[Federal Register Volume 85, Number 140 (Tuesday, July 21, 2020)]
[Notices]
[Pages 44114-44117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15688]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89321; File No. SR-ISE-2020-26]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Pricing Schedule at Options 7

July 15, 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 July 1, 2020, 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 Pricing Schedule at 
Options 7, as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, 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

[[Page 44115]]

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 
Pricing Schedule at Options 7. Each change is described below.
Response Fees
    Today, for regular orders in Non-Select Symbols,\3\ the Exchange 
charges all market participants a fee for Responses to Crossing Orders 
\4\ (except PIM orders) that is $0.50 per contract. For complex orders 
in Non-Select Symbols, this Response fee is $0.91 per contract for 
Market Makers \5\ and $0.96 per contract for all other market 
participants. In addition, for regular orders in Select Symbols \6\ and 
Non-Select Symbols, the Exchange currently charges all market 
participants a fee for Responses to PIM orders that is $0.35 per 
contract. For complex orders in both Select and Non-Select Symbols, the 
PIM Response fee is likewise $0.35 per contract for all market 
participants.
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    \3\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
    \4\ ``Responses to Crossing Orders'' is any contra-side interest 
submitted after the commencement of an auction in the Exchange's 
Facilitation Mechanism, Solicited Order Mechanism, Block Order 
Mechanism or Price Improvement Mechanism (``PIM'').
    \5\ ``Market Makers'' are ``Competitive Market Makers'' and 
``Primary Market Makers'' collectively. See Options 1, Section 
1(a)(21).
    \6\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Interval Program.
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    The Exchange now proposes to increase the Response fees described 
above. Specifically, the fees for Responses to Crossing Orders (except 
PIM orders) in Non-Select Symbols for both regular and complex orders 
will increase to $1.10 per contract for all market participants. In 
addition, the fees for Responses to PIM orders in Select Symbols for 
regular and complex orders will increase to $0.50 per contract for all 
market participants. Lastly, the fees for Responses to PIM orders in 
Non-Select Symbols for regular and complex orders will increase to 
$1.10 per contract for all market participants.
Facilitation and Solicitation Break-up Rebate
    Currently, the Exchange provides a Facilitation and Solicitation 
break-up rebate of $0.15 per contract for regular and complex orders in 
Select Symbols. This rebate applies to all Non-Nasdaq ISE Market 
Maker,\7\ Firm Proprietary \8\/Broker-Dealer,\9\ Professional 
Customer,\10\ and Priority Customer \11\ orders submitted in the 
Facilitation and Solicited Order Mechanisms that do not trade with 
their contra order, except when those contracts trade against pre-
existing orders and quotes on the Exchange's order books. The Exchange 
now proposes to adopt the same break-up rebate for regular and complex 
orders in Non-Select Symbols, and apply the rebate in the same manner 
to Non-Nasdaq ISE Market Maker, Firm Proprietary/Broker-Dealer, 
Professional Customer, and Priority Customer orders. The Exchange also 
proposes technical changes in note 4 of Options 7, Section 3 to revise 
``orderbooks'' to ``order books,'' and in the Crossing Order Fees and 
Rebates table in Options 7, Section 4 to revise ``Breakup Rebate'' to 
``Break-up Rebate'' for greater consistency with the Pricing Schedule.
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    \7\ A ``Non-Nasdaq ISE Market Maker'' is a market maker as 
defined in Section 3(a)(38) of the Securities Exchange Act of 1934, 
as amended, registered in the same options class on another options 
exchange.
    \8\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \9\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \10\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \11\ 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 Options 1, 
Section 1(a)(37).
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Taker Fees
    The Exchange currently charges all Non-Priority Customers \12\ a 
taker fee of $0.72 per contract for regular orders in Non-Select 
Symbols (except NDX and NQX).\13\ The Exchange now proposes to increase 
this fee to $0.90 per contract for all Non-Priority Customers.
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    \12\ Non-Priority Customers include Market Makers, Non-Nasdaq 
ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and 
Professional Customers.
    \13\ NDX and NQX, which are Non-Select Symbols, are presently 
subject to separate pricing for index options in Section 5 of the 
Pricing Schedule.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\15\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's 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 
securities 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'. . . .'' \16\
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    \16\ 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.'' \17\
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    \17\ 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 example, clear substitutes to the Exchange exist in the market for 
options security transaction services. The Exchange is only one of 
sixteen options exchanges to which market participants may direct their 
order flow. Within this environment, market participants can freely and 
often do shift their order flow

[[Page 44116]]

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.
Response Fees
    The Exchange believes that the proposed increase to the fees for 
responses to Crossing Orders is reasonable, equitable and not unfairly 
discriminatory. With the proposed changes, the response fees will now 
be uniform at $0.50 per contract for regular and complex orders in 
Select Symbols, and at $1.10 per contract for regular and complex 
orders in Non-Select Symbols, in both cases across all Crossing Orders 
and all market participant types. While the response fees are 
increasing under this proposal, the proposed fees are still within the 
range of rates charged for similar auction mechanisms at other options 
exchanges.\18\
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    \18\ See Nasdaq MRX (``MRX'') Pricing Schedule, Options 7, 
Section 3, Table 2, and Section 5.E, which set forth comparable 
rates for responses to Crossing Orders on MRX. For example, MRX 
charges all market participants a $0.50 per contract fee for 
responses to Crossing Orders in Penny Symbols and a $1.10 per 
contract fee for responses to Crossing Orders in Non-Penny Symbols. 
See also Cboe EDGX Options (``EDGX'') Fee Schedule, ``Automated 
Improvement Mechanism (``AIM'') and Solicitation Auction Mechanism 
(``SAM'') Pricing,'' which charges all market participants a fee of 
$0.50 (Penny Pilot Securities) and $1.05 (Non-Penny Pilot 
Securities) for AIM and SAM responses.
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Facilitation and Solicitation Break-up Rebate
    The Exchange believes that the proposed Facilitation and 
Solicitation break-up rebates for Non-Select Symbols are reasonable 
because these incentives will encourage use of the Facilitation and 
Solicited Order Mechanisms. Specifically, the Exchange believes that 
the proposed rebates will encourage increased originating regular and 
complex Non-Nasdaq ISE Market Maker, Firm Proprietary/Broker-Dealer, 
Professional Customer, and Priority Customer order flow to the 
Facilitation and Solicited Order Mechanisms, thereby potentially 
increasing the initiation of and volume executed through such auctions. 
Additional auction order flow provides market participants with 
additional trading opportunities at potentially improved prices. The 
Exchange further believes that the proposed Facilitation and 
Solicitation break-up rebates for Non-Select Symbols are set at 
reasonable rates because they are aligned with the break-up rebates 
currently provided for Select Symbols, as discussed above.
    The Exchange believes that the proposed Facilitation and 
Solicitation break-up rebates for Non-Select Symbols are equitable and 
not unfairly discriminatory because the proposed rebates will apply 
equally to all non-Market Maker originating orders submitted to the 
Facilitation and Solicited Order Mechanisms that do not trade with 
their contra orders (except when those originating contracts trade 
against pre-existing orders and quotes on the Exchange's order books). 
While Market Makers will not receive the Facilitation and Solicitation 
break-up rebates for Non-Select Symbols, the Exchange believes that the 
application of the rebate is equitable and not unfairly discriminatory 
because Market Makers are not eligible for Facilitation and 
Solicitation break-up rebates in Select Symbols today. In addition, the 
Exchange currently offers Market Makers other rebate programs that do 
not apply to non-Market Makers, such as the Market Maker Plus Program.
Taker Fees
    The Exchange believes that the proposed increase to the Non-Select 
Symbol taker fees is reasonable, equitable and not unfairly 
discriminatory. With the proposed changes, the taker fees will 
uniformly increase to $0.90 per contract for all Non-Priority 
Customers. The Exchange notes that Priority Customers will continue to 
be assessed no taker fee for Non-Select Symbols under this proposal. 
While the taker fees are increasing for Non-Priority Customers, the 
proposed fees are within the range of taker fees at another options 
exchange.\19\
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    \19\ See Cboe C2 Options (``C2'') Fees Schedule, ``Transaction 
Fees,'' which charges the following fees in Non-Penny Classes for 
orders that remove liquidity: $0.85 for Public Customer orders, 
$0.90 for C2 Market Maker orders, and $0.93 for Non-Customer, Non-
Market Maker orders (Professional Customer, Firm, Broker/Dealer, 
non-C2 Market Maker, JBO, etc.).
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    The Exchange believes that it is equitable and not unfairly 
discriminatory to continue charging Priority Customers no taker fees in 
Non-Select Symbols as the Exchange has historically offered lower 
execution fees or rebates to those market participants. Furthermore, 
Priority Customer order flow enhances liquidity on the Exchange for the 
benefit of all market participants by providing more trading 
opportunities, which in turn attracts Market Makers and other market 
participants that may trade with this order flow.

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. In terms of intra-market 
competition, the Exchange does not believe that its proposal will place 
any category of market participant at a competitive disadvantage. The 
proposed response fees for Crossing Orders will be consistent across 
all market participants, as discussed above. In addition, the 
Facilitation and Solicitation break-up rebates proposed for Non-Select 
Symbols will be applied to market participants in the same manner as 
the Facilitation and Solicitation break-up rebates are applied today 
for Select Symbols. Lastly, the Non-Select Symbol taker fees will be 
increased uniformly across all Non-Priority Customers while Priority 
Customers will continue to be charged no taker fee.
    In terms of inter-market competition, 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. 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. In this instance, while the Exchange is increasing 
the response fees and taker fees in the manner discussed above, the 
Exchange does not believe this will cause an undue burden on 
competition as the increased fees are still within the range of similar 
fees charged by other options exchanges.
    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.

[[Page 44117]]

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-2020-26 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-2020-26. 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-2020-26 and should be submitted on 
or before August 11, 2020.

    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15688 Filed 7-20-20; 8:45 am]
BILLING CODE 8011-01-P