
[Federal Register: January 12, 2010 (Volume 75, Number 7)]
[Notices]               
[Page 1678-1680]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12ja10-98]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61290; File No. SR-ISE-2009-109]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Order Granting Accelerated Approval to a 
Proposed Rule Change Relating to the Amounts That Direct Edge ECN, in 
Its Capacity as an Introducing Broker for Non-ISE Members, Passes 
Through to Such Non-ISE Members

January 5, 2010.
    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 December 31, 2009, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') 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 self-regulatory organization. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons, and is approving the proposal on an accelerated basis.
---------------------------------------------------------------------------

    \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 Exchange proposes to modify the amounts that Direct Edge ECN 
(``DECN''), in its capacity as an introducing broker for non-ISE 
Members, passes through to such non-ISE Members.
    The text of the proposed rule change is available on the Exchange's 
Internet Web site at http://www.ise.com.

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 III 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
    DECN, a facility of ISE, operates two trading platforms, EDGX and 
EDGA. On December 30, 2009, the ISE filed for immediate effectiveness a 
proposed rule change to amend Direct Edge ECN's (``DECN'') fee schedule 
for ISE Members \3\ to simplify its fee schedule by (i) eliminating the 
Super Tier and Ultra Tier rebates; \4\ and (ii) amending

[[Page 1679]]

its fees and rebates.\5\ The changes made pursuant to SR-ISE-2009-108 
became operative on January 1, 2010.
---------------------------------------------------------------------------

    \3\ References to ISE Members in this filing refer to DECN 
Subscribers who are ISE Members.
    \4\ On July 1, 2009, the Exchange adopted a new Ultra Tier 
Rebate whereby ISE Members were provided a $0.0032 rebate per share 
for securities priced at or above $1.00 when ISE Members add 
liquidity on EDGX if the attributed MPID satisfies one of the 
following criteria on a daily basis, measured monthly: (i) Adding 
100,000,000 shares or more on EDGX; or (ii) adding 50,000,000 shares 
or more of liquidity on EDGX, so long as added liquidity on EDGX is 
at least 20,000,000 shares greater than the previous calendar month. 
The rebate described above is referred to as an ``Ultra Tier 
Rebate'' on the DECN fee schedule. See Securities and Exchange Act 
Release No. 60232 (July 2, 2009), 74 FR 33309 (July 10, 2009)(SR-
ISE-2009-43).
    On October 1, 2009, the Exchange amended the criteria for 
meeting this tier by allowing ISE Members to receive a $0.0032 
rebate per share for securities priced at or above $1.00 when ISE 
Members add liquidity on EDGX if the attributed MPID posts 1% of the 
total consolidated volume (``TCV'') in average daily volume 
(``ADV''). TCV is defined as volume reported by all exchanges and 
trade reporting facilities to the consolidated transaction reporting 
plans for Tape A, B, and C securities. See Securities Exchange Act 
Release No. 60769 (October 2, 2009) 74 FR 51903 (October 8, 
2009)(SR-ISE-2009-68).
    On May 1, 2009, the Exchange amended the Super Tier rebate, 
which provides a $0.0030 rebate per share for liquidity added on 
EDGX if the attributed MPID satisfies any of the following three 
criteria on a daily basis, measured monthly: (i) Adding 40,000,000 
shares or more on either EDGX, EDGA, or EDGX and EDGA combined; (ii) 
adding 20,000,000 shares or more on either EDGX, EDGA, or EDGX and 
EDGA combined and routing 20,000,000 shares or more through EDGA; or 
(iii) adding 10,000,000 shares or more of liquidity to EDGX, so long 
as added liquidity on EDGX is at least 5,000,000 shares greater than 
the previous calendar month. See Securities Exchange Act Release No. 
59887 (May 7, 2009), 74 FR 22792 (May 14, 2009)(SR-ISE-2009-24).
    To adjust DECN's pricing model to be more consistent with other 
exchanges (even though DECN is not an exchange), in SR-ISE-2009-108, 
the Exchange proposed to de-link the pricing structures of DECN to 
eliminate pricing offers that are contingent on activity across both 
platforms. Secondly, in that filing, the Exchange proposed to 
simplify its fee schedule, which will provide Members with greater 
consistency and transparency during the period that the EDGA and 
EDGX Exchanges are preparing to launch, when volume will be 
transitioning from DECN to the EDGA and EDGX Exchanges (assuming 
their respective Form 1 applications are approved by the 
Commission). Finally, the Exchange believes that the proposed rate 
changes will help to maintain the competitive position of DECN. On 
May 7, 2009, each of EDGA Exchange, Inc. and EDGX Exchange, Inc. 
(the ``EDGA and EDGX Exchanges'') filed their respective Form 1 
applications to register as a national securities exchange (``Form 
1'') pursuant to Section 6 of the Securities Exchange Act of 1934. 
On July 30, 2009, the Exchanges filed Amendment No. 1 to the Form 1 
Application. On September 17, 2009, the Form 1 was published in the 
Federal Register for notice and comment. See Securities Exchange Act 
Release No. 60651 (September 11, 2009), 74 FR 47827 (September 17, 
2009).
    To effectuate the foregoing, in SR-ISE-2009-108, the Exchange 
deleted the Super Tier and Ultra Tier rebates discussed above.
    \5\ In SR-ISE-2009-108, the Exchange amended its fee schedule 
for adding liquidity on EDGX from free to 0.15% of the dollar value 
of the transaction for securities priced less than $1. For removing 
liquidity on EDGX, the Exchange amended its fee schedule for the 
removal fee from 0.20% of the dollar value of the transaction to 
0.30% of the dollar value of the transaction.
    DECN does not charge port charges to Members executing 200,000 
shares or more of combined liquidity on EDGX and/or EDGA on a 
monthly basis, per port. Any port (or number of ports) in excess of 
this, however, was charged $50 per port, per month. In SR-ISE-2009-
108, the Exchange eliminated this contingency and provided that all 
port charges are free irrespective of how much volume the Member 
executes.
    Previously, the Exchange provided that the removal rate on EDGA, 
which was a rebate of $0.0002 per share, was contingent on the 
attributed MPID adding or routing a minimum average daily share 
volume, measured monthly, of 50,000 shares on EDGA. In SR-ISE-2009-
108, the Exchange provided that hidden order executions (Flag H) 
also count toward this volume. As a result, any attributed MPID not 
meeting this minimum will be charged $0.0030 per share for removing 
liquidity from EDGA. In addition, the Exchange eliminated this 
contingency (in footnote 1 of the fee schedule) as it applies to 
EDGX or EDGA/EDGX combined volume. As mentioned above, the Exchange 
de-linked the pricing structures of DECN (EDGA/EDGX) to eliminate 
pricing offers that are contingent on activity across both 
platforms.
    For adding liquidity on EDGA, Members were charged $0.0002 per 
share to add liquidity on EDGA unless the attributed MPID added a 
minimum average daily share volume, measured monthly, of at least 
50,000,000 shares on EDGA. Any attributed MPID meeting this minimum 
would not be charged to add liquidity on EDGA. In SR-ISE-2009-108, 
the Exchange deleted the above paragraph in footnote 1 as the 
current charge of $0.0002 per share to add liquidity on EDGA is no 
longer dependent on Members adding a minimum average daily share 
volume, measured monthly, of at least 50,000,000 shares on EDGA. In 
addition, any attributed MPID meeting this minimum will also be 
charged $0.0002 per share to add liquidity on EDGA. Therefore, the 
text in footnote 1 has been deleted to reflect this change.
    Members could qualify for a rebate of $0.0032 per share for all 
liquidity posted on EDGX if they: (i) Added or route at least 
10,000,000 shares of average daily volume prior to 9:30 a.m. or 
after 4 p.m. (includes all flags except 6); and (ii) added a minimum 
of 75,000,000 shares of average daily volume on EDGX in total, 
including during both market hours and pre- and post-trading hours. 
In SR-ISE-2009-108, for EDGX, the Exchange amended this as follows: 
for Members adding volume in securities priced $1 and over, they 
will receive a rebate of $0.0031 per share for all liquidity posted 
on EDGX if they: (i) add or route at least 5,000,000 shares of 
average daily volume prior to 9:30 a.m. or after 4 p.m. (includes 
all flags except 6); and (ii) add a minimum of 50,000,000 shares of 
average daily volume on EDGX in total, including during both market 
hours and pre- and post-trading hours (emphasis added). The new 
thresholds allow more Members to receive this rebate and is designed 
to reward members who add or route significant order flow to EDGX 
both during market hours and pre- and post-trading hours. It is also 
designed to increase liquidity during pre- and post-trading hours. 
For all Members, including Members not meeting the above thresholds, 
the Exchange now proposes to rebate $0.0029 per share for adding 
liquidity (to EDGX) in securities on all Tapes. This replaced the 
Super Tier and Ultra Tier structure that had been in place and is 
described above. Conforming amendments were made to flags B, V, Y, 3 
& 4 (``add liquidity'' flags) to reflect this fee change.
    For removing liquidity, the Exchange charged $0.0028 per share 
for removing liquidity on EDGX for securities on all Tapes. In SR-
ISE-2009-108, the Exchange amended the fee schedule to charge 
$0.0029 per share for removing liquidity on EDGX. The Exchange 
believes that this fee structure will enable it to compete 
effectively with other market centers. Conforming amendments were 
made to the N, W, and 6 flags (``remove liquidity'' flags) to 
reflect this fee change.
    Finally, in SR-ISE-2009-108, the Exchange amended the fee for 
EDGA orders routed to EDGX. Previously, the Exchange charged $0.0028 
per share and this event yielded flag ``I''. In SR-ISE-2009-108, the 
Exchange increased this fee to $0.0029 per share on the EDGA 
platform. The Exchange believes that this rate change will enable it 
to maintain a competitive position with regards to other away market 
centers.
---------------------------------------------------------------------------

    In its capacity as a member of ISE, DECN currently serves as an 
introducing broker for the non-ISE Member subscribers of DECN to access 
EDGX and EDGA. DECN, as an ISE Member and introducing broker, receives 
rebates and is assessed charges from DECN for transactions it executes 
on EDGX or EDGA in its capacity as introducing broker for non-ISE 
Members. Since the amounts of such rebates and charges were changed 
pursuant to SR-ISE-2009-108, DECN wishes to make corresponding changes 
to the amounts it passes through to non-ISE Member subscribers of DECN 
for which it acts as introducing broker. As a result, the per share 
amounts that non-ISE Member subscribers receive and are charged will be 
the same as the amounts that ISE Members receive and are charged.
    ISE is seeking accelerated approval of this proposed rule change, 
as well as an effective date of January 1, 2010. ISE represents that 
this proposal will ensure that both ISE Members and non-ISE Members (by 
virtue of the pass-through described above) will in effect receive and 
be charged equivalent amounts and that the imposition of such amounts 
will begin on the same January 1, 2010 start date.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\6\ in general, and 
furthers the objectives of Section 6(b)(4),\7\ 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. In particular, this proposal will ensure that dues, 
fees and other charges imposed on ISE Members are equitably allocated 
to both ISE Members and non-ISE Members (by virtue of the pass-through 
described above).
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

III. 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-2009-109 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2009-109. 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

[[Page 1680]]

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-2009-109 and should be submitted on or before 
February 2, 2010.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\8\ 
Specifically, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(4) \9\ of the Act, which requires that the 
rules of a national securities exchange provide for the equitable 
allocation of reasonable dues, fees, and other charges among members 
and issuers and other persons using its facilities.
---------------------------------------------------------------------------

    \8\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    As described more fully above, ISE recently amended DECN's fee 
schedule for ISE Members pursuant to SR-ISE-2009-108 (the ``Member Fee 
Filing''). The fee changes made pursuant to the Member Fee Filing 
became operative on January 1, 2010. DECN receives rebates and is 
charged fees for transactions it executes on EGDX or EDGA in its 
capacity as an introducing broker for its non-ISE member subscribers.
    The current proposal, which will apply retroactively to January 1, 
2010, will allow DECN to pass through the revised rebates and fees to 
the non-ISE member subscribers for which it acts as an introducing 
broker. The Commission finds that the proposal is consistent with the 
Act because it will provide rebates and charge fees to non-ISE member 
subscribers that are equivalent to those established for ISE member 
subscribers in the Member Fee Filing.\10\
---------------------------------------------------------------------------

    \10\ Id.
---------------------------------------------------------------------------

    ISE has requested that the Commission find good cause for approving 
the proposed rule change prior to the thirtieth day after publication 
of notice of filing thereof in the Federal Register. As discussed 
above, the proposal will allow DECN to pass through to non-ISE member 
subscribers the revised rebate and fees established for ISE member 
subscribers in the Member Fee Filing, resulting in equivalent rebates 
and fees for ISE member and non-member subscribers. In addition, 
because the proposal will apply the revised rebates and fees 
retroactively to January 1, 2010, the revised rebates and fees will 
have the same effective date, thereby promoting consistency in the 
DECN's fee schedule. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act, for approving the proposed 
rule change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-ISE-2009-109) be, and hereby 
is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

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

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-297 Filed 1-11-10; 8:45 am]
BILLING CODE 8011-01-P

