
[Federal Register Volume 78, Number 145 (Monday, July 29, 2013)]
[Notices]
[Pages 45580-45584]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-18076]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70028; File No. SR-ISE-2013-46]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change to Amend Certain Market Maker Fees

July 23, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 45581]]

``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 11, 2013, 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 self-regulatory 
organization. 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 proposes to amend Market Maker fees for Regular Orders in 
Non-Select Symbols and Foreign Currency Options (``FX Options''). 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend certain Market 
Maker \3\ fees for Regular Orders \4\ in Non-Select Symbols \5\ and FX 
Options. The fee changes discussed below apply to both standard options 
and Mini Options traded on ISE. The Exchange's Schedule of Fees has 
separate tables for fees applicable to standard options and Mini 
Options. The Exchange notes that while the discussion below relates to 
fees for standard options, the fees for Mini Options, which are not 
discussed below, are and shall continue to be 1/10th of the fees for 
standard options, with the one following exception: when the Exchange 
commenced trading on Mini Options, it did not apply the Market Maker 
Discount Tiers in Section VI, C. to Market Maker orders in Mini 
Options. The Exchange now proposes to extend the Market Maker Discount 
Tiers to Mini Options and in doing so, proposes to adopt footnote 10 in 
Section III, Regular Order Fees and Rebates for Mini Options and 
proposes to adopt a discount fee table applicable to Mini Options in 
Section VI, Market Maker Discount Tiers.
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    \3\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \4\ A Regular Order is an order that consists of only a single 
option series and is not submitted with a stock leg. See Schedule of 
Fees, Preface.
    \5\ Non-Select Symbols are options overlying all symbols that 
are not in the Penny Pilot Program.
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    For Regular Orders in Non-Select Symbols and in FX Options, the 
Exchange currently charges Market Makers a base execution fee of $0.18 
per contract and a lower fee based on a Member's trading activity 
during a calendar month. Specifically, the Exchange currently charges 
the following fee:
     First 1,000,000 contracts in a month--$0.18 per contract
     1,000,001 to 3,000,000 contracts in a month--$0.16 per 
contract
     3,000,001 to 5,000,000 contracts in a month--$0.13 per 
contract
     5,000,001 to 10,000,000 contracts in a month--$0.03 per 
contract
     Above 10,000,000 contracts in a month--$0.01 per contract 
\6\
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    \6\ See Schedule of Fees, Section VI, C. ISE Market Maker 
Discount Tiers.
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    The current sliding scale applies to all Market Makers \7\ for 
Regular Orders in Non-Select Symbols and in FX Options and is assessed 
to each Member based on total market maker volume executed by a Member 
during a calendar month. By way of example, if the Member executes 
7,000,000 contracts in the month, the first 1,000,000 contracts will be 
charged $0.18 per contract, the next 2,000,000 contracts (contracts 
1,000,001 to 3,000,000) will be charged $0.16 per contract, the next 
2,000,000 contracts (contracts 3,000,001 to 5,000,000) will be charged 
$0.13 per contract, and the last 2,000,000 contracts (contracts 
5,000,001 to 7,000,000) will be charged $0.03 per contract. 
Importantly, there is no retroactive application of the lowest per 
contract fee (in this example, $0.03 per contract) to all contracts 
executed during the month.
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    \7\ If a Member firm operates more than one Market Maker 
membership, all of the Member firm's market maker volume is 
aggregated for purposes of calculating the transaction fee.
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    The Exchange now proposes to collapse the current sliding scale of 
five tiers into only two tiers (thus eliminating entirely three tiers). 
Under this new proposed two tier arrangement, in the first tier the 
base execution fee of $0.22 per contract will apply to Members who 
trade 250,000 contracts or less in a calendar month in Non-Select 
Symbols and FX Options, and in the second tier a fee of $0.15 per 
contract will apply if a Member trades more than 250,000 contracts in 
Non-Select Symbols and FX Options in a calendar month. In addition (and 
in converse to the current sliding scale), once a Member reaches the 
highest tier, the fee applicable to that tier will apply retroactively 
to all Market Maker contracts for Regular Orders in Non-Select Symbols 
and FX Options. For example, a Member who executes 200,000 contracts in 
Non-Select Symbols and FX Options during a calendar month will be 
charged $0.22 per contract for all 200,000 contracts. A Member who, 
however, executes 300,000 contracts in Non-Select Symbols and FX 
Options during a calendar month will be charged $0.15 per contract for 
all 300,000 contracts. The Exchange is not proposing any change to the 
Fee for Regular Orders in Non-Select Symbols and in FX Options for 
other market participants.
    For Crossing Orders in Non-Select Symbols and FX Options, the 
Exchange currently charges a fee of $0.18 per contract for Market Maker 
orders. The Exchange now proposes to increase the base execution fee to 
$0.22 per contract and amend the current discount tiers such that the 
base execution fee of $0.22 per contract will apply if a Member trades 
250,000 contracts or less in Non-Select Symbols and FX Options in a 
calendar month, and a fee of $0.15 per contract will apply if a Member 
trades more than 250,000 contracts in Non-Select Symbols and FX Options 
in a calendar month. The Exchange is not proposing any change to the 
Fee for Crossing Orders for other market participants.
    For Responses to Crossing Orders in Non-Select Symbols and FX 
Options, the Exchange currently charges a fee of $0.18 per contract for 
Market Maker orders. The Exchange now proposes to increase the base 
execution fee to $0.22 per contract and amend the current discount 
tiers such that the base execution fee of $0.22 per contract will apply 
if a Member trades 250,000 contracts or less in Non-Select Symbols and 
FX Options in a calendar month, and a fee of $0.15 per contract will 
apply if a Member trades more than 250,000 contracts in Non-Select 
Symbols and FX Options. The Exchange is not proposing any change to the 
Fee

[[Page 45582]]

for Responses to Crossing Orders for other market participants.
    As noted above, the highest tier achieved by a Member (in terms of 
volume and fee) for the current calendar month will apply retroactively 
to all Market Maker orders executed by the Member during such calendar 
month. For purposes of the Market Maker Discount Tiers, volume in 
standard options and Mini Options will be combined to calculate the 
tier a Member has reached. Based on the tier achieved, the Member will 
be charged for that tier for all the standard options traded at the 
standard option fee amount and for all the Mini Options traded at the 
Mini Option fee amount.
    With this proposed rule change, the Market Maker fee that is the 
subject of this proposed rule change will no longer be based on total 
market maker volume executed by a Member across all symbols traded on 
the Exchange. The Exchange, therefore, proposes to delete the following 
text from Section VI, C. of the Schedule of Fees: ``Fee assessed on 
each member based on total market maker volume executed by each such 
member during a calendar month.'' The Exchange also proposes to remove 
text from this section of the Schedule of Fees which states that ``For 
Complex Orders, only the volume for the leg of a trade consisting of 
the most contracts is considered for purpose of calculating the volume 
tiers and the corresponding fee charged'' because the fee discount in 
this section does not apply to complex orders. Fees for all complex 
orders for all market participants are found in Section II for standard 
options and in Section IV for Mini Options.
    This proposed rule change will result in an increase in the amount 
of Market Maker fees paid by a Member for Regular Orders in Non-Select 
Symbols and FX Options. The Exchange, however, expects this increase to 
be nominal because the proposed fee will be applied to a group of 
symbols that are not very actively traded and account for less than 
twenty percent (20%) of industry volume.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Schedule of 
Fees is consistent with Section 6(b) of the Act \8\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \9\ 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed rule change is reasonable 
and equitably allocated because the resulting fee is within the range 
of fees assessed by other exchanges. For example, the Chicago Board 
Options Exchange (``CBOE'') currently charges Market Makers a fee of 
$0.25 per contract for the first 100,000 contracts and $0.17 per 
contract for 100,001 to 2,000,000 contracts.\10\ The Exchange notes, 
however, that CBOE excludes certain products from its Market Maker 
tiers, such as mini-options, VIX options, etc., so the pricing range 
comparison between ISE and CBOE is not without a few limited 
exceptions, however the Exchange believes that by not excluding certain 
products from its Market Maker tiers makes its pricing more competitive 
as Market Makers have a greater opportunity to achieve the lower tier 
rate, as certain products are not excluded.
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    \10\ See CBOE Fees Schedule at http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf.
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    The Exchange's proposal to increase the Market Maker fees for 
Regular Orders in Non-Select Symbols and FX Options is also reasonable 
because it should incentivize Members to increase the amount of Regular 
Orders in Non-Select Symbols and FX Options traded on the Exchange to 
obtain a lower execution fee. The Exchange's proposed fee change is 
also equitable and not unfairly discriminatory because while Members 
will have to transact a greater number of contracts to achieve the tier 
2 fee of $0.15 per contract, that fee will apply retroactively to all 
Regular Orders in Non-Select Symbols and FX Options for that month once 
a Member reaches the threshold of 250,000 contracts. Further, the 
Exchange has already established tiers to discount Market Maker fees 
for Regular Orders in Non-Select Symbols and FX Options, and is now 
proposing to simplify the tiers and how the fee is applied. The 
Exchange believes its proposal to amend the Market Maker Discount Tiers 
is not unfairly discriminatory because the resulting Market Maker fee 
would apply uniformly to all Regular Orders in Non-Select Symbols and 
FX Options in the same manner. The Exchange expects this increase to be 
nominal because the proposed fee will be applied to a group of symbols 
that are not very actively traded and account for less than twenty 
percent (20%) of industry volume. Finally, by applying the lower fee 
retroactively to all Regular Orders in Non-Select Symbols and FX 
Options for that month once a Member reaches the threshold of 250,000 
contracts (as opposed to the current sliding scale which does not 
retroactively apply the lower fee to all contracts), the Exchange 
expects that this, too, will cause the increase to be nominal.
    The Exchange has determined to charge fees for Regular Orders in 
Mini Options at a rate that is 1/10th the rate of fees the Exchange 
currently provides for trading in standard options. The Exchange 
believes it is reasonable and equitable and not unfairly discriminatory 
to assess lower fees to provide market participants an incentive to 
trade Mini Options on the Exchange. The Exchange believes the proposed 
fees are reasonable and equitable in light of the fact that Mini 
Options have a smaller exercise and assignment value, specifically 1/
10th that of a standard option contract, and, as such, levying fees 
that are 1/10th of what market participants pay to trade standard 
options.
    The Exchange believes it is reasonable and equitable to charge a 
Market Maker fee of $0.22 per contract for Regular Orders in Non-Select 
Symbols and FX Options and also when such members are responding to 
crossing orders because the fee is also within the range of fees 
assessed by other exchanges employing similar pricing schemes. By 
comparison, the proposed fees are lower than the rates assessed by CBOE 
for similar orders.\11\ The Exchange notes that an execution resulting 
from a response to a crossing order is akin to an execution and 
therefore its proposal to establish execution fees and fees for 
responses to crossing orders that are identical is reasonable and 
equitable. The Exchange believes its proposal to increase the execution 
fee and fee for responses to crossing orders for Market Makers for 
Regular Orders in Non-Select Symbols and FX Options is not unfairly 
discriminatory because the proposed fees would apply uniformly to all 
Market Maker orders in the same manner.
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    \11\ Id.
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    The Exchange believes that the price differentiation between the 
various market participants is justified. With respect to Market Maker 
fees for Regular Orders, the Exchange believes that the price 
differentiation between the various market participants is appropriate 
and not unfairly discriminatory because Market Makers have different 
requirements and obligations to the Exchange that the other market 
participants do not (such as quoting requirements and paying 
membership-related non-transaction fees). The Exchange believes that it 
is equitable and not unfairly discriminatory to assess a higher fee to

[[Page 45583]]

market participants that do not have such requirements and obligations 
that Exchange Market Makers do, with the exception of orders for 
Priority Customers for which there are no transaction fees. As 
discussed further in section 4. below regarding intra-market 
competition, in this instance, there is no reason to adjust the fee for 
Market Maker orders entered by Electronic Access Members, as such 
orders have a distinct business purpose and are also affected by 
various other fees and rebates on the Exchange, and thus it is 
reasonable to make no adjustment at this time.
    Moreover, the Exchange believes that the proposed fees are fair, 
equitable and not unfairly discriminatory because they are consistent 
with price differentiation that exists today at other options 
exchanges. Additionally, the Exchange believes it remains an attractive 
venue for market participants to direct their order flow in the symbols 
that are subject to this proposed rule change as its fees are 
competitive with those charged by other exchanges for similar trading 
activities. The Exchange operates in a highly competitive market in 
which market participants can readily direct order flow to another 
exchange if they deem fee levels at a particular exchange to be 
excessive. For the reasons noted above, the Exchange believes that the 
proposed fees are fair, equitable and not unfairly discriminatory.

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

    ISE does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes the 
proposed fee change does not impose a burden on competition because it 
is consistent with fees charged by other exchanges. The proposed fees, 
which the Exchange believes are comparable to fees charged by its 
competitors for similar orders, will encourage competition and continue 
to attract additional order flow in these symbols to ISE.
    The Exchange notes that it 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. Since competitors of the Exchange are 
free to modify their own fees in response, and because market 
participants may readily adjust their order routing practices, ISE 
believes that the degree to which fee changes in this market may impose 
a burden on competition is limited. In this instance, ISE is 
instituting a nominal increase. If the fee change is unattractive to 
market participants, it is likely that ISE will not attract additional 
order flow in the symbols that that are subject to the proposed fee 
change. For the reasons described above, the Exchange believes that the 
proposed fee change reflects this competitive environment.
    The Exchange believes the proposed Market Maker fee change will not 
impose any unnecessary burden on intramarket competition because, while 
it only applies to Market Maker orders, Market Makers take on a number 
of obligations and responsibilities, significant regulatory burdens, 
and financial obligations that other market participants are not 
required to undertake. The proposed Market Maker fee change may attract 
increased order flow in Non-Select Symbols and FX Options to the 
Exchange, which will provide increased volume and greater trading 
opportunities for all market participants. With respect to the price 
differentiation between Market Makers entering Regular Orders directly 
versus entering Regular Orders through an Electronic Access Member 
(``EAM''), the Exchange notes that such fees have historically been at 
different levels and have been adjusted from time to time. EAMs 
representing Market Makers is a distinct business activity, different 
from when Market Makers are directly trading on the Exchange by 
submitting quotations in the course of regular market making. Using an 
EAM as the executing broker to submit an order, the Market Maker may be 
participating in a crossing transaction or `working' an order, which 
may involve different non-Exchange costs or discounts. Because of this 
different dynamic, while the fee for a Market Maker entering a Regular 
Order through an EAM is different from the fee for a Market Maker 
entering a Regular Order directly, the fees are in the same range, but 
the former is recognized as a distinct business and thus is a distinct 
item on the Exchange's Schedule of Fees. Therefore, the Exchange 
believes that any potential effects on intramarket competition that the 
proposed fee change may cause are justified.

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\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\13\ because it establishes a due, fee, or other charge 
imposed by ISE.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2013-46 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-2013-46. 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

[[Page 45584]]

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 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-2013-46 and should be submitted on or before August 
19, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-18076 Filed 7-26-13; 8:45 am]
BILLING CODE 8011-01-P


