
[Federal Register Volume 82, Number 125 (Friday, June 30, 2017)]
[Notices]
[Pages 29964-29966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-13709]



[[Page 29964]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81024; File No. SR-ISE-2017-54]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to the 
Non-Priority Customer License Surcharge

June 26, 2017.
    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 June 12, 2017, 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 apply the Non-Priority Customer license 
surcharge set forth in Section IV.B of the Schedule of Fees to orders 
that are routed to away markets.
    The text of the proposed rule change is available on the Exchange's 
Web site at www.ise.com, 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 apply the Non-
Priority Customer (i.e., Market Maker,\3\ Non-Nasdaq ISE Market 
Maker,\4\ Firm Proprietary \5\/Broker-Dealer,\6\ and Professional 
Customer \7\) license surcharge set forth in Section IV.B of the 
Schedule of Fees to orders in those licensed products \8\ that are 
routed to one or more exchanges in connection with the Options Order 
Protection and Locked/Crossed Market Plan (the ``Plan''). The Exchange 
initially filed the proposed pricing changes on June 1, 2017 (SR-ISE-
2017-50). On June 12, 2017, the Exchange withdrew that filing and 
submitted this filing.
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    \3\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Rule 
100(a)(25).
    \4\ 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.
    \5\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \6\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \7\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer. 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 ISE Rule 100(a)(37A).
    \8\ The Exchange assesses a license surcharge for NDX and BKX. 
BKX, which represents options on the KBW Bank Index (``BKX''), is 
currently not traded on the Exchange. NDX represents options on the 
Nasdaq-100 Index traded under the symbol NDX (``NDX'').
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    Today, the Exchange charges Non-Priority Customers route-out fees 
for orders in Non-Select Symbols \9\ that are routed to away markets in 
connection with the Plan. Specifically as set forth in Section IV.F of 
the Schedule of Fees, Non-Priority Customer orders pay a route-out fee 
of $0.95 per contract in Non-Select Symbols. The route-out fees offset 
costs incurred by the Exchange in connection with using unaffiliated 
broker-dealers to access other exchanges for linkage executions. In 
addition, as set forth in Section IV.B of the Schedule of Fees, the 
Exchange presently charges a $0.25 license surcharge for all Non-
Priority Customer orders in NDX and a $0.10 license surcharge for all 
Non-Priority Customer orders in BKX (together, ``License Surcharge''). 
This License Surcharge currently applies to all BKX and NDX orders 
executed on the Exchange, but is not applied when those orders are 
routed to away markets in connection with the Plan. The Exchange 
therefore proposes to apply the License Surcharge to such orders, 
specifically by adding language in Section IV.B of the Schedule of Fees 
that the Non-Priority Customer License Surcharge applies to all 
executions in BKX and NDX, including executions of BKX and NDX orders 
that are routed to one or more exchanges in connection with the Plan. 
For example, all Non-Priority Customer orders in NDX that are routed to 
away markets would be assessed a $0.25 per contract License Surcharge 
and a $0.95 per contract route-out fee under this proposal.
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    \9\ ``Non-Select Symbols'' are options overlying all symbols 
that are not in the Penny Pilot Program. NDX and BKX are Non-Select 
Symbols.
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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 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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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\13\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\14\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \15\
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    \13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \14\ See NetCoalition, at 534-535.
    \15\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S.

[[Page 29965]]

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'. . ..'' \16\ Although 
the court and the SEC were discussing the cash equities markets, the 
Exchange believes that these views apply with equal force to the 
options markets.
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    \16\ Id. at 539 (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 Exchange believes that its proposal to apply the License 
Surcharge to Non-Priority Customer orders in licensed products that are 
routed to away markets in connection with the Plan is reasonable and 
equitable because it offsets both the costs associated with executing 
orders on away markets as well as the licensing costs associated with 
listing and trading these products. In particular, the Exchange's 
route-out fees are presently not calculated to cover the licensing 
costs for BKX and NDX. The Exchange notes that a license agreement is 
required to trade these products regardless of whether the order is 
executed on the Exchange or routed to another exchange in connection 
with the Plan. As such, the Exchange believes that extending the 
License Surcharge to those orders that are routed to away markets (in 
addition to those orders executed on the Exchange) is a reasonable and 
equitable means of recovering the costs of the license. Furthermore, 
the Exchange must pay the actual transaction fees charged by the 
exchange the order is routed to, which includes the license surcharge 
that such exchange assesses for those products. The Exchange's route-
out fees are currently not calculated to cover these license surcharges 
assessed by other exchanges and therefore seeks to recover these costs 
under this proposal. For example, an NDX order that is routed to the 
Chicago Board Options Exchange (``CBOE'') in connection with the Plan 
would be assessed a $0.25 license surcharge by CBOE on top of the 
actual transaction fees that CBOE would charge for the NDX order.\17\ 
The Exchange's route-out fees are presently assessed as fixed fees, 
unlike other exchanges, which, in addition to a fixed route-out fee, 
assess the actual transaction fees charged by the exchange the order is 
routed to.\18\
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    \17\ See CBOE's fee schedule, at: https://www.cboe.com/publish/feeschedule/CBOEFeeSchedule.pdf.
    \18\ See, e.g., MIAX Options Fee Schedule, (1) Transaction Fees, 
(c) Fees and Rebates for Customer Orders Routed to Another Options 
Exchange, at: https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Options_Fee_Schedule_05012017.pdf.
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    The Exchange also believes that its proposal is reasonable and 
equitable because Non-Priority Customers would be able to avoid paying 
the License Surcharge by sending the Exchange orders in these licensed 
products to be routed to another market and only pay the Exchange's 
route-out fee. The Exchange would, however, still be required to pay 
all of the actual transaction fees (including the license surcharge) 
charged by the exchange the order is routed to. For example, a Non-
Priority Customer order in NDX that is routed to CBOE today would only 
be assessed the $0.95 per contract route-out fee while the Exchange 
would pay the $0.25 per contract license surcharge on top of the actual 
transaction fees CBOE would charge for the NDX order. The Exchange 
therefore believes that it is reasonable and equitable to assess the 
License Surcharge to orders in those licensed products which are routed 
to other exchanges in order to avoid this scenario.
    Finally, the Exchange believes that the proposed fee change is 
equitable and not unfairly discriminatory because the Exchange will 
apply the same fee to all similarly situated members. In particular, 
the License Surcharge would be applied to all Non-Priority Customer 
orders in those licensed products which are routed to away markets in 
connection with the Plan. The Exchange believes it is equitable and not 
unfairly discriminatory to assess this surcharge on all participants 
other than Priority Customers because the Exchange seeks to encourage 
Priority Customer order flow and the liquidity such order flow brings 
to the marketplace, which in turn benefits all 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 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 this instance, the proposed application of the License Surcharge 
to orders that are routed to one or more exchanges in connection with 
the Plan does not impose a burden on competition because the Exchange's 
execution services are completely voluntary and subject to extensive 
competition from other exchanges. 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 its proposal will impair the ability of members 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,\19\ and Rule 19b-4(f)(2) \20\ 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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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \20\ 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:

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Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2017-54 on the subject line.

Paper Comments

     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-2017-54. 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 Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site 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 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISE-2017-54 and should be 
submitted on or before July 21, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-13709 Filed 6-29-17; 8:45 am]
BILLING CODE 8011-01-P


