Notice2023-03486
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
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 34 (Tuesday, February 21, 2023)</title>
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[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10609-10611]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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 <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.
[[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
<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#c5b7b0a9a0e8a6aaa8a8a0abb1b685b6a0a6eba2aab3"><span class="__cf_email__" data-cfemail="6f1d1a030a420c0002020a011b1c2f1c0a0c41080019">[email protected]</span></a>. Please include
File Number SR-ISE-2023-04 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-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 (<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 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
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