Notice2023-13220
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Sections 3 and 6
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Published
June 22, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 119 (Thursday, June 22, 2023)</title>
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[Federal Register Volume 88, Number 119 (Thursday, June 22, 2023)]
[Notices]
[Pages 40883-40886]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-13220]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97736; File No. SR-ISE-2023-12]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7,
Sections 3 and 6
June 15, 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 June 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 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 the Exchange's Pricing Schedule at
Options 7, Section 3, Regular Order Fees and Rebates and Options 7,
Section 6, Other Options 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.
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 40884]]
Pricing Schedule at Options 7, Section 3, Regular Order Fees and
Rebates, and Options 7, Section 6, Other Options Fees and Rebates.
Options 7, Section 3
Currently, for Regular Orders \3\ in Select \4\ and Non-Select
Symbols,\5\ the Exchange assesses all Non-Priority Customer \6\ market
participants a Fee for PIM \7\ Orders of $0.10 per contract.\8\
Additionally, today, for Regular Orders in Select Symbols, the Exchange
assesses all market participants a Fee for Responses to PIM Orders of
$0.50 per contract. Finally, today, for Regular Orders in Non-Select
Symbols, the Exchange assesses all market participants a Fee for
Responses to PIM Orders of $1.10 per contract.\9\
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\3\ A ``Regular Order'' is an order that consists of only a
single option series and is not submitted with a stock leg.
\4\ ``Select Symbols'' are options overlying all symbols listed
on the Nasdaq ISE that are in the Penny Interval Program. See
Options 7, Section 1(c).
\5\ ``Non-Select Symbols'' are options overlying all symbols
excluding Select Symbols. See Options 7, Section 1(c).
\6\ ``Non-Priority Customers'' include Market Makers, Non-Nasdaq
ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and
Professional Customers.
\7\ PIM is the Exchange's Price Improvement Auction as described
in Options 3, Section 13. A PIM is comprised of the order the
Electronic Access Member represents as agent (the ``Agency Order'')
and a counter-side order for the full size of the Agency Order (the
``Counter-Side Order''). Responses, including the Counter-Side
Order, and Improvement Orders may be entered during the exposure
period. See Options 3, Section 13.
\8\ Priority Customers are not assessed a Fee for PIM Orders.
Also, Fees for PIM Orders apply to the originating and contra order.
Further, other than for Priority Customer orders, this fee is $0.05
per contract for orders executed by Members that execute an ADV of
7,500 or more contracts in the PIM in a given month. Members that
execute an ADV of 12,500 or more contracts in the PIM are charged
$0.02 per contract. The discounted fees are applied retroactively to
all eligible PIM volume in that month once the threshold has been
reached. See notes 2 and 13 within the Pricing Schedule at Options
7, Section 3.
\9\ PIM pricing is specified in Options 7, Section 3, Regular
Order Fees and Rebates.
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Today, the Exchange pays Electronic Access Members \10\ that
utilize PIM to execute more than 0.75% of Priority Customer \11\ volume
of Regular Orders, calculated as a percentage of Customer Total
Consolidated Volume (``TCV'') per day in a given month, a PIM Break-Up
Rebate of $0.26 per contract for Select Symbols and $0.60 per contract
for Non-Select Symbols for Priority Customer Regular Orders under 100
contracts that are submitted to PIM and do not trade with their contra
order except when those contracts trade against unrelated quotes or
orders.\12\
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\10\ The term ``Electronic Access Member'' or ``EAM'' means a
Member that is approved to exercise trading privileges associated
with EAM Rights. See General 1, section 1(a)(6).
\11\ 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). Unless otherwise noted, when used in this Pricing
Schedule the term ``Priority Customer'' includes ``Retail'' as
defined below. See Options 7, Section 1(c).
\12\ See note 19 of Options 7, Section 3. Also, the Exchange
notes that the applicable fee is applied to any contracts for which
a rebate is provided.
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At this time, the Exchange proposes to amend the incentive in note
19 of Options 7, Section 3 to increase the 100 contract requirement to
250 contracts. The Exchange seeks to continue to incentivize Electronic
Access Members to submit a greater amount of smaller, more typically
sized Priority Customer orders into PIM for price improvement with the
proposed pricing. The Exchange believes the 100 contract threshold may
be too narrow to represent all small-sized orders and would like to
expand the contract size to 250 contracts to capture a greater amount
of smaller sized orders. All Electronic Access Members may participate
in a PIM.\13\ Accordingly, the rebates, as amended, are designed to
incentivize Electronic Access Members to submit a greater amount of
Regular Orders executed in PIM to the Exchange, particularly Priority
Customer PIM volume.
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\13\ Any solicited Counter-Side Orders submitted by an
Electronic Access Member to trade against Agency Orders may not be
for the account of a Nasdaq ISE Market Maker assigned to the options
class. See Supplementary Material .06 to Options 3, Section 13.
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Options 7, Section 6
Today, the Exchange offers a PIM Rebate within Options 7, Section
6, Other Options Fees and Rebates. Specifically, Options 7, Section
6.C, PIM and Facilitation Rebate, pays a rebate of $0.11 per contract
to Electronic Access Members that utilize PIM to execute more than
0.75% of Priority Customer volume in Regular Orders, calculated as a
percentage of TCV per day in a given month.\14\ The rebate is paid for
Priority Customer Regular Orders under 100 contracts that are submitted
to PIM.\15\
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\14\ Eligible volume from Affiliated Members will be aggregated
in calculating the percentage.
\15\ The rebate is paid to the Agency Order as that term is
defined within Options 3, Section 13. In the event a Crossing
Transaction consists of two Priority Customer Orders, the Exchange
would not pay this rebate.
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At this time, the Exchange proposes to amend the PIM Rebate within
Options 7, Section 6.C to increase the 100 contract requirement to 250
contracts. The Exchange seeks to continue to incentivize Electronic
Access Members to submit a greater amount of smaller, more typically
sized Priority Customer orders into PIM for price improvement with the
proposed pricing. The Exchange believes the 100 contract threshold may
be too narrow to represent all small-sized orders and would like to
expand the contract size to 250 contracts to capture a greater amount
of smaller sized orders. All Electronic Access Members may participate
in a PIM.\16\ Accordingly, the rebate, as amended, is designed to
incentivize Electronic Access Members to submit a greater amount of
Regular Orders executed in PIM to the Exchange, particularly Priority
Customer PIM volume.
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\16\ Any solicited Counter-Side Orders submitted by an
Electronic Access Member to trade against Agency Orders may not be
for the account of a Nasdaq ISE Market Maker assigned to the options
class. See Supplementary Material .06 to Options 3, Section 13.
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The Exchange also proposes to amend the sentence that states,
``Provided this rebate is higher than other rebates within Options 7,
Section 6B, this rebate will be paid in lieu of other rebates within
this Section B.'' The references to section ``B'' should be to section
``C''.
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
sections 6(b)(4) and 6(b)(5) of the Act,\18\ 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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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
The 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 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 \19\
(``NetCoalition''), the D.C. Circuit stated, ``[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
[[Page 40885]]
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'. . . .'' \20\
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\19\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\20\ Id. at 539 (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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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options 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. Within the
foregoing context, the proposal represents a reasonable attempt by the
Exchange to attract additional order flow to the Exchange and increase
its market share relative to its competitors.
Options 7, Section 3
The Exchange's proposal to amend the incentive in note 19 of
Options 7, Section 3 to increase the 100 contract requirement to 250
contracts with respect to the Priority Customer PIM Break-Up Rebate is
reasonable because it is designed to incentivize additional
participation in PIM by encouraging market participants to send
additional order flow to the Exchange in order to benefit from the
increased rebates. In particular, the Exchange believes that this
proposal will incentivize Electronic Access Members to submit a greater
amount of Regular Orders executed in PIM to the Exchange, particularly
Priority Customer PIM volume. The Exchange believes it is reasonable to
pay the rebate for orders of 250 contracts or less because the current
100 contract threshold may be too narrow to represent all small-sized
orders. The Exchange would like to expand the contract size to 250
contracts to capture a greater amount of smaller sized Priority
Customer orders for purposes of the rebate. The Exchange believes the
increased contract size will incentivize a greater amount of small-
sized Priority Customer orders to be solicited for entry into PIM for
price improvement.
The Exchange's proposal to amend the incentive in note 19 of
Options 7, Section 3 to increase the 100 contract requirement to 250
contracts with respect to the Priority Customer PIM Break-Up Rebate is
equitable and not unfairly discriminatory because any Electronic Access
Member may participate in a PIM.\21\ While only Electronic Access
Members may initiate a PIM, Market Makers may respond to a PIM. While
this incentive is specifically targeted towards Priority Customer
orders, the Exchange does not believe that this is unfairly
discriminatory. Of note, today, Priority Customers pay no Fees for PIM
Orders. Priority Customer liquidity benefits all market participants by
providing more trading opportunities which attracts market makers. An
increase in the activity of these market participants (particularly in
response to pricing) in turn facilitates tighter spreads which may
cause an additional corresponding increase in order flow from other
market participants. Attracting more liquidity from Priority Customers
will benefit all market participants that trade on the ISE. Also, the
250 contracts threshold would be uniformly applied in paying the
rebate.
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\21\ Any solicited Counter-Side Orders submitted by an
Electronic Access Member to trade against Agency Orders may not be
for the account of a Nasdaq ISE Market Maker assigned to the options
class. See Supplementary Material .06 to Options 3, Section 13.
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Options 7, Section 6
The Exchange's proposal to amend the PIM rebate in Options 7,
Section 6.C to increase the 100 contract requirement to 250 contracts
with respect to Priority Customer Regular Orders is reasonable because
it is designed to incentivize additional participation in PIM by
encouraging market participants to send additional order flow to the
Exchange in order to benefit from the increased rebates. In particular,
the Exchange believes that this proposal will incentivize Electronic
Access Members to submit a greater amount of Regular Orders executed in
PIM to the Exchange, particularly Priority Customer PIM volume. The
Exchange believes it is reasonable to pay the rebate for orders of 250
contracts or less because the current 100 contract threshold may be too
narrow to represent all small-sized orders. The Exchange would like to
expand the contract size to 250 contracts to capture a greater amount
of smaller sized Priority Customer orders for purposes of the rebate.
The Exchange believes the increased contract size will incentivize a
greater amount of small-sized Priority Customer orders to be solicited
for entry into PIM for price improvement.
The Exchange's proposal to amend the PIM rebate in Options 7,
Section 6.C to increase the 100 contract requirement to 250 contracts
with respect to Priority Customer Regular Orders is equitable and not
unfairly discriminatory because any Electronic Access Member may
participate in a PIM.\22\ While only Electronic Access Members may
initiate a PIM, Market Makers may respond to a PIM. While this
incentive is specifically targeted towards Priority Customer orders,
the Exchange does not believe that this is unfairly discriminatory. Of
note, today, Priority Customers pay no Fees for PIM Orders. Priority
Customer liquidity benefits all market participants by providing more
trading opportunities which attracts market makers. An increase in the
activity of these market participants (particularly in response to
pricing) in turn facilitates tighter spreads which may cause an
additional corresponding increase in order flow from other market
participants. Attracting more liquidity from Priority Customers will
benefit all market participants that trade on the ISE. Also, the 250
contracts threshold would be uniformly applied in paying the rebate.
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\22\ Any solicited Counter-Side Orders submitted by an
Electronic Access Member to trade against Agency Orders may not be
for the account of a Nasdaq ISE Market Maker assigned to the options
class. See Supplementary Material .06 to Options 3, Section 13.
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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.
Intermarket Competition
The Exchange 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. 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 because other options exchanges offer similar
price improvement auctions as well as break-up rebates and customer
order rebates.
Moreover, as noted above, price competition between exchanges is
fierce, with liquidity and market share moving freely between exchanges
in
[[Page 40886]]
reaction to fee and rebate changes. 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.
Intramarket Competition
The proposal is designed to attract additional liquidity to ISE.
Specifically, amending the incentives to obtain greater PIM Break-Up
Rebates will incentivize market participants to direct liquidity to
ISE's PIM. All market participants will benefit from any increase in
market activity that the proposal effectuates.
Options 7, Section 3
The Exchange's proposal to amend the incentive in note 19 of
Options 7, Section 3 to increase the 100 contract requirement to 250
contracts with respect to the Priority Customer PIM Break-Up Rebate
does not impose an undue burden on competition because any Electronic
Access Member may enter orders into PIM. While only Electronic Access
Members may initiate a PIM, the Exchange does not believe that this
creates an undue burden on competition because Market Makers may
respond to a PIM. While this incentive is specifically targeted towards
Priority Customer orders, the Exchange does not believe that this is
unfairly discriminatory. Today, Priority Customers pay no fees for PIM
Orders. Priority Customer liquidity benefits all market participants by
providing more trading opportunities which attracts market makers. An
increase in the activity of these market participants (particularly in
response to pricing) in turn facilitates tighter spreads which may
cause an additional corresponding increase in order flow from other
market participants. Attracting more liquidity from Priority Customers
will benefit all market participants that trade on the ISE. Also, the
250 contracts threshold would be uniformly applied in paying the
rebate.
Options 7, Section 6
The Exchange's proposal to amend the PIM rebate in Options 7,
Section 6.C to increase the 100 contract requirement to 250 contracts
with respect to Priority Customer Regular Orders does not impose an
undue burden on competition because any Electronic Access Member may
participate in a PIM. While only Electronic Access Members may initiate
a PIM, Market Makers may respond to a PIM. While this incentive is
specifically targeted towards Priority Customer orders, the Exchange
does not believe that this is unfairly discriminatory. Of note, today,
Priority Customers pay no Fees for PIM Orders. Priority Customer
liquidity benefits all market participants by providing more trading
opportunities which attracts market makers. An increase in the activity
of these market participants (particularly in response to pricing) in
turn facilitates tighter spreads which may cause an additional
corresponding increase in order flow from other market participants.
Attracting more liquidity from Priority Customers will benefit all
market participants that trade on the ISE. Also, the 250 contracts
threshold would be uniformly applied in paying the rebate.
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 \23\ and Rule 19b-4(f)(2) \24\ 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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\23\ 15 U.S.C. 78s(b)(3)(A)(ii).
\24\ 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#85f7f0e9e0a8e6eae8e8e0ebf1f6c5f6e0e6abe2eaf3"><span class="__cf_email__" data-cfemail="4133342d246c222e2c2c242f3532013224226f262e37">[email protected]</span></a>. Please include
file number SR-ISE-2023-12 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-2023-12. 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="https://www.sec.gov/rules/sro.shtml">https://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
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-2023-12 and should be
submitted on or before July 13, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-13220 Filed 6-21-23; 8:45 am]
BILLING CODE 8011-01-P
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