[Federal Register Volume 84, Number 104 (Thursday, May 30, 2019)]
[Notices]
[Pages 25097-25100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11235]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85923; File No. SR-ISE-2019-15]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Market Maker Plus Program Under Options 7, Section 3
May 23, 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 May 10, 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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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's Market Maker Plus
program under Options 7, Section 3.
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
qualifications for Market Makers to achieving Market Maker Plus status.
The Exchange initially filed the proposed pricing changes on May 1,
2019 (SR-ISE-2019-13). On May 10, 2019, the Exchange withdrew that
filing and submitted this filing.
As set forth in note 5 under Section 3 of the Pricing Schedule, the
Exchange operates a Market Maker Plus program for regular orders in
Select Symbols \3\ that provides the below tiered rebates to Market
Makers \4\ based on time spent quoting at the National Best Bid or
National Best Offer (``NBBO'').\5\ This program is designed to reward
Market Makers that contribute to market quality by maintaining tight
markets in Select Symbols.
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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\ If a Market Maker would qualify for a different Market Maker
Plus tier in each of the two successive 30 calendar day periods,
then the lower of the two Market Maker Plus tier rebates shall apply
to all contracts. The Market Maker Plus tiered rebate amounts and
the specified percentage thresholds outlined in this filing will
remain unchanged under this proposal.
[[Page 25098]]
Select Symbols Other Than SPY, QQQ, IWM, AMZN, FB, and NVDA
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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 (specified Regular Maker Linked Maker
Percentage) 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)
------------------------------------------------------------------------
AMZN, FB, and NVDA
------------------------------------------------------------------------
Market Maker Plus tier (specified percentage) Maker rebate
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Tier 1 (70% 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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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.\6\ 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.\7\
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\6\ 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.
\7\ Thus, for example, on May 1 the periods referenced above
would include all expirations: (1) From May 1-May 30 and (2) from
May 31-June 29.
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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. Thus,
as currently implemented in the Exchange's billing system, the rebates
are applied across the entire firm based on the highest Market Maker
Plus tier achieved by one of the firm's badge/suffix combination in a
particular symbol within a particular billing month.\8\ Furthermore, a
Market Maker's worst quoting day each month for each of the two
successive periods described above, on a per symbol basis, is excluded
in calculating whether a Market Maker qualifies for this rebate.\9\
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\8\ For example, assume Market Maker A is configured to trade in
AAPL in the following badge/suffix combinations: 123A, 123B, and
123C, and is on the NBBO 95% of the time in 123A, 85% of the time in
123B, and 10% of the time in 123C. Based on these facts, Market
Maker A would qualify for the Tier 3 rebate of $0.22 per contract in
AAPL for 123A based on a time at the NBBO of 95% or greater. In
addition, Market Maker A would qualify for the same Tier 3 rebate in
AAPL for 123B and 123C as the highest tier achieved is applied to
all badge/suffix combinations.
\9\ In addition, 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. See Options 7, Section 1(a)(2) for the definition
of ``Unanticipated Event.''
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While the Exchange believes that the Market Maker Plus program has
been successful overall in encouraging better market quality in Select
Symbols, and that the language selecting the highest badge/suffix
combination of a firm seeks to reward the Market Maker for consistent
quoting, the Exchange has also identified certain instances where
allowing the program benefits to accrue to all badge/suffix
combinations once a single badge/suffix combination qualifies for a
Market Maker Plus tier would not necessarily improve market quality,
particularly in instances where a Market Maker shuts down one of its
badge/suffix combinations mid-month.
For example, assume Market Maker A is configured to trade AAPL in
the following badge/suffix combinations: 123A, 123B, and 123C. Assume
further that Market Maker A's performance for the following trading
days in May for both successive 30 calendar day periods are as follows:
May 1: Market Maker A is at the NBBO for 95% of the time
in 123A, and 50% of the time in 123B and 123C. As of May 1, Market
Maker A would qualify for Market Maker Plus Tier 3 based on the tier
achieved by 123A.
May 2: Market Maker A is at the NBBO for 10% of the time
in 123A, 123B, and 123C.
May 3: Market Maker A decides to shut down 123A, and
quotes at the NBBO for 50% of the time in 123B and 123C.
Market Maker A is at the NBBO for 50% of the time in 123B
and 123C for the rest of May.
The Exchange currently rebates the above example based on the
Market Maker Plus language which states that the Exchange will apply
the rebate for the highest tier achieved for any badge/suffix
combination quoting that symbol across all badge/suffix combinations
that the member uses to trade in that symbol. The language also
provides that a Market Maker's worst quoting day each month will be
thrown out. As a result, Market Maker A would receive the $0.22 per
contract Tier 3 rebate for May because the Exchange's billing system
picked up 123A as the highest achieving badge/suffix combination within
that month (which is then
[[Page 25099]]
applied across all badge/suffix combinations--i.e., 123B and 123C), and
also struck May 2 as its worst quoting day. In this case, the market
has not necessarily improved in this symbol because Market Maker A was
quoting on 123A for only two days. This is further compounded by the
fact that one of those days was thrown out under the current rule, such
that Market Maker A only needed to quote above the Tier 3 threshold for
one day in order to receive the rebate.
The Exchange therefore proposes to change its Market Maker Plus
qualifications to ensure that Market Makers make quality markets for a
significant number of days within a month. In particular, the Exchange
proposes to add the following language in Section 3, note 5: ``Only
badge/suffix combinations quoting a minimum of ten trading days within
the month will be used to determine whether the Market Maker Plus
status has been met and the specific tier to be applied to the Market
Maker's performance for that month.'' Thus under the proposal, Market
Makers would need to quote in a badge/suffix combination for at least
10 trading days within a given month as a prerequisite to qualifying
for Market Maker Plus, and the Market Maker's quoting activity on such
badge/suffix combination would be used to determine which Market Maker
Plus tier (if any) applies to that Market Maker for that month.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the Market Maker Plus specification that
the highest badge/suffix combination will be used for calculation
honors the Market Maker Plus participants in their best efforts to
improve the quality of the markets. The Exchange, in light of the above
example and similar situations, would like to ensure that the
participants of the Market Maker Plus program are making quality
markets for an appreciable number of days in order to qualify for the
enhanced rebate. The Exchange believes that the proposed changes to
impose a minimum number of trading days for quoting on a single badge/
suffix combination to include that badge/suffix combination into the
calculation of Market Maker Plus status are reasonable and equitable as
these changes are designed to encourage Market Makers to make quality
markets in Select Symbols and thereby further the goal of the Market
Maker Plus program. The Exchange believes that the proposed minimum of
ten trading days is reasonable and equitable because it requires a
Market Maker to quote using a badge/suffix combination for a
significant amount of days within a month in order to receive the
enhanced rebates. The Exchange believes its proposal is appropriate in
light of how the current program is implemented on the billing system,
and avoids situations where members can glean program benefits without
particularly improving market quality.
The Exchange believes that the proposed changes to the
qualifications to Market Maker Plus are not unfairly discriminatory as
all Market Makers will be subject to the same qualification criteria
for Market Maker Plus. The Exchange also continues to believe that it
is not unfairly discriminatory to offer rebates under this program to
only Market Makers since Market Makers and, in particular, those Market
Makers that participate in the Market Maker Plus Program and achieve
Market Maker Plus status, are subject to additional requirements and
obligations (such as quoting obligations) 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 changes are
designed to ensure that the goals of the Exchange's Market Maker Plus
program are furthered by ensuring that Market Makers make quality
markets in Select Symbols for a significant amount of days within the
month. 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 and rebates 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,\12\ and Rule 19b-4(f)(2) \13\ 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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\12\ 15 U.S.C. 78s(b)(3)(A)(ii).
\13\ 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-2019-15 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-2019-15. 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
[[Page 25100]]
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-
2019-15 and should be submitted on or before June 20, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11235 Filed 5-29-19; 8:45 am]
BILLING CODE 8011-01-P