complex orders in all symbols that are not in the Penny Pilot Program 
(``Non-Penny Pilot Symbols'').\6\
---------------------------------------------------------------------------

    \3\ See Exchange Act Release No. 61869 (April 7, 2010), 75 FR 
19449 (April 14, 2010) (SR-ISE-2010-25).
    \4\ The Select Symbols are identified by their ticker symbol on 
the Exchange's Schedule of Fees.
    \5\ See Exchange Act Release No. 65724 (November 10, 2011), 76 
FR 71413 (November 17, 2011) (SR-ISE-2011-72).
    \6\ 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).
---------------------------------------------------------------------------

    Pursuant to Commission approval, the Exchange will soon introduce a 
new order type called ``Add Liquidity Order'' or ``ALO.'' \7\ ALOs are 
limit orders that will only be executed as a ``maker'' on the Exchange. 
An ALO allows market participants to specify that they only seek to 
provide liquidity, thus avoiding taker fees. Currently, when a 
Facilitation or Solicitation order interacts with pre-existing orders 
and quotes, the pre-existing order or quote is treated as taker of 
liquidity and the Facilitation or Solicitation order that interacts 
with the pre-existing order or quote is provided with a rebate.\8\ The 
Exchange believes that all pre-existing orders and quotes in the Select 
Symbols, the Non-Select Penny Pilot Symbols and the Non-Penny Pilot 
Symbols should be

[[Page 35730]]

treated as ``maker,'' not ``taker,'' and this distinction becomes more 
pertinent when the Exchange introduces ALO. As proposed, Facilitation 
and Solicitation orders that previously received a ``break-up'' rebate 
when they interacted with pre-existing orders and quotes that were 
being treated as ``taker'' will no longer receive such a rebate. The 
Exchange believes it is appropriate, and generally expected by market 
participants, to treat pre-existing orders and quotes as maker, rather 
than taker. The Exchange proposes to adopt rule text in its Schedule of 
Fees to make clear that incoming Facilitation and Solicitation orders 
that interact with pre-existing orders and quotes on the Exchange's 
orderbooks will not receive the ``break-up'' rebate for contracts they 
don't interact with. With this proposed rule change, pre-existing 
orders and quotes, when interacting with Facilitation and Solicitation 
orders in the Select Symbols, the Non-Select Penny Pilot Symbols and 
the Non-Penny Pilot Symbols will be subject to the Exchange's maker 
fee, as noted in the Exchange's Schedule of Fees. Orders and quotes 
which arrive at the exchange after the commencement of a Facilitation 
or Solicitation order will continue to be charged taker fees.
---------------------------------------------------------------------------

    \7\ See Exchange Act Release No. 66617 (March 19, 2012), 77 FR 
17102 (March 23, 2012) (SR-ISE-2012-20). The Exchange expects to 
launch ALO on June 4, 2012.
    \8\ Currently, the Exchange provides a rebate of $0.15 to 
contracts that do not trade with the contra order in the 
Facilitation Mechanism and Solicited Order Mechanism. This rebate 
currently applies to the Select Symbols and to Non-Select Penny 
Pilot Symbols and does not apply to Non-Penny Pilot Symbols.
---------------------------------------------------------------------------

    Further, the ``break-up'' rebate noted in footnote 2 on page 19 of 
the Exchange's Schedule of Fees relates to orders executed on the 
Exchange's Facilitation Mechanism, Solicited Order Mechanism and Price 
Improvement Mechanism and does not apply to complex orders executed on 
the Exchange. Therefore, the Exchange proposes to remove the reference 
to footnote 2 from all the complex order fee columns on page 19 of the 
Exchange's Schedule of Fees.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Securities and Exchange Act 
of 1934 (the ``Exchange Act'') \9\ in general, and furthers the 
objectives of Section 6(b)(4) of the Exchange Act \10\ 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 Exchange believes it is reasonable and equitable and 
not unfairly discriminatory to treat pre-existing orders and quotes as 
maker, rather than taker, and thus charge the appropriate maker fees. 
The Exchange believes that the proposed fees it charges for options 
overlying the Select Symbols, the Non-Select Penny Pilot Symbols and 
the Non-Penny Pilot Symbols remain competitive with fees charged by 
other exchanges and therefore continue to be reasonable and equitably 
allocated to those members that opt to direct orders to the Exchange 
rather than to a competing exchange. The Exchange further notes that 
market participants generally expect pre-existing orders and quotes in 
the Exchange's Facilitation Mechanism and Solicited Order Mechanism to 
be treated as maker not taker. The Exchange believes this distinction 
is even more pertinent in the context of the Exchange's planned launch 
of the ALO order type. Market participants who choose to utilize ALO 
will fully expect the Exchange to treat their orders as providers of 
liquidity; to treat these orders differently will be contrary to the 
intent of the ALO order type and the expectation of these market 
participants.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that treating a Facilitation or Solicitation 
order that interacts with pre-existing orders and quotes as takers of 
liquidity (as opposed to makers of liquidity which is how these orders 
are currently treated), thus charging these orders a taker fee furthers 
the objectives of Section 6(b)(5) of the Exchange Act, in that it is 
designed to make the Exchange's fee structure for ALO orders consistent 
with its overall maker/taker fee structure, thereby removing 
impediments to and perfecting the mechanism of a free and open market 
and a national market system.
    The Exchange believes it is reasonable and equitable to remove 
footnote 2 from the complex order fee columns on the Exchange's 
Schedule of Fees because doing so will clarify that footnote 2 is not 
applicable to complex orders executed on the Exchange and therefore, 
Members would benefit from clear guidance in the rule text describing 
the manner in which Exchange fees and rebates are assessed. The 
Exchange further believes the proposed rule change is reasonable 
because removing footnote 2 from the complex order fee columns on the 
Schedule of Fees will provide clarity and greater transparency 
regarding the Exchange's fees and rebates. The Exchange notes that the 
proposed rule change is also equitably allocated and not unfairly 
discriminatory in that it treats similarly situated market participants 
in the same manner, i.e., the removal of footnote 2 from the complex 
order fee column will impact all market participants equally on the 
Exchange.

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.\11\ 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.
---------------------------------------------------------------------------

    \11\ 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-2012-47 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-2012-47. This 
file number should be included on the subject line if email is used. To 
help the

[[Page 35731]]

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-2012-47 and should be 
submitted on or before July 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

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

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14532 Filed 6-13-12; 8:45 am]
BILLING CODE 8011-01-P