[Federal Register Volume 89, Number 59 (Tuesday, March 26, 2024)]
[Notices]
[Pages 21129-21131]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06325]



[[Page 21129]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99788; File No. SR-ISE-2024-11]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Complex Order Rebates in the Exchange's Pricing Schedule at Options 7, 
Section 4

March 20, 2024.
    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 8, 2024, 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 complex order rebates in the 
Exchange's Pricing Schedule at Options 7, Section 4.
    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 purpose of the proposed rule change is to amend the complex 
order rebates in the Exchange's Pricing Schedule.\3\ Today, as set 
forth in Options 7, Section 4, the Exchange offers tiered complex order 
Priority Customer \4\ rebates for Select Symbols \5\ and Non-Select 
Symbols \6\ based on the Priority Customer Complex Tier achieved.\7\ 
The tiered complex order Priority Customer rebates for Select Symbols 
and Non-Select Symbols are presently as follows:
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    \3\ The Exchange initially filed the proposed pricing changes on 
February 29, 2024 with an operative date of March 1, 2024 (SR-ISE-
2024-08). On March 8, 2024, the Exchange withdrew that filing and 
replaced it with this filing.
    \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).
    \5\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Interval Program.
    \6\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
    \7\ Priority Customer Complex Tiers are based on 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. 
All Complex Order volume executed on the Exchange, including volume 
executed by Affiliated Members, is included in the volume 
calculation, except for volume executed as Crossing Orders and 
Responses to Crossing Orders. Affiliated Entities may aggregate 
their Complex Order volume for purposes of calculating Priority 
Customer Rebates. The Appointed OFP would receive the rebate 
associated with the qualifying volume tier based on aggregated 
volume. See Options 7, Section 4, note 16. As set forth in Options 
7, Section 1(c), an Appointed OFP is an Order Flow Provider who has 
been appointed by a Market Maker for purposes of qualifying as an 
Affiliated Entity.

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                                             Total affiliated member or
                                              affiliated entity complex
                                               order volume (excluding
                                                crossing  orders and         Rebate for        Rebate for Non-
      Priority Customer Complex Tier           responses to  crossing      Select Symbols      Select Symbols
                                               orders) calculated as a
                                            percentage of customer total
                                                 consolidated volume
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Tier 1....................................  0.000-0.200.................           ($0.25)               ($0.50)
Tier 2....................................  Above 0.200-0.400...........            (0.30)                (0.60)
Tier 3....................................  Above 0.400-0.450...........            (0.35)                (0.75)
Tier 4....................................  Above 0.450-0.750...........            (0.40)                (0.80)
Tier 5....................................  Above 0.750-1.000...........            (0.45)                (0.85)
Tier 6....................................  Above 1.000-1.350...........            (0.48)                (0.95)
Tier 7....................................  Above 1.350-1.750...........            (0.54)                (1.00)
Tier 8....................................  Above 1.750-2.750...........            (0.55)                (1.10)
Tier 9....................................  Above 2.750-4.500...........            (0.56)                (1.12)
Tier 10...................................  Above 4.500.................            (0.57)                (1.15)
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    The above rebates are provided per contract per leg if the order 
trades with Non-Priority Customer \8\ orders in the complex order book.
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    \8\ ``Non-Priority Customers'' include Market Makers, Non-Nasdaq 
ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and 
Professional Customers.
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    The Exchange now proposes to modify Priority Customer Complex Tiers 
3-5 in the following manner:

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                                             Total affiliated member or
                                              affiliated entity complex
                                              order volume  (excluding
                                                 crossing orders and         Rebate for        Rebate for Non-
       Priority Customer ComplexTier            responses to crossing      Select Symbols      Select Symbols
                                              orders)  calculated as a
                                            percentage of customer total
                                                 consolidated volume
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Tier 3....................................  Above 0.400-0.550...........           ($0.40)               ($0.80)
Tier 4....................................  Above 0.550-0.750...........            (0.45)                (0.85)
Tier 5....................................  Above 0.750-1.000...........            (0.46)                (0.90)
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[[Page 21130]]

    As amended, the rebates for Tiers 3-5 are increasing across the 
board for Select Symbols and Non-Symbols. In addition, the Exchange is 
adjusting the volume qualifications for Tiers 3 and 4 by increasing the 
upper limit of Tier 3 from 0.45% to 0.55% and the lower limit of Tier 4 
from 0.45% to 0.55%. While the Exchange is increasing the volume 
qualifications in this manner, the Exchange is simultaneously 
increasing the related rebates such that Members who would fall within 
the 0.45% to 0.55% volume threshold range would receive the same rebate 
under this proposal as they would today (i.e., $0.40 for Select Symbols 
and $0.80 for Non-Select Symbols). Accordingly, the Exchange expects 
that there will be little to no impact on Members who would currently 
fall within the 0.45% to 0.55% volume threshold range as a result of 
this change. Furthermore, the Exchange is increasing the Tier 5 rebates 
without changing the tier qualifications so that Members can send the 
same amount of complex order flow as they do today to receive the 
larger Priority Customer complex rebates described above. Overall, the 
Exchange believes that the proposed changes to Priority Customer 
Complex Tiers 3-5 will attract more complex order flow to ISE because 
Members may be incentivized to send more complex orders to ISE to 
receive the increased rebates.

2. Statutory Basis

    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 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'. . ..'' \11\
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    \11\ 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.'' \12\
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    \12\ 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 
seventeen 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 the proposed changes to Priority 
Customer Complex Tiers 3-5 discussed above are reasonable because they 
are designed to attract more complex order flow to ISE to the benefit 
of all market participants. As discussed above, the rebates for Tiers 
3-5 are increasing across the board for Select Symbols and Non-Symbols. 
In addition, the Exchange is adjusting the volume qualifications for 
Tiers 3 and 4 by increasing the upper limit of Tier 3 from 0.45% to 
0.55% and the lower limit of Tier 4 from 0.45% to 0.55%. As discussed 
above, the Exchange expects there will be little to no impact on 
Members who would currently fall within the 0.45% to 0.55% volume 
threshold range as a result of this change because they would receive 
the same rebates under this proposal as they would today (i.e., $0.40 
for Select Symbols and $0.80 for Non-Select Symbols). The Exchange also 
believes that overall, all Members in Tiers 3 and 4 will benefit from 
the proposed rebates and that these rebates will continue to 
incentivize Members to send more complex order flow to ISE. 
Furthermore, the Exchange is increasing the Tier 5 rebates without 
changing the tier qualifications so that Members can send the same 
amount of complex order flow as they do today to receive the larger 
Priority Customer complex rebates described above. Overall, the 
Exchange believes that the proposed changes to Priority Customer 
Complex Tiers 3-5 will attract more complex order flow to ISE because 
Members may be incentivized to send more complex orders to ISE to 
receive the increased rebates.
    The Exchange believes that offering the complex order Priority 
Customer rebate program, as modified, to only Priority Customers is 
equitable and not unfairly discriminatory as the proposed changes are 
intended to increase Priority Customer complex order flow to ISE. An 
increase in Priority Customer order flow enhances liquidity on the 
Exchange to the benefit of all market participants by providing more 
trading opportunities, which in turn attracts Market Makers and other 
market participants that may interact 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. While 
the proposed changes to the complex rebates described above apply 
directly to Priority Customers, the Exchange believes that the changes 
will ultimately fortify and encourage activity on the Exchange to the 
extent the proposed changes incentivize increased Priority Customer 
complex order flow to ISE. An increase in Priority Customer order flow 
enhances liquidity on the Exchange to the benefit of all market 
participants by providing more trading opportunities, which in turn 
attracts Market Makers and other market participants that may interact 
with this order flow.
    In terms of inter-market competition, the Exchange notes that it 
operates in a highly competitive market in which

[[Page 21131]]

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 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.

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.\13\ 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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    \13\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-ISE-2024-11 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-2024-11. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-ISE-2024-11 and should be 
submitted on or before April 16, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06325 Filed 3-25-24; 8:45 am]
BILLING CODE 8011-01-P