[Federal Register Volume 79, Number 72 (Tuesday, April 15, 2014)]
[Notices]
[Pages 21321-21324]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-08417]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71914; File No. SR-ISE-2014-20]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend the Schedule of Fees
April 9, 2014.
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 April 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
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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 the Schedule of Fees. 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 the proposed rule change is to amend the Schedule of
Fees as described in more detail below. The fee changes discussed apply
to both Standard Options and Mini Options traded on Exchange. 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.
1. Market Maker Plus
In order to promote and encourage liquidity in symbols that are in
the penny pilot program (``Select Symbols''), the Exchange currently
offers Market Makers \3\ that meet the quoting requirements for Market
Maker Plus \4\ a rebate of $0.20 per contract for adding liquidity in
those symbols. In addition, the Exchange pays a higher rebate of $0.22
per contract to Market Makers that meet the quoting requirements for
Market Maker Plus and are affiliated with an Electronic Access Member
(``EAM'') that executes a total affiliated Priority Customer \5\
average daily volume (``ADV'') of 200,000 contracts or more in a
calendar month.\6\
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\3\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule
100(a)(25).
\4\ A Market Maker Plus is a Market Maker who is on the National
Best Bid or National Best Offer at least 80% of the time for series
trading between $0.03 and $3.00 (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 $3.00 (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.
\5\ 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).
\6\ See Securities Exchange Act Release No. 70872 (November 14,
2013), 78 FR 69718 (November 20, 2013) (SR-ISE-2013-57).
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The Exchange proposes to modify the criteria used to determine
which days may be excluded from the Market Maker Plus calculation.
Currently, in determining whether a Market Maker qualifies for Market
Maker Plus, the Exchange excludes the member's single best and single
worst overall quoting days each month, on a per symbol basis, if doing
so will qualify a member for the rebate. When the Exchange modified the
qualification requirements for Market Maker Plus to look solely to the
front two months,\7\ however, it did not change the method used to
determine a Market Maker's best and worst quoting days. As such, this
calculation is still based on members' overall quotation statistics,
including expiration months other than the front two months used to
determine if a Market Maker qualifies for Market Maker Plus. The
Exchange believes that this could unintentionally make it more
difficult for Market Makers to achieve the Market Maker Plus
rebates,\8\ and therefore proposes to base the calculation for
excluding a Market Maker's best and worst days on the front two
expiration months only, consistent with the criteria used to qualify
Market Makers for Market Maker Plus rebates.\9\
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\7\ See Securities Exchange Act Release No. 71765 (March 21,
2014), 79 FR 17216 (March 27, 2014) (SR-ISE-2014-17).
\8\ For example, if a day is excluded where a Market Maker
exceeds the Market Maker Plus quoting threshold based on the front
two expiration months, but has a lower performance in other
expirations.
\9\ The Exchange currently 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 per symbol during
that month. The Exchange will continue to monitor each Market
Maker's quoting statistics to determine whether a Market Maker
qualifies for a rebate under the standards proposed herein. The
Exchange also currently 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 current stated
criteria. Again, the Exchange will continue to provide Market Makers
a daily report so that Market Makers can track their quoting
activity to determine whether or not they qualify for the Market
Maker Plus rebate.
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The Exchange also notes that when it increased the Market Maker
Plus rebate to $0.22 per contract for members that meet the total
affiliated Priority Customer ADV threshold described above,\10\ it did
not update its fee schedule to reflect the equivalent rebate for Mini
Options. As explained in that filing, the fees and rebates for Mini
Options are and shall continue to be 1/10th of the fees for Standard
Options. The Exchange therefore proposes to clarify that this rebate is
$0.022 per contract in Mini Options, consistent with the rebate
provided for Standard Options.
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\10\ See supra note 5.
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2. Crossing Order Fees: Clean-Up Changes
On March 3, 2013 the Exchange filed an immediately effective rule
change that introduced a new fee for orders of one hundred or fewer
contracts submitted to the Price Improvement Mechanism (``PIM'').\11\
The Exchange now proposes to clarify that all Firm Proprietary and Non-
ISE Market Maker contracts traded in the PIM are subject to the Firm
Fee Cap, and that the new fee for PIM orders of 100 or fewer contracts
applies to both the originating and contra order. In connection with
this change, the Exchange also proposes to clarify that the fee for
Crossing Orders applies to both the originating and contra order for
both regular and complex orders.
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\11\ See supra note 5.
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Finally, the Exchange proposes to update a footnote for Mini
Options that states that the fee for Crossing Orders is applied to any
contracts for which a PIM break-up rebate is provided. As already
reflected in the fee schedule with respect to Standard Options, PIM
orders of one hundred or fewer contracts are now subject to a separate
fee, and this fee, not the fee for Crossing Orders, is applied to those
orders when a break-up rebate is provided.\12\
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\12\ The Exchange also proposes to modify another footnote with
respect to Mini Options to state that the fee for Crossing Orders,
rather than the ``applicable fee'' is applied to contracts for which
the Facilitation and Solicitation break-up rebate is provided. While
the current wording is correct, this language will now mirror
language adopted for Standard Options.
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3. Broker Dealer Definition
A ``Broker-Dealer'' order is presently defined as an order
submitted by a member for a non-member broker-dealer account. In some
instances, however, a
[[Page 21323]]
member may submit orders for the account of another broker-dealer that
is also an ISE member. Currently these orders would not fall into any
of the market participant categories on the fee schedule. The Exchange
believes that these orders should also be marked as Broker-Dealer
orders, and therefore proposes to amend the definition of a Broker-
Dealer order to include all orders submitted by a member for a broker-
dealer account that is not its own proprietary account.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\13\ in general, and
Section 6(b)(4) of the Act,\14\ 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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\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(4).
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1. Market Maker Plus
The Exchange believes that it is reasonable, equitable, and not
unfairly discriminatory to base the calculation for excluding a Market
Maker's best and worst days on the front two expiration months only as
the proposed change is consistent with the criteria now used to qualify
Market Makers for the rebate, and may help additional Market Makers
achieve Market Maker Plus. The Market Maker Plus rebate is competitive
with incentives provided by other exchanges, and has proven to be an
effective incentive for Market Makers to provide liquidity in Select
Symbols to the benefit of all market participants that trade on the
ISE. With this proposed change, the Exchange hopes to encourage
participation in Market Maker Plus by making the Market Maker Plus
calculation internally consistent and more transparent to members, as
well as easier attain.
In addition, the Exchange believes that it is reasonable,
equitable, and not unfairly discriminatory to clarify the Market Maker
Plus rebate in Mini Options for members that meet the total affiliated
Priority Customer ADV threshold. As has always been the case, the fees
and rebates for Mini Options are and shall continue to be 1/10th of the
fees for Standard Options.
2. Crossing Order Fees: Clean-Up Changes
The Exchange believes that the proposed clarification regarding the
fees for Crossing Orders is reasonable, equitable, and not unfairly
discriminatory. The Schedule of Fees currently contains footnotes that
explain which fees are applicable to orders executed in the ISE's
crossing mechanisms. The proposed change inserts these footnotes where
applicable throughout the Schedule of Fees, and makes additional
changes to ensure consistency between footnotes applicable to Standard
and Mini Options. The Exchange believes that these changes will further
increase transparency for both members and investors.
3. Broker Dealer Definition
The Exchange believes that the proposed amendment to the definition
of a Broker-Dealer order is reasonable, equitable, and not unfairly
discriminatory as this is a technical change intended to clarify how
members should mark their orders. With this clarification, orders from
a member broker-dealer executed through another member will be properly
marked as Broker-Dealer orders, while orders submitted by a member for
its own proprietary account will continue to be marked Firm
Proprietary. This change is necessary to reduce member confusion, as
the current definitions of market participant types do not account for
the scenario described above.
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,\15\ 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. To the contrary,
the Exchange believes that the proposed rule change is pro-competitive
as it is designed to attract additional order flow to the ISE. 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 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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\15\ 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)(ii) of the Act \16\ and subparagraph (f)(2) of Rule 19b-4
thereunder,\17\ because it establishes a due, fee, or other charge
imposed by ISE.
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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
\17\ 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 No. SR-ISE-2014-20 on the subject line.
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Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2014-20. 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 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-2014-20 and should be
submitted by May 6, 2014.
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\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-08417 Filed 4-14-14; 8:45 am]
BILLING CODE 8011-01-P