[Federal Register: December 16, 2002 (Volume 67, Number 241)]
[Notices]
[Page 77116-77117]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16de02-88]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-46976; File No. SR-ISE-2002-26]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by International Securities
Exchange, Inc., Relating to Payment-for-Order-Flow and Marketing Fees
December 9, 2002.
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 November 20, 2002, the International Securities Exchange, Inc.
(``ISE'') filed with the Securities and Exchange Commission the
proposed rule change as described in Items I, II, and III below, which
the ISE has prepared. 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: (1) To reduce its payment-for-order-flow fee
from $.65 a contract to $.55 a contract; (2) to lower the cap on each
payment-for-order-flow fund from $650,000 to $550,000; and (3) to
extend the waiver of the marketing fee from December 31, 2002 to June
30, 2003. The text of the proposed rule change is available at the ISE
and at the Commission.
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 had received. 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 those statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The ISE operates a payment for order flow program as approved by
the Commission.\3\ This program is currently
[[Page 77117]]
funded through a $.65 fee paid by ISE market makers for each customer
contract they execute. The ISE is proposing to reduce its payment-for-
order-flow fee from $.65 a contract to $.55 a contract. The ISE also
has established a ceiling of $650,000 in each of the 10 payment-for-
order-flow funds it maintains.\4\ The ISE is proposing to lower the cap
on each payment-for-order-flow fund from $650,000 to $550,000.
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\3\ See Securities Exchange Act Release No. 43833 (January 10,
2001), 66 FR 7822 (January 25, 2001).
\4\ See Securities Exchange Act Release Nos. 45128 (December 4,
2001), 66 FR 64325 (December 12, 2001) and 45772 (April 17, 2002),
67 FR 20563 (April 25, 2002). The ISE has divided the options it
trades into 10 groups, with one Primary Market Maker assigned to
each group. The ISE maintains a payment-for-order-flow fund for each
group, consisting of the fees collected from market makers trading
options in that group. The Primary Market Maker for the group is
responsible for arranging and making all payments to Electronic
Access Members for order flow sent to the ISE in options in that
group.
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The ISE has also established a $.10 marketing fee, paid by market
makers on customer contracts, that funds general ISE marketing efforts
to increase order flow from Electronic Access members.\5\ The ISE has
waived that fee for the second half of this year.\6\ The ISE is
proposing to extend the waiver of the marketing fee from December 31,
2002 to June 30, 2003.
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\5\ See Securities Exchange Act Release No. 44102 (March 26,
2001), 66 FR 17590 (April 2, 2001).
\6\ See Securities Exchange Act Release No. 46189 (July 11,
2002), 67 FR 47587 (July 19, 2002).
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The ISE states that it regularly monitors the levels of these fees
and ceilings to help ensure that the payment-for-order-flow and
marketing efforts are sufficiently funded and that the fees it imposes
on its market makers are no higher than necessary. With respect to
payment-for-order-flow, the ISE states that it historically has
collected more money than its Primary Market Makers have paid out. The
ISE believes that it can adequately maintain this program with the
reduced fee and ceiling. With respect to the marketing fee, the ISE
currently has sufficient retained funds from the time the fee was in
effect to pay for anticipated marketing efforts for the beginning part
of next year. Thus, the ISE is proposing to extend this fee waiver
through June 2003.
The basis for this proposed rule change is the requirement of
section 6(b)(4) under the Act \7\ that an exchange have an equitable
allocation of reasonable dues, fees and other charges among its members
and other persons using its facilities.
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\7\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The ISE believes that the proposed rule change will 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 ISE has not solicited, and does not intend to solicit, comments
on this proposed rule change. The ISE 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)(A) of the Act \8\ and Rule 19b-4(f)(2) thereunder \9\ because
it changes an ISE fee. At any time within 60 days of the filing of such
proposed rule change, the Commission may summarily abrogate the 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.
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 19b-4(f)(2).
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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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
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. Copies of the filing will also be
available for inspection and copying at the principal office of the
ISE. All submissions should refer to SR-ISE-2002-26 and should be
submitted by January 6, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-31592 Filed 12-13-02; 8:45 am]
BILLING CODE 8010-01-P