[Federal Register Volume 78, Number 223 (Tuesday, November 19, 2013)]
[Notices]
[Pages 69501-69503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27625]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70859; File No. SR-ISE-2013-54]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend the Schedule of Fees
November 13, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 1, 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 decrease its Options Regulatory Fee. 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 Exchange proposes to decrease its Options Regulatory Fee
(``ORF''). The Exchange has reevaluated the current amount of the ORF
in light of increased trading volumes year-to-date. In order to ensure
that revenue collected from the ORF, in combination with other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs, the Exchange is proposing to decrease the ORF from
$0.0042 per contract to $0.0039 per contract. The Exchange is also
proposing to remove language from its Schedule of Fees that indicates
that the ORF is effective starting on January 1, 2010 as this effective
date has passed.
The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of members' customer
options business, including performing routine surveillance and
investigations, as well as policy, rulemaking, interpretive and
enforcement activities. The Exchange believes that revenue generated
from the proposed ORF, when combined with all of the Exchange's other
regulatory fees and fines, will cover a material portion, but not all,
of the Exchange's regulatory costs. The Exchange notes that its
regulatory responsibilities with respect to member compliance with
options sales practice rules have been allocated to the Financial
Industry Regulatory Authority (``FINRA'') under a 17d-2 Agreement. The
ORF is not designed to cover the cost of options sales practice
regulation.
The ORF is assessed by the Exchange to each member for all options
transactions in both Standard Options and Mini Options executed or
cleared by the member that are cleared by The Options Clearing
Corporation (``OCC'') in the customer range, i.e., transactions that
clear in the customer account of the member's clearing firm at OCC,
regardless of the exchange on which the transaction occurs. In other
words, ISE imposes the ORF on all customer-range transactions executed
by a member, even if the transactions do not take place on the
Exchange.\3\ The ORF also is charged for transactions that are not
executed by a member but are ultimately cleared by a member. In the
case where a non-member executes a transaction and a member clears the
transaction, the ORF will be assessed to the member who clears the
transaction. In the case where a member executes a transaction and
another member clears the transaction, the ORF will similarly be
assessed to the member who clears the transaction.
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\3\ Exchange rules require each member to submit trade
information in order to allow the Exchange to properly prioritize
and match orders and quotations and report resulting transactions to
the OCC. See ISE Rule 712. The Exchange represents that it has
surveillance in place to verify that members comply with the rule.
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The ORF is collected indirectly from members through their clearing
firms by OCC on behalf of the Exchange. As a practical matter, it is
not feasible or reasonable for the Exchange (or any SRO) to identify
each executing member that submits an order on a trade-by-trade basis.
There are countless executing market participants, and each day such
participants can and often do drop their connection to one market
center and establish themselves as participants on another. It is
virtually impossible for any exchange to identify each executing
participant on a given trading day. Clearing members, however, are
distinguished from executing participants because they remain
identified to the Exchange regardless of the identity of the initiating
executing participant, their location, and the market center on which
they execute transactions. Therefore, the Exchange believes it is more
efficient for the operation of the Exchange and for the marketplace as
a whole to collect the ORF indirectly from members through their
clearing firms.
The Exchange also believes that its broad regulatory
responsibilities with respect to a member's activities supports
[[Page 69502]]
applying the ORF to transactions cleared but not executed by a member.
The Exchange's regulatory responsibilities are the same regardless of
whether a member executes a transaction or clears a transaction
executed on its behalf. The Exchange regularly reviews all such
activities, including performing surveillance for position limit
violations, manipulation, front-running, contrary exercise advice
violations and insider trading.
The Exchange further believes it is reasonable and appropriate for
the Exchange to charge the ORF for options transactions regardless of
the exchange on which the transactions occur. The Exchange has a
statutory obligation to enforce compliance by members and their
associated persons under the Act and the rules of the Exchange, and to
surveil for other manipulative conduct by market participants
(including non-members) trading on the Exchange. Many of the Exchange's
market surveillance programs require the Exchange to look at and
evaluate activity across all options markets, such as surveillance for
position limit violations, manipulation, front-running and contrary
exercise advice violations/expiring exercise declarations. The Exchange
cannot effectively surveil for such conduct without looking at and
evaluating activity across all options markets. Also, the Exchange and
the other options exchanges are required to populate a consolidated
options audit trail (``COATS'') system in order to surveil a member's
activities across markets.\4\
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\4\ COATS effectively enhances intermarket options surveillance
by enabling the options exchanges to promptly reconstruct the market
to effectively surveil certain rules.
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The Exchange believes that charging the ORF across markets will
avoid having members direct their trades to other markets in order to
avoid the fee and to thereby avoid paying for their fair share for
regulation. If the ORF did not apply to activity across markets then a
member would send their orders to the least cost, least regulated
exchange. Other exchanges do impose a similar fee on their member's
activity, including the activity of those members on the ISE.\5\
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\5\ See e.g. Securities Exchange Act Release Nos. 61133 (Dec. 9,
2009), 74 FR 66715 (December 16, 2009) (SR-Phlx-2009-100); 68711
(Jan. 23, 2013), 78 FR 6155 (Jan. 29, 2013) (SR-MIAX-2013-01)).
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The Exchange will continue to monitor the amount of revenue
collected from the ORF to ensure that it, in combination with its other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs. The Exchange expects to monitor its regulatory costs
and revenues at a minimum on an annual basis. If the Exchange
determines regulatory revenues exceed regulatory costs, the Exchange
will adjust the ORF by submitting a fee change filing to the
Commission. The Exchange will notify members of adjustments to the ORF
via circular.
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 \6\ in
general, and furthers the objectives of Section 6(b)(4) of the Exchange
Act \7\ 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 Exchange believes that the
proposed fee is reasonable in that it would help the Exchange to ensure
that revenue collected from the ORF, in combination with other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs in light of increased trading volumes. The Exchange
has designed the ORF to generate revenues that, when combined with all
of the Exchange's other regulatory fees, will be less than or equal to
the Exchange's regulatory costs, which is consistent with the
Commission's view that regulatory fees be used for regulatory purposes
and not to support the Exchange's business.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the ORF is equitable and not unfairly
discriminatory because it is objectively allocated to members in that
it is charged to all members on all their transactions that clear as
customer at the OCC. Moreover, the Exchange believes the ORF ensures
fairness by assessing fees to those members that require more Exchange
regulatory services based on the amount of customer options business
they conduct. Regulating customer trading activity is much more labor
intensive and requires greater expenditure of human and technical
resources than regulating non-customer trading activity, which tends to
be more automated and less labor-intensive. As a result, the costs
associated with administering the customer component of the Exchange's
overall regulatory program are materially higher than the costs
associated with administering the non-customer component of its
regulatory program (e.g., member proprietary transactions).
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 Act. The proposed rule change is not designed to address any
competitive issues. Rather, the proposed rule change is designed to
help the Exchange to adequately fund its regulatory activities while
seeking to ensure that total regulatory revenues do not exceed total
regulatory costs.
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 \8\ and subparagraph (f)(2) of Rule 19b-4
thereunder,\9\ because it establishes a due, fee, or other charge
imposed by ISE.
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\8\ 15 U.S.C. 78s(b)(3)(A)(ii).
\9\ 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 [email protected]. Please include
File Number SR-ISE-2013-54 on the subject line.
[[Page 69503]]
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-2013-54. 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-2013-54 and should be
submitted on or before December 10, 2013.
For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27625 Filed 11-18-13; 8:45 am]
BILLING CODE 8011-01-P