[Federal Register Volume 77, Number 121 (Friday, June 22, 2012)]
[Notices]
[Pages 37722-37724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-15316]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67211; File No. SR-ISE-2012-53]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Eliminate the Rules and Fees Related to the Second Market

June 18, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 6, 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, II and III below, which items have been prepared by the self-
regulatory organization. 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 Exchange proposes to eliminate the rules and fees related to 
the listing and trading of low-volume options classes in what is known 
as the Second Market. The text of the proposed rule change is available 
on the Exchange's Internet Web site at 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
    When the ISE was launched in 2000, it began trading options on 
approximately 900 equity securities that qualified for options trading 
pursuant to the listing standards contained in ISE Rule 502. The 
listing standards for underlying securities is uniform across all of 
the options exchanges, and while there were many additional underlying 
equity securities that qualified for options trading under these 
standards, ISE did not list options on these securities although they 
were traded on one or more of the other options exchanges. In general, 
the Exchange had chosen not to list and trade these options classes 
because of their low average daily trading volume (``ADV'').
    In 2006, however, the Exchange decided to pursue this segment of 
the market and adopted rules for the listing and trading of these low-
volume options classes that qualified for listing under Rule 502 in a 
``Second Market.'' \3\ While the Exchange's total volume modestly 
increased by listing these low-volume options classes, ISE does not 
believe the separate structure has added any appreciable value. In 
particular, all of the market makers that participate in the Second 
Market are also market makers in the First Market, so the creation of 
the Second Market did not attract additional market makers. On the 
other hand, the Exchange believes that the cost associated with 
maintaining the infrastructure to support the two separate structures 
outweighs the benefits of maintaining the Second Market. Accordingly, 
ISE proposes to eliminate the Second Market structure altogether and 
incorporate the securities currently traded thereunder into the First 
Market.
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    \3\ See Securities Exchange Act Release No. 54580 (October 6, 
2006), 71 FR 60781 (October 16, 2006) (SR-ISE-2006-40).
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    The consolidation of securities into the First Market will be 
accomplished through database changes by the Exchange's Technology 
staff. The Exchange notes that the elimination of the Second Market 
will be seamless for ISE Members. No action will be required on part of 
ISE Members. Additionally, options listed on the Exchange, whether in 
the First Market or the Second Market, must meet the qualification 
standards in Chapter 5. The Exchange is not making any changes to these 
listing standards and all options listed on the

[[Page 37723]]

Exchange will continue to be subject to these listing standards.
    With the Second Market, the Exchange provided members that are only 
approved as Electronic Access Members (``EAMs'') with an opportunity to 
register as competitive market makers with the requirement that they 
pay a $0.10 transaction surcharge over those market makers that own or 
lease ISE market maker memberships. The Exchange believed that 
providing greater access to make markets in the Second Market would 
help to attract additional liquidity in these low-volume options 
classes from firms that did not participate on the ISE as market 
makers. However, as noted above, all market makers in the Second Market 
options classes are currently also First Market market makers thus, the 
introduction of the Second Market did not attract additional market 
makers, as the Exchange had hoped.
    Once the Second Market has been eliminated, all of the market 
makers currently quoting in the Second Market options classes can 
continue to do so. The Exchange notes that the quoting requirements for 
market makers, whether quoting in the First Market or the Second Market 
are the same. Thus, market makers currently quoting in the Second 
Market who want to quote in the First Market will be required to meet 
all of the requirements of Rules 803, 804 and 805. The Exchange is not 
proposing any changes to the Exchange's quoting rules. The Second 
Market options classes are allocated to the Exchange's current Primary 
Market Makers, and they will be transferred into those Primary Market 
Makers' ``bins'' in the First Market. With respect to Competitive 
Market Makers (``CMMs''), appointments to these options classes will 
have no impact on their membership points, as the percentage of total 
industry volume for each Second Market option class is zero.\4\
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    \4\ Options classes are assigned CMM member points based on 
their percentage of overall options industry volume rounded down to 
the nearest one hundredth of a percentage. See Securities Exchange 
Act Release No. 65100 (August 11, 2011), 76 FR 51075 (August 17, 
2011) (SR-ISE-2011-33).
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    With this proposed rule change, the Exchange proposes to delete ISE 
Rules 900 through 904. The Exchange also proposes several changes to 
its Schedule of Fees, as follows: (1) Remove the execution fee of $0.00 
per contract for customer orders in Second Market options; (2) remove 
the $.10 per contract surcharge currently applied to transactions 
executed by market makers that do not own or lease an ISE market maker 
membership (i.e., EAMs that make markets in the Second Market); (3) 
remove the $2,000 per month access fee for market makers; and (4) 
remove the $5,000 annual regulatory fee paid by firms that are only 
market makers in the Second Market (i.e., EAMs that make markets in the 
Second Market).
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``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, and the requirement under Section 6(b)(5) that an exchange 
have rules that are designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to remove impediments to and perfect the mechanism for a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Exchange believes it is 
reasonable and equitable to eliminate the Second Market and incorporate 
the low-volume options classes that were in the Second Market into the 
Exchange's First Market because the Second Market did not achieve its 
intended objective of attracting additional liquidity in those low-
volume options. Further, the Exchange notes that the transition of 
Second Market securities to the First Market will be seamless for ISE 
Members and no action will be required on their part. The Exchange 
further believes that the proposed rule change is not unfairly 
discriminatory because it treats all market participants equally and 
will not have an adverse impact on any market participant, in 
particular, ISE's EAMs. While this segment of the Exchange's membership 
would have been impacted the most by the elimination of the Second 
Market, the Exchange notes that no EAM currently operates as a market 
maker in the Second Market thus, the proposed rule change will not have 
any adverse impact on this group.

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 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

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) \5\ of the Act and Rule 19b-
4(f)(6) \6\ thereunder. The Exchange provided the Commission with 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at least 
five business days prior to the date of filing the proposed rule 
change.
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the 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 Act.

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 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-2012-53 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-2012-53. 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

[[Page 37724]]

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-2012-53 and should be submitted on 
or before July 13, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
Kevin M. O'Neill,
Deputy Secretary.
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    \7\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2012-15316 Filed 6-21-12; 8:45 am]
BILLING CODE 8011-01-P