[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