[Federal Register Volume 86, Number 102 (Friday, May 28, 2021)]
[Notices]
[Pages 28918-28921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11290]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91976; File No. SR-ISE-2021-11]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend ISE's 
Pricing Schedule at Options 7, Section 5, for NQX Index Options Fees 
and Rebates for Regular and Complex Orders

May 24, 2021.
    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 11, 2021, 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, II, and III, 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 ISE's Pricing Schedule at Options 7, 
Section 5, Index Options Fees and Rebates.
    The Exchange originally filed the proposed pricing change on April 
30, 2021 (SR-ISE-2021-10). On May 11, 2021, 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 5, Index Options 
Fees and Rebates. Specifically, the Exchange proposes to amend Part B, 
NQX Index Options Fees and Rebates for Regular and Complex Orders. NQX 
is a proprietary index based on \1/5\ the value of the Nasdaq-100 
Index.
    Currently, the fees and rebates assessed for NQX regular and 
complex orders are as follows:

 
------------------------------------------------------------------------
                                            Maker fee/      Taker fee/
           Market participant                 rebate          rebate
------------------------------------------------------------------------
Market Maker............................         ($0.25)           $0.00
Market Maker (for orders sent by                  (0.25)            0.00
 Electronic Access Members).............
Non-Nasdaq ISE Market Maker (FarMM).....            0.25            0.25
Firm Proprietary/Broker-Dealer..........            0.25            0.25
Professional Customer...................            0.25            0.25

[[Page 28919]]

 
Priority Customer.......................            0.00            0.00
------------------------------------------------------------------------

    NQX Taker Fees apply to the originating and contra side of Crossing 
Orders and to Responses to Crossing Orders. The Exchange proposes to 
amend this pricing.
    First, the Exchange proposes to amend the NQX regular and complex 
order pricing for Market Makers,\3\ including for orders sent by 
Electronic Access Members, to remove the current Maker Rebates of $0.25 
per contract. The Exchange proposes to instead assess a Maker Fee of 
$0.25 per contract to Market Makers, including for orders sent by 
Electronic Access Members, similar to other Non-Priority Customers \4\ 
in NQX. Since no market participants would be subject to an NQX Maker 
Rebate with the removal of the Market Maker rebates, the Exchange also 
proposes to amend the column header from ``Maker Fee/Rebate'' to 
``Maker Fee.'' The Exchange also proposes to amend the column header 
``Taker Fee/Rebate'' to ``Taker Fee'' as there are no Taker Rebates.
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    \3\ The term Market Makers refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21). The term Competitive Market Maker means a Member 
that is approved to exercise trading privileges associated with CMM 
Rights. See Options 1, Section 1(a)(12). The term Primary Market 
Maker means a Member that is approved to exercise trading privileges 
associated with PMM Rights. See Options 1, Section 1(a)(36).
    \4\ 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). Unless otherwise noted, when used in this Pricing 
Schedule the term ``Priority Customer'' includes ``Retail'' as 
defined below. A Non-Priority Customer would include a Market Maker, 
Non-Nasdaq ISE Market Maker (FarMM), Firm Proprietary/Broker-Dealer, 
and Professional Customer.
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    Second, the Exchange proposes to amend the current regular and 
complex order NQX Taker Fees for Market Makers, including for orders 
sent by Electronic Access Members, from $0.00 per contract to $0.25 per 
contract.
    With this proposal, ISE would uniformly assess a $0.25 per contract 
NQX Maker and Taker Fee to all market participants for regular and 
complex orders, except Priority Customers. Priority Customers will 
continue to pay no NQX Maker or Taker Fee.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\6\ 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed changes to the 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'. . . .'' \7\
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    \7\ 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.'' \8\
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    \8\ 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 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 amend its NQX regular and complex order 
pricing for Market Makers, including for orders sent by Electronic 
Access Members, to remove the $0.25 per contract Maker Rebate and 
instead assess a $0.25 per contract Maker Fee, and start assessing a 
$0.25 per contract Taker Fee \9\ is reasonable. The Exchange initially 
paid NQX Maker Rebates to Market Makers, including for orders sent by 
Electronic Access Members, to encourage Market Maker activity in NQX 
and offset the NQX license surcharge of $0.25 per contract, which is 
paid by all market participants. The Exchange desired to incentivize 
Market Makers to provide liquidity in the new product during the 
initial months of trading when it initially offered Market Makers these 
incentives in 2018.\10\ As NQX has been trading for over 2 years at 
this time, the Exchange proposes to align the pricing for Market 
Makers, including for orders sent by Electronic Access Members, with 
other Non-Priority Customer participants that currently pay $0.25 per 
contract Maker and Taker Fees. Also, the proposed pricing aligns with 
pricing for the Nasdaq-100 Index (``NDX''),

[[Page 28920]]

another proprietary product, in that Non-Priority Customers are 
uniformly assessed a transaction fee for regular orders, regardless of 
whether they are making or taking liquidity, and Priority Customers are 
not assessed any fees. The $0.25 per contract fee is reasonable as NQX 
is an exclusively listed product on ISE only. Also, the $0.25 per 
contract fee is well within the range of amounts assessed for NDX 
options, another Exchange proprietary product which assesses a $0.75 
per contract fee to Non-Priority Customers. The lower fee amount of 
$0.25 per contract for NQX options as compared to $0.75 per contract 
for NDX options is reasonable because NQX options is based on \1/5\ of 
the value of the Nasdaq-100 Index whereas NDX options are based on the 
full value of the Nasdaq-100 Index, and the Exchange therefore seeks to 
assess corresponding reduced fees for NQX options. The Exchange notes 
that market participants are offered an opportunity to either transact 
NDX options, the Nasdaq 100 Micro Index Options or ``XND,'' \11\ or 
PowerShares QQQ Trust (``QQQ'') options.\12\ Although all of the 
products are based on the Nasdaq-100 Index, and collectively they offer 
various notional sizes as well as different fees.\13\ These products 
all offer exposure to the Nasdaq-100 Index which is different from 
exposure to competing products. Finally, pricing by symbol is a common 
practice on many U.S. options exchanges as a means to incentivize order 
flow to be sent to an exchange for execution in particular products. 
Other options exchanges price by symbol.\14\
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    \9\ Market Makers, including for orders sent by Electronic 
Access Members, currently pay no NQX regular or complex order Taker 
Fees.
    \10\ See Securities Exchange Act Release No. 83639 (July 16, 
2018), 83 FR 34625 (July 20, 2018) (SR-ISE-2018-61) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
the Exchange's Schedule of Fees To Add Establish Fees and Rebates 
for NQX Options and Make Several Clarifying Changes).
    \11\ XND is based on 1/100th of the value of the Nasdaq-100 
Index.
    \12\ QQQ is an exchange-traded fund based on the Nasdaq-100 
Index. Products such as QQQ provides market participants with a 
variety of choices in selecting the product they desire to utilize 
to transact the Nasdaq-100 Index as QQQ options overlie the same 
index as NDX, namely the Nasdaq-100 Index. This relationship between 
QQQ options and NDX options is similar to the relationship between 
RUT and the iShares Russell 2000 Index (``IWM''), which is the ETF 
on RUT.
    \13\ See ISE Options 7, Section 3 for simple orders and Options 
7, Section 4 for complex orders for pricing on QQQ options. XND 
options pricing is located within ISE Options 7, Section 5A. The 
applicable ISE complex order fees for Non-Select Symbols in Options 
7, Section 4 apply to NDX options. See also Nasdaq Phlx LLC 
(``Phlx'') Options 7, Section 4 for XND pricing. XND is currently 
listed only on Phlx.
    \14\ See pricing for Russell 2000 Index (``RUT'') on Cboe 
Exchange, Inc.'s Fees Schedule.
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    The Exchange's proposal to amend its NQX regular and complex order 
pricing for Market Makers, including for orders sent by Electronic 
Access Members, to remove the $0.25 per contract Maker Rebate and 
instead assess a $0.25 per contract Maker Fee, and start assessing a 
$0.25 per contract Taker Fee is equitable and not unfairly 
discriminatory as ISE would uniformly assess a $0.25 per contract fee 
to all market participants, except Priority Customers. Priority 
Customers will continue to pay no Maker or Taker Fee. All other Non-
Priority Customers would uniformly be assessed a $0.25 per contract fee 
regardless of whether the Non-Priority Customer is making or taking 
liquidity. The Exchange's proposal to amend the column headers from 
``Maker Fee/Rebate'' to ``Maker Fee'' and ``Taker Fee/Rebate'' to 
``Taker Fee'' is reasonable, equitable and not unfairly discriminatory 
as no Member would be subject to a Maker Rebate with the removal of the 
rebates for Market Makers, including for orders sent by Electronic 
Access Members and there are no Taker Rebates today.

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 the proposed changes will place any category of market participant 
at a competitive disadvantage. Overall, the Exchange's proposal is 
designed to incentivize participants to bring additional order flow to 
the Exchange, and create a more active and quality market in NQX. While 
Market Makers would pay a fee for either making or taking liquidity in 
NQX with this proposal, the Exchange believes that Market Makers will 
continue to be incentivized to offer liquidity in this product which is 
based on the Nasdaq-100 Index and offers investors similar strategies 
for investors. Market Makers on ISE are the only Market Makers making a 
market in NQX. Also, the Exchange would uniformly assess a $0.25 per 
contract NQX fee to all market participants for regular and complex 
orders, except Priority Customers, regardless of whether the Non-
Priority Customer is making or taking liquidity.
    In terms of inter-market competition, the Exchange notes that it 
operates in a highly competitive market where other options markets may 
create products similar to those offered on ISE. There are other 
products today which are similarly based on the Nasdaq-100 Index. 
Market participants are offered an opportunity to either transact NDX, 
XND, or QQQ options. Although all of the products are based on the 
Nasdaq-100 Index and offer various notional sizes as well as different 
fees.\15\ These products all offer exposure to the Nasdaq-100 Index 
which is different from exposure to competing products.
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    \15\ See ISE Options 7, Section 3 for simple orders and Options 
7, Section 4 for Complex Orders for pricing on QQQ options. XND 
options pricing is located within Options 7, Section 5A. The 
applicable Complex Order fees for Non-Select Symbols in Options 7, 
Section 4 apply to NDX options. See also Nasdaq Phlx LLC (``Phlx'') 
Options 7, Section 4 for XND pricing. XND is currently listed only 
on Phlx.
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    The Exchange's proposal to amend the column headers from ``Maker 
Fee/Rebate'' to ``Maker Fee'' and ``Taker Fee/Rebate'' to ``Taker Fee'' 
does not impose an undue burden on competition as no Member would be 
subject to a Maker Rebate with the removal of the rebates for Market 
Makers, including Market Maker (for orders sent by Electronic Access 
Members) and there are no Taker Rebates today.

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\ 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).
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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-2021-11 on the subject line.

[[Page 28921]]

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-2021-11. 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-2021-11 and should be submitted on 
or before June 18, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11290 Filed 5-27-21; 8:45 am]
BILLING CODE 8011-01-P