82 FR 14929 - Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees To Modify the Member Order Routing Program

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 55 (March 23, 2017)

[Federal Register Volume 82, Number 55 (Thursday, March 23, 2017)]
[Notices]
[Pages 14929-14931]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-05738]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80267; File No. SR-ISE-2017-24]


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

March 17, 2017.
    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 March 10, 2017, the 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. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Schedule of Fees to allow 
members to opt in to MORP for specific sessions rather than on a 
member-wide basis, and to increase MORP rebates for members that 
participate in the program.
    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 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
    On April 1, 2015, the Exchange launched the Member Order Routing 
Program (``MORP''),\3\ which is a program that provides enhanced 
rebates to order routing firms that select the Exchange as the default 
routing destination for unsolicited Crossing Orders.\4\ The purpose of 
the proposed rule change is to amend the Schedule of Fees to allow 
members to opt in to MORP for specific sessions rather than on a 
member-wide basis, and to increase MORP rebates for members that 
participate in the program. The Exchange believes that these changes 
will encourage members to participate in MORP.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 74706 (April 10, 
2016), 80 FR 20522 (April 16, 2016) (SR-ISE-2015-11).
    \4\ 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.
---------------------------------------------------------------------------

MORP Qualifications
    Currently, 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

[[Page 14930]]

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\
---------------------------------------------------------------------------

    \5\ An unsolicited Crossing Order is a Crossing Order entered by 
a member that has not solicited the contra side of the trade.
    \6\ 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.
---------------------------------------------------------------------------

    Importantly, today an EAM must opt in to MORP for all of its 
business, and cannot segment its business to be eligible for MORP for 
only specific portion of its order flow. This means that EAMs that 
would otherwise have a MORP qualifying business would be prohibited 
from participating in the program if certain segments of its business 
are not eligible for the program. The Exchange therefore proposes to 
increase the scope of MORP. In particular, the Exchange proposes to 
allow EAMs to opt in to MORP for specific sessions so that firms can 
appropriately segment their order flow such that sessions designated as 
MORP eligible can benefit from the program even though the firm may not 
qualify on a member-wide basis.\7\ As proposed, a member may designate 
one or more sessions to be eligible for MORP. If a session is 
designated as eligible for MORP all requirements for the program must 
be met for that session. In addition, to be eligible to participate in 
MORP an EAM must designate, in writing, to the Exchange which sessions 
are MORP eligible according to the criteria discussed above. Only 
designated sessions that are opted in to MORP will receive the benefits 
provided under the program. The Exchange believes that this change will 
make it easier for firms to participate in the program, thereby 
increasing volume executed in the Exchange's crossing mechanisms.
---------------------------------------------------------------------------

    \7\ A session is connection to the exchange over which a member 
submits orders. See Section V.C. of the Schedule of Fees.
---------------------------------------------------------------------------

Rebate for Unsolicited Crossing Orders
    Currently, an EAM that is MORP eligible receives 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.\8\ 
The Exchange proposes to increase the MORP rebate for eligible members 
that execute from 30,000 to 99,999 originating contract sides to $0.065 
per originating contract side. The MORP rebate for eligible members 
that execute 100,000 or more originating contract sides will remain 
$0.07 per originating contract side.
---------------------------------------------------------------------------

    \8\ The rebate for the highest tier achieved is applied 
retroactively to all eligible contracts traded in a given month. For 
purposes of determining whether the member meets the above ADV 
thresholds, any day that the Exchange 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.
---------------------------------------------------------------------------

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 is also 
eligible for increased Facilitation and Solicitation break-up rebates 
\9\ for their Non-ISE Market Maker,\10\ Firm Proprietary,\11\ Broker-
Dealer,\12\ Professional Customer,\13\ and Priority Customer 
orders.\14\ Currently, MORP eligible members that execute a qualifying 
ADV in unsolicited Crossing Orders of at least 30,000 originating 
contract sides, receive a Facilitation and Solicitation break-up rebate 
that is $0.35 per contract for regular and complex orders in Select 
Symbols,\15\ $0.15 per contract for regular orders in Non-Select 
Symbols,\16\ $0.80 per contract for complex orders in Non-Select 
Symbols, and $0.15 per contract for regular and complex orders in 
foreign exchange option classes (``FX Options''). The Exchange proposes 
to increase these Facilitation and Solicitation break-up rebates for 
MORP-eligible members to $0.42 per contract for regular and complex 
orders in Select Symbols, $0.20 per contract for regular orders in Non-
Select Symbols, $1.08 per contract for complex orders in Non-Select 
Symbols. Regular and complex orders in FX Options will continue to 
receive a Facilitation and Solicitation break-up rebate of $0.15 per 
contract.
---------------------------------------------------------------------------

    \9\ Break-up rebates are provided for contracts that are 
submitted to the Facilitation and Solicited Order Mechanisms that do 
not trade with their contra order except when those contracts trade 
against pre-existing orders and quotes on the Exchange's orderbooks. 
The applicable fee for Crossing Orders is applied to any contracts 
for which a rebate is provided.
    \10\ 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.
    \11\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \12\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \13\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \14\ 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).
    \15\ ``Select Symbols'' are options overlying all symbols listed 
on the ISE that are in the Penny Pilot Program.
    \16\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes the proposed change to the MORP 
qualifications is reasonable and equitable because it is designed to 
make it easier for EAMs to participate in the program. Currently, an 
EAM that wishes to participate in MORP must be eligible to participate 
across the entire firm. Thus, firms that have business segments that 
are not MORP-eligible cannot participate with respect to those business 
segments that are. The Exchange believes that the proposed rule change 
will allow firms to participate in the program if they meet the 
requirements with respect to any segment of their order flow. This will 
encourage order routing firms to execute additional unsolicited 
Crossing Order volume on the Exchange, and will benefit all market 
participants on ISE by creating additional liquidity and increased 
opportunity to trade. In addition, the Exchange believes that the 
proposed change is not unfairly discriminatory as it would make it 
easier for firms to participate in the program, thus potentially 
sharing the

[[Page 14931]]

rewards of the program with additional EAMs that may not otherwise 
qualify. With the proposed changes, any qualifying EAM with designated 
sessions that meet the requirements of the program by offering 
appropriate market access and connectivity to the Exchange will be able 
to participate in MORP on an equal and non-discriminatory basis.
    The Exchange believes the proposed increases to MORP rebates, 
including the rebate for unsolicited Crossing Orders, and the 
Facilitation and Solicitation break-up rebate, are reasonable and 
equitable because these changes are designed to incentivize additional 
participation in the program. Under MORP the Exchange currently 
provides enhanced 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. The Exchange 
proposes to increase the rebates to incentivize additional firms to 
participate in the program, and to encourage firms to send additional 
order flow to the Exchange in order to benefit from the increased 
rebates. The Exchange believes that the proposed rebates will be 
attractive to members to opt in to MORP, and are competitive with 
rebates provided on other options exchanges. In addition, the Exchange 
believes that the proposed rebates are not unfairly discriminatory as 
they apply to all EAMs that meet the program requirements and opt in to 
the program. Any EAM that participates in the program will be provided 
the increased rebates on an equal and non-discriminatory basis based on 
the order flow executed on the Exchange. While MORP is targeted towards 
unsolicited Crossing Order flow, the Exchange offers other incentive 
programs to promote and encourage growth in other business areas. For 
example, solicited Crossing Orders 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 MORP is appropriately tailored to the order flow 
that the Exchange is seeking to attract, and will benefit all market 
participants that trade on ISE by encouraging additional liquidity.

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 proposed 
rule change is designed to make it easier for firms to participate in 
MORP and increases incentives for doing so, in order to remain 
competitive with other options exchanges. 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.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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\ 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.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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-2017-24 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-2017-24. 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 the 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-2017-24 and should be 
submitted on or before April 13, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05738 Filed 3-22-17; 8:45 am]
 BILLING CODE 8011-01-P