[Federal Register Volume 77, Number 201 (Wednesday, October 17, 2012)]
[Notices]
[Pages 63911-63914]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-25498]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68034; File No. SR-ISE-2012-85]
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
October 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 October 1, 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 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 ISE is proposing to amend transaction 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 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 symbols that are in the Penny
Pilot program but are not a Select Symbol (``Non-Select Penny Pilot
Symbols'') \4\ and in all symbols that are not in the Penny Pilot
Program (``Non-Penny Pilot Symbols'').\5\ The purpose of this proposed
rule change is to amend maker/taker fees and rebates for complex orders
in the Select Symbols, Non-Select Penny Pilot Symbols and 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. 65724 (November 10, 2011), 76
FR 71413 (November 17, 2011) (SR-ISE-2011-72); 66597 (March 14,
2012), 77 FR 16295 (March 20, 2012) (SR-ISE-2012-17); 66961 (May 10,
2012), 77 FR 28914 (May 16, 2012) (SR-ISE-2012-38); and 67628
(August 9, 2012), 77 FR 49049 (August 15, 2012) (SR-ISE-2012-71).
\5\ 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); 66962 (May 10,
2012), 77 FR 28917 (May 16, 2012) (SR-ISE-2012-35); 67400 (July 11,
2012), 77 FR 42036 (July 17, 2012) (SR-ISE- 2012-63) and 67628
(August 9, 2012), 77 FR 49049 (August 15, 2012) (SR-ISE-2012-71).
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For complex orders in the Select Symbols (excluding SPY), the
Exchange currently charges a taker fee of: (i) $0.37 per contract for
Market Maker,\6\ Firm
[[Page 63912]]
Proprietary/Broker-Dealer and Professional Customer \7\ orders; and
(ii) $0.39 per contract for Non-ISE Market Maker \8\ orders. Priority
Customer \9\ orders are not charged a taker fee for complex orders in
the Select Symbols (excluding SPY). The Exchange now proposes to
increase the complex order taker fee in the Select Symbols (excluding
SPY) to $0.39 per contract for Firm Proprietary/Broker-Dealer and
Professional Customer orders. The Exchange is not proposing any change
to the complex order taker fee in the Select Symbols (excluding SPY)
for Market Maker, Non-ISE Market Maker and Priority Customer orders.
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\6\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule
100(a)(25).
\7\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
\8\ 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.
\9\ 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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For complex orders in SPY, the Exchange currently charges a taker
fee of: (i) $0.38 per contract for Market Maker, Firm Proprietary/
Broker-Dealer and Professional Customer orders, and (ii) $0.40 per
contract for Non-ISE Market Maker Orders. Priority Customer orders are
not charged a taker fee for complex orders in SPY. The Exchange now
proposes to increase the complex order taker fee in SPY to $0.40 per
contract for Firm Proprietary/Broker-Dealer and Professional Customer
orders. The Exchange is not proposing any change to the complex order
taker fee in SPY for Market Maker, Non-ISE Market Maker and Priority
Customer orders.
For complex orders in the Non-Select Penny Pilot Symbols, the
Exchange currently charges a taker fee of: (i) $0.37 per contract for
Market Maker, Firm Proprietary/Broker-Dealer and Professional Customer
orders; and (ii) $0.39 per contract for Non-ISE Market Maker orders.
Priority Customer orders are not charged a taker fee for complex orders
in the Non-Select Penny Pilot Symbols. The Exchange now proposes to
increase the complex order taker fee in the Non-Select Penny Pilot
Symbols to $0.39 per contract for Firm Proprietary/Broker-Dealer and
Professional Customer orders. The Exchange is not proposing any change
to the complex order taker fee in the Non-Select Penny Pilot Symbols
for Market Maker, Non-ISE Market Maker and Priority Customer orders.
For complex orders in the Non-Penny Pilot Symbols, the Exchange
currently charges a taker fee of: (i) $0.80 per contract for Market
Maker, Firm Proprietary/Broker-Dealer and Professional Customer orders,
and (ii) $0.83 per contract for Non-ISE Market Maker orders. Priority
Customer orders are not charged a taker fee for complex orders in the
Non-Penny Pilot Symbols. The Exchange now proposes to increase the
complex order taker fee in the Non-Penny Pilot Symbols to $0.83 per
contract for Firm Proprietary/Broker-Dealer and Professional Customer
orders. The Exchange is not proposing any change to the complex order
taker fee in the Non-Penny Pilot Symbols for Market Maker, Non-ISE
Market Maker and Priority Customer orders.
For Responses to Crossing Orders \10\ in the Non-Penny Pilot
Symbols, ISE currently charges $0.73 per contract for Market Maker,
Firm Proprietary/Broker-Dealer and Professional Customer orders. For
Non-ISE Market Maker orders, this fee is currently $0.78 per contract.
The Exchange now proposes to increase the fee for Responses to Crossing
Orders for Non-Penny Pilot Symbols to $0.80 per contract for Market
Maker Orders, and to $0.83 per contract to Firm Proprietary/Broker-
Dealer, Professional Customer and Non-ISE Market Maker orders.
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\10\ A Response to a Crossing Order (other than Regular Orders
in Non-Select Penny Pilot Symbols) is any contra-side interest
submitted after the commencement of an auction in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, Block Order
Mechanism or PIM. See ISE Schedule of Fees, Preface. The term
Response to Crossing Orders was recently amended. See SR-ISE-2012-
73.
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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
remove liquidity in the Select Symbols, SPY, Non-Select Penny Pilot
Symbols and Non-Penny Pilot Symbols from the complex order book. Market
Makers that remove liquidity from the complex order book by trading
against Priority Customer orders that are preferenced to them will be
charged: (i) $0.35 per contract in the Select Symbols; (ii) $0.36 per
contract in SPY; (iii) $0.35 per contract in the Non-Select Penny Pilot
Symbols; and (iv) $0.78 per contract in the Non-Penny Pilot Symbols
Select Symbols.
Finally, the Exchange currently allows Market Makers to enter
quotations for complex order strategies in the complex order book.\11\
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 AA, ABX, EFA, GLD, MSFT, MU, NVDA,
VXX, VZ, WFC, XLB and XOP (``Complex Quoting Symbols''). Specifically,
the Exchange currently charges a maker fee of $0.37 per contract for
Market Maker, Non-ISE Market Maker, Firm Proprietary/Broker-Dealer and
Professional Customer orders when these orders interact with Priority
Customer orders in the Complex Quoting Symbols. 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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\11\ See Securities Exchange Act Release No. 65548 (October 13,
2011), 76 FR 64980 (October 19, 2011) (SR-ISE-2011-39).
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The Exchange now proposes to increase the maker fee for Non-ISE
Market Maker, Firm Proprietary/Broker-Dealer and Professional Customer
orders in the Complex Quoting Symbols from $0.37 per contract to $0.39
per contract when these orders interact with Priority Customer orders
in the complex order book. The Exchange does not propose any change to
fees for Market Maker and Priority Customer orders in the Complex
Quoting Symbols that trade in the complex order book. Additionally, as
noted above, the Exchange provides Market Makers with a two cent
discount when trading against Priority Customer orders that are
preferenced to them. For Complex Quoting Symbols, this discount is
applicable when Market Makers add or remove liquidity from the complex
order book. The Exchange does not propose any change to this discount.
As such, Market Makers will continue to receive the two cent discount.
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 \12\ in
general, and furthers the objectives of Section 6(b)(4) of the Exchange
Act \13\ 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
[[Page 63913]]
propensity to interact with and respond to certain types of orders.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
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The Exchange believes it is reasonable and equitable to charge Firm
Proprietary/Broker-Dealer and Professional Customer orders a taker fee
of $0.39 per contract for complex orders in the Select Symbols and Non-
Select Penny Pilot Symbols, $0.40 per contract in SPY and $0.83 per
contract in 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 and in some cases, is lower that the fees assessed by other
exchanges. For example, NASDAQ OMX PHLX, Inc. (``PHLX'') currently
charges $0.45 and $0.60 per contract for Firm and Broker Dealer orders,
respectively, for non-Penny Pilot symbols traded electronically on that
exchange.\14\ Therefore, while ISE is proposing a fee increase for Firm
Proprietary/Broker-Dealer and Professional Customer orders, the
resulting fee remains lower than the fee charged by PHLX for similar
orders.
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\14\ See NASDAQ OMX PHLX LLC Pricing Schedule at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLXTools/PlatformViewer.asp?selectednode=chp%5F1%5F4%5F1&manual=%2Fnasdaqomxphlx%2Fphlx%2Fphlx%2Drulesbrd%2F.
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The Exchange believes it is reasonable and equitable to charge a
fee of $0.80 per contract for Market Maker orders ($0.83 per contract
for Non-ISE Market Maker, Firm Proprietary/Broker-Dealer and
Professional Customer orders) when such members are responding to
crossing orders because a response to a crossing order is akin to
taking liquidity, thus the Exchange is proposing to adopt an identical
fee for Responses to Crossing Orders in the Non-Penny Pilot Symbols as
that for taking liquidity in these symbols.
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 that remove liquidity from the complex order book by
trading against Priority Customer orders that are preferenced to them
will be charged: (i) $0.35 per contract in the Select Symbols; (ii)
$0.36 per contract in SPY; (iii) $0.35 per contract in the Non-Select
Penny Pilot Symbols; and (iv) $0.78 per contract in the Non-Penny Pilot
Symbols Select Symbols. ISE notes that with this proposed fee change,
the Exchange 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 this proposed rule
change will continue to attract additional complex order business while
at the same time create a certain level of standardization in complex
order pricing across symbols that make up the majority of the daily
volume in options trading. With this proposed rule change, the Exchange
is standardizing the complex order taker fee for Non-ISE Market Maker,
Firm Proprietary/Broker-Dealer and Professional Customer orders in the
Select Symbols, SPY, Non-Select Penny Pilot Symbols and Non-Penny Pilot
Symbols. With this proposed rule change, the Exchange is also
standardizing the fee for Responses to Crossing Orders for Non-ISE
Market Maker, Firm Proprietary/Broker-Dealer and Professional Customer
orders in the Non-Penny Pilot Symbols.
The Exchange further believes that the Exchange's maker/taker fees
are not unfairly discriminatory because the fee structure is consistent
with fee structures that exist today at other options exchanges.
Additionally, 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 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 fee 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.
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.\15\ 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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\15\ 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-2012-85 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-2012-85. 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
[[Page 63914]]
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-2012-85 and should be
submitted on or before November 7, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25498 Filed 10-16-12; 8:45 am]
BILLING CODE 8011-01-P