Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees, 20522-20525 [2015-08700]

Download as PDF 20522 Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Notices revenues associated with the execution of orders routed to it by affected members, and, to the extent applicable, market data revenues. The Exchange believes that this competitive dynamic imposes powerful restraints on the ability of any exchange to charge unreasonable fees for connectivity. Lastly, the Exchange believe [sic] its proposed fees are reasonable because the Nasdaq Stock Market LLC (‘‘Nasdaq’’) and the NYSE Arca, Inc. (‘‘NYSE Arca’’) charge comparable rates for logical ports to access such markets.16 As noted above, EDGA and EDGX also charge the same rate for access to most logical ports. The Exchange believes that its proposed changes to logical port fees are reasonable in light of the benefits to Exchange participants of direct market access and receipt of data. In addition, the Exchange believes that its fees are equitably allocated among Exchange constituents based upon the number of access ports that they require to access and receive data from the Exchange. The Exchange also believes that its fees for access services will enable it to better cover its infrastructure costs and to improve its market technology and services. Lastly, the Exchange also believes that the proposed amendments to its fee schedule are non-discriminatory because they will apply uniformly to all Members. All Members that voluntarily select various service options will be charged the same amount for the same services. All Members have the option to select any connectivity option, and there is no differentiation among Members with regard to the fees charged for the services offered by the Exchange. tkelley on DSK3SPTVN1PROD with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe its proposed amendments to its fee schedule would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe that the proposed change to logical port fees represents a significant departure from previous pricing offered by the Exchange or pricing offered by the Exchange’s competitors. 16 See Nasdaq Rule 7015 (providing no FIX or non-Trading FIX ports free of charge) and the NYSE Arca fee schedule available at https:// www.nyse.com/publicdocs/nyse/markets/nyse-arca/ NYSE_Arca_Marketplace_Fees.pdf (dated February 26, 2015). The Exchange recognizes that some participants may be charged the lower rate of $200 per month to the extent such participants maintain a low number of ports with NYSE Arca. The Exchange nonetheless believes that its proposed fees are comparable despite the fact that it does not proposed [sic] a lower fee for such participants. VerDate Sep<11>2014 16:48 Apr 15, 2015 Jkt 235001 Additionally, Members may opt to disfavor the Exchange’s pricing if they believe that alternatives offer them better value. Accordingly, the Exchange does not believe that the proposed change will impair the ability of Members or competing venues to maintain their competitive standing in the financial markets. 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 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 17 and paragraph (f) of Rule 19b–4 thereunder.18 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 investors, or otherwise in furtherance of the purposes of the Act. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BYX–2015–21 on the subject line. 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–BYX–2015–21. 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 (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 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 offices of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BYX– 2015–21, and should be submitted on or before May 7, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Brent J. Fields, Secretary. [FR Doc. 2015–08697 Filed 4–15–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74706; File No. SR–ISE– 2015–11] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees April 10, 2015. 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 March 26, 2015, 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 19 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 17 15 U.S.C. 78s(b)(3)(A). 18 17 CFR 240.19b–4(f). PO 00000 Frm 00058 Fmt 4703 1 15 Sfmt 4703 E:\FR\FM\16APN1.SGM 16APN1 Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Notices organization. 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 the Substance of the Proposed Rule Change The ISE proposes to amend the Schedule of Fees to introduce a Member Order Routing Program. The text of the proposed rule change is available on the Exchange’s Web site (https:// 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 tkelley on DSK3SPTVN1PROD with NOTICES The purpose of the proposed rule change is to amend the Schedule of Fees to introduce a Member Order Routing Program (‘‘MORP’’) that will provide enhanced rebates to order routing firms that select the Exchange as the default routing destination (as described below) for unsolicited Crossing Orders.3 The MORP is intended to compete with similar programs offered by competitor options exchanges. The Exchange designates this filing to become effective on April 1, 2015.4 3 A ‘‘ Crossing Order’’ is an order executed in the Exchange’s Facilitation Mechanism, Solicited Order Mechanism, Price Improvement Mechanism (‘‘PIM’’) or submitted as a Qualified Contingent Cross (‘‘QCC’’) order. For purposes of the fee schedule, orders executed in the Block Order Mechanism are also considered Crossing Orders. Solicited Crossing Orders will not qualify for MORP as they are already eligible for the QCC and Solicitation Rebate. See Schedule of Fees, Section IV.A. 4 The Exchange notes that members must opt in to MORP by March 31, 2015 to be eligible to participate in the program on April 1, 2015. See note 7 infra. VerDate Sep<11>2014 16:48 Apr 15, 2015 Jkt 235001 MORP Qualifications To be eligible to participate in MORP, an Electronic Access Member (‘‘EAM’’) must: (1) Provide to its clients, systems that enable the electronic routing of option orders to all of the U.S. options exchanges, including ISE; (2) interface with ISE to access the Exchange’s electronic options trading platform; (3) offer to its clients a customized interface and routing functionality such that ISE will be the default destination for all unsolicited Crossing Orders entered by the EAM,5 provided that market conditions allow the Crossing Order to be executed on ISE; (4) configure its own option order routing functionality such that ISE will be the default destination for all unsolicited Crossing Orders, provided that market conditions allow the Crossing Order to be executed on ISE, with respect to all option orders as to which the EAM has routing discretion; and (5) ensure that the default routing functionality permits users submitting option orders through such system to manually override the ISE as the default destination on an order-by-order basis.6 EAMs that wish to participate in the program must certify that they meet the above MORP requirements, in writing, on a monthly basis and in a form to be determined by the Exchange. The relevant notice must be provided by the last business day of the month for members to be eligible to participate in the MORP effective the first business day of the following month.7 Rebate for Unsolicited Crossing Orders An EAM that is MORP eligible will receive a rebate for all unsolicited Crossing Orders of $0.05 per originating contract side, provided that the member executes a minimum average daily volume (‘‘ADV’’) in unsolicited Crossing Orders of at least 30,000 originating contract sides. This rebate is increased to $0.07 per originating contract side, provided that the member executes a higher ADV in unsolicited Crossing Orders of 100,000 originating contract sides. The rebate for the highest tier achieved will be applied retroactively to all eligible contracts traded in a given month. As is ISE’s current practice with respect to ADV calculations, any day that the Exchange is not open for the 5 An unsolicited Crossing Order is a Crossing Order entered by a member that has not solicited the contra side of the trade. 6 The Exchange notes that these requirements are based, in part, on similar programs offered by other options exchanges. See notes 15 and 19 infra and accompanying text. 7 Members must provide this notice by March 31, 2015 to be eligible to participate in MORP when the program becomes effective on April 1, 2015. PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 20523 entire trading day may be excluded from such calculation; provided that the Exchange will only remove the day for members that would have a lower ADV with the day included. The Exchange will provide a notice, and post it on the Exchange’s Web site, to inform members of any day that is to be excluded from its ADV calculations in connection with this proposed rule change. Facilitation and Solicitation Break-Up Rebate In addition, any EAM that qualifies for the MORP rebate by executing an ADV of 30,000 originating contract sides or more will also be eligible for increased Facilitation and Solicitation break-up rebates. Currently, the Exchange provides a Facilitation and Solicitation break-up rebate of $0.15 per contract for regular and complex orders in Select Symbols. This rebate applies to all Non-ISE Market Maker,8 Firm Proprietary 9/Broker-Dealer,10 Professional Customer,11 and Priority Customer 12 orders submitted to the Facilitation and Solicited Order Mechanisms that do not trade with their contra order, except when those orders trade against pre-existing orders and quotes on the Exchange’s order books. For MORP eligible members that execute a qualifying ADV in unsolicited Crossing Orders of at least 30,000 originating contract sides, the Exchange now proposes to increase this Facilitation and Solicitation break-up rebate to $0.35 per contract for regular and complex orders in Select Symbols. In addition, the Exchange proposes to adopt a Facilitation and Solicitation break-up rebate in Non-Select Symbols and FX option classes specifically for members that meet the MORP qualifications described above. The rebate in Non-Select Symbols will be $0.15 per contract for regular orders and $0.80 per contract for complex orders. For FX option classes, the rebate will be $0.15 per contract for both regular and complex orders. With this proposed 8 A ‘‘Non-ISE Market Maker’’ is a market maker as defined in Section 3(a)(38) of the Securities Exchange Act of 1934, as amended, registered in the same options class on another options exchange. 9 A ‘‘Firm Proprietary’’ order is an order submitted by a member for its own proprietary account. 10 A ‘‘Broker-Dealer’’ order is an order submitted by a member for a broker-dealer account that is not its own proprietary account. 11 A ‘‘Professional Customer’’ is a person or entity that is not a broker/dealer and is not a Priority Customer. 12 A ‘‘Priority Customer’’ is 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), as defined in Rule 100(a)(37A). E:\FR\FM\16APN1.SGM 16APN1 20524 Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Notices change, the Exchange notes that eligible members will receive the same break-up rebates for their Facilitation and Solicitation orders as they currently do for orders submitted to the PIM. tkelley on DSK3SPTVN1PROD with NOTICES 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. The Exchange proposes to provide the MORP rebate and higher break-up rebates to EAMs that connect directly to the Exchange and provide their clients with order routing functionality that includes all U.S. options exchanges, including ISE. Order routing firms are already provided enhanced rebates by some of the Exchange’s competitors, including, for example, NYSE Amex Options (‘‘Amex’’), which provides volume based rebates to members that provide access and connectivity to their market.15 The Exchange believes that it is appropriate at this time to offer a similar rebate to order routing firms on ISE in order to compete with these programs on other options markets. The Exchange believes the proposed fee program is reasonable and equitable because it is designed to encourage order routing firms to execute additional unsolicited Crossing Order volume on the ISE. The Exchange notes that it currently offers other incentive programs to promote and encourage growth in specific business areas, including, for example, rebates for Market Makers that routinely quote at the national best bid or offer,16 and volume-based Priority Customer complex order rebates.17 The proposed rule change is targeted towards Crossing Orders, and, in particular, unsolicited Crossing Orders, which is yet another segment of order flow that the Exchange seeks to encourage members to execute on ISE. The Exchange believes that it is reasonable and equitable to tailor the proposed rule change to unsolicited Crossing Orders. ISE already charges fees and provides rebates for nonCrossing Orders that are effective in attracting that order flow to the 13 15 U.S.C. 78f. U.S.C. 78f(b)(4). 15 See Securities Exchange Act Release No. 71532 (February 12, 2014), 79 FR 9563 (February 19, 2014) (SR–NYSEMKT–2014–12). 16 See Schedule of Fees, Section I, Regular Order Fees and Rebates, Market Maker Plus. 17 See Schedule of Fees, Section II, Complex Order Fees and Rebates. 14 15 VerDate Sep<11>2014 16:48 Apr 15, 2015 Jkt 235001 Exchange. In addition, solicited Crossing Orders already benefit from the QCC and Solicitation Rebate, which applies to all QCC and/or other solicited Crossing Orders, including solicited orders executed in the Solicitation, Facilitation or Price Improvement Mechanisms. The Exchange believes that the QCC and Solicitation Rebate has proven to be an effective incentive for members to send solicited crosses to the ISE. The proposed rule change would supplement this incentive by encouraging eligible firms to send unsolicited Crossing Orders to the Exchange as well, which will benefit all market participants on ISE by creating additional liquidity and increased opportunity to trade on the Exchange. The Exchange notes that the proposed MORP rebate levels are within the range of rebates currently offered by Amex, whose market access and connectivity subsidy ranges from $0.04 per contract to $0.08 per contract based on a member’s volume tier.18 In addition, the Exchange notes that the proposed Facilitation and Solicitation break-up rebates are equivalent to break-up rebates already provided for PIM orders traded on ISE. As a condition for participating in MORP, an EAM must configure its option order routing functionality so that ISE will be the default destination for all unsolicited Crossing Orders, and must offer to its clients a customized interface and routing functionality that similarly defaults such orders to ISE. Defaulting to ISE will not be required if market conditions do not allow the Crossing Order to be executed on the Exchange. In addition, MORP eligible firms must allow users to manually override ISE as the default order routing destination on an order-by-order basis. The Exchange believes that these proposed requirements are reasonable and equitable as they protect investors, while allowing member firms to qualify for enhanced rebates that reduce their trading costs on ISE. Furthermore, the Exchange notes that members that set ISE as their default routing destination will not be relieved of complying with their best execution obligations. If, based on its regular best execution analysis, a MORP eligible member determines that the routing functionality described above would conflict with its duty of best execution, such member may discontinue participation in the program. The Exchange believes that the safeguards described above will ensure that client orders are appropriately protected under MORP. In this regard, the Exchange 18 See PO 00000 supra note 15. Frm 00060 Fmt 4703 Sfmt 4703 notes that the proposed protections mirror protections previously adopted by NASDAQ OMX PHLX, LLC (‘‘Phlx’’), where a similar program was introduced in 2007.19 Finally, the Exchange believes that the proposed program is both equitable and not unfairly discriminatory because any qualifying EAM that offers market access and connectivity to the Exchange will be able to participate in the program on an equal and nondiscriminatory basis. While there will be two tiers of MORP rebates, the sole basis for differentiation among the tiers will be participant volume in unsolicited Crossing Orders.20 The Exchange believes that it is equitable and not unfairly discriminatory to provide higher rebates to members that execute a higher volume of order flow on ISE. With respect to break-up rebates, the Exchange notes that all members that qualify for a MORP rebate will also receive enhanced break-up rebates. B. Self-Regulatory Organization’s Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,21 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 evidences the strength of competition in the options industry. Specifically, the Exchange believes that the proposed fee change will enhance the competiveness of the ISE relative to other options exchanges, such as Amex, that offer similar programs under their respective fee schedules. In doing so, eligible order routing firms will benefit from an innovative program that reduces trading costs by providing a valuable rebate for their unsolicited Crossing Orders. 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 19 See Securities Exchange Act Release No. 56274 (August 16, 2007), 72 FR 48720 (August 24, 2007) (SR–Phlx–2007–54). 20As explained above, the proposed rule change is targeted towards unsolicited Crossing Orders as this is the segment of order flow that the Exchange is seeking to encourage members to execute on ISE. The Exchange does not believe that this is unfairly discriminatory as all MORP eligible members can achieve the applicable rebates by executing unsolicited Crossing Orders on the ISE. 2115 U.S.C. 78f(b)(8). E:\FR\FM\16APN1.SGM 16APN1 Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Notices Exchange believes that the proposed fee changes reflect this competitive environment. 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 22 and subparagraph (f)(2) of Rule 19b–4 thereunder,23 because it establishes a due, fee, or other charge imposed by ISE. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– ISE–2015–11 on the subject line. tkelley on DSK3SPTVN1PROD with NOTICES 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–2015–11. This file number should be included on the subject line if email is used. To help the Commission process and review your 22 15 23 17 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). VerDate Sep<11>2014 16:48 Apr 15, 2015 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 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 Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–ISE– 2015–11, and should be submitted on or before May 7, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Brent J. Fields, Secretary. [FR Doc. 2015–08700 Filed 4–15–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74712; File No. SR–DTC– 2015–01] Self-Regulatory Organizations; The Depository Trust Company; Order Approving Proposed Rule Change To Discontinue the Prospectus Repository System Service I. Introduction On February 13, 2015, The Depository Trust Company (‘‘DTC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) proposed rule change SR–DTC–2015–01 (‘‘Proposed Rule Change’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 24 17 Jkt 235001 PO 00000 CFR 200.30–3(a)(12). Frm 00061 Fmt 4703 (‘‘Act’’) 1 and Rule 19b–4 thereunder.2 The Proposed Rule Change was published for comment in the Federal Registrar on March 2, 2015.3 The Commission did not receive any comments on the Proposed Rule Change. This order approves the Proposed Rule Change. II. Description DTC filed the Proposed Rule Change to discontinue DTC’s Prospectus Repository System (‘‘PRS’’) and its Terms of Use (‘‘Terms of Use’’), as discussed below. DTC launched PRS in 2003 to provide DTC participants (‘‘Participants’’) and DTC-authorized third parties (collectively, ‘‘Users’’) 4 access to prospectuses and official statements relating to new issues of corporate and municipal securities (‘‘Documents’’).5 Today, however, there are few Users of PRS because many of the Documents provided through PRS are publicly available. As such, DTC states that it is not worth the cost of maintaining PRS and, thus, will discontinue it. III. Discussion Section 19(b)(2)(C) of the Act 6 directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and rules and regulations thereunder applicable to such organization. Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions.7 The Commission finds the Proposed Rule Change consistent with the Act. More specifically, the Commission finds that the Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the Act.8 By eliminating a service that is not economically efficient to maintain or central to DTC’s core clearing business, DTC can better allocate its economic resources to support the safeguarding of securities or funds in its 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 74358 (February 24, 2015), 80 FR 11243 (March 2, 2015) (SR–DTC–2015–01). 4 Third-party Users of PRS include syndicate members, correspondent banks, paying agents, transfer agents, and certain legal counsel and financial advisors. Individual investors do not have access to PRS. 5 Securities Exchange Act Release No. 47410 (February 26, 2003), 68 FR 10558 (March 5, 2003) (SR–DTC–2002–13). 6 15 U.S.C. 78s(b)(2)(C). 7 15 U.S.C. 78q–1(b)(3)(F). 8 Id. 2 17 April 10, 2015. Sfmt 4703 20525 E:\FR\FM\16APN1.SGM 16APN1

Agencies

[Federal Register Volume 80, Number 73 (Thursday, April 16, 2015)]
[Notices]
[Pages 20522-20525]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-08700]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74706; File No. SR-ISE-2015-11]


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

April 10, 2015.
    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 March 26, 2015, 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

[[Page 20523]]

organization. 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 the 
Substance of the Proposed Rule Change

    The ISE proposes to amend the Schedule of Fees to introduce a 
Member Order Routing Program. The text of the proposed rule change is 
available on the Exchange's Web site (https://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 to introduce a Member Order Routing Program (``MORP'') that will 
provide enhanced rebates to order routing firms that select the 
Exchange as the default routing destination (as described below) for 
unsolicited Crossing Orders.\3\ The MORP is intended to compete with 
similar programs offered by competitor options exchanges. The Exchange 
designates this filing to become effective on April 1, 2015.\4\
---------------------------------------------------------------------------

    \3\ A `` Crossing Order'' is an order executed in the Exchange's 
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement 
Mechanism (``PIM'') or submitted as a Qualified Contingent Cross 
(``QCC'') order. For purposes of the fee schedule, orders executed 
in the Block Order Mechanism are also considered Crossing Orders.
    Solicited Crossing Orders will not qualify for MORP as they are 
already eligible for the QCC and Solicitation Rebate. See Schedule 
of Fees, Section IV.A.
    \4\ The Exchange notes that members must opt in to MORP by March 
31, 2015 to be eligible to participate in the program on April 1, 
2015. See note 7 infra.
---------------------------------------------------------------------------

MORP Qualifications
    To be eligible to participate in MORP, an Electronic Access Member 
(``EAM'') must: (1) Provide to its clients, systems that enable the 
electronic routing of option orders to all of the U.S. options 
exchanges, including ISE; (2) interface with ISE to access the 
Exchange's electronic options trading platform; (3) offer to its 
clients a customized interface and routing functionality such that ISE 
will be the default destination for all unsolicited Crossing Orders 
entered by the EAM,\5\ provided that market conditions allow the 
Crossing Order to be executed on ISE; (4) configure its own option 
order routing functionality such that ISE will be the default 
destination for all unsolicited Crossing Orders, provided that market 
conditions allow the Crossing Order to be executed on ISE, with respect 
to all option orders as to which the EAM has routing discretion; and 
(5) ensure that the default routing functionality permits users 
submitting option orders through such system to manually override the 
ISE as the default destination on an order-by-order basis.\6\
---------------------------------------------------------------------------

    \5\ An unsolicited Crossing Order is a Crossing Order entered by 
a member that has not solicited the contra side of the trade.
    \6\ The Exchange notes that these requirements are based, in 
part, on similar programs offered by other options exchanges. See 
notes 15 and 19 infra and accompanying text.
---------------------------------------------------------------------------

    EAMs that wish to participate in the program must certify that they 
meet the above MORP requirements, in writing, on a monthly basis and in 
a form to be determined by the Exchange. The relevant notice must be 
provided by the last business day of the month for members to be 
eligible to participate in the MORP effective the first business day of 
the following month.\7\
---------------------------------------------------------------------------

    \7\ Members must provide this notice by March 31, 2015 to be 
eligible to participate in MORP when the program becomes effective 
on April 1, 2015.
---------------------------------------------------------------------------

Rebate for Unsolicited Crossing Orders
    An EAM that is MORP eligible will receive a rebate for all 
unsolicited Crossing Orders of $0.05 per originating contract side, 
provided that the member executes a minimum average daily volume 
(``ADV'') in unsolicited Crossing Orders of at least 30,000 originating 
contract sides. This rebate is increased to $0.07 per originating 
contract side, provided that the member executes a higher ADV in 
unsolicited Crossing Orders of 100,000 originating contract sides. The 
rebate for the highest tier achieved will be applied retroactively to 
all eligible contracts traded in a given month. As is ISE's current 
practice with respect to ADV calculations, any day that the Exchange is 
not open for the entire trading day may be excluded from such 
calculation; provided that the Exchange will only remove the day for 
members that would have a lower ADV with the day included. The Exchange 
will provide a notice, and post it on the Exchange's Web site, to 
inform members of any day that is to be excluded from its ADV 
calculations in connection with this proposed rule change.
Facilitation and Solicitation Break-Up Rebate
    In addition, any EAM that qualifies for the MORP rebate by 
executing an ADV of 30,000 originating contract sides or more will also 
be eligible for increased Facilitation and Solicitation break-up 
rebates. Currently, the Exchange provides a Facilitation and 
Solicitation break-up rebate of $0.15 per contract for regular and 
complex orders in Select Symbols. This rebate applies to all Non-ISE 
Market Maker,\8\ Firm Proprietary \9\/Broker-Dealer,\10\ Professional 
Customer,\11\ and Priority Customer \12\ orders submitted to the 
Facilitation and Solicited Order Mechanisms that do not trade with 
their contra order, except when those orders trade against pre-existing 
orders and quotes on the Exchange's order books. For MORP eligible 
members that execute a qualifying ADV in unsolicited Crossing Orders of 
at least 30,000 originating contract sides, the Exchange now proposes 
to increase this Facilitation and Solicitation break-up rebate to $0.35 
per contract for regular and complex orders in Select Symbols. In 
addition, the Exchange proposes to adopt a Facilitation and 
Solicitation break-up rebate in Non-Select Symbols and FX option 
classes specifically for members that meet the MORP qualifications 
described above. The rebate in Non-Select Symbols will be $0.15 per 
contract for regular orders and $0.80 per contract for complex orders. 
For FX option classes, the rebate will be $0.15 per contract for both 
regular and complex orders. With this proposed

[[Page 20524]]

change, the Exchange notes that eligible members will receive the same 
break-up rebates for their Facilitation and Solicitation orders as they 
currently do for orders submitted to the PIM.
2. Statutory Basis
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    \8\ A ``Non-ISE Market Maker'' is a market maker as defined in 
Section 3(a)(38) of the Securities Exchange Act of 1934, as amended, 
registered in the same options class on another options exchange.
    \9\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \10\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \11\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \12\ A ``Priority Customer'' is 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), as defined in Rule 100(a)(37A).
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    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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange proposes to provide the MORP rebate and higher break-
up rebates to EAMs that connect directly to the Exchange and provide 
their clients with order routing functionality that includes all U.S. 
options exchanges, including ISE. Order routing firms are already 
provided enhanced rebates by some of the Exchange's competitors, 
including, for example, NYSE Amex Options (``Amex''), which provides 
volume based rebates to members that provide access and connectivity to 
their market.\15\ The Exchange believes that it is appropriate at this 
time to offer a similar rebate to order routing firms on ISE in order 
to compete with these programs on other options markets.
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 71532 (February 12, 
2014), 79 FR 9563 (February 19, 2014) (SR-NYSEMKT-2014-12).
---------------------------------------------------------------------------

    The Exchange believes the proposed fee program is reasonable and 
equitable because it is designed to encourage order routing firms to 
execute additional unsolicited Crossing Order volume on the ISE. The 
Exchange notes that it currently offers other incentive programs to 
promote and encourage growth in specific business areas, including, for 
example, rebates for Market Makers that routinely quote at the national 
best bid or offer,\16\ and volume-based Priority Customer complex order 
rebates.\17\ The proposed rule change is targeted towards Crossing 
Orders, and, in particular, unsolicited Crossing Orders, which is yet 
another segment of order flow that the Exchange seeks to encourage 
members to execute on ISE. The Exchange believes that it is reasonable 
and equitable to tailor the proposed rule change to unsolicited 
Crossing Orders. ISE already charges fees and provides rebates for non-
Crossing Orders that are effective in attracting that order flow to the 
Exchange. In addition, solicited Crossing Orders already benefit from 
the QCC and Solicitation Rebate, which applies to all QCC and/or other 
solicited Crossing Orders, including solicited orders executed in the 
Solicitation, Facilitation or Price Improvement Mechanisms. The 
Exchange believes that the QCC and Solicitation Rebate has proven to be 
an effective incentive for members to send solicited crosses to the 
ISE. The proposed rule change would supplement this incentive by 
encouraging eligible firms to send unsolicited Crossing Orders to the 
Exchange as well, which will benefit all market participants on ISE by 
creating additional liquidity and increased opportunity to trade on the 
Exchange.
---------------------------------------------------------------------------

    \16\ See Schedule of Fees, Section I, Regular Order Fees and 
Rebates, Market Maker Plus.
    \17\ See Schedule of Fees, Section II, Complex Order Fees and 
Rebates.
---------------------------------------------------------------------------

    The Exchange notes that the proposed MORP rebate levels are within 
the range of rebates currently offered by Amex, whose market access and 
connectivity subsidy ranges from $0.04 per contract to $0.08 per 
contract based on a member's volume tier.\18\ In addition, the Exchange 
notes that the proposed Facilitation and Solicitation break-up rebates 
are equivalent to break-up rebates already provided for PIM orders 
traded on ISE.
---------------------------------------------------------------------------

    \18\ See supra note 15.
---------------------------------------------------------------------------

    As a condition for participating in MORP, an EAM must configure its 
option order routing functionality so that ISE will be the default 
destination for all unsolicited Crossing Orders, and must offer to its 
clients a customized interface and routing functionality that similarly 
defaults such orders to ISE. Defaulting to ISE will not be required if 
market conditions do not allow the Crossing Order to be executed on the 
Exchange. In addition, MORP eligible firms must allow users to manually 
override ISE as the default order routing destination on an order-by-
order basis. The Exchange believes that these proposed requirements are 
reasonable and equitable as they protect investors, while allowing 
member firms to qualify for enhanced rebates that reduce their trading 
costs on ISE. Furthermore, the Exchange notes that members that set ISE 
as their default routing destination will not be relieved of complying 
with their best execution obligations. If, based on its regular best 
execution analysis, a MORP eligible member determines that the routing 
functionality described above would conflict with its duty of best 
execution, such member may discontinue participation in the program. 
The Exchange believes that the safeguards described above will ensure 
that client orders are appropriately protected under MORP. In this 
regard, the Exchange notes that the proposed protections mirror 
protections previously adopted by NASDAQ OMX PHLX, LLC (``Phlx''), 
where a similar program was introduced in 2007.\19\
---------------------------------------------------------------------------

    \19\ See Securities Exchange Act Release No. 56274 (August 16, 
2007), 72 FR 48720 (August 24, 2007) (SR-Phlx-2007-54).
---------------------------------------------------------------------------

    Finally, the Exchange believes that the proposed program is both 
equitable and not unfairly discriminatory because any qualifying EAM 
that offers market access and connectivity to the Exchange will be able 
to participate in the program on an equal and non-discriminatory basis. 
While there will be two tiers of MORP rebates, the sole basis for 
differentiation among the tiers will be participant volume in 
unsolicited Crossing Orders.\20\ The Exchange believes that it is 
equitable and not unfairly discriminatory to provide higher rebates to 
members that execute a higher volume of order flow on ISE. With respect 
to break-up rebates, the Exchange notes that all members that qualify 
for a MORP rebate will also receive enhanced break-up rebates.
---------------------------------------------------------------------------

    \20\As explained above, the proposed rule change is targeted 
towards unsolicited Crossing Orders as this is the segment of order 
flow that the Exchange is seeking to encourage members to execute on 
ISE. The Exchange does not believe that this is unfairly 
discriminatory as all MORP eligible members can achieve the 
applicable rebates by executing unsolicited Crossing Orders on the 
ISE.
---------------------------------------------------------------------------

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

    In accordance with Section 6(b)(8) of the Act,\21\ 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 evidences the 
strength of competition in the options industry. Specifically, the 
Exchange believes that the proposed fee change will enhance the 
competiveness of the ISE relative to other options exchanges, such as 
Amex, that offer similar programs under their respective fee schedules. 
In doing so, eligible order routing firms will benefit from an 
innovative program that reduces trading costs by providing a valuable 
rebate for their unsolicited Crossing Orders. 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

[[Page 20525]]

Exchange believes that the proposed fee changes reflect this 
competitive environment.
---------------------------------------------------------------------------

    \21\15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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 \22\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\23\ because it establishes a due, fee, or other charge 
imposed by ISE.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \23\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2015-11 on the subject line.

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-2015-11. 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 (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 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 Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISE-2015-11, and should be 
submitted on or before May 7, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------


Brent J. Fields,
Secretary.
[FR Doc. 2015-08700 Filed 4-15-15; 8:45 am]
 BILLING CODE 8011-01-P
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