[Federal Register Volume 78, Number 224 (Wednesday, November 20, 2013)]
[Notices]
[Pages 69714-69718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27753]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70873; File No. SR-ISE-2013-56]


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

November 14, 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 
and II 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 amend its Schedule of Fees. The text of the 
proposed rule change is available on the Exchange's Web site (http://

[[Page 69715]]

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 amend the Exchange's 
Schedule of Fees (1) to adopt a definition of ``affiliate'' for the 
purpose of aggregating affiliated Member fees for the Firm Fee Cap, (2) 
to increase the taker fee for Priority Customers \3\ in symbols that 
are in the Penny Pilot program (``Select Symbols''), (3) to increase 
the fee charged to Firm Proprietary \4\/Broker[hyphen]Dealer and 
Professional Customers \5\ when providing liquidity in Non-Select 
Symbols and FX Options, (4) to replace the current incremental tier for 
Priority Customer Complex average daily volume (``ADV'') with a new 
tier that applies retroactively to all Priority Customer complex 
volume, and (5) to increase the Credit for Responses to Flash Orders 
for trading against Priority Customers in Select Symbols. Each of these 
changes is explained below. The fee changes discussed apply to both 
Standard Options and Mini Options \6\ traded on ISE. The Exchange's 
Schedule of Fees has separate tables for fees applicable to Standard 
Options and Mini Options. The Exchange notes that while the discussion 
below relates to fees for Standard Options, the fees for Mini Options, 
which are not discussed below, are and shall continue to be 1/10th of 
the fees for Standard Options.\7\
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    \3\ 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).
    \4\ A Firm Proprietary order is an order submitted by a Member 
for its own proprietary account.
    \5\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
    \6\ Mini Options are options overlying ten (10) shares of AAPL, 
AMZN, GLD, GOOG and SPY.
    \7\ See Securities Exchange Act Release No. 69270 (April 2, 
2013), 78 FR 20988 (April 8, 2013) (SR-ISE-2013-28).
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1. Affiliate Definition for Firm Fee Cap
    The Exchange has a Firm Fee Cap of $75,000 which applies to Firm 
Proprietary and Non[hyphen]ISE Market Maker \8\ transactions that are 
part of the originating or contra side of a Crossing Order.\9\ In 
addition to transactions executed in a Member's proprietary account, 
the fee cap also applies to crossing transactions for the account of 
entities affiliated with a Member.\10\ For example, a Member engaged in 
trading activity on ISE may have an affiliate engaged in a market 
making capacity on another exchange, which may be a separate broker/
dealer entity. A crossing transaction by that Member in which a 
customer order is facilitated against the proprietary trading interest 
of the Member's affiliate would be eligible for the fee cap. To provide 
more clarity on what ``affiliated'' means in this context the Exchange 
is now proposing a definition for this term. In particular, the 
Exchange will aggregate the trading fees of separate Members for 
purposes of the Firm Fee Cap provided there is at least 75% common 
ownership between the firms as reflected on each firm's Form BD, 
Schedule A. The Exchange believes that aggregating fees that count 
towards the fee cap across Members that share at least 75% common 
ownership will allow Members to continue to execute trades on the 
Exchange through separate broker-dealer entities for different types of 
volume, while receiving the benefit of the fee cap based on the 
aggregate volume being executed across such entities. The requirement 
that affiliates share at least 75% common ownership is consistent with 
the definition of ``affiliate'' adopted on the Topaz Exchange, LLC and 
other options exchanges.\11\
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    \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 registered in the same options class 
on another options exchange.
    \9\ Fees charged by the Exchange for Responses to Crossing 
Orders, and surcharge fees charged by the Exchange for licensed 
products, are not included in the calculation of the monthly fee 
cap. The Exchange charges a service fee to Members that have reached 
the Firm Fee Cap to defray the Exchange's costs of providing 
services.
    \10\ See Securities Exchange Act Release No. 64274 (April 8, 
2011), 76 FR 20754 (April 13, 2012) (SR-ISE-2011-13).
    \11\ See e.g. Securities Exchange Act Release No. 70670 (October 
11, 2013), 78 FR 62815 (October 22, 2013) (SR-Topaz-2013-08).
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2. Priority Customer Taker Fee
    The Exchange currently assesses per contract transaction fees and 
provides rebates to market participants that add or remove liquidity 
from the Exchange (``maker/taker fees and rebates'') in Select Symbols. 
For regular orders that remove liquidity in Select Symbols, the 
Exchange currently charges a taker fee of: (i) $0.34 per contract for 
Market Maker \12\ and Market Maker Plus \13\ orders, (ii) $0.38 per 
contract for Non-ISE Market Maker orders, (iii) $0.35 per contract for 
Firm Proprietary/Broker-Dealer and Professional Customer orders, and 
(iv) $0.28 per contract for Priority Customer orders. The Exchange now 
proposes to increase the taker fee for Priority Customer orders in 
Select Symbols from $0.28 per contract to $0.32 per contract. The 
Exchange is not proposing any change to this taker fee for any other 
market participants.
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    \12\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \13\ In order to promote liquidity in Select Symbols, the 
Exchange offers a rebate for adding liquidity to certain Market 
Makers (``Market Maker Plus'') if the quotes they send to the 
Exchange qualify the Market Maker to become a Market Maker Plus.
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3. Discount for Adding Liquidity in Non-Select Symbols and FX Options
    In June 2013, as an incentive to route liquidity-adding order flow 
to ISE, the Exchange adopted a discounted fee of $0.20 per contract for 
Firm Proprietary/Broker[hyphen]Dealer and Professional Customers when 
providing liquidity in Non-Select Symbols and FX Options.\14\ For 
removing liquidity, these market participants are charged a fee of 
$0.30 per contract. The Exchange has determined to no longer provide 
this incentive for adding liquidity in Non-Select Symbols and FX 
Options, and is therefore proposing to charge the same $0.30 per 
contract fee to these market participants for adding liquidity as it 
charges for removing liquidity. Charging the same fee for adding and 
removing liquidity is consistent with the Exchange's past practice, and 
with the Exchange's general pricing structure for Non-Select Symbols 
and FX Options, which does not differentiate between making and taking 
liquidity.
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    \14\ See Securities Exchange Act Release No. 69757 (June 13, 
2013), 78 FR 36812 (June 19, 2013) (SR-ISE-2013-36).
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4. Priority Customer Complex Order Tiers
    The Exchange currently provides volume-based tiered rebates for 
Priority Customer complex orders when these orders trade with non-
Priority Customer

[[Page 69716]]

orders in the complex order book,\15\ or trade with quotes and orders 
on the regular order book.\16\ These complex order rebates are provided 
to Members based on the Member's ADV in Priority Customer complex 
contracts. For example, a Member that executes an ADV of at least 
225,000 Priority Customer complex contracts will be entitled to a 
rebate of $0.40 per contract for Select Symbols (excluding SPY), $0.41 
per contract for SPY, and $0.78 per contract for non-Select Symbols, in 
each case when trading with non-Priority Customer orders in the complex 
order book. When trading against quotes and orders on the regular order 
book this rebate is $0.18 per contract (excluding SPY) and $0.19 per 
contract for SPY. In March 2013 the Exchange introduced a new 
incremental tier to incentivize Members to increase the amount of 
Priority Customer complex orders that they send to the Exchange. 
Members that execute Priority Customer Complex ADV above 225,000 
contracts are entitled to an additional rebate of $0.01 per contract 
when trading with non-Priority Customers in the complex order book.\17\ 
Unlike the other five volume tiers, the incremental volume tier is not 
retroactive and is payable only for incremental Priority Customer 
complex order volume above the highest tier. The Exchange is proposing 
to eliminate the incremental volume tier, and instead adopt a new 
volume tier that applies to Members that execute a Priority Customer 
Complex ADV of at least 300,000 contracts. Like the other existing 
volume tiers, this new volume tier will apply retroactively to all 
Priority Customer complex order volume once the threshold has been 
reached. And, similar to the incremental tier that it replaces, Members 
that achieve the new tier will be entitled to a rebate that is $0.01 
per contract greater than the rebate for Members that achieve the next 
highest tier. The new tier will, however, apply to both orders that 
trade with non-Priority Customer orders in the complex order book and 
orders that trade with quotes and orders on the regular order book. 
Specifically, the proposed rebate amounts for this volume tier will be 
as follows: the rebate for Select Symbols (excluding SPY) will be $0.41 
per contract, the rebate for SPY will be $0.42 per contract, and the 
rebate for Non-Select Symbols will be $0.79 per contract, in each case 
when trading with non-Priority Customer orders in the complex order 
book. When trading with quotes and orders on the regular order book the 
proposed rebate will be $0.19 per contract (excluding SPY) and $0.20 
per contract for SPY. With this proposed change the Exchange expects to 
attract additional Priority Customer complex order volume to the ISE.
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    \15\ The Exchange offers a rebate in Standard and Mini Options 
for Priority Customer complex orders in (i) Select Symbols 
(excluding SPY), (ii) SPY, and (iii) Non-Select Symbols, when these 
orders trade with non-Priority Customer orders in the complex order 
book.
    \16\ The Exchange offers a rebate in Standard and Mini Options 
for Priority Customer complex orders that trade with quotes and 
orders on the regular order book in (i) SPY, and (ii) other symbols 
excluding SPY.
    \17\ The incremental rebate does not apply to Priority Customer 
Complex orders that trade with quotes or orders on the regular order 
book.
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5. Credit for Responses To Flash Orders
    Currently, when ISE is not at the National Best Bid or Offer 
(``NBBO''), Public Customer and Non-Customer orders are exposed to all 
ISE members to give them an opportunity to match the NBBO (``Flash 
Orders'') before the order is routed to another exchange for execution 
or cancelled. As an incentive to attract Public Customer orders to the 
ISE, the Exchange offers a Credit for Responses to Flash Orders in 
Select and Non-Select Symbols when trading against Priority and 
Professional Customers.\18\ For Select Symbols, this credit is $0.10 
per contract when trading against each of Priority and Professional 
Customers. When an ISE Market Maker trades against a Preferenced 
Priority Customer, i.e., a Priority Customer order that is preferenced 
to that Market Maker, the credit is $0.12 per contract. In non-Select 
Symbols the credit is $0.20 per contract when trading against 
Professional Customers only. The Exchange now proposes to increase the 
Credit for Responses to Flash Orders in Select Symbols from $0.10 per 
contract to $0.15 per contract when trading against Priority Customers, 
and from $0.12 per contract to $0.17 per contract when trading against 
Preferenced Priority Customers.\19\ The respective credits for trading 
against a Professional Customer in Select and Non-Select Symbols will 
remain at their current rates.
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    \18\ No fee is charged or credit provided when trading against a 
non-Customer.
    \19\ The Exchange notes that it does not apply a special credit 
for trading against a Preferenced Priority Customer in Mini Options. 
The credit for trading against a Priority Customer in Mini Options 
will be $0.015 per contract when trading against Priority Customers 
in Select Symbols regardless of whether the order has been 
preferenced to a Market Maker.
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2. Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\20\ in general, and 
Section 6(b)(4) of the Act,\21\ in particular, in that it is designed 
to provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members and other persons using its facilities.
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    \20\ 15 U.S.C. 78f.
    \21\ 15 U.S.C. 78f(b)(4).
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1. Affiliate Definition for Firm Fee Cap
    The language permitting aggregation of corporate affiliates for 
purposes of the Firm Fee Cap is intended to avoid disparate treatment 
of firms that have divided their various business activities between 
separate corporate entities as compared to firms that operate those 
business activities within a single corporate entity. By way of 
example, many firms that are Members of the Exchange operate several 
different business lines within the same corporate entity. In contrast, 
other firms may be part of a corporate structure that separates those 
business lines into different corporate affiliates, either for 
business, compliance or historical reasons. Those corporate affiliates, 
in turn, are required to maintain separate memberships with the 
Exchange in order to access the Exchange. The Exchange believes that 
the trading activity of corporate affiliates should continue to be 
aggregated for purposes of the Firm Fee Cap, and is adopting a 
definition of affiliate to clarify when Members will be considered 
affiliated. The Exchange notes that the proposed definition of 
``affiliate'' is consistent with definitions used by other options 
exchanges, including the Topaz Exchange, LLC, the Chicago Board Options 
Exchange, Inc., and the MIAX Options Exchange.\22\ The Exchange is not 
proposing any substantive changes to the Firm Fee Cap.
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    \22\ See ISE Gemini Schedule of Fees, Section I, Regular Order 
Fees and Rebates for Standard Options, and Section II, Regular Order 
Fees and Rebates for Mini Options; CBOE Fee Schedule, Volume 
Incentive Program (VIP); MIAX Fee Schedule, Transaction Fees, 
Exchange Fees, Priority Customer Rebate Program.
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2. Priority Customer Taker Fee
    The Exchange believes that its proposal to assess a $0.32 per 
contract taker fee for all regular Priority Customer orders in Select 
Symbols is reasonable and equitable because the fee is within the range 
of fees assessed by other exchanges employing similar pricing schemes. 
While the Exchange is proposing a fee increase, the proposed fee is 
substantially lower, for example, than the $0.45 per contract taker fee 
currently charged by the NASDAQ Options Market (``NOM'') for Customer 
orders in penny pilot symbols.\23\ The

[[Page 69717]]

Exchange also notes that with this proposed fee change, the fee charged 
to Priority Customer orders will remain lower (as it historically has 
always been) than the fee currently charged by the Exchange to other 
market participants. The Exchange believes that it is equitable and not 
unfairly discriminatory to increase the Priority Customer taker fee, as 
Priority Customers will continue to be assessed lower fees than other 
market participants.
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    \23\ See NOM Rules, Chapter XV Options Pricing, Sec. 2 NASDAQ 
Options Market--Fees and Rebates.
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3. Discount for Adding Liquidity in Non-Select Symbols and FX Options
    The Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to no longer provide a discounted fee for 
providing liquidity in Non-Select Symbols and FX Options as it has 
determined it is no longer necessary provide this incentive. Firm 
Proprietary/Broker[hyphen]Dealer and Professional Customers will once 
again pay the same fee regardless of whether they are adding or 
removing liquidity, as was the case prior to the June 2013 rule change. 
This is consistent with the Exchange's general pricing structure for 
Non-Select Symbols and FX Options, which does not differentiate between 
making and taking liquidity.
4. Priority Customer Complex Order Tiers
    The Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to provide rebates for Priority Customer 
complex orders when these orders trade with non-Priority Customer 
orders in the complex order book, or trade with quotes and orders on 
the regular order book, because paying a rebate will continue to 
attract additional order flow to the ISE and create liquidity which 
will ultimately benefit all market participants who trade on the 
Exchange. The Exchange has already established a volume-based incentive 
program, and is now merely proposing to replace its incremental volume 
tier with a new tier that applies retroactively to all Priority 
Customer complex order volume. The Exchange believes that the proposal 
will encourage Members to route additional Priority Customer complex 
orders to the Exchange in order to qualify for the new rebates, which 
would be applicable to all of a Member's Priority Customer complex 
order volume. The Exchange believes that the retroactive rebates being 
proposed for Members that achieve the new sixth tier will help it 
remain competitive with other options exchanges in attracting this 
order flow.
5. Credit for Responses To Flash Orders
    The Exchange believes that it is reasonable and equitable to 
increase the credit for responding to Priority Customer orders flashed 
on the Exchange to encourage market participants to respond to these 
Flash Orders, and thereby attract Priority Customer order flow to the 
Exchange. The Exchange believes that the increased rebate will also 
result in fewer orders being subject to linkage handling, which will 
reduce costs for the Exchange and market participants. Furthermore, the 
Exchange believes that it is equitable and not unfairly discriminatory 
to provide a larger credit to market participants that trade against 
Priority Customer orders than those that trade against Professional 
Customer orders in Select Symbols. A Priority Customer is by definition 
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(s). This limitation does not apply to 
participants on the Exchange whose behavior is substantially similar to 
that of market professionals, including Professional Customers, who 
will generally submit a higher number of orders (many of which do not 
result in executions) than Priority Customers. The Exchange believes 
that attracting more liquidity from Priority Customers will benefit all 
market participants that trade on the ISE.
    The Exchange notes that it has determined to charge fees and 
provide rebates in Mini Options at a rate that is 1/10th the rate of 
fees and rebates the Exchange provides for trading in Standard Options. 
The Exchange believes it is reasonable and equitable and not unfairly 
discriminatory to assess lower fees and rebates to provide market 
participants an incentive to trade Mini Options on the Exchange. The 
Exchange believes the proposed fees and rebates are reasonable and 
equitable in light of the fact that Mini Options have a smaller 
exercise and assignment value, specifically 1/10th that of a standard 
option contract, and, as such, is providing fees and rebates for Mini 
Options that are 1/10th of those applicable to Standard Options.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\24\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
notes that other exchanges have substantially similar requirements for 
aggregating affiliated Member ADV. As provided in the initial Firm Fee 
Cap filing, the Exchange currently aggregates affiliated Member fees, 
and this proposed rule change merely explains the how affiliate status 
is determined for that purpose, which will have no competitive impact. 
With respect to the other proposed fee changes, the Exchange believes 
that the proposed changes will promote competition, as they are 
designed to allow ISE to better compete for order flow and improve the 
Exchange's competitive position, for example, by offering higher 
rebates to market participants that execute a large volume of Priority 
Customer complex orders, or respond to Priority Customer Flash Orders. 
While the Exchange is increasing certain fees, the Exchange believes 
that this does not impose a burden on competition because the new fees 
are consistent with those charged by other options exchanges. The 
Exchange operates in a highly competitive market in which market 
participants can readily direct their order flow to competing venues. 
In such an environment, the Exchange must continually review, and 
consider adjusting, its fees and rebates to remain competitive with 
other exchanges. For the reasons described above, the Exchange believes 
that the proposed fee changes reflect this competitive environment.
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    \24\ 15 U.S.C. 78f(b)(8).
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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) of the Act \25\ and paragraph (f) of Rule 19b-4 
thereunder.\26\ At any time within 60 days of the filing of the 
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

[[Page 69718]]

investors, or otherwise in furtherance of the purposes of the Act.
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f).
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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 No. SR-ISE-2013-56 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2013-56. 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 Commissions 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 such filing also will be available for inspection 
and copying at the principal office of the 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-2013-56 and should be submitted by 
December 11, 2013.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27753 Filed 11-19-13; 8:45 am]
BILLING CODE 8011-01-P