Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), and Rule 19b-4 thereunder, notice is hereby given that on January 14, 2010, 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. On January 27, 2010, ISE filed Amendment No. 1 to the proposed rule change. On January 27, 2010, ISE withdrew Amendment No. 1 and filed Amendment No. 2 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
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. 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
ISE proposes to amend its Schedule of Fees. Specifically, the Exchange proposes to adopt a $0.20 per contract execution fee for professional customers who execute orders as a result of posting liquidity to ISE's order book.
ISE recently adopted a rule change to distinguish between Priority Customer Orders and Professional Orders. A Priority Customer is defined in ISE Rule 100(a)(37A) as a person or entity that is 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). A Professional Order is defined in ISE Rule 100(a)(37C) as an order that is for the account of a person or entity that is not a Priority Customer. For purpose of this discussion, “professional customers” are non-broker/dealer participants who enter at least 390 orders per day on average during a calendar month for their own beneficial account(s). The level of trading activity by professional customers more resembles that of market makers and proprietary traders on the Exchange than it does of other customers.
Currently, the primary distinction between the two types of customers is that Priority Customers take priority on the order book over professional customers. Professional customers are on parity with market makers and broker/dealers. However, professional customers generally do not pay transaction fees. Market makers and broker/dealers on the other hand pay transaction fees to the Exchange. Specifically, for market makers, the Exchange applies a sliding scale, between $0.01 and $0.18 per contract side, based on the number of contracts an ISE market maker trades in a month. Broker/dealer orders pay a flat execution fee of $0.20 per traded contract, regardless of whether they post liquidity to or take liquidity from ISE's order book when they enter orders. Broker/dealer fees are posted on the Exchange's fee schedule under the Firm Proprietary line item.
The Exchange now proposes to adopt a $0.20 per contract execution fee for professional customers who execute orders as a result of posting liquidity to ISE's order book. The proposed fee applies only to professional customer orders, i.e., non-broker/dealer customer orders; it does not apply to market maker and broker/dealer orders who, as noted above, already pay transaction fees.
As discussed, professional customers engage in trading activity similar to that conducted by market makers and proprietary traders. For example, professional customers continue to join bids and offers on the Exchange and thus compete for incoming order flow. Professional customers do so in direct competition with ISE's market makers, but with the distinct advantage of generally not paying transaction fees to the Exchange. ISE believes that adopting a “maker fee” for professional customers will put these market participants on a more equal footing with market makers and proprietary traders regarding fees paid for transacting on the Exchange.
The Exchange further notes that the proposed fees, while comparable to fees currently paid by broker/dealer orders, are less than those fees as the Exchange is only proposing to charge professional customers who execute orders as a result of posting liquidity to ISE's order Start Printed Page 5827book. The Exchange is not currently proposing to charge professional customers a fee for taking liquidity from ISE's order book.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent with the objectives of Section 6 of the Exchange Act, in general, and furthers the objectives of Section 6(b)(4), 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. In particular, the proposed rule change will help equalize competition between market makers, proprietary traders and professional customers on the 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  and Rule 19b-4(f)(2)  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.
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:
- Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
- Send an e-mail to firstname.lastname@example.org. Please include File Number SR-ISE-2010-06 on the subject line.
- Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2010-06. 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 inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10:00 am and 3 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 Number SR-ISE-2010-06 and should be submitted on or before February 25, 2010.Start Signature
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Florence E. Harmon,
3. Amendment No. 2 deleted a sentence in the purpose section of the filing and in Exhibit 1.Back to Citation
9. The Commission considers the 60-day period within which the Commission may summarily abrogate the proposal pursuant to Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C), to commence on January 27, 2010, the date ISE filed Amendment No. 2 to the proposal.Back to Citation
10. The text of the proposed rule change is available on ISE's Web site at http://www.ise.com, on the Commission's Web site at http://www.sec.gov, at ISE, and at the Commission's Public Reference Room.Back to Citation
[FR Doc. 2010-2334 Filed 2-3-10; 8:45 am]
BILLING CODE 8011-01-P