[Federal Register Volume 78, Number 224 (Wednesday, November 20, 2013)]
[Notices]
[Pages 69714-69718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27753]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70873; File No. SR-ISE-2013-56]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend the Schedule of Fees
November 14, 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
and II 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 its Schedule of Fees. The text of the
proposed rule change is available on the Exchange's Web site (http://
[[Page 69715]]
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 amend the Exchange's
Schedule of Fees (1) to adopt a definition of ``affiliate'' for the
purpose of aggregating affiliated Member fees for the Firm Fee Cap, (2)
to increase the taker fee for Priority Customers \3\ in symbols that
are in the Penny Pilot program (``Select Symbols''), (3) to increase
the fee charged to Firm Proprietary \4\/Broker[hyphen]Dealer and
Professional Customers \5\ when providing liquidity in Non-Select
Symbols and FX Options, (4) to replace the current incremental tier for
Priority Customer Complex average daily volume (``ADV'') with a new
tier that applies retroactively to all Priority Customer complex
volume, and (5) to increase the Credit for Responses to Flash Orders
for trading against Priority Customers in Select Symbols. Each of these
changes is explained below. The fee changes discussed apply to both
Standard Options and Mini Options \6\ 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.\7\
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\3\ 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).
\4\ A Firm Proprietary order is an order submitted by a Member
for its own proprietary account.
\5\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
\6\ Mini Options are options overlying ten (10) shares of AAPL,
AMZN, GLD, GOOG and SPY.
\7\ See Securities Exchange Act Release No. 69270 (April 2,
2013), 78 FR 20988 (April 8, 2013) (SR-ISE-2013-28).
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1. Affiliate Definition for Firm Fee Cap
The Exchange has a Firm Fee Cap of $75,000 which applies to Firm
Proprietary and Non[hyphen]ISE Market Maker \8\ transactions that are
part of the originating or contra side of a Crossing Order.\9\ In
addition to transactions executed in a Member's proprietary account,
the fee cap also applies to crossing transactions for the account of
entities affiliated with a Member.\10\ For example, a Member engaged in
trading activity on ISE may have an affiliate engaged in a market
making capacity on another exchange, which may be a separate broker/
dealer entity. A crossing transaction by that Member in which a
customer order is facilitated against the proprietary trading interest
of the Member's affiliate would be eligible for the fee cap. To provide
more clarity on what ``affiliated'' means in this context the Exchange
is now proposing a definition for this term. In particular, the
Exchange will aggregate the trading fees of separate Members for
purposes of the Firm Fee Cap provided there is at least 75% common
ownership between the firms as reflected on each firm's Form BD,
Schedule A. The Exchange believes that aggregating fees that count
towards the fee cap across Members that share at least 75% common
ownership will allow Members to continue to execute trades on the
Exchange through separate broker-dealer entities for different types of
volume, while receiving the benefit of the fee cap based on the
aggregate volume being executed across such entities. The requirement
that affiliates share at least 75% common ownership is consistent with
the definition of ``affiliate'' adopted on the Topaz Exchange, LLC and
other options exchanges.\11\
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\8\ 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 registered in the same options class
on another options exchange.
\9\ Fees charged by the Exchange for Responses to Crossing
Orders, and surcharge fees charged by the Exchange for licensed
products, are not included in the calculation of the monthly fee
cap. The Exchange charges a service fee to Members that have reached
the Firm Fee Cap to defray the Exchange's costs of providing
services.
\10\ See Securities Exchange Act Release No. 64274 (April 8,
2011), 76 FR 20754 (April 13, 2012) (SR-ISE-2011-13).
\11\ See e.g. Securities Exchange Act Release No. 70670 (October
11, 2013), 78 FR 62815 (October 22, 2013) (SR-Topaz-2013-08).
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2. Priority Customer Taker Fee
The Exchange currently assesses per contract transaction fees and
provides rebates to market participants that add or remove liquidity
from the Exchange (``maker/taker fees and rebates'') in Select Symbols.
For regular orders that remove liquidity in Select Symbols, the
Exchange currently charges a taker fee of: (i) $0.34 per contract for
Market Maker \12\ and Market Maker Plus \13\ orders, (ii) $0.38 per
contract for Non-ISE Market Maker orders, (iii) $0.35 per contract for
Firm Proprietary/Broker-Dealer and Professional Customer orders, and
(iv) $0.28 per contract for Priority Customer orders. The Exchange now
proposes to increase the taker fee for Priority Customer orders in
Select Symbols from $0.28 per contract to $0.32 per contract. The
Exchange is not proposing any change to this taker fee for any other
market participants.
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\12\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule
100(a)(25).
\13\ In order to promote liquidity in Select Symbols, the
Exchange offers a rebate for adding liquidity to certain Market
Makers (``Market Maker Plus'') if the quotes they send to the
Exchange qualify the Market Maker to become a Market Maker Plus.
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3. Discount for Adding Liquidity in Non-Select Symbols and FX Options
In June 2013, as an incentive to route liquidity-adding order flow
to ISE, the Exchange adopted a discounted fee of $0.20 per contract for
Firm Proprietary/Broker[hyphen]Dealer and Professional Customers when
providing liquidity in Non-Select Symbols and FX Options.\14\ For
removing liquidity, these market participants are charged a fee of
$0.30 per contract. The Exchange has determined to no longer provide
this incentive for adding liquidity in Non-Select Symbols and FX
Options, and is therefore proposing to charge the same $0.30 per
contract fee to these market participants for adding liquidity as it
charges for removing liquidity. Charging the same fee for adding and
removing liquidity is consistent with the Exchange's past practice, and
with the Exchange's general pricing structure for Non-Select Symbols
and FX Options, which does not differentiate between making and taking
liquidity.
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\14\ See Securities Exchange Act Release No. 69757 (June 13,
2013), 78 FR 36812 (June 19, 2013) (SR-ISE-2013-36).
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4. Priority Customer Complex Order Tiers
The Exchange currently provides volume-based tiered rebates for
Priority Customer complex orders when these orders trade with non-
Priority Customer
[[Page 69716]]
orders in the complex order book,\15\ or trade with quotes and orders
on the regular order book.\16\ These complex order rebates are provided
to Members based on the Member's ADV in Priority Customer complex
contracts. For example, a Member that executes an ADV of at least
225,000 Priority Customer complex contracts will be entitled to a
rebate of $0.40 per contract for Select Symbols (excluding SPY), $0.41
per contract for SPY, and $0.78 per contract for non-Select Symbols, in
each case when trading with non-Priority Customer orders in the complex
order book. When trading against quotes and orders on the regular order
book this rebate is $0.18 per contract (excluding SPY) and $0.19 per
contract for SPY. In March 2013 the Exchange introduced a new
incremental tier to incentivize Members to increase the amount of
Priority Customer complex orders that they send to the Exchange.
Members that execute Priority Customer Complex ADV above 225,000
contracts are entitled to an additional rebate of $0.01 per contract
when trading with non-Priority Customers in the complex order book.\17\
Unlike the other five volume tiers, the incremental volume tier is not
retroactive and is payable only for incremental Priority Customer
complex order volume above the highest tier. The Exchange is proposing
to eliminate the incremental volume tier, and instead adopt a new
volume tier that applies to Members that execute a Priority Customer
Complex ADV of at least 300,000 contracts. Like the other existing
volume tiers, this new volume tier will apply retroactively to all
Priority Customer complex order volume once the threshold has been
reached. And, similar to the incremental tier that it replaces, Members
that achieve the new tier will be entitled to a rebate that is $0.01
per contract greater than the rebate for Members that achieve the next
highest tier. The new tier will, however, apply to both orders that
trade with non-Priority Customer orders in the complex order book and
orders that trade with quotes and orders on the regular order book.
Specifically, the proposed rebate amounts for this volume tier will be
as follows: the rebate for Select Symbols (excluding SPY) will be $0.41
per contract, the rebate for SPY will be $0.42 per contract, and the
rebate for Non-Select Symbols will be $0.79 per contract, in each case
when trading with non-Priority Customer orders in the complex order
book. When trading with quotes and orders on the regular order book the
proposed rebate will be $0.19 per contract (excluding SPY) and $0.20
per contract for SPY. With this proposed change the Exchange expects to
attract additional Priority Customer complex order volume to the ISE.
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\15\ The Exchange offers a rebate in Standard and Mini Options
for Priority Customer complex orders in (i) Select Symbols
(excluding SPY), (ii) SPY, and (iii) Non-Select Symbols, when these
orders trade with non-Priority Customer orders in the complex order
book.
\16\ The Exchange offers a rebate in Standard and Mini Options
for Priority Customer complex orders that trade with quotes and
orders on the regular order book in (i) SPY, and (ii) other symbols
excluding SPY.
\17\ The incremental rebate does not apply to Priority Customer
Complex orders that trade with quotes or orders on the regular order
book.
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5. Credit for Responses To Flash Orders
Currently, when ISE is not at the National Best Bid or Offer
(``NBBO''), Public Customer and Non-Customer orders are exposed to all
ISE members to give them an opportunity to match the NBBO (``Flash
Orders'') before the order is routed to another exchange for execution
or cancelled. As an incentive to attract Public Customer orders to the
ISE, the Exchange offers a Credit for Responses to Flash Orders in
Select and Non-Select Symbols when trading against Priority and
Professional Customers.\18\ For Select Symbols, this credit is $0.10
per contract when trading against each of Priority and Professional
Customers. When an ISE Market Maker trades against a Preferenced
Priority Customer, i.e., a Priority Customer order that is preferenced
to that Market Maker, the credit is $0.12 per contract. In non-Select
Symbols the credit is $0.20 per contract when trading against
Professional Customers only. The Exchange now proposes to increase the
Credit for Responses to Flash Orders in Select Symbols from $0.10 per
contract to $0.15 per contract when trading against Priority Customers,
and from $0.12 per contract to $0.17 per contract when trading against
Preferenced Priority Customers.\19\ The respective credits for trading
against a Professional Customer in Select and Non-Select Symbols will
remain at their current rates.
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\18\ No fee is charged or credit provided when trading against a
non-Customer.
\19\ The Exchange notes that it does not apply a special credit
for trading against a Preferenced Priority Customer in Mini Options.
The credit for trading against a Priority Customer in Mini Options
will be $0.015 per contract when trading against Priority Customers
in Select Symbols regardless of whether the order has been
preferenced to a Market Maker.
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2. Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\20\ in general, and
Section 6(b)(4) of the Act,\21\ in particular, in that it is designed
to provide for the equitable allocation of reasonable dues, fees, and
other charges among its members and other persons using its facilities.
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\20\ 15 U.S.C. 78f.
\21\ 15 U.S.C. 78f(b)(4).
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1. Affiliate Definition for Firm Fee Cap
The language permitting aggregation of corporate affiliates for
purposes of the Firm Fee Cap is intended to avoid disparate treatment
of firms that have divided their various business activities between
separate corporate entities as compared to firms that operate those
business activities within a single corporate entity. By way of
example, many firms that are Members of the Exchange operate several
different business lines within the same corporate entity. In contrast,
other firms may be part of a corporate structure that separates those
business lines into different corporate affiliates, either for
business, compliance or historical reasons. Those corporate affiliates,
in turn, are required to maintain separate memberships with the
Exchange in order to access the Exchange. The Exchange believes that
the trading activity of corporate affiliates should continue to be
aggregated for purposes of the Firm Fee Cap, and is adopting a
definition of affiliate to clarify when Members will be considered
affiliated. The Exchange notes that the proposed definition of
``affiliate'' is consistent with definitions used by other options
exchanges, including the Topaz Exchange, LLC, the Chicago Board Options
Exchange, Inc., and the MIAX Options Exchange.\22\ The Exchange is not
proposing any substantive changes to the Firm Fee Cap.
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\22\ See ISE Gemini Schedule of Fees, Section I, Regular Order
Fees and Rebates for Standard Options, and Section II, Regular Order
Fees and Rebates for Mini Options; CBOE Fee Schedule, Volume
Incentive Program (VIP); MIAX Fee Schedule, Transaction Fees,
Exchange Fees, Priority Customer Rebate Program.
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2. Priority Customer Taker Fee
The Exchange believes that its proposal to assess a $0.32 per
contract taker fee for all regular Priority Customer orders in Select
Symbols is reasonable and equitable because the fee is within the range
of fees assessed by other exchanges employing similar pricing schemes.
While the Exchange is proposing a fee increase, the proposed fee is
substantially lower, for example, than the $0.45 per contract taker fee
currently charged by the NASDAQ Options Market (``NOM'') for Customer
orders in penny pilot symbols.\23\ The
[[Page 69717]]
Exchange also notes that with this proposed fee change, the fee charged
to Priority Customer orders will remain lower (as it historically has
always been) than the fee currently charged by the Exchange to other
market participants. The Exchange believes that it is equitable and not
unfairly discriminatory to increase the Priority Customer taker fee, as
Priority Customers will continue to be assessed lower fees than other
market participants.
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\23\ See NOM Rules, Chapter XV Options Pricing, Sec. 2 NASDAQ
Options Market--Fees and Rebates.
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3. Discount for Adding Liquidity in Non-Select Symbols and FX Options
The Exchange believes that it is reasonable, equitable, and not
unfairly discriminatory to no longer provide a discounted fee for
providing liquidity in Non-Select Symbols and FX Options as it has
determined it is no longer necessary provide this incentive. Firm
Proprietary/Broker[hyphen]Dealer and Professional Customers will once
again pay the same fee regardless of whether they are adding or
removing liquidity, as was the case prior to the June 2013 rule change.
This is consistent with the Exchange's general pricing structure for
Non-Select Symbols and FX Options, which does not differentiate between
making and taking liquidity.
4. Priority Customer Complex Order Tiers
The Exchange believes that it is reasonable, equitable, and not
unfairly discriminatory to provide rebates for Priority Customer
complex orders when these orders trade with non-Priority Customer
orders in the complex order book, or trade with quotes and orders on
the regular order book, because paying a rebate will continue to
attract additional order flow to the ISE and create liquidity which
will ultimately benefit all market participants who trade on the
Exchange. The Exchange has already established a volume-based incentive
program, and is now merely proposing to replace its incremental volume
tier with a new tier that applies retroactively to all Priority
Customer complex order volume. The Exchange believes that the proposal
will encourage Members to route additional Priority Customer complex
orders to the Exchange in order to qualify for the new rebates, which
would be applicable to all of a Member's Priority Customer complex
order volume. The Exchange believes that the retroactive rebates being
proposed for Members that achieve the new sixth tier will help it
remain competitive with other options exchanges in attracting this
order flow.
5. Credit for Responses To Flash Orders
The Exchange believes that it is reasonable and equitable to
increase the credit for responding to Priority Customer orders flashed
on the Exchange to encourage market participants to respond to these
Flash Orders, and thereby attract Priority Customer order flow to the
Exchange. The Exchange believes that the increased rebate will also
result in fewer orders being subject to linkage handling, which will
reduce costs for the Exchange and market participants. Furthermore, the
Exchange believes that it is equitable and not unfairly discriminatory
to provide a larger credit to market participants that trade against
Priority Customer orders than those that trade against Professional
Customer orders in Select Symbols. A Priority Customer is by definition
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(s). This limitation does not apply to
participants on the Exchange whose behavior is substantially similar to
that of market professionals, including Professional Customers, who
will generally submit a higher number of orders (many of which do not
result in executions) than Priority Customers. The Exchange believes
that attracting more liquidity from Priority Customers will benefit all
market participants that trade on the ISE.
The Exchange notes that it has determined to charge fees and
provide rebates in Mini Options at a rate that is 1/10th the rate of
fees and rebates the Exchange provides for trading in Standard Options.
The Exchange believes it is reasonable and equitable and not unfairly
discriminatory to assess lower fees and rebates to provide market
participants an incentive to trade Mini Options on the Exchange. The
Exchange believes the proposed fees and rebates 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, is providing fees and rebates for Mini
Options that are 1/10th of those applicable to Standard Options.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\24\ the Exchange
does not believe that the proposed rule change will impose any burden
on intermarket or intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
notes that other exchanges have substantially similar requirements for
aggregating affiliated Member ADV. As provided in the initial Firm Fee
Cap filing, the Exchange currently aggregates affiliated Member fees,
and this proposed rule change merely explains the how affiliate status
is determined for that purpose, which will have no competitive impact.
With respect to the other proposed fee changes, the Exchange believes
that the proposed changes will promote competition, as they are
designed to allow ISE to better compete for order flow and improve the
Exchange's competitive position, for example, by offering higher
rebates to market participants that execute a large volume of Priority
Customer complex orders, or respond to Priority Customer Flash Orders.
While the Exchange is increasing certain fees, the Exchange believes
that this does not impose a burden on competition because the new fees
are consistent with those charged by other options exchanges. The
Exchange 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. For the reasons described above, the Exchange believes
that the proposed fee changes reflect this competitive environment.
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\24\ 15 U.S.C. 78f(b)(8).
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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) of the Act \25\ and paragraph (f) of Rule 19b-4
thereunder.\26\ At any time within 60 days of the filing of the
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
[[Page 69718]]
investors, or otherwise in furtherance of the purposes of the Act.
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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 17 CFR 240.19b-4(f).
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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 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 No. SR-ISE-2013-56 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2013-56. 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 Commissions 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 such filing also will be available for inspection
and copying at the principal office of the ISE. 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-2013-56 and should be submitted by
December 11, 2013.
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\27\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27753 Filed 11-19-13; 8:45 am]
BILLING CODE 8011-01-P