Notice2023-25665
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Pricing for Index Options on the Nasdaq 100 Micro Index
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
November 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 223 (Tuesday, November 21, 2023)</title>
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[Federal Register Volume 88, Number 223 (Tuesday, November 21, 2023)]
[Notices]
[Pages 81122-81125]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-25665]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98952; File No. SR-ISE-2023-27]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Adopt Pricing
for Index Options on the Nasdaq 100 Micro Index
November 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 November 7, 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 to adopt pricing for index options on the Nasdaq 100 Micro
Index.\3\
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\3\ The Exchange withdrew SR-ISE-2023-25 on November 7, 2023 and
replaced it with the instant filing.
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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 Exchange recently filed an immediately effective rule change to
list index options on the Nasdaq 100 Micro Index (``XND'') on ISE.\4\
XND will be same in all respects as the current Nasdaq 100 Index
options contract (``NDX'') listed on the Exchange, except it will be
based on 1/100th of the value of Nasdaq 100 Index, and will be P.M.-
settled with an exercise settlement value based on the closing index
value of Nasdaq 100 Index on the day of expiration.\5\
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\4\ See ISE-2023-24 (not yet noticed). Currently, XND Options
trade on Phlx.
\5\ Id. The Exchange notes that similar features are available
with other index options contracts listed on the Exchange, including
P.M. settled options on the full value of the Nasdaq-100 Index
(``NDXP'').
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The Exchange now proposes to amend its Pricing Schedule to adopt
pricing for XND. By way of background, certain proprietary products
such as NDX, NDXP and the Nasdaq 100 Reduced Value Index (``NQX'') are
commonly excluded from a variety of fee programs.\6\ The Exchange notes
that the reason for such exclusion is because the Exchange has expended
considerable resources developing and maintaining its proprietary
products. Similar to NDX, NDXP, and NQX, XND is a
[[Page 81123]]
proprietary product. As such, the Exchange proposes to establish
transaction fees for XND that are similarly structured to the
transaction fees for NDX, NDXP, and NQX with some differences as noted
below. The Exchange also proposes to exclude XND from several pricing
programs in the same manner as which NDX, NDXP, and NQX are excluded
today.
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\6\ Nasdaq Phlx LLC (``Phlx'') lists XND today and excludes XND
from a variety of its pricing programs. See Phlx's Pricing Schedule
at Options 7.
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Fee Programs
Today, Options 7, Section 3, Regular Order Fees and Rebates,
reflects the regular order fees and rebates applicable to ISE. Today,
the Exchange specifies in note 7 of Options 7, Section 3 that for all
executions in regular NDX and NQX orders, the applicable index options
fees in Section 5 will apply. The Exchange proposes to add pricing for
XND options in note 7 of Options 7, Section 5 so it will also apply to
XND.
Similarly, today, Options 7, Section 4, Complex Order Fees and
Rebates, reflects complex order fees and rebates applicable to ISE.
Today, the Exchange specifies in note 5 of Options 7, Section 4 that
for all executions in complex NQX orders, the NQX index options fees in
Section 5 will apply. The Exchange proposes to add XND in note 5 of
Options 7, Section 4 so it will also apply to XND. Additionally, note 4
of Options 7, Section 4 provides that no Priority Customer complex
order rebates will be paid for orders in NDX, NQX or MNX. The Exchange
proposes to add XND in note 4 of Options 7, Section 4 so it will also
apply to XND.
As set forth in Options 7, Section 6.H, the Exchange currently caps
Crossing Order \7\ fees at $200,000 per month, per Member on all Firm
Proprietary transactions that are part of the originating or contra
side of a Crossing Order. Once a Member exceeds the fee cap level the
Member will be subject to a reduced transaction fee of $0.02 per capped
contract, unless the Member also qualifies for free executions. Today,
fees charged by the Exchange for Responses to Crossing Orders,
surcharge fees charged by the Exchange for licensed products, and fees
for index options as set forth in Options 7, Section 5 are not included
in the calculation of the monthly Crossing Fee Cap. At this time, the
Exchange proposes to similarly exclude fees charged for Responses to
Crossing Orders, surcharge fees for licensed products, and fees for
index options as set forth in Options 7, Section 5 from the calculation
of the monthly Crossing Fee Cap.
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\7\ Crossing Orders are contracts that are submitted as part of
a Facilitation, Solicitation, PIM, Block or QCC order. All eligible
volume from affiliated Members will be aggregated for purposes of
the Crossing Fee Cap, provided there is at least 75% common
ownership between the Members as reflected on each Member's Form BD,
Schedule A. Fees charged by the Exchange for Responses to Crossing
Orders are not included in the calculation of the monthly fee cap.
For purposes of the Crossing Fee Cap the Exchange attributes
eligible volume to the ISE Member on whose behalf the Crossing Order
was executed.
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Today, Options 7, Section 5, Index Options Fees and Rebates,
reflects the pricing for various proprietary products including NDXP,
NDX and NQX. At this time, the Exchange proposes to establish a similar
pricing structure for XND that was adopted for XND on Phlx,\8\ where
all Non-Priority Customers \9\ will be assessed a uniform fee of $0.10
per contract, and Priority Customers \10\ will not be assessed a fee.
The Exchange also proposes to assess Non-Priority Customers a surcharge
of $0.10 per contract in XND in Options 7, Section 5D, similar to Phlx
Options 7, Section 5A.\11\ The Exchange is proposing to assess lower
Non-Priority Customer fees and a lower surcharge for XND as compared to
NDX and NDXP because XND is based on 1/100 of the value of the Nasdaq
100 Index whereas both NDX and NDXP are based on the full value of the
Nasdaq 100 Index. The Exchange's proposal seeks to assess identical
fees for XND as are currently assessed on Phlx for XND options.\12\
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\8\ See Phlx Options 7, Section 5A.
\9\ ``Non-Priority Customers'' include Market Makers, Non-Nasdaq
ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and
Professional Customers. See Options 7, Section 1(c).
\10\ 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).
\11\ The Exchange proposes to re-letter current ``C'' as ``D''
in Options 7, Section 5.
\12\ See Phlx Options 7, Section 5A.
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Today, NDX, NDXP, NQX and the Mini-Nasdaq-100 Index (``MNX'') are
excluded from the Marketing Fee in Options 7, Section 6E. The Exchange
proposes to update Options 7, Section 6E to similarly exclude XND from
the Marketing Fee. The Exchange notes that the Marketing Fee is
currently set to $0.00 per contract.
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 believes it is reasonable to assess the proposed Non-
Priority Customer $0.10 per contract fee and the $0.10 per contract
surcharge as discussed above for XND because the proposed pricing
reflects the exclusive and proprietary nature of this product. Similar
to NDX, NDXP, and NQX, the Exchange seeks to recoup the operational
costs for listing proprietary products.\15\ Also, pricing by symbol is
a common practice on many U.S. options exchanges as a means to
incentivize order flow to be sent to an exchange for execution in
particular products. Other options exchanges price by symbol.\16\
Further, the Exchange notes that with its products, market participants
are offered an opportunity to transact in NDX, NDXP, NQX, or XND, or
separately execute options overlying PowerShares QQQ Trust
(``QQQ'').\17\ Offering such proprietary products provides market
participants with a variety of choices in selecting the product they
desire to utilize in order to transact in the Nasdaq 100 Index. When
exchanges are able to recoup costs associated with offering proprietary
products, it incentivizes growth and competition for the innovation of
additional products.
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\15\ By way of example, in analyzing an obvious error, the
Exchange would have additional data points available in establishing
a theoretical price for a multiply listed option as compared to a
proprietary product, which requires additional analysis and
administrative time to comply with Exchange rules to resolve an
obvious error.
\16\ See pricing for the Mini-RUT Index options (``MRUT'') on
Cboe Exchange, Inc.'s Fees Schedule.
\17\ QQQ is an exchange-traded fund based on the same Nasdaq 100
Index as NDX, NDXP, and XND.
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Further, the Exchange believes that the proposed rates for XND are
reasonable because they mirror the fees assessed by Phlx for XND \18\
and the fees are well within the range of fees assessed for the
Exchange's other proprietary products, namely NDX and NDXP.\19\ The
Exchange believes it is reasonable to charge lower rates for XND
compared to NDX and NDXP because XND is based on 1/100 of the
[[Page 81124]]
value of the Nasdaq 100 Index while both NDX and NDXP are based on the
full value of the Nasdaq 100 Index. The Exchange's proposal seeks to
assess identical fees for XND as are currently assessed on Phlx for XND
options.\20\
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\18\ See Phlx Options 7, Section 5A.
\19\ Specifically, the Exchange is proposing to assess Non-
Priority Customers a $0.10 per contract fee in XND while Priority
Customers will receive free executions. Today, the Exchange assesses
Non-Priority Customers a $0.75 per contract fee for both NDX and
NDXP, and does not assess Priority Customers a fee. Additionally,
the Exchange is proposing to assess Non-Priority Customers a
surcharge of $0.10 per contract for XND whereas today, Non-Priority
Customers are assessed a surcharge of $0.25 per contract for NDX and
NDXP.
\20\ See Phlx Options 7, Section 5A.
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The Exchange's proposal to assess the proposed Non-Priority
Customer $0.10 per contract fee and the $0.10 per contract surcharge is
equitable and not unfairly discriminatory because the Exchange will
assess these fees uniformly to all Non-Priority Customers. The Exchange
similarly believes that the proposed $0.10 per contract XND surcharge
is equitable and not unfairly discriminatory because it will apply
uniformly to all Non-Priority Customers. The Exchange believes it is
equitable and not unfairly discriminatory to assess no XND fees to
Priority Customers because Priority Customer orders bring valuable
liquidity to the market, which liquidity benefits other market
participants. Priority Customer liquidity benefits all market
participants by providing more trading opportunities, which attracts
Primary Market Makers and 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 from other
market participants.
Fee Programs
The proposed amendments to note 7 in Options 7, Section 3 and notes
4 and 5 in Options 7, Section 4, in connection with the application of
the adopted pricing in Options 7, Section 5, are reasonable as the
Exchange will apply the proposed Options 7, Section 5 pricing for
options transacted in XND as opposed to the pricing in Options 7,
Sections 3 and 4. The Exchange believes that the proposed amendments to
note 7 in Options 7, Section 3 and notes 4 and 5 in Options 7, Section
4, in connection with the application of the adopted pricing in Options
7, Section 5, are equitable and not unfairly discriminatory because the
Exchange will uniformly apply the pricing in Options 7, Section 5 for
options transacted in XND.
The Exchange believes that its proposal to eliminate the Priority
Customer complex order rebates for XND is reasonable because even after
the elimination of the rebate, Priority Customer complex orders in XND
will not be assessed any complex order transaction fees. As noted
above, the Priority Customer complex order rebates are likewise
currently eliminated for NDX, NDXP and NQX. The Exchange's proposal to
eliminate the Priority Customer complex order rebates for XND is
equitable and not unfairly discriminatory because all transactions in
XND will uniformly not be eligible for the rebates.
The Exchange believes that its proposal to exclude fees charged for
Responses to Crossing Orders, surcharge fees for licensed products, and
fees for index options as set forth in Options 7, Section 5 from the
calculation of the monthly Crossing Fee Cap is reasonable because XND
will be an exclusively listed product. Similar to NDX, NDXP and NQX,
which are also excluded from the Crossing Fee Cap, the Exchange seeks
to recoup the operational costs for listing proprietary products. The
Exchange further believes that its proposal to exclude fees charged for
Responses to Crossing Orders, surcharge fees for licensed products, and
fees for index options as set forth in Options 7, Section 5 from the
calculation of the monthly Crossing Fee Cap is equitable and not
unfairly discriminatory because all fees charged for Responses to
Crossing Orders, surcharge fees for licensed products, and fees for
index options will uniformly be excluded from the Crossing Fee Cap.
The Exchange believes it is reasonable to not apply the Marketing
Fee to XND as other proprietary products, namely NDX, NQX, and MNX, are
currently excluded from the Marketing Fee and are all based on the
Nasdaq 100 Index. Also, the Exchange believes it is reasonable to
exclude XND from the Marketing Fee because the purpose of the Marketing
Fee is to generate more Priority Customer order flow to the Exchange.
Because XND will be an exclusively listed product on Phlx, the Exchange
does not believe that applying a Marketing Fee is necessary for this
product. Also, of note the Marketing Fee is currently set to $0.00 per
contract. The Exchange believes it is equitable and not unfairly
discriminatory to not apply the Marketing Fee to XND because all
transactions in XND will uniformly not be subject to the Marketing Fee.
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. The Exchange notes that with its products, market
participants are offered an opportunity to transact in NDX, NDXP, NQX,
or XND, or separately execute options overlying QQQ. Offering these
products provides market participants with a variety of choices in
selecting the product they desire to utilize to transact in the Nasdaq
100 Index.
Further, the Exchange does not believe that the proposed rule
change will impose any burden on intra-market competition that is not
necessary or appropriate in furtherance of the purposes of the Act
because the proposed XND pricing will apply uniformly to all similarly
situated market participants. Specifically, all Non-Priority Customers
will be assessed a uniform fee of $0.10 per contract and an options
surcharge of $0.10 per contract while Priority Customers receive free
executions. As discussed above, Priority Customer liquidity benefits
all market participants by providing more trading opportunities, which
attracts other market participants, thus facilitating tighter spreads
and increased order flow.
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 \21\ and Rule 19b-4(f)(2) \22\ 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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\21\ 15 U.S.C. 78s(b)(3)(A)(ii).
\22\ 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.
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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#295b5c454c044a4644444c475d5a695a4c4a074e465f"><span class="__cf_email__" data-cfemail="780a0d141d551b1715151d160c0b380b1d1b561f170e">[email protected]</span></a>. Please include
file number SR-ISE-2023-27 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-2023-27. 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-2023-27 and should be
submitted on or before December 12, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25665 Filed 11-20-23; 8:45 am]
BILLING CODE 8011-01-P
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