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Notice2024-06325

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Complex Order Rebates in the Exchange's Pricing Schedule at Options 7, Section 4

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Published

March 26, 2024

Issuing agencies

Securities and Exchange Commission

Full Text

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<title>Federal Register, Volume 89 Issue 59 (Tuesday, March 26, 2024)</title>
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[Federal Register Volume 89, Number 59 (Tuesday, March 26, 2024)]
[Notices]
[Pages 21129-21131]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-06325]

[[Page 21129]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99788; File No. SR-ISE-2024-11]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Complex Order Rebates in the Exchange's Pricing Schedule at Options 7,
Section 4

March 20, 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 March 8, 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, II, and III, below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to amend the complex order rebates in the
Exchange's Pricing Schedule at Options 7, Section 4.
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 complex
order rebates in the Exchange's Pricing Schedule.\3\ Today, as set
forth in Options 7, Section 4, the Exchange offers tiered complex order
Priority Customer \4\ rebates for Select Symbols \5\ and Non-Select
Symbols \6\ based on the Priority Customer Complex Tier achieved.\7\
The tiered complex order Priority Customer rebates for Select Symbols
and Non-Select Symbols are presently as follows:
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\3\ The Exchange initially filed the proposed pricing changes on
February 29, 2024 with an operative date of March 1, 2024 (SR-ISE-
2024-08). On March 8, 2024, the Exchange withdrew that filing and
replaced it with this filing.
\4\ 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).
\5\ ``Select Symbols'' are options overlying all symbols listed
on the Nasdaq ISE that are in the Penny Interval Program.
\6\ ``Non-Select Symbols'' are options overlying all symbols
excluding Select Symbols.
\7\ 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. As set forth in Options
7, Section 1(c), an Appointed OFP is an Order Flow Provider who has
been appointed by a Market Maker for purposes of qualifying as an
Affiliated Entity.

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Total affiliated member or
affiliated entity complex
order volume (excluding
crossing orders and Rebate for Rebate for Non-
Priority Customer Complex Tier responses to crossing Select Symbols Select Symbols
orders) calculated as a
percentage of customer total
consolidated volume
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Tier 1.................................... 0.000-0.200................. ($0.25) ($0.50)
Tier 2.................................... Above 0.200-0.400........... (0.30) (0.60)
Tier 3.................................... Above 0.400-0.450........... (0.35) (0.75)
Tier 4.................................... Above 0.450-0.750........... (0.40) (0.80)
Tier 5.................................... Above 0.750-1.000........... (0.45) (0.85)
Tier 6.................................... Above 1.000-1.350........... (0.48) (0.95)
Tier 7.................................... Above 1.350-1.750........... (0.54) (1.00)
Tier 8.................................... Above 1.750-2.750........... (0.55) (1.10)
Tier 9.................................... Above 2.750-4.500........... (0.56) (1.12)
Tier 10................................... Above 4.500................. (0.57) (1.15)
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The above rebates are provided per contract per leg if the order
trades with Non-Priority Customer \8\ orders in the complex order book.
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\8\ ``Non-Priority Customers'' include Market Makers, Non-Nasdaq
ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and
Professional Customers.
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The Exchange now proposes to modify Priority Customer Complex Tiers
3-5 in the following manner:

[[Page 21130]]

As amended, the rebates for Tiers 3-5 are increasing across the
board for Select Symbols and Non-Symbols. In addition, the Exchange is
adjusting the volume qualifications for Tiers 3 and 4 by increasing the
upper limit of Tier 3 from 0.45% to 0.55% and the lower limit of Tier 4
from 0.45% to 0.55%. While the Exchange is increasing the volume
qualifications in this manner, the Exchange is simultaneously
increasing the related rebates such that Members who would fall within
the 0.45% to 0.55% volume threshold range would receive the same rebate
under this proposal as they would today (i.e., $0.40 for Select Symbols
and $0.80 for Non-Select Symbols). Accordingly, the Exchange expects
that there will be little to no impact on Members who would currently
fall within the 0.45% to 0.55% volume threshold range as a result of
this change. Furthermore, the Exchange is increasing the Tier 5 rebates
without changing the tier qualifications so that Members can send the
same amount of complex order flow as they do today to receive the
larger Priority Customer complex rebates described above. Overall, the
Exchange believes that the proposed changes to Priority Customer
Complex Tiers 3-5 will attract more complex order flow to ISE because
Members may be incentivized to send more complex orders to ISE to
receive the increased rebates.

2. Statutory Basis

The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\10\ 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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\9\ 15 U.S.C. 78f(b).
\10\ 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'. . ..'' \11\
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\11\ 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.'' \12\
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\12\ 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 believes that the proposed changes to Priority
Customer Complex Tiers 3-5 discussed above are reasonable because they
are designed to attract more complex order flow to ISE to the benefit
of all market participants. As discussed above, the rebates for Tiers
3-5 are increasing across the board for Select Symbols and Non-Symbols.
In addition, the Exchange is adjusting the volume qualifications for
Tiers 3 and 4 by increasing the upper limit of Tier 3 from 0.45% to
0.55% and the lower limit of Tier 4 from 0.45% to 0.55%. As discussed
above, the Exchange expects there will be little to no impact on
Members who would currently fall within the 0.45% to 0.55% volume
threshold range as a result of this change because they would receive
the same rebates under this proposal as they would today (i.e., $0.40
for Select Symbols and $0.80 for Non-Select Symbols). The Exchange also
believes that overall, all Members in Tiers 3 and 4 will benefit from
the proposed rebates and that these rebates will continue to
incentivize Members to send more complex order flow to ISE.
Furthermore, the Exchange is increasing the Tier 5 rebates without
changing the tier qualifications so that Members can send the same
amount of complex order flow as they do today to receive the larger
Priority Customer complex rebates described above. Overall, the
Exchange believes that the proposed changes to Priority Customer
Complex Tiers 3-5 will attract more complex order flow to ISE because
Members may be incentivized to send more complex orders to ISE to
receive the increased rebates.
The Exchange believes that offering the complex order Priority
Customer 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.

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 intra-market
competition, the Exchange does not believe that its proposal will place
any category of market participant at a competitive disadvantage. While
the proposed changes to the complex rebates described above apply
directly to Priority Customers, the Exchange believes that the changes
will ultimately fortify and encourage activity on the Exchange to the
extent the proposed changes incentivize increased 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.
In terms of inter-market competition, the Exchange notes that it
operates in a highly competitive market in which

[[Page 21131]]

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.\13\ 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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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

<bullet> Use the Commission's internet comment form (<a href="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#b4c6c1d8d199d7dbd9d9d1dac0c7f4c7d1d79ad3dbc2"><span class="__cf_email__" data-cfemail="87f5f2ebe2aae4e8eaeae2e9f3f4c7f4e2e4a9e0e8f1">[email&#160;protected]</span></a>. Please include
file number SR-ISE-2024-11 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-2024-11. 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-2024-11 and should be
submitted on or before April 16, 2024.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06325 Filed 3-25-24; 8:45 am]
BILLING CODE 8011-01-P

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