Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees, 31270-31272 [2016-11644]
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Federal Register / Vol. 81, No. 96 / Wednesday, May 18, 2016 / Notices
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Organization name
Position title
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Office of the Deputy Secretary .....
Office of the Director .....................
Small Business Administration ......
Office of Communications
Public Liaison.
Senior Policy Advisor ....................
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Engagement.
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Communications and Public Liaison.
Speechwriter .................................
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Governmental Affairs.
Authority: 5 U.S.C. 3301 and 3302; E.O.
10577, 3 CFR, 1954–1958 Comp., p. 218.
office of the Exchange, and at the
Commission’s Public Reference Room.
U.S. Office of Personnel Management.
Beth F. Cobert,
Acting Director.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2016–11724 Filed 5–17–16; 8:45 am]
BILLING CODE 6325–39–P
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.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77821; File No. SR–ISE–
2016–13]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Amend the Schedule of
Fees
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
May 12, 2016.
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 May 2,
2016, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change, as described in Items I, II, and
III below, which items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
sradovich on DSK3TPTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The ISE proposes to eliminate Priority
Customer complex order rebates for
certain ‘‘net zero’’ complex orders. The
text of the proposed rule change is
available on the Exchange’s Web site
(https://www.ise.com), at the principal
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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1. Purpose
Currently, the Exchange provides
rebates to Priority Customer 3 complex
orders that trade with non-Priority
Customer complex orders in the
complex order book or trade with quotes
and orders on the regular order book.
Rebates are tiered based on a member’s
average daily volume (‘‘ADV’’) executed
during a given month as follows: 0 to
29,999 contracts (‘‘Tier 1’’), 30,000 to
59,999 contracts (‘‘Tier 2’’), 60,000 to
99,999 contracts (‘‘Tier 3’’), 100,000 to
149,999 (‘‘Tier 4’’), 150,000 to 199,999
contracts (‘‘Tier 5’’), and 200,000 or
more contracts (‘‘Tier 6’’). In Select
Symbols the rebate is $0.30 per contract
for Tier 1, $0.35 per contract for Tier 2,
$0.41 per contract for Tier 3, $0.44 per
contract for Tier 4, $0.46 per contract for
Tier 5, and $0.47 per contract for Tier
6. In Non-Select Symbols the rebate is
3 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 ISE Rule
100(a)(37A).
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$0.63 per contract for Tier 1, $0.71 per
contract for Tier 2, $0.79 per contract for
Tier 3, $0.81 per contract for Tier 4,
$0.83 per contract for Tier 5, and $0.84
per contract for Tier 6.
Recently, a market participant has
been entering a large volume of
valueless complex orders that trade at a
net price at or near $0.00 (i.e., ‘‘net
zero’’ complex orders) with the sole
intention of earning a rebate.4 While
these complex orders would generally
not find a counterparty in the complex
order book, they may leg in to the
regular order book where they are
typically executed by Market Makers 5
on the individual legs. The fee that
Market Makers quoting in Select
Symbols pay when a complex order legs
into their quote is substantially higher
than their fee or rebate for regular orders
that trade against their quotes. In
particular, a Market Maker providing
liquidity on the individual leg would
typically pay a maker fee of only $0.10
per contract,6 or in the case of Market
Makers that achieve Market Maker Plus
status,7 would earn a maker rebate
4 For example, a market participant could enter a
‘‘net zero’’ complex order that buys 500 contracts
of the $193 March 6, 2016 SPY Put at a price of
$0.03 and sells 500 contracts of the $193.50 March
6, 2016 SPY Put at a price of $0.03 for a net price
of $0.00.
5 The term ‘‘Market Makers’’ refers to
‘‘Competitive Market Makers’’ and ‘‘Primary Market
Makers’’ collectively. See ISE Rule 100(a)(25).
6 This maker fee also applies to Non-ISE Market
Maker, Firm Proprietary/Broker Dealer and
Professional Customer orders in Select Symbols.
Priority Customer orders are not charged a maker
fee in Select Symbols for orders entered on the
regular order book.
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.
A ‘‘Firm Proprietary’’ order is an order submitted
by a member for its own proprietary account.
A ‘‘Broker-Dealer’’ order is an order submitted by
a member for a broker-dealer account that is not its
own proprietary account.
A ‘‘Professional Customer’’ is a person or entity
that is not a broker/dealer and is not a Priority
Customer.
7 A Market Maker Plus is a Market Maker who is
on the National Best Bid or National Best Offer a
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Federal Register / Vol. 81, No. 96 / Wednesday, May 18, 2016 / Notices
ranging from $0.10 per contract to $0.22
per contract. When trading against a
Priority Customer complex order that
legs in from the complex order book,
however, that same Market Maker is
charged a maker fee of $0.30 per
contract.8 In Non-Select Symbols,
Market Makers pay a fee of $0.25 per
contract subject to certain tier
discounts,9 or $0.20 per contract for
orders sent by an Electronic Access
Member.10
By entering essentially valueless
complex orders, this market participant
or others employing the same strategy
are able to recover rebates for essentially
non-economic trades at the expense of
the Exchange and the market
participants on the other side of the
trade. This behavior is a form of rebate
arbitrage, and the Exchange believes
that it is in the best interest of the
Exchange and its members to remove
the incentives that promote this activity.
The Exchange therefore proposes to
eliminate Priority Customer rebates for
‘‘net zero’’ complex orders that are
entered on behalf of originating market
participants that execute an ADV of at
least 10,000 ‘‘net zero’’ complex orders
in a given month. For purposes of
determining which complex orders
qualify as ‘‘net zero’’ the Exchange will
count all complex orders that leg in to
the regular order book and are executed
at a net price that is within a range of
$0.01 credit and $0.01 debit.
sradovich on DSK3TPTVN1PROD with NOTICES
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,11
specified percentage of the time for series trading
between $0.03 and $3.00 (for options whose
underlying stock’s previous trading day’s last sale
price was less than or equal to $100) and between
$0.10 and $3.00 (for options whose underlying
stock’s previous trading day’s last sale price was
greater than $100) in premium in each of the front
two expiration months. The specified percentage is
at least 80% but lower than 85% of the time for Tier
1, at least 85% but lower than 95% of the time for
Tier 2, and at least 95% of the time for Tier 3. A
Market Maker’s single best and single worst quoting
days each month based on the front two expiration
months, on a per symbol basis, will be excluded in
calculating whether a Market Maker qualifies for
this rebate, if doing so will qualify a Market Maker
for the rebate.
8 This higher maker fee for trading against a
Priority Customer complex order that legs in to the
regular order book also applies to Non-ISE Market
Maker orders.
9 See Schedule of Fees, Section IV.C.
10 There is no fee difference in Non-Select
Symbols for trading against Priority Customer
complex orders that leg in to the regular order book.
Non-ISE Market Maker, Firm Proprietary/BrokerDealer and Professional Customer orders in NonSelect Symbols are charged a fee of $0.72 per
contract. Priority Customer orders are not charged
a fee in Non-Select symbols for orders entered on
the regular order book.
11 15 U.S.C. 78f.
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in general, and Section 6(b)(4) of the
Act,12 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 believes that the
proposed fee change is reasonable and
equitable as it is designed to remove
financial incentives for market
participants to engage in rebate arbitrage
by entering ‘‘net zero’’ complex orders
on the Exchange that do not have any
economic substance. As explained
above, Priority Customer complex
orders, including ‘‘net zero’’ complex
orders that leg in to the regular order
book, are currently paid significant
rebates by the Exchange, which are
funded in part by charging higher fees
to the market participants that trade
against these orders. The Exchange
believes that eliminating the rebate
provided to ‘‘net zero’’ complex orders
will discourage market participants
from entering these valueless orders,
which are entered for the sole purpose
of earning a rebate. The Exchange also
believes that the proposed rule change
is not unfairly discriminatory as it is
designed to stop market participants
from taking advantage of Exchange
rebates by entering orders that lack
economic substance. The Exchange is
proposing to eliminate Priority
Customer complex order rebates for all
market participants that enter a large
number of ‘‘net zero’’ complex orders.
To the extent that those market
participants enter legitimate complex
orders, however, they will continue to
receive the same rebates that they do
today. In addition, market participants
that enter an insubstantial volume of
‘‘net zero’’ complex orders will also
continue to receive rebates. The
Exchange does not believe that it is
unfairly discriminatory to continue to
offer rebates to firms that do not hit the
proposed ‘‘net zero’’ ADV threshold as
this more limited trading activity is not
indicative of rebate arbitrage.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,13 the Exchange does not believe
that the proposed rule change will
impose any burden on intermarket or
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is designed to
eliminate the ability for certain market
participants to engage in rebate arbitrage
to the detriment of the Exchange and its
12 15
13 15
PO 00000
U.S.C. 78f(b)(4).
U.S.C. 78f(b)(8).
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members. The Exchange operates in a
highly competitive market in which
market participants can readily direct
their order flow to competing venues. In
such an environment, the Exchange
must continually review, and consider
adjusting, its fees and rebates to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed fee
changes reflect this competitive
environment.
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 14 and
subparagraph (f)(2) of Rule 19b–4
thereunder,15 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 No. SR–ISE–
2016–13 on the subject line.
14 15
15 17
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U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
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Federal Register / Vol. 81, No. 96 / Wednesday, May 18, 2016 / Notices
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–2016–13. 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 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–
2016–13 and should be submitted by
June 8, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–11644 Filed 5–17–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77820; File No. SR–
NYSEArca–2016–44]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Designation of a
Longer Period for Commission Action
on a Proposed Rule Change Amending
NYSE Arca Equities Rule 7.31P(h) To
Add a New Discretionary Pegged Order
[FR Doc. 2016–11643 Filed 5–17–16; 8:45 am]
On March 11, 2016, NYSE Arca, Inc.
(‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend Exchange Rule 7.31P(h) to add a
new Discretionary Pegged Order. The
proposed rule change was published for
comment in the Federal Register on
March 30, 2016.3 The Commission
received two comment letters on the
proposed rule change,4 as well as a
response from the Exchange.5
Section 19(b)(2) of the Act 6 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is May 14, 2016.
The Commission is extending this
45-day time period.
The Commission finds that it is
appropriate to designate a longer period
within which to take action on the
proposed rule change so that it has
sufficient time to consider the proposed
rule change. Accordingly, the
Commission, pursuant to Section
BILLING CODE 8011–01–P
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 77441
(March 24, 2016), 81 FR 17749.
4 See Letter from Sophia Lee, General Counsel,
IEX Group, Inc., to Brent J. Fields, Secretary,
Commission, dated April 15, 2016; Letter from John
C. Nagel, Managing Director and Senior Deputy
General Counsel, Citadel LLC, to Brent J. Fields,
Secretary, Commission, dated April 20, 2016.
5 See Letter from Elizabeth K. King, General
Counsel and Corporate Secretary, New York Stock
Exchange, to Brent J. Fields, Secretary, Commission,
dated April 27, 2016.
6 15 U.S.C. 78s(b)(2).
sradovich on DSK3TPTVN1PROD with NOTICES
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Robert W. Errett,
Deputy Secretary.
May 12, 2016.
2 17
16 17
19(b)(2) of the Act,7 designates June 28,
2016, as the date by which the
Commission should either approve or
disapprove or institute proceedings to
determine whether to disapprove the
proposed rule change (File Number SR–
NYSEArca–2016–44).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77819; File No. SR–
BatsEDGX–2016–17]
Self-Regulatory Organizations; Bats
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
Description of Price Improving Orders
Under Subparagraph (6) to Rule 21.1(d)
and Add Subparagraph (4) to Rule
21.1(h) Modifying the Operation of
Orders Subject to the Display Price
Sliding Process When a Contra-Side
Post Only Order Is Received by the
Bats EDGX Exchange Options Platform
May 12, 2016.
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 May 3,
2016, Bats EDGX Exchange, Inc. f/k/a
EDGX Exchange, Inc. (the ‘‘Exchange’’
or ‘‘EDGX’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. 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 Exchange filed a proposal to: (i)
Amend the description of Price
7 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(31).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
8 17
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]]>Agencies
[Federal Register Volume 81, Number 96 (Wednesday, May 18, 2016)]
[Notices]
[Pages 31270-31272]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11644]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77821; File No. SR-ISE-2016-13]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend the Schedule of Fees
May 12, 2016.
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 May 2, 2016, the International Securities Exchange, LLC (the
``Exchange'' or the ``ISE'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change, as described
in Items I, II, and III below, which items have been prepared by the
self-regulatory organization. The Commission is publishing this notice
to solicit 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 proposes to eliminate Priority Customer complex order
rebates for certain ``net zero'' complex orders. 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
Currently, the Exchange provides rebates to Priority Customer \3\
complex orders that trade with non-Priority Customer complex orders in
the complex order book or trade with quotes and orders on the regular
order book. Rebates are tiered based on a member's average daily volume
(``ADV'') executed during a given month as follows: 0 to 29,999
contracts (``Tier 1''), 30,000 to 59,999 contracts (``Tier 2''), 60,000
to 99,999 contracts (``Tier 3''), 100,000 to 149,999 (``Tier 4''),
150,000 to 199,999 contracts (``Tier 5''), and 200,000 or more
contracts (``Tier 6''). In Select Symbols the rebate is $0.30 per
contract for Tier 1, $0.35 per contract for Tier 2, $0.41 per contract
for Tier 3, $0.44 per contract for Tier 4, $0.46 per contract for Tier
5, and $0.47 per contract for Tier 6. In Non-Select Symbols the rebate
is $0.63 per contract for Tier 1, $0.71 per contract for Tier 2, $0.79
per contract for Tier 3, $0.81 per contract for Tier 4, $0.83 per
contract for Tier 5, and $0.84 per contract for Tier 6.
---------------------------------------------------------------------------
\3\ 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 ISE Rule 100(a)(37A).
---------------------------------------------------------------------------
Recently, a market participant has been entering a large volume of
valueless complex orders that trade at a net price at or near $0.00
(i.e., ``net zero'' complex orders) with the sole intention of earning
a rebate.\4\ While these complex orders would generally not find a
counterparty in the complex order book, they may leg in to the regular
order book where they are typically executed by Market Makers \5\ on
the individual legs. The fee that Market Makers quoting in Select
Symbols pay when a complex order legs into their quote is substantially
higher than their fee or rebate for regular orders that trade against
their quotes. In particular, a Market Maker providing liquidity on the
individual leg would typically pay a maker fee of only $0.10 per
contract,\6\ or in the case of Market Makers that achieve Market Maker
Plus status,\7\ would earn a maker rebate
[[Page 31271]]
ranging from $0.10 per contract to $0.22 per contract. When trading
against a Priority Customer complex order that legs in from the complex
order book, however, that same Market Maker is charged a maker fee of
$0.30 per contract.\8\ In Non-Select Symbols, Market Makers pay a fee
of $0.25 per contract subject to certain tier discounts,\9\ or $0.20
per contract for orders sent by an Electronic Access Member.\10\
---------------------------------------------------------------------------
\4\ For example, a market participant could enter a ``net zero''
complex order that buys 500 contracts of the $193 March 6, 2016 SPY
Put at a price of $0.03 and sells 500 contracts of the $193.50 March
6, 2016 SPY Put at a price of $0.03 for a net price of $0.00.
\5\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule
100(a)(25).
\6\ This maker fee also applies to Non-ISE Market Maker, Firm
Proprietary/Broker Dealer and Professional Customer orders in Select
Symbols. Priority Customer orders are not charged a maker fee in
Select Symbols for orders entered on the regular order book.
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.
A ``Firm Proprietary'' order is an order submitted by a member
for its own proprietary account.
A ``Broker-Dealer'' order is an order submitted by a member for
a broker-dealer account that is not its own proprietary account.
A ``Professional Customer'' is a person or entity that is not a
broker/dealer and is not a Priority Customer.
\7\ A Market Maker Plus is a Market Maker who is on the National
Best Bid or National Best Offer a specified percentage of the time
for series trading between $0.03 and $3.00 (for options whose
underlying stock's previous trading day's last sale price was less
than or equal to $100) and between $0.10 and $3.00 (for options
whose underlying stock's previous trading day's last sale price was
greater than $100) in premium in each of the front two expiration
months. The specified percentage is at least 80% but lower than 85%
of the time for Tier 1, at least 85% but lower than 95% of the time
for Tier 2, and at least 95% of the time for Tier 3. A Market
Maker's single best and single worst quoting days each month based
on the front two expiration months, on a per symbol basis, will be
excluded in calculating whether a Market Maker qualifies for this
rebate, if doing so will qualify a Market Maker for the rebate.
\8\ This higher maker fee for trading against a Priority
Customer complex order that legs in to the regular order book also
applies to Non-ISE Market Maker orders.
\9\ See Schedule of Fees, Section IV.C.
\10\ There is no fee difference in Non-Select Symbols for
trading against Priority Customer complex orders that leg in to the
regular order book. Non-ISE Market Maker, Firm Proprietary/Broker-
Dealer and Professional Customer orders in Non-Select Symbols are
charged a fee of $0.72 per contract. Priority Customer orders are
not charged a fee in Non-Select symbols for orders entered on the
regular order book.
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By entering essentially valueless complex orders, this market
participant or others employing the same strategy are able to recover
rebates for essentially non-economic trades at the expense of the
Exchange and the market participants on the other side of the trade.
This behavior is a form of rebate arbitrage, and the Exchange believes
that it is in the best interest of the Exchange and its members to
remove the incentives that promote this activity. The Exchange
therefore proposes to eliminate Priority Customer rebates for ``net
zero'' complex orders that are entered on behalf of originating market
participants that execute an ADV of at least 10,000 ``net zero''
complex orders in a given month. For purposes of determining which
complex orders qualify as ``net zero'' the Exchange will count all
complex orders that leg in to the regular order book and are executed
at a net price that is within a range of $0.01 credit and $0.01 debit.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\11\ in general, and
Section 6(b)(4) of the Act,\12\ in particular, in that it is designed
to provide for the equitable allocation of reasonable dues, fees, and
other charges among its members and other persons using its facilities.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that the proposed fee change is reasonable
and equitable as it is designed to remove financial incentives for
market participants to engage in rebate arbitrage by entering ``net
zero'' complex orders on the Exchange that do not have any economic
substance. As explained above, Priority Customer complex orders,
including ``net zero'' complex orders that leg in to the regular order
book, are currently paid significant rebates by the Exchange, which are
funded in part by charging higher fees to the market participants that
trade against these orders. The Exchange believes that eliminating the
rebate provided to ``net zero'' complex orders will discourage market
participants from entering these valueless orders, which are entered
for the sole purpose of earning a rebate. The Exchange also believes
that the proposed rule change is not unfairly discriminatory as it is
designed to stop market participants from taking advantage of Exchange
rebates by entering orders that lack economic substance. The Exchange
is proposing to eliminate Priority Customer complex order rebates for
all market participants that enter a large number of ``net zero''
complex orders. To the extent that those market participants enter
legitimate complex orders, however, they will continue to receive the
same rebates that they do today. In addition, market participants that
enter an insubstantial volume of ``net zero'' complex orders will also
continue to receive rebates. The Exchange does not believe that it is
unfairly discriminatory to continue to offer rebates to firms that do
not hit the proposed ``net zero'' ADV threshold as this more limited
trading activity is not indicative of rebate arbitrage.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\13\ the Exchange
does not believe that the proposed rule change will impose any burden
on intermarket or intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
rule change is designed to eliminate the ability for certain market
participants to engage in rebate arbitrage to the detriment of the
Exchange and its members. The Exchange operates in a highly competitive
market in which market participants can readily direct their order flow
to competing venues. In such an environment, the Exchange must
continually review, and consider adjusting, its fees and rebates to
remain competitive with other exchanges. For the reasons described
above, the Exchange believes that the proposed fee changes reflect this
competitive environment.
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\13\ 15 U.S.C. 78f(b)(8).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \14\ and subparagraph (f)(2) of Rule 19b-4
thereunder,\15\ because it establishes a due, fee, or other charge
imposed by ISE.
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\14\ 15 U.S.C. 78s(b)(3)(A)(ii).
\15\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File No. SR-ISE-2016-13 on the subject line.
[[Page 31272]]
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-2016-13. 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 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-2016-13 and should be
submitted by June 8, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Robert W. Errett,
Deputy Secretary.
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\16\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-11644 Filed 5-17-16; 8:45 am]
BILLING CODE 8011-01-P
