Notice2022-05977
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Market Maker Plus Tier 1b Rebate for SPY, QQQ, and IWM
Primary source
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Published
March 22, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 55 (Tuesday, March 22, 2022)</title>
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[Federal Register Volume 87, Number 55 (Tuesday, March 22, 2022)]
[Notices]
[Pages 16274-16277]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-05977]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94427; File No. SR-ISE-2022-06]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Market
Maker Plus Tier 1b Rebate for SPY, QQQ, and IWM
March 16, 2022.
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 1, 2022, 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 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 its Pricing Schedule at Options 7,
Section 3 to increase the Market Maker Plus Tier 1b rebate for SPY,
QQQ, and IWM.
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.
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
[[Page 16275]]
Pricing Schedule at Options 7, Section 3 to increase the Market Maker
Plus Tier 1b rebate for SPY, QQQ, and IWM.
Today, the Exchange operates a Market Maker Plus program for
regular orders in Select Symbols \3\ and Non-Select Symbols \4\ that
provides tiered incentives to Market Makers \5\ based on time spent
quoting at the National Best Bid or National Best Offer (``NBBO'').\6\
This program is designed to reward Market Makers that contribute to
market quality by maintaining tight markets in symbols traded on the
Exchange. In particular, Market Makers that qualify for this program
will not pay the maker fee of $0.18 per contract (in Select Symbols) or
$0.70 per contract (in Non-Select Symbols), and will instead receive
incentives based on the applicable Market Maker Plus Tier for which
they qualify. Market Makers are evaluated each trading day for the
percentage of time spent on the NBBO for qualifying series that expire
in two successive thirty calendar day periods beginning on that trading
day. A Market Maker Plus is a Market Maker who is on the NBBO a
specified percentage of the time on average for the month based on
daily performance in the qualifying series for each of the two
successive periods described above.\7\
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\3\ ``Select Symbols'' are options overlying all symbols listed
on the Exchange that are in the Penny Interval Program.
\4\ ``Non-Select Symbols'' are options overlying all symbols
excluding Select Symbols.
\5\ The term ``Market Makers'' refers to Competitive Market
Makers and Primary Market Makers, collectively.
\6\ See Options 7, Section 3, note 5.
\7\ Qualifying series are series trading between $0.03 and $3.00
(for options whose underlying stock's previous trading day's last
sale price was less than or equal to $100) and between $0.10 and
$3.00 (for options whose underlying stock's previous trading day's
last sale price was greater than $100) in premium.
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For SPY, QQQ, and IWM, the Exchange currently provides the below
marker rebates based on the applicable Market Maker Plus tier for which
the Market Maker qualifies.
SPY, QQQ, and IWM
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Regular Linked
Market maker plus tier (specified percentage) maker maker
rebate rebate
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Tier 1a (50% to less than 65%).................... ($0.00) N/A
Tier 1b (65% to less than 80%) or (over 50% and ($0.05) N/A
adds liquidity in the qualifying symbol that is
executed at a volume of greater than 0.10% of
Customer Total Consolidated Volume)..............
Tier 2 (80% to less than 85%) or (over 50% and ($0.18) ($0.15)
adds liquidity in the qualifying symbol that is
executed at a volume of greater than 0.20% of
Customer Total Consolidated Volume)..............
Tier 3 (85% to less than 90%) or (over 50% and ($0.22) ($0.19)
adds liquidity in the qualifying symbol that is
executed at a volume of greater than 0.25% of
Customer Total Consolidated Volume)..............
Tier 4 (90% or greater) or (over 50% and adds ($0.26) ($0.23)
liquidity in the qualifying symbol that is
executed at a volume of greater than 0.50% of
Customer Total Consolidated Volume)..............
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The Exchange now proposes to increase the Market Maker Plus Tier 1b
rebate from $0.05 to $0.10 per contract. No other changes are being
made to the Market Maker Plus program under this proposal.
By increasing the Tier 1b rebate, the Exchange seeks to further
incentivize Market Makers to participate in the Market Maker Plus
program for SPY, QQQ, and IWM. By fortifying participation in this
program, the Exchange believes that the proposed changes will continue
to encourage Market Makers to post quality markets in SPY, QQQ, and
IWM, thereby improving trading conditions for all market participants
through narrower bid-ask spreads and increased depth of liquidity
available at the inside market.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\8\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\9\ 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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\8\ 15 U.S.C. 78f(b).
\9\ 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'. . . .'' \10\
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\10\ 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.'' \11\
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\11\ 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
[[Page 16276]]
attempt by the Exchange to increase its liquidity and market share
relative to its competitors.
In particular, the Exchange's proposal to increase the SPY, QQQ,
and IWM Tier 1b rebate from $0.05 to $0.10 per contract is a reasonable
attempt to fortify participation in the Market Maker Plus program and
improve market quality on ISE. The Exchange will apply the proposed
changes to SPY, QQQ, and IWM as they are three of the most actively
traded symbols on ISE, so the Exchange believes that further
incentivizing liquidity in these three names will have a significant
and beneficial impact on market quality on ISE.
The Exchange also believes that the proposed changes are equitable
and not unfairly discriminatory as all Market Makers would be eligible
to receive the increased Tier 1b rebate in SPY, QQQ, and IWM by meeting
the quoting requirements described above. Furthermore, the Exchange
continues to believe that it is not unfairly discriminatory to offer
this program's incentives to Market Makers only. Market Makers, and in
particular, those Market Makers that participate in and qualify for the
Market Maker Plus program, add value through continuous quoting, and
are subject to additional requirements and obligations (such as quoting
obligations) that other market participants are not. Lastly, the
proposed changes will further encourage Market Makers to maintain tight
markets in SPY, QQQ, and IWM, thereby increasing liquidity and
attracting additional order flow to the Exchange, which will benefit
all market participants in the quality of order interaction.
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, while the proposed increase
to the SPY, QQQ, and IWM Tier 1b rebate would apply directly to Market
Makers that participate in the Market Maker Plus program, the Exchange
believes that the proposed changes will further strengthen
participation in the program, ultimately to the benefit of all market
participants. As discussed above, continuing to encourage participation
in the Market Maker Plus program will improve market quality by
incentivizing Market Makers to provide significant quoting at the NBBO.
This, in turn, improves trading conditions for all market participants
through narrower bid-ask spreads and increased depth of liquidity
available at the inside market, thereby attracting additional order
flow to the Exchange.
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 and rebates 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 \12\ and Rule 19b-4(f)(2) \13\ thereunder.
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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\12\ 15 U.S.C. 78s(b)(3)(A)(ii).
\13\ 17 CFR 240.19b-4(f)(2).
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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#c7b5b2aba2eaa4a8aaaaa2a9b3b487b4a2a4e9a0a8b1"><span class="__cf_email__" data-cfemail="453730292068262a2828202b3136053620266b222a33">[email protected]</span></a>. Please include
File Number SR-ISE-2022-06 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-2022-06. 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-2022-06 and should be submitted on
or before April 12, 2022.
[[Page 16277]]
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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-05977 Filed 3-21-22; 8:45 am]
BILLING CODE 8011-01-P
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