[Federal Register Volume 75, Number 91 (Wednesday, May 12, 2010)]
[Notices]
[Pages 26830-26832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-11254]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62048; File No. SR-ISE-2010-43]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change Relating to Fees and Rebates for Adding and Removing Liquidity
May 6, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 3, 2010, International Securities Exchange, LLC (``ISE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. ISE has
designated this proposal as one establishing or changing a member due,
fee, or other charge imposed under Section 19(b)(3)(A)(ii) of the Act
\3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal
effective upon filing with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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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 in order to (i)
increase the number of options classes to be included in the Exchange's
current schedule of transaction fees and rebates for adding and
removing liquidity; and (ii) adopt a rebate for certain orders executed
in the Exchange's Price Improvement Mechanism. 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, at the
Commission's Public Reference Room, and on the Commission's Web site at
http://www.sec.gov.
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 increase liquidity and attract order flow
by amending its transaction fees and rebates for adding and removing
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liquidity (``maker/taker fees'').\5\ The Exchange's maker/taker fees
apply to the following categories of market participants: (i) Market
Maker; (ii) Market Maker Plus; \6\ (iii) Non-ISE Market Maker; \7\ (iv)
Firm Proprietary; (v) Customer (Professional); \8\ (vi) Priority
Customer,\9\ 100 or more contracts; and (vii) Priority Customer, less
than 100 contracts.\10\
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\5\ These fees are similar to the ``maker/taker'' fees currently
assessed by NASDAQ OMX PHLX (``PHLX''). PHLX currently charges a fee
for removing liquidity to the following class of market
participants: (i) Customer, (ii) Directed Participant, (iii)
Specialist, ROT, SQT and RSQT, (iv) Firm, (v) Broker-Dealer, and
(vi) Professional. PHLX also provides a rebate for adding liquidity
to the following class of market participants: (i) Customer, (ii)
Directed Participant, (iii) Specialist, ROT, SQT and RSQT, and (iv)
Professional. See Securities Exchange Act Release Nos. 61684 (March
10, 2010), 75 FR 13189 (March 18, 2010); 61932 (April 16, 2010), 75
FR 21375 (April 23, 2010); and 61961 (April 22, 2010), 75 FR 22881
(April 30, 2010). See e-mail from Samir M. Patel, Assistant General
Counsel, ISE, to Andrew Madar, Special Counsel, Commission, dated
May 5, 2010.
\6\ A Market Maker Plus is a market maker who is on the National
Best Bid or National Best Offer 80% of the time in that symbol
during the current trading month for series trading between $0.03
and $5.00 in premium. The Exchange will determine 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 during that
month. If at the end of the month, a market maker meets the 80%
criteria, the Exchange will rebate $0.10 per contract for
transactions executed by that market maker during that month. The
Exchange will provide market makers a report on a daily basis with
quoting statistics so that market makers can determine whether or
not they are meeting the 80% criteria.
\7\ 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, as amended (``Exchange Act''),
registered in the same options class on another options exchange.
\8\ A Customer (Professional) is a person who is not a broker/
dealer and is not a Priority Customer.
\9\ 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).
\10\ The Chicago Board Options Exchange (``CBOE'') currently
makes a similar distinction between large size customer orders that
are fee liable and small size customer orders whose fees are waived.
CBOE currently waives fees for customer orders of 99 contracts or
less in options on exchange-traded funds (``ETFs'') and Holding
Company Depositary Receipts (``HOLDRs'') and charges a transaction
fee for customer orders that exceed 99 contracts. See Securities
Exchange Act Release No. 59892 (May 8, 2009), 74 FR 22790 (May 14,
2009).
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Current Transaction Charges for Adding and Removing Liquidity
The Exchange currently assesses a per contract transaction charge
to market participants that remove, or ``take,'' liquidity from the
Exchange in the following three options classes: PowerShares QQQ trust
(``QQQQ''), Bank of America Corporation (``BAC'') and Citigroup, Inc.
(``C''). The per contract transaction charge depends on the category of
market participant submitting an order or quote to the Exchange that
removes liquidity.\11\ Priority Customer Complex orders, regardless of
size, are not assessed a fee for removing liquidity.
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\11\ Although these options classes will no longer be subject to
the tiered market maker transaction fees, the volume from these
options classes will continue to be used in the calculation of the
tiers so that this new pricing does not affect a market maker's fee
in all other names.
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The Exchange also currently assesses transaction charges for adding
liquidity in options on QQQQ, BAC and C. Priority Customer orders,
regardless of size, and Market Maker Plus orders are not assessed a fee
for adding liquidity.
Current Rebates
In order to promote and encourage liquidity in options classes that
are subject to maker/taker fees, the Exchange currently offers a $0.10
per contract rebate for Market Maker Plus orders sent to the
Exchange.\12\ Additionally, the Exchange's Facilitation Mechanism has
an auction which allows for participation in a trade by members other
than the member who entered the trade. To incentivize members, the
Exchange currently offers a rebate of $0.15 per contract to contracts
that do not trade with the contra order in the Facilitation Mechanism.
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\12\ The concept of incenting market makers with a rebate is not
novel. In 2008, the CBOE established a program for its Hybrid Agency
Liaison whereby it provides a $0.20 per contact rebate to its market
makers provided that at least 80% of the market maker's quotes in a
class during a month are on one side of the national best bid or
offer. Market makers not meeting CBOE's criteria are not eligible to
receive a rebate. See Securities Exchange Act Release No. 57231
(January 30, 2008), 73 FR 6752 (February 5, 2008). The CBOE has
since lowered the criteria from 80% to 60%. See Securities Exchange
Act Release No. 57470 (March 11, 2008), 73 FR 14514 (March 18,
2008).
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Fee Changes
The Exchange proposes to add the following 17 options classes to be
included in the Exchange's maker/taker fee schedule: Standard and
Poor's Depositary Receipts/SPDRs (``SPY''), iShares Russell 2000
(``IWM''), Financial Select Sector SPDR (``XLF''), Apple, Inc.
(``AAPL''), General Electric Company (``GE''), JPMorgan Chase & Co.
(``JPM''), Intel Corporation (``INTC''), Goldman Sachs Group, Inc.
(``GS''), Research in Motion Limited (``RIMM''), AT&T, Inc. (``T''),
Verizon Communications, Inc. (``VZ''), United States Natural Gas Fund
(``UNG''), Freeport-McMoRan Copper & Gold, Inc. (``FCX''), Cisco
Systems, Inc. (``CSCO''), Diamonds Trust, Series 1 (``DIA''),
Amazon.com, Inc. (``AMZN'') and United States Steel Corporation
(``X'').
Additionally, as noted above, to incentivize members, the Exchange
currently offers a rebate of $0.15 per contract to contracts that do
not trade with the contra order in the Exchange's Facilitation
Mechanism. The Exchange proposes to extend that $0.15 per contract
rebate to contracts that do not trade with the contra order in the
Exchange's Price Improvement Mechanism.
Other Fees
Fees for orders executed in the Exchange's Facilitation,
Solicited Order, Price Improvement and Block Order Mechanisms are for
contracts that are part of the originating or contra order.
Complex orders executed in the Facilitation and Solicited
Order Mechanisms are charged fees only for the leg of the trade
consisting of the most contracts.
Payment for Order Flow fees will not be collected on
transactions on QQQQ, BAC, C, SPY, IWM, XLF, AAPL, GE, JPM, INTC, GS,
RIMM, T, VZ, UNG, FCX, CSCO, DIA, AMZN and X options.\13\
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\13\ ISE currently has a payment-for-order-flow (``PFOF'')
program that helps the Exchange's market makers establish PFOF
arrangements with an Electronic Access Member (``EAM'') in exchange
for that EAM preferencing some or all of its order flow to that
market maker. This program is funded through a fee paid by Exchange
market makers for each customer contract they execute, and is
administered by both Primary Market Makers (``PMM'') and Competitive
Market Makers (``CMM''), depending to whom the order is preferenced.
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The Cancellation Fee will continue to apply in QQQQ, BAC,
C, SPY, IWM, XLF, AAPL, GE, JPM, INTC, GS, RIMM, T, VZ, UNG, FCX, CSCO,
DIA, AMZN and X options.\14\
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\14\ The Exchange assesses a Cancellation Fee of $2.00 to EAMs
that cancel at least 500 orders in a month, for each order
cancellation in excess of the total number of orders such member
executed that month. All orders from the same clearing EAM executed
in the same underlying symbol at the same price within a 300 second
period are aggregated and counted as one executed order for purposes
of this fee. This fee is charged only to customer orders.
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The Exchange has a $0.20 per contract fee credit for
members who, pursuant to Supplementary Material .02 to Rule 803,
execute a transaction in the Exchange's flash auction as a response to
orders from persons who are not broker/dealers and who are not Priority
Customers.\15\ For QQQQ, BAC, C, SPY, IWM, XLF, AAPL, GE, JPM, INTC,
GS, RIMM, T, VZ, UNG, FCX, CSCO, DIA, AMZN and X options, the Exchange
proposes to lower the per contract fee credit for members who execute a
[[Page 26832]]
transaction in the Exchange's flash auction as a response to orders
from persons who are not broker/dealers and who are not Priority
Customers to $0.10 per contract.
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\15\ See Securities Exchange Act Release No. 61731 (March 18,
2010), 75 FR 14233 (March 24, 2010).
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The Exchange has a $0.20 per contract fee for market maker
orders sent to the Exchange by EAMs.\16\ Market maker orders sent to
the Exchange by EAMs will be assessed a fee of $0.25 per contract for
removing liquidity in QQQQ, BAC, C, SPY, IWM, XLF, AAPL, GE, JPM, INTC,
GS, RIMM, T, VZ, UNG, FCX, CSCO, DIA, AMZN and X options and $0.10 per
contract for adding liquidity in QQQQ, BAC, C, SPY, IWM, XLF, AAPL, GE,
JPM, INTC, GS, RIMM, T, VZ, UNG, FCX, CSCO, DIA, AMZN and X options.
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\16\ See Securities Exchange Act Release No. 60817 (October 13,
2009), 74 FR 54111 (October 21, 2009).
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The Exchange has designated this proposal to be operative on May 3,
2010.
2. Statutory Basis
The basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(4) that an exchange have an
equitable allocation of reasonable dues, fees and other charges among
its members and other persons using its facilities. The impact of the
proposal upon the net fees paid by a particular market participant will
depend on a number of variables, most important of which will be its
propensity to add or remove liquidity in QQQQ, BAC, C, SPY, IWM, XLF,
AAPL, GE, JPM, INTC, GS, RIMM, T, VZ, UNG, FCX, CSCO, DIA, AMZN and X
options. The Exchange operates in a highly competitive market in which
market participants can readily direct order flow to another exchange
if they deem fee levels at a particular exchange to be excessive. The
Exchange believes that the proposed fees it charges for options
overlying QQQQ, BAC, C, SPY, IWM, XLF, AAPL, GE, JPM, INTC, GS, RIMM,
T, VZ, UNG, FCX, CSCO, DIA, AMZN and X remain competitive with fees
charged by other exchanges and therefore continue to be reasonable and
equitably allocated to those members that opt to direct orders to the
Exchange rather than to a competing exchange.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
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) of the Act \17\ and Rule 19b-4(f)(2) \18\ thereunder. At any
time within 60 days of the filing of such proposed rule change, the
Commission may summarily abrogate 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.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(2).
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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 e-mail to [email protected]. Please include
File Number SR-ISE-2010-43 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, Station Place, 100 F Street, NE., Washington,
DC 20549-1090.
All submissions should refer to File Number SR-ISE-2010-43. This file
number should be included on the subject line if e-mail 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
a.m. and 3 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 publicly available. All
submissions should refer to File Number SR-ISE-2010-43 and should be
submitted on or before June 2, 2010.
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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-11254 Filed 5-11-10; 8:45 am]
BILLING CODE 8011-01-P