[Federal Register Volume 77, Number 200 (Tuesday, October 16, 2012)]
[Notices]
[Pages 63390-63391]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-25346]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68032; File No. SR-ISE-2012-83]


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

October 10, 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 October 1, 2012, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange 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 the 
Substance of the Proposed Rule Change

    The ISE is proposing to adopt a fee related to the execution of 
Priority Customer orders subject to linkage handling. 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 purpose of this proposed rule change is to adopt a fee related 
to the execution of Priority Customer \3\ orders subject to linkage 
handling (``Linkage Fee'') in symbols that are not currently subject to 
a Linkage Fee.
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    \3\ Pursuant to ISE Rule 100(37A), a Priority Customer is a 
person or entity that is not a broker or 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.
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    On August 31, 2009, the Exchange implemented the new Options Order 
Protection and Locked/Crossed Market Plan (``Distributive Linkage'') 
and the use of Intermarket Sweep Orders (``ISOs''). Consistent with 
Distributive Linkage and pursuant to ISE rules, the Exchange's Primary 
Market Makers (``PMMs'') have an obligation to address customer \4\ 
orders when there is a better market displayed on another exchange. 
ISE's PMMs meet this obligation via the use of ISOs. In meeting their 
obligations, PMMs may incur fees when they send ISOs, especially when 
sending ISOs to exchanges that charge ``taker'' fees. To minimize the 
PMM's financial burden and help offset such fees, the ISE adopted a 
rebate for the PMM of $0.20 per contract on all ISO orders sent to an 
away exchange (regardless of the fee charged by the exchange where the 
ISO order sent away was executed).\5\ The rebate for PMMs for Priority 
Customer orders in the Select Symbols is equal to the fee charged by 
the away exchange.\6\
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    \4\ Pursuant to ISE Rule 1900(f) of the Distributive Linkage 
rules, a customer is an individual or organization that is not a 
broker-dealer.
    \5\ See Securities and Exchange Act Release No. 60791 (October 
5, 2009), 74 FR 52521 (October 13, 2009) (SR-ISE-2009-74).
    \6\ See Securities and Exchange Act Release No. 66746 (April 5, 
2012), 77 FR 21833 (April 11, 2012) (SR-ISE-2012-28).
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    With the costs associated with servicing Priority Customer orders 
that must be executed at another exchange coupled with the cost of 
funding the existing fee credit, the Exchange recently adopted a 
Linkage Fee for executions that result from the PMM routing ISOs to 
another exchange in a limited number of symbols.\7\ The Linkage Fee is 
currently $0.35 per contract \8\ and is only charged for Priority 
Customer orders that are routed to an away exchange in symbols that are 
subject to the Exchange's modified maker/taker pricing model. These 
symbols, which currently number 93, are identified on the Exchange's 
Schedule of Fees as Select Symbols. Priority Customer orders that are 
routed out to another exchange are charged the Linkage Fee at the 
current rate instead of the standard taker fee applicable to the Select 
Symbols. The purpose of this proposed rule change is to extend the 
current Linkage Fee to Priority Customer orders that are routed to an 
away exchange in all symbols traded on the Exchange.
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    \7\ See Securities and Exchange Act Release No. 66589 (March 14, 
2012), 77 FR 16311 (March 20, 2012) (SR-ISE-2012-13).
    \8\ See Securities and Exchange Act Release No. 66746 (April 5, 
2012), 77 FR 21833 (April 11, 2012) (SR-ISE-2012-28).
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    The Linkage Fee allows the Exchange to equitably assess reasonable 
fees incurred for processing such orders, and permits the Exchange to 
recoup administrative and other costs. However, because the fees 
assessed by other exchanges vary considerably, the Exchange has 
determined to simply rebate to PMMs the actual transaction fee assessed 
by the exchange to which the order is routed, while requiring the PMM 
to make every effort, all things being equal, to route the order to the 
lowest cost away market.\9\
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    \9\ See ISE Schedule of Fees, Section E. PMM Linkage Credit.
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    The Exchange notes that it currently has a similar fee and credit 
for Professional Customer orders. Specifically, the Exchange currently 
charges Professional Customers a fee of $0.45 per contract for 
executions of orders that are routed to one or more exchanges in 
connection with Distributive Linkage, and also provides PMMs with a 
credit equal to the fee charged by the destination exchange for such 
Professional Customer orders, but not more than $0.45 per contract.\10\ 
This routing fee and credit applies to all the symbols that are traded 
on the Exchange.
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    \10\ See Securities and Exchange Act Release No. 61855 (April 6, 
2010), 75 FR 19441 (April 14, 2010) (SR-ISE-2010-26).
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2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Exchange 
Act'') for this proposed rule change is the requirement under Section 
6(b)(4) \11\ of the Exchange Act that an exchange have an equitable 
allocation of

[[Page 63391]]

reasonable dues, fees and other charges among its members and other 
persons using its facilities. In particular, the Exchange believes 
charging a route-out fee for Priority Customer orders is reasonable if 
doing so provides the Exchange the ability to recover the costs of 
funding a credit the Exchange provides to its PMMs, who, in the course 
of meeting their obligation, are incurring a financial burden. The 
Exchange further believes it is equitable and reasonable to assess the 
proposed fee to recoup costs associated with routing Priority Customer 
orders to away markets. The Exchange also believes that the proposed 
fees are equitable and not unfairly discriminatory because the fees 
would be uniformly applied to all Priority Customer orders. ISE notes 
that a number of other exchanges currently charge a variety of routing 
related fees associated with customer and non-customer orders that are 
subject to linkage handling. The Exchange further notes that the fees 
proposed herein are substantially lower than the level of fees charged 
by some of the Exchange's competitors.\12\
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    \11\ 15 U.S.C. 78f(b)(4).
    \12\ See NASDAQ OMX PHLX Fee Schedule, Section V.
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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.\13\ 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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    \13\ 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-2012-83 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-2012-83. 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 on 
official business days between the hours of 10:00 a.m. and 3:00 p.m. 
Copies of such filing also will be available for inspection and copying 
at the principal offices of ISE. 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-2012-83, and should be submitted on or before 
November 6, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25346 Filed 10-15-12; 8:45 am]
BILLING CODE 8011-01-P