Notice2021-22807
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule at Options 7, Section 6.A To Modify the QCC and Solicitation Rebate Program
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Published
October 20, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 200 (Wednesday, October 20, 2021)</title>
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[Federal Register Volume 86, Number 200 (Wednesday, October 20, 2021)]
[Notices]
[Pages 58121-58124]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-22807]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93314; File No. SR-ISE-2021-21)
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Pricing Schedule at Options 7, Section 6.A To Modify the QCC
and Solicitation Rebate Program
October 14, 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 September 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, 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 6.A to modify its Qualified Contingent Cross
(``QCC'') and Solicitation rebate program, as described further below.
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.] [sic]
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
[[Page 58122]]
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 modify the Exchange's
QCC \3\ and Solicitation Rebate program in Options 7, Section 6.A by:
(i) Providing a new additional rebate of $0.01 per originating contract
side to qualifying Members, and (ii) amending the qualifications for
the existing $0.01 additional rebate. The Exchange also proposes a
technical amendment in Options 7, Section 4. Each change is discussed
in detail below.
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\3\ A QCC Order is comprised of an originating order to buy or
sell at least 1000 contracts that is identified as being part of a
qualified contingent trade, as that term is defined in Supplementary
Material .01 to Options 3, Section 7, coupled with a contra-side
order or orders totaling an equal number of contracts. See Options
3, Section 7(j).
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While these amendments are effective upon filing, the Exchange has
designated the proposed amendments to be operative on October 1, 2021.
Background
Today, Members using QCC and/or other solicited orders executed in
the Solicitation \4\ or Facilitation \5\ Mechanisms (together with QCC,
collectively, ``Solicited Orders'') receive rebates for each
originating contract side in all symbols traded on the Exchange. Once a
Member reaches a certain volume threshold in Solicited Orders during a
month, the Exchange provides rebates to that Member for all of its
eligible Solicited Order traded contracts for that month.\6\ Rebates
will be applied to Solicited Order traded contracts once the volume
threshold is met. Members will receive the rebate for all Solicited
Orders except for Solicited Orders between two Priority Customers.\7\
Solicited Orders between two Priority Customers will not receive any
rebate. The volume threshold and corresponding rebates are as
follows:\8\
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\4\ The Solicitation or Solicited Order Mechanism is a process
by which an Electronic Access Member (``EAM'') can attempt to
execute orders of 500 or more contracts it represents as agent
against contra orders that it solicited. See Options 3, Section
11(d).
\5\ The Facilitation Mechanism is a process by which an EAM can
execute a transaction wherein the EAM seeks to facilitate a block-
size order it represents as agent, and/or a transaction wherein the
EAM solicited interest to execute against a block-size order it
represents as agent. See Options 3, Section 11(b).
\6\ All eligible volume from affiliated Members will be
aggregated in determining QCC and Solicitation volume totals,
provided there is at least 75% common ownership between the Members
as reflected on each Member's Form BD, Schedule A.
\7\ 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).
\8\ Volume resulting from all Solicited Orders will be
aggregated in determining the applicable volume tier.
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Originating contract sides Rebate
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0 to 99,999.................................................. $0.00
100,000 to 199,999........................................... (0.05)
200,000 to 499,999........................................... (0.07)
500,000 to 749,999........................................... (0.09)
750,000 to 999,999........................................... (0.10)
1,000,000+................................................... (0.11)
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For Members that achieve the highest volume threshold of 1,000,000
or more originating contract sides, the Exchange also currently
provides an additional rebate of $0.01 per originating contract side on
Solicited Orders that qualify for the QCC and Solicitation Rebate
program if the Member achieves in a given month: (i) Combined Solicited
Order volume of more than 1,750,000 originating contract sides and (ii)
Priority Customer Complex Tiers 6-9 in Section 4 (the ``note *
incentive'').\9\ The purpose of this incentive is to encourage Members
to provide high volumes of Solicited Order activity well above the
highest QCC and Solicitation Rebate volume tier of 1,000,000 or more
originating contract sides, and also provide significant complex order
volume.
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\9\ As set forth in Options 7, Section 4, 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.
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New QCC and Solicitation Incentive
To further encourage Solicited Order and complex order flow, the
Exchange now proposes to provide a new additional incentive that will
be structured similarly to the existing note * incentive, except the
proposed incentive will also be applied to the lower QCC and
Solicitation Rebate volume tiers (in addition to the highest volume
tier). Furthermore, Members will be able to qualify for the proposed
incentive by achieving less stringent Priority Customer Complex Tiers
in Section 4. Specifically, the Exchange proposes that Members will
receive an additional rebate of $0.01 per originating contract side on
Solicited Orders that qualify for the QCC and Solicitation Rebate
program if they achieve Priority Customer Complex Tier 2 or higher in a
given month (the ``note & incentive'').
The note & incentive will be applied to all of the QCC and
Solicitation Rebate volume tiers except for the lowest tier (for which
the Exchange does not currently provide a QCC and Solicitation Rebate).
This additional rebate opportunity will be cumulative of the base
rebates so that qualifying Members could receive up to $0.06 in the
second QCC and Solicitation Rebate volume tier, $0.08 in the third
tier, $0.10 in the fourth tier, $0.11 in the fifth tier, and $0.13 in
the sixth and highest tier (i.e., the $0.11 base rebate, the $0.01 note
* incentive, and the $0.01 note & incentive).
While structured similarly to the existing note * incentive, the
proposed incentive will be less stringent in that it will require
Members to send a lower amount of Solicited Order and complex order
volume in order to qualify for the incentive. As such, the proposed
note & incentive may be more readily accessible to Members. If more
Members find this rebate is accessible to them, then more will seek to
qualify for it by sending Solicited Order and complex order flow to the
Exchange.
Existing QCC and Solicitation Incentive
As described above, the Exchange currently offers the $0.01 note *
incentive to qualifying Members if they achieve in a given month: (i)
Combined Solicited Order volume of more than 1,750,000 originating
contract sides and (ii) Priority Customer Complex Tiers 6-9 in Section
4. When the Exchange adopted the note * incentive in 2019, there were
only nine Priority Customer Complex Tiers in Section 4.\10\ The
Exchange has since amended its Pricing Schedule to adopt Priority
Customer Complex Tier 10, and now proposes to update the existing
Priority Customer Complex Tier qualification in the note * incentive
accordingly.\11\ As amended, the qualification will require Members to
achieve Priority Customer Complex Tier 6 or higher. The amended
qualification will therefore include Priority Customer Complex Tier 10
while also giving the Exchange flexibility to accommodate any similar
changes to its Priority Customer Complex Tiers going forward. The
Exchange notes that no Member is
[[Page 58123]]
currently achieving both Priority Customer Complex Tier 10 and combined
Solicited Order volume of more than 1,750,000 originating contract
sides to receive the $0.01 additional incentive, so expects that the
proposed changes will have minimal impact.
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\10\ See Securities Exchange Act Release No. 85647 (April 15,
2019), 84 FR 16300 (April 18, 2019) (SR-ISE-2019-09) (the ``2019
Filing'').
\11\ See Securities Exchange Act Release No. 90501 (November 24,
2020), 85 FR 77328 (December 1, 2020) (SR-ISE-2020-39) (the ``2020
Filing'').
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Technical Amendment
The Exchange proposes a minor, technical amendment in note 16 of
Options 7, Section 4, which currently describes the Priority Customer
Complex Tiers, to add a reference to Affiliated Entity \12\ within the
note's first sentence. The proposed change will simply align the note's
language with corresponding language presently in the header of the
Priority Customer complex rebates table.
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\12\ An ``Affiliated Entity'' is a relationship between an
Appointed Market Maker and an Appointed OFP for purposes of
qualifying for certain pricing specified in the Schedule of Fees.
Market Makers and OFPs are required to send an email to the Exchange
to appoint their counterpart, at least 3 business days prior to the
last day of the month to qualify for the next month. The Exchange
will acknowledge receipt of the emails and specify the date the
Affiliated Entity is eligible for applicable pricing, as specified
in the Schedule of Fees. Each Affiliated Entity relationship will
commence on the 1st of a month and may not be terminated prior to
the end of any month. An Affiliated Entity relationship will
terminate after a one (1) year period, unless either party
terminates earlier in writing by sending an email to the Exchange at
least 3 business days prior to the last day of the month to
terminate for the next month. Affiliated Entity relationships must
be renewed annually by each party sending an email to the Exchange.
Affiliated Members may not qualify as a counterparty comprising an
Affiliated Entity. Each Member may qualify for only one (1)
Affiliated Entity relationship at any given time.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\13\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ 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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\13\ 15 U.S.C. 78f(b).
\14\ 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'. . . .'' \15\
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\15\ 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.'' \16\
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\16\ 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.
New QCC and Solicitation Incentive
The Exchange believes that its proposal to provide Members with an
additional incentive of $0.01 per originating contract side on
Solicited Orders that qualify for the QCC and Solicitation Rebate
program if they achieve Priority Customer Complex Tier 2 or higher in a
given month is reasonable because this incentive is intended to
encourage Members to send more Solicited Order and complex order flow
to the Exchange. As discussed above, the proposed note & incentive is
similar to the existing note * incentive, except the proposed incentive
will be less stringent in that it will require Members to send a lower
amount of Solicited Order and complex order volume in order to qualify
for the incentive. As such, the proposed note & incentive may be more
readily accessible to Members. If more Members find this rebate is
accessible to them, then more will seek to qualify for it by sending
Solicited Order and complex order flow to the Exchange. All market
participants benefit from increased order interaction when more order
flow is available on ISE.
The Exchange further believes that the proposed note & incentive is
equitable and not unfairly discriminatory because any Member may
qualify for the proposed incentive by submitting the requisite volume
of Solicited Orders and complex orders. Furthermore, the Exchange will
uniformly apply the proposed incentive to all qualifying Members.
Existing QCC and Solicitation Incentive
The Exchange believes that the proposed changes to amend the
existing qualification in the note * incentive is reasonable for the
following reasons. First, the proposed changes would more closely align
to the Exchange's original intent in the 2019 Filing to provide the
note * incentive to qualifying Members that achieved anything above
1.000% of 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 (i.e.,
Priority Customer Complex Tiers 6-9 at the time of the 2019
Filing).\17\ The 2020 Filing amended, among other changes, the Priority
Customer Complex Tiers by adding a new Tier 10 as the highest tier and
adjusting the volume percentages in Tiers 8 and 9 accordingly.\18\ The
volume percentages in Tier 6, however, remained the same with the 2020
Filing, so even with the addition of Tier 10, corresponding changes
should have been made to the note * incentive qualifications to include
Tier 10 to align with the original intent of this incentive. Second, as
noted above, the proposed changes to include Tier 10 in the incentive
qualifications are expected to have minimal impact as no Member is
currently achieving both Priority Customer Complex Tier 10 and combined
Solicited Order volume of more than 1,750,000 originating contract
[[Page 58124]]
sides to receive the $0.01 additional rebate.
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\17\ See 2019 Filing.
\18\ See 2020 Filing.
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Lastly, the Exchange believes that the proposed changes to the
existing qualification are equitable and not unfairly discriminatory
because any Member may qualify for the note * incentive by submitting
the requisite volume of Solicited Orders and complex orders. The
Exchange will apply the amended qualification to all qualifying Members
uniformly.
Technical Amendment
The Exchange's proposal to amend note 16 in Options 7, Section 4 is
reasonable, equitable, and not unfairly discriminatory. As discussed
above, the Exchange is simply aligning the note's language
corresponding language currently in the header of the Priority Customer
complex rebates table. The Exchange believes that the proposed changes
will bring clarity and transparency to the Exchange's 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.
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. As discussed above, any Member may qualify
for the QCC and Solicitation Rebates, including the note * incentive
and the proposed note & incentive. The proposed changes are primarily
aimed at attracting greater Solicited Order and complex order flow to
the Exchange. To the extent the Exchange's proposal incentivizes
Members to bring more order flow to ISE, the Exchange believes that the
resulting additional volume and liquidity will benefit all market
participants.
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
options 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 exchanges 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.\19\ 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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\19\ 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
<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#493b3c252c642a2624242c273d3a093a2c2a672e263f"><span class="__cf_email__" data-cfemail="2153544d440c424e4c4c444f5552615244420f464e57">[email protected]</span></a>. Please include
File Number SR-ISE-2021-21 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-2021-21. 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-2021-21 and should be submitted on
or before November 10, 2021.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22807 Filed 10-19-21; 8:45 am]
BILLING CODE 8011-01-P
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