[Federal Register Volume 83, Number 195 (Tuesday, October 9, 2018)]
[Notices]
[Pages 50715-50718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21786]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84339; File No. SR-ISE-2018-81]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Establish New 
Pricing for Flash Orders

October 2, 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 September 18, 2018, Nasdaq ISE, 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 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 establish new pricing for Flash Orders 
within Section I of the Schedule of Fees and eliminate Section IV.G. of 
the Exchange's 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 proposes to establish new fees for Flash Orders \3\ on 
ISE and remove the current pricing at Section IV.G of the Exchange's 
Schedule of Fees applicable to Flash Orders. The Exchange is proposing 
to relocate its pricing for Flash Orders within Section I, entitled 
``Regular Order Fees and Rebates.'' The Exchange also proposes to amend 
the Flash Order definition in the Preface of the Schedule of Fees. The 
Exchange proposes to reserve Section IV.G.
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    \3\ Nasdaq ISE's Schedule of Fees currently defines a ``Flash 
Order'' as an order that is exposed at the National Best Bid and 
Offer by the Exchange to all Members for execution prior to routing 
the order to another exchange or cancelling it, as provided under 
Supplementary Material .02 to ISE Rule 1901.
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Definition of a Flash Order
    The Exchange proposes to add further detail to the definition of 
Flash Orders within the Preface of the Schedule of Fees to indicate the 
applicability of the pricing. Today, the Exchange assesses the 
applicable ``Taker'' Fee for the initiation of a Flash Order and does 
not asses any ``Maker'' Fee for responses.\4\ The Exchange proposes to 
amend the definition of the term Flash Order by stating, unless 
otherwise noted in Section I pricing, Flash Orders will be assessed the 
applicable ``Taker'' Fee for the initiation of a Flash Order and will 
be paid/assessed the applicable ``Maker'' Rebate/Fee for responses.\5\ 
The Exchange believes that adding this language will make clear what 
fee or rebate applies when an order initiates a Flash Order and when an 
order responds to a Flash Order.
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    \4\ However, the Exchange would pay any rebate offered in its 
Schedule of Fees. Today, the Maker Rebate is offered to Market 
Makers that qualify for the Market Maker Plus Tier.
    \5\ The Market Maker would not be assessed the $0.10 per 
contract Section I Maker Fee where the Market Maker participates in 
the Market Maker Plus program. A Market Maker would be assessed the 
$0.10 per contract fee in symbols where the Market Maker is not 
quoting. If the Market Maker executed a Flash Order contra a 
Priority Customer, the Market Maker would qualify for the $0.05 
credit in addition to any Market Maker Plus tier rebate.
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    The Exchange believes that Flash Orders, which initiate auctions, 
should be treated as ``Taker'' because the Member would be removing 
liquidity on ISE in the event the Member's interest was exposed as a 
Flash Order. A Member responding to a Flash Order would therefore be 
providing liquidity when executing against the Flash Order and 
therefore should be assessed a

[[Page 50716]]

Maker Fee. The Exchange believes that Flash Orders encourage Members to 
price orders fairly to obtain a local execution on ISE.
Section 1 Amendments
    The Exchange proposes to eliminate the Flash Order pricing within 
Section IV. G of the Schedule of Fees and relocate and amend its 
current Flash Order pricing within Section I of the Schedule of Fees.
    The Exchange proposes to memorialize that any market participant's 
order that initiates a Flash Order will be assessed the appropriate 
Taker Fee in Section I of the Schedule of Fees.\6\ The Exchange also 
proposes a new fee such that a market participant responding to a Flash 
Order will be paid/assessed the appropriate Maker Rebate \7\/Fee in 
Section I of the Schedule of Fees.\8\ The Exchange proposes to pay a 
credit of $0.05 per contract to a market participant responding to a 
Flash Order in a Select or Non-Select Symbol contra a Priority 
Customer. The Exchange notes that the $0.05 per contract credit would 
be paid in addition to the discounted Market Maker tiers in Section 
IV.D, as is the case today and any Market Maker Plus rebates would also 
be paid.
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    \6\ For Select Symbols the Taker Fee is currently $0.45 per 
contract for Market Makers, $0.46 per contract for Non-Nasdaq ISE 
Market Maker (FarMM), Firm Proprietary/Broker-Dealer and 
Professional Customer and $0.44 per contract for Priority Customer, 
except in SPY, QQQ, IWM and VXX where the fee shall be $0.40 per 
contract. For Non-Select Symbols the Taker Fee would be $0.25 per 
contact for Market Maker, subject to tier discounts in Section IV.D 
of the Schedule of Fees, $0.20 per contract for Market Maker orders 
sent by an Electronic Access Member, $0.72 per contract for a Non-
Nasdaq ISE Market Maker (FarMM), Firm Proprietary/Broker-Dealer and 
Professional Customer Priority Customers are assessed no transaction 
Taker Fee in Non-Select Symbols.
    \7\ See note 4 above.
    \8\ For Select Symbols the Maker Fee is currently $0.10 per 
contract for Market Makers, except that (i) 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 within Section I 
of the Schedule of Fees and will instead receive a rebate based on 
the applicable tier for which they qualify; (ii) no fee will be 
charged or rebate provided when trading against non-Priority 
Customer Complex Orders that leg into the regular order book; and 
(iii) $0.15 per contract fee applies instead of the applicable fee 
or rebate when trading against Priority Customer Complex Orders that 
leg into the regular order book, $0.10 per contract for Non-Nasdaq 
ISE Market Maker (FarMM), except that a $0.15 per contract fee 
applies instead of the applicable fee or rebate when trading against 
Priority Customer complex orders that leg into the regular order 
book, $0.10 per contract for Firm Proprietary/Broker-Dealer and 
Professional Customer and no fee for Priority Customer. For Non-
Select Symbols the Maker Fee would be $0.25 per contact for Market 
Maker, subject to tier discounts in Section IV.D of the Schedule of 
Fees, $0.20 per contract for Market Maker orders sent by an 
Electronic Access Member, $0.72 per contract for a Non-Nasdaq ISE 
Market Maker (FarMM), Firm Proprietary/Broker-Dealer and 
Professional Customer Priority Customers are assessed no transaction 
Maker Fee in Non-Select Symbols.
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    Today, all market participants are being assessed a Taker Fee. 
Today, no market participant responding to a Flash Order is assessed a 
Maker Fee in Section I. Today a credit of $0.05 per contract is paid to 
a market participant trading against a Priority Customer, Professional 
Customer or Preferenced Priority Customer \9\ in a Select Symbol or a 
Professional Customer in a Non-Select Symbol. With this proposal, Taker 
Fees would continue to be assessed to a market participant's order that 
initiates a Flash Order. With this proposal, a Maker Fee would be 
assessed to all market participants responding to a Flash Order, except 
a Priority Customer.\10\ With this proposal, market participants 
executing against a Professional Customer in a Non-Select Symbol would 
no longer be paid a $0.05 per contract credit. The $0.05 per contract 
credit would now be paid to market participants that executed against 
Priority Customers in Select and Non-Select Symbols, in addition to the 
discounted Market Maker tiers in Section IV.D. The Exchange proposes to 
add language to make this clear in the Schedule of Fees within note 6. 
The Exchange proposes to add a new note 17 and state, ``A market 
participant's order which initiates a Flash Order will be assessed the 
appropriate Taker Fee in Section I. Market participants responding to a 
Flash Order will be paid/assessed the appropriate Maker Rebate/Fee in 
Section I. In addition to aforementioned fees, a credit of $0.05 per 
contract will be paid to a market participant responding to a Flash 
Order in a Select or Non-Select Symbols which executes contra a 
Priority Customer.''
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    \9\ Credit applies to a Nasdaq ISE Market Maker when trading 
against a Priority Customer order that is preferenced to that Market 
Maker.
    \10\ Priority Customers are not assessed Maker Fee within 
Section I today.
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    The Exchange believes that the proposal will bring more clarity to 
the Schedule of Fees with respect to Flash Orders. Also, the Exchange's 
proposal is intended to incentivize all ISE Members initiate or respond 
to a Flash Order contra a Priority Customer by submitting interest on 
ISE.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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Definition of a Flash Order
    The Exchange's proposal to amend the definition of Flash Orders 
within the Preface is reasonable because it will add greater 
transparency to the applicability of the fees. The Exchange believes 
that indicating how the Exchange will apply Maker or Taker Fees to 
Flash Orders will bring greater transparency to the manner in which 
these fees are assessed. This amendment is equitable and not unfairly 
discriminatory as the Exchange will uniformly assess the Maker and 
Taker Fees in Section I as described in the Flash Orders definition to 
Members that either initiate or respond to the Flash Order.
    The Exchange believes that Flash Orders, which initiate auctions, 
should be treated as ``Taker'' because the Member would be removing 
liquidity on ISE in the event the Member's interest was exposed as a 
Flash Order. A Member responding to a Flash Order would therefore be 
providing liquidity when executing against the Flash Order and 
therefore should be assessed a Maker Fee. The Exchange believes that 
Flash Orders encourage Members to price orders fairly to obtain a local 
execution on ISE.
Section 1 Amendments
    The Exchange's proposal to eliminate Flash Order pricing within 
Section IV.G of the Schedule of Fees and relocate and amend its current 
Flash Order pricing within Section I of the Schedule of Fees is 
reasonable. The Exchange's proposal will uniformly pay a credit of 
$0.05 per contract to any market participant responding to a Flash 
Order in a Select or Non-Select Symbol which executes contra a Priority 
Customer. Today, the Exchange pays a credit of $0.05 per contract in 
certain circumstances such as when trading against a Priority Customer 
or a Professional Customer or a Preferenced Priority Customer \13\ in a 
Select Symbol. Also, a $0.05 per contract credit is paid when trading 
against a Professional Customer in a Non-Select Symbol. Although the 
Exchange would not pay a credit of $0.05 per contract to a market 
participant trading against a Professional Customer in a Select Symbol 
or a Non-Select Symbol, the

[[Page 50717]]

Exchange would uniformly pay all market participants a $0.05 per 
contract credit when transacting a Flash Order in either a Select or 
Non-Select Symbol, provided that the contra-side to the transaction is 
a Priority Customer. The Exchange does not believe that it is unfairly 
discriminatory to pay a credit only when trading against a Priority 
Customer Order and not paying a credit when transacting contra a 
Professional Customer because Professional Customers, unlike Priority 
Customers, have access to sophisticated trading systems that contain 
functionality not available to Priority Customers. Also, Professional 
Customers have the same technological and informational advantages as 
broker-dealers trading for their own account. The Exchange believes 
that Professional Customers, who are considered sophisticated 
algorithmic traders effectively compete with Market Makers and broker-
dealers \14\ without the obligations of either.
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    \13\ Today, the credit applies to a Nasdaq ISE Market Maker when 
trading against a Priority Customer order that is preferenced to 
that Market Maker.
    \14\ Broker-Dealers pay registration and membership fees in 
self-regulatory organizations (``SRO'') and incur costs to comply 
and assure that their associated persons comply with the Act and SRO 
rules.
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    Also, the Exchange would now begin to assess a Maker Fee to all 
market participants responding to a Flash Order, except Priority 
Customers. While the Exchange would now assess Maker Fees if responding 
to a Flash Order, market participants also have the opportunity with 
this proposal to receive a $0.05 per contract credit for responding to 
a Priority Customer in Non-Select Symbols. The Exchange believes that 
assessing the Maker Fee is reasonable because the Exchange believes 
that there is more opportunity to earn a credit. The Exchange notes 
that Priority Customers are assessed no Maker Fee. The Exchange does 
not believe that it is unfairly discriminatory to not assess Priority 
Customers a Maker Fee because Priority Customer liquidity enhances 
liquidity on the Exchange for the benefit of all market participants by 
providing more trading opportunities, which attracts Market Makers. The 
Exchange's proposal to eliminate Flash Order pricing within Section 
IV.G of the Schedule of Fees and relocate and amend its current Flash 
Order pricing within Section I of the Schedule of Fees is equitable and 
not unfairly discriminatory. Although the Exchange would not pay a 
credit of $0.05 per contract to a market participant trading against a 
Professional Customer in a Select Symbol or a Professional Customer in 
a Non-Select Symbol, the Exchange would uniformly pay all market 
participants a $0.05 per contract credit when transacting a Flash Order 
in either a Select or Non-Select Symbol, provided that the contra-side 
to the transaction is a Priority Customer. The Exchange believes that 
it is equitable and not unfairly discriminatory to assess market 
participants who respond to a Flash Order a Section I Maker Fee because 
the Exchange would be uniformly assessing the fee uniformly to all 
market participants. The Exchange does not believe that it is unfairly 
discriminatory to pay a credit only when trading against a Priority 
Customer Order and not another type of market participant because 
unlike other order flow, Priority Customer Order flow enhances 
liquidity on the Exchange for the benefit of all market participants by 
providing more trading opportunities, which attracts Market Makers. The 
Exchange believes that the proposed changes provide all market 
participants that trade on ISE an opportunity to earn an additional 
rebate when executing against Priority Customer Orders.

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 Exchange is amending 
existing Flash Order pricing to more uniformly apply this pricing to 
all market participants and therefore does not believe this proposal 
will cause an undue burden on inter-market competition. The Exchange 
believes that the proposed pricing remains competitive. The Exchange 
notes that Professional Customers, unlike Priority Customers, have 
access to sophisticated trading systems that contain functionality not 
available to Priority Customers. Also, Professional Customers have the 
same technological and informational advantages as broker-dealers 
trading for their own account. The Exchange believes that Professional 
Customers, who are considered sophisticated algorithmic traders 
effectively compete with Market Makers and broker-dealers \15\ without 
the obligations of either. Priority Customer liquidity enhances 
liquidity on the Exchange for the benefit of all market participants by 
providing more trading opportunities, which attracts Market Makers.
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    \15\ See note 14 above.
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    The Exchange's proposal to eliminate Flash Order pricing within 
Section IV.G of the Schedule of Fees and relocate and amend its current 
Flash Order pricing within Section I of the Schedule of Fees does not 
impose an undue burden on competition. Although the Exchange would not 
pay a credit of $0.05 per contract to a market participant trading 
against a Professional Customer in a Select Symbol or a Non-Select 
Symbol, the Exchange would uniformly pay all market participants a 
$0.05 per contract credit when transacting a Flash Order in either a 
Select or Non-Select Symbol, provided that the contra-side to the 
transaction is a Priority Customer. The Exchange believes that it does 
not impose an undue burden on competition to assess market participants 
who respond to a Flash Order a Section I Maker Fee because the Exchange 
would be uniformly assessing the fee uniformly to all market 
participants. The Exchange does not believe that it is unfairly 
discriminatory to pay a credit only when trading against a Priority 
Customer Order because this type of order flow enhances liquidity on 
the Exchange for the benefit of all market participants by providing 
more trading opportunities, which attracts Market Makers. The Exchange 
notes that Professional Customers, unlike Priority Customers, have 
access to sophisticated trading systems that contain functionality not 
available to Priority Customers. Also, Professional Customers have the 
same technological and informational advantages as broker-dealers 
trading for their own account. The Exchange believes that Professional 
Customers, who are considered sophisticated algorithmic traders 
effectively compete with Market Makers and broker-dealers \16\ without 
the obligations of either. Priority Customer liquidity enhances 
liquidity on the Exchange for the benefit of all market participants by 
providing more trading opportunities, which attracts Market Makers. The 
Exchange is amending existing Flash Order pricing to provide all market 
participants that trade on ISE an opportunity to earn an additional 
credit in Non-Select Symbols when executing against Priority Customer 
Orders.
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    \16\ See note 14 above.
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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

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19(b)(3)(A)(ii) of the Act.\17\ 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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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2018-81 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-2018-81. 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; 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-2018-81 and should be 
submitted on or before October 30, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21786 Filed 10-5-18; 8:45 am]
 BILLING CODE 8011-01-P