[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10609-10611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03486]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96927; File No. SR-ISE-2023-04]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Pricing 
Schedule at Options 7, Section 3 To Modify the PIM Break-Up Rebate

February 14, 2023.
    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 February 1, 2023, 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 the Exchange's Pricing Schedule at 
Options 7, Section 3 (Regular Order Fees and Rebates).
    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.

[[Page 10610]]

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 Exchange's 
Pricing Schedule at Options 7, Section 3 (Regular Order Fees and 
Rebates) to increase the Select Symbol \3\ break-up rebate currently 
provided to Electronic Access Members \4\ (``EAMs'') that utilize the 
Price Improvement Mechanism (``PIM'').\5\
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    \3\ ``Select Symbols'' are options overlying all symbols listed 
on ISE that are in the Penny Interval Program. See Options 7, 
Section 1(c).
    \4\ The term ``Electronic Access Member'' means a Member that is 
approved to exercise trading privileges associated with EAM Rights. 
See General 1, Section 1(a)(6).
    \5\ As described in Options 3, Section 13, PIM is a process by 
which an EAM can provide price improvement opportunities for a 
``Crossing Transaction,'' which is comprised of the order the EAM 
represents as agent (the ``Agency Order'') and a counter-side order 
for the full size of the Agency Order (the ``Counter-Side Order''). 
Upon the entry of a Crossing Transaction into the PIM, PIM responses 
(i.e., ``Improvement Orders'') may be entered during the auction 
exposure period.
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    The Exchange currently provides EAMs that use PIM to execute more 
than 0.75% of Priority Customer \6\ volume of regular orders, 
calculated as a percentage of Customer Total Consolidated Volume \7\ 
(``TCV'') per day in a given month, a PIM break-up rebate of $0.25 per 
contract in Select Symbols and $0.60 per contract in Non-Select 
Symbols.\8\ These rebates are applied to Priority Customer regular 
orders under 100 contracts that are submitted to PIM and do not trade 
with their contra orders except when those contracts trade against 
unrelated quotes or orders.\9\
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    \6\ 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).
    \7\ ``Customer Total Consolidated Volume'' means the total 
national volume cleared at The Options Clearing Corporation in the 
Customer range in equity and ETF options in that month.
    \8\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols. See Options 7, Section 1(c).
    \9\ See note 19 of Options 7, Section 3.
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    The Exchange now proposes to increase the $0.25 per contract PIM 
break-up rebate described above for Select Symbols to $0.26 per 
contract. With the proposed change, the Exchange is seeking to 
incentivize EAMs to submit a greater amount of Priority Customer orders 
in Select Symbols into PIM for price improvement.
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'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'. . ..'' \12\
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    \12\ 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.'' \13\
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    \13\ 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 believes that its proposal to increase the $0.25 per 
contract PIM break-up rebate for Select Symbols to $0.26 per contract 
is reasonable because the increased incentive will further encourage 
participation in PIM. Specifically, the Exchange believes that the 
proposed rebate will encourage increased originating Priority Customer 
order flow in Select Symbols into PIM for price improvement, thus 
potentially increasing the initiation of PIM and volume executed 
therein. Additional PIM order flow provides all market participants 
with trading opportunities at improved prices.
    While the proposed increase to the PIM break-up rebate for Select 
Symbols will continue to be specifically targeted towards Priority 
Customer orders entered into PIM, the Exchange continues to believe 
that this is equitable and not unfairly discriminatory. Of note, today, 
Priority Customers generally receive more favorable pricing on ISE, 
including by not paying any fees for PIM Orders.\14\ Furthermore, 
Priority Customer liquidity benefits all market participants by 
providing more trading opportunities, which in turn attracts market 
makers. An increase in the activity of these market participants in 
turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow other market participants. The 
Exchange therefore

[[Page 10611]]

believes that attracting more liquidity from Priority Customer orders 
will benefit all market participants that trade on ISE.
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    \14\ See Options 7, Section 3.
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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 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 and with 
alternative trading systems 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.
    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.
    In terms of intra-market competition, the Exchange's proposal to 
increase the PIM break-up rebate for Priority Customer orders in Select 
Symbols does not impose an undue burden on competition because Priority 
Customer liquidity benefits all market participants on ISE by providing 
more trading opportunities, which in turn attracts market makers. As 
discussed above, an increase in the activity of these market 
participants in turn facilitates tighter spread, which may cause an 
additional corresponding increase in order flow from other market 
participants.

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.\15\ 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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    \15\ 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-2023-04 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-2023-04. 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 such 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-2023-04 and should be submitted on 
or before March 14, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03486 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P