
[Federal Register Volume 77, Number 103 (Tuesday, May 29, 2012)]
[Notices]
[Pages 31680-31682]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-12927]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67039; File No. SR-ISE-2012-39]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend the Qualification Standards for Market Makers To 
Receive a Rebate

May 22, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on May 15, 2012, 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 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 the qualification standards for 
market makers to receive a rebate under the Exchange's modified maker/
taker pricing structure. The text of the proposed rule change is 
available on the Exchange's Web site (http://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 this proposed rule change is to amend the 
qualification standards for market makers to receive a rebate under the 
Exchange's maker/taker pricing structure. The Exchange currently 
assesses per contract transaction fees and provides rebates to market 
participants that add or remove liquidity from the Exchange (``maker/
taker fees and rebates'') in a number of options classes (the ``Select 
Symbols'').\3\ The maker/taker fees and rebates apply to the following 
categories of market participants: (i) Market Maker; \4\ (ii) Market 
Maker Plus; (iii) Non-ISE Market Maker; \5\ (iv) Firm Proprietary; (v) 
Customer (Professional);\6\ (vi) Priority Customer,\7\ 100 or more 
contracts; and (vii) Priority Customer, less than 100 contracts.
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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.
    \4\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \5\ A Non-ISE Market Maker, or Far Away Market Maker 
(``FARMM''), is a market maker as defined in Section 3(a)(38) of the 
Securities Exchange Act of 1934, as amended (``Exchange Act''), 
registered in the same options class on another options exchange.
    \6\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
    \7\ 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).
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    In order to promote and encourage liquidity in the Select Symbols, 
the Exchange currently offers a $0.10 per contract rebate to Market 
Makers if the quotes they sent to the Exchange qualify the Market Maker 
to become a Market Maker Plus.\8\ A Market Maker Plus is a Market Maker 
who is on the National Best Bid or National Best Offer (NBBO) 80% of 
the time for series trading between $0.03 and $5.00 (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 $5.00 (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 and 
80% of the time for series trading between $0.03 and $5.00 (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 $5.00 (for options 
whose underlying stock's previous trading day's last sale price was 
greater than $100) in premium for all expiration months in that symbol 
during the current trading month.\9\
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    \8\ The concept of incenting market makers with a rebate is not 
novel. In 2008, the CBOE established a program for its Hybrid Agency 
Liaison whereby it provides a $0.20 per contact rebate to its market 
makers provided that at least 80% of the market maker's quotes in a 
class during a month are on one side of the national best bid or 
offer. Market makers not meeting CBOE's criteria are not eligible to 
receive a rebate. See Securities Exchange Act Release No. 57231 
(January 30, 2008), 73 FR 6752 (February 5, 2008). The CBOE has 
since lowered the criteria from 80% to 60%. See Securities Exchange 
Act Release No. 57470 (March 11, 2008), 73 FR 14514 (March 18, 
2008).
    \9\ See Securities Exchange Act Release No. 62507 (July 15, 
2010), 75 FR 42802 (July 22, 2010) (SR-ISE-2010-68).
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    The Exchange now proposes to amend the Market Maker Plus 
qualification standards in order for a Market Maker to qualify for the 
$0.10 per contract rebate when providing liquidity (making) in the 
Select Symbols. Specifically, ISE proposes to exclude from the NBBO 
calculation a Market Maker's single best and single worst overall 
quoting days in a symbol if doing so qualifies the Market Maker for the 
rebate. In effect, this variation to the current qualification 
standards will give a Market Maker the better of the NBBO average of 
all days in a month or the NBBO average of the month excluding the best 
and worst days, on a per symbol basis. The Exchange believes this 
proposed change will further encourage Market Makers to continue to 
quote aggressively in a class throughout the entire month despite an 
individual poor-performing day.
    The Exchange currently determines whether a Market Maker qualifies 
as a Market Maker Plus at the end of each month by looking back at each 
Market Maker's quoting statistics per symbol during that month. If at 
the end of the month, a Market Maker meets the Exchange's stated 
criteria, the Exchange rebates $0.10 per contract for transactions in 
that symbol executed by

[[Page 31681]]

that Market Maker as a maker during that month. The Exchange will 
continue to monitor each Market Maker's quoting statistics to determine 
whether a Market Maker qualifies for a rebate under the standards 
proposed herein.
    The Exchange also currently provides Market Makers a report on a 
daily basis with quoting statistics so that Market Makers can determine 
whether or not they are meeting the Exchange's current stated criteria. 
Again, the Exchange will continue to provide Market Makers a daily 
report so that Market Makers can track their quoting activity to 
determine whether or not they qualify for the Market Maker Plus rebate.
    The Exchange believes the proposed rule change will also encourage 
Market Makers to post tighter markets in the Select Symbols and thereby 
increase liquidity and attract additional order flow to the Exchange.
    The Exchange has designated this proposal to be operative on June 
1, 2012.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Exchange Act \10\ in 
general, and furthers the objectives of Section 6(b)(4) of the Exchange 
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 market participant will depend on a 
number of variables, most important of which will be its propensity to 
add or remove liquidity in 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 it is reasonable and equitable to 
provide rebates to Market Makers because paying a rebate would continue 
to attract additional order flow to the Exchange and create liquidity 
in the symbols that are subject to the rebate which the Exchange 
believes ultimately will benefit all market participants who trade on 
ISE. The Exchange already provides a rebate to Market Makers who meet 
the Exchange's stated quoting criteria, and is now merely proposing to 
broaden the qualification standards (not quoting requirements) that 
Market Makers have to meet in order to qualify for the rebate.
    The Exchange believes that amending the qualification standards for 
Market Makers to qualify for a rebate will encourage these market 
participants to continue to post tighter markets in the Select Symbols 
and thereby increase liquidity and attract additional order flow to the 
Exchange. The Market Maker Plus rebate employed by the Exchange has 
proven to be an effective incentive for Market Makers to provide 
liquidity in the Select Symbols. The Exchange further believes that the 
Exchange's Market Maker Plus rebate is not unfairly discriminatory 
because this rebate program is consistent with rebates that exist today 
at other options exchanges. The Exchange believes that the Market Maker 
Plus rebate is a competitive rebate and equivalent to incentives 
provided by other exchanges and is therefore reasonable and equitably 
allocated to those members that direct orders to the Exchange rather 
than to a competing exchange. The Exchange operates in a highly 
competitive market in which market participants can readily direct 
order flow to another exchange if they deem rebate levels at a 
particular exchange to be low.

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 Exchange 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 Exchange 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 Exchange 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 Exchange 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 email to rule-comments@sec.gov. Please 
include File Number SR-ISE-2012-39 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-2012-39. 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 (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 
10:00 a.m. and 3:00 p.m. Copies of the 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-2012-39 and should be 
submitted on or before June 19, 2012.

    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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[[Page 31682]]


Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-12927 Filed 5-25-12; 8:45 am]
BILLING CODE 8011-01-P


