[Federal Register Volume 79, Number 224 (Thursday, November 20, 2014)]
[Notices]
[Pages 69170-69172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-27451]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73601; File No. SR-ISE-2014-51]
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, 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 November 3, 2014, the International Securities Exchange, LLC
(the ``Exchange'' or the ``ISE'') filed with the Securities and
Exchange Commission (``SEC'' or ``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 the
Substance of the Proposed Rule Change
The ISE is proposing to (1) eliminate special fees for Singly
Listed Symbols, and (2) amend its rules for excluding days from its
average daily volume (``ADV'') calculations when the market is not open
for the entire trading day. 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 proposes to (1) eliminate special fees for Singly
Listed Symbols,\3\ and (2) amend its rules for excluding days from its
ADV calculations when the market is not open for the entire trading
day. Each of the proposed changes is described in more detail below.
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\ ``Singly Listed Symbols'' are options overlying FXO, QQEW,
PLTM, SMDD and FIW.
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1. Singly Listed Symbols
Other than applicable response fees, simple Priority Customer \4\
orders in Non-Select symbols \5\ executed on the Exchange are generally
not charged a transaction fee or fee for Crossing Orders,\6\ including
a fee for Price Improvement Mechanism (``PIM'') orders of fewer than
100 contracts. By contrast, the Exchange charges Priority Customer
orders in a special group of Non-Select Symbols that trade solely on
the ISE (``Singly Listed Symbols'') a fee of $0.20 per contract for
regular and Crossing Orders, including PIM orders of 100 or fewer
contracts. The Exchange now proposes to eliminate the special fees for
these Singly Listed Symbols, which will now be subject to the same fees
as other Priority Customer orders in Non-Select Symbols.
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\4\ A ``Priority Customer'' is 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), as defined in ISE Rule 100(a)(37A).
\5\ ``Non-Select Symbols'' are options overlying all symbols
excluding Select Symbols.
\6\ A ``Crossing Order'' is an order executed in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement
Mechanism (PIM) or submitted as a Qualified Contingent Cross order.
For purposes of this Fee Schedule, orders executed in the Block
Order Mechanism are also considered Crossing Orders.
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In connection with this change, the Exchange also proposes to
remove other references to Singly Listed Symbols, including the
definition of Singly Listed Symbols in the Preface to the Schedule of
Fees, and certain fee waivers that apply to Singly Listed Symbols as
described below. The Exchange has a Payment for Order Flow (``PFOF'')
fee of $0.70 per contract, which is paid by Market Makers \7\ for each
Priority Customer contract executed against the Market Maker in Non-
Select Symbols other than Singly Listed Symbols and FX Option
Symbols,\8\ or for Flash Orders \9\ and Complex Orders. In addition,
Market Makers making or taking liquidity receive a discount of $0.02
per contract in Standard Options only when trading against Priority
Customer orders preferenced to them in the Complex order book in equity
options that are able to be listed and traded on more than one options
exchange. This discount similarly does not apply to Singly Listed
Symbols and FX Options Symbols, or to option classes designated by the
Exchange to receive a guaranteed allocation pursuant to ISE Rule
722(b)(3)(i)(B). As the Exchange is eliminating special fees for Singly
Listed Symbols, the five symbols currently designated as Singly Listed
Symbols will now be subject to the PFOF program and will be eligible
for the Market Maker complex order discount described above.
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\7\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule
100(a)(25).
\8\ ``FX Option Symbols'' are options overlying AUM, GBP, EUU
and NDO.
\9\ A ``Flash Order'' is an order that is exposed at the
National Best Bid or Offer by the Exchange to all members for
execution, as provided under Supplementary Material .02 to ISE Rule
1901.
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2. ADV Calculation
The Exchange provides a Market Maker Plus \10\ rebate for adding
liquidity of $0.22 per contract instead of the regular $0.20 per
contract for Market Makers that meet the quoting requirements for
Market Maker Plus and are affiliated with an Electronic Access Member
that executes a total affiliated Priority Customer ADV of 200,000
contracts or more in a calendar month. Similarly, the Exchange charges
a discounted Priority Customer taker fee of $0.25 per contract instead
of the
[[Page 69171]]
regular $0.30 per contract for members with a total affiliated Priority
Customer ADV that equals or exceeds 200,000 contracts. And for PIM
orders of 100 or fewer contracts, the Exchange charges a discounted fee
of $0.03 per contract instead of the regular $0.05 per contract for
non-Priority Customer orders executed by members that have an ADV of
20,000 or more Priority Customer contracts in a given month executed in
the PIM.\11\
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\10\ 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. A Market Maker's single best and single worst quoting days
each month based on the front two expiration months, on a per symbol
basis, will be excluded in calculating whether a Market Maker
qualifies for this rebate, if doing so will qualify a Market Maker
for the rebate.
\11\ This discounted fee is applied retroactively to all
eligible PIM volume in that month once the threshold has been
reached.
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In addition, the Exchange provides tiered 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, based on the member's ADV in Priority
Customer complex contracts as shown in the table below.
Priority Customer Complex Order Rebate
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Select Non-select
Priority customer complex ADV symbols \12\ symbols
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Tier 1; 0-29,999........................ ($0.30) ($0.63)
Tier 2; 30,000-74,999................... ($0.35) ($0.71)
Tier 3; 75,000-124,999.................. ($0.39) ($0.75)
Tier 4; 125,000-224,999................. ($0.41) ($0.80)
Tier 5; 225,000-299,999................. ($0.43) ($0.82)
Tier 6; 300,000+........................ ($0.45) ($0.83)
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Currently, for purposes of determining Priority Customer ADV \13\
and Priority Customer Complex ADV, any day that the market is not open
for the entire trading day may be excluded from such calculation.
Although the regular and complex order books may function
independently, the Exchange interprets this rule to require a general
halt in trading before days can be excluded pursuant to this rule. This
means, for instance, that if the regular market is open for trading but
the complex order book is not accepting orders, the day could not be
excluded from ADV calculations for complex order tiers, even though
complex order volume on the ISE would be negatively impacted for that
day. The Exchange now proposes to independently exclude days from its
ADV calculations when the regular or complex order books are not open
for the entire trading day. As proposed, days may be excluded from the
Exchange's regular and complex order ADV calculations, if the
corresponding order book is not open for the entire trading day.
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\12\ ``Select Symbols'' are options overlying all symbols listed
on the ISE that are in the Penny Pilot Program.
\13\ The Exchange notes that this provision currently references
``total affiliated'' Priority Customer ADV and proposes to clarify
that this encompasses all calculations that include Priority
Customer ADV, such as Priority Customer PIM ADV discussed above,
which is a subset of total affiliated Priority Customer ADV.
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Furthermore, the Exchange notes that some members may be
inadvertently disadvantaged when the ISE removes a day from its ADV
calculation if the member executes a large volume of contracts during
that day. As this disadvantages members that continue to trade
significant volume on days where the regular or complex order book is
halted, the Exchange proposes to only exclude days for members that
would have a lower ADV with the day included.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\14\ in general, and
Section 6(b)(4) of the Act,\15\ 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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\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(4).
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1. Singly Listed Symbols
The Exchange believes that it is reasonable and equitable to
eliminate special fees for Singly Listed Symbols as this will simplify
the Schedule of Fees to the benefit of members and investors. The
Singly Listed Symbols account for a negligible amount of volume traded
and the Exchange believes that it is no longer necessary to distinguish
between multiply- and singly-listed options in determining the
applicable execution fees described above. Furthermore, the Exchange
believes that this proposed change is not unfairly discriminatory as
members will now pay the same fees regardless of whether a particular
symbol is multiply- or singly-listed.
2. ADV Calculation
The Exchange believes that it is reasonable and equitable to
separately account for the regular and complex order books when
determining whether a day may be excluded from its ADV calculations.
Without this proposed change, aberrant low volume days would have to be
counted for ADV purposes if an issue in one order book did not affect
the entire market at ISE, resulting in an unintended cost increase for
members. The proposed change preserves the Exchange's intent behind
adopting volume-based pricing by adjusting the ADV calculations to
account for days where there is no general trading halt but one or the
other order book is nevertheless unavailable to members. Similarly, the
Exchange believes that it is reasonable and equitable to only exclude a
day from its ADV calculations for members that would otherwise have a
lower ADV for the month. Without this change, members that step up and
trade significant volume on days where the regular or complex order
book is unavailable for a portion of the trading day may be negatively
impacted, resulting in an effective cost increase for those members.
The Exchange further believes that the proposed changes to its ADV
calculations are not unfairly discriminatory because they apply equally
to all members and ADV calculations. As is the ISE's current practice,
the Exchange will provide a notice, and post it on the Exchange's Web
site, to inform members of any day that is to be excluded from its ADV
calculations in connection with this proposed rule change.
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
[[Page 69172]]
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,\16\ 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
believes that eliminating special fees for Singly Listed Symbols will
reduce the complexity of the Schedule of Fees to the benefit of members
and investors, and will not have any competitive impact. In addition,
the Exchange believes that the proposed modifications to its ADV
calculation are pro-competitive and will result in lower total costs to
end users, a positive outcome of competitive markets. 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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\16\ 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 \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 Number SR-ISE-2014-51 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2014-51. 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 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-2014-51, and should be
submitted on or before December 11, 2014.
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. 2014-27451 Filed 11-19-14; 8:45 am]
BILLING CODE 8011-01-P