[Federal Register Volume 85, Number 59 (Thursday, March 26, 2020)]
[Notices]
[Pages 17123-17126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06287]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88443; File No. SR-ISE-2020-12]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchanges Pricing Schedule at Options 7, Section 4, Titled Complex
Order Fees and Rebates
March 20, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 10, 2020, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``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 Pricing Schedule at
Options 7, Section 4, titled ``Complex Order Fees and Rebates.''
The Exchange originally filed the proposed pricing changes on March
2, 2020 (SR-ISE-2020-09). On March 10, 2020, the Exchange withdrew that
filing and submitted this filing.
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 amend the Exchange's Pricing Schedule at
Options 7, Section 4, titled ``Complex Order Fees and Rebates'' to
decrease certain rebate tiers to attract Priority Customer Complex
Order flow to ISE.
Today, ISE offers a nine tier Priority Customer Complex Order
rebate structure as follows:
[[Page 17124]]
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Total affiliated member or
affiliated entity complex order
volume (excluding crossing orders Rebate for Rebate for non-
Priority customer complex tier \(7)\ and responses to crossing orders) select symbols select symbols
\(13)\ \(16)\ calculated as a percentage of \(1)\ \(1)\ \(4)\
customer total consolidated
volume
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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%-2.75%............... (0.50) (0.85)
Tier 9................................... Above 2.75%...................... (0.52) (0.85)
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Specifically, with respect to the Tier 4 Priority Customer Complex
Order rebate, a Member must execute a Complex Order volume percentage
of above 0.600% to 0.750% to qualify for the $0.40 per contract rebate
in Select Symbols and a $0.75 per contract rebate in Non-Select
Symbols. Also, with respect to the Tier 3 Priority Customer Complex
Order rebate, a Member must execute a Complex Order volume percentage
\3\ of above 0.400 to 0.600% to qualify for a $0.35 per contract rebate
in Select Symbols and an $0.70 per contract rebate in Non-Select
Symbols. The Exchange proposes to amend the Tier 4 rebate from above
0.600% to 0.750% to above 0.450% to 0.750%. Further, the Exchange
proposes to make a corresponding change to the qualifications for the
Tier 3 volume qualification to amend it from above 0.400 to 0.600% to
above 0.400 to 0.450% to align the qualifications for Tier 3 to the
qualifications proposed for Tier 4.
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\3\ Complex Order volume percentage is described as Total
Affiliated Member or Affiliated Entity Complex Order Volume
(Excluding Crossing Orders and Responses to Crossing Orders)
calculated as a percentage of Customer Total Consolidated Volume.
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Specifically, with respect to the Tier 6 Priority Customer Complex
Order rebate, a Member must execute a Complex Order volume percentage
of above 1.000% to 1.500% to qualify for a $0.46 per contract rebate in
Select Symbols and an $0.80 per contract rebate in Non-Select Symbols.
Also, with respect to the Tier 7 Priority Customer Complex Order
rebate, a Member must execute a Complex Order volume percentage of
above 1.500% to 2.000% to qualify for the $0.48 per contract rebate in
Select Symbols and an $0.80 per contract rebate in Non-Select Symbols.
The Exchange proposes to amend the Tier 7 volume qualification from
above 1.500% to 2.000% to above 1.350% to 2.000%. Further, the Exchange
proposes to make a corresponding change to the qualifications for the
Tier 6 rebate to amend it from above 1.000% to 1.500% to above 1.000%
to 1.350% to align the qualifications for Tier 6 to the qualifications
proposed for Tier 7.
Further, with respect to the Priority Customer Complex Tier 8
rebate, a Member must execute a Complex Order volume percentage of
above 2.000% to 2.75% to qualify for the $0.50 per contract rebate in
Select Symbols and an $0.85 per contract rebate in Non-Select Symbols.
Also, with respect to the Priority Customer Complex Tier 9 rebate, a
Member must execute a Complex Order volume percentage of above 2.75% to
qualify for the $0.52 per contract rebate in Select Symbols and an
$0.85 per contract rebate in Non-Select Symbols. The Exchange proposes
to amend the Tier 9 volume qualification from above 2.75% to above
2.600%. Further, the Exchange proposes to make a corresponding change
to the qualifications for the Tier 8 rebate to amend it from above
2.000% to 2.75% to above 2.000% to 2.600% to align the qualifications
for Tier 8 to the qualifications proposed for Tier 9.
The Exchange notes that all Members may elect to qualify for the
Priority Customer Complex Order rebates by submitting Complex Order
flow to the Exchange and earning a rebate on their Priority Customer
Complex Order volume. Accordingly, the proposed changes are designed to
increase the amount of Complex Order flow that Members submit to ISE,
particularly Priority Customer Complex Order volume, and further
encourage Members to contribute to a deeper, more liquid market to the
benefit of all market participants.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\4\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\5\ 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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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(4) and (5).
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The proposed changes to its Pricing Schedule are reasonable in
several respects. As a threshold matter, the Exchange is subject to
significant competitive forces in the market for options transaction
services that constrain its pricing determinations in that market. The
fact that this market is competitive has long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission, the D.C.
Circuit stated as follows: ``[n]o one disputes that competition for
order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S.
national market system, buyers and sellers of securities, and the
broker-dealers that act as their order-routing agents, have a wide
range of choices of where to route orders for execution'; [and] `no
exchange can afford to take its market share percentages for granted'
because `no exchange possesses a monopoly, regulatory or otherwise, in
the execution of order flow from broker dealers' . . . .'' \6\
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\6\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \7\
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\7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Numerous indicia demonstrate the competitive nature of this market.
For
[[Page 17125]]
example, clear substitutes to the Exchange exist in the market for
options transaction services. The Exchange is only one options venue to
which market participants may direct their order flow. Competing
options exchanges offer similar tiered pricing structures to that of
the Exchange, including schedules of rebates and fees that apply based
upon Members achieving certain volume thresholds.\8\
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\8\ See, generally, Nasdaq Phlx LLC and The Nasdaq Options
Market LLC as examples of options exchanges with tiered pricing
structures.
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Within this environment, market participants can freely and often
do shift their order flow among the Exchange and competing venues in
response to changes in their respective pricing schedules. As such, the
proposal represents a reasonable attempt by the Exchange to increase
its liquidity and market share relative to its competitors.
The Exchange's proposal to decrease the volume requirements for
Priority Customer Complex Order rebate Tiers 4, 7 and 9, and also make
conforming changes to Priority Customer Complex Order rebate Tiers 3, 6
and 8 to align those tier qualifications with the proposed
qualification amendments to Tiers 4, 7 and 9, is reasonable. The
Exchange believes that the proposed amendments to Tiers 4, 7 and 9 of
the Priority Customer Complex Order rebate program, which lower the
volume qualifications for those tiers, represents a reasonable attempt
by the Exchange to fortify participation in the Priority Customer
Complex Order rebate program. In particular, the Exchange's proposal is
intended to encourage Members to submit additional amounts of Priority
Customer Complex Order volume to obtain a higher rebate. The Exchange
notes that the proposed amendments should not result in lower rebates
for any Member submitting the same volume as the Member submitted in
the prior month. The Exchange is lowering the qualification criteria
for various tiers within Options 7, Section 4 to provide a more
deterministic outcome for an array of Members to qualify for the same
Customer Complex Order rebates as in prior months. The Exchange
believes that lowering the volume requirements for Tiers 4, 7 and 9 of
the Priority Customer Complex Order rebate program will further
incentivize Members to transact additional Complex Order flow,
including Priority Customer Complex Order flow, to achieve higher
rebates. Lowering the volume requirements for Tiers 4, 7, and 9 of the
Priority Customer Complex Order rebate program makes these tiers more
achievable and attractive to existing and potential program
participants. As noted above, the Priority Customer Complex Order
rebate program is optional and available to all Members that choose to
transact Complex Order flow on ISE in order to earn a rebate on their
Priority Customer Complex Order volume. To the extent the program, as
modified, continues to attract Complex Order volume to the Exchange,
the Exchange believes that the proposed changes would improve the
Exchange's overall competitiveness and strengthen its market quality
for all market participants.
The Exchange's proposal to decrease the volume requirements for
Priority Customer Complex Order rebate Tiers 4, 7 and 9, and also make
conforming changes to Priority Customer Complex Order rebate Tiers 3, 6
and 8 to align those tier qualifications with the proposed
qualification amendments to Tiers 4, 7 and 9, is equitable and not
unfairly discriminatory. Any Member may choose to qualify for the
rebate program by transacting the requisite amount of Priority Customer
Complex Order flow on ISE. By encouraging all Members to transact
significant amounts of Priority Customer Complex Order flow (i.e., to
qualify for the higher tiers) in order to earn a higher rebate on their
Priority Customer Complex Orders, the Exchange seeks to provide more
trading opportunities for all market participants, thereby promoting
price discovery, and improving the overall market quality of the
Exchange. Furthermore, the proposed changes to the Priority Customer
Complex Order rebate program to lower the volume requirements for Tiers
4, 7 and 9 are equitable and not unfairly discriminatory because any
Member who transacts Priority Customer Complex Order flow on ISE may
qualify for the rebates. The Tier 1 Priority Customer Complex Order
rebate does not require a minimum amount of volume to qualify for the
rebate tier. Any volume up to .20% would earn a Tier 1 Priority
Customer Complex Order rebate of $0.25 for Select Symbols and a $0.40
rebate in Non-Select Symbols. The Exchange believes that the proposed
changes will further incentivize all Members to transact a significant
amount of Priority Customer Complex Order volume on ISE in order to
obtain the highest range of Priority Customer Complex Order rebate
offered under this program. The Exchange anticipates all Members that
currently qualify for these rebates will continue to do so under this
proposal. To the extent the proposed changes encourage additional
Members to strive for the modified tiers and thus attract more Priority
Customer Complex Order volume to the Exchange, this increased order
flow would improve the overall quality and attractiveness of the
Exchange. The Exchange notes that all market participants stand to
benefit from increased liquidity as such increase promotes market
depth, facilitates tighter spreads and enhances price discovery.
Accordingly, the Exchange believes that the proposed amendments are
reasonably designed to provide further incentives for all Members
interested in meeting the tier criteria to submit additional Priority
Customer Complex Order volume to achieve the higher rebates.
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.
Inter-Market Competition
The proposal does not impose an undue burden on inter-market
competition. The Exchange believes its proposal remains competitive
with other options markets and will offer market participants with
another choice of where to transact options. The Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges that have been exempted from compliance with the statutory
standards applicable to exchanges. 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.
Intra-Market Competition
The proposed pricing amendments do not impose an intra-market
burden on competition. The Exchange's proposal to decrease the volume
requirements for Priority Customer Complex Order rebate Tiers 4, 7 and
9 and also make conforming changes to the qualifications for Tiers 3, 6
and 8 to align those qualifications with the proposed qualifications to
Tiers 4, 7 and 9, does
[[Page 17126]]
not impose an intra-market burden on competition. Any Member may choose
to qualify for the rebate program by transacting the requisite amount
of Priority Customer Complex Order flow on ISE. By encouraging all
Members to transact significant amounts of Priority Customer Complex
Order flow (i.e., to qualify for the higher tiers) in order to earn a
rebate on their Priority Customer Complex Orders, the Exchange seeks to
provide more trading opportunities for all market participants, thereby
promoting price discovery, and improving the overall market quality of
the Exchange. Furthermore, the proposed changes to the Priority
Customer Complex Order rebate program to lower the volume requirements
for Tiers 4, 7 and 9 are equitable and not unfairly discriminatory
because any Member who transacts Complex Order flow on ISE may qualify
for the rebates. The Tier 1 Priority Customer Complex Order rebate does
not require a minimum amount of volume to qualify for the rebate tier.
Any volume up to .20% would earn a Tier 1 Priority Customer Complex
Order rebate of $0.25 for Select Symbols and a $0.40 rebate in Non-
Select Symbols. The Exchange anticipates all Members that currently
qualify for these rebates will continue to do so under this proposal.
The Exchange notes that all market participants stand to benefit from
increased liquidity as such increase promotes market depth, facilitates
tighter spreads and enhances price discovery.
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,\9\ and Rule 19b-4(f)(2) \10\ 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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\9\ 15 U.S.C. 78s(b)(3)(A)(ii).
\10\ 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-2020-12 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-2020-12. 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-2020-12 and should be submitted on
or before April 16, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06287 Filed 3-25-20; 8:45 am]
BILLING CODE 8011-01-P