[Federal Register Volume 84, Number 26 (Thursday, February 7, 2019)]
[Notices]
[Pages 2611-2616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-01382]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85025; File No. SR-ISE-2018-102]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Provisions for Excluding a Day From its Pricing Tier
Calculations
February 1, 2019.
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 21, 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 amend the Exchange's provisions for
excluding a day from its pricing tier calculations.
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 purpose of the proposed rule change is to amend the Exchange's
provisions for excluding a day from its pricing tier calculations.
First, the Exchange is standardizing its practice for removing a day
from volume calculations in its Pricing Schedule with its affiliated
options market, Nasdaq PHLX LLC (``Phlx'').\3\ Second, the Exchange is
making similar changes to its rule for removing a day from Market Maker
Plus tiers. Each change is discussed below.
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\3\ See Phlx Pricing Schedule, Options 7, Section 1(b). The
Exchange's other affiliated options markets, Nasdaq GEMX, Nasdaq
MRX, Nasdaq BX, and The Nasdaq Options Market will also file similar
rule change proposals to conform to Phlx's rule.
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Background
To avoid penalizing members when aberrant low volume days result
from systems or other issues at the Exchange, or where the Exchange
closes early for holiday observance, the Exchange currently has
language in its Pricing Schedule allowing it to exclude certain days
from its average daily volume
[[Page 2612]]
(``ADV'') calculations. Currently, Section 1 of the Exchange's Pricing
Schedule provides that 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 ADV
calculation; provided that the Exchange will only remove the day for
members that would have a lower ADV with the day included. The proviso
language in Section 1 (hereinafter, the ``better of rule'') ensures
that members would only have the day removed when doing so is
beneficial for the member. As such, the Exchange only applies the
better of rule to ADV calculations, and not for other volume-based
pricing where members would not benefit from having the day excluded
(e.g., straight volume accumulations).
In addition, the Exchange operates a Market Maker Plus program that
provides tiered rebates to Market Makers in Select Symbols based on
time spent quoting at the National Best Bid or National Best Offer
(``NBBO''). Market Maker Plus is designed to reward Market Makers that
make quality markets. As provided in Section 3, note 5, Market Makers
are evaluated each trading day for the percentage of time spent on the
NBBO for qualifying series that expire in two successive thirty
calendar day periods beginning on that trading day.\4\ A Market Maker
Plus is a Market Maker who is on the NBBO a specified percentage of the
time on average for the month based on daily performance in the
qualifying series for each of the two successive periods described
above.\5\ Similar to the treatment described above for ADV
calculations, the Exchange is also allowed to exclude 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 from its
Market Maker Plus tier calculations; 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. Unlike ADV
calculations, however, the Exchange does not use this authority to
exclude days where the Exchange closes early for holiday observance
because the Exchange desires to incentivize Market Makers to continue
making quality markets where the Exchange is not experiencing an
unanticipated event and merely closes early for holiday observance.
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\4\ Qualifying series are 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. 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.
\5\ 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. A Market Maker's worst quoting day each month for
each of the two successive periods described above, on a per symbol
basis, will be excluded in calculating whether a Market Maker
qualifies for this rebate.
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Proposal
In Options 7, Section 1, the Exchange proposes to renumber the
first paragraph as subsection (a) with the title ``Removal of Days for
Purposes of Pricing Tiers,'' and renumber the second paragraph in
Section 1 (relating to fee disputes) as subsection (b). The Exchange
also proposes to adopt language in subsection (a) to replace current
rule text for excluding days with language that is substantially
similar to language currently in place on Phlx,\6\ and have this
language apply to volume tier calculations.\7\ Specifically, as
proposed:
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\6\ See note 3 above.
\7\ As discussed further below, Market Maker Plus tiers, which
are based on quoting (time spent at the NBBO) and not on executed
volume, will continue to be set forth separately in Section 3 of the
Exchange's Pricing Schedule. Phlx does not have a similar quoting-
based program, and all of its pricing tiers are volume-based
calculations.
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(1)(A) Any day that the Exchange announces in advance that it will
not be open for trading will be excluded from the options tier
calculations set forth in its Pricing Schedule; and (B) any day with a
scheduled early market close (``Scheduled Early Close'') may be
excluded from the options volume tier calculations only pursuant to
paragraph (3) below.
(2) The Exchange may exclude the following days (``Unanticipated
Events'') from the options volume tier calculations only pursuant to
paragraph (3) below, specifically any day that: (A) The market is not
open for the entire trading day, (B) the Exchange instructs members in
writing to route their orders to other markets, (C) the Exchange is
inaccessible to members during the 30-minute period before the opening
of trade due to an Exchange system disruption, or (D) the Exchange's
system experiences a disruption that lasts for more than 60 minutes
during regular trading hours.
(3) If a day is to be excluded as a result of paragraph (1)(B) or
(2) above, the Exchange will exclude the day from any member's monthly
options volume tier calculations as follows:
(A) The Exchange may exclude from the ADV calculation any Scheduled
Early Close or Unanticipated Event; or
(B) the Exchange may exclude from any other applicable options
volume tier calculation provided for in its Pricing Schedule (together
with (3)(A), ``Volume Tier Calculations'') any Scheduled Early Close or
Unanticipated Event.
provided, in each case, that the Exchange will only remove the day for
members that would have a lower Volume Tier Calculation with the day
included.
The proposed language would: (i) Expand upon the existing scenarios
where the Exchange may remove a day to adopt two additional situations
related to Exchange systems disruptions, (ii) categorize the potential
excluded days into days that are known in advance (i.e., days in
proposed paragraph (1), including Scheduled Early Closes) and days that
are not (i.e., Unanticipated Events in proposed paragraph (2)), (iii)
clarify how the potential excluded days proposed above would be removed
from the ADV and other applicable volume based tier calculations in the
Pricing Schedule, and (iv) generally add more detail to clarify the
application of the better of rule.
In connection with the changes to Section 1(a), the Exchange
proposes in Section 3, note 5 to similarly expand the scope of the
current rule for excluding days from the Market Maker Plus tier
calculation such that the Exchange would be allowed to exclude the two
additional Exchange systems disruption-related scenarios described
above. Specifically, the current language would be replaced with the
following: ``The Exchange may exclude from any member's monthly Market
Maker Plus tier calculation any Unanticipated Event; 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.'' The
proposed language for Market Maker Plus would continue to not exclude
days where the Exchange closes early for holiday observance, which
would now be categorized as a Scheduled Early Close under this
proposal.
As it relates to Unanticipated Events, the Exchange will inform all
members if any such day will be excluded from its Volume Tier
Calculations and Market Maker Plus tier calculations through a
[[Page 2613]]
system status message disseminated to all members. The Exchange notes
that it is not proposing to amend the thresholds a member must achieve
to become eligible for, or the dollar amount associated with, the
tiered rebates or fees.
Exchange Systems Disruptions
The Exchange proposes to adopt two additional scenarios as
``Unanticipated Events'' that the Exchange may determine to exclude
from its Volume Tier Calculations. First, the Exchange proposes to
exclude days where the Exchange is inaccessible to members during the
30-minute period before the opening of trade (i.e., between 9:00 a.m.
to 9:30 a.m. Eastern Time) due to an Exchange system disruption, even
if the Exchange does not instruct members to route away to other
markets. As discussed above, the Exchange's current ability to remove
days is limited to days where the market is not open for the entire
trading day, and where the Exchange instructs members to route away to
other markets. This allows the Exchange to exclude days, for example,
where the Exchange honors a market-wide trading halt declared by
another market, closes early for holiday observance, or instructs
members to route away to other markets because of a systems issue in
the morning, which ultimately does not carry over into the trading day.
The Exchange notes, however, that it may not always instruct members to
route away. For instance, the Exchange may be inaccessible to members
in the morning due to a systems disruption but the Exchange resolves
the issue shortly before 9:30 a.m. and as a result, the Exchange does
not instruct members to route away. In such cases, the Exchange is not
permitted to exclude the day from its ADV calculations. The Exchange
generally experiences a high volume of member participation within the
30-minute window leading up to the opening of trade from members who
submit eligible interest \8\ be included in the Exchange's opening
process. As a result, days where members are precluded from submitting
eligible interest during this 30-minute time period due to an Exchange
systems disruption, even if the issue is ultimately resolved by the
Exchange before the market opens (and members therefore are not
instructed to route away), are likely to have lower member
participation. Including such days in calculations of ADV will
therefore make it more difficult for members to achieve particular
pricing tiers for that month. Accordingly, excluding such days will
diminish the likelihood of a cost increase occurring because a member
is not able to reach a pricing tier on that date that it would reach on
other trading days during the month. Phlx currently has identical
language allowing it to remove such days from its volume based
tiers.\9\
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\8\ Eligible interest includes quotes and orders. See Rule
701(b).
\9\ See note 3 above at paragraph 2(C).
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Second, the Exchange proposes to exclude days where there is an
Exchange system disruption that lasts for more than 60 minutes during
regular trading hours (i.e., 9:30 a.m. to 4:00 p.m. Eastern Time), even
if such disruption would not be categorized as a complete outage of the
Exchange's system. Such a disruption may occur where a certain options
series traded on the Exchange is unavailable for trading due to an
Exchange systems issue, or where the Exchange may be able to perform
certain functions with respect to accepting and processing orders, but
may have a failure to another significant process, such as routing to
other market centers, that would lead members who rely on such
processes to avoid using the Exchange until the Exchange's entire
system was operational. The Exchange believes that certain system
disruptions that are not complete system outages could preclude some
members from sending order flow to the Exchange. The Exchange notes
that this proposal is consistent with the rules of Phlx and other
options exchanges.\10\
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\10\ See note 3 above at paragraph 2(D). See also BATS [sic] BZX
Options Exchange Fee Schedule (defining an ``Exchange System
Disruption'' as any day that the exchange's system experiences a
disruption that lasts for more than 60 minutes during regular
trading hours); and NYSE Arca Options Fee Schedule (defining an
``Exchange System Disruption'' as a disruption affects an Exchange
system that lasts for more than 60 minutes during regular trading
hours).
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The Exchange believes that the two scenarios proposed above are
reasonable and equitable because the intent of the current rule has
always been to avoid penalizing members that might otherwise qualify
for certain tiered pricing but that because of aberrant low volume days
resulting, for instance, from Exchange systems disruptions, did not
participate on the Exchange to the extent they might have otherwise
participated.
In addition, to avoid penalizing members that step up and trade on
a day with artificially low volume, the Exchange currently only removes
days for members that would have a lower ADV calculation with the day
included (i.e., the better of rule). The Exchange believes that
applying the better of rule to the proposed system disruption-related
scenarios would be similarly helpful as it would ensure that members
that continue to execute a large volume of contracts on such days are
not inadvertently disadvantaged when the Exchange removes a systems
disruption-related day from its calculations of ADV. This is consistent
with the treatment of such days on Phlx.\11\
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\11\ See note 3 above at paragraph 3.
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Categories of Excluded Days
Similar to Phlx, the Exchange seeks to restructure the existing
rule by separating out the different scenarios between days that are
known in paragraph (1) and days that are not in paragraph (2), and
define the latter as Unanticipated Events.
For planned days, the Exchange proposes to further distinguish
between days that the Exchange announces in advance that it will not be
open for trading in paragraph (1)(A) (e.g., Thanksgiving), and
Scheduled Early Closes in paragraph (1)(B) (e.g., the trading day after
Thanksgiving). The Exchange notes that it currently considers Scheduled
Early Closes as a subset of days that the market is not open for the
entire trading day. The Exchange believes it would be more clear to
distinguish Scheduled Early Closes in paragraph (1) as a day that is
planned for in advance, and separately consider days that are not open
for the entire trading day as Unanticipated Events in paragraph (2)(A).
As proposed, (2)(A) would continue to cover unplanned days where the
Exchange declares a trading halt in all securities or honors a market-
wide trading halt declared by another market. The other scenarios that
will be categorized as Unanticipated Events in paragraph (2) are the
two systems-related disruptions proposed above, and days that the
Exchange instructs members in writing to route their orders to other
markets, which is an existing scenario covered under the current rule
as described above.
Exclusion of Days by Volume Tier Calculation
The Exchange proposes to further amend the existing rule to align
with the Phlx rule by specifying how the days in paragraphs (1) and (2)
will be excluded from its Volume Tier Calculations. As it relates to
days where the Exchange announces in advance that it will not be open
for trading, the Exchange notes that it will exclude those days from
all options tier calculations set forth in its
[[Page 2614]]
Pricing Schedule.\12\ This is also the case today since no trading
activity occurs on those days, and the Exchange is only clarifying its
current practice within the proposed rule text in paragraph (1)(A).
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\12\ See id. at paragraph (1)(A) for similar language on Phlx.
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As discussed above, the Exchange currently removes Scheduled Early
Closes as provided in paragraph (1)(B), and the Unanticipated Events in
paragraphs (2)(A) and (2)(B), from its calculations of ADV only for
members that would have a lower ADV with the day included. The Exchange
is not changing how it currently excludes these days from the ADV
calculations. And as further discussed above, the Exchange is proposing
to adopt the same principle-based approach for excluding the two
Unanticipated Events related to Exchange system disruptions as provided
in paragraphs (2)(C) and (2)(D). Accordingly, the proposed language in
paragraph (3)(A) will clarify for the ADV calculation that the Exchange
may exclude any Scheduled Early Close or Unanticipated Event, subject
to the better of rule.\13\
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\13\ See id. at paragraph (3)(A) for similar language on Phlx.
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Similar to Phlx, the proposal also adds a ``catch-all'' provision
in paragraph (3)(B) that would apply to other applicable Volume Tier
Calculations that are set forth in its Pricing Schedule, but are not
specified within paragraph (3)(A) (i.e., not an ADV calculation).\14\
This catch-all provision will provide the Exchange with flexibility to
apply the better of rule going forward to all pricing programs
administered by the Exchange that are based on volume calculations. The
Exchange believes that adopting a similar principle-based approach for
its options volume calculations would ensure that days are removed from
such calculations only if doing so would be beneficial for the member.
Accordingly, the proposed language will not apply to straight volume
accumulations, as is the case today, and the Exchange will continue to
not exclude days from such calculations as members do not benefit when
volume executed on an excluded day is removed from straight volume
accumulations.
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\14\ See id. at paragraph (3)(C) for similar language on Phlx.
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Clarifying Changes
The Exchange proposes to add further details similar to Phlx's rule
to bring greater transparency as to how the Exchange will apply the
better of rule when removing days from its Volume Tier Calculations. In
particular, the Exchange proposes to make clear that it will only
remove days pursuant to the better of rule by specifying in paragraphs
(1)(B) and (2) that such days may be excluded from the Volume Tier
Calculations only pursuant to paragraph (3).\15\ Paragraph (3) will
then provide that if a day is to be excluded as a result of paragraph
(1)(B) or (2), the Exchange will be required to exclude the day from
any member's monthly options volume tier calculations as detailed
within paragraph (3).\16\ With the proposed changes, the Exchange seeks
to clarify that it will exclude days from any member's Volume Tier
Calculations in a uniform manner to ensure that days are removed only
in situations where the member benefits. The Exchange will look at each
potential excluded day in a month and determine for every member their
ADV or other applicable volume calculation based on their trading
volume on that day. If any member would have a lower Volume Tier
Calculation with the particular day included, the Exchange will exclude
that day for that member. This is how the Exchange applies the better
of rule today for ADV calculations. As such, the proposed changes are
intended to make clear that the Exchange will apply the better of rule
in a uniform manner for all members, and that there is no arbitrary
selection of ``winners'' or ``losers'' when the Exchange excludes days.
In addition, the Exchange proposes to make two technical changes within
the better of rule; first, to clarify that the rule applies in each
case of the tier calculations specified in paragraph (3), and second,
to use the defined term Volume Tier Calculations instead of ADV to
reflect the changes proposed herein.
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\15\ See id. at paragraphs (1)(B) and (2) for similar language
on Phlx.
\16\ See id. at paragraph (3) for similar language on Phlx.
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Market Maker Plus
In light of the foregoing proposal in Section 1(a), the Exchange
proposes in Section 3, note 5 to make corresponding changes to the
current rule for excluding days from the Market Maker Plus tier
calculation. Specifically, the proposed rule text will expand upon the
existing scenarios to encompass the two systems-related disruptions
proposed above such that the Exchange would be permitted to exclude
these Unanticipated Events from its calculations of Market Maker Plus
tiers. As is the case today, the Exchange would only be permitted to
remove such days in situations where the member benefits. Similar to
the treatment described above for the Volume Tier Calculations, the
Exchange likewise believes that it is appropriate to remove the two
proposed systems-related disruptions from the Market Maker Plus
calculation to avoid penalizing Market Makers on days that the Exchange
is experiencing an unforeseen issue. Unlike the proposed rule for
Volume Tier Calculations, however, the proposed rule for Market Maker
Plus tier calculations will continue to include known events, such as
days where the Exchange closes early for holiday observance, in the
Market Maker Plus calculation to continue incentivizing Market Makers
to make quality markets on such days. As is true of the existing
scenarios that may be excluded today, the Exchange believes that
permitting the exclusion for the two Exchange systems disruption-
related scenarios will provide flexibility to Market Makers in
anticipating where to send order flow. The Exchange desires to
incentivize Market Makers to send order flow to ISE to meet their tier
requirements in this manner, and further believes that it is
appropriate to incentivize Market Makers to continue making quality
markets where the Exchange is not experiencing an unforeseen issue and
merely closes early for a known event for which they can plan in
advance.
Finally, the proposed language will specify that Unanticipated
Events may be excluded from any member's monthly Market Maker Plus tier
calculation for the same reasons discussed above for Volume Tier
Calculations. The Exchange similarly seeks to make clear that it will
apply the better of rule in a uniform manner for all members who
qualify for Market Maker Plus, and that there is no arbitrary selection
of ``winners'' or ``losers'' when days are excluded from a member's
calculation of Market Maker Plus tiers.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\17\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\18\ 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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\17\ 15 U.S.C. 78f(b).
\18\ 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 provides a new
[[Page 2615]]
framework for removing days from the Exchange's volume calculations
that the Exchange believes is beneficial to members and consistent with
similar provisions already in place on Phlx, except for the differences
discussed above to account for Market Maker Plus. The proposed rule
change would permit the Exchange to remove a day from its pricing tiers
in more circumstances, and ensures that the Exchange will only do so in
circumstances where beneficial for the member because the member would
have a lower volume calculation or lower time at the NBBO with the day
included.
The Exchange believes it is reasonable and equitable to exclude a
day from its Volume Tier Calculations when the Exchange's system
experiences a disruption during the 30-minute period prior to the
opening of trade that renders the Exchange inaccessible to members as
this preserves the Exchange's intent behind adopting tiered pricing.
Without this change, members that are precluded from submitting
eligible interest during the 30-minute window before the opening of
trade may be negatively impacted, even if the Exchange resolves the
issue before the market opens and as a result, does not instruct
members to route away. The proposed change to exclude such days will
diminish the likelihood of a cost increase occurring because a member
is not able to reach a pricing tier on that date that it would reach on
other trading days during the month.
Similarly, excluding a day where the Exchange's system experiences
a disruption that lasts for more than 60 minutes intra-day is
reasonable and equitable because the proposal seeks to avoid penalizing
members that might otherwise qualify for certain tiered pricing but
that, because of an Exchange systems disruption, did not participate on
the Exchange to the extent they might have otherwise participated. The
Exchange believes that certain systems disruptions could preclude some
members from sending order flow to the Exchange even if such issue is
not actually a complete systems outage.
In addition, the Exchange believes that it is reasonable and
equitable to apply the better of rule to both systems disruption-
related scenarios. Without these changes, members that step up and
trade significant volume on excluded trading days may be negatively
impacted, resulting in an effective cost increase for those members.
The proposal would align the Exchange's approach to how it applies this
rule today for days where the market is not open for the entire trading
day or where the Exchange instructs members to route away.
Furthermore, the Exchange believes that categorizing the potential
excluded days is reasonable and equitable because it will bring greater
transparency to the application of its rule. Specifically, the Exchange
is distinguishing between planned and unplanned days in paragraphs (1)
and (2), defining the latter as Unanticipated Events, and stipulating
how the Exchange will exclude such days pursuant to this rule.
Categorizing days in this manner will clarify the application of its
rule in light of the Exchange's proposal to expand the rule to adopt
additional days that may be excluded from its tier calculations.
Providing in paragraph (1)(A) that the Exchange will always exclude
from its tier calculations days that it announces in advance it will
not be open for trading will clarify current practice. Furthermore, the
Exchange believes that the proposed changes to specify how days in
paragraphs (1) and (2) may be excluded from its tier calculations will
bring greater transparency by delineating the various circumstances in
which the better of rule will apply. Providing in paragraph (3) that
the Exchange may exclude any Scheduled Early Close or Unanticipated
Event from the ADV and other Volume Tier Calculations, subject to the
better of rule, will make clear that the Exchange will take a
consistent approach when excluding days for purposes of its volume
based pricing tiers. In addition, having a catch-all in paragraph
(3)(B) so that the better of rule applies to other options volume
calculations than ADV to allow the Exchange to apply the rule going
forward to all pricing programs based on volume calculations will
further protect members. The Exchange notes that aberrant low volume
days resulting from, for instance, an Unanticipated Event, impacts all
volume calculations, and allowing the Exchange to exclude such days
from any Volume Tier Calculation if the member would have a lower
calculation with the day included will further protect members from
being inadvertently penalized.
Furthermore, the proposed changes specifying that the days in
paragraphs (1)(B) and (2) may be excluded only pursuant to paragraph
(3), and requiring the Exchange to exclude such days pursuant to the
specifications in paragraph (3) will likewise make clear that the
Exchange will take a consistent approach with respect to excluding days
from its Volume Tier Calculations. As discussed above, these
modifications will clarify that the Exchange will apply the better of
rule in a uniform manner to all members, and that there is no arbitrary
selection of ``winners'' or ``losers.'' The Exchange also believes that
the two technical changes proposed in the better of rule to reflect the
changes proposed herein will likewise bring greater clarity to its
rule. Furthermore, the Exchange believes that the proposed language for
Volume Tier Calculations is not unfairly discriminatory because it
applies equally to all members and volume calculations.
The Exchange also believes that the proposed language for Market
Maker Plus is reasonable and equitable since it would allow the
Exchange to remove a day from its Market Maker Plus tier calculations
in similar circumstances as the Exchange proposes for its Volume Tier
Calculations, and only when beneficial for the Market Maker. The
Exchange believes that the proposed language is appropriate as it
avoids penalizing Market Makers on days where the Exchange is
experiencing a systems disruption. Without this change, Market Makers
that are wary of participation on the Exchange following such issues
could fall into a lower Market Maker Plus tier, resulting in an
effective cost increase for those members. As discussed above, the
proposed language will continue to include known events, such as days
where the Exchange closes early for holiday observance, in the Market
Maker Plus calculation. The Exchange desires to incentivize Market
Makers to send order flow to ISE to meet their tier requirements, and
further believes that it is appropriate to incentivize Market Makers to
continue making quality markets where the Exchange is not experiencing
an issue and merely closes early for a known event. While Market Makers
can plan for known events, they are unable to plan for events such as
the proposed Exchange systems disruption-related scenarios, which may
preclude Market Maker participation for that day. The Exchange
therefore believes that permitting the exclusion for these
Unanticipated Events will provide flexibility to Market Makers in
anticipating where to send order flow. The Exchange further believes
that the proposed changes to specify that Unanticipated Events may be
excluded from any member's monthly Market Maker Plus tier calculation
will bring greater transparency to the Exchange's rules by making clear
that the Exchange will apply the better of rule in a uniform manner for
all Market Makers, and that there is no arbitrary selection of
``winners'' or ``losers'' when days are
[[Page 2616]]
excluded from a member's calculation of Market Maker Plus tiers.
Finally, the Exchange believes that the proposed language for
Market Maker Plus tier calculations is not unfairly discriminatory as
all Market Makers have the ability to qualify for Market Maker Plus by
making quality markets on the Exchange, and can therefore benefit from
the proposed changes.
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 is
designed to protect members from the possibility of a cost increase by
excluding days when overall member participation might be significantly
lower than a typical trading day. The Exchange believes that the
proposed modifications to its tier calculations are pro-competitive and
will result in lower total costs to end users, a positive outcome of
competitive markets. Furthermore, other options exchanges have adopted
rules that are substantially similar to the Exchange's proposal.\19\
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\19\ See notes 3 and 10 above.
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The Exchange operates in a highly competitive market in which
market participants can readily direct their order flow to competing
venues. In such an environment, the Exchange must continually review,
and consider adjusting, its fees and rebates to remain competitive with
other exchanges. For the reasons described above, the Exchange believes
that the proposed fee changes reflect this competitive environment.
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.\20\ 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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\20\ 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-2018-102 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-2018-102. 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-2018-102 and should be submitted on
or before February 22, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-01382 Filed 2-6-19; 8:45 am]
BILLING CODE 8011-01-P