80 FR 29106 - Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees To Introduce a New “Retail” Designation for Priority Customer Orders

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 97 (May 20, 2015)

[Federal Register Volume 80, Number 97 (Wednesday, May 20, 2015)]
[Notices]
[Pages 29106-29108]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-12149]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74970; File No. SR-ISE-2015-14]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend the Schedule of Fees To Introduce a New ``Retail'' 
Designation for Priority Customer Orders

May 14, 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 April 29, 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 
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 proposes to amend the Schedule of Fees to introduce a new 
``Retail'' designation for Priority Customer orders. 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 amend the Schedule of Fees to introduce a 
new ``Retail'' designation for Priority Customer orders. 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). This market participant 
type is one of six currently recognized for purposes of determining 
applicable fees and rebates, along with: Market Maker,\3\ Non-ISE 
Market Maker,\4\ Firm Proprietary,\5\ Broker-Dealer,\6\ and 
Professional Customer.\7\ The Priority Customer designation was adopted 
by the Exchange to provide competitive pricing and market structure 
advantages to retail investors, and to level the playing field between 
retail investors and market professionals. As such, Priority Customer 
orders executed on the Exchange are generally afforded more favorable 
fees and rebates than other market participants, including Professional 
Customers. The Exchange now believes that it is appropriate to 
introduce a further distinction between

[[Page 29107]]

market participants that fall within the definition of Priority 
Customer.
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    \3\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Rule 
100(a)(25).
    \4\ 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. 
See Schedule of Fees, Preface.
    \5\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account. See Schedule of Fees, 
Preface.
    \6\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account. 
See Schedule of Fees, Preface.
    \7\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer. See Schedule of 
Fees, Preface.
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    In particular, the Exchange proposes to introduce a new ``Retail'' 
designation for Priority Customer orders for the purpose of determining 
applicable fees and rebates. As proposed, a Retail order is a Priority 
Customer order that originates from a natural person, provided that no 
change is made to the terms of the order with respect to price or side 
of market and the order does not originate from a trading algorithm or 
any other computerized methodology. The proposed definition of a Retail 
order is designed to mirror a similar concept introduced by the New 
York Stock Exchange (``NYSE''), NYSE Amex (``Amex''), and other 
equities exchanges to promote price improvement for orders submitted by 
retail investors.\8\ The proposed rule change, however, is intended to 
provide benefits to retail options investors in the form of more 
favorable pricing rather than market structure changes.\9\ While the 
Exchange is not amending fees and rebates applicable to Priority 
Customer orders that are designated Retail at this time, the Exchange 
intends to introduce special fees and rebates for Retail orders at a 
later date, such that Retail orders will potentially be entitled to the 
most favorable fees and rebates available on the Exchange. Until such 
time, Retail orders will be charged the same fees and provided the same 
rebates as other Priority Customer orders.
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    \8\ See Securities Exchange Act Release No. 67347 (July 3, 
2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55; SR-NYSEAmex-
2011-84) (Approval Order). See also NYSE and Amex Rule 107C(a)(3).
    NYSE and Amex define a ``Retail Order'' as an agency order or a 
riskless principal order that meets the criteria of FINRA Rule 
5320.03 that originates from a natural person and is submitted to 
the Exchange by a Retail Member Organization, provided that no 
change is made to the terms of the order with respect to price or 
side of market and the order does not originate from a trading 
algorithm or any other computerized methodology.
    \9\ In addition, the Exchange notes that unlike the related 
equities programs, all members will be eligible to mark orders as 
Retail provided that the orders meet the requirements discussed 
above.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\10\ In 
particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\11\ because is designed to promote just and equitable principles 
of trade, remove impediments to and perfect the mechanisms of a free 
and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    Specifically, the proposed rule change will allow the Exchange to 
potentially offer more favorable fees and rebates to Retail orders that 
originate from natural persons. Currently, the Exchange distinguishes 
between orders executed for two categories of Public Customer: \12\ 
Priority and Professional Customers. Priority Customers are 
distinguished from Professional Customers by the requirement that they 
not place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s). Because of 
this limitation, Priority Customer orders are generally afforded more 
favorable fees and rebates than market professionals, including 
Professional Customers. The Exchange now believes that it is 
appropriate to distinguish further between orders that originate from a 
natural person (i.e., Retail orders) and other Priority Customer 
orders.
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    \12\ A ``Public Customer'' is a person or entity that is not a 
broker or dealer in securities. See Rule 100(a)(38).
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    The equities markets already provide benefits to order flow that 
originates from a natural person and not a trading algorithm or any 
other computerized methodology. The Exchange believes that the proposed 
definition of a Retail order is appropriate as it is substantially 
similar to the definition already used in the equities context, and is 
therefore already familiar to market participants. The Exchange notes, 
however, that unlike equities exchanges such as NYSE and Amex, it is 
not proposing any market structure changes at this time to accompany 
the introduction of a Retail designation for Priority Customer orders. 
All Priority Customer orders will continue to benefit from the current 
market structure benefits that they receive on the Exchange. In 
addition, Priority Customer orders other than Retail orders will 
continue to benefit from pricing that is generally more favorable than 
pricing adopted for Professional Customer and non-Customer orders.
    By adopting a definition of Retail order, the Exchange hopes to be 
able to offer potentially more favorable fees and rebates to retail 
investors. The Exchange believes that this will advance the goals 
identified when the Exchange first introduced the Priority Customer 
designation, by providing genuine retail investors with the best prices 
available on the Exchange. In this regard, the Exchange notes that the 
fees and rebates for Retail orders will initially be the same as fees 
and rebates for other Priority Customer orders; however, the Exchange 
will introduce additional pricing advantages for Retail orders at a 
later date pursuant to a proposed rule change filed with the 
Commission.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\13\ 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 the proposed Retail designation is an innovative 
change that evidences strong competition between options markets. In 
particular, the proposed rule change is designed to allow the Exchange 
to potentially offer the most favorable fees and rebates available to 
Retail orders that originate from natural persons. 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 changes reflect this competitive environment.
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    \13\ 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 Exchange believes that the foregoing proposed rule change may 
take effect upon filing with the Commission pursuant to Section 
19(b)(3)(A) \14\ of the Act and Rule 19b-4(f)(6) thereunder \15\ 
because the foregoing proposed rule change does not (i) significantly 
affect the protection of investors or the public interest, (ii) impose 
any significant burden on competition, and (iii) become operative for 
30 days after its filing date, or such

[[Page 29108]]

shorter time as the Commission may designate. The Exchange provided the 
Commission with written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date of filing the 
proposed rule change.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 proposal 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-2015-14 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549.

All submissions should refer to File No. SR-ISE-2015-14. 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 changes 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 the 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 No. SR-ISE-2015-14 and should be 
submitted on or before June 10, 2015.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12149 Filed 5-19-15; 8:45 am]
BILLING CODE 8011-01-P