[Federal Register Volume 78, Number 223 (Tuesday, November 19, 2013)]
[Notices]
[Pages 69501-69503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27625]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70859; File No. SR-ISE-2013-54]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend the Schedule of Fees

November 13, 2013.
    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 November 1, 2013, 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 Substance 
of the Proposed Rule Change

    The ISE proposes to decrease its Options Regulatory Fee. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to decrease its Options Regulatory Fee 
(``ORF''). The Exchange has reevaluated the current amount of the ORF 
in light of increased trading volumes year-to-date. In order to ensure 
that revenue collected from the ORF, in combination with other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs, the Exchange is proposing to decrease the ORF from 
$0.0042 per contract to $0.0039 per contract. The Exchange is also 
proposing to remove language from its Schedule of Fees that indicates 
that the ORF is effective starting on January 1, 2010 as this effective 
date has passed.
    The ORF is designed to recover a material portion of the costs to 
the Exchange of the supervision and regulation of members' customer 
options business, including performing routine surveillance and 
investigations, as well as policy, rulemaking, interpretive and 
enforcement activities. The Exchange believes that revenue generated 
from the proposed ORF, when combined with all of the Exchange's other 
regulatory fees and fines, will cover a material portion, but not all, 
of the Exchange's regulatory costs. The Exchange notes that its 
regulatory responsibilities with respect to member compliance with 
options sales practice rules have been allocated to the Financial 
Industry Regulatory Authority (``FINRA'') under a 17d-2 Agreement. The 
ORF is not designed to cover the cost of options sales practice 
regulation.
    The ORF is assessed by the Exchange to each member for all options 
transactions in both Standard Options and Mini Options executed or 
cleared by the member that are cleared by The Options Clearing 
Corporation (``OCC'') in the customer range, i.e., transactions that 
clear in the customer account of the member's clearing firm at OCC, 
regardless of the exchange on which the transaction occurs. In other 
words, ISE imposes the ORF on all customer-range transactions executed 
by a member, even if the transactions do not take place on the 
Exchange.\3\ The ORF also is charged for transactions that are not 
executed by a member but are ultimately cleared by a member. In the 
case where a non-member executes a transaction and a member clears the 
transaction, the ORF will be assessed to the member who clears the 
transaction. In the case where a member executes a transaction and 
another member clears the transaction, the ORF will similarly be 
assessed to the member who clears the transaction.
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    \3\ Exchange rules require each member to submit trade 
information in order to allow the Exchange to properly prioritize 
and match orders and quotations and report resulting transactions to 
the OCC. See ISE Rule 712. The Exchange represents that it has 
surveillance in place to verify that members comply with the rule.
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    The ORF is collected indirectly from members through their clearing 
firms by OCC on behalf of the Exchange. As a practical matter, it is 
not feasible or reasonable for the Exchange (or any SRO) to identify 
each executing member that submits an order on a trade-by-trade basis. 
There are countless executing market participants, and each day such 
participants can and often do drop their connection to one market 
center and establish themselves as participants on another. It is 
virtually impossible for any exchange to identify each executing 
participant on a given trading day. Clearing members, however, are 
distinguished from executing participants because they remain 
identified to the Exchange regardless of the identity of the initiating 
executing participant, their location, and the market center on which 
they execute transactions. Therefore, the Exchange believes it is more 
efficient for the operation of the Exchange and for the marketplace as 
a whole to collect the ORF indirectly from members through their 
clearing firms.
    The Exchange also believes that its broad regulatory 
responsibilities with respect to a member's activities supports

[[Page 69502]]

applying the ORF to transactions cleared but not executed by a member. 
The Exchange's regulatory responsibilities are the same regardless of 
whether a member executes a transaction or clears a transaction 
executed on its behalf. The Exchange regularly reviews all such 
activities, including performing surveillance for position limit 
violations, manipulation, front-running, contrary exercise advice 
violations and insider trading.
    The Exchange further believes it is reasonable and appropriate for 
the Exchange to charge the ORF for options transactions regardless of 
the exchange on which the transactions occur. The Exchange has a 
statutory obligation to enforce compliance by members and their 
associated persons under the Act and the rules of the Exchange, and to 
surveil for other manipulative conduct by market participants 
(including non-members) trading on the Exchange. Many of the Exchange's 
market surveillance programs require the Exchange to look at and 
evaluate activity across all options markets, such as surveillance for 
position limit violations, manipulation, front-running and contrary 
exercise advice violations/expiring exercise declarations. The Exchange 
cannot effectively surveil for such conduct without looking at and 
evaluating activity across all options markets. Also, the Exchange and 
the other options exchanges are required to populate a consolidated 
options audit trail (``COATS'') system in order to surveil a member's 
activities across markets.\4\
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    \4\ COATS effectively enhances intermarket options surveillance 
by enabling the options exchanges to promptly reconstruct the market 
to effectively surveil certain rules.
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    The Exchange believes that charging the ORF across markets will 
avoid having members direct their trades to other markets in order to 
avoid the fee and to thereby avoid paying for their fair share for 
regulation. If the ORF did not apply to activity across markets then a 
member would send their orders to the least cost, least regulated 
exchange. Other exchanges do impose a similar fee on their member's 
activity, including the activity of those members on the ISE.\5\
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    \5\ See e.g. Securities Exchange Act Release Nos. 61133 (Dec. 9, 
2009), 74 FR 66715 (December 16, 2009) (SR-Phlx-2009-100); 68711 
(Jan. 23, 2013), 78 FR 6155 (Jan. 29, 2013) (SR-MIAX-2013-01)).
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    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs. The Exchange expects to monitor its regulatory costs 
and revenues at a minimum on an annual basis. If the Exchange 
determines regulatory revenues exceed regulatory costs, the Exchange 
will adjust the ORF by submitting a fee change filing to the 
Commission. The Exchange will notify members of adjustments to the ORF 
via circular.
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 \6\ in 
general, and furthers the objectives of Section 6(b)(4) of the Exchange 
Act \7\ 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 Exchange believes that the 
proposed fee is reasonable in that it would help the Exchange to ensure 
that revenue collected from the ORF, in combination with other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs in light of increased trading volumes. The Exchange 
has designed the ORF to generate revenues that, when combined with all 
of the Exchange's other regulatory fees, will be less than or equal to 
the Exchange's regulatory costs, which is consistent with the 
Commission's view that regulatory fees be used for regulatory purposes 
and not to support the Exchange's business.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the ORF is equitable and not unfairly 
discriminatory because it is objectively allocated to members in that 
it is charged to all members on all their transactions that clear as 
customer at the OCC. Moreover, the Exchange believes the ORF ensures 
fairness by assessing fees to those members that require more Exchange 
regulatory services based on the amount of customer options business 
they conduct. Regulating customer trading activity is much more labor 
intensive and requires greater expenditure of human and technical 
resources than regulating non-customer trading activity, which tends to 
be more automated and less labor-intensive. As a result, the costs 
associated with administering the customer component of the Exchange's 
overall regulatory program are materially higher than the costs 
associated with administering the non-customer component of its 
regulatory program (e.g., member proprietary transactions).

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. The proposed rule change is not designed to address any 
competitive issues. Rather, the proposed rule change is designed to 
help the Exchange to adequately fund its regulatory activities while 
seeking to ensure that total regulatory revenues do not exceed total 
regulatory costs.

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 \8\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\9\ because it establishes a due, fee, or other charge 
imposed by ISE.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 17 CFR 240.19b-4(f)(2).
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    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.

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-2013-54 on the subject line.

[[Page 69503]]

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-2013-54. 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-2013-54 and should be 
submitted on or before December 10, 2013.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27625 Filed 11-18-13; 8:45 am]
BILLING CODE 8011-01-P