[Federal Register Volume 77, Number 130 (Friday, July 6, 2012)]
[Notices]
[Pages 40136-40139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-16520]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67316; File No. SR-ISE-2012-59]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend Fees for Certain Complex Orders Executed on the
Exchange
June 29, 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 June 21, 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 proposes 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 per contract transaction fees and
provides rebates to market participants that add or remove liquidity in
the Complex Order Book (``maker/taker fees and rebates'') in a number
of 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.
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For complex orders in the Select Symbols (excluding SPY), the
Exchange currently charges a ``taker'' fee of: (i) $0.34 per contract
for ISE Market Maker,\4\ Market Maker Plus,\5\ Firm
[[Page 40137]]
Proprietary and Customer (Professional) \6\ orders; and (ii) $0.38 per
contract for Non-ISE Market Maker \7\ orders. Priority Customer \8\
orders in the Select Symbols (excluding SPY) are not charged a
``taker'' fee for trading in the Complex Order Book and receive a base
rebate of $0.32 per contract (and may receive a rebate of up to $0.345
per contract if certain volume thresholds are met) when those orders
trade with non-Priority Customer orders in the Complex Order Book.
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\4\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule
100(a)(25).
\5\ A Market Maker Plus is an ISE Market Maker who is on the
National Best Bid or National Best Offer 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 across all
expiration months in order to receive the rebate. The Exchange
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 during that month. A Market Maker's single best
and single worst overall quoting days each month, on a per symbol
basis, are excluded in calculating whether a Market Maker qualifies
for this rebate, if doing so qualifies a Market Maker for the
rebate. 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 executed by that Market Maker during that month.
The Exchange 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 stated criteria.
\6\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
\7\ 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.
\8\ 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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For complex orders in SPY, the Exchange currently charges a
``taker'' fee of: (i) $0.35 per contract for ISE Market Maker, Market
Maker Plus, Firm Proprietary and Customer (Professional) orders; and
(ii) $0.39 per contract for Non-ISE Market Maker orders. Priority
Customer \9\ orders in SPY are not charged a ``taker'' fee for trading
in the Complex Order Book and receive a base rebate of $0.33 per
contract (and may receive a rebate of up to $0.355 per contract if
certain volume thresholds are met) when those orders trade with non-
Priority Customer orders in the Complex Order Book.
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\9\ 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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For complex orders in Select Symbols (including SPY), the Exchange
currently charges a ``maker'' fee of: (i) $0.10 per contract for ISE
Market Maker, Firm Proprietary and Customer (Professional) orders; and
(ii) $0.20 per contract for Non-ISE Market Maker orders. Priority
Customer orders are not charged a ``maker'' fee for complex orders in
the Select Symbols (including SPY).
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.\10\ 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 has adopted distinct ``maker'' fees for complex
orders in a select group of symbols when these orders interact with
Priority Customer orders (``Complex Quoting Symbols).\11\ Specifically,
the Exchange currently charges a ``maker'' fee of $0.32 per contract
for XLB, EFA, AA, ABX, MSFT, MU, NVDA, VZ and WFC ($0.30 per contract
for XOP) for Market Maker, Non-ISE Market Maker, Firm Proprietary and
Customer (Professional) complex orders when these orders trade against
Priority Customer orders. Priority Customer orders are not charged a
``maker'' fee for complex orders in the Complex Quoting Symbols.
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\10\ See Securities Exchange Act Release No. 65548 (October 13,
2011), 76 FR 64980 (October 19, 2011) (SR-ISE-2011-39).
\11\ The Complex Quoting Symbols are XLB, EFA, AA, ABX, MSFT,
MU, NVDA, VZ, WFC and XOP. See Securities Exchange Act Release Nos.
65958 (December 15, 2011), 76 FR 79236 (December 21, 2011) (SR-ISE-
2011-81); and 66406 (February 12, 2012), 77 FR 10579 (February 22,
2012) (SR-ISE-2012-07). The Exchange notes that XLB, EFA, AA, ABX,
MSFT, MU, NVDA, VZ, WFC are currently Select Symbols while XOP is
not.
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Further, for Priority Customer complex orders in XLB, EFA, AA, ABX,
MSFT, MU, NVDA, VZ and WFC, all of which are Select Symbols, the
Exchange currently provides a base rebate of $0.32 per contract (and
may receive a rebate of up to $0.345 per contract if certain volume
thresholds are met) when those orders trade with non-Priority Customer
orders in the Complex Order Book. For Priority Customer complex orders
in XOP, which is not a Select Symbols, the Exchange currently provides
a base rebate of $0.28 per contract (and may receive a rebate of up to
$0.325 per contract if certain volume thresholds are met) when those
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. This
discount is applicable when ISE Market Makers add or remove liquidity
in the Complex Quoting Symbols from the Complex Order Book.
Specifically, ISE Market Makers that add liquidity in XLB, EFA, AA,
ABX, MSFT, MU, NVDA, VZ and WFC from the Complex Order Book by trading
with Priority Customer orders that are preferenced to them are charged
$0.30 per contract ($0.28 per contract in XOP). ISE Market Makers that
remove liquidity in XLB, EFA, AA, ABX, MSFT, MU, NVDA, VZ and WFC from
the Complex Order Book by trading with Priority Customer orders that
are preferenced to them are charged $0.32 per contract ($0.33 per
contract in XOP).
The Exchange now proposes to extend the fees for complex orders in
the Complex Quoting Symbols to the following additional two symbols:
GLD and VXX.\12\ 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 has previously selected symbols
that have moderate trading activity and each of the Complex Quoting
Symbols have an average daily trading volume in complex orders of 500
contracts to 10,000 contracts on the Exchange. The Exchange notes that
GLD and VXX also meet this threshold and for that reason, the Exchange
has decided to expand Complex Quoting Symbols to include these two
additional symbols.
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\12\ The Exchange notes that GLD and VXX are currently Select
Symbols.
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With this proposed rule change, the Exchange will charge a
``maker'' fee of $0.32 per contract for Market Maker, Non-ISE Market
Maker, Firm Proprietary and Customer (Professional) complex orders when
these orders trade against Priority Customer orders. The Exchange does
not propose any change to fees for Priority Customer orders in GLD and
VXX that trade in the Complex Order Book. Additionally, Priority
Customer complex orders in GLD and VXX will receive a base rebate of
$0.32 per contract (and may receive a rebate of up to $0.345 per
contract if certain volume thresholds are met) when these orders trade
with non-Priority Customer orders in the Complex Order Book. Finally,
ISE Market Makers that add or remove liquidity in GLD and VXX in the
Complex Order Book will be charged $0.30 per contract when trading with
orders that are preferenced to them.
Finally, as noted above, the Exchange provides ISE Market Makers
with a two cent discount when trading against orders that are
preferenced to them. The Exchange believes this discount is better
represented if the Exchange notes that ISE Market Makers receive a
discount of $0.02 per contract when trading against Priority Customer
orders preferenced to them in the Complex Order Book instead of noting
the actual discounted fee. The Exchange believes it will be easier for
market participants to track the discount with the proposed new
language in light of the fee changes the Exchange undertakes each month
in response to competitive pricing changes
[[Page 40138]]
in the marketplace. Thus, the Exchange proposes to amend the text of
each footnote that reflects the discounted fee by replacing the actual
fee amount with language that notes that ISE Market Makers will receive
a two cent discount when trading against orders that are preferenced to
them.
The Exchange has designated this proposal to be operative on July
2, 2012.
2. Statutory Basis
The Exchange believes that its proposal to amend its Schedule of
Fees is consistent with Section 6(b) of the Act \13\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \14\ 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 the Complex Quoting Symbols in the
Complex Order Book.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that extending the fees applicable to orders
executed in the Complex Order Book when trading against Priority
Customers in the Complex Quoting Symbols 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 GLD and VXX 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 GLD when trading against a Priority Customer at NASDAQ OMX PHLX
(``PHLX'') is $0.20 per contract \15\ while the same order that is
electronically delivered at the Chicago Board Options Exchange
(``CBOE'') is $0.45 per contract.\16\ Furthermore, one of the primary
goals of this fee change is to maintain the attractive and competitive
economics for Priority Customer complex orders, while introducing an
enhancement to the way complex orders trade on the Exchange.
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\15\ See PHLX Fee Schedule, Section I, Part B., at http://www.nasdaqtrader.com/content/marketregulation/membership/phlx/feesched.pdf.
\16\ 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 it is reasonable and equitable to amend the text of
the footnotes regarding the two cent discount provided to ISE Market
Makers in the Exchange's Schedule of Fees because doing so will reflect
the discounted rate more accurately in light of the number of fee
changes the Exchange undertakes in response to competitive pricing
changes made by its competitors. The Exchange believes Exchange Members
will benefit from clear guidance in the rule text describing the level
of the discount the Exchange provides. The Exchange further believes
the proposed rule change is reasonable because amending the relevant
footnotes will provide clarity and greater transparency regarding the
Exchange's fees and rebates. The Exchange notes that the proposed rule
change is also equitably allocated and not unfairly discriminatory in
that it treats similarly situated market participants in the same
manner.
The Exchange believes that it is reasonable and equitable to charge
the fees proposed herein as they are already applicable to complex
orders in the Complex Quoting Symbols; with this proposed rule change,
the Exchange is simply extending its current fees to an additional two
symbols. The complex order pricing employed by the Exchange has proven
to be an effective pricing mechanism and attractive to Exchange
participants and their customers. The Exchange believes that this
proposed rule change will continue to attract additional complex order
business in the Complex Quoting Symbols traded on 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
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.\17\ 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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\17\ 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
[[Page 40139]]
Send an email to [email protected]. Please
include File Number SR-ISE-2012-59 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-2012-59. 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-2012-59 and should be
submitted on or before July 27, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16520 Filed 7-5-12; 8:45 am]
BILLING CODE 8011-01-P