[Federal Register Volume 77, Number 35 (Wednesday, February 22, 2012)]
[Notices]
[Pages 10579-10581]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-4084]
[[Page 10579]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66406; File No. SR-ISE-2012-07]
Self-Regulatory Organizations; International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Relating to Fees for Certain Complex Orders Executed on the
Exchange
February 16, 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 February 1, 2012, the International Securities
Exchange, LLC (the ``Exchange'' or the ``ISE'') filed with the
Securities and Exchange Commission (the ``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 fees for certain complex orders
executed on the Exchange. 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 Exchange currently assesses a per contract transaction fee to
market participants that add or remove liquidity in the Complex Order
Book (``maker/taker fees'') in symbols that are in the Penny Pilot
program. Included therein is a subset of 101 symbols that are assessed
a slightly higher taker fee (the ``Select Symbols'').\3\ Specifically,
the Exchange charges ISE market maker orders,\4\ firm proprietary
orders and Customer (Professional Orders) \5\ $0.10 per contract for
providing liquidity on the Complex Order Book and $0.30 per contract
($0.32 per contract in the Select Symbols) for taking liquidity from
the Complex Order Book. ISE market makers who take liquidity from the
Complex Order Book by trading with orders that are preferenced to them
are charged $0.28 per contract ($0.30 per contract in the Select
Symbols). Non-ISE Market Makers \6\ are currently charged $0.20 per
contract for providing liquidity and $0.35 per contract ($0.36 per
contract in the Select Symbols) for taking liquidity from the Complex
Order Book. Priority Customer orders are not charged a fee for trading
in the Complex Order Book and receive a rebate of $0.25 per contract
($0.30 per contract in the Select Symbols) when those orders trade with
non-customer orders in the Complex Order Book.
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\3\ The Select Symbols 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\ The term ``Professional Order'' means an order that is for
the account of a person or entity that is not a Priority Customer.
See ISR [sic] Rule 100(a)(37C).
\6\ The term ``Non-ISE Market Maker'' means a market maker as
defined in Section 3(a)(38) of the Securities Exchange Act of 1934
(the ``Act'') registered in the same options class on another
options exchange. See Schedule of Fees, page 4.
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The Exchange also recently adopted fees for complex orders in two
of the most actively-traded index option products, the NASDAQ 100 Index
option (``NDX'') and the Russell 2000 Index option (``RUT'').\7\
Specifically, the Exchange charges ISE market maker orders, firm
proprietary orders and Customer (Professional Orders) $0.25 per
contract for providing liquidity on the Complex Order Book in NDX and
RUT and $0.70 per contract for taking liquidity from the Complex Order
Book in NDX and RUT. Non-ISE Market Makers are charged $0.25 per
contract for providing liquidity and $0.75 per contract for taking
liquidity from the Complex Order Book in NDX and RUT. ISE market makers
who remove liquidity from the Complex Order Book in NDX and RUT by
trading with orders that are preferenced to them are charged $0.68 per
contract. Priority Customer orders are not charged a fee for trading in
the Complex Order Book in NDX and RUT and receive a rebate of $0.50 per
contract when those orders trade with non-Priority Customer orders in
the Complex Order Book in NDX and RUT.
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\7\ See Securities Exchange Act Release No. 66084 (January 3,
2012), 77 FR 1103 (January 9, 2012) (SR-ISE-2011-84).
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Further, pursuant to Securities and Exchange Commission (``SEC'')
approval, the Exchange allows market makers to enter quotations for
complex order strategies in the Complex Order Book.\8\ Given this
enhancement to the complex order functionality, and in order to
maintain a competitive fee and rebate structure for Priority Customer
orders, the Exchange recently amended fees that apply to transactions
in the Complex Order Book in the following three symbols: XOP, XLB and
EFA.\9\ Specifically, the Exchange amended its maker fees for complex
orders in these three symbols when these orders interact with Priority
Customers.\10\ In SR-ISE-2011-81, the Exchange increased its maker fee
from $0.10 per contract to $0.30 per contract in XOP ($0.32 per
contract in XLB and EFA) for ISE market maker orders, firm proprietary
orders, and Customer (Professional Orders) when these orders interact
with Priority Customer orders. The Exchange also increased its maker
fee from $0.20 per contract to $0.30 per contract in XOP ($0.32 per
contract in XLB and EFA) for Non-ISE Market Makers orders when these
orders interact with Priority Customer orders. The Exchange did not
make any change to fees for Priority Customer orders that trade in the
Complex Order Book.
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\8\ See Securities Exchange Act Release No. 65548 (October 13,
2011), 76 FR 64980 (October 19, 2011) (SR-ISE-2011-39).
\9\ See Securities Exchange Act Release No. 65958 (December 15,
2011), 76 FR 79236 (December 21, 2011) (SR-ISE-2011-81). The
Exchange notes that XOP is currently in the Penny Pilot program and
XLB and EFA are currently Select Symbols.
\10\ The term ``Priority Customer'' means a person or entity
that (i) is not a broker or dealer in securities, and (ii) does not
place more than 390 orders in listed options per day on average
during a calendar month for its own beneficial account. See ISE Rule
100(a)(37A).
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Further, for Priority Customer complex orders in XOP, the Exchange
currently provides a rebate of $0.25 per contract ($0.30 per contract
for XLB and EFA) when these orders trade with non-Priority Customer
orders in the Complex Order Book.
Further, the Exchange provides ISE market makers with a two cent
discount when trading against orders that are preferenced to them.
Prior to SR-ISE-2011-81, this discount was only applicable when ISE
Market Makers removed liquidity from the Complex Order Book. Pursuant
to SR-ISE-2011-
[[Page 10580]]
81, the Exchange began to provide this fee discount when ISE Market
Makers added or removed liquidity from the Complex Order Book. As a
result, the Exchange currently provides this fee discount when ISE
market makers add or remove liquidity from the Complex Order Book in
XOP, XLB and EFA. Specifically, ISE market makers that add or remove
liquidity in XLB and EFA in the Complex Order Book are charged $0.30
per contract ($0.28 per contract in XOP) when trading with orders that
are preferenced to them.
Additionally, to incentivize members to trade in the Exchange's
various auction mechanisms, the Exchange currently provides a per
contract rebate to those contracts that do not trade with the contra
order in the Exchange's Facilitation Mechanism,\11\ Price Improvement
Mechanism \12\ and Solicited Order Mechanism.\13\ This rebate currently
applies to all complex orders in symbols that are subject to the
Exchange's maker/taker fees. For the Facilitation and Solicited Order
Mechanisms, the rebate is currently $0.15 per contract. For the Price
Improvement Mechanism, the rebate is currently $0.25 per contract.
Accordingly, a per contract rebate at the current levels currently
applies to those contracts in XOP, XLB, and EFA that do not trade with
the contra order in the Exchange's Facilitation Mechanism, Price
Improvement Mechanism and Solicited Order Mechanism.
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\11\ See Exchange Act Release No. 61869 (April 7, 2010), 75 FR
19449 (April 14, 2010) (SR-ISE-2010-25).
\12\ See Exchange Act Release No. 62048 (May 6, 2010), 75 FR
26830 (May 12, 2010) (SR-ISE-2010-43). The Exchange subsequently
increased this rebate to $0.25 per contract. See Exchange Act
Release No. 63283 (November 9, 2010), 75 FR 70059 (November 16,
2010) (SR-ISE-2010-106).
\13\ See Exchange Act Release No. 63283 (November 9, 2010), 75
FR 70059 (November 16, 2010) (SR-ISE-2010-106).
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The Exchange now proposes to extend the fees for complex orders
adopted in SR-ISE-2011-81 to the following additional seven symbols:
AA, ABX, MSFT, MU, NVDA, VZ, and WFC.\14\ The Exchange proposes to
expand the pricing structure and fees applicable to these orders in a
manner that is gradual and measured. For that reason, the Exchange
selected symbols that have moderate trading activity. In this case,
each of the seven symbols selected by the Exchange has an average daily
trading volume in complex orders of 500 contracts to 10,000 contracts
on the Exchange.
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\14\ The Exchange notes that AA, ABX, MSFT, MU, NVDA, VZ, and
WFC are currently Select Symbols.
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Specifically, the Exchange proposes to increase its maker fee from
$0.10 per contract to $0.32 per contract in AA, ABX, MSFT, MU, NVDA,
VZ, and WFC for ISE market maker orders, firm proprietary orders, and
Customer (Professional Orders) when these orders interact with Priority
Customer orders. The Exchange proposes to increase its maker fee from
$0.20 per contract to $0.32 per contract in AA, ABX, MSFT, MU, NVDA,
VZ, and WFC for Non-ISE Market Makers orders when these orders interact
with Priority Customer orders. The Exchange does not propose any change
to fees for Priority Customer orders that trade in the Complex Order
Book.
Further, the Exchange provides ISE market makers with a two cent
discount when trading against orders that are preferenced to them.
Accordingly, the Exchange currently provides this fee discount when ISE
Market Makers add or remove liquidity from the Complex Order Book in
AA, ABX, MSFT, MU, NVDA, VZ, and WFC.\15\ Specifically, ISE market
makers that add or remove liquidity in AA, ABX, MSFT, MU, NVDA, VZ, and
WFC in the Complex Order Book are charged $0.30 per contract when
trading with orders that are preferenced to them.
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\15\ ISE acknowledged that it does not currently provide this
fee discount for the seven symbols included in this proposal.
Instead, the proposal establishes this discount for these seven
symbols. Telephone conversation among Boris Ilyevsky, Managing
Director, ISE; Samir Patel, Assistant General Counsel, ISE; Victoria
Crane, Assistant Director, Commission; Yvonne Fraticelli, Special
Counsel, Commission; and Kathleen Gross, Counsel, Commission on
February 13, 2012.
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Further, for Priority Customer complex orders in AA, ABX, MSFT, MU,
NVDA, VZ, and WFC, the Exchange currently provides a rebate of $0.30
per contract when these orders trade with non-Priority Customer orders
in the Complex Order Book. The Exchange does not propose any change to
this rebate.
Finally, as noted above, to incentivize members to trade in the
Exchange's various auction mechanisms, the Exchange currently provides
a per contract rebate to those contracts that do not trade with the
contra order in the Exchange's Facilitation Mechanism, Price
Improvement Mechanism and Solicited Order Mechanism. This rebate
currently applies to all complex orders in symbols that are subject to
the Exchange's maker/taker fees. For the Facilitation and Solicited
Order Mechanisms, the rebate is currently $0.15 per contract. For the
Price Improvement Mechanism, the rebate is currently $0.25 per
contract. Accordingly, a per contract rebate at the current levels
currently applies to those contracts in AA, ABX, MSFT, MU, NVDA, VZ,
and WFC that do not trade with the contra order in the Exchange's
Facilitation Mechanism, Price Improvement Mechanism and Solicited Order
Mechanism. The Exchange does not propose any change to this rebate.
2. Statutory Basis
The Exchange believes that its proposal to amend its Schedule of
Fees is consistent with Section 6(b) of the Act \16\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \17\ 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 options overlying AA, ABX, MSFT, MU, NVDA, VZ, and WFC in
the Complex Order Book.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that increasing the fees applicable to orders
executed in the Complex Order Book when trading against Priority
Customers in AA, ABX, MSFT, MU, NVDA, VZ, and WFC is appropriate given
the new functionality that allows market makers to quote in the Complex
Order Book. Additionally, the Exchange's fees remain competitive with
fees charged by other exchanges and are therefore reasonable and
equitably allocated to those members that opt to direct orders to the
Exchange rather than to a competing exchange. Specifically, the
Exchange believes that its proposal to assess a `make' fee of $0.32 per
contract for AA, ABX, MSFT, MU, NVDA, VZ, and WFC when orders in these
symbols interact with Priority Customers is reasonable and equitable
because the fee is within the range of fees assessed by other exchanges
employing similar pricing schemes. For example, the `make' fee for a
broker/dealer complex order in MSFT when trading against a Priority
Customer at NASDAQ OMX PHLX (``PHLX'') is $0.20 per contract \18\ while
the same order that is electronically delivered at the Chicago Board
Options Exchange (``CBOE'') is $0.45 per contract.\19\ Furthermore, one
of the primary goals of this fee change, as well as the fees adopted in
SR-ISE-2011-81, is to maintain the attractive and competitive economics
for Priority Customer
[[Page 10581]]
complex orders, while introducing an enhancement to the way complex
orders trade on the Exchange.
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\18\ See PHLX Fee Schedule, Section I, Part B., at http://www.nasdaqtrader.com/content/marketregulation/membership/phlx/feesched.pdf.
\19\ See CBOE Fees Schedule, Section 1.VI. at http://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf.
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The Exchange also believes that it is reasonable and equitable to
provide a two cent discount to ISE market makers on preferenced orders
because this will provide an incentive for market makers to quote in
the Complex Order Book. The Exchange believes that it is reasonable and
equitable to continue to provide rebates for Priority Customer complex
orders because paying a rebate will continue to attract additional
order flow to the Exchange and thereby create liquidity that ultimately
will benefit all market participants who trade on the Exchange.
The Exchange believes that it is reasonable and equitable to charge
the fees proposed herein as they are already applicable to complex
orders in XOP, XLB and EFA; with this proposed rule change, the
Exchange is simply extending its current fees to an additional seven
symbols. 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 options exchanges. The Exchange believes it remains an attractive
venue for market participants to trade complex orders despite its
proposed fee change as its fees remain competitive with those charged
by other exchanges for similar trading strategies. 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
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.\20\ 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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\20\ 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 [email protected]. Please include
File Number SR-ISE-2012-07 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-2012-07. 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
a.m. and 3 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-2012-07 and should be
submitted on or before March 14, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-4084 Filed 2-21-12; 8:45 am]
BILLING CODE 8011-01-P