Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Fees and Fee Credits, 58068-58071 [2011-23908]

Download as PDF 58068 Federal Register / Vol. 76, No. 181 / Monday, September 19, 2011 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES of exposing an order 44 and thus potentially create a de facto internalization mechanism; and if so, whether, and if so, how, this will adversely impact overall market quality and customer execution quality and whether a de facto internalization mechanism should be of concern to the Commission; • Whether the proposed fee change, by facilitating internalization of orders on BOX, could or would lead to a shift of order flow from other exchanges and, if so, what is the nature and volume of such order flow and what is the extent to which such order flow currently receives price improvement at the other exchanges or is executed at prices that merely match the NBBO; • Whether BOX’s other fees, specifically the fee to add liquidity to the BOX book,45 have an impact on the application or effects of this proposed fee change, and if so, how and what the impact is or will be; • Whether the filing for SR–BX– 2011–046 was sufficient under Section 19(b) of the Act to address issues regarding the effects of the proposed fee change on competition in the PIP; • Whether the PIP fees, either on a net basis or otherwise, are comparable to any fees or charges on other exchanges, including any PFOF fees and rebates, and, if so, how; • Whether credits paid on the agency order that is submitted to the PIP auction on behalf of a customer are passed on to the customer or retained by the PIP Initiator and, if passed on, in what form; and • Whether the Commission should evaluate all fees and all rebates (including PFOF fees and rebates) at all exchanges on a net or aggregate basis to assess their effects on competition or to otherwise assess their consistency with the Exchange Act. Interested persons are invited to submit written data, views, and arguments concerning the proposed rule change, 44 The Commission has recognized the benefits of exposure to the market, noting in the context of facilitation mechanisms that an ‘‘auction [in which an order is exposed to the market] provides some assurance that the customer’s order is executed at the best price any member in that market is willing to offer.’’ Competitive Developments in the Options Markets, Securities Exchange Act Release No. 49175, 69 FR 6124 (February 9, 2004), at 6130. The Commission also noted that ‘‘[r]ules or practices that permit or encourage internalization may also reduce intramarket price competition and, therefore, cause spreads to widen.’’ Id. 45 As of September 1, 2011, BOX charges a $0.65 fee for adding liquidity in the Non-Penny classes and a $0.22 fee for adding liquidity in the Penny Pilot classes. See Section 7a. of the BOX Fee Schedule, available at http:// www.bostonoptions.com/pdf/ BOX_Fee_Schedule.pdf. VerDate Mar<15>2010 15:46 Sep 16, 2011 Jkt 223001 including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Commission is instituting proceedings to determine whether the proposed rule change should be approved or disapproved. Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–BX–2011–046 on the subject line. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.47 Elizabeth M. Murphy, Secretary. 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–BX–2011–046. The 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 (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 a.m. and 3 p.m. Copies of such 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 publicly available. All submissions should refer to File Number SR–BX– 2011–046 and should be submitted on or before November 3, 2011. Rebuttal comments should be submitted by November 18, 2011. SECURITIES AND EXCHANGE COMMISSION VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(3)(C) of the Act,46 that File No. SR–BX–2011–046, be and hereby is, temporarily suspended. In addition, the [FR Doc. 2011–23909 Filed 9–16–11; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–65327; File No. SR–ISE– 2011–48] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Fees and Fee Credits September 13, 2011. 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 August 30, 2011, 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 Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The ISE is proposing to amend certain fees related to orders subject to intermarket linkage and to change the treatment of customer orders subject to intermarket linkage in its Select Symbols. The text of the proposed rule change is available on the Exchange’s Web site (http://www.ise.com), on the Commission’s Web site at http://www. sec.gov, 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 47 17 CFR 200.30–3(a)(57) and (58). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 46 15 PO 00000 U.S.C. 78s(b)(3)(C). Frm 00122 Fmt 4703 Sfmt 4703 E:\FR\FM\19SEN1.SGM 19SEN1 Federal Register / Vol. 76, No. 181 / Monday, September 19, 2011 / Notices 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 mstockstill on DSK4VPTVN1PROD with NOTICES 1. Purpose The Exchange currently assesses a per contract transaction charge to members of the Exchange (‘‘Exchange Members’’) that add or remove liquidity from the Exchange (‘‘maker/taker fees’’) in certain options classes (the ‘‘Select Symbols’’).3 Pursuant to Commission approval, both Priority Customer 4 and Professional Customer 5 orders on the ISE that are not executable on the Exchange are exposed or ‘‘flashed’’ to Exchange Members before they are sent through the intermarket linkage system to another exchange for execution because that exchange is displaying a better price.6 Since the inception of maker/taker fees on the Exchange, Priority Customer orders in the Select Symbols that are ‘‘flashed’’ and subject to linkage handling have been treated as ‘‘makers’’ of liquidity. Since Priority Customer orders in the Select Symbols ‘‘make’’ liquidity, regardless of size, such orders are traded on the Exchange for free.7 Professional Customer orders 3 Options classes subject to maker/taker fees are identified by their ticker symbol on the Exchange’s Schedule of Fees. See Securities Exchange Act Release Nos. 61869 (April 7, 2010), 75 FR 19449 (April 14, 2010) (SR–ISE–2010–25), 62048 (May 6, 2010), 75 FR 26830 (May 12, 2010) (SR–ISE–2010– 43), 62282 (June 11, 2010), 75 FR 34499 (June 17, 2010) (SR–ISE–2010–54), 62319 (June 17, 2010), 75 FR 36134 (June 24, 2010) (SR–ISE–2010–57), 62508 (July 15, 2010), 75 FR 42809 (July 22, 2010) (SR– ISE–2010–65), 62507 (July 15, 2010), 75 FR 42802 (July 22, 2010) (SR–ISE–2010–68), 62665 (August 9, 2010), 75 FR 50015 (August 16, 2010) (SR–ISE– 2010–82), 62805 (August 31, 2010), 75 FR 54682 (September 8, 2010) (SR–ISE–2010–90), 63283 (November 9, 2010), 75 FR 70059 (November 16, 2010) (SR–ISE–2010–106), 63534 (December 13, 2010), 75 FR 79433 (December 20, 2010) (SR–ISE– 2010–114); 63664 (January 6, 2011), 76 FR 2170 (January 12, 2011) (SR–ISE–2010–120); and 64303 (April 15, 2011), 76 FR 22425 (April 21, 2011) (SR– ISE–2011–18). 4 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). 5 A Customer (Professional) is a person who is not a broker/dealer and is not a Priority Customer. 6 See Securities Exchange Act Release No. 57812 (May 12, 2008), 73 FR 28846 (May 19, 2008) (SR– ISE–2008–28). 7 In fact, while a number of other exchanges charge a ‘‘route-out’’ fee for orders that are subject VerDate Mar<15>2010 15:46 Sep 16, 2011 Jkt 223001 in the Select Symbols that are ‘‘flashed’’ and subject to linkage handling are currently charged a maker fee of $0.10 per contract. The Exchange, however, believes that these orders are, in fact, takers of liquidity. These orders are ‘‘flashed’’ to Exchange Members precisely because when they are sent to ISE, they are marketable at another exchange and would ‘‘take’’ liquidity from that other exchange. By definition, ‘‘flash’’ orders are not resting orders; instead, they are ‘‘flashed’’ for matching at the national best bid or offer and potential routing through intermarket linkage. Therefore, the Exchange believes it is appropriate to treat such orders as ‘‘taking’’ liquidity. And as takers of liquidity, the Exchange proposes to charge these orders the Exchange’s standard taker fee for Select Symbols, which for Priority Customer orders and Professional Customer orders is currently $0.12 per contract and $0.28 per contract, respectively. Additionally, the Exchange currently provides a $0.10 per contract fee credit for executions resulting from responses to Customer (Professional) 8 orders that are ‘‘flashed’’ by the Exchange to its Members. The Exchange now proposes to extend the $0.10 per contract fee credit for executions resulting from responses to Priority Customer orders in the Select Symbols that are ‘‘flashed’’ by the Exchange to its Members. For Priority Customer orders that are preferenced to an ISE Market Maker that are subsequently executed in the Exchange’s ‘‘flash’’ mechanism, the Exchange proposes to adopt a fee credit of $0.12 per contract for the preferenced Market Maker. At least one other exchange currently provides a rebate to a particular segment of its membership for responding to that exchange’s ‘‘flash’’ auction. For example, the Chicago Board Options Exchange, Inc. (‘‘CBOE’’) currently provides a $0.15 per contract rebate but does so only to its market makers and only if those market makers satisfy a quoting requirement.9 ISE’s proposed rebate, on the other hand, is not limited to market makers only and does not have any requirements that must be met in order for an Exchange Member to receive the rebate. So long as the Exchange Member responds to a Priority Customer order to intermarket linkage, ISE does not charge such a fee. 8 A Customer (Professional) is a person who is not a broker/dealer and is not a Priority Customer. 9 See CBOE Fees Schedule, Section 19, Hybrid Agency Liaison (‘‘HAL’’) Step-Up Rebate, at http://www.cboe.com/publish/feeschedule/ CBOEFeeSchedule.pdf. PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 58069 and executes it, that Exchange Member will receive the proposed rebate. The proposed rule change is applicable only for executions in the Select Symbols. 2. Basis The Exchange believes that its proposal to amend its Schedule of Fees is consistent with Section 6(b) of the Exchange Act 10 (the ‘‘Act’’) in general, and furthers the objectives of Section 6(b)(4) of the Act 11 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 Exchange Member will depend on a number of variables, most important of which will be its propensity to add or remove liquidity in options overlying the Select Symbols. The Exchange believes that the proposed fees it charges for options overlying the Select Symbols remain competitive with fees charged by other exchanges and therefore continue to be reasonable and equitably allocated to those members that opt to direct orders to the Exchange rather than to a competing exchange. The Exchange believes that treating Priority Customer orders and Professional Customer orders in the Select Symbols that are ‘‘flashed’’ as takers of liquidity (as opposed to makers of liquidity which is how these orders were previously treated), as well as providing a rebate to responses to Priority Customer orders (in addition to the responses to Professional Customer orders, which is in place today) furthers the objectives of Section 6(b)(5) of the Act, in that it is designed to make the Exchange’s fee structure for ‘‘flashed’’ orders more consistent with its overall maker/taker fee structure, thereby removing impediments to and perfecting the mechanism of a free and open market and a national market system. The Exchange believes that its proposal to adopt $0.12 per contract taker fee for flashed Priority Customer orders and a $0.28 per contract taker fee for flashed Professional Customer orders in the Select Symbols is an equitable allocation of reasonable dues, fees and other charges among Exchange Members and other persons using its facilities because such fees are within the range of fees assessed by the Exchange and other exchanges employing maker/taker pricing schemes. The Exchange believes that its proposal to adopt $0.10 per contract rebate for responses to flashed 10 15 11 15 E:\FR\FM\19SEN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(4). 19SEN1 mstockstill on DSK4VPTVN1PROD with NOTICES 58070 Federal Register / Vol. 76, No. 181 / Monday, September 19, 2011 / Notices Priority Customer orders in the Select Symbols is an equitable allocation of reasonable dues, fees and other charges among Exchange Members and other persons using its facilities because such rebate amount is the same as the rebate amount that is currently in place for responses to flashed Professional Customer orders in the Select Symbols. The Exchange also believes that its proposal is reasonable because it will allow the Exchange to remain competitive with other exchanges that employ a similar pricing scheme. The Exchange further believes that adopting a fee credit for executions resulting from responses to Priority Customer orders is reasonable and equitable because doing so will incentivize Exchange Members to execute Priority Customer orders on the Exchange by trading against these orders at the National Best Bid or Offer (NBBO), while continuing to charge a competitively low fee for taking liquidity. Further, the Exchange believes that the proposed fee credit is not unfairly discriminatory because the credit would be applied uniformly to all responses to Priority Customer orders executed in the Exchange’s ‘‘flash’’ mechanism, except for preferenced Market Makers which receive a slightly higher credit because of the preferenced Market Makers’ role in directing such order to it at the Exchange. The Exchange believes that adopting a higher fee credit for Priority Customer orders that are preferenced to an ISE Market Maker is reasonable and equitable because doing so will provide preferenced Market Makers with an added incentive to bring order-flow to the Exchange. Preferenced Market Makers have an influence on the order routing decisions of order flow providers with whom they have a relationship. Accordingly, when such orders are intentionally directed to the preferenced Market Maker at the Exchange, it is appropriate for the preferenced Market Maker to receive a higher rebate than an order that was not intentionally directed to the Exchange. To the extent that the purposes of the proposal are achieved, the Exchange’s Members should benefit from the improved market liquidity and the greater number of Priority Customer and Professional Customer orders which trade at the Exchange rather than be linked away to another market. Further, the Exchange believes that the proposed fee credit is not unfairly discriminatory because the credit would be applied uniformly to all responses to Priority Customer orders executed in the Exchange’s ‘‘flash’’ mechanism, except for preferenced Market Makers which VerDate Mar<15>2010 17:36 Sep 16, 2011 Jkt 223001 receive a slightly higher credit because of the preferenced Market Makers’ role in intentionally directing order flow to the Exchange. Moreover, 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 having maker/taker pricing. Additionally, the Exchange believes it remains an attractive venue for market participants to trade Priority Customer and Professional Customer orders despite its proposed fee change as its fees remain competitive with those charged by other exchanges for similar pricing strategies. The Exchange operates in a highly competitive market in which Exchange Members can readily, and do, direct order flow to competing exchanges if they deem fee levels at a particular exchange to be excessive. The Exchange believes that the proposed fees and rebates it assesses must be competitive with fees and rebates assessed on other options exchanges. The Exchange believes that this competitive marketplace impacts the fees present on the Exchange today and influences the proposals set forth above. 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.12 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 12 15 PO 00000 U.S.C. 78s(b)(3)(A)(ii). Frm 00124 Fmt 4703 Sfmt 4703 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 E-mail to; rulecomments@sec.gov. Please include File No. SR–ISE–2011–48 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–2011–48. 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 (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 a.m. and 3 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–2011–48 and should be submitted on or before October 11, 2011. E:\FR\FM\19SEN1.SGM 19SEN1 58071 Federal Register / Vol. 76, No. 181 / Monday, September 19, 2011 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Elizabeth M. Murphy, Secretary. SECURITIES AND EXCHANGE COMMISSION [FR Doc. 2011–23908 Filed 9–16–11; 8:45 am] Self-Regulatory Organizations; Chicago Mercantile Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Add Additional Series and Maturities to Credit Default Index Swaps Available for Clearing BILLING CODE 8011–01–P [Release No. 34–65326; File No. SR–CME– 2011–06] September 12, 2011. 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 September 2, 2011, Chicago Mercantile Exchange Inc. (‘‘CME’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change described in Items I, II and III below, which items have been prepared primarily by CME. CME filed the proposed rule change pursuant to Section 19(b)(3)(A) 3 of the Act and Rule 19b–4(f)(4)(i) 4 thereunder. I. Self-Regulatory Organization’s Statement of Terms of Substance of the Proposed Rule Change The text of the proposed rule change is below. Italicized text indicates additions; bracketed text indicates deletions. * * * * * Chicago Mercantile Exchange Inc. Rulebook Rule 100–80203—No Change. * * * * * CME Chapter 802 Rules: Appendix 1 Appendix 1 CDX INDICES CDX index CDX CDX CDX CDX CDX CDX CDX CDX North North North North North North North North * * America America America America America America America America * Investment Investment Investment Investment Investment Investment Investment Investment * Grade Grade Grade Grade Grade Grade Grade Grade (CDX.NA.IG) (CDX.NA.IG) (CDX.NA.IG) (CDX.NA.IG) (CDX.NA.IG) (CDX.NA.IG) (CDX.NA.IG) (CDX.NA.IG) * Rule 80301–End—No change II. Self-Regulatory Organization’s Statement of Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, CME included statements concerning the purpose 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. CME has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. mstockstill on DSK4VPTVN1PROD with NOTICES A. Self-Regulatory Organization’s Statement of Purpose of, and Statutory Basis for, the Proposed Rule Change CME offers clearing services for certain credit default swap index products. Currently, CME offers clearing for Markit CDX North American Investment Grade Index Series 12, 13, 14, 15 and 16, 5 year maturities. The proposed rule changes that are the CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). .............. .............. .............. .............. .............. .............. .............. .............. 2 17 1 15 3 15 17:36 Sep 16, 2011 Jkt 223001 10 11 12 13 14 15 16 17 20 20 20 20 20 20 20 20 Jun 2013, 20 Jun 2015, 20 Jun 2018. Dec 2011, 20 Dec 2013, 20 Dec 2015, 20 Dec 2018. Jun 2012, 20 Jun 2014, 20 Jun 2016, 20 Jun 2019. Dec 2012, 20 Dec 2014, 20 Dec 2016, 20 Dec 2019. Jun 2013, 20 Jun 2015, 20 Jun 2017, 20 Jun 2020. Dec 2013, 20 Dec 2015, 20 Dec 2017, 20 Dec 2020. Jun 2014, 20 Jun 2016, 20 Jun 2018, 20 Jun 2021. Dec 2014, 20 Dec 2016, 20 Dec 2018, 20 Dec 2021. subject of this filing are intended to expand CME’s Markit Investment Grade Index product offering by incorporating additional series and maturities for the existing products. More specifically, the proposed rule changes would: • Add the Markit CDX North American Investment Grade Index Series 10, with 5, 7, and 10 year maturities. • Add the Markit CDX North American Investment Grade Index Series 11, with 3, 5, 7, and 10 year maturities; • Expand the maturities of the Markit CDX North American Investment Grade Index Series 12–16 to include the 3, 7 and 10 year maturities. • Add the Markit CDX North American Investment Grade Index Series 17, with 3, 5, 7 and 10 year maturities. The proposed rule changes that are the subject of this filing will become immediately effective. CME notes that it has also certified the proposed rule changes that are the subject of this filing to its primary regulator, the Commodity 13 17 VerDate Mar<15>2010 Termination date (scheduled termination) Series PO 00000 CFR 240.19b–4. U.S.C. 78s(b)(3)(A). Frm 00125 Fmt 4703 Futures Trading Commission (‘‘CFTC’’). The text of the CME proposed rule amendments is in Section I of this notice, with additions italicized and deletions in brackets. The proposed CME rule amendments merely incorporate additional series and maturities to CME’s existing offering of broad-based Markit Investment Grade Index credit default swaps. As such, the proposed amendments simply effect changes to an existing service of a registered clearing agency that (1) do not adversely affect the safeguarding of securities or funds in the custody or control of the clearing agency or for which it is responsible and (2) do not significantly affect the respective rights or obligations of the clearing agency or persons using its clearing agency services. Therefore, the proposed rule change is therefore properly filed under Section 19(b)(3)(A) and Rule 19b4(f)(4)(i) thereunder. 4 17 Sfmt 4703 E:\FR\FM\19SEN1.SGM CFR 240.19b–4(f)(4)(i). 19SEN1

Agencies

[Federal Register Volume 76, Number 181 (Monday, September 19, 2011)]
[Notices]
[Pages 58068-58071]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-23908]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65327; File No. SR-ISE-2011-48]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Fees and Fee Credits

September 13, 2011.
    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 August 30, 2011, 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 Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE is proposing to amend certain fees related to orders 
subject to intermarket linkage and to change the treatment of customer 
orders subject to intermarket linkage in its Select Symbols. The text 
of the proposed rule change is available on the Exchange's Web site 
(http://www.ise.com), on the Commission's Web site at http://www.sec.gov, 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

[[Page 58069]]

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 a per contract transaction charge 
to members of the Exchange (``Exchange Members'') that add or remove 
liquidity from the Exchange (``maker/taker fees'') in certain options 
classes (the ``Select Symbols'').\3\
---------------------------------------------------------------------------

    \3\ Options classes subject to maker/taker fees are identified 
by their ticker symbol on the Exchange's Schedule of Fees. See 
Securities Exchange Act Release Nos. 61869 (April 7, 2010), 75 FR 
19449 (April 14, 2010) (SR-ISE-2010-25), 62048 (May 6, 2010), 75 FR 
26830 (May 12, 2010) (SR-ISE-2010-43), 62282 (June 11, 2010), 75 FR 
34499 (June 17, 2010) (SR-ISE-2010-54), 62319 (June 17, 2010), 75 FR 
36134 (June 24, 2010) (SR-ISE-2010-57), 62508 (July 15, 2010), 75 FR 
42809 (July 22, 2010) (SR-ISE-2010-65), 62507 (July 15, 2010), 75 FR 
42802 (July 22, 2010) (SR-ISE-2010-68), 62665 (August 9, 2010), 75 
FR 50015 (August 16, 2010) (SR-ISE-2010-82), 62805 (August 31, 
2010), 75 FR 54682 (September 8, 2010) (SR-ISE-2010-90), 63283 
(November 9, 2010), 75 FR 70059 (November 16, 2010) (SR-ISE-2010-
106), 63534 (December 13, 2010), 75 FR 79433 (December 20, 2010) 
(SR-ISE-2010-114); 63664 (January 6, 2011), 76 FR 2170 (January 12, 
2011) (SR-ISE-2010-120); and 64303 (April 15, 2011), 76 FR 22425 
(April 21, 2011) (SR-ISE-2011-18).
---------------------------------------------------------------------------

    Pursuant to Commission approval, both Priority Customer \4\ and 
Professional Customer \5\ orders on the ISE that are not executable on 
the Exchange are exposed or ``flashed'' to Exchange Members before they 
are sent through the intermarket linkage system to another exchange for 
execution because that exchange is displaying a better price.\6\ Since 
the inception of maker/taker fees on the Exchange, Priority Customer 
orders in the Select Symbols that are ``flashed'' and subject to 
linkage handling have been treated as ``makers'' of liquidity. Since 
Priority Customer orders in the Select Symbols ``make'' liquidity, 
regardless of size, such orders are traded on the Exchange for free.\7\ 
Professional Customer orders in the Select Symbols that are ``flashed'' 
and subject to linkage handling are currently charged a maker fee of 
$0.10 per contract. The Exchange, however, believes that these orders 
are, in fact, takers of liquidity. These orders are ``flashed'' to 
Exchange Members precisely because when they are sent to ISE, they are 
marketable at another exchange and would ``take'' liquidity from that 
other exchange. By definition, ``flash'' orders are not resting orders; 
instead, they are ``flashed'' for matching at the national best bid or 
offer and potential routing through intermarket linkage. Therefore, the 
Exchange believes it is appropriate to treat such orders as ``taking'' 
liquidity. And as takers of liquidity, the Exchange proposes to charge 
these orders the Exchange's standard taker fee for Select Symbols, 
which for Priority Customer orders and Professional Customer orders is 
currently $0.12 per contract and $0.28 per contract, respectively.
---------------------------------------------------------------------------

    \4\ 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).
    \5\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \6\ See Securities Exchange Act Release No. 57812 (May 12, 
2008), 73 FR 28846 (May 19, 2008) (SR-ISE-2008-28).
    \7\ In fact, while a number of other exchanges charge a ``route-
out'' fee for orders that are subject to intermarket linkage, ISE 
does not charge such a fee.
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    Additionally, the Exchange currently provides a $0.10 per contract 
fee credit for executions resulting from responses to Customer 
(Professional) \8\ orders that are ``flashed'' by the Exchange to its 
Members. The Exchange now proposes to extend the $0.10 per contract fee 
credit for executions resulting from responses to Priority Customer 
orders in the Select Symbols that are ``flashed'' by the Exchange to 
its Members. For Priority Customer orders that are preferenced to an 
ISE Market Maker that are subsequently executed in the Exchange's 
``flash'' mechanism, the Exchange proposes to adopt a fee credit of 
$0.12 per contract for the preferenced Market Maker. At least one other 
exchange currently provides a rebate to a particular segment of its 
membership for responding to that exchange's ``flash'' auction. For 
example, the Chicago Board Options Exchange, Inc. (``CBOE'') currently 
provides a $0.15 per contract rebate but does so only to its market 
makers and only if those market makers satisfy a quoting 
requirement.\9\ ISE's proposed rebate, on the other hand, is not 
limited to market makers only and does not have any requirements that 
must be met in order for an Exchange Member to receive the rebate. So 
long as the Exchange Member responds to a Priority Customer order and 
executes it, that Exchange Member will receive the proposed rebate.
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    \8\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \9\ See CBOE Fees Schedule, Section 19, Hybrid Agency Liaison 
(``HAL'') Step-Up Rebate, at http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf.
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    The proposed rule change is applicable only for executions in the 
Select Symbols.
2. Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Exchange Act \10\ (the 
``Act'') in general, and furthers the objectives of Section 6(b)(4) of 
the Act \11\ 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 Exchange Member will depend on a number 
of variables, most important of which will be its propensity to add or 
remove liquidity in options overlying the Select Symbols.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed fees it charges for options 
overlying the Select Symbols remain competitive with fees charged by 
other exchanges and therefore continue to be reasonable and equitably 
allocated to those members that opt to direct orders to the Exchange 
rather than to a competing exchange. The Exchange believes that 
treating Priority Customer orders and Professional Customer orders in 
the Select Symbols that are ``flashed'' as takers of liquidity (as 
opposed to makers of liquidity which is how these orders were 
previously treated), as well as providing a rebate to responses to 
Priority Customer orders (in addition to the responses to Professional 
Customer orders, which is in place today) furthers the objectives of 
Section 6(b)(5) of the Act, in that it is designed to make the 
Exchange's fee structure for ``flashed'' orders more consistent with 
its overall maker/taker fee structure, thereby removing impediments to 
and perfecting the mechanism of a free and open market and a national 
market system.
    The Exchange believes that its proposal to adopt $0.12 per contract 
taker fee for flashed Priority Customer orders and a $0.28 per contract 
taker fee for flashed Professional Customer orders in the Select 
Symbols is an equitable allocation of reasonable dues, fees and other 
charges among Exchange Members and other persons using its facilities 
because such fees are within the range of fees assessed by the Exchange 
and other exchanges employing maker/taker pricing schemes. The Exchange 
believes that its proposal to adopt $0.10 per contract rebate for 
responses to flashed

[[Page 58070]]

Priority Customer orders in the Select Symbols is an equitable 
allocation of reasonable dues, fees and other charges among Exchange 
Members and other persons using its facilities because such rebate 
amount is the same as the rebate amount that is currently in place for 
responses to flashed Professional Customer orders in the Select 
Symbols. The Exchange also believes that its proposal is reasonable 
because it will allow the Exchange to remain competitive with other 
exchanges that employ a similar pricing scheme.
    The Exchange further believes that adopting a fee credit for 
executions resulting from responses to Priority Customer orders is 
reasonable and equitable because doing so will incentivize Exchange 
Members to execute Priority Customer orders on the Exchange by trading 
against these orders at the National Best Bid or Offer (NBBO), while 
continuing to charge a competitively low fee for taking liquidity. 
Further, the Exchange believes that the proposed fee credit is not 
unfairly discriminatory because the credit would be applied uniformly 
to all responses to Priority Customer orders executed in the Exchange's 
``flash'' mechanism, except for preferenced Market Makers which receive 
a slightly higher credit because of the preferenced Market Makers' role 
in directing such order to it at the Exchange.
    The Exchange believes that adopting a higher fee credit for 
Priority Customer orders that are preferenced to an ISE Market Maker is 
reasonable and equitable because doing so will provide preferenced 
Market Makers with an added incentive to bring order-flow to the 
Exchange. Preferenced Market Makers have an influence on the order 
routing decisions of order flow providers with whom they have a 
relationship. Accordingly, when such orders are intentionally directed 
to the preferenced Market Maker at the Exchange, it is appropriate for 
the preferenced Market Maker to receive a higher rebate than an order 
that was not intentionally directed to the Exchange.
    To the extent that the purposes of the proposal are achieved, the 
Exchange's Members should benefit from the improved market liquidity 
and the greater number of Priority Customer and Professional Customer 
orders which trade at the Exchange rather than be linked away to 
another market. Further, the Exchange believes that the proposed fee 
credit is not unfairly discriminatory because the credit would be 
applied uniformly to all responses to Priority Customer orders executed 
in the Exchange's ``flash'' mechanism, except for preferenced Market 
Makers which receive a slightly higher credit because of the 
preferenced Market Makers' role in intentionally directing order flow 
to the Exchange.
    Moreover, 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 having maker/taker pricing. Additionally, the Exchange 
believes it remains an attractive venue for market participants to 
trade Priority Customer and Professional Customer orders despite its 
proposed fee change as its fees remain competitive with those charged 
by other exchanges for similar pricing strategies. The Exchange 
operates in a highly competitive market in which Exchange Members can 
readily, and do, direct order flow to competing exchanges if they deem 
fee levels at a particular exchange to be excessive. The Exchange 
believes that the proposed fees and rebates it assesses must be 
competitive with fees and rebates assessed on other options exchanges. 
The Exchange believes that this competitive marketplace impacts the 
fees present on the Exchange today and influences the proposals set 
forth above.

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.\12\ 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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    \12\ 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 E-mail to; rule-comments@sec.gov. Please include 
File No. SR-ISE-2011-48 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-2011-48. 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 (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 
a.m. and 3 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-2011-48 and should be 
submitted on or before October 11, 2011.


[[Page 58071]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-23908 Filed 9-16-11; 8:45 am]
BILLING CODE 8011-01-P