[Federal Register Volume 79, Number 72 (Tuesday, April 15, 2014)]
[Notices]
[Pages 21321-21324]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-08417]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71914; File No. SR-ISE-2014-20]


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

April 9, 2014.
    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 April 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

[[Page 21322]]

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 the Schedule of Fees. 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 the proposed rule change is to amend the Schedule of 
Fees as described in more detail below. The fee changes discussed apply 
to both Standard Options and Mini Options traded on Exchange. 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.
1. Market Maker Plus
    In order to promote and encourage liquidity in symbols that are in 
the penny pilot program (``Select Symbols''), the Exchange currently 
offers Market Makers \3\ that meet the quoting requirements for Market 
Maker Plus \4\ a rebate of $0.20 per contract for adding liquidity in 
those symbols. In addition, the Exchange pays a higher rebate of $0.22 
per contract to Market Makers that meet the quoting requirements for 
Market Maker Plus and are affiliated with an Electronic Access Member 
(``EAM'') that executes a total affiliated Priority Customer \5\ 
average daily volume (``ADV'') of 200,000 contracts or more in a 
calendar month.\6\
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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 a Market Maker who is on the National 
Best Bid or National Best Offer at least 80% of the time for series 
trading between $0.03 and $3.00 (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 $3.00 (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.
    \5\ 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).
    \6\ See Securities Exchange Act Release No. 70872 (November 14, 
2013), 78 FR 69718 (November 20, 2013) (SR-ISE-2013-57).
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    The Exchange proposes to modify the criteria used to determine 
which days may be excluded from the Market Maker Plus calculation. 
Currently, in determining whether a Market Maker qualifies for Market 
Maker Plus, the Exchange excludes the member's single best and single 
worst overall quoting days each month, on a per symbol basis, if doing 
so will qualify a member for the rebate. When the Exchange modified the 
qualification requirements for Market Maker Plus to look solely to the 
front two months,\7\ however, it did not change the method used to 
determine a Market Maker's best and worst quoting days. As such, this 
calculation is still based on members' overall quotation statistics, 
including expiration months other than the front two months used to 
determine if a Market Maker qualifies for Market Maker Plus. The 
Exchange believes that this could unintentionally make it more 
difficult for Market Makers to achieve the Market Maker Plus 
rebates,\8\ and therefore proposes to base the calculation for 
excluding a Market Maker's best and worst days on the front two 
expiration months only, consistent with the criteria used to qualify 
Market Makers for Market Maker Plus rebates.\9\
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    \7\ See Securities Exchange Act Release No. 71765 (March 21, 
2014), 79 FR 17216 (March 27, 2014) (SR-ISE-2014-17).
    \8\ For example, if a day is excluded where a Market Maker 
exceeds the Market Maker Plus quoting threshold based on the front 
two expiration months, but has a lower performance in other 
expirations.
    \9\ The Exchange currently 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 per symbol during 
that month. The Exchange will continue to monitor each Market 
Maker's quoting statistics to determine whether a Market Maker 
qualifies for a rebate under the standards proposed herein. The 
Exchange also currently 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 current stated 
criteria. Again, the Exchange will continue to provide Market Makers 
a daily report so that Market Makers can track their quoting 
activity to determine whether or not they qualify for the Market 
Maker Plus rebate.
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    The Exchange also notes that when it increased the Market Maker 
Plus rebate to $0.22 per contract for members that meet the total 
affiliated Priority Customer ADV threshold described above,\10\ it did 
not update its fee schedule to reflect the equivalent rebate for Mini 
Options. As explained in that filing, the fees and rebates for Mini 
Options are and shall continue to be 1/10th of the fees for Standard 
Options. The Exchange therefore proposes to clarify that this rebate is 
$0.022 per contract in Mini Options, consistent with the rebate 
provided for Standard Options.
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    \10\ See supra note 5.
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2. Crossing Order Fees: Clean-Up Changes
    On March 3, 2013 the Exchange filed an immediately effective rule 
change that introduced a new fee for orders of one hundred or fewer 
contracts submitted to the Price Improvement Mechanism (``PIM'').\11\ 
The Exchange now proposes to clarify that all Firm Proprietary and Non-
ISE Market Maker contracts traded in the PIM are subject to the Firm 
Fee Cap, and that the new fee for PIM orders of 100 or fewer contracts 
applies to both the originating and contra order. In connection with 
this change, the Exchange also proposes to clarify that the fee for 
Crossing Orders applies to both the originating and contra order for 
both regular and complex orders.
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    \11\ See supra note 5.
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    Finally, the Exchange proposes to update a footnote for Mini 
Options that states that the fee for Crossing Orders is applied to any 
contracts for which a PIM break-up rebate is provided. As already 
reflected in the fee schedule with respect to Standard Options, PIM 
orders of one hundred or fewer contracts are now subject to a separate 
fee, and this fee, not the fee for Crossing Orders, is applied to those 
orders when a break-up rebate is provided.\12\
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    \12\ The Exchange also proposes to modify another footnote with 
respect to Mini Options to state that the fee for Crossing Orders, 
rather than the ``applicable fee'' is applied to contracts for which 
the Facilitation and Solicitation break-up rebate is provided. While 
the current wording is correct, this language will now mirror 
language adopted for Standard Options.
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3. Broker Dealer Definition
    A ``Broker-Dealer'' order is presently defined as an order 
submitted by a member for a non-member broker-dealer account. In some 
instances, however, a

[[Page 21323]]

member may submit orders for the account of another broker-dealer that 
is also an ISE member. Currently these orders would not fall into any 
of the market participant categories on the fee schedule. The Exchange 
believes that these orders should also be marked as Broker-Dealer 
orders, and therefore proposes to amend the definition of a Broker-
Dealer order to include all orders submitted by a member for a broker-
dealer account that is not its own proprietary account.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\13\ in general, and 
Section 6(b)(4) of the Act,\14\ 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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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
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1. Market Maker Plus
    The Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to base the calculation for excluding a Market 
Maker's best and worst days on the front two expiration months only as 
the proposed change is consistent with the criteria now used to qualify 
Market Makers for the rebate, and may help additional Market Makers 
achieve Market Maker Plus. The Market Maker Plus rebate is competitive 
with incentives provided by other exchanges, and has proven to be an 
effective incentive for Market Makers to provide liquidity in Select 
Symbols to the benefit of all market participants that trade on the 
ISE. With this proposed change, the Exchange hopes to encourage 
participation in Market Maker Plus by making the Market Maker Plus 
calculation internally consistent and more transparent to members, as 
well as easier attain.
    In addition, the Exchange believes that it is reasonable, 
equitable, and not unfairly discriminatory to clarify the Market Maker 
Plus rebate in Mini Options for members that meet the total affiliated 
Priority Customer ADV threshold. As has always been the case, the fees 
and rebates for Mini Options are and shall continue to be 1/10th of the 
fees for Standard Options.
2. Crossing Order Fees: Clean-Up Changes
    The Exchange believes that the proposed clarification regarding the 
fees for Crossing Orders is reasonable, equitable, and not unfairly 
discriminatory. The Schedule of Fees currently contains footnotes that 
explain which fees are applicable to orders executed in the ISE's 
crossing mechanisms. The proposed change inserts these footnotes where 
applicable throughout the Schedule of Fees, and makes additional 
changes to ensure consistency between footnotes applicable to Standard 
and Mini Options. The Exchange believes that these changes will further 
increase transparency for both members and investors.
3. Broker Dealer Definition
    The Exchange believes that the proposed amendment to the definition 
of a Broker-Dealer order is reasonable, equitable, and not unfairly 
discriminatory as this is a technical change intended to clarify how 
members should mark their orders. With this clarification, orders from 
a member broker-dealer executed through another member will be properly 
marked as Broker-Dealer orders, while orders submitted by a member for 
its own proprietary account will continue to be marked Firm 
Proprietary. This change is necessary to reduce member confusion, as 
the current definitions of market participant types do not account for 
the scenario described above.
    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,\15\ 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. To the contrary, 
the Exchange believes that the proposed rule change is pro-competitive 
as it is designed to attract additional order flow to the ISE. 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 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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    \15\ 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)(ii) of the Act \16\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\17\ because it establishes a due, fee, or other charge 
imposed by ISE.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 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 No. SR-ISE-2014-20 on the subject line.

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Paper Comments

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

All submissions should refer to File Number SR-ISE-2014-20. 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 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-2014-20 and should be 
submitted by May 6, 2014.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-08417 Filed 4-14-14; 8:45 am]
BILLING CODE 8011-01-P