81 FR 72636 - Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 203 (October 20, 2016)

[Federal Register Volume 81, Number 203 (Thursday, October 20, 2016)]
[Notices]
[Pages 72636-72638]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-25344]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79100; File No. SR-ISE-2016-25]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend the Schedule of Fees

October 14, 2016.
    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 October 3, 2016, the International Securities Exchange, LLC (``ISE'' 
or ``Exchange'') 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 
Exchange. 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 Exchange proposes to amend the Schedule of Fees as described in 
more detail below.
    The text of the proposed rule change is available on the Exchange's 
Web site at 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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the

[[Page 72637]]

proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The Exchange 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 Exchange's 
Schedule of Fees to make changes to (1) the Market Maker Plus \3\ 
program in SPY and QQQ, (2) Priority Customer \4\ taker fees in Select 
Symbols,\5\ and (3) the fee cap for strategy orders. Each of these 
changes is described below.
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    \3\ A Market Maker Plus is a Market Maker who is on the National 
Best Bid or National Best Offer a specified percentage 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. The specified percentage is at least 80% but lower than 85% 
of the time for Tier 1, at least 85% but lower than 95% of the time 
for Tier 2, and at least 95% of the time for Tier 3. 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.
    \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\ ``Select Symbols'' are options overlying all symbols listed 
on the ISE that are in the Penny Pilot Program.
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Market Maker Plus
    In order to promote and encourage liquidity in Select Symbols, the 
Exchange offers Market Makers \6\ that meet the quoting requirements 
for Market Maker Plus enhanced rebates for adding liquidity in those 
symbols. These Market Maker Plus rebates are provided on a per symbol 
basis in three tiers based on the time the Market Maker is quoting at 
the national best bid or offer (``NBBO''). Currently, the rebate is 
$0.10 per contract for Tier 1, $0.18 per contract for Tier 2, and $0.22 
per contract for Tier 3.\7\ The Exchange now proposes to introduce a 
special rebate program for Market Makers that achieve Market Maker Plus 
in SPY or QQQ.\8\ Specifically, Market Makers that achieve Tier 2 or 3 
of Market Maker Plus in either SPY or QQQ will receive the SPY or QQQ 
rebate based on the highest Market Maker Plus tier achieved in either 
product. For example, a Market Maker that achieves Tier 1 Market Maker 
Plus in QQQ but Tier 3 Market Maker Plus in SPY will receive a Tier 3 
rebate in both SPY and QQQ. Instead of the current rebates, however, 
Market Maker Plus orders in SPY or QQQ would be entitled to a rebate of 
$0.16 per contract for Tier 2, and $0.20 per contract for Tier 3. The 
Exchange believes that allowing Market Makers to qualify for higher 
tiers of Market Maker Plus in SPY and QQQ based on quoting at the NBBO 
in either product will encourage Market Makers to continue to make 
tight markets in these very active symbols, even with the slightly 
lower proposed rebate amounts.
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    \6\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \7\ For all Market Maker Plus tiers, a $0.30 per contract fee 
applies when trading against Priority Customer complex orders that 
leg into the regular order book. No fee is charged or rebate 
provided when trading against non[hyphen]Priority Customer complex 
orders that leg into the regular order book.
    \8\ Market Makers will continue to receive the rebates described 
above for products other than SPY or QQQ.
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Priority Customer Taker Fees
    The Exchange charges a taker fee for regular orders in Select 
Symbols. This fee is $0.44 per contract for Market Maker orders, and 
$0.45 per contract for Non-ISE Market Maker,\9\ Firm Proprietary \10\/
Broker-Dealer,\11\ and Professional Customer orders.\12\ For Priority 
Customer orders this fee is $0.30 per contract, or $0.25 per contract 
for Members with a total affiliated Priority Customer average daily 
volume (``ADV'') that equals or exceeds 200,000 contracts.\13\ The 
Exchange now proposes to increase the taker fee for Priority Customer 
orders in Select Symbols to $0.31 per contract, or $0.26 per contract 
for Members that achieve the higher Priority Customer ADV tier.
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    \9\ A ``Non[hyphen]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.
    \10\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \11\ A ``Broker[hyphen]Dealer'' order is an order submitted by a 
member for a broker[hyphen]dealer account that is not its own 
proprietary account.
    \12\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \13\ Priority Customer ADV includes all volume in all symbols 
and order types. All eligible volume from affiliated Members will be 
aggregated in determining total affiliated Priority Customer ADV, 
provided there is at least 75% common ownership between the Members 
as reflected on each Member's Form BD, Schedule A. For purposes of 
determining Priority Customer ADV, any day that the regular order 
book is not open for the entire trading day or the Exchange 
instructs members in writing to route their orders to other markets 
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.
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Strategy Caps
    In November 2015, the Exchange introduced a strategy fee cap 
program that provides a cap on Market Maker, Non-ISE Market Maker, Firm 
Proprietary/Broker-Dealer, and Professional Customer fees charged for 
six types of strategy trades: Reversals, conversions, jelly rolls, 
mergers, short stock interest, and box spreads.\14\ In particular, the 
Exchange caps transaction fees associated with strategy executions at 
$750 per trade for orders executed on the same day in the same option 
class. In addition, strategy trades are subject to a monthly cap of 
$25,000 per member for all strategy executions.\15\ If a member submits 
an order that qualifies for the per trade or per month fee cap for 
strategy orders, only the amount actually paid for those trades (i.e., 
the capped amounts) are counted towards the Crossing Fee Cap, if 
applicable.\16\ The Exchange now proposes to eliminate these strategy 
caps, which have not attracted a significant volume of strategy 
executions to the Exchange.
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    \14\ See Securities Exchange Act Release No. 76451 (November 17, 
2015), 80 FR 73034 (November 23, 2015) (SR-ISE-2015-37).
    \15\ All eligible volume from affiliated members will be 
aggregated for purposes of the fee cap, provided there is at least 
75% common ownership between the members as reflected on each 
member's Form BD, Schedule A.
    \16\ For example, if a member submits a strategy order that 
would normally incur a fee of $2,000 but is capped at $750 per 
trade, only the $750 that is actually paid by the member is counted 
towards the Crossing Fee Cap, if applicable.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\17\ in general, and 
Section 6(b)(4) of the Act,\18\ 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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    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b)(4).
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Market Maker Plus
    The Exchange believes that it is reasonable and equitable to offer 
special rebates for Market Makers that achieve Market Maker Plus in SPY 
or QQQ. As proposed, Market Makers would receive a slightly lower 
Market Maker Plus rebate in these two symbols, but would be able to 
receive higher tiers of rebates in both of these symbols by meeting the

[[Page 72638]]

requirements of Market Maker Plus in either symbol. The Market Maker 
Plus program was designed by the Exchange to reward members based on 
maintaining tight markets in options that they quote on ISE. The 
proposed changes will continue to provide these incentives to Market 
Makers, to the benefit of all market participants that trade on the 
Exchange. Furthermore, the Exchange does not believe that the proposed 
fee change is unfairly discriminatory as all Market Makers will qualify 
for the same rebates based on achieving the appropriate tier of Market 
Maker Plus status in these products. Finally, the Exchange continues to 
believe that it is not unfairly discriminatory to offer these rebates 
only to Market Makers as Market Makers, and, in particular, those 
Market Makers that achieve Market Maker Plus status, are subject to 
additional requirements and obligations (such as quoting requirements) 
that other market participants are not.
Priority Customer Taker Fees
    The Exchange believes that the increased Priority Customer taker 
fees are reasonable and equitable because the proposed fees are only 
one cent above their current levels, and remain significantly lower 
than the fees charged to other market participants that remove 
liquidity on the Exchange. In addition, the Exchange believes that it 
is equitable and not unfairly discriminatory to continue to provide 
lower fees for Priority Customer orders. 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, who 
will generally submit a higher number of orders than Priority 
Customers.
Strategy Caps
    The Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to eliminate its fee cap for strategy orders as 
the fee cap has not been successful in attracting that order flow to 
the Exchange. In removing the fee cap, strategy trades will no longer 
be singled out for special incentives on the Exchange, consistent with 
treatment of these trades prior to the introduction of the fee cap in 
November 2015.

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

    In accordance with Section 6(b)(8) of the Act,\19\ 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 the proposed fees and rebates remain competitive with 
those on other options markets, and will continue to attract order flow 
to the Exchange. 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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    \19\ 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

    No written comments were either solicited or received.

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,\20\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\21\ because it establishes a due, fee, or other charge 
imposed by ISE.
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    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \21\ 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-2016-25 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-2016-25. 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-2016-25, and should be 
submitted on or before November 10, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-25344 Filed 10-19-16; 8:45 am]
BILLING CODE 8011-01-P