Notice2024-01750
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 4
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Published
January 30, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 20 (Tuesday, January 30, 2024)</title>
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[Federal Register Volume 89, Number 20 (Tuesday, January 30, 2024)]
[Notices]
[Pages 5971-5974]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-01750]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99424; File No. SR-ISE-2024-04]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7,
Section 4
January 24, 2024.
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 January 12, 2024, 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.\3\
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\3\ The Exchange initially filed the proposed pricing change on
January 2, 2024 (SR-ISE-2024-01). On January 12, 2024, the Exchange
withdrew that filing and submitted this 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 purpose of the proposed rule change is to amend the Exchange's
Pricing Schedule at Options 7, Section 4, Complex Order Fees and
Rebates, to amend note 9 related to the Complex Order Fee for PIM
Orders.\4\
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\4\ The PIM is a process by which an Electronic Access Member
can provide price improvement opportunities for a transaction
wherein the Electronic Access Member seeks to facilitate an order it
represents as agent, and/or a transaction wherein the Electronic
Access Member solicited interest to execute against an order it
represents as agent. See Options 3, Section 13.
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Today, the Exchange assesses a $0.10 per contract Complex Order Fee
for PIM Orders to all Non-Priority Customer \5\ market participants
(Market Makers,\6\ Firm Proprietary \7\/Broker Dealers,\8\ and
Professional Customers,\9\) in Select \10\ and Non-Select \11\ Symbols.
Today, Priority Customers \12\ are not assessed Complex Order Fee for
PIM Orders in Select and Non-Select Symbols. Today, note 9 to Options
7, Section 4, reduces the $0.10 per contract fee to $0.05 per contract
for all Non-Priority Customer orders provided Members execute an
average daily volume (``ADV'') of 7,500 or more contracts in the PIM in
a given month. Further, the $0.10 per contract Complex Order Fee for
PIM Orders is reduced to $0.00 per contract for all Member orders
provided the Members execute an ADV of 12,500 or more contracts in the
Complex PIM. The Exchange applies the discounted fees retroactively to
all eligible Complex PIM volume in that month once the threshold has
been reached. Additionally, Complex Order Fees for PIM Orders
(including Complex PIM Orders) apply to the originating and contra
order.\13\
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\5\ ``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).
\6\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See Options 1,
Section 1(a)(21).
\7\ A ``Firm Proprietary'' order is an order submitted by a
member for its own proprietary account. See Options 7, Section 1(c).
\8\ A ``Broker-Dealer'' order is an order submitted by a member
for a broker-dealer account that is not its own proprietary account.
See Options 7, Section 1(c).
\9\ 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).
\10\ ``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).
\11\ ``Non-Select Symbols'' are options overlying all symbols
excluding Select Symbols. See Options 7, Section 1(c).
\12\ 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).
\13\ See note 11 of Options 7, Section 4.
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Proposal
At this time, the Exchange proposes to amend note 9 of Options 7,
Section 4 to revise the second sentence to instead provide that ``Other
than for Priority Customer orders, Members that execute an ADV of
12,500 or more contracts in a given month in the Complex PIM will be
charged a $0.02 per contract fee.'' The Exchange will continue to
reduce the Complex Order Fees for PIM Orders from $0.10 to $0.05 per
contract for all Non-Priority Customers that execute an ADV of 7,500 or
more contracts in the Complex PIM in a given month. At this time, the
Exchange would decrease the reduction for Complex Order Fees for
Complex PIM Orders for Non-Priority
[[Page 5972]]
Customers that execute an ADV of 12,500 or more contracts in a given
month in the Complex PIM. Today, Priority Customers pay no Complex
Order Fees for PIM Orders. Today, Members that execute an ADV of 12,500
or more contracts in a given month in the Complex PIM pay no Complex
Order Fees for PIM Orders, except for Priority Customers who pay no
Complex Order Fees for any PIM Orders. With this change, Non-Priority
Customers would pay a $0.02 per contract fee for Complex Order Fees for
Complex PIM Orders, provided they execute an ADV of 12,500 or more
contracts in a given month in the Complex PIM.
The Exchange proposes to amend note 9 of Options 7, Section 4 to
add the words ``Complex Fee for PIM Orders'' in place of ``fee'' to
make clear the applicable fee. Today, the Exchange assesses Regular
Order \14\ and Complex Order \15\ PIM Fees. The addition of the words
``Complex Fee for PIM Orders'' clarifies that the fee in note 9 is a
Complex Order fee. The Exchange proposes to add the words ``Other than
for Priority Customer orders,'' to the beginning of the second
sentence, similar to the first sentence, because Priority Customers pay
no Complex Order Fee for PIM Orders today and would not have a fee to
reduce. Additionally, the Exchange proposes to add the words ``in a
given month'' to the second sentence, similar to the first sentence, to
make clear the time period in which Members must execute the required
ADV. Finally, the Exchange proposes to amend note 9 of Options 7,
Section 4 to add the word ``Complex'' before ``PIM'' to make clear the
note applies to Complex PIM Orders.
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\14\ See Options 7, Section 3, Regular Order Fees and Rebates.
\15\ See Options 7, Section 4, Complex Order Fees and Rebates.
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Despite the decrease in the discount, the Exchange will continue to
offer Non-Priority Customers an opportunity to pay a lower Complex
Order Fees for PIM Orders.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\16\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\17\ 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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\16\ 15 U.S.C. 78f(b).
\17\ 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'. . . .'' \18\
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\18\ 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.'' \19\
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\19\ 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.
The Exchange's proposal to amend note 9 of Options 7, Section 4 to
decrease the reduction in the Complex Order Fee for PIM Orders for Non-
Priority Customers that execute an ADV of 12,500 or more contracts in a
given month in the Complex PIM from paying no fee to paying $0.02 per
contract is reasonable because, despite the decrease in the discount,
the Exchange will continue to offer Non-Priority Customers an
opportunity to pay a lower Complex Order Fees for PIM Orders from $0.10
to $0.02 per contract. Additionally, the Exchange will continue to
reduce the Complex Order Fees for Complex PIM Orders from $0.10 to
$0.05 per contract for all Non-Priority Customers that execute an ADV
of 7,500 or more contracts in the Complex PIM in a given month. Unlike
other market participants, Priority Customers pay no Complex Order Fee
for PIM Orders. The proposed $0.02 per contract Complex Order Fee for
PIM Orders for Non-Priority Customers that execute an ADV of 12,500 or
more contracts in a given month in the Complex PIM is competitive and
remains lower than comparable fees at other options exchanges. BOX
Exchange LLC (``BOX'') assesses a $0.05 per contract fee to its
Professional Customer or Broker-Dealer and Market Maker for Complex
Order Price Improvement Period (``COPIP'') Orders.\20\ Additionally,
Miami International Securities Exchange, Inc. (``MIAX'') assesses a
$0.30 per contract fee to Public Customers that are not a Priority
Customer, MIAX Market Maker, Non-MIAX Market Maker, Non-Member Broker-
Dealer and Firm in its Complex Price Improvement Mechanism
(``cPRIME'').\21\
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\20\ See BOX's Fee Schedule.
\21\ See MIAX's Fee Schedule.
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The Exchange's proposal to amend note 9 of Options 7, Section 4 to
decrease the reduction in the Complex Order Fee for PIM Orders for Non-
Priority Customers that execute an ADV of 12,500 or more contracts in a
given month in the Complex PIM from paying no fee to paying $0.02 per
contract is equitable and not unfairly discriminatory because all Non-
Priority Customers are eligible for the discount and would uniformly be
assessed the lower fee provided they executed the requisite volume in a
given month in the Complex PIM. Priority Customers are not eligible for
the discount because they pay no Complex Order Fee for PIM Orders.
Priority Customer liquidity benefits all market participants by
providing more trading opportunities which attracts market makers. An
[[Page 5973]]
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.
The Exchange's proposal to amend note 9 of Options 7, Section 4 to
add the words ``Complex Fee for PIM Orders'' in place of ``fee'' to
make clear the applicable fee is reasonable because the addition of
these words makes clear that the fees in note 9 are Complex Order fees
as compared to Regular Order fees. The Exchange's proposal to add the
words ``Other than for Priority Customer orders,'' to the beginning of
the second sentence, similar to the first sentence, is reasonable
because Priority Customers pay no Complex Order Fee for PIM Orders
today and would not have a fee to reduce. The addition of the language
makes clear that the fees apply to Non-Priority Customers. The
Exchange's proposal to add the words ``in a given month'' to the second
sentence, similar to the first sentence, is reasonable because it makes
clear the time period in which Members must execute the required ADV.
Finally, the Exchange's proposal to amend note 9 of Options 7, Section
4 to add the word ``Complex'' before ``PIM'' is reasonable because it
makes clear the note applies to Complex PIM Orders and not Regular PIM
Orders. The technical amendments to the rule text of note 9 are
intended to clarify the current rule text and do not substantively
amend the rule text. The Exchange also believes the aforementioned
technical amendments to the rule text of note 9 are equitable and not
unfairly discriminatory as the rule text does not impact any Member.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
In terms of inter-market competition, the Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges. Because competitors are free to modify their own fees in
response, and because market participants may readily adjust their
order routing practices, the Exchange believes that the degree to which
fee changes in this market may impose any burden on competition is
extremely limited. In sum, if the changes proposed herein are
unattractive to market participants, it is likely that the Exchange
will lose market share as a result. Accordingly, the Exchange does not
believe that the proposed changes will impair the ability of members or
competing order execution venues to maintain their competitive standing
in the financial markets.
In terms of intra-market competition, the Exchange does not believe
that this proposal will place any category of market participant at a
competitive disadvantage. The Exchange's proposal to amend note 9 of
Options 7, Section 4 to decrease the reduction in the Complex Order Fee
for PIM Orders for Non-Priority Customers that execute an ADV of 12,500
or more contracts in a given month in the Complex PIM from paying no
fee to paying $0.02 per contract does not impose an undue burden on
competition because all Non-Priority Customers are eligible for the
discount and would uniformly be assessed the lower fee provided they
executed the requisite volume in a given month in the Complex PIM.
Unlike other market participants, Priority Customers are not eligible
for the discount because they pay no Complex Order Fee 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.
The Exchange's proposal to amend note 9 of Options 7, Section 4 to
add the words ``Complex Fee for PIM Orders'' in place of ``fee'' to
make clear the applicable fee does not impose an undue burden on
competition because the addition of these words makes clear that the
fees in note 9 are Complex Order fees as compared to Regular Order
fees. The Exchange's proposal to add the words ``Other than for
Priority Customer orders,'' to the beginning of the second sentence,
similar to the first sentence, does not impose an undue burden on
competition because Priority Customers pay no Complex Order Fee for PIM
Orders today and would not have a fee to reduce. Further, the addition
of the language makes clear that the fees apply to Non-Priority
Customers. The Exchange's proposal to add the words ``in a given
month'' to the second sentence, similar to the first sentence, does not
impose an undue burden on competition because it makes clear the time
period in which Members must execute the required ADV. Finally, the
Exchange's proposal to amend note 9 of Options 7, Section 4 to add the
word ``Complex'' before ``PIM'' does not impose an undue burden on
competition because it makes clear the note applies to Complex PIM
Orders and not Regular PIM Orders. These technical amendments to the
rule text of note 9 are intended to clarify the current rule text. The
technical amendments do not substantively amend the rule text and do
not impact any Member.
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 \22\ and Rule 19b-4(f)(2) \23\ 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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\22\ 15 U.S.C. 78s(b)(3)(A)(ii).
\23\ 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#89fbfce5eca4eae6e4e4ece7fdfac9faeceaa7eee6ff"><span class="__cf_email__" data-cfemail="186a6d747d357b7775757d766c6b586b7d7b367f776e">[email protected]</span></a>. Please include
file number SR-ISE-2024-04 on the subject line.
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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-2024-04. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="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-2024-04 and should be
submitted on or before February 20, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01750 Filed 1-29-24; 8:45 am]
BILLING CODE 8011-01-P
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