
[Federal Register: April 14, 2008 (Volume 73, Number 72)]
[Notices]               
[Page 20079-20080]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14ap08-97]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57632; File No. SR-ISE-2008-29]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating to the Price 
Improvement Mechanism

April 8, 2008.
    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 20, 2008, the International Securities Exchange, LLC 
(``ISE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been substantially 
prepared by the ISE. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE is proposing to allow members to enter orders into the 
Price Improvement Mechanism (``PIM'') at a price that matches the 
national best bid or offer (``NBBO'') when the ISE market is inferior 
to the NBBO. The text of the proposed rule change is available on the 
ISE's Web site (http://www.iseoptions.com), at the principal office of 
the ISE, 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 ISE 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 ISE has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Several options exchanges have adopted a fee structure in which 
firms

[[Page 20080]]

receive a rebate for the execution of orders resting on the limit order 
book (i.e., posting liquidity) and pay a fee for the execution of 
orders that trade against liquidity resting on the limit order book 
(i.e., taking liquidity). The taker fees currently range up to $0.50 
per contract, and this fee is charged without consideration of the 
client category, thus applying to the execution of public customer 
orders. In contrast, ISE does not charge a fee for the execution of 
public customer orders.
    The effective price paid by a customer who is purchasing an option 
can be considerably higher on an exchange that charges a taker fee. For 
example, a customer that enters a marketable limit order to buy 10 
contracts for $0.10 will pay $100 on the ISE, whereas the cost of the 
same transaction will be $105 if executed on an exchange with a $.50 
taker fee. This represents an effective 5% increase for the customer. 
Because public customer orders cannot be executed at prices that are 
inferior to the NBBO, members are effectively forced to pay taker fees 
when an exchange with a taker fee structure is at the NBBO. This is 
because they either route their public customer orders directly to such 
exchange or the taker fee is passed through when another exchange 
accesses the NBBO on behalf of their customer through linkage.
    In order to provide broker-dealers with an alternative method of 
achieving an execution at the NBBO for their customers without having 
to pay taker fees, the Exchange proposes to expand the applicability of 
its PIM.\3\ The PIM currently allows members to enter two-sided orders 
for execution at a price that improves upon the NBBO. The customer side 
of these orders is then exposed to all market participants to give them 
an opportunity to participate in the trade at the proposed cross price 
or better. This provides an opportunity for the customer order to 
receive additional price improvement. The Exchanges proposes to extend 
the application of the PIM to permit a member to enter an order into 
the PIM at a price that is equal to the NBBO when the ISE's best bid or 
offer (``ISE BBO'') is inferior to the NBBO. This will allow members to 
guarantee execution of their customer orders on the ISE at a price that 
is at least as good as the NBBO, thus providing customers with an 
opportunity for price improvement over the NBBO while also allowing 
members to avoid paying taker fees.
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    \3\ See Securities Exchange Act Release No. 50819 (December 8, 
2004), 69 Fr 75093 (December 15, 2004) (approving rules implmenting 
the PIM).
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2. Statutory Basis
    The Exchange believes that the basis under the Act for this 
proposed rule change is found in Section 6(b)(5),\4\ in that the 
proposed rule change is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanisms 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest. Allowing members to 
guarantee their customers an execution at the NBBO on an exchange that 
does not charge a taker fee will lower the cost of trading and promote 
a more efficient marketplace for public customer orders. In addition, 
using the PIM to guarantee the price of the execution on the ISE will 
give public customer orders an opportunity to receive price improvement 
over the NBBO.
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    \4\ 15 U.S.C. 78f(b)(5).
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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 written comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (a) By order approve such proposed rule change or
    (b) Institute proceedings to determine whether the proposed rule 
change should be 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 rule-comments@sec.gov. Please include 
File No. SR-ISE-2008-29 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2008-29. 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 inspection and 
copying 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-2008-29 and should be 
submitted on or before May 5, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-7826 Filed 4-11-08; 8:45 am]

BILLING CODE 8011-01-P
