[Federal Register Volume 85, Number 150 (Tuesday, August 4, 2020)]
[Notices]
[Pages 47280-47283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16873]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89421; File No. SR-ISE-2020-30]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7,
Sections 1, 3, and 6
July 29, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 47281]]
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 20, 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 Options 7, Section 6, Other Options
Fees and Rebates. The Exchange also proposes an amendment to Options 7,
Section 1, General Provisions, and Options 7, Section 3, Regular Order
Fees and Rebates.
The Exchange originally filed the proposed pricing change on July
9, 2020 (SR-ISE-2020-29). On July 20, 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 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 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 Options 7, Section 6, Other Options
Fees and Rebates. Specifically, the Exchange proposes to eliminate a
discount in Options 7, Section 6H related to the Crossing Fee Cap. The
Exchange also proposes an amendment to Options 7, Section 1, General
Provisions, and Options 7, Section 3, Regular Order Fees and Rebates.
Each change will be described below.
Options 7, Section 6
Today, the Exchange offers a Crossing Fee Cap of $90,000 per month,
per Member on all Firm Proprietary \3\ transactions that are part of
the originating or contra-side of a Crossing Order \4\ within Options
7, Section 6H. Members that elect, prior to the start of the month, to
pay $65,000 per month, per Member are entitled to have their crossing
fees capped at that level instead.
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\3\ A ``Firm Proprietary'' order is an order submitted by a
member for its own proprietary account. See Options 7, Section 1.
\4\ Crossing Orders are contracts that are submitted as part of
a Facilitation, Solicitation, PIM, Block or Qualified Contingent
Cross order. All eligible volume from affiliated Members is
aggregated for purposes of the Crossing Fee Cap, provided there is
at least 75% common ownership between the Members as reflected on
each Member's Form BD, Schedule A.
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By way of background regarding the Crossing Fee Cap, today, fees
charged by the Exchange for Responses to Crossing Orders are not
included in the calculation of the monthly fee cap. Surcharge fees
charged by the Exchange for licensed products and the fees for index
options are set forth in Options 7, Section 5 and are not included in
the calculation of the monthly fee cap. A service fee of $0.00 per side
will apply to all order types that are eligible for the fee cap.\5\
Once the fee cap is reached, the service fee shall apply to eligible
Firm Proprietary orders in all Nasdaq ISE products. The service fee is
not calculated in reaching the cap. For purposes of the Crossing Fee
Cap the Exchange will attribute eligible volume to the ISE Member on
whose behalf the Crossing Order was executed.
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\5\ The service fee shall apply once a member reaches the fee
cap level and shall apply to every contract side above the fee cap.
A member who does not reach the monthly fee cap will not be charged
the service fee.
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At this time, the Exchange is proposing to eliminate the
opportunity for Members to elect, prior to the start of the month, to
pay $65,000 per month, per Member to have their crossing fees capped at
that level, instead of the current cap of $90,000 per month, per
Member. The Exchange has offered this reduced cap since 2015, provided
Members pay prior to the start of the month. While some Members did
elect this option in prior years, and continued to elect this option
through 2020, no new Member initially elected this option in 2020. The
Exchange does not believe this discount incentivizes Members to bring
Crossing Order flow to the Exchange as originally intended. With this
proposal, the Exchange would not accept elections from Members to have
their crossing fees capped at $65,000 for the month of July 2020 and
moving forward. Finally, the Exchange notes that all Members remain
eligible to have their fees capped at $90,000 per month, per Member.
The Exchange proposes several technical amendments to Options 7,
Section 6H including: (1) Adding punctuation; (2) capitalizing the term
``member'' in several places; and (3) updating a citation from
``Section III'' to ``Section 5.''
Options 7, Section 1
The Exchange proposes an amendment to Options 7, Section 1, General
Provisions. The Exchange proposes to amend the description of Penny
Symbols to replace the term ``Penny Pilot Program'' with ``Penny
Interval Program.'' On April 1, 2020 the Commission approved the
amendment to the OLPP to make permanent the Pilot Program (the ``OLPP
Program'').\6\ The Exchange recently filed a proposal to amend ISE
Options 3, Section 3 to conform the rule to Section 3.1 of the Plan for
the Purpose of Developing and Implementing Procedures Designed to
Facilitate the Listing and Trading of Standardized Options (the
``OLPP'').\7\ The Exchange's proposal amended ISE Options 3, Section 3
to refer to a Penny Interval Program instead of a Penny Pilot Program.
This proposed change to Options 7, Section 1 conforms the name of the
program.
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\6\ See Securities Exchange Act Release No. 88532 (April 1,
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval
Order'').
\7\ See SR-ISE-2020-24 (not yet published).
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Options 7, Section 3
The Exchange proposes to update an incorrect reference within
Options 7, Section 3 to the Crossing Fee Cap to change the reference
from ``Section IV.H'' to ``Options 7, Section 6.H.''
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\8\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\9\ 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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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4) and (5).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory
[[Page 47282]]
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.'' \10\
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\10\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission
\11\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of
a market-based approach in evaluating the fairness of market data fees
against a challenge claiming that Congress mandated a cost-based
approach.\12\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \13\
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\11\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\12\ See NetCoalition, at 534-535.
\13\ Id. at 537.
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Further, ``[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' . . . .'' \14\ Although the court and
the SEC were discussing the cash equities markets, the Exchange
believes that these views apply with equal force to the options
markets.
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\14\ Id. at 539 (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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Options 7, Section 6
The Exchange believes that it is reasonable to amend Options 7,
Section 6H to eliminate the opportunity for Members to elect, prior to
the start of the month, to pay $65,000 per month, per Member to have
their crossing fees capped at that level instead of at $90,000 per
month, per Member. This discount was intended to incentivize members to
bring Crossing Order flow to the Exchange. While some Members did elect
this option in prior years, and continued to elect this option through
2020, no new Member initially elected this option in 2020. The Exchange
notes that only a small percentage of ISE Members elected this discount
and, therefore, would no longer receive the discount going forward. The
Exchange does not believe this discount incentivizes Members to bring
Crossing Order flow to the Exchange as originally intended and,
therefore, proposes to eliminate this discount. The Exchange was unable
to incentivize any new Member to elect the discount in 2020 and,
therefore, attract additional Crossing Order flow. The Exchange would
continue to cap all Firm Proprietary transactions that are part of the
originating or contra side of a Crossing Order at $90,000 per month,
per Member.
The Exchange believes that it is equitable and not unreasonably
discriminatory to amend Options 7, Section 6H to eliminate the
opportunity for Members to elect, prior to the start of the month, to
pay $65,000 per month, per Member to have their crossing fees capped at
that level instead of at $90,000 per month, per Member. The Exchange
would not accept elections from any Member to have their crossing fees
capped at $65,000 per month, per Member for the month of July 2020 and
moving forward. Also, all Members remain eligible to have their fees
capped at $90,000 per month, per Member. Specifically, with respect to
the small percentage of ISE Members, who elected this discount and
would no longer receive the discount, the Exchange notes that those
Members would continue to be offered the opportunity to cap their
crossing fees at $90,000. Also, the Exchange notes that it offers
Members discounts and rebates to attract order flow to ISE. Depending
on the amount of order flow attracted to the Exchange, certain
discounts or rebates may be discontinued in favor of other discounts or
rebates. For example, as of July 1, 2020, the Exchange began offering a
Facilitation and Solicitation Break-up Rebate for Non-Select Symbols to
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.\15\
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\15\ See Securities Exchange Act Release No. 89321 (July 15,
2020) (SR-ISE-2020-26).
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The Exchange's proposed technical amendments to Options 7, Section
6H are reasonable, equitable and not unfairly discriminatory. These
amendments are non-substantive and clarify the current rule text.
Options 7, Section 1
The Exchange's proposal to amend Options 7, Section 1 to replace
the term ``Penny Pilot Program'' with ``Penny Interval Program'' is
reasonable, equitable and not unfairly discriminatory. This amendment
seeks to conform the name of the program, which governs the listing of
certain standardized options.
Options 7, Section 3
The Exchange's proposal to update an incorrect reference within
Options 7, Section 3 to the Crossing Fee Cap is reasonable, equitable
and not unfairly discriminatory. This change will bring clarity to the
Pricing Schedule.
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.
Intermarket Competition
The proposal does not impose an undue burden on intermarket
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.
[[Page 47283]]
Intramarket Competition
The proposed amendments do not impose an undue burden on
intramarket competition.
Options 7, Section 6
The Exchange believes that it does not impose an undue burden on
competition to amend Options 7, Section 6H to eliminate the opportunity
for Members to elect, prior to the start of the month, to pay $65,000
per month, per Member to have their crossing fees capped at that level
instead of at $90,000 per month, per Member. The Exchange has offered
this opportunity to all Members. While some Members did elect this
option in prior years, and continued to elect this option through 2020,
no new Member initially elected this option in 2020. Therefore, the
Exchange believes that eliminating the opportunity for Members to
elect, prior to the start of the month, to pay the discounted fee does
not impose an undue burden on competition, as there was no new interest
from Members, who had not previously elected this opportunity, in 2020
to pay the lower fee. The Exchange would not accept elections from any
Member to have their crossing fees capped at $65,000 per month, per
Member for the month of July 2020 and moving forward. Also, all Members
remain eligible to have their fees capped at $90,000 per month, per
Member.
The Exchange's proposed technical amendments to Options 7, Section
6H are non-substantive and do not impose a burden on competition.
Options 7, Section 1
The Exchange's proposal to amend Options 7, Section 1 to replace
the term ``Penny Pilot Program'' with ``Penny Interval Program'' does
not impose an undue burden on competition. This amendment seeks to
conform the name of the program, which governs the listing of certain
standardized options.
Options 7, Section 3
The Exchange's proposal to update an incorrect reference within
Options 7, Section 3 to the Crossing Fee Cap does not impose an undue
burden on competition. This change will bring clarity to the Pricing
Schedule.
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 \16\ and Rule 19b-4(f)(2) \17\ 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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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
\17\ 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-2020-30 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-2020-30. 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-2020-30 and should be submitted on
or before August 25, 2020.
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\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-16873 Filed 8-3-20; 8:45 am]
BILLING CODE 8011-01-P