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


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SECURITIES AND EXCHANGE COMMISSION

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


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

September 13, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 30, 2011, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission the proposed rule change, as described in Items I, 
II, and III below, which items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 amend certain fees related to orders 
subject to intermarket linkage and to change the treatment of customer 
orders subject to intermarket linkage in its Select Symbols. The text 
of the proposed rule change is available on the Exchange's Web site 
(http://www.ise.com), on the Commission's Web site at http://www.sec.gov, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change

[[Page 58069]]

and discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The self-regulatory organization has prepared summaries, 
set forth in sections A, B and C below, of the most significant aspects 
of such statements.

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

1. Purpose
    The Exchange currently assesses a per contract transaction charge 
to members of the Exchange (``Exchange Members'') that add or remove 
liquidity from the Exchange (``maker/taker fees'') in certain options 
classes (the ``Select Symbols'').\3\
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    \3\ Options classes subject to maker/taker fees are identified 
by their ticker symbol on the Exchange's Schedule of Fees. See 
Securities Exchange Act Release Nos. 61869 (April 7, 2010), 75 FR 
19449 (April 14, 2010) (SR-ISE-2010-25), 62048 (May 6, 2010), 75 FR 
26830 (May 12, 2010) (SR-ISE-2010-43), 62282 (June 11, 2010), 75 FR 
34499 (June 17, 2010) (SR-ISE-2010-54), 62319 (June 17, 2010), 75 FR 
36134 (June 24, 2010) (SR-ISE-2010-57), 62508 (July 15, 2010), 75 FR 
42809 (July 22, 2010) (SR-ISE-2010-65), 62507 (July 15, 2010), 75 FR 
42802 (July 22, 2010) (SR-ISE-2010-68), 62665 (August 9, 2010), 75 
FR 50015 (August 16, 2010) (SR-ISE-2010-82), 62805 (August 31, 
2010), 75 FR 54682 (September 8, 2010) (SR-ISE-2010-90), 63283 
(November 9, 2010), 75 FR 70059 (November 16, 2010) (SR-ISE-2010-
106), 63534 (December 13, 2010), 75 FR 79433 (December 20, 2010) 
(SR-ISE-2010-114); 63664 (January 6, 2011), 76 FR 2170 (January 12, 
2011) (SR-ISE-2010-120); and 64303 (April 15, 2011), 76 FR 22425 
(April 21, 2011) (SR-ISE-2011-18).
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    Pursuant to Commission approval, both Priority Customer \4\ and 
Professional Customer \5\ orders on the ISE that are not executable on 
the Exchange are exposed or ``flashed'' to Exchange Members before they 
are sent through the intermarket linkage system to another exchange for 
execution because that exchange is displaying a better price.\6\ Since 
the inception of maker/taker fees on the Exchange, Priority Customer 
orders in the Select Symbols that are ``flashed'' and subject to 
linkage handling have been treated as ``makers'' of liquidity. Since 
Priority Customer orders in the Select Symbols ``make'' liquidity, 
regardless of size, such orders are traded on the Exchange for free.\7\ 
Professional Customer orders in the Select Symbols that are ``flashed'' 
and subject to linkage handling are currently charged a maker fee of 
$0.10 per contract. The Exchange, however, believes that these orders 
are, in fact, takers of liquidity. These orders are ``flashed'' to 
Exchange Members precisely because when they are sent to ISE, they are 
marketable at another exchange and would ``take'' liquidity from that 
other exchange. By definition, ``flash'' orders are not resting orders; 
instead, they are ``flashed'' for matching at the national best bid or 
offer and potential routing through intermarket linkage. Therefore, the 
Exchange believes it is appropriate to treat such orders as ``taking'' 
liquidity. And as takers of liquidity, the Exchange proposes to charge 
these orders the Exchange's standard taker fee for Select Symbols, 
which for Priority Customer orders and Professional Customer orders is 
currently $0.12 per contract and $0.28 per contract, respectively.
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    \4\ A Priority Customer is defined in ISE Rule 100(a)(37A) as a 
person or entity that is not a broker/dealer in securities, and does 
not place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s).
    \5\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \6\ See Securities Exchange Act Release No. 57812 (May 12, 
2008), 73 FR 28846 (May 19, 2008) (SR-ISE-2008-28).
    \7\ In fact, while a number of other exchanges charge a ``route-
out'' fee for orders that are subject to intermarket linkage, ISE 
does not charge such a fee.
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    Additionally, the Exchange currently provides a $0.10 per contract 
fee credit for executions resulting from responses to Customer 
(Professional) \8\ orders that are ``flashed'' by the Exchange to its 
Members. The Exchange now proposes to extend the $0.10 per contract fee 
credit for executions resulting from responses to Priority Customer 
orders in the Select Symbols that are ``flashed'' by the Exchange to 
its Members. For Priority Customer orders that are preferenced to an 
ISE Market Maker that are subsequently executed in the Exchange's 
``flash'' mechanism, the Exchange proposes to adopt a fee credit of 
$0.12 per contract for the preferenced Market Maker. At least one other 
exchange currently provides a rebate to a particular segment of its 
membership for responding to that exchange's ``flash'' auction. For 
example, the Chicago Board Options Exchange, Inc. (``CBOE'') currently 
provides a $0.15 per contract rebate but does so only to its market 
makers and only if those market makers satisfy a quoting 
requirement.\9\ ISE's proposed rebate, on the other hand, is not 
limited to market makers only and does not have any requirements that 
must be met in order for an Exchange Member to receive the rebate. So 
long as the Exchange Member responds to a Priority Customer order and 
executes it, that Exchange Member will receive the proposed rebate.
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    \8\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \9\ See CBOE Fees Schedule, Section 19, Hybrid Agency Liaison 
(``HAL'') Step-Up Rebate, at http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf.
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    The proposed rule change is applicable only for executions in the 
Select Symbols.
2. Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Exchange Act \10\ (the 
``Act'') in general, and furthers the objectives of Section 6(b)(4) of 
the Act \11\ in particular, in that it is an equitable allocation of 
reasonable dues, fees and other charges among Exchange Members and 
other persons using its facilities. The impact of the proposal upon the 
net fees paid by a particular Exchange Member will depend on a number 
of variables, most important of which will be its propensity to add or 
remove liquidity in options overlying the Select Symbols.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed fees it charges for options 
overlying the Select Symbols remain competitive with fees charged by 
other exchanges and therefore continue to be reasonable and equitably 
allocated to those members that opt to direct orders to the Exchange 
rather than to a competing exchange. The Exchange believes that 
treating Priority Customer orders and Professional Customer orders in 
the Select Symbols that are ``flashed'' as takers of liquidity (as 
opposed to makers of liquidity which is how these orders were 
previously treated), as well as providing a rebate to responses to 
Priority Customer orders (in addition to the responses to Professional 
Customer orders, which is in place today) furthers the objectives of 
Section 6(b)(5) of the Act, in that it is designed to make the 
Exchange's fee structure for ``flashed'' orders more consistent with 
its overall maker/taker fee structure, thereby removing impediments to 
and perfecting the mechanism of a free and open market and a national 
market system.
    The Exchange believes that its proposal to adopt $0.12 per contract 
taker fee for flashed Priority Customer orders and a $0.28 per contract 
taker fee for flashed Professional Customer orders in the Select 
Symbols is an equitable allocation of reasonable dues, fees and other 
charges among Exchange Members and other persons using its facilities 
because such fees are within the range of fees assessed by the Exchange 
and other exchanges employing maker/taker pricing schemes. The Exchange 
believes that its proposal to adopt $0.10 per contract rebate for 
responses to flashed

[[Page 58070]]

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

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

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

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

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

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\12\ At any time within 60 days of the 
filing of such proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form http://www.sec.gov/rules/sro.shtml); or
     Send an E-mail to; rule-comments@sec.gov. Please include 
File No. SR-ISE-2011-48 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2011-48. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the ISE. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISE-2011-48 and should be 
submitted on or before October 11, 2011.


[[Page 58071]]


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


