[Federal Register Volume 80, Number 73 (Thursday, April 16, 2015)]
[Notices]
[Pages 20522-20525]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-08700]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74706; File No. SR-ISE-2015-11]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend the Schedule of Fees
April 10, 2015.
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 March 26, 2015, 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
[[Page 20523]]
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 proposes to amend the Schedule of Fees to introduce a
Member Order Routing Program. 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 introduce a Member Order Routing Program (``MORP'') that will
provide enhanced rebates to order routing firms that select the
Exchange as the default routing destination (as described below) for
unsolicited Crossing Orders.\3\ The MORP is intended to compete with
similar programs offered by competitor options exchanges. The Exchange
designates this filing to become effective on April 1, 2015.\4\
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\3\ 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
(``QCC'') order. For purposes of the fee schedule, orders executed
in the Block Order Mechanism are also considered Crossing Orders.
Solicited Crossing Orders will not qualify for MORP as they are
already eligible for the QCC and Solicitation Rebate. See Schedule
of Fees, Section IV.A.
\4\ The Exchange notes that members must opt in to MORP by March
31, 2015 to be eligible to participate in the program on April 1,
2015. See note 7 infra.
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MORP Qualifications
To be eligible to participate in MORP, an Electronic Access Member
(``EAM'') must: (1) Provide to its clients, systems that enable the
electronic routing of option orders to all of the U.S. options
exchanges, including ISE; (2) interface with ISE to access the
Exchange's electronic options trading platform; (3) offer to its
clients a customized interface and routing functionality such that ISE
will be the default destination for all unsolicited Crossing Orders
entered by the EAM,\5\ provided that market conditions allow the
Crossing Order to be executed on ISE; (4) configure its own option
order routing functionality such that ISE will be the default
destination for all unsolicited Crossing Orders, provided that market
conditions allow the Crossing Order to be executed on ISE, with respect
to all option orders as to which the EAM has routing discretion; and
(5) ensure that the default routing functionality permits users
submitting option orders through such system to manually override the
ISE as the default destination on an order-by-order basis.\6\
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\5\ An unsolicited Crossing Order is a Crossing Order entered by
a member that has not solicited the contra side of the trade.
\6\ The Exchange notes that these requirements are based, in
part, on similar programs offered by other options exchanges. See
notes 15 and 19 infra and accompanying text.
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EAMs that wish to participate in the program must certify that they
meet the above MORP requirements, in writing, on a monthly basis and in
a form to be determined by the Exchange. The relevant notice must be
provided by the last business day of the month for members to be
eligible to participate in the MORP effective the first business day of
the following month.\7\
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\7\ Members must provide this notice by March 31, 2015 to be
eligible to participate in MORP when the program becomes effective
on April 1, 2015.
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Rebate for Unsolicited Crossing Orders
An EAM that is MORP eligible will receive a rebate for all
unsolicited Crossing Orders of $0.05 per originating contract side,
provided that the member executes a minimum average daily volume
(``ADV'') in unsolicited Crossing Orders of at least 30,000 originating
contract sides. This rebate is increased to $0.07 per originating
contract side, provided that the member executes a higher ADV in
unsolicited Crossing Orders of 100,000 originating contract sides. The
rebate for the highest tier achieved will be applied retroactively to
all eligible contracts traded in a given month. As is ISE's current
practice with respect to ADV calculations, any day that the Exchange is
not open for the entire trading day may be excluded from such
calculation; provided that the Exchange will only remove the day for
members that would have a lower ADV with the day included. 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.
Facilitation and Solicitation Break-Up Rebate
In addition, any EAM that qualifies for the MORP rebate by
executing an ADV of 30,000 originating contract sides or more will also
be eligible for increased Facilitation and Solicitation break-up
rebates. Currently, the Exchange provides a Facilitation and
Solicitation break-up rebate of $0.15 per contract for regular and
complex orders in Select Symbols. This rebate applies to all Non-ISE
Market Maker,\8\ Firm Proprietary \9\/Broker-Dealer,\10\ Professional
Customer,\11\ and Priority Customer \12\ orders submitted to the
Facilitation and Solicited Order Mechanisms that do not trade with
their contra order, except when those orders trade against pre-existing
orders and quotes on the Exchange's order books. For MORP eligible
members that execute a qualifying ADV in unsolicited Crossing Orders of
at least 30,000 originating contract sides, the Exchange now proposes
to increase this Facilitation and Solicitation break-up rebate to $0.35
per contract for regular and complex orders in Select Symbols. In
addition, the Exchange proposes to adopt a Facilitation and
Solicitation break-up rebate in Non-Select Symbols and FX option
classes specifically for members that meet the MORP qualifications
described above. The rebate in Non-Select Symbols will be $0.15 per
contract for regular orders and $0.80 per contract for complex orders.
For FX option classes, the rebate will be $0.15 per contract for both
regular and complex orders. With this proposed
[[Page 20524]]
change, the Exchange notes that eligible members will receive the same
break-up rebates for their Facilitation and Solicitation orders as they
currently do for orders submitted to the PIM.
2. Statutory Basis
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\8\ A ``Non-ISE Market Maker'' is a market maker as defined in
Section 3(a)(38) of the Securities Exchange Act of 1934, as amended,
registered in the same options class on another options exchange.
\9\ A ``Firm Proprietary'' order is an order submitted by a
member for its own proprietary account.
\10\ A ``Broker-Dealer'' order is an order submitted by a member
for a broker-dealer account that is not its own proprietary account.
\11\ A ``Professional Customer'' is a person or entity that is
not a broker/dealer and is not a Priority Customer.
\12\ 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 Rule 100(a)(37A).
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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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The Exchange proposes to provide the MORP rebate and higher break-
up rebates to EAMs that connect directly to the Exchange and provide
their clients with order routing functionality that includes all U.S.
options exchanges, including ISE. Order routing firms are already
provided enhanced rebates by some of the Exchange's competitors,
including, for example, NYSE Amex Options (``Amex''), which provides
volume based rebates to members that provide access and connectivity to
their market.\15\ The Exchange believes that it is appropriate at this
time to offer a similar rebate to order routing firms on ISE in order
to compete with these programs on other options markets.
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\15\ See Securities Exchange Act Release No. 71532 (February 12,
2014), 79 FR 9563 (February 19, 2014) (SR-NYSEMKT-2014-12).
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The Exchange believes the proposed fee program is reasonable and
equitable because it is designed to encourage order routing firms to
execute additional unsolicited Crossing Order volume on the ISE. The
Exchange notes that it currently offers other incentive programs to
promote and encourage growth in specific business areas, including, for
example, rebates for Market Makers that routinely quote at the national
best bid or offer,\16\ and volume-based Priority Customer complex order
rebates.\17\ The proposed rule change is targeted towards Crossing
Orders, and, in particular, unsolicited Crossing Orders, which is yet
another segment of order flow that the Exchange seeks to encourage
members to execute on ISE. The Exchange believes that it is reasonable
and equitable to tailor the proposed rule change to unsolicited
Crossing Orders. ISE already charges fees and provides rebates for non-
Crossing Orders that are effective in attracting that order flow to the
Exchange. In addition, solicited Crossing Orders already benefit from
the QCC and Solicitation Rebate, which applies to all QCC and/or other
solicited Crossing Orders, including solicited orders executed in the
Solicitation, Facilitation or Price Improvement Mechanisms. The
Exchange believes that the QCC and Solicitation Rebate has proven to be
an effective incentive for members to send solicited crosses to the
ISE. The proposed rule change would supplement this incentive by
encouraging eligible firms to send unsolicited Crossing Orders to the
Exchange as well, which will benefit all market participants on ISE by
creating additional liquidity and increased opportunity to trade on the
Exchange.
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\16\ See Schedule of Fees, Section I, Regular Order Fees and
Rebates, Market Maker Plus.
\17\ See Schedule of Fees, Section II, Complex Order Fees and
Rebates.
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The Exchange notes that the proposed MORP rebate levels are within
the range of rebates currently offered by Amex, whose market access and
connectivity subsidy ranges from $0.04 per contract to $0.08 per
contract based on a member's volume tier.\18\ In addition, the Exchange
notes that the proposed Facilitation and Solicitation break-up rebates
are equivalent to break-up rebates already provided for PIM orders
traded on ISE.
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\18\ See supra note 15.
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As a condition for participating in MORP, an EAM must configure its
option order routing functionality so that ISE will be the default
destination for all unsolicited Crossing Orders, and must offer to its
clients a customized interface and routing functionality that similarly
defaults such orders to ISE. Defaulting to ISE will not be required if
market conditions do not allow the Crossing Order to be executed on the
Exchange. In addition, MORP eligible firms must allow users to manually
override ISE as the default order routing destination on an order-by-
order basis. The Exchange believes that these proposed requirements are
reasonable and equitable as they protect investors, while allowing
member firms to qualify for enhanced rebates that reduce their trading
costs on ISE. Furthermore, the Exchange notes that members that set ISE
as their default routing destination will not be relieved of complying
with their best execution obligations. If, based on its regular best
execution analysis, a MORP eligible member determines that the routing
functionality described above would conflict with its duty of best
execution, such member may discontinue participation in the program.
The Exchange believes that the safeguards described above will ensure
that client orders are appropriately protected under MORP. In this
regard, the Exchange notes that the proposed protections mirror
protections previously adopted by NASDAQ OMX PHLX, LLC (``Phlx''),
where a similar program was introduced in 2007.\19\
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\19\ See Securities Exchange Act Release No. 56274 (August 16,
2007), 72 FR 48720 (August 24, 2007) (SR-Phlx-2007-54).
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Finally, the Exchange believes that the proposed program is both
equitable and not unfairly discriminatory because any qualifying EAM
that offers market access and connectivity to the Exchange will be able
to participate in the program on an equal and non-discriminatory basis.
While there will be two tiers of MORP rebates, the sole basis for
differentiation among the tiers will be participant volume in
unsolicited Crossing Orders.\20\ The Exchange believes that it is
equitable and not unfairly discriminatory to provide higher rebates to
members that execute a higher volume of order flow on ISE. With respect
to break-up rebates, the Exchange notes that all members that qualify
for a MORP rebate will also receive enhanced break-up rebates.
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\20\As explained above, the proposed rule change is targeted
towards unsolicited Crossing Orders as this is the segment of order
flow that the Exchange is seeking to encourage members to execute on
ISE. The Exchange does not believe that this is unfairly
discriminatory as all MORP eligible members can achieve the
applicable rebates by executing unsolicited Crossing Orders on the
ISE.
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B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\21\ 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 evidences the
strength of competition in the options industry. Specifically, the
Exchange believes that the proposed fee change will enhance the
competiveness of the ISE relative to other options exchanges, such as
Amex, that offer similar programs under their respective fee schedules.
In doing so, eligible order routing firms will benefit from an
innovative program that reduces trading costs by providing a valuable
rebate for their unsolicited Crossing 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
and rebates to remain competitive with other exchanges. For the reasons
described above, the
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Exchange believes that the proposed fee changes reflect this
competitive environment.
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\21\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 \22\ and subparagraph (f)(2) of Rule 19b-4
thereunder,\23\ because it establishes a due, fee, or other charge
imposed by ISE.
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\22\ 15 U.S.C. 78s(b)(3)(A)(ii).
\23\ 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-2015-11 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-2015-11. 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-2015-11, and should be
submitted on or before May 7, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-08700 Filed 4-15-15; 8:45 am]
BILLING CODE 8011-01-P