Notice2024-24209
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, Section 3
Primary source
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Published
October 21, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 203 (Monday, October 21, 2024)</title>
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[Federal Register Volume 89, Number 203 (Monday, October 21, 2024)]
[Notices]
[Pages 84214-84216]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-24209]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101349; File No. SR-ISE-2024-48]
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, Section 3
October 15, 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 October 1, 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 Exchange's Pricing Schedule at
Options 7, Section 3.
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 in Options 7, Section 3.
Today, as set forth in Options 7, Section 3, the Exchange assesses
all market participants (except Priority Customers) \3\ a uniform
regular order maker fee of $0.70 per contract for Non-Select Symbol \4\
executions that add liquidity on the Exchange. Priority Customers are
assessed a $1.00 per contract regular order maker rebate in Non-Select
Symbols.\5\ Additionally, the Exchange also currently offers Members an
additional rebate of $0.14 per contract if they execute more than 0.10%
of Regular Order Non-Select Symbol Priority Customer volume (excluding
Crossing Orders \6\ and Responses to Crossing Orders) \7\ calculated as
a percentage of Customer Total Consolidated Volume \8\ per day in a
given month (``Note 15 Incentive'').\9\ The Note 15 Incentive is
designed to encourage Members to transact in greater regular Non-Select
Symbol Priority Customer volume on the Exchange to receive rebates up
to $1.14 per contract (i.e., the $1.00 base maker rebate plus the
additional $0.14 Note 15 Incentive).
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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\ In addition, for Priority Customer orders adding liquidity
in Non-Select Symbols, there is no fee or rebate provided when
trading against Priority Customer complex orders that leg into the
regular order book. See Options 7, Section 3, note 18.
\6\ 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.
\7\ ``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.
\8\ ``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.
\9\ See Options 7, Section 3, note 15.
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The Exchange now proposes to amend the Note 15 Incentive by
increasing the additional $0.14 rebate to $0.18 per contract. The
additional rebate qualifications are not changing under this proposal.
Accordingly, Members would be eligible to receive higher rebates of up
to $1.18 per contract (i.e., the base $1.00 maker rebate plus the
proposed additional $0.18 Note 15 Incentive) under this proposal when
sending the same amount of regular Non-Select Symbol Priority Customer
volume as they do today. Ultimately, the Exchange believes that the
proposed changes will attract more Priority Customer Non-Select Symbol
order flow to ISE because Members may be incentivized to send such
order flow to ISE to receive the increased rebate.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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\10\ 15 U.S.C. 78f(b).
\11\ 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
[[Page 84215]]
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' . . . .'' \12\
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\12\ 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.'' \13\
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\13\ 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
eighteen 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 the Note 15
Incentive are reasonable for the reasons that follow. As discussed
above, the Exchange is increasing the additional $0.14 rebate to $0.18
per contract without amending the additional rebate volume
qualifications discussed above. Accordingly, Members would be eligible
to receive higher rebates of up to $1.18 per contract (i.e., the base
$1.00 maker rebate plus the proposed additional $0.18 Note 15
Incentive) under this proposal when sending the same amount of regular
Non-Select Symbol Priority Customer volume as they do today. As
discussed above, the Exchange believes that the proposed changes will
attract more Priority Customer Non-Select Symbol order flow to ISE
because Members may be incentivized to send such order flow to ISE to
receive the increased rebate. 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 further believes that increasing the Note 15 Incentive
from $0.14 to $0.18 per contract is equitable and not unfairly
discriminatory because the proposed change 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.
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.
The Exchange does not believe that the proposed changes to the Note
15 Incentive to increase the additional $0.14 rebate to $0.18 per
contract 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.
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.\14\ 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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\14\ 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#b3c1c6dfd69ed0dcdeded6ddc7c0f3c0d6d09dd4dcc5"><span class="__cf_email__" data-cfemail="6d1f180108400e0200000803191e2d1e080e430a021b">[email protected]</span></a>. Please include
file number SR-ISE-2024-48 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 84216]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-ISE-2024-48. 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-2024-48 and should be
submitted on or before November 12, 2024.
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\15\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-24209 Filed 10-18-24; 8:45 am]
BILLING CODE 8011-01-P
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