[Federal Register Volume 77, Number 137 (Tuesday, July 17, 2012)]
[Notices]
[Pages 42036-42038]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17328]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67400; File No. SR-ISE-2012-63]


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

July 11, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on July 2, 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, II, and III 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 
certain 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 all symbols that are not in the 
Penny Pilot Program (``Non-Penny Pilot Symbols'').\4\ 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 Nos. 66084 (January 3, 2012), 77 FR 
1103 (January 9, 2012) (SR-ISE-2011-84); 66392 (February 14, 2012), 
77 FR 10016 (February 21, 2012) (SR-ISE-2012-06); and 66962 (May 10, 
2012), 77 FR 28917 (May 16, 2012) (SR-ISE-2012-35).
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    For complex orders in the Non-Penny Pilot Symbols, the Exchange 
currently charges a ``taker'' fee of: (i) $0.73 per contract for ISE 
Market Maker,\5\ Firm Proprietary and Customer (Professional) \6\ 
orders; and (ii) $0.78 per contract for Non-ISE Market Maker \7\ 
orders. Priority Customer \8\ 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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    \5\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \6\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \7\ 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.
    \8\ 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) [sic] $0.75 per contract 
for ISE

[[Page 42037]]

Market Maker, Firm Proprietary and Customer (Professional) orders. The 
Exchange is not proposing any change to the ``taker'' fees for Non-ISE 
Market Maker and Priority Customer orders.
    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 $0.57 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 $0.59 per contract per leg, if a Member achieves 
an ADV of 75,000 Priority Customer complex order contracts; $0.61 per 
contract per leg, if a Member achieves an ADV of 125,000 Priority 
Customer complex order contracts; and $0.615 per contract per leg, if a 
Member achieves an ADV of 250,000 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 they send to the Exchange, the Exchange now proposes to 
increase the base amount of the rebate to $0.62 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 $0.64 per contract 
per leg; if the Member achieves an ADV of 125,000 Priority Customer 
complex order contracts, the rebate amount shall be $0.66 per contract 
per leg; and if the Member achieves an ADV of 250,000 Priority Customer 
complex order contracts, the rebate amount shall be $0.67 per contract 
per leg.
    Additionally, the Exchange provides ISE Market Makers with a two 
cent discount when trading against orders that are preferenced to them. 
This discount is applicable when ISE Market Makers remove liquidity in 
the Non-Penny Pilot Symbols from the complex order book. With the 
proposed increase to the ``taker'' fee for complex orders in the Non-
Penny Pilot Symbols, 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 will be charged $0.73 per contract.
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 \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 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes it is reasonable and equitable to charge ISE 
Market Maker, Firm Proprietary and Customer (Professional) orders a 
``taker'' fee of $0.75 per contract 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 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.
    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 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. 
Accordingly, ISE Market Makers who remove liquidity in the Non-Penny 
Pilot Symbols from the complex order book will be charged $0.73 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 to the 
Exchange. 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 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.

[[Page 42038]]

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 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 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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    \11\ 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-2012-63 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-2012-63. 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-2012-63 and should be 
submitted on or before August 7, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17328 Filed 7-16-12; 8:45 am]
BILLING CODE 8011-01-P