[Federal Register Volume 79, Number 207 (Monday, October 27, 2014)]
[Notices]
[Pages 63992-63994]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25430]
[[Page 63992]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73394; File No. SR-ISE-2014-50]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend the Schedule of Fees
October 21, 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 October 10, 2014, 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 is proposing to amend its Schedule of Fees to increase the
route-out fee applicable to Professional Customer orders in Non-Select
Symbols, and adopt a route-out fee for Non-Customer orders routed to
away markets. 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 to increase the route-out fee applicable to Professional Customer
orders in Non-Select Symbols,\3\ and adopt a route-out fee for Non-
Customer orders \4\ routed to away markets. The Exchange's Schedule of
Fees has separate 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.
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\3\ ``Non-Select Symbols'' are options overlying all symbols
excluding Select Symbols.
\4\ A Non-Customer Order is an order for the account of a person
or entity that is a broker or dealer in securities. See ISE Rules
100(a)(27)-(28).
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The Exchange presently charges a route-out fee applicable to
Priority Customer \5\ and Professional Customer \6\ orders routed to
away markets pursuant to the Options Order Protection and Locked/
Crossed Market Plan (the ``Plan''). Specifically, the Exchange charges
a route-out fee of $0.45 per contract for Priority Customer orders and
$0.55 per contract for Professional Customer orders in all symbols. The
Exchange now proposes to increase the route-out fee for Professional
Customer orders in Non-Select Symbols to $0.95 per contract to reduce
the negative economics associated with executing these orders on other
options exchanges. Professional Customer orders in Select Symbols and
Priority Customer orders will continue to pay route-out fees at their
respective rates described above.
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\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\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
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On July 31, 2014 the Exchange filed a proposed rule change that
introduced linkage routing for Non-Customer orders, which became
effective on September 1, 2014.\7\ In connection with this new
functionality, the Exchange now proposes to adopt a route-out fee for
Non-Customer orders routed to other options exchanges. The proposed
route-out fee will be $0.55 per contract in Select Symbols,\8\ and
$0.95 per contract in Non-Select Symbols, in line with the rates
described above for Professional Customer orders, and will be
applicable to all Market Maker,\9\ Non-ISE Market Maker,\10\ and Firm
Proprietary \11\/Broker-Dealer \12\ orders routed to away markets
pursuant to the Plan.
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\7\ See Securities Exchange Act Release No. 72816 (August 12,
2014), 79 FR 48811 (August 18, 2014) (SR-ISE-2014-37).
\8\ ``Select Symbols'' are options overlying all symbols listed
on the ISE that are in the Penny Pilot Program.
\9\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule
100(a)(25).
\10\ 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.
\11\ A ``Firm Proprietary'' order is an order submitted by a
member for its own proprietary account.
\12\ A Broker-Dealer order is an order submitted by a Member for
a non-Member broker-dealer account.
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In connection with the proposed fee changes described above, the
Exchange also proposes to reformat its route-out fee table to include
separate columns for Select Symbols and Non-Select Symbols, as well as
for Standard Options and Mini Options, and to reduce the number of
duplicative footnotes.
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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In particular, the Exchange believes the proposed route-out fees
are reasonable and equitable as they offset costs incurred by the
Exchange in connection with using unaffiliated broker-dealers to access
other exchanges for linkage executions. Other options exchanges, such
as the NASDAQ Options Market (``NOM'') and NYSE Arca Options
(``Arca''), have fees for taking liquidity that are as high as $0.89
per contract for Professional Customer orders in Non-Select
Symbols.\15\ It has thus become necessary for the Exchange to raise the
route-out fees applicable to these orders to recoup the higher costs
associated with executing orders on these markets. Furthermore, as the
Exchange recently expanded its linkage routing capabilities to include
Non-Customer orders, the Exchange believes
[[Page 63993]]
that it is appropriate to adopt corresponding fees at this time. The
route-out fees proposed herein for Non-Customer orders are lower than
those charged by some of the Exchange's competitors, including, for
example, NASDAQ OMX PHLX (``PHLX''), which charges a fee of $0.97 per
contract for routing Non-Customer orders to away markets.\16\
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\15\ See NOM Chapter XV Options Pricing, Sec. 2 NASDAQ Options
Market--Fees and Rebates; Arca Options Fees and Charges, Trade-
Related Charges for Standard Options.
\16\ See PHLX Fee Schedule, Section V, Routing Fees.
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Furthermore, the Exchange believes that the proposed fees are not
unfairly discriminatory because these fees would be uniformly applied,
as appropriate, to all Professional Customer and Non-Customer orders.
As has historically been the case, Priority Customer orders will
continue to pay lower route-out fees than orders from other market
participants, including Professional Customer and, now, Non-Customer
orders. The Exchange believes that it is equitable and not unfairly
discriminatory to charge lower fees for Priority Customer orders than
Professional Customer and Non-Customer orders as 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 whose behavior is substantially similar to
that of market professionals, including Professional Customers and Non-
Customers, who will generally submit a higher number of orders (many of
which do not result in executions) than Priority Customers. Moreover,
the Exchange notes that Priority Customer orders are often charged
lower taker fees than Professional Customer and Non-Customer orders on
other options exchanges, meaning that the execution costs to the
Exchange for routing these orders is correspondingly lower. As such,
the Exchange believes that it is equitable and not unfairly
discriminatory to pass on this cost savings to the firms entering these
orders.
The Exchange has determined to charge fees for regular orders in
Mini Options at a rate that is 1/10th the rate of fees the Exchange
currently provides for trading in Standard Options. The Exchange
believes it is reasonable and equitable and not unfairly discriminatory
to assess lower fees to provide market participants an incentive to
trade Mini Options on the Exchange. The Exchange believes the proposed
fees 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, levying fees
that are 1/10th of what market participants pay to trade Standard
Options. As a result, routing fees for Mini Options will continue to be
charged at 1/10th the rate of fees of Standard Options.
B. Self-Regulatory Organization's Statement on Burden on Competition
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 as
it simply adjusts Professional Customer route-out fees to be consistent
with the costs associated with routing orders to away markets, and
adopts fees for routing Non-Customer orders to other options exchanges,
in connection with the introduction of linkage routing for those
orders. 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 change reflects this competitive environment.
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 \17\ and subparagraph (f)(2) of Rule 19b-4
thereunder,\18\ because it establishes a due, fee, or other charge
imposed by ISE.
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\17\ 15 U.S.C. 78s(b)(3)(A)(ii).
\18\ 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-2014-50 on the subject line.
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-2014-50. 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-2014-50 and should be
submitted by November 17, 2014.
[[Page 63994]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-25430 Filed 10-24-14; 8:45 am]
BILLING CODE 8011-01-P