[Federal Register: April 14, 2008 (Volume 73, Number 72)]
[Notices]
[Page 20079-20080]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14ap08-97]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57632; File No. SR-ISE-2008-29]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing of Proposed Rule Change Relating to the Price
Improvement Mechanism
April 8, 2008.
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 March 20, 2008, 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 substantially
prepared by the ISE. 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 is proposing to allow members to enter orders into the
Price Improvement Mechanism (``PIM'') at a price that matches the
national best bid or offer (``NBBO'') when the ISE market is inferior
to the NBBO. The text of the proposed rule change is available on the
ISE's Web site (http://www.iseoptions.com), at the principal office of
the ISE, 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 ISE 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 ISE 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
Several options exchanges have adopted a fee structure in which
firms
[[Page 20080]]
receive a rebate for the execution of orders resting on the limit order
book (i.e., posting liquidity) and pay a fee for the execution of
orders that trade against liquidity resting on the limit order book
(i.e., taking liquidity). The taker fees currently range up to $0.50
per contract, and this fee is charged without consideration of the
client category, thus applying to the execution of public customer
orders. In contrast, ISE does not charge a fee for the execution of
public customer orders.
The effective price paid by a customer who is purchasing an option
can be considerably higher on an exchange that charges a taker fee. For
example, a customer that enters a marketable limit order to buy 10
contracts for $0.10 will pay $100 on the ISE, whereas the cost of the
same transaction will be $105 if executed on an exchange with a $.50
taker fee. This represents an effective 5% increase for the customer.
Because public customer orders cannot be executed at prices that are
inferior to the NBBO, members are effectively forced to pay taker fees
when an exchange with a taker fee structure is at the NBBO. This is
because they either route their public customer orders directly to such
exchange or the taker fee is passed through when another exchange
accesses the NBBO on behalf of their customer through linkage.
In order to provide broker-dealers with an alternative method of
achieving an execution at the NBBO for their customers without having
to pay taker fees, the Exchange proposes to expand the applicability of
its PIM.\3\ The PIM currently allows members to enter two-sided orders
for execution at a price that improves upon the NBBO. The customer side
of these orders is then exposed to all market participants to give them
an opportunity to participate in the trade at the proposed cross price
or better. This provides an opportunity for the customer order to
receive additional price improvement. The Exchanges proposes to extend
the application of the PIM to permit a member to enter an order into
the PIM at a price that is equal to the NBBO when the ISE's best bid or
offer (``ISE BBO'') is inferior to the NBBO. This will allow members to
guarantee execution of their customer orders on the ISE at a price that
is at least as good as the NBBO, thus providing customers with an
opportunity for price improvement over the NBBO while also allowing
members to avoid paying taker fees.
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\3\ See Securities Exchange Act Release No. 50819 (December 8,
2004), 69 Fr 75093 (December 15, 2004) (approving rules implmenting
the PIM).
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2. Statutory Basis
The Exchange believes that the basis under the Act for this
proposed rule change is found in Section 6(b)(5),\4\ in that the
proposed rule change 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. Allowing members to
guarantee their customers an execution at the NBBO on an exchange that
does not charge a taker fee will lower the cost of trading and promote
a more efficient marketplace for public customer orders. In addition,
using the PIM to guarantee the price of the execution on the ISE will
give public customer orders an opportunity to receive price improvement
over the NBBO.
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\4\ 15 U.S.C. 78f(b)(5).
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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 written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(a) By order approve such proposed rule change or
(b) Institute proceedings to determine whether the proposed rule
change should be 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 e-mail to rule-comments@sec.gov. Please include
File No. SR-ISE-2008-29 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2008-29. 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
a.m. and 3 p.m. Copies of such 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-2008-29 and should be
submitted on or before May 5, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-7826 Filed 4-11-08; 8:45 am]
BILLING CODE 8011-01-P