[Federal Register Volume 84, Number 53 (Tuesday, March 19, 2019)]
[Notices]
[Pages 10133-10136]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05091]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85307; File No. SR-ISE-2019-03]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the Market
Maker Plus Program
March 13, 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 February 27, 2019, 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 10134]]
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 under
Options 7, Section 3.
While these amendments are effective upon filing, the Exchange has
designated the proposed amendments to be operative on March 1, 2019.
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 provide a
supplemental rebate in addition to the linked maker rebate for SPY,
QQQ, and IWM, as described in detail below.
Background
Market Maker Plus
As set forth in Section 3 of the Pricing Schedule, the Exchange
operates a Market Maker Plus program for regular orders in Select
Symbols \3\ where Market Makers \4\ that contribute to market quality
by maintaining tight markets are eligible for enhanced rebates. 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. 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. 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\ These general qualification requirements
will remain unchanged with the amendments to the applicable Market
Maker Plus rebates described in this proposed rule change.
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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)(32).
\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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Market Maker orders in Select Symbols are charged a maker fee of
$0.11 per contract; \6\ 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 below maker rebates based on the applicable tier for which they
qualify.\7\
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\6\ This fee also applies to Market Maker orders sent to the
Exchange by Electronic Access Members.
\7\ 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. 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, QQQ, and IWM
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Market Maker Plus tier
(specified percentage) Maker rebate
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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)
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SPY, QQQ, and IWM
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Market Maker Plus tier Regular Linked
(specified percentage) Maker Maker
rebate rebate
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Tier 1 (70% to less than 80%)........... ($0.00) N/A
Tier 2 (80% to less than 85%)........... ($0.18) ($0.15)
Tier 3 (85% to less than 90%)........... ($0.22) ($0.19)
Tier 4 (90% or greater)................. ($0.26) ($0.23)
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To encourage Market Makers to maintain quality markets in SPY, QQQ,
and IWM in particular, members that maintain tight markets in those
symbols are eligible for higher regular maker rebates and may also be
eligible for linked maker rebates, as shown in the table above.
Specifically, the following symbols are linked for purposes of the
linked maker rebate: (1) SPY and QQQ, and (2) SPY and IWM. Market
Makers that qualify for Market Maker Plus Tiers 2-4 above for
executions in SPY, QQQ, and IWM may be eligible for a linked maker
rebate in a linked symbol in addition to the regular maker rebate for
the applicable tier. The linked maker rebate applies to executions in
SPY,
[[Page 10135]]
QQQ, and IWM if the Market Maker does not achieve the applicable tier
in that symbol but achieves the tier (i.e., any of the Market Maker
Plus Tiers 2-4) for any badge/suffix combination in the other linked
symbol, in which case the higher tier achieved applies to both symbols.
If a Market Maker would qualify for a linked maker rebate in SPY based
on the tier achieved in QQQ and the tier achieved in IWM, then the
higher of the two linked maker rebates will be applied to SPY. 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\
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\8\ Thus, for example, if a Market Maker achieves Tier 1 in SPY,
Tier 2 in QQQ, and Tier 3 in IWM, the Market Maker would receive the
$0.18 per contract Tier 2 regular maker rebate in QQQ, the $0.22 per
contract Tier 3 regular maker rebate in IWM, and the $0.19 per
contract Tier 3 linked maker rebate in SPY--i.e., based on the
Market Maker achieving Tier 3 in IWM.
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Priority Customer Complex Order Rebates
The Exchange currently has a pricing structure in place that
provides rebates to Priority Customer \9\ complex orders in order to
encourage members to bring that order flow to the Exchange. The
Exchange provides these rebates to members that achieve Priority
Customer Complex Tiers \10\ in Select Symbols and Non-Select Symbols
\11\ (other than NDX, NQX or MNX).\12\ All complex order volume
executed on the Exchange, including volume executed by Affiliated
Members,\13\ is included in the volume calculation, except for volume
executed as Crossing Orders \14\ and Responses to Crossing Orders.\15\
Affiliated Entities \16\ may also aggregate their complex order volume
for purposes of qualifying Appointed OFPs for these Priority Customer
rebates.\17\ As set forth in Section 4 of the Pricing Schedule, there
are currently nine Priority Customer Complex Tiers as follows:
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\9\ A ``Priority Customer'' is a person or entity that is not a
broker/dealer in securities, and does not place more than 390 orders
in listed options per day on average during a calendar month for its
own beneficial account(s), as defined in Nasdaq ISE Rule
100(a)(37A).
\10\ The Priority Customer Complex Tiers are based on total
Affiliated Member or Affiliated Entity complex order volume
(excluding Crossing Orders and Responses to Crossing Orders), and
are calculated as a percentage of Customer Total Consolidated Volume
(hereinafter, ``Complex Order Volume Percentage''). ``Customer Total
Consolidated Volume'' means the total national volume cleared at The
Options Clearing Corporation in the Customer range in equity and ETF
options in that month.
\11\ ``Non-Select Symbols'' are options overlying all symbols
excluding Select Symbols.
\12\ Rebates are provided per contract per leg if the order
trades with non-Priority Customer orders in the complex order book
or trades with quotes and orders on the regular order book.
\13\ An ``Affiliated Member'' is a Member that shares at least
75% common ownership with a particular Member as reflected on the
Member's Form BD, Schedule A.
\14\ A ``Crossing Order'' is an order executed in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement
Mechanism (PIM) or submitted as a Qualified Contingent Cross order.
For purposes of this Pricing Schedule, orders executed in the Block
Order Mechanism are also considered Crossing Orders.
\15\ ``Responses to Crossing Orders'' are any contra-side
interest submitted after the commencement of an auction in the
Exchange's Facilitation Mechanism, Solicited Order Mechanism, Block
Order Mechanism or PIM.
\16\ An ``Affiliated Entity'' is a relationship between an
Appointed Market Maker and an Appointed OFP for purposes of
qualifying for certain pricing specified in the Pricing Schedule. An
``Appointed Market Maker'' is a Market Maker who has been appointed
by an Order Flow Provider (``OFP'') for purposes of qualifying as an
Affiliated Entity. An ``Appointed OFP'' is an OFP (i.e., a member,
other than a Market Maker, that submits orders, as agent or
principal, to the Exchange) who has been appointed by a Market Maker
for purposes of qualifying as an Affiliated Entity. Each member may
qualify for only one Affiliated Entity relationship at any given
time. Affiliated Members are not eligible to enter an Affiliated
Entity relationship.
\17\ The Appointed OFP would receive the rebate associated with
the qualifying volume tier based on aggregated volume.
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Rebate for Rebate for non-
Priority Customer complex tier Complex order volume percentage select symbols select symbols
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Tier 1........................................ 0.000-0.200..................... ($0.25) ($0.40)
Tier 2........................................ Above 0.200-0.400............... (0.30) (0.55)
Tier 3........................................ Above 0.400-0.600............... (0.35) (0.70)
Tier 4........................................ Above 0.600-0.750............... (0.40) (0.75)
Tier 5........................................ Above 0.750-1.000............... (0.45) (0.80)
Tier 6........................................ Above 1.000-1.500............... (0.46) (0.80)
Tier 7........................................ Above 1.500-2.000............... (0.48) (0.80)
Tier 8........................................ Above 2.000-3.250............... (0.50) (0.85)
Tier 9........................................ Above 3.250..................... (0.50) (0.85)
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Proposal
At this time, the Exchange proposes that to the extent Market
Makers qualify for the foregoing Priority Customer complex order rebate
in Tiers 7-9, they may also become eligible to earn a supplemental
rebate in addition to the linked maker rebate tiers 2-4 in SPY, QQQ,
and IWM provided to Market Makers that qualify for Market Maker Plus,
as described above. Specifically, if Market Makers separately achieve
Priority Customer complex tiers 7-9, they will earn an additional $0.01
per contract rebate on executions in SPY, QQQ, or IWM that qualify for
the linked maker rebate program, in addition to the linked rebates
tiers 2-4. As proposed, Market Makers that qualify for Priority
Customer complex tiers 7-9 will receive a linked maker rebate of $0.16
per contract in tier 2, $0.20 per contract in tier 3, and $0.24 per
contract in tier 4, provided that they also meet the qualifications of
the applicable linked maker rebate tier.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\18\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\19\ 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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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the proposed changes to provide a
supplementary $0.01 per contract rebate in addition to the linked maker
rebate tiers 2-4, provided the Market Maker achieves Priority Customer
complex tiers 7-9 is reasonable because this incentive is intended to
encourage Market Makers that maintain quality markets and qualify for
Market Maker Plus to continue send more complex order flow to the
Exchange to achieve Priority Customer complex tiers 7-9 in order to
earn the additional $0.01 rebate. All market participants benefit from
increased order interaction when more order flow is available on ISE.
The
[[Page 10136]]
Exchange also believes that the proposed changes will continue to
encourage better market quality in SPY, QQQ, and IWM as Market Makers
would be able to earn the supplemental rebate in addition to the linked
maker rebates that they may qualify for today.
The Exchange believes that the proposed changes to provide the
supplemental $0.01 rebate to qualifying Market Makers are not unfairly
discriminatory as the changes apply to all Market Makers orders based
on achieving the required Priority Customer complex tier, and
qualifying for the linked maker rebate program by way of achieving the
required Market Maker Plus tier in SPY, QQQ, or IWM. Furthermore, the
Exchange continues to believe that it is not unfairly discriminatory to
offer these rebates only to Market Makers because 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 Exchange believes that the
proposed changes will encourage Market Makers that maintain quality
markets and qualify for Market Maker Plus to continue send more complex
order flow to the Exchange to achieve Priority Customer complex tiers
7-9 in order to earn the additional $0.01 rebate. All market
participants benefit from increased order interaction when more order
flow is available on ISE.
The Exchange operates in a highly competitive market in which
market participants can readily direct their order flow to 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. 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\ and Rule 19b-4(f)(2) \21\ 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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\20\ 15 U.S.C. 78s(b)(3)(A)(ii).
\21\ 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-2019-03 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-2019-03. 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-2019-03 and should be submitted on
or before April 9, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05091 Filed 3-18-19; 8:45 am]
BILLING CODE 8011-01-P