ISE accuses options marts of unfair fees practices

The letter expands upon previous comments that ISE submitted in response to the SEC's proposed amendments to Rule 610 of Regulation NMS that would prohibit an options exchange from imposing unfairly discriminatory terms limiting access to its quotations. ISE's new comment letter describes high fees targeted at certain market participants at the Boston Options Exchange (BOX), Chicago Board Options Exchange (CBOE), and Nasdaq OMX PHLX (PHLX) that harm retail investors by serving as a barrier to competition to interact with retail order flow.

"ISE has always been committed to fostering a fair, efficient marketplace for all types of investors. As fee schedules in the options industry grow increasingly complex, it is important for the SEC to ensure that opaque fee practices do not foster unfair discrimination among categories of market participants nor work against the robust competitive standards the Commission has set for the marketplace," said Gary Katz, President and Chief Executive Officer of ISE. "We have identified three instances where other options exchanges are using their fee schedules to 'stack the deck' in favor of firms that seek to trade against their retail customer order flow and deny these investors the full benefits of market competition for their orders. As part of their ongoing review of market structure issues, we urge the SEC to examine these practices and to take the necessary actions to prevent discriminatory fees that harm retail options investors."

The discriminatory fee practices identified by ISE relate to certain fees applied to orders executed in BOX's Price Improvement Period (PIP) and in the CBOE's PIP-equivalent, known as the Automated Improvement Mechanism. Additionally, ISE's comment letter examines a discriminatory fee levied by PHLX for participants seeking to interact with Facilitation Orders transacted on the exchange floor.