Notice2021-15196
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 2, Section 5, Market Maker Quotations
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Published
July 19, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 135 (Monday, July 19, 2021)</title>
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[Federal Register Volume 86, Number 135 (Monday, July 19, 2021)]
[Notices]
[Pages 38156-38159]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15196]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92394; File No. SR-ISE-2021-15]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 2,
Section 5, Market Maker Quotations
July 13, 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 June 30, 2021, 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 Options 2, Section 5, Market Maker
Quotations.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/ise/rules">https://listingcenter.nasdaq.com/rulebook/ise/rules</a>, 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.
[[Page 38157]]
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 ISE Rules at Options 2, Section 5,
Market Maker Quotations. Currently, the Exchange requires Competitive
Market Makers \3\ and Primary Market Makers \4\ to enter bids and
offers for the options to which they are registered, except in an
assigned options series listed intra-day on the Exchange.\5\ Quotations
must meet the legal quote width requirements specified in Options 2,
Section 4(b)(4).\6\ On any given day, a Competitive Market Maker is not
required to enter quotations in the options classes to which it is
appointed. A Competitive Market Maker may initiate quoting in options
classes to which it is appointed intra-day. If a Competitive Market
Maker initiates quoting in an options class, the Competitive Market
Maker, associated with the same Member,\7\ is collectively required to
provide two-sided quotations in 60% of the cumulative number of
seconds, or such higher percentage as the Exchange may announce in
advance, for which that Member's assigned options class is open for
trading.\8\ Notwithstanding the foregoing, a Competitive Market Maker
shall not be required to make two-sided markets pursuant to Options 2,
Section 5(e)(1) in any Quarterly Options Series, any adjusted options
series, and any option series with an expiration of nine months or
greater for options on equities and exchange-traded funds (``ETFs'') or
with an expiration of twelve months or greater for index options.
Competitive Market Makers may choose to quote such series in addition
to regular series in the options class, but such quotations will not be
considered when determining whether a Competitive Market Maker has met
the obligation.\9\ Primary Market Makers, associated with the same
Member are collectively required to provide two-sided quotations in 90%
of the cumulative number of seconds, or such higher percentage as the
Exchange may announce in advance, for which that Member's assigned
options class is open for trading. Primary Market Makers are required
to make two-sided markets in any Quarterly Options Series, any Adjusted
Options Series, and any option series with an expiration of nine months
or greater for options on equities and ETFs or with an expiration of
twelve months or greater for index options.\10\
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\3\ 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).
\4\ 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).
\5\ Options 2, Section 5(e).
\6\ Options 2, Section 4(b)(4) describes bid/ask differentials.
\7\ The term ``Member'' means an organization that has been
approved to exercise trading rights associated with Exchange Rights.
See General 1, Section 1(a)(13).
\8\ Options 2, Section 5(e)(1).
\9\ Options 2, Section 5(e)(1).
\10\ Options 2, Section 5(e)(2).
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A Member is required to meet each market making obligation
separately.\11\ Currently, Options 2, Section 5(e) states, ``A
Competitive Market Maker who is also the Primary Market Maker will be
held to the Primary Market Maker obligations in the options series in
which the Primary Market Maker is assigned and will be held to
Competitive Market Maker obligations in all other options series where
assigned. A Competitive Market Maker who receives a Preferenced Order,
as described in Options 2, Section 10 and Options 3, Section 10 will be
held to the standard of a Preferred CMM in the options series of any
options class in which it receives the Preferenced Order.'' \12\
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\11\ See Options 2, Section 5(e). Today, the Exchange aggregates
all quotes submitted through the Specialized Quote Feed interface
from the Member, regardless of whether the quote was submitted by
the Member in its capacity as Primary Market Maker or Competitive
Market Maker.
\12\ Preferred Competitive Market Makers are subject to enhanced
quoting requirements as provided in Options 2, Section 5(e)(3). See
Options 3, Section 10 at Supplementary Material .01.
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Today, the Exchange calculates whether a Member that is assigned in
an options series as both a Primary Market Maker and a Competitive
Market Maker has met its quoting obligations as Primary Market Maker
and Competitive Market Maker, respectively, by aggregating all quotes
submitted through the Specialized Quote Feed \13\ interface from the
Member, whether the quote was submitted by the Member in its capacity
as Primary Market Maker or Competitive Market Maker.
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\13\ ``Specialized Quote Feed'' or ``SQF'' is an interface that
allows Market Makers to connect, send, and receive messages related
to quotes, Immediate-or-Cancel Orders, and auction responses to the
Exchange. Features include the following: (1) Options symbol
directory messages (e.g., underlying and complex instruments); (2)
System event messages (e.g., start of trading hours messages and
start of opening); (3) trading action messages (e.g., halts and
resumes); (4) execution messages; (5) quote messages; (6) Immediate-
or-Cancel Order messages; (7) risk protection triggers and purge
notifications; (8) opening imbalance messages; (9) auction
notifications; and (10) auction responses. The SQF Purge Interface
only receives and notifies of purge requests from the Market Maker.
Market Makers may only enter interest into SQF in their assigned
options series. See Options 3, Section 7 at Supplementary Material
.03(c).
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The Exchange proposes to amend its calculation to only consider
quotes submitted through the Specialized Quote Feed interface utilizing
badges \14\ and options series \15\ assigned to a Primary Market Maker
when calculating whether a Member acting as a Primary Market Maker has
satisfied the requirements to provide two-sided quotations in 90% of
the cumulative number of seconds, or such higher percentage as ISE may
announce for which that Member's assigned options class is open for
trading. Similarly, the Exchange proposes to only consider quotes
submitted through the Specialized Quote Feed interface utilizing badges
and options series assigned to a Competitive Market Maker when
calculating whether a Member acting as a Market Maker has satisfied the
requirements to provide two-sided quotations in 60% of the cumulative
number of seconds, or such higher percentage as ISE may announce for
which that Member's assigned options class is open for trading,
provided the Competitive Market Maker initiated quoting in an options
class for which that Member's assigned options class is open for
trading. With this proposed change, a Member that is a Competitive
Market Maker in an options series where the Member is also assigned as
the Primary Market Maker in an options series will be held to both the
Primary Market Maker and Competitive Market Maker obligations, pursuant
to Options 2, Section 5(e), separately, in that options series. The
Exchange will consider whether a Member, acting as both Primary Market
Maker and Competitive Market Maker in an assigned options series, has
complied with each requirement by only considering quotes in the
respective badges.
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\14\ A ``badge'' shall mean an account number, which may contain
letters and/or numbers, assigned to Market Makers. A Market Maker
account may be associated with multiple badges. See Options 1,
Section 1(a)(5).
\15\ ISE currently utilizes a badge with an associated options
series to designate a Primary Market Maker assigned in an options
series and a badge with an associated options series to designate a
Competitive Market Maker assigned in an option series.
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By way of example,
Current Quoting obligation methodology:
Primary Market Maker firm 123 is assigned five badges: 123A, 123B,
123C, 123D and 123E.
Badge 123A is designated the Primary Market Maker badge and badge
123B-E are designated as Competitive Market Maker badges.
[[Page 38158]]
Today, all quoting activity from all 5 badges is aggregated in
determining if Firm 123 complied with the requirement to provide two-
sided quotations in 90% of the cumulative number of seconds for which
that Member's assigned options series are open for trading. The higher
of the two obligations is required today.
Proposed Quoting obligation methodology:
Primary Market Maker firm 123 is assigned five badges: 123A, 123B,
123C, 123D and 123E.
Badge 123A is designated the Primary Market Maker badge and badge
123B-E are designated as Competitive Market Maker badges.
As proposed only quoting activity from badge 123A (and excluding
badges 123 B-E) would be counted toward the requirement to provide two-
sided quotations in 90% of the cumulative number of seconds for which
that Member's assigned options series are open for trading.
All other badges (123 B-E), excluding badge 123A, would be counted
toward the requirement to provide two-sided quotations in 60% of the
cumulative number of seconds for which that Member's assigned options
series are open for trading.
A Member may have only one Primary Market Maker badge per option
series.
The below example explains how the Exchange aggregates quotes from
Primary Market Makers, in their assigned options series, to determine
compliance with quoting requirements, which will not be changing
pursuant to this proposal. The same calculation applies to quotes from
Competitive Market Makers in their assigned options series.
Under the proposal, and as is the case today, by way of example,
assume Primary Market Maker Firm ABC assigned in five symbols across 2
different badges:
Badge 123A and B is assigned in symbols QQQ and SPY, respectively.
Badge 124A, B and C is assigned in symbols IBM, GM, and MSFT,
respectively.
Quotes submitted through the Specialized Quote Feed interface from
the Firm ABC's Primary Market Maker badges from all 5 symbols will be
counted in determining compliance with Firm ABC's requirement to
provide two-sided quotations in 90% of the cumulative number of seconds
for which Firm ABC's assigned options series are open for trading.
If Firm ABC Primary Market Maker badge 123A quotes symbol QQQ at
95% and badge 123B quotes symbol SPY at 90% and Firm ABC Primary Market
Maker badge 124A quotes IBM at 85%, badge 124B quotes GM at 95%, and
badge 124C quotes MSFT at 90% then Firm ABC will have met requirement
to provide two-sided quotations in 90% of the cumulative number of
seconds for which Firm ABC's assigned options series are open for
trading because the percentage across the 5 symbols is 91%.
Implementation
The Exchange proposes to implement this rule change on August 2,
2021. The Exchange has issued an Options Regulatory Alert notifying
Members of this change.\16\
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\16\ See Options Regulatory Alert 2021-36.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\17\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\18\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest by requiring Primary Market Makers and
Competitive Market Makers to separately meet quoting requirements as
both a Primary Market Maker and Competitive Market Maker, respectively,
when the Member is assigned in both roles in an options series.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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The Exchange's proposal to separately calculate Competitive Market
Maker and Primary Market Maker quoting obligations where the Member is
assigned as both Primary Market Maker and Competitive Market Maker in
an options series is consistent with the Act. Specifically, the
Exchange's proposal would only consider quotes submitted through the
Specialized Quote Feed interface utilizing badges and options series
assigned to a Primary Market Maker when calculating whether a Member
acting as a Primary Market Maker has satisfied the requirements to
provide two-sided quotations in 90% of the cumulative number of
seconds, or such higher percentage as ISE may announce for which that
Member's assigned options series are open for trading. Similarly, the
Exchange's proposal would only consider quotes submitted through the
Specialized Quote Feed interface utilizing badges and option series
assigned to a Competitive Market Maker when calculating whether a
Member acting as a Competitive Market Maker has satisfied the
requirements to provide two-sided quotations in 60% of the cumulative
number of seconds, or such higher percentage as ISE may announce for
which that Member's assigned options series are open for trading.
The proposed change for calculating the Primary Market Maker
requirement separate from the Competitive Market Maker requirement,
where a Member is assigned in both roles in an options series, would
ensure that the Member quotes the requisite number of seconds in an
assigned options series, when acting as both Primary Market Maker and
Competitive Market Maker. This would ensure that a Member adds the
requisite amount of liquidity in that assigned options series in
exchange for certain benefits offered by the Exchange to the Member,
such as enhanced Primary Market Maker allocation \19\ and favorable
pricing,\20\ in addition to the Member fulfilling other market making
obligations specified in Options 2, Section 4(a) and (b).\21\
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\19\ See Options 3, Section 10(c)(1)(B).
\20\ See Options 7, Pricing Schedule.
\21\ General. Transactions of a Market Maker should constitute a
course of dealings reasonably calculated to contribute to the
maintenance of a fair and orderly market, and Market Makers should
not make bids or offers or enter into transactions that are
inconsistent with such a course of dealings. Appointment. With
respect to each options class to which a Market Maker is appointed
under Options 2, Section 3, the Market Maker has a continuous
obligation to engage, to a reasonable degree under the existing
circumstances, in dealings for his own account when there exists, or
it is reasonably anticipated that there will exist, a lack of price
continuity, a temporary disparity between the supply of and demand
for a particular options contract, or a temporary distortion of the
price relationships between options contracts of the same class.
Without limiting the foregoing, a Market Maker is expected to
perform the following activities in the course of maintaining a fair
and orderly market: (1) To compete with other Market Makers to
improve the market in all series of options classes to which the
Market Maker is appointed. (2) To make markets that, absent changed
market conditions, will be honored for the number of contracts
entered into the Exchange's System in all series of options classes
to which the Market Maker is appointed. (3) To update market
quotations in response to changed market conditions in all series of
options classes to which the Market Maker is appointed.
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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. Rather, the proposal would
ensure that Members that are assigned in an options series as both the
Primary Market Maker and Competitive Market Maker, respectively, are
meeting the same quoting obligations as other Members who are assigned
solely as either the Primary Market Maker or Competitive Market Maker
in an option series. Also, this proposal would ensure that a Member
[[Page 38159]]
quotes the requisite number of seconds in an assigned options series,
when acting as both Primary Market Maker and Competitive Market Maker,
respectively, thereby adding the requisite amount of liquidity in
exchange for certain benefits provided by the Exchange such as enhanced
Primary Market Maker allocation \22\ and favorable pricing,\23\ in
addition to fulfilling its other market making obligations specified in
Options 2, Section 4(a) and (b).\24\
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\22\ See note 19 above.
\23\ See note 20 above.
\24\ See note 21 above.
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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
Because the proposed rule change does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act \25\ and Rule 19b-4(f)(6) thereunder.\26\
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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of its
intent to file the proposed rule change, along with a brief
description and text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \27\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\28\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative upon filing. Waiving the operative delay will
allow the Exchange to amend, without delay, its rules regarding Market
Maker quoting obligations to ensure that Members assigned in an options
series as both the Primary Market Maker and Competitive Market Maker
would have the same quoting obligations as Members who are assigned
solely as either Primary Market Maker or Competitive Market Maker in an
option series. The Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest and hereby designates the proposed rule change to be
operative upon filing.\29\
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\27\ 17 CFR 240.19b-4(f)(6).
\28\ 17 CFR 240.19b-4(f)(6)(iii).
\29\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#9eecebf2fbb3fdf1f3f3fbf0eaeddeedfbfdb0f9f1e8"><span class="__cf_email__" data-cfemail="a4d6d1c8c189c7cbc9c9c1cad0d7e4d7c1c78ac3cbd2">[email protected]</span></a>. Please include
File Number SR-ISE-2021-15 on the subject line.
Paper Comments
<bullet> 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-2021-15. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-2021-15 and should be submitted on
or before August 9, 2021.
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\30\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15196 Filed 7-16-21; 8:45 am]
BILLING CODE 8011-01-P
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