[Federal Register Volume 83, Number 59 (Tuesday, March 27, 2018)]
[Notices]
[Pages 13173-13176]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06099]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82920; File No. SR-ISE-2018-20]


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

March 22, 2018.
    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 March 13, 2018, 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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[[Page 13174]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Market Maker Plus program in the 
Schedule of Fees.
    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 \4\ that contribute 
to market quality by maintaining tight markets are eligible for 
enhanced rebates. The purpose of the proposed rule change is to amend: 
(1) The expirations that are used to evaluate a Market Maker's 
performance and hence eligibility for rebates, and (2) the process for 
excluding certain days from the Market Maker Plus calculation. The 
Exchange believes that these proposed changes will encourage Market 
Makers to make quality markets in Select Symbols and thereby further 
the goals of the Market Maker Plus program.
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    \3\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Pilot Program.
    \4\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(28).
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    Market Maker orders in Select Symbols are charged a maker fee of 
$0.10 per contract; \5\ provided that Market Makers that qualify for 
Market Maker Plus will not pay this fee if they meet the applicable 
tier thresholds set forth in the table below, and will instead receive 
the rebates described in the table based on the applicable tier for 
which they qualify.\6\ The Exchange is not proposing to amend the 
Market Maker Plus rebates, which will remain unchanged, but proposes to 
make changes to the process for evaluating Market Makers for achieving 
Market Maker Plus status.
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    \5\ This fee also applies to Market Maker orders sent to the 
Exchange by Electronic Access Members.
    \6\ 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. There will be 
no fee charged or rebate provided when trading against non-Priority 
Customer complex orders that leg into the regular order book.

                  Select Symbols Other Than SPY and QQQ
------------------------------------------------------------------------
                                                                  Maker
         Market Maker Plus tier (specified percentage)           rebate
                                                                   ($)
------------------------------------------------------------------------
Tier 1 (80% to less than 85%).................................    (0.15)
Tier 2 (85% to less than 95%).................................    (0.18)
Tier 3 (95% or greater).......................................    (0.22)
------------------------------------------------------------------------


                               SPY and QQQ
------------------------------------------------------------------------
                                                       Regular   Linked
                                                        maker     maker
    Market Maker Plus tier (specified percentage)      rebate    rebate
                                                         ($)     \7\ ($)
------------------------------------------------------------------------
Tier 1 (70% to less than 80%).......................    (0.00)       N/A
Tier 2 (80% to less than 85%).......................    (0.18)    (0.16)
Tier 3 (85% to less than 90%).......................    (0.22)    (0.20)
Tier 4 (90% or greater).............................    (0.26)    (0.24)
------------------------------------------------------------------------

    A Market Maker Plus is defined in the Schedule of Fees as 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.\8\ Performance in each of the front two expiration 
months is measured daily, and would include all available expirations 
from the that trading day up to and including the first monthly 
expiration (i.e., the 1st front expiration month), and all expirations 
after the first monthly expiration up to and including the second 
monthly expiration (i.e., the 2nd front expiration month). At the end 
of the month, the Exchange calculates a monthly average based on daily 
performance in each of these two buckets, and Market Makers that meet 
the specified percentage of time at the NBBO in both buckets will 
qualify for the associated Market Maker Plus rebate.
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    \7\ Market Makers that qualify for Market Maker Plus Tiers 2-4 
for executions in SPY or QQQ may be eligible for a linked maker 
rebate in addition to the regular maker rebate for the applicable 
tier. 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. The regular maker 
rebate will be provided in the symbol that qualifies the Market 
Maker for the higher tier based on percentage of time at the NBBO.
    \8\ 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.
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    In practice, using the front two expiration months to measure 
performance means that a Market Maker's performance is evaluated based 
on a shrinking number of contracts as the trading day approaches the 
monthly expiration date. For example, on February 1, 2018, a Market 
Maker's performance in symbol AAPL would have been measured in a number 
of weekly and monthly expirations leading up to and including the 
February monthly expiration (i.e., for the 1st front expiration month), 
and similarly in a number of weekly and monthly expirations beginning 
after the February monthly expiration up to and including the March 
monthly expiration (i.e., for the 2nd front expiration month). On 
February 15, 2018, however, the 1st front expiration month would 
include only one expiration--i.e., the February 16, 2018 monthly 
contract that expires the next day. The Exchange believes that this 
frustrates the goals of the Market Maker Plus program as Market Makers 
need to maintain quotes at the NBBO in a more limited number of 
expirations as the next monthly expiration approaches, and will not get 
credit for maintaining tight quotes in other expirations that are not 
included.
    The Exchange therefore proposes to change its Market Maker Plus 
methodology to ensure that a full month's worth of expirations are 
always included in each bucket for the Market Maker Plus calculation. 
Specifically, the Exchange proposes to amend the Market Maker Plus 
language to provide that: ``Market Makers are evaluated each trading 
day for the percentage of time spent on the National Best Bid or 
National Best Offer (``NBBO'') for qualifying series that expire in two 
successive thirty calendar day periods beginning on that trading day.'' 
Thus under the proposed methodology, on

[[Page 13175]]

February 15, 2018, the periods referenced above would include all 
expirations: (1) From February 15, 2018 to March 17, 2018, and (2) from 
March 18, 2018 to April 17, 2018. Furthermore, the Exchange proposes to 
amend the definition of Market Maker Plus by clarifying that Market 
Maker Plus status requires the Market Maker to meet the specified 
percentage of time at the NBBO as a monthly average based on daily 
performance in each of the two successive periods described above.\9\ 
Qualifying series will also be defined separately as 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--i.e., 
current language without the reference to the front two expiration 
months, which the Exchange proposes to eliminate in connection with the 
changes to the expiration periods used by the Exchange in the Market 
Maker Plus calculation.\10\ Finally, the Exchange proposes to add 
language that emphasizes that if a Market Maker would qualify for a 
different Market Maker Plus tier in each of the two successive periods 
described above, then the lower of the two Market Maker Plus tier 
rebates shall apply to all contracts. The proposed changes would add 
transparency around the process for evaluating Market Maker Pus 
status--i.e., by including more operational language that describes how 
performance is measured--and change the process to ensure that an 
appropriate number of expirations are included in the calculation.
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    \9\ The current language contains a reference to the ``National 
Best Bid or National Best Offer,'' which the Exchange proposes to 
change to ``NBBO,'' based on defining NBBO as National Best Bid or 
National Best Offer in the immediately preceding sentence.
    \10\ The Exchange proposes to remove all references to the front 
two expiration months in the Market Maker Plus description (e.g., in 
the section on excluding certain days from the Market Maker Plus 
calculation). Where applicable the Exchange will refer instead to 
the proposed thirty calendar day periods.
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    In addition, the Schedule of Fees provides that a Market Maker's 
single best and single worst quoting days each month,\11\ on a per 
symbol basis, will be excluded in calculating whether a Market Maker 
qualifies for the Market Maker Plus rebate, if doing so will qualify a 
Market Maker for the rebate.\12\ While this provision is intended to 
aid Market Makers in achieving Market Maker Plus status, and therefore 
only applies if better for the Market Maker (i.e., if excluding these 
days will qualify the Market Maker for the rebate), it may provide a 
disincentive for Market Makers to increase their performance at the end 
of the month to meet a higher tier as the Market Maker's best quoting 
day may be removed in addition to the worst. For example, a Market 
Maker that is on the border between Tier 1 and Tier 2 on the last 
trading day of the month based on time at the NBBO could attempt to 
reach the higher tier by quoting more aggressively on that day but 
would not be incentivized to do if the day would simply be removed as 
the best quoting day for the month. The Exchange therefore proposes to 
remove only the Market Maker's worst quoting day. Since this means that 
removing the day will always be beneficial to the Market Maker, the 
Exchange also proposes to remove the language related to excluding the 
day only if doing so will qualify a Market Maker for the rebate.
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    \11\ The current language in the Schedule of Fees contains a 
reference to the expirations used in the calculation, which are 
being changed in this proposed rule change. See id.
    \12\ 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 also 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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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed changes to the periods used 
for the Market Maker Plus calculation are reasonable and equitable as 
this change is designed to encourage Market Makers to make quality 
markets in Select Symbols and thereby further the goal of the Market 
Maker Plus program. Currently, the Market Maker Plus program requires 
that Market Makers show their commitment to market quality by quoting 
at the NBBO a specified percentage of time in certain series in the 
front two expiration months--i.e., all available expirations from the 
trading day up to and including the first monthly expiration, and all 
expirations after the first monthly expiration up to and including the 
second monthly expiration. Because the Exchange measures performance 
using the front two expiration months, Market Makers have to quote a 
more limited subset of expirations as the trading day approaches a 
monthly expiration. The Exchange believes that it is preferable to 
evaluate performance based on two successive thirty calendar day 
periods so that as the monthly expiration approaches, Market Makers 
will nevertheless be able to qualify for Market Maker Plus by 
maintaining quotes at the NBBO in a number of available expirations. 
The Exchange believes that this balances the benefit provided by Market 
Maker Plus rebates with an appropriately demonstrated commitment to 
market quality. Furthermore, the proposed language also describes the 
operation of the Market Maker Plus calculation, which is evaluated each 
trading day and then computed as a monthly average based on daily 
performance. And finally, the proposed language makes other clarifying 
changes to the language, such as separately defining qualifying series 
based on language already included in the Market Maker Plus section of 
the Schedule of Fees, and reinforcing that the Market Maker Plus 
program requires a Market Maker to achieve the applicable tier in both 
of the two successive periods, meaning that if a Market Maker is in a 
different tier for each of the proposed expiration buckets, then the 
lower tier of rebate would apply to all contracts. The Exchange 
believes that adding this detail to the Schedule of Fees in connection 
with the change of the expirations used for the calculation will 
further increase transparency around the operation of this program. The 
Exchange also believes that the proposed changes are equitable and not 
unfairly discriminatory as all Market Makers can qualify for Market 
Maker Plus by meeting program requirements that are designed to 
incentivize Market Markets to maintain quality markets. Furthermore, 
the Exchange believes that the benefits to market quality that may 
result from Market Makers being required to maintain quotes at the NBBO 
in a number of expirations will flow to all market participants that 
trade on the Exchange.
    In addition, the Exchange believes that the proposed change to the 
days excluded from the Market Maker Plus calculation is reasonable and 
equitable as not removing the best day will make it easier for Market 
Makers to achieve

[[Page 13176]]

higher tiers of Market Maker Plus. More specifically, this change is 
designed to permit Market Makers to aim for a higher tier at the end of 
month without potentially removing one of those trading days from the 
calculation if it is the Market Maker's best quoting day for the month. 
The Exchange believes that this will allow Market Makers to quote more 
aggressively at the end of the month in order to qualify for a higher 
tier of Market Maker Plus, and thereby contribute to market quality in 
Select Symbols. Furthermore, with the change described above, the 
Exchange believes that it is reasonable and equitable now to remove the 
language about removing the day only when doing so will qualify the 
Market Maker for the rebate. This language is no longer needed since 
removing the worst day will always be better for the Market Maker. 
Finally, the Exchange believes that these changes are equitable and not 
unfairly discriminatory as all Market Makers will be subject to the 
same qualification criteria for Market Maker Plus. The proposed fee 
changes described in this proposed rule change are applicable solely to 
Market Makers as the Market Maker Plus program, which is designed to 
encourage Market Makers to maintain quality markets, applies only to 
these members. The Exchange continues to believe that it is not 
unfairly discriminatory to offer rebates under this program only to 
Market Makers since Market Makers, and, in particular, those Market 
Makers that achieve Market Maker Plus status, are subject to additional 
requirements and obligations (such as quoting requirements) that other 
market participants are not.

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 fee changes are 
pro-competitive as they are designed to encourage Market Makers to make 
quality markets in Select Symbols. The Exchange 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. 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,\15\ and Rule 19b-4(f)(2) \16\ 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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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 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-2018-20 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-2018-20. 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-2018-20 and should be submitted on 
or before April 17, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-06099 Filed 3-26-18; 8:45 am]
 BILLING CODE 8011-01-P