[Federal Register Volume 77, Number 70 (Wednesday, April 11, 2012)]
[Notices]
[Pages 21833-21834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-8711]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66746; File No. SR-ISE-2012-28]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Increase the Route-Out Fee for Priority Customer Orders and
Modify the Rebate for Primary Market Makers That Send Intermarket Sweep
Orders
April 5, 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 March 30, 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 raise a fee related to the execution of
Priority Customer orders subject to linkage handling. 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 raise a fee related
to the execution of Priority Customer \3\ orders subject to linkage
handling (``Linkage Fee'').
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\3\ Pursuant to ISE Rule 100(37A), a Priority Customer is a
person or entity that is not a broker or 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.
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On August 31, 2009, the Exchange implemented the new Options Order
Protection and Locked/Crossed Market Plan (``Distributive Linkage'')
and the use of Intermarket Sweep Orders (``ISOs''). Consistent with
Distributive Linkage and pursuant to ISE rules, the Exchange's Primary
Market Makers (``PMMs'') have an obligation to address customer \4\
orders when there is a better market displayed on another exchange.
ISE's PMMs meet this obligation via the use of ISOs. In meeting their
obligations, PMMs may incur fees when they send ISOs, especially when
sending ISOs to exchanges that charge ``taker'' fees. To minimize the
PMM's financial burden and help offset such fees, the ISE amended its
schedule of fees on October 1, 2009 to adopt a rebate for the PMM of
$0.20 per contract on all ISO orders sent to an away exchange
(regardless of the fee charged by the exchange where the ISO order sent
away was executed).\5\ With the costs associated with servicing
Priority Customer orders that must be executed at another exchange
coupled with the cost of funding the existing fee credit, the Exchange
recently adopted the Linkage Fee, at a rate of $0.25 per contract, for
executions that result from the PMM routing ISOs to another exchange in
a limited number of symbols.\6\ The Linkage Fee is only charged for
Priority Customer orders that are routed to an away exchange in symbols
that are subject to the Exchange's modified maker/taker pricing model.
These symbols, which currently number 101, are identified on the
Exchange's Schedule of Fees as Select Symbols. Priority Customer orders
that are routed out to another exchange are charged the Linkage Fee at
the current rate instead of the standard taker fee applicable to the
Select Symbols.
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\4\ Pursuant to ISE Rule 1900(f) of the Distributive Linkage
rules, a customer is an individual or organization that is not a
broker-dealer.
\5\ See Securities and Exchange Act Release No. 60791 (October
5, 2009), 74 FR 52521 (October 13, 2009) (SR-ISE-2009-74).
\6\ See Securities and Exchange Act Release No. 66589 (March 14,
2012), 76 [sic] FR 16311 (March 20, 2012) (SR-ISE-2012-13).
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The Linkage Fee allows the Exchange to equitably assess reasonable
fees incurred for processing such orders, and permit the Exchange to
recoup administrative and other costs. However, because the fees
assessed by other exchanges vary considerably, the Exchange has
determined that instead of providing PMMs with a rebate of $0.20 per
contract, it will now simply rebate to PMMs the actual transaction fee
assessed by the exchange to which the order is routed, while requiring
the PMM to make every effort, all things being equal, to route the
order to the lowest cost away market. Furthermore, as a result of
recent fee changes, notably the taker fee increases adopted by NASDAQ
OMX PHLX, Inc.,\7\ the overall cost to PMMs has risen significantly and
will likely cause the overall rebate level to the PMMs incurred by the
Exchange to rise also. To offset this increased rebate, the Exchange
also proposes to increase the Linkage Fee from $0.25 per contract to
$0.35 per contract.
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\7\ See Securities and Exchange Act Release No. 66367 (February
9, 2012), 77 FR 8934 (February 15, 2012) (SR-Phlx-2012-15).
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The Exchange notes that it currently has a similar fee and credit
for Customer (Professional) orders. Specifically, the Exchange
currently charges PMMs a fee of $0.45 per contract for executions of
Customer (Professional) orders that are routed to one or more exchanges
in connection with Distributive Linkage, and also provides PMMs with a
credit equal to the fee charged by the destination exchange for such
Customer (Professional) orders, but not more than
[[Page 21834]]
$0.45 per contract.\8\ This routing fee and credit applies to all the
symbols that are traded on the Exchange.
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\8\ See Securities and Exchange Act Release No. 61855 (April 6,
2010), 75 FR 19441 (April 14, 2010) (SR-ISE-2010-26).
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The Exchange has designated this proposal to be operative on April
2, 2012.
2. Statutory Basis
The basis under the Securities Exchange Act of 1934 (the ``Exchange
Act'') for this proposed rule change is the requirement under Section
6(b)(4) that an exchange have an equitable allocation of reasonable
dues, fees and other charges among its members and other persons using
its facilities. In particular, the Exchange believes charging a route-
out fee for Priority Customer orders is reasonable if doing so provides
the Exchange the ability to recover the costs of funding a credit the
Exchange provides to its PMMs, who, in the course of meeting their
obligation, are incurring a financial burden. The Exchange further
believes it is equitable and reasonable to assess the proposed fee to
recoup costs associated with routing Priority Customer orders to away
markets. The Exchange also believes that the proposed fees are
equitable and not unfairly discriminatory because the fees would be
uniformly applied to all Priority Customer orders. ISE notes that a
number of other exchanges currently charge a variety of routing related
fees associated with customer and non-customer orders that are subject
to linkage handling. The Exchange further notes that the fees proposed
herein are substantially lower than the level of fees charged by some
of the Exchange's competitors.\9\ And, as noted above, the Exchange
already provides a credit equal to the fee charged by a destination
exchange for Customer (Professional) orders, although that credit is
currently capped at $0.45 per contract.
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\9\ See NASDAQ OMX PHLX Fee Schedule, Section V.
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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.\10\ 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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\10\ 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-2012-28 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-2012-28. 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-2012-28 and should be
submitted on or before May 2, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-8711 Filed 4-10-12; 8:45 am]
BILLING CODE 8011-01-P