Notice2023-26499
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
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
December 1, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 230 (Friday, December 1, 2023)</title>
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[Federal Register Volume 88, Number 230 (Friday, December 1, 2023)]
[Notices]
[Pages 84014-84020]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-26499]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99024; File No. SR-ISE-2023-28]
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
November 28, 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 13, 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.
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
Pricing Schedule at Options 7. Each change is described below.
The Exchange initially filed the proposed pricing changes on
November 1, 2023 (SR-ISE-2023-26). On November 13, 2023, the Exchange
withdrew that filing and submitted this filing.
Background
Regular Order Fees and Rebates
As set forth in Options 7, Section 3, the Exchange currently has a
maker/taker pricing model where all market participants (except
Priority Customers) \3\ are assessed a uniform Regular Order maker fee
of $0.70 per contract for Non-Select Symbol \4\ executions that add
liquidity on the Exchange, and a uniform Regular Order taker fee of
$0.90 per contract for Non-Select Symbol executions that remove
liquidity. Priority Customers are currently assessed a $0.86 per
contract Regular Order maker rebate in Non-Select Symbols and a $0.00
per contract Regular Order taker fee in Non-Select Symbols.
Additionally, all market participants are charged higher Regular Order
taker fees for trades in Non-Select Symbols executed against Priority
Customers. Specifically, Non-Priority Customers \5\ are charged a taker
fee of $1.10 per contract for trades executed against a Priority
Customer, while Priority Customers are charged a taker fee of $0.86 per
contract for trades executed against another Priority Customer.\6\
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\3\ 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).
\4\ ``Non-Select Symbols'' are options overlying all symbols
excluding Select Symbols. ``Select Symbols'' are options overlying
all symbols listed on the Exchange that are in the Penny Interval
Program.
\5\ ``Non-Priority Customers'' include Market Makers, Non-Nasdaq
ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and
Professional Customers.
\6\ See Options 7, Section 3, note 3.
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As it relates to the $0.86 per contract Priority Customer Regular
Order maker
[[Page 84015]]
rebate described above, the Exchange also currently offers Members an
additional rebate of $0.14 per contract if they execute more than 0.06%
of Regular Order Non-Select Symbol Priority Customer volume (excluding
Crossing Orders \7\ and Responses to Crossing Orders) \8\ calculated as
a percentage of Customer Total Consolidated Volume \9\ per day in a
given month (``Note 15 Incentive'').\10\ The Note 15 Incentive is
designed to encourage Members to transact in greater Regular Order Non-
Select Symbol Priority Customer volume on the Exchange to receive
rebates up to $1.00 per contract (i.e., the current $0.86 base maker
rebate plus the additional $0.14 Note 15 Incentive).
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\7\ A ``Crossing Order'' is an order executed in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement
Mechanism (PIM) or submitted as a Qualified Contingent Cross order.
For purposes of this Pricing Schedule, orders executed in the Block
Order Mechanism are also considered Crossing Orders.
\8\ ``Responses to Crossing Order'' is any contra-side interest
submitted after the commencement of an auction in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, Block Order
Mechanism or PIM.
\9\ ``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.
\10\ See Options 7, Section 3, note 15.
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Complex Order Fees and Rebates
As set forth in Options 7, Section 4, the Exchange currently offers
tiered Complex Order Priority Customer rebates for Select Symbols and
Non-Select Symbols based on the Priority Customer Complex Tier
achieved.\11\ The tiered Complex Order Priority Customer rebates for
Select Symbols and Non-Select Symbols are presently as follows:
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\11\ 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.
All Complex Order volume executed on the Exchange, including volume
executed by Affiliated Members, is included in the volume
calculation, except for volume executed as Crossing Orders and
Responses to Crossing Orders. Affiliated Entities may aggregate
their Complex Order volume for purposes of calculating Priority
Customer Rebates. The Appointed OFP would receive the rebate
associated with the qualifying volume tier based on aggregated
volume. See Options 7, Section 4, note 16.
Total Affiliated Member or Affiliated Entity Complex Order Volume
[Excluding Crossing Orders and Responses to Crossing Orders]
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Calculated as a percentage of Rebate for Rebate for non-
Priority customer complex tier customer total consolidated volume select symbols select symbols
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Tier 1..................................... 0.000%-0.200%...................... ($0.25) ($0.40)
Tier 2..................................... Above 0.200%-0.400%................ (0.30) (0.55)
Tier 3..................................... Above 0.400%-0.450%................ (0.35) (0.70)
Tier 4..................................... Above 0.450%-0.750%................ (0.40) (0.75)
Tier 5..................................... Above 0.750%-1.000%................ (0.45) (0.80)
Tier 6..................................... Above 1.000%-1.350%................ (0.48) (0.85)
Tier 7..................................... Above 1.350%-1.750%................ (0.51) (0.92)
Tier 8..................................... Above 1.750%-2.750%................ (0.55) (1.03)
Tier 9..................................... Above 2.750%-4.500%................ (0.56) (1.04)
Tier 10.................................... Above 4.500%....................... (0.57) (1.05)
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The above rebates are provided per contract per leg if the order
trades with Non-Priority Customer orders in the Complex Order Book.
Today, this rebate is reduced by $0.15 per contract in Select Symbols
where the largest leg of the Complex Order is under fifty (50)
contracts and trades with quotes and orders on the regular order book
(the ``Note 1 Rebate Discount''). No Priority Customer Complex Order
rebates are provided in Select Symbols if any leg of the order that
trades with interest on the regular order book is fifty (50) contracts
or more. Lastly, no Priority Customer Complex Order rebates are
provided in Non-Select Symbols if any leg of the order trades with
interest on the regular order book, irrespective of order size.\12\
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\12\ See Options 7, Section 4, note 1.
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Separately, the Exchange currently assesses Complex Order maker and
taker fees for Select and Non-Select Symbols based on the pricing
schedule below:
Maker and Taker Fees
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Maker fee for
Maker fee for non-select
Maker fee for select symbols symbols when Taker fee for
Market participant Maker fee for non-select when trading trading Taker fee for non- select
select symbols symbols against against select symbols symbols
priority priority
customer customer
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Market Maker............................................ 0.10 0.20 0.50 0.86 0.50 0.98
Non-Nasdaq ISE Market Maker (FarMM)..................... 0.20 0.20 0.50 0.88 0.50 0.98
Firm Proprietary/Broker-Dealer.......................... 0.10 0.20 0.50 0.88 0.50 0.98
Professional Customer................................... 0.10 0.20 0.50 0.88 0.50 0.98
Priority Customer....................................... 0.00 0.00 0.00 0.00 0.00 0.00
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Proposal 1--Regular Priority Customer Maker Rebates in Non-Select
Symbols
The Exchange proposes to increase the Regular Order Non-Select
Symbol Priority Customer maker rebate in Options 7, Section 3 from
$0.86 to $1.00 per contract.
Proposal 2--Note 15 Incentive
The Exchange also proposes to amend the qualifications for the Note
15 Incentive by increasing the volume
[[Page 84016]]
threshold from 0.06% to 0.10% of Regular Order Non-Select Symbol
Priority Customer volume on ISE (excluding Crossing Orders and
Responses to Crossing Orders) calculated as a percentage of Customer
Total Consolidated Volume per day in a given month. While the Exchange
is increasing the volume threshold in the Note 15 Incentive, the
Exchange is not amending the $0.14 per contract additional rebate under
this proposal. As such, Members that meet the proposed volume threshold
may be eligible for rebates up to $1.14 per contract (i.e., the
proposed $1.00 base maker rebate plus the additional $0.14 Note 15
Incentive) on their Priority Customer Regular Orders in Non-Select
Symbols that add liquidity on ISE.
Further, the Exchange proposes to link the amended Note 15
Incentive to the Priority Customer Complex Order rebates in Options 7,
Section 4, as further described above. Specifically, Members that meet
the amended Note 15 Incentive volume requirement (i.e., execute more
than 0.10% of regular order Non-Select Symbol Priority Customer volume
on ISE (excluding Crossing Orders and Responses to Crossing Orders)
calculated as a percentage of Customer Total Consolidated Volume per
day in a given month) will also be eligible to receive the Section 4
Priority Customer Complex Order rebates in Select Symbols and Non-
Select Symbols that apply to one tier higher than the tier for which
they currently qualify. For example, if a Member currently qualifies
for Priority Customer Complex Tier 1 AND meets the proposed 0.10%
volume requirement in the Note 15 Incentive, that Member will be
eligible to receive the Priority Customer Complex Tier 2 rebate for
Select Symbols and Non-Select Symbols instead of the Priority Customer
Complex Tier 1 rebate for Select Symbols and Non-Select Symbols. The
Exchange also proposes that Members that already qualify for the
highest Priority Customer Complex Tier (i.e., Tier 10) will instead
receive an additional rebate of $0.01 per contract in Select Symbols
and Non-Select Symbols because they are already in the highest tier
(and therefore unable to receive the benefit of a higher tier).\13\
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\13\ As discussed later in this filing, the Exchange is also
proposing a number of changes to the Priority Customer Complex Order
rebates for both Select and Non-Select Symbols in Options 7, Section
4.
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In connection with linking the Note 15 Incentive with the Priority
Customer Complex Order rebates in Options 7, Section 4, the Exchange
also proposes to add new note 17 in Options 7, Section 4 that would
provide: ``Members that execute more than 0.10% of Regular Order Non-
Select Symbol Priority Customer Volume (excluding Crossing Orders and
Responses to Crossing Orders) calculated as a percentage of Customer
Total Consolidated Volume per day in a given month will be eligible to
receive the Priority Customer Complex Order rebates in Select Symbols
and Non-Select Symbols that apply to one tier higher than the tier for
which they currently qualify, except Members that already qualify for
the highest Priority Customer Complex Tier will instead receive an
additional rebate of $0.01 per contract in Select Symbols and Non-
Select Symbols.'' New note 17 would make clear that the Priority
Customer Complex Order rebates in Section 4 are linked to the proposed
volume threshold in the note 15 incentive, as further described above.
Proposal 3--Regular Taker Fees in Non-Select Symbols
The Exchange proposes to increase the Regular Order taker fees in
note 3 of Options 7, Section 3 for trades in Non-Select Symbols that
are executed against Priority Customers. As proposed, Non-Priority
Customer orders will be charged a taker fee of $1.25 (increased from
$1.10) per contract for trades executed against a Priority Customer.
Priority Customer orders will be charged a taker fee of $1.00
(increased from $0.86) per contract for trades executed against a
Priority Customer.
Proposal 4--Complex Priority Customer Rebates
The Exchange proposes a number of adjustments to the tiered
Priority Customer Complex Order rebates described above. Specifically,
the Exchange proposes to increase the Priority Customer Complex Tier 7
rebate in Select Symbols from $0.51 to $0.54 per contract. The Exchange
also proposes to increase the Priority Customer Complex Order rebates
in Non-Select Symbols as follows: Tier 1 would increase from $0.40 to
$0.50 per contract, Tier 2 would increase from $0.55 to $0.60 per
contract, Tier 3 would increase from $0.70 to $0.75 per contract, Tier
4 would increase from $0.75 to $0.80 per contract, Tier 5 would
increase from $0.80 to $0.85 per contract, Tier 6 would increase from
$0.85 to $0.95 per contract, Tier 7 would increase from $0.92 to $1.00
per contract, Tier 8 would increase from $1.03 to $1.10 per contract,
Tier 9 would increase from $1.04 to $1.12 per contract, and Tier 10
would increase from $1.05 to $1.15 per contract. The Exchange is
amending the rebate amounts without changing the tier qualifications so
that Members can send the same amount of order flow as they do today to
receive larger rebates described above. Overall, the Exchange believes
that these increased Complex Order Priority Customer rebates will
attract more Complex Order flow to ISE.
The Exchange also proposes to increase the Note 1 Rebate Discount
for smaller-sized Complex Orders in Select Symbols that leg into the
regular order book and trade with regular interest. Today, the Note 1
Rebate Discount reduces the Priority Customer Complex Tiers 1-10
rebates for Select Symbols by $0.15 per contract when the largest leg
of the Complex Order is under fifty (50) contracts and trades with
quotes and orders on the regular order book. The Exchange now proposes
to increase this reduction to $0.20 per contract.
Proposal 5--Complex Maker and Taker Fees in Non-Select Symbols
The Exchange proposes to increase the Complex Order maker and taker
fees in Non-Select Symbols described above. Specifically, the Exchange
proposes to increase the maker fees in Non-Select Symbols when trading
against Priority Customers as follows: $0.86 to $1.03 per contract for
Market Makers \14\ and $0.88 to $1.05 per contract for all other Non-
Priority Customers. Further, the Exchange proposes to increase the
taker fees in Non-Select Symbols from $0.98 to $1.15 per contract for
all Non-Priority Customers. Priority Customers will continue to receive
free executions for their Complex Orders.
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\14\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See Options 1,
Section 1(a)(21).
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Proposal 6--Routing Fees
The Exchange proposes to amend the Exchange's Pricing Schedule at
Options 7, Section 6.F (Route-Out Fees). The routing fees in this
section apply to executions of orders in all symbols that are routed to
one or more exchanges in connection with the Options Order Protection
and Locked/Crossed Market Plan.
Today, the Exchange assesses Market Makers, Non-Nasdaq ISE Market
Makers (FarMM),\15\ Firm Proprietary \16\/Broker-
[[Page 84017]]
Dealers \17\ and Professional Customers \18\ a $0.55 per contract
Select Symbol routing fee and a $1.09 Non-Select Symbol routing fee to
route to another options exchange. Additionally, today, the Exchange
assess Priority Customers a $0.48 per contract Select Symbol routing
fee and a $0.70 Non-Select Symbol routing fee to route to another
options exchange.
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\15\ A ``Non-Nasdaq ISE Market Maker'' is a market maker as
defined in section 3(a)(38) of the Securities Exchange Act of 1934,
as amended, registered in the same options class on another options
exchange.
\16\ A ``Firm Proprietary'' order is an order submitted by a
member for its own proprietary account.
\17\ A ``Broker-Dealer'' order is an order submitted by a member
for a broker-dealer account that is not its own proprietary account.
\18\ A ``Professional Customer'' is a person or entity that is
not a broker/dealer and is not a Priority Customer. See Options 7,
Section 1(c).
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The Exchange now proposes to assess a $0.60 per contract Select
Symbol routing fee and a $1.20 Non-Select Symbol routing fee to route
to another options exchange, regardless of the capacity of the order.
The purpose of the proposed routing fees is to recoup costs incurred by
the Exchange when routing orders to other options exchanges on behalf
of options Members. In determining its proposed routing fees, the
Exchange took into account transaction fees assessed by other options
exchanges, the Exchange's projected clearing costs, and the projected
administrative, regulatory, and technical costs associated with routing
orders to other options exchanges. The Exchange will continue to use
its affiliated broker-dealer, Nasdaq Execution Services, to route
orders to other options exchanges. Routing services offered by the
Exchange are completely optional and market participants can readily
select between various providers of routing services, including other
exchanges and broker-dealers. Also, the Exchange notes that market
participants may elect to mark their orders as ``Do-Not-Route'' to
avoid any routing fees.\19\ The proposed structure for routing fees is
similar to another options market.\20\ The Exchange believes that the
proposed routing fees would enable the Exchange to recover the costs it
incurs to route orders to away markets after taking into account the
other costs associated with routing orders to other options exchanges.
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\19\ See Supplementary Material .04 to Options 3, Section 7.
\20\ See MEMX's Options Fee Schedule at <a href="https://info.memxtrading.com/us-options-trading-resources/us-options-fee-schedule/">https://info.memxtrading.com/us-options-trading-resources/us-options-fee-schedule/</a>. MEMX assesses a $0.60 per contract Penny Symbol routing
fee and a $1.20 Non-Penny Symbol routing fee.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\21\ in general, and furthers the objectives of
sections 6(b)(4) and 6(b)(5) of the Act,\22\ 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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\21\ 15 U.S.C. 78f(b).
\22\ 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' . . . .'' \23\
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\23\ 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.'' \24\
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\24\ 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
seventeen 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.
Proposal 1--Regular Priority Customer Maker Rebates in Non-Select
Symbols
The Exchange believes that its proposal to increase the Regular
Order Priority Customer maker rebate in Non-Select Symbols from $0.86
to $1.00 per contract is reasonable because Members will be further
incentivized to add liquidity in Priority Customer Regular Orders in
Non-Select Symbols in order to receive the increased rebate. The
Exchange believes that this proposal is equitable and not unfairly
discriminatory as all Priority Customers will be uniformly assessed the
$1.00 maker rebate. The Exchange further believes that it is equitable
and not unfairly discriminatory to provide only Priority Customers with
this maker rebate because the Exchange has historically offered more
favorable pricing for those market participants. In addition, increased
Priority Customer order flow enhances liquidity on the Exchange for the
benefit of all market participants by providing more trading
opportunities, which in turn attracts Market Makers and other market
participants that may trade with this order flow.
Proposal 2--Note 15 Incentive
The Exchange believes that the proposed changes to the Note 15
Incentive are reasonable for the reasons that follow. As discussed
above, the Exchange is increasing the volume threshold from 0.06% to
0.10% such that Members would now need to execute more than 0.10% of
Regular Order Non-Select Symbol Priority Customer volume (excluding
Crossing Orders and Responses to Crossing Orders) calculated as a
percentage of Customer Total Consolidated Volume per day in a given
month in order to receive an additional rebate of $0.14 per contract.
While the volume threshold is increasing under this proposal, the
Exchange believes that Members will continue to be incentivized to
increase market participation in Non-Select Symbol Priority Customer
orders to qualify for the $0.14 additional Note 15 Incentive,
especially in light of the significant increase in the base Non-Select
Symbol Priority Customer maker rebate to $1.00 per contract as
discussed above. Taken together, Members would be able to receive up to
$1.14 per contract on their Priority Customer Regular Orders in Non-
Select Symbols
[[Page 84018]]
that add liquidity on ISE. The Exchange believes that increased
Priority Customer order flow in Non-Select Symbols would create
additional liquidity to the benefit of all market participants and
investors that trade on the Exchange.
The Exchange also believes that linking the proposed volume
threshold in the Note 15 Incentive to the Options 7, Section 4 Priority
Customer Complex Order rebates in the manner described above is
reasonable because the proposal may further incentivize Members to
increase market participation in Priority Customer Regular Orders in
Non-Select Symbols to receive the next higher Priority Customer Complex
Tier rebate than the tier for which they currently qualify (or $0.01
additional rebate if they are already in the highest Priority Customer
Complex Tier 10). The Exchange also believes that the proposal would
incentivize Members to increase their Priority Customer Complex Order
flow in both Select and Non-Select Symbols to the Exchange in order to
qualify for a higher Priority Customer Complex Tier (which in turn
could set the Member up to receive the next higher Priority Customer
Complex Tier rebate--or an additional $0.01 rebate if they are already
in Priority Customer Complex Tier 10--if they meet the proposed volume
threshold in the amended Note 15 Incentive).
The Exchange believes that the proposed changes to the Note 15
Incentive as discussed above are equitable and not unfairly
discriminatory because they will apply uniformly to all similarly
situated market participants. The Exchange believes that it is
equitable and not unfairly discriminatory to offer the Note 15
Incentive to only Priority Customers because 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 in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants.
Proposal 3--Regular Taker Fees in Non-Select Symbols
The Exchange believes that its proposal to increase the Regular
Order taker fees in note 3 of Options 7, Section 3 for trades in Non-
Select Symbols that are executed against Priority Customers is
reasonable because they are designed to offset the significant
incentives that the Exchange is proposing for Priority Customer
orders.\25\ As discussed above, Non-Priority Customer orders will be
charged a taker fee of $1.25 (increased from $1.10) per contract for
trades executed against a Priority Customer. Priority Customer orders
will be charged a taker fee of $1.00 (increased from $0.86) per
contract for trades executed against a Priority Customer. The Exchange
believes that Members will benefit from the additional liquidity
created by the Priority Customer incentives proposed in this filing,
and it is therefore appropriate to charge increased taker fees for
trades executed against a Priority Customer.
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\25\ As previously discussed, the Exchange is proposing a
significant increase in the base maker rebate provided to Priority
Customer Regular Orders in Non-Select Symbols from $0.86 to $1.00
per contract. In addition, the Exchange is linking the Note 15
Incentive to the Section 4 Priority Customer Complex Tier rebates to
further incentivize Priority Customer order flow to the Exchange.
Finally, the Exchange is increasing the Section 4 Priority Customer
Complex Tier rebates without changing the tier qualifications so
that Members can send the same amount of order flow as they do today
to receive larger rebates.
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The Exchange believes that its proposal to increase the taker fees
in note 3 of Options 7, Section 3 for trades that are executed against
Priority Customers is equitable and not unfairly discriminatory because
the changes will apply uniformly to all similarly situated market
participants. Priority Customers will continue to be charged a lower
taker fee pursuant to note 3 compared to other market participants,
which the Exchange believes is equitable and not unfairly
discriminatory because the Exchange has historically provided Priority
Customers with more favorable pricing. Furthermore, 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 in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants.
Proposal 4--Complex Priority Customer Rebates
The Exchange believes that its proposal to increase the tiered
Priority Customer Complex Order rebates in the manner discussed above
is reasonable because these increased Complex Order Priority Customer
rebates will attract more Complex Order flow to ISE to the benefit of
all market participants. The Exchange believes that each rebate is set
at appropriate levels that will encourage market participants to
increase their Priority Customer Complex Order activity on the
Exchange. As noted above, the Exchange is amending the rebate amounts
without changing the tier qualifications so that Members can send the
same amount of order flow as they do today to receive larger rebates
described above.
The Exchange also believes that its proposal to increase the Note 1
Rebate Discount for smaller-sized Complex Orders (i.e., largest leg of
the order is under fifty contracts) in Select Symbols that leg into the
regular order book and trade with regular interest from $0.15 to $0.20
per contract is reasonable because Members will continue to be
incentivized to send Priority Customer Complex Order flow to the
Exchange despite the increased reduction in order to receive the tiered
rebates. Also, the Exchange will continue to pay rebates for Priority
Customer Complex Orders of any size that trade with Non-Priority
Customer orders in the Complex Order Book, based on the Priority
Customer Complex Tier achieved, thereby continuing to incentivize
Members to bring Complex Order flow to the Exchange to earn the rebate
on their Priority Customer Complex Order volume. Overall, the Exchange
believes that the Priority Customer Complex Order rebate program, as
modified under this proposal, is reasonable because the program is
optional and all Members can choose to participate or not.
The Exchange believes that offering the Priority Customer Complex
Order rebate program, as modified, to only Priority Customers is
equitable and not unfairly discriminatory as the proposed changes are
intended to increase Priority Customer Complex Order flow to ISE. An
increase in Priority Customer order flow enhances liquidity on the
Exchange to the benefit of all market participants by providing more
trading opportunities, which in turn attracts Market Makers and other
market participants that may interact with this order flow.
Proposal 5--Complex Maker and Taker Fees in Non-Select Symbols
The Exchange believes that its proposal to increase the Complex
Order maker and taker fees in Non-Select Symbols in the manner
described above is reasonable because it is designed to offset the
significant incentives that the Exchange is proposing for Priority
Customer orders.\26\ The Exchange believes that Members will benefit
from the additional liquidity created by the Priority Customer
incentives proposed in this filing, and it is therefore appropriate to
charge all Non-Priority
[[Page 84019]]
Customers increased maker fees for trades executed against a Priority
Customer and increased taker fees.
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\26\ See supra note 25.
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The Exchange also believes that its proposal is equitable and not
unfairly discriminatory. As discussed above, the Exchange proposes to
increase the maker fees in Non-Select Symbols when trading against
Priority Customers as follows: $0.86 to $1.03 per contract for Market
Makers and $0.88 to $1.05 per contract for all other Non-Priority
Customers. Further, the Exchange proposes to increase the taker fees in
Non-Select Symbols from $0.98 to $1.15 per contract for all Non-
Priority Customers. Priority Customers will continue to receive free
executions for their Complex Orders. Market Makers will continue to be
assessed lower maker fees in Non-Select Symbols than other Non-Priority
Customers when trading against Priority Customers. The Exchange
believes this is equitable and not unfairly discriminatory because
Market Makers are subject to additional requirements and obligations
(such as quoting obligations) that other market participants are not.
In addition, the Exchange believes that it is equitable and not
unfairly discriminatory to continue to offer Priority Customers Complex
Orders free executions in order to incentivize Priority Customer order
flow to ISE. Priority Customer order flow enhances liquidity on the
Exchange for the benefit of all market participants by providing more
trading opportunities, which in turn attracts Market Makers and other
market participants that may interact with this order flow.
Proposal 6--Routing Fees
The Exchange's proposal to amend its routing fees such that all
Members would pay a $0.60 per contract Select Symbol routing fee and a
$1.20 Non-Select Symbol routing fee to route to another options
exchange, regardless of capacity, is reasonable because the proposed
routing fees would enable the Exchange to recover the costs it incurs
to route orders to away markets after taking into account the other
costs associated with routing orders to other options exchanges.
Routing services offered by the Exchange are completely optional and
market participants can readily select between various providers of
routing services, including other exchanges and broker-dealers. Also,
the Exchange notes that market participants may elect to mark their
orders as ``Do-Not-Route'' to avoid any routing fees. As noted above,
the proposed structure for routing fee is similar to another options
market.\27\
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\27\ See supra note 20.
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The Exchange's proposal to amend its routing fees such that all
Members would pay a $0.60 per contract Select Symbol Routing Fee and a
$1.20 Non-Select Symbol Routing Fee, regardless of capacity, to route
to another options exchange is equitable and not unfairly
discriminatory because these uniform Routing Fees will apply equally to
all options Members.
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.
Intra-Market Competition
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. While some aspects of the proposal apply
directly to Priority Customers (through rebates or more favorable
pricing) and Market Makers (through lower Complex Order maker fees when
trading against Priority Customers) as discussed above, the Exchange
believes that the changes, taken together, will ultimately fortify and
encourage activity on the Exchange. As discussed above, all market
participants will benefit from any increase in market activity that the
proposal effectuates.
Proposal 1--Regular Priority Customer Maker Rebates in Non-Select
Symbols
The Exchange does not believe that its proposal to increase the
Regular Order Priority Customer maker rebate in Non-Select Symbols from
$0.86 to $1.00 per contract will impose an undue burden on intra-market
competition all Priority Customers will be uniformly assessed the $1.00
maker rebate. The Exchange does not believe that its proposal to
provide only Priority Customers with this maker rebate will impose an
undue burden on intra-market competition because the Exchange has
historically offered more favorable pricing for those market
participants. In addition, increased Priority Customer order flow
enhances liquidity on the Exchange for the benefit of all market
participants by providing more trading opportunities, which in turn
attracts Market Makers and other market participants that may trade
with this order flow.
Proposal 2--Note 15 Incentive
The Exchange does not believe that the proposed changes to the Note
15 Incentive as discussed above will impose an undue burden on intra-
market competition as the proposal will apply uniformly to all Priority
Customers. While the proposed Note 15 incentive will only apply to
Priority Customers, 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
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Proposal 3--Regular Taker Fees in Non-Select Symbols
The Exchange does not believe that its proposal to increase the
taker fees in note 3 of Options 7, Section 3 for trades that are
executed against Priority Customers will impose an undue burden on
intra-market competition because the changes will apply uniformly to
all similarly situated market participants. Priority Customers will
continue to be charged a lower taker fee pursuant to note 3 compared to
other market participants, which the Exchange believes is equitable and
not unfairly discriminatory because the Exchange has historically
provided Priority Customers with more favorable pricing. Furthermore,
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 in turn
facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Proposal 4--Complex Priority Customer Rebates
The Exchange does not believe that offering the Priority Customer
Complex Order rebate program, as modified under this proposal, to only
Priority Customers will impose an undue burden on intra-market
competition because the proposed changes are intended to increase
Priority Customer Complex Order flow to ISE. An increase in Priority
Customer order flow enhances liquidity on the Exchange to the benefit
of all market participants by providing more trading opportunities,
which in turn attracts Market Makers and other market participants that
may interact with this order flow.
[[Page 84020]]
Proposal 5--Complex Maker and Taker Fees in Non-Select Symbols
The Exchange does not believe that its proposal to increase the
Complex Order maker and taker fees in Non-Select Symbols in the manner
described above will impose an undue burden on intra-market
competition. As discussed above, the Exchange proposes to increase the
maker fees in Non-Select Symbols when trading against Priority
Customers as follows: $0.86 to $1.03 per contract for Market Makers and
$0.88 to $1.05 per contract for all other Non-Priority Customers.
Further, the Exchange proposes to increase the taker fees in Non-Select
Symbols from $0.98 to $1.15 per contract for all Non-Priority
Customers. Priority Customers will continue to receive free executions
for their Complex Orders. Market Makers will continue to be assessed
lower maker fees in Non-Select Symbols than other Non-Priority
Customers when trading against Priority Customers. The Exchange
believes this is equitable and not unfairly discriminatory because
Market Makers are subject to additional requirements and obligations
(such as quoting obligations) that other market participants are not.
In addition, the Exchange believes that it is equitable and not
unfairly discriminatory to continue to offer Priority Customers Complex
Orders free executions in order to incentivize Priority Customer order
flow to ISE. Priority Customer order flow enhances liquidity on the
Exchange for the benefit of all market participants by providing more
trading opportunities, which in turn attracts Market Makers and other
market participants that may interact with this order flow.
Proposal 6--Routing Fees
The Exchange's proposal to amend its routing fees such that all
Members would pay a $0.60 per contract Select Symbol routing fee and a
$1.20 Non-Select Symbol routing fee to route to another options
exchange, regardless of capacity, will not impose an undue burden on
intra-market competition because these uniform routing fees will apply
equally to all options Members.
Inter-Market Competition
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. 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 \28\ and Rule 19b-4(f)(2) \29\ 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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\28\ 15 U.S.C. 78s(b)(3)(A)(ii).
\29\ 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#255750494008464a4848404b5156655640460b424a53"><span class="__cf_email__" data-cfemail="b5c7c0d9d098d6dad8d8d0dbc1c6f5c6d0d69bd2dac3">[email protected]</span></a>. Please include
file number SR-ISE-2023-28 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-2023-28. 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-2023-28 and should be
submitted on or before December 22, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-26499 Filed 11-30-23; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on December 1, 2023.
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