[Federal Register Volume 82, Number 248 (Thursday, December 28, 2017)]
[Notices]
[Pages 61599-61601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-28081]



[[Page 61599]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82396; File No. SR-ISE-2017-108]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees To Clarify the Market Maker Plus Program

December 22, 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 December 12, 2017, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II 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.
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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 Exchange proposes to amend the Schedule of Fees to clarify the 
Market Maker Plus program.
    The text of the proposed rule change is available on the Exchange's 
website at http://ise.cchwallstreet.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
    The Exchange operates a Market Maker Plus program for regular 
orders in Select Symbols\3\ whereby Market Makers that contribute to 
market quality by maintaining tight markets are eligible for enhanced 
rebates. The purpose of the proposed rule change is to amend the 
Schedule of Fees to clarify how the Exchange provides Market Maker Plus 
rebates under the Schedule of Fees.
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    \3\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Pilot Program.
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    A Market Maker Plus is a Market Maker who is on the National Best 
Bid or National Best Offer (``NBBO'') a specified percentage of the 
time for series trading between $0.03 and $3.00 (for options whose 
underlying stock's previous trading day's last sale price was less than 
or equal to $100) and between $0.10 and $3.00 (for options whose 
underlying stock's previous trading day's last sale price was greater 
than $100) in premium in each of the front two expiration months.\4\ 
Currently, the specified percentage for time at the NBBO for Select 
Symbols other than SPY and QQQ is 80% to less than 85% for Tier 1, 85% 
to less than 95% for Tier 2, and 95% or greater for Tier 3. For SPY and 
QQQ only, the specified percentage for time at the NBBO is 70% to less 
than 80% for Tier 1, 80% to less than 85% for Tier 2, 85% to less than 
90% for Tier 3, and 90% or greater for Tier 4.
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    \4\ A Market Maker's single best and single worst quoting days 
each month based on the front two expiration months, on a per symbol 
basis, will be excluded in calculating whether a Market Maker 
qualifies for this rebate, if doing so will qualify a Market Maker 
for the rebate. Other than days where the Exchange closes early for 
holiday observance, any day that the market 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 the Market 
Maker Plus tier calculation; provided that the Exchange will only 
remove the day for members that would have a lower time at the NBBO 
for the specified series with the day included.
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    Due to how quoting infrastructure is designed on INET, when 
determining if the Market Maker meets the above specified percentages, 
Market Maker Plus status is calculated independently based on quotes 
entered in a symbol for each of the Market Maker's badge/suffix 
combinations.\5\ If any badge/suffix combination meets the specified 
percentage for a tier, the rebates for that tier are applied to 
executions for all badge/suffix combinations used by the member to 
trade the product--i.e., a member's highest tier achieved for any 
badge/suffix combination quoting that symbol applies to executions 
across all badge/suffix combinations that the member uses to trade in 
that symbol. The same logic applies for linked rebates in SPY/QQQ, 
meaning that if a member achieves a higher tier of Market Maker Plus 
for any badge/suffix combination in one product (e.g., SPY) but not for 
badge/suffix combinations in the other linked product (e.g., QQQ), the 
member would receive the linked rebate in the other product for all 
badge/suffix combinations.
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    \5\ Market Makers may enter quotes in a symbol using one or more 
unique, exchange assigned identifiers--i.e., badge/suffix 
combinations.
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    For example, assume Market Maker ABC is configured to trade SPY in 
the following badge/suffix combinations: 123A, 123B, and 321A, and is 
on the NBBO 97% of the time in 123A, 86% of the time in 123B, and 92% 
of the time in 321A. Based on these facts, Market Maker ABC would 
qualify for Tier 3 rebates in SPY for 123A based on a time at the NBBO 
of 95% or greater. In addition Market Maker ABC would qualify for the 
same Tier 3 rebates in SPY for 123B and 321A as the highest tier 
achieved is applied to all badge/suffix combinations. If Market Maker 
ABC also quotes QQQ in 321A, and is on the NBBO 80% of the time for 
that badge/suffix, it would similarly receive the Tier 3 Linked Rebate 
for QQQ in 321A based on quoting activity for SPY in 123A.
    Based on the above, the Exchange proposes to amend footnote 5 under 
Section I. Regular Order Fees and Rebates to provide that: ``Market 
Makers may enter quotes in a symbol using one or more unique, exchange 
assigned identifiers--i.e., badge/suffix combinations. Market Maker 
Plus status is calculated independently based on quotes entered in a 
symbol for each of the Market Maker's badge/suffix combinations, and 
the highest tier achieved for any badge/suffix combination quoting that 
symbol applies to executions across all badge/suffix combinations that 
the member uses to trade in that symbol.'' In addition, the Exchange 
proposes to amend the second sentence of footnote 9 under Section I. 
Regular Order Fees and Rebates to provide that: ``Linked maker rebate 
applies to executions in SPY or QQQ if the Market Maker does not 
achieve the applicable tier in that symbol but achieves the tier (i.e., 
any of Market Maker Plus Tiers 2-4) for any badge/suffix combination in 
the other symbol, in which case the higher tier achieved applies to 
both symbols.''
    Furthermore, the Schedule of Fees provides that if a Market Maker 
achieves Market Maker Plus status, a $0.10 per contract fee applies 
when trading against Priority Customer complex orders that leg into the 
regular order book, and there will be no fee charged or rebate provided 
when trading against non-Priority Customer complex orders that leg into 
the regular order book. The

[[Page 61600]]

$0.10 per contract fee described above has always been applied instead 
of the tiered rebate that normally applies to Market Maker Plus 
executions.\6\ To increase transparency to members, the Exchange 
proposes to explicitly state in the Schedule of Fees that no Market 
Maker Plus rebate is provided when a fee is charged. As proposed, the 
first line of footnote 10 under Section I. Regular Order Fees and 
Rebates will be amended to provide that: ``A $0.10 per contract fee 
applies instead of the applicable Market Maker Plus rebate when trading 
against Priority Customer complex orders that leg into the regular 
order book.'' Although this change is consistent with current practice, 
the Exchange believes that it will eliminate any potential confusion 
around whether a rebate is provided in addition to the fee charged when 
trading against Priority Customer complex orders that leg into the 
regular order book.
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    \6\ See Securities Exchange Act Release No. 72817 (August 12, 
2014), 79 FR 48801 (August 18, 2014) (SR-ISE-2014-39).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\8\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among members and issuers and other persons using any facility, 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed rule change is reasonable 
and equitable as it identifies how Market Maker Plus rebates are 
provided on INET, which performs the Market Maker Plus calculation at 
the badge/suffix level and applies Market Maker Plus rebates to 
executions across all badge/suffix combinations that the member uses to 
trade in that symbol, or to trade in a linked symbol in the case of 
linked maker rebates for SPY/QQQ. The Exchange believes that it is 
appropriate to amend the Schedule of Fees so that members are 
appropriately apprised of how the Market Maker Plus program is 
implemented on INET. By including this detail in the Schedule of Fees, 
the proposed rule change will increase transparency around the 
Exchange's billing to the benefit of its members, and in particular, 
Market Makers that participate in the Market Maker Plus Program.
    The INET implementation being codified in this proposed rule change 
is different in one respect from the prior implementation on the legacy 
T7 trading system. Specifically, although the T7 billing system 
similarly applied the rebates to all of a Market Maker's executions in 
a symbol where the member met the Market Maker Plus requirements, the 
calculation for time at the NBBO was based on all quotes submitted by 
the member. On the legacy system, Market Makers were assigned Business 
Unit designations for their quoting, with the majority of Market Makers 
being configured with only one Business Unit for all of the firm's 
quoting activity across the suite of products listed by the 
Exchange.\9\ On INET, by contrast, Market Makers are assigned one or 
more accounts and can associate different badge/suffix combinations 
with each of those accounts--for example, to manage quotes in a 
particular product. As currently implemented on INET, Market Makers 
that quote a product across multiple badge/suffix combinations have to 
qualify for a tier for one or more badge/suffix combinations in order 
to qualify for that tier of Market Maker Plus. Because of the different 
system architecture, which allows flexibility in setting up badge/
suffix combinations associated with a Market Maker account(s), the INET 
billing system does not aggregate quoting activity across these 
separate badge/suffix combinations to determine eligibility. However, 
once a member qualifies for one badge/suffix combination, rebates are 
paid across all of the Market Maker's badge/suffix combinations that 
trade the product, thereby ensuring that Market Makers receive this 
benefit across the entire firm when enhancing market quality.
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    \9\ A number of users could be permissioned for each Business 
Unit.
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    The vast majority of Market Makers that choose to enter quotes for 
a product using a single badge/suffix combination on INET are 
unaffected by this change, which only impacts firms that decide to 
quote a product across multiple badge/suffix combinations. In 
conducting an analysis of Market Makers potentially impacted by this 
change because the member quotes a single symbol using more than one 
badge/suffix combination on INET, the Exchange found only one member 
that did so and only during one month in a total of three symbols. The 
Exchange therefore believes that members are unlikely to be negatively 
impacted in their ability to earn rebates for their market quality 
contribution under the INET implementation. Furthermore, for Market 
Makers that do choose to enter quotes for a single product using 
multiple badge/suffix combinations, the Exchange believes that this 
implementation is appropriate as these members may be conducting 
separate business across these badge/suffix combinations and should 
therefore have their contribution to market quality measured at that 
level. Nevertheless, as mentioned above, the program benefits continue 
to accrue to all badge/suffix combinations once one badge/suffix 
combination qualifies for that tier of Market Maker Plus. Paying 
rebates across the entire firm based on the highest tier of Market 
Maker Plus achieved in a symbol adds an extra incentive for members to 
qualify for Market Maker Plus in one or more badge/suffix combinations 
by maintaining quality markets based on time at the NBBO.
    The Exchange also believes that the proposed changes are not 
unfairly discriminatory as all Market Makers are free to configure 
their quoting activity across one or more badge/suffix combinations 
based on their business or other needs, and will be treated uniformly 
based on their quoting activity (i.e., time at the NBBO) and 
configuration (i.e., badge/suffix setup) in the manner described in 
this proposed rule change. As described above, this change is unlikely 
to have any significant effect on any Market Maker's ability to earn 
rebates under the Market Maker Plus program because it is rare for 
Market Makers to quote a single product across multiple badge/suffix 
combinations, and any impact can be mitigated by the Market Maker 
determining to quote a product using only one badge/suffix combination. 
Moreover, to the extent that any Market Maker chooses to use multiple 
badge/suffix combinations to quote a particular symbol, the Exchange 
believes that such member may be conducting separate business across 
these badge/suffix combinations and it is therefore not unfairly 
discriminatory to have the firm's contribution to market quality 
measured at that level. Furthermore, the proposed rule change will 
increase transparency around how Market Maker Plus rebates are applied, 
which is beneficial for all members.
    Finally, the Exchange believes that the proposed clarification to 
the fee charged for trading against Priority Customer complex orders 
that leg into the regular order book is reasonable, equitable, and not 
unfairly discriminatory as it avoids potential member confusion about 
whether a rebate is provided when the fee is charged. Although prior 
filings were

[[Page 61601]]

more clear that a rebate is not provided when a fee is charged, the 
Exchange wishes to be explicit about this in the text of the Schedule 
of Fees. The Exchange believes that the proposed change will increase 
transparency around the Exchange's billing to the benefit of its 
members.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change 
describes the INET implementation of the Market Maker Plus program. 
While certain elements of the program are changed from the prior T7 
practice, for the reasons described in this proposed rule change the 
Exchange does not believe that any members will be significantly 
impacted by the changes. The Exchange therefore believes that the 
Market Maker Plus program will continue to encourage competition by 
incentivizing Market Makers to provide liquidity and maintain tight 
markets in Select Symbols. Furthermore, the proposed rule change 
explains that rebates are not provided when a fee is charged for 
trading against Priority Customer complex orders that leg into the 
regular order book. This language merely describes the Exchange's 
billing, which remains unchanged, and will increase transparency to 
members without any impact on competition. The Exchange operates in a 
highly competitive market in which market participants can readily 
favor competing venues if they deem fee levels at a particular venue to 
be excessive, or rebate opportunities available at other venues to be 
more favorable. In such an environment, the Exchange must continually 
adjust its fees to remain competitive. Because competitors are free to 
modify their own fees in response, and because market participants may 
readily adjust their order routing practices, the Exchange believes 
that the degree to which fee changes in this market may impose any 
burden on competition is extremely limited.

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,\10\ and Rule 19b-4(f)(2) \11\ thereunder. 
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.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-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. 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-2017-108 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-2017-108. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ISE-2017-108 and should be submitted on 
or before January 18, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-28081 Filed 12-27-17; 8:45 am]
 BILLING CODE 8011-01-P