[Federal Register Volume 77, Number 137 (Tuesday, July 17, 2012)]
[Notices]
[Pages 42029-42031]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17331]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67403; File No. SR-ISE-2012-64]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend Fees 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'') \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 proposes to amend fees 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
[[Page 42030]]
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 in the
complex order book (``maker/taker fees and rebates'') in all symbols
traded on the Exchange. The maker/taker fees and rebates apply to
Market Maker,\3\ Market Maker Plus,\4\ Non-ISE Market Maker,\5\ Firm
Proprietary, Customer (Professional) \6\ and Priority Customer \7\
orders.
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\3\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule
100(a)(25).
\4\ A Market Maker Plus is an ISE Market Maker who is on the
National Best Bid or National Best Offer 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 across all
expiration months in order to receive the rebate. The Exchange
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 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 executed by that Market
Maker during that month. The Exchange 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
stated criteria.
\5\ The term ``Non-ISE Market Maker'' means a market maker as
defined in Section 3(a)(38) of the Securities Exchange Act of 1934
(the ``Act'') registered in the same options class on another
options exchange. See Schedule of Fees, page 4.
\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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Pursuant to Securities and Exchange Commission (``SEC'') approval,
the Exchange currently allows Market Makers to enter quotations for
complex order strategies in the complex order book.\8\ Given this
enhancement to the complex order functionality, and in order to
maintain a competitive fee and rebate structure for Priority Customer
orders, the Exchange has adopted maker fees that apply to transactions
in the complex order book when they interact with Priority Customer
orders in options overlying XOP, GLD, VXX, XLB, EFA, AA, ABX, MSFT, MU,
NVDA, VZ, and WFC (``Complex Quoting Symbols'').\9\ Specifically, the
Exchange currently charges a ``maker'' fee of $0.30 per contract in XOP
and $0.32 per contract in GLD, VXX, XLB, EFA, AA, ABX, MSFT, MU, NVDA,
VZ and WFC) for Market Maker, Market Maker Plus, Non-ISE Market Maker,
Firm Proprietary and Customer (Professional) orders when these orders
interact with Priority Customer orders. Priority Customer orders in the
Complex Quoting Symbols that trade in the complex order book are not
charged a fee and do not receive a rebate when interacting with other
Priority Customer orders.
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\8\ See Securities Exchange Act Release No. 65548 (October 13,
2011), 76 FR 64980 (October 19, 2011) (SR-ISE-2011-39).
\9\ See Securities Exchange Act Release Nos. 65958 (December 15,
2011), 76 FR 79236 (December 21, 2011) (SR-ISE-2011-81); 66406
(February 16, 2012), 77 FR 10579 (February 22, 2012) (SR-ISE-2012-
07); and SR-ISE-2012-59 filed June 20, 2012. The Exchange notes that
XOP is currently in the Penny Pilot program and GLD, VXX, XLB, AA,
ABX, MSFT, MU, NVDA, VZ, and WFC are currently Select Symbols.
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The Exchange now proposes to increase the maker fee for the Complex
Quoting Symbols to $0.35 per contract when these orders interact with
Priority Customer orders in the complex order book. Specifically, with
this proposed rule change, the Exchange proposes to increase the
``maker'' fee from $0.32 per contract to $0.35 per contract in GLD,
VXX, XLB, EFA, AA, ABX, MSFT, MU, NVDA, VZ and WFC, and from $0.30 per
contract to $0.35 per contract in XOP, for Market Maker, Market Maker
Plus, Non-ISE Market Maker, Firm Proprietary and Customer
(Professional) orders when these orders interact with Priority Customer
orders. The Exchange does not propose any change to fees for Priority
Customer orders in the Complex Quoting Symbols that trade in the
complex order book. With this proposed fee change, the Exchange seeks
to standardize the ``maker'' fee charged for complex orders in the
Complex Quoting Symbols when trading against Priority Customer orders
and, as a result, proposes to remove the table identifying the Complex
Order Maker Fee for option symbol XOP from its Schedule of Fees as it
is no longer necessary to separately identify the ``maker'' fee for XOP
from the ``maker'' fee for GLD, VXX, XLB, EFA, AA, ABX, MSFT, MU, NVDA,
VZ and WFC because all Complex Quoting Symbols will now be charged the
same rate of $0.35 per contract when trading against Priority Customer
orders.
Additionally, the Exchange provides Market Makers with a two cent
discount when trading against Priority Customer orders that are
preferenced to them. This discount is applicable when Market Makers add
or remove liquidity from the complex order book in the Complex Quoting
Symbols. Specifically, Market Makers that add or remove [sic] liquidity
in GLD, VXX, XLB, EFA, AA, ABX, MSFT, MU, NVDA, VZ and WFC from the
complex order book are currently charged $0.30 per contract ($0.28 per
contract in XOP) when trading against Priority Customer orders that are
preferenced to them. With the proposed increase of the ``maker'' fee to
$0.35 per contract for all Complex Quoting Symbols, Market Makers that
add liquidity from the complex order book in the Complex Quoting
Symbols will now be charged $0.33 per contract when trading against
Priority Customer orders that are preferenced to them.
2. Statutory Basis
The Exchange believes that its proposal to amend its Schedule of
Fees is consistent with Section 6(b) of the Act \10\ in general, and
furthers the objectives of Section 6(b)(4) of the 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 options overlying the Complex Quoting Symbols in the
complex order book.
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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 increasing the fees applicable to orders
executed in the complex order book when trading against Priority
Customer orders in the
[[Page 42031]]
Complex Quoting Symbols is appropriate given the new functionality
developed by the Exchange that allows market makers to quote in the
complex order book. Additionally, the Exchange's fees remain
competitive with fees charged by other exchanges and are therefore
reasonable and equitably allocated to those members that opt to direct
orders to the Exchange rather than to a competing exchange.
Specifically, the Exchange believes that its proposal to assess a
``maker'' fee of $0.35 per contract for the Complex Quoting Symbols
when orders in these symbols interact with Priority Customer orders is
reasonable and equitable because the fee is within the range of fees
assessed by other exchanges employing similar pricing schemes. For
example, the ``maker'' fee for a broker/dealer complex order in MSFT at
NASDAQ OMX PHLX (``PHLX'') is $0.20 per contract \12\ while the same
order that is electronically delivered at the Chicago Board Options
Exchange (``CBOE'') is $0.45 per contract.\13\ Furthermore, with this
proposed fee change, the Exchange seeks to standardize the fee charged
for complex orders in the Complex Quoting Symbols when these orders
interact with Priority Customers in the complex order book.
Additionally, one of the primary goals of this fee change is to
maintain the attractive and competitive economics for Priority Customer
complex orders, in light of the enhanced manner in which complex orders
now trade on the Exchange.
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\12\ See PHLX Fee Schedule, Section I, Part B., at http://www.nasdaqtrader.com/content/marketregulation/membership/phlx/feesched.pdf.
\13\ See CBOE Fees Schedule, Section 1.VI. at http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf.
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The Exchange believes that it is reasonable and equitable to
provide a two cent discount to Market Makers on preferenced orders as
an incentive for them to quote in the complex order book. Accordingly,
Market Makers who add or remove liquidity in the Complex Quoting
Symbols from the complex order book will be charged $0.33 per contract
when trading with Priority Customer orders that are preferenced to
them. ISE notes that with this proposed fee change, the Exchange will
continue to maintain a two cent differential that was previously in
place.
Moreover, the Exchange believes that the proposed fees are fair,
equitable and not unfairly discriminatory because the proposed fees are
consistent with price differentiation that exists today at other
options exchanges. The Exchange believes it remains an attractive venue
for market participants to trade complex orders despite its proposed
fee change as its fees remain competitive with those charged by other
exchanges for similar trading strategies. 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. For the reasons noted above, the
Exchange believes that the proposed fees are fair, equitable and not
unfairly discriminatory.
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\14\ 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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\14\ 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 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-2012-64 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-2012-64. 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-2012-64 and should be
submitted on or before August 7, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17331 Filed 7-16-12; 8:45 am]
BILLING CODE 8011-01-P