Securities: Suspension of trading— International Securities Exchange, Inc., 3582-3584 [E6-666]
Agencies
[Federal Register: January 23, 2006 (Volume 71, Number 14)]
[Notices]
[Page 3582-3584]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ja06-105]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53127; File No. SR-ISE-2005-57]
Self-Regulatory Organizations; International Securities Exchange,
Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change and Amendment No. 1 Thereto Relating to Payment for Order Flow
Fee Changes
January 13, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 1, 2005, the International Securities Exchange, Inc.
(``ISE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. On December 23, 2005, the ISE submitted Amendment No. 1 to
the proposed rule change.\3\ The ISE has designated this proposal as
one changing a fee imposed by the ISE under Section 19(b)(3)(A)(ii) of
the Act \4\ and Rule 19b-4(f)(2) thereunder,\5\ which renders the
proposal, as amended, effective upon filing with the Commission. The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1 (``Amendment No. 1''), the ISE: (1)
Eliminates the proposed $450,000 per firm cap and keeps the current
cap of $450,000 per group of option classes; (2) states the
procedures that Competitive Market Makers must follow in order to
opt out of the payment for order flow program; (3) clarifies that
the payment for order flow portion of the fee schedule will expire
when the preferenced market maker program pilot program expires; (4)
makes minor clarifications to the purpose section; (5) amends the
rule text to conform it to the amended purpose section; and (6)
makes technical corrections to the rule text.
\4\ 15 U.S.C. 78s(b)(3)(A)(ii).
\5\ 17 CFR 240.19b-4(f)(2).
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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 payment for order flow program to
allow preferenced Competitive Market Makers to administer payment for
order flow fees collected by the Exchange.\6\
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\6\ See Amendment No. 1, supra note 3.
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Below is the text of the proposed rule change, as amended. Proposed
new language is in italics; proposed deletions are in [brackets].\7\
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\7\ Id.
[[Page 3583]]
ISE Schedule of Fees
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Electronic market place Amount Billable unit Frequency Notes
----------------------------------------------------------------------------------------------------------------
Execution Fees
* * * * * * *
Payment for Order $0.55 Contract................ Transaction............. Applies to market
Flow. makers only for
each public
customer contract
executed; does not
apply to Complex
Orders; does not
apply to the
execution of a
Public Customer
Order by a Primary
Market Maker if the
Primary Market
Maker executes a
corresponding P/A
trade on another
exchange; does not
apply to a market
maker executing a
Public Customer
Order in the Price
Improvement
Mechanism; does not
apply to
transactions in
HSX, OOG, BYT, HVY,
RUF, JLO, SIN, RND,
IXZ, IXX and IXK.
The Payment for
Order Flow Fee will
be rebated
proportionately to
the members that
paid the fee
[suspended for a
Group of options
established under
Rule 802(b) when]
such that on a
quarterly basis the
Payment for Order
Flow fund balance
administered by a
Primary Market
Maker for [such
Group reaches] a
Group of options
established under
Rule 802(b) does
not exceed $450,000
and the Payment for
Order Flow fund
balance
administered by a
preferenced
Competitive Market
Maker for such a
Group does not
exceed $50,000[,
and shall be
reinstated when any
such fund balance
falls below
$450,000]. With
respect to orders
preferenced to a
Competitive Marker
Maker under Rule
713, a preferenced
Competitive Market
Maker that elects
not to administer a
fund will not be
charged the Payment
for Order Flow fee.
The Payment for
Order Flow fee
administered by
preferenced
Competitive Market
Makers, as
described above,
will be in effect
until June 10,
2006, the date on
which the
Preferenced Orders
pilot program
expires.
* * * * * * *
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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 ISE included statements
concerning the purpose of and basis for the proposed rule change, as
amended, and discussed any comments it received on the proposed rule
change, as amended. The text of these statements may be examined at the
places specified in Item IV below. The ISE 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 ISE proposes to amend its payment for order flow program to
allow preferenced Competitive Market Makers to administer payment for
order flow fees collected by the Exchange. The Commission recently
approved the Exchange's proposed rule change to permit Electronic
Access Members (EAMs) to ``preference'' their order flow to specified
market makers.\8\ The Exchange states that, under this rule, if a
preferenced market maker, which could be either a Primary Market Maker
(PMM) or a Competitive Market Maker (CMM), is quoting at the national
best bid or offer when ISE receives a preferenced order, that market
maker receives an enhanced allocation of the order. The Exchange also
operates a payment for order flow (``PFOF'') program as approved by the
Commission.\9\ The Exchange states that this program is funded through
a fee paid by Exchange market makers for each customer contract they
execute. The Exchange represents that, currently, all funds collected
by the Exchange are administered by the PMM for their group (or
``bin'') of options classes.
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\8\ See Exchange Act Release No. 51818 (June 10, 2005), 70 FR
35146 (June 16, 2005) (SR-ISE-2005-18).
\9\ See Exchange Act Release No. 43833 (January 10, 2001), 66 FR
7822 (January 25, 2001) (SR-ISE-2000-10).
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The Exchange proposes to amend its PFOF program to allow a CMM to
administer the PFOF funds collected by the Exchange with respect to
orders preferenced to it in a group of options classes.\10\ Each CMM
pool would have a ceiling of $50,000.\11\ Preferenced CMMs would be
able to choose not to administer PFOF pools, in which case the PFOF fee
collected by the Exchange would go into the PFOF fund administered by
the PMM in the group of options as it would have had the order not been
preferenced to the CMM.\12\ A CMM will not be charged the PFOF fee for
orders preferenced to it if
[[Page 3584]]
it determines not to administer PFOF pools.\13\
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\10\ As is the case with the PFOF funds administered by the PMM,
the PFOF fee collected on a preferenced order would be administered
by the preferenced CMM whether or not the CMM was a party on a
particular trade.
\11\ In order to accommodate the introduction of the preferenced
CMM PFOF pools each having a $50,000 ceiling in addition to the
existing PMM PFOF fund that has a $450,000 ceiling, the Exchange
will rebate back to members any balance of a fund that exceeds the
applicable ceiling for a particular PFOF fund on a quarterly basis.
\12\ CMMs must notify the Exchange if they elect to opt-out of
the proposed payment for order flow fee program in writing no later
than five business days prior to the end of the month for which the
payment for order flow fee is to be assessed. Once an election not
to participate has been made by a CMM, no notice to the Exchange is
required in subsequent months unless there is a change in
participation status.
\13\ The Exchange states that the proposed rule change would be
in effect until June 10, 2006, the date on which the Preferenced
Orders pilot program expires. See Exchange Act Release No. 52066
(July 20, 2005), 70 FR 43479 (July 27, 2005) (SR-ISE-2005-35). The
Exchange notes that allowing a preferenced CMM to administer the
PFOF fees collected by the Exchange with respect to preferenced
orders is similar to the Philadelphia Stock Exchange's PFOF program.
See Exchange Act Release No. 52568 (October 6, 2005), 70 FR 60120
(October 14, 2005) (SR-Phlx-2005-58).
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2. Statutory Basis
The Exchange believes that its proposal, as amended, is consistent
with Section 6(b) of the Act \14\ in general, and furthers the
objectives of Section 6(b)(4) of the Act \15\ in particular, in that it
is an equitable allocation of reasonable dues, fees, and other charges
among ISE members and other persons using its facilities.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change, as
amended, will 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 proposed rule change, as amended, has been designated
as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act \16\ and
Rule 19b-4(f)(2) \17\ thereunder, because it establishes or changes a
due, fee, or other charge imposed by the Exchange. Accordingly, the
proposal will take effect upon filing with the Commission. At any time
within 60 days of the filing of such proposed rule change, as amended,
the Commission may summarily abrogate 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.\18\
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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
\17\ 17 CFR 240.19b-4(f)(2).
\18\ The effective date of the original proposed rule change is
December 1, 2005, and the effective date of Amendment No. 1 is
December 23, 2005. For purposes of calculating the 60-day period
within which the Commission may summarily abrogate the proposal, the
Commission considers the period to commence on December 23, 2005,
the date on which the Exchange submitted Amendment No. 1.
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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, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-ISE-2005-57 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE,,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-ISE-2005-57. This file
number should be included on the subject line if e-mail 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 (https://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, as amended, 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
inspection and copying in the Commission's Public Reference Room.
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-2005-57 and should be submitted on
or before February 13, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-666 Filed 1-20-06; 8:45 am]
BILLING CODE 8010-01-P
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