[Federal Register Volume 85, Number 42 (Tuesday, March 3, 2020)]
[Notices]
[Pages 12616-12623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04290]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88292; File No. SR-ISE-2020-06]


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

February 26, 2020.
    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 February 12, 2020, 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, as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at http://ise.cchwallstreet.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 amend the Exchange's 
Pricing Schedule at Options 7 with the

[[Page 12617]]

objective of attracting additional volume to the Exchange in Non-Select 
Symbols,\3\ where the Exchange has seen less activity than it has in 
Select Symbols.\4\ Each change is described in detail below.
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    \3\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
    \4\ ``Select Symbols'' are options overlying all symbols listed 
on the Exchange that are in the Penny Pilot Program.
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    The Exchange initially filed the proposed rule change on February 
3, 2020 (SR-ISE-2020-03). On February 12, 2020, the Exchange withdrew 
that filing and submitted this filing.
Marketing Fee
    By way of background, the Exchange administers a marketing fee 
program that helps Market Makers \5\ establish marketing fee 
arrangements with Electronic Access Members (``EAMs'') in exchange for 
those EAMs routing some or all of their order flow to the Market 
Maker.\6\ This program is funded through a fee of $0.70 per contract, 
which is paid by the Market Maker for each regular Priority Customer 
\7\ contract executed in Non-Select Symbols.\8\
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    \5\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21).
    \6\ The marketing fee is rebated proportionally to the Members 
that paid the fee such that on a monthly basis the market fee fund 
balance administered by the Primary Market Maker for a Group of 
options established under Options 2, Section 3(b) does not exceed 
$100,000 and the marketing fee fund balance administered by a 
preferenced Competitive Market Maker for such a Group does not 
exceed $100,000. A preferenced Competitive Market Maker that elects 
not to administer a fund will not be charged the marketing fee. The 
Exchange assesses an administrative fee of .45% on the total amount 
of the funds collected each month. See Options 7, Section 6.E.
    \7\ 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).
    \8\ The Exchange does not charge Market Makers a marketing fee 
for regular Priority Customer contracts in Select Symbols. 
Furthermore, the marketing fee is currently waived for NDX, NQX, 
MNX, Flash Orders and for Complex Orders in all symbols.
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    In connection with the proposed fee changes to the regular Non-
Select Symbol pricing schedule described below, the Exchange proposes 
to set this marketing fee to $0.00 per contract. The Exchange believes 
that the proposed fee change will ensure that the total fees paid by 
Market Makers for regular executions in Non-Select Symbols will remain 
at a level the Exchange believes is appropriate. The Exchange also 
proposes in Options 7, Section 6.E to add language that makes clear no 
marketing fees will be charged with the proposed changes. In 
particular, the Exchange will add that no marketing fees are charged 
for Select and Non-Select Symbols. If the Exchange determines to charge 
a marketing fee in the future, it will do so pursuant to a rule filing.
Non-Select Regular Order Pricing
    As set forth in Options 7, Section 3, the Exchange currently 
charges the following transaction fees for regular orders in Non-Select 
Symbols (excluding index options): \9\ $0.25 per contract for Market 
Maker orders, $0.20 per contract for Market Maker orders sent by EAMs, 
and $0.72 per contract for Non-Nasdaq ISE Market Maker,\10\ Firm 
Proprietary \11\/Broker-Dealer,\12\ and Professional Customer \13\ 
orders. The Exchange applies the foregoing fees to regular transactions 
regardless of whether the order adds or removes liquidity on ISE. The 
Exchange currently does not charge a fee for regular Priority Customer 
orders in Non-Select Symbols.
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    \9\ Specifically, for all executions in regular NDX and NQX 
orders, the Exchange charges the applicable index options fees in 
Options 7, Section 5 instead.
    \10\ 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.
    \11\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \12\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \13\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
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    The Exchange now proposes to replace the existing fee structure 
with a maker/taker pricing model where all market participants (except 
Priority Customers) will be assessed a uniform per contract ``maker'' 
fee for Non-Select Symbol executions that add liquidity on the 
Exchange, and a separate per contract ``taker'' fee for Non-Select 
Symbol executions that remove liquidity.\14\ Generally speaking, the 
proposed maker fees will be slightly lower than the proposed taker fees 
in order to incentivize Members to increase their liquidity adding 
activity in Non-Select Symbols. The Exchange also proposes to charge 
all market participants higher taker fees for trades executed against 
Priority Customer Orders. The Exchange further proposes to provide a 
significant maker rebate for Priority Customer orders in Non-Select 
Symbols, and to continue assessing no taker fees for such orders.
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    \14\ As discussed later in this filing, the Exchange will also 
introduce a Market Maker Plus program for Non-Select Symbols whereby 
qualifying Market Makers would receive a discounted fee or rebate in 
lieu of paying the proposed maker fee if they meet the proposed tier 
threshold requirements.
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    In light of the proposed changes to charge consistent maker/taker 
fees across all non-Priority Customer orders, the Exchange proposes to 
remove the separate pricing for Market Maker orders sent by EAMs from 
the Non-Select Symbol pricing schedule in Options 7, Section 3, and 
instead specify that the Market Maker fees in Non-Select Symbols will 
also apply to the Market Maker orders sent by EAMs.\15\ With this 
change, the Exchange also proposes to reduce the current fee assessed 
to Market Makers for Crossing Orders \16\ (except PIM orders) from 
$0.25 to $0.20 per contract, which would align this fee with the fee 
currently charged to Market Maker orders sent by EAMs, and to all other 
non-Priority Customer orders. The Exchange currently charges Market 
Makers (including Market Maker orders sent by EAMs) the same fee for 
PIM orders and for Responses to Crossing Orders,\17\ and those fees 
will remain unchanged with this proposal.
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    \15\ This is similar to the approach for Select Symbols today. 
See Options 7, Section 3, note 8.
    \16\ 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 the Pricing Schedule, orders executed in the Block 
Order Mechanism are also considered Crossing Orders.
    \17\ ``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.
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    Accordingly, the new Non-Select Symbol pricing in Options 7, 
Section 3 will be as follows:

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                                                                                                                              Fee for
                                                                                              Fee for                      responses to       Fee for
                   Market participant                      Maker rebate/     Taker fee       crossing       Fee for PIM      crossing      responses to
                                                                fee                       orders  except      Orders      orders  except    PIM orders
                                                                                             PIM orders                      PIM orders
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Market Maker............................................           $0.70           $0.72           $0.20           $0.10           $0.50           $0.35

[[Page 12618]]

 
Non-Nasdaq ISE Market Maker (FarMM).....................            0.70            0.72            0.20            0.10            0.50            0.35
Firm Proprietary/Broker-Dealer..........................            0.70            0.72            0.20            0.10            0.50            0.35
Professional Customer...................................            0.70            0.72            0.20            0.10            0.50            0.35
Priority Customer.......................................          (0.86)            0.00            0.00            0.00            0.50            0.35
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    As noted above, the proposed taker fees set forth in the table will 
apply to orders that trade against non-Priority Customer orders. When 
trading against Priority Customer orders, the Exchange proposes to 
charge a higher taker fee. Specifically, non-Priority Customer orders 
will be charged a taker fee of $1.10 per contract for trades executed 
against a Priority Customer. Priority Customer orders will be charged a 
taker fee of $0.86 per contract for trades executed against a Priority 
Customer.\18\
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    \18\ See proposed Options 7, Section 3, note 3.
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    As it relates to the new Priority Customer maker rebate, the 
Exchange also proposes to offer 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 and 
Responses to Crossing Orders) calculated as a percentage of Customer 
Total Consolidated Volume \19\ per day in a given month.\20\ The 
Exchange notes that the proposed volume calculation includes all 
regular order Priority Customer volume that adds or removes liquidity 
in Non-Select Symbols on the Exchange, except for volume executed as 
Crossing Orders and Responses to Crossing Orders. Thus, Members that 
transact in greater Non-Select Symbol Priority Customer volume on the 
Exchange (whether by adding or removing liquidity) may be eligible to 
receive rebates up to $1.00 per contract on their Priority Customers 
regular orders in Non-Select Symbols that add liquidity to ISE.
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    \19\ ``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.
    \20\ See proposed Options 7, Section 3, note 15.
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    Lastly, the Exchange proposes to stipulate that for Priority 
Customer orders adding liquidity in Non-Select Symbols, there will be 
no fee charged or rebate provided when trading against Priority 
Customer complex orders that leg into the regular order book.\21\ 
Today, the Exchange does not charge any fee to Priority Customer 
complex orders in Non-Select Symbols that leg into the regular market 
and trade with resting interest on the regular order book, which may 
include resting Priority Customer orders. As such, the Exchange 
believes it is appropriate to not charge a fee or provide a rebate to a 
Non-Select Symbol Priority Customer order resting on the regular order 
book when the Non-Select Symbol Priority Customer order legs out of the 
complex order book and interacts with such interest.
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    \21\ See proposed Options 7, Section 3, note 18.
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Market Maker Plus in Non-Select Symbols
    The Exchange currently operates a Market Maker Plus program for 
regular orders in Select Symbols that provides tiered rebates to Market 
Makers based on time spent quoting at the national best bid or offer 
(``NBBO'').\22\ This program is designed to reward Market Makers that 
contribute to market quality by maintaining tight markets in Select 
Symbols. Market Makers are evaluated each trading day for the 
percentage of time spent on the NBBO for qualifying series that expire 
in two successive thirty calendar day periods beginning on that trading 
day. A Market Maker Plus is a Market Maker who is on the NBBO a 
specified percentage of the time on average for the month based on 
daily performance in the qualifying series for each of the two 
successive periods described above.\23\ If a Market Maker would qualify 
for a different Market Maker Plus tier in each of the two successive 
periods described above, then the lower of the two Market Maker Plus 
tier rebates shall apply to all contracts.\24\ A Market Maker's worst 
quoting day each month for each of the two successive periods described 
above, on a per symbol basis, will be excluded in calculating whether a 
Market Maker qualifies for this rebate. A Market Maker who qualifies 
for Market Maker Plus Tiers 2 or higher in at least four of the 
previous six months will be eligible to receive a reduced Tier 2 rebate 
in a given month where the Market Maker does not qualify for any Market 
Maker Plus tiers. This rebate will be the applicable Tier 2 rebate 
reduced by $0.08 per contract.
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    \22\ See Options 7, Section 3, note 5.
    \23\ Qualifying series are series trading between $0.03 and 
$3.00 (for options whose underlying stock's previous trading day's 
last sale price was less than or equal to $100) and between $0.10 
and $3.00 (for options whose underlying stock's previous trading 
day's last sale price was greater than $100) in premium.
    \24\ Market Makers may enter quotes in a symbol using one or 
more unique, exchange assigned identifiers--i.e., badge/suffix 
combinations. Market Maker Plus status is calculated independently 
based on quotes entered in a symbol for each of the Market Maker's 
badge/suffix combinations, and the highest tier achieved for any 
badge/suffix combination quoting that symbol applies to executions 
across all badge/suffix combinations that the member uses to trade 
in that symbol. Only badge/suffix combinations quoting a minimum of 
ten trading days within the month will be used to determine whether 
the Market Maker Plus status has been met and the specific tier to 
be applied to the Market Maker's performance for that month.
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    The Exchange believes that the Market Maker Plus program has been 
successful overall in encouraging better market quality and making the 
Exchange a more attractive market for Select Symbols. Accordingly, the 
Exchange proposes to replicate this success for Non-Select Symbols by 
introducing a Market Maker Plus program with substantially similar 
qualifications in order to promote and encourage liquidity in those 
particular symbols. Specifically, Market Makers that achieve Market 
Maker Plus Tiers 1-3 as proposed below for executions in Non-Select 
Symbols (excluding index options) will be assessed the following maker 
fee or rebate instead of paying the $0.70 per contract maker fee as 
proposed above: \25\
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    \25\ As with all Non-Select Symbol pricing in Options 7, Section 
3, the proposed Market Maker Plus program will not apply to NDX and 
NQX options, and the Exchange will charge the applicable index 
options fees in Options 7, Section 5 instead.

------------------------------------------------------------------------
                                                            Maker fee/
     Market maker plus tier  (specified percentage)           rebate
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Tier 1 (80% to less than 90%)...........................           $0.50
Tier 2 (90% to less than 98%)...........................            0.30
Tier 3 (98% or greater).................................          (0.40)
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    The Market Maker Plus Tier 3 rebate will be provided if the 
qualifying Market Maker trades against non-Priority Customer orders. 
Qualifying

[[Page 12619]]

Market Makers that trade against Priority Customer orders will be 
charged a Market Maker Plus Tier 3 fee of $0.10 per contract instead of 
receiving the Tier 3 rebate.\26\
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    \26\ See proposed Options 7, Section 3, note 6.
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    The Exchange also proposes to amend the existing Market Maker Plus 
provisions throughout to provide that Market Makers that meet these 
qualifications will be assessed the applicable fee or rebate. Lastly, 
the Exchange proposes to amend the language around the reduced Tier 2 
incentive currently provided to qualifying Market Makers in Select 
Symbols, and expand these provisions to cover the proposed fees in the 
Non-Select Market Maker Plus program. The Exchange proposes to specify 
that for Select Symbols, this rebate will continue to be the applicable 
Tier 2 rebate reduced by $0.08 per contract. For Non-Select Symbols, 
this fee will be the Tier 2 fee increased by $0.08 per contract.
Market Maker Discount Tiers in Non-Select Symbols
    Today, as set forth in Options 7, Section 6.D, Market Makers that 
execute a monthly volume of 250,000 contracts or more in regular Non-
Select Symbol orders are entitled to a discounted rate of $0.20 per 
contract instead of paying the regular $0.25 per contract fee. The 
Market Maker discount tiers were originally adopted to incentivize 
greater Market Maker activity in Non-Select Symbols. With the 
introduction of the new Market Maker Plus program for Non-Select 
Symbols as described above, the Exchange now proposes to eliminate the 
Market Maker discount tiers.
Flash Orders
    With the introduction of the maker/taker fee structure proposed 
above for Non-Select Symbols, the Exchange proposes to amend how Flash 
Orders will be charged under this proposal. By way of background, a 
``Flash Order'' is an order that is exposed at the NBBO by the Exchange 
to all Members for execution, as provided under Supplementary Material 
.02 to Options 5, Section 2. Today, Flash Orders are assessed the 
applicable taker fee for the initiation of a Flash Order and the 
applicable maker rebate (only for Market Makers that qualify for Market 
Maker Plus) or maker fee for responses to the Flash Order. Thus, for 
the initiation of a Flash Order in Select Symbols, the Exchange 
currently assesses a taker fee of $0.45 per contract for Market Maker 
orders (including Market Maker orders sent by an EAM), $0.46 per 
contract for all other non-Priority Customer orders, and $0.41 per 
contract for Priority Customer orders. For responses to a Flash Order 
in Select Symbols, the Exchange currently assesses a maker fee of $0.11 
per contract for all non-Priority Customer orders and no fee for 
Priority Customer orders.\27\ As it relates to Flash Orders in Non-
Select Symbols, because the Exchange does not currently differentiate 
between maker and taker fees for Non-Select Symbol executions, Members 
today are charged the same fee for initiating and responding to a Flash 
Order. Specifically, the fee is $0.25 per contract for Market Maker 
orders, $0.20 per contract for Market Maker orders sent by EAMs, $0.72 
per contract for all other non-Priority Customer orders, and $0.00 per 
contract for Priority Customer orders. In addition to the 
aforementioned fees and rebates, the Exchange also pays a credit of 
$0.05 per contract to a market participant that responds to a Flash 
Order in Select or Non-Select Symbols which executes against a Priority 
Customer.
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    \27\ In addition, the maker fee is currently $0.11 for Market 
Makers, except that (i) Market Makers that qualify for Market Maker 
Plus would not pay this fee if they meet the applicable tier 
thresholds set forth in note 5 of Options 7, Section 3, and would 
instead receive a rebate based on the Market Maker Plus tier for 
which they qualify; (ii) no fee will be charged or rebate provided 
when trading against non-Priority Customer complex orders that leg 
into the regular order book; and (iii) a $0.15 per contract would 
apply instead of the $0.11 per contract maker fee or applicable 
Market Maker Plus rebate when trading against Priority Customer 
complex orders that leg into the regular order book.
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    With the introduction of the maker/taker fee structure proposed 
above for Non-Select Symbols, the Exchange now proposes to charge the 
applicable taker fee for initiating Flash Orders in Non-Select Symbols. 
The fee for initiating Flash Orders will therefore increase from $0.25 
to $0.72 per contract for Market Makers and from $0.20 to $0.72 for 
Market Maker orders sent by EAMs.\28\ The initiating fee, as proposed, 
will remain the same for all other market participants, ($0.72 per 
contract for all other non-Priority Customer orders, and $0.00 per 
contract for Priority Customer orders).
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    \28\ As discussed earlier in this filing, the Exchange is 
proposing to remove the distinction between Non-Select Symbol 
pricing for Market Makers and for Market Maker orders sent by EAMs.
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    In addition, the Exchange proposes to charge all non-Priority 
Customer responses to Flash Orders in Non-Select Symbols a flat fee of 
$0.25 per contract, and not charge a fee for Priority Customer 
responses. The flash response fee will therefore remain the same for 
Market Maker orders, except Market Maker orders sent by EAMs will see 
an increase from $0.20 to $0.25 per contract. For all other non-
Priority Customers, the flash response fee in Non-Select Symbols will 
decrease from $0.72 per contract to $0.25 per contract. Lastly, for 
Priority Customers, the flash response fee will remain the same at 
$0.00 per contract.
    The Exchange will continue to charge the applicable Select Symbol 
taker fee for initiating Flash Orders in those symbols, which taker 
fees are not changing under this proposal. Similarly, the Exchange will 
continue to charge the applicable Select Symbol maker rebate or fee for 
responses to Flash Orders in those symbols, which maker pricing will 
remain the same under this proposal. Accordingly, the Exchange proposes 
to amend the existing Flash Order provisions to differentiate pricing 
for Select Symbols and Non-Select Symbols where applicable.\29\ Lastly, 
the Exchange proposes to remove the $0.05 credit discussed above for 
both Select and Non-Select Symbols.
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    \29\ See proposed Options 7, Section 3, note 17. The Exchange 
will also make technical changes to replace the ``Section I'' 
references therein and to the definition of Flash Order in Options 
7, Section 1 to ``Section 3.'' The Exchange will also amend the 
first two sentences of note 17 to correct a typo and for better 
readability.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\30\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\31\ 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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    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to its Pricing Schedule are 
consistent with the Act 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

[[Page 12620]]

market share percentages for granted' because `no exchange possesses a 
monopoly, regulatory or otherwise, in the execution of order flow from 
broker dealers'. . . .'' \32\
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    \32\ 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.'' \33\
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    \33\ 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 
equity security transaction services. The Exchange is only one of 
sixteen 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. Within 
the foregoing context, the proposal represents a reasonable attempt by 
the Exchange to increase its liquidity and market share relative to its 
competitors.
Marketing Fee
    The Exchange believes that it is reasonable to set the marketing 
fee to $0.00 per contract because the Exchange has proposed changes to 
its Non-Select Symbol pricing that will result in Market Makers paying 
higher maker/taker fees than today.\34\ Eliminating the marketing fee 
will keep total execution costs down when Market Makers trade against 
regular Priority Customer orders in Non-Select Symbols. The Exchange 
also believes that the proposed fee change is equitable and not 
unfairly discriminatory as no Market Makers would be charged a 
marketing fee under this proposal. The Exchange also believes that it 
is reasonable, equitable and not unfairly discriminatory to add the 
language proposed in Options 7, Section 6.E as it will make clear that 
no marketing fees will be charged for Select and Non-Select Symbols 
with the proposed changes, and that if the Exchange determines to 
charge a marketing fee in the future, it will do so pursuant to a rule 
filing.
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    \34\ As discussed above, the Non-Select Symbol fee for Market 
Makers will increase from $0.25 to $0.70 per contract (maker fee) 
and to $0.72 per contract (taker fee).
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Non-Select Regular Order Pricing
    The Exchange believes that the proposed change to adopt the maker/
taker pricing model for regular Non-Select Symbol orders as described 
above is reasonable as it is designed to increase its liquidity and 
opportunities for all members to trade on the Exchange. Generally, the 
proposed changes will replace the existing fees with a new maker/taker 
fee structure where market participants other than Priority Customers 
are charged a fee based on whether the market participant adds or 
removes liquidity. Priority Customer orders, meanwhile, will be 
eligible for highly competitive maker rebates or assessed no taker 
fees.\35\ With these changes, all market participants will also be 
charged a higher taker fee for trades executed against Priority 
Customers. For the reasons discussed in the following paragraphs, the 
Exchange believes that the proposed fee structure will be beneficial to 
market participants and will encourage an active and liquid market in 
Non-Select Symbols on ISE.
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    \35\ Furthermore, as discussed below for Market Maker Plus, 
Market Makers will be eligible to qualify for substantially lower 
fees or receive a rebate based on their contribution to the market.
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    Under the proposed pricing structure, all non-Priority Customer 
orders will be charged a uniform base execution fee for adding 
liquidity (i.e., maker fee of $0.70 per contract) and for removing 
liquidity (i.e., taker fee of $0.72 per contract). The Exchange 
believes that the proposed pricing is set at levels that will encourage 
market participants to increase their Non-Select Symbol activity, 
especially activity that adds liquidity, on the Exchange. While Market 
Makers, including Market Maker orders sent by EAMs, will be charged 
higher fees than the fees currently assessed, the Exchange believes 
that the increased fees are appropriate to offset the proposed 
significant Priority Customer maker incentives (as described 
below).\36\ Furthermore, the Exchange believes that all market 
participants will benefit from additional liquidity created by the 
Priority Customer rebates.
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    \36\ See supra note 35. Non-Select Symbol fees are currently 
$0.25 per contract for Market Makers, and $0.20 per contract for 
Market Maker orders sent by EAMs.
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    In addition, Priority Customer orders will be eligible for free 
executions for removing liquidity and paid a rebate of $0.86 per 
contract for adding liquidity. Members will also have the opportunity 
to receive an additional $0.14 rebate if they execute more than 0.06% 
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, for a total rebate of up to $1.00 per contract.\37\ Crossing 
Orders and Responses to Crossing Orders will be excluded from the 
proposed volume calculation as this type of order flow is subject to 
separate pricing, with various incentives currently provided to Members 
that trade in the Exchange's crossing mechanisms.
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    \37\ As discussed above, all regular Priority Customer order 
volume that adds or removes liquidity in Non-Select Symbols on the 
Exchange is included in the proposed volume calculation, except for 
volume executed as Crossing Orders and Responses to Crossing Orders.
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    The Exchange is proposing to base the additional Priority Customer 
maker incentive on a percentage of industry volume in recognition of 
the fact that the volume executed by a Member may rise or fall with 
industry volume. This would allow the volume calculation to be 
calibrated to current market volumes rather than requiring the same 
amount of volume regardless of market conditions. In addition, by 
basing the proposed volume calculation on Priority Customer regular 
order volume that adds or removes liquidity in Non-Select Symbols on 
the Exchange, the Exchange is seeking to incentivize Members to 
increase market participation in Non-Select Symbols to qualify for the 
additional rebate. The Exchange believes that the significant rebate 
incentives it is proposing to provide for Priority Customer orders, 
taken together with the $0.00 per contract taker fee, will incentivize 
Members to bring Priority Customer order flow in Non-Select Symbols, 
thereby creating additional liquidity to the benefit of all market 
participants and investors that trade on the Exchange.
    With respect to the increased taker fees for trades executed 
against a Priority Customer, the Exchange believes that the proposed 
fees are appropriate as they are designed to offset the proposed maker 
rebate.\38\ As described above, Priority Customers will be offered 
significant maker incentives.

[[Page 12621]]

The Exchange believes that Members will benefit from the additional 
liquidity created by the Priority Customer rebates, and it is therefore 
appropriate to charge an increased taker fee for trades executed 
against a Priority Customer. The Exchange notes that other options 
exchanges, including for example its affiliate Nasdaq GEMX, charge 
higher taker fees when the counterparty is a Priority Customer.\39\
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    \38\ As discussed above, non-Priority Customers will be charged 
a taker fee of $1.10 per contract when trading against Priority 
Customers instead of the $0.72 taker fee. Priority Customers will be 
charged a taker fee of $0.86 per contract when trading against 
Priority Customers instead of receiving free executions.
    \39\ See Nasdaq GEMX Pricing Schedule at Options 7, Section 3, 
note 16.
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    The Exchange also believes that it is reasonable to stipulate that 
for Priority Customer orders adding liquidity in Non-Select Symbols, 
there will be no fee charged or rebate provided when trading against 
Priority Customer complex orders that leg into the regular order book. 
As discussed above, the Exchange currently does not charge any fee to 
Priority Customer complex orders in Non-Select Symbols that leg into 
the regular market and trade with resting interest on the order book, 
which may include resting Priority Customer orders. As such, the 
Exchange believes it is reasonable to not charge a fee or provide a 
rebate to a Non-Select Symbol Priority Customer order resting on the 
regular order book when the Non-Select Symbol Priority Customer order 
legs out of the complex order book and interacts with such interest.
    The Exchange believes that the proposed maker/taker pricing model 
in Non-Select Symbols is equitable and not unfairly discriminatory as 
all non-Priority Customer orders will be assessed consistent maker/
taker fees under the Exchange's proposal, regardless of market 
participant category. The Exchange believes it is equitable and not 
unfairly discriminatory to charge a lower fee (or no fee), or to offer 
a rebate, for Priority Customer orders as the Exchange has historically 
offered lower execution fees or rebates to those market participants. 
Furthermore, 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.
    Lastly, the Exchange believes it is reasonable to no longer 
differentiate the pricing between Market Makers and Market Maker orders 
sent by EAMs in light of the foregoing changes to adopt a more 
standardized maker/taker pricing model across all non-Priority 
Customers. With this change, both market participant categories will be 
charged the same fees across all Non-Select Symbol orders, including 
Crossing Orders and Responses to Crossing Orders. As discussed above, 
the current fees for PIM Orders and Responses to Crossing Orders are 
already consistent across both market participant categories, except 
the fee for all other Crossing Orders. The Exchange therefore believes 
it is reasonable to decrease this fee for Market Makers as with this 
change Market Makers will be charged the same fee as Market Maker 
orders sent by EAMs as well as all other non-Priority Customer orders. 
The Exchange further believes that the proposed changes to remove the 
separate pricing for Market Maker orders sent by EAMs are equitable and 
not unfairly discriminatory as the proposed fees for this category will 
now be consistent with other non-Priority Customer fees.
Market Maker Plus in Non-Select Symbols
    The Exchange believes that it is reasonable to adopt the Market 
Maker Plus program for Non-Select Symbols in the manner discussed above 
as this program is designed to encourage better market quality and make 
ISE a more attractive market for Non-Select Symbols, similar to the 
existing Market Maker Plus program for Select Symbols. Under the 
proposed program, Market Makers would be rewarded for providing 
liquidity in Non-Select Symbols with discounted fees or a rebate if the 
Market Maker achieves a higher Market Maker Plus tier based on time 
spent quoting at the NBBO.\40\ The Exchange believes that it is 
reasonable to offer these fee incentives to Market Makers that add 
liquidity because Market Makers provide an important function to the 
market when they provide liquidity to other market participants through 
their displayed quotes. The Exchange believes that incentivizing Market 
Makers to provide liquidity through the proposed Market Maker Plus 
program will create additional displayed liquidity in Non-Select 
Symbols, and increase opportunities for market participants to trade, 
which benefits all market participants in the quality of order 
interaction.
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    \40\ As discussed above, this discounted fee or rebate will be 
provided in lieu of the base maker fee of $0.70 per contract.
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    The Exchange believes that the proposed program is reasonable 
because it is structured similarly to the existing program for Select 
Symbols. As proposed, the Market Maker Plus Tier qualifications for 
Non-Select Symbols, especially proposed Tier 2 and Tier 3, will be 
slightly more stringent than the existing tiers for Select Symbols.\41\ 
Because Non-Select Symbols generally tend to trade less frequently and 
may have wider NBBOs than Select Symbols, the Exchange believes the 
proposed tier qualifications are set at appropriate levels that Market 
Makers could potentially achieve if they choose to engage in the 
program.
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    \41\ For instance, the qualifications for the Market Maker Plus 
Tiers in Select Symbols (other than SPY, QQQ, IWM, AMZN, FB, and 
NVDA) are 85% to less than 95% for Tier 2, and 95% or greater for 
Tier 3. In Non-Select Symbols, Tier 2 will be 90% to 98%, and Tier 3 
will be 98% or greater.
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    The Exchange believes that it is reasonable to reduce the 
incentives for Market Makers that qualify for Tier 3 under the proposed 
Market Maker Plus program if they trade against Priority Customer 
orders to help offset the significantly competitive maker/taker pricing 
proposed above for Priority Customers.\42\ Nonetheless, the proposed 
Tier 3 incentives will still be higher than the proposed incentives in 
Tier 1 and Tier 2, even if the qualifying Market Maker trades against a 
Priority Customer, thereby ensuring that the proposed program will be 
attractive to participating Market Makers.
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    \42\ As proposed, qualifying Market Makers that trade against 
Priority Customers will be assessed a fee of $0.10 per contract in 
Tier 3 instead of receiving the $0.40 rebate that would be provided 
to qualifying Market Makers that trade against non-Priority 
Customers.
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    The Exchange believes that it is reasonable to provide a reduced 
incentive in Non-Select Symbols to Market Makers who do not qualify for 
any Market Maker Plus tiers in a given month, but qualified for Market 
Maker Plus Tier 2 or higher in at least four of the previous six 
months. The Exchange provides a similar reduced rebate today for Select 
Symbols that is the applicable Tier 2 rebate reduced by $0.08 per 
contract. Because the proposed Tier 2 incentive for Non-Select Symbols 
will be a fee instead of a rebate, the Exchange believes it is 
appropriate to offer a reduced incentive that is the Tier 2 fee 
increased by $0.08 per contract. Similar to the existing reduced rebate 
for Select Symbols, the Exchange believes that this change will 
preserve the intent of the Market Maker Plus program to reward strong 
liquidity providers, and avoids penalizing participants while 
continuing to require Market Makers to quote significantly at the NBBO.
    The Exchange believes that the proposed Market Maker Plus program 
is equitable and not unfairly discriminatory as all Market Makers can 
qualify for the same incentives under the proposed program. 
Furthermore, the

[[Page 12622]]

Exchange believes it is equitable and not unfairly discriminatory to 
offer these rebates to only Market Makers because Market Makers, and in 
particular Market Makers that achieve Market Maker Plus status as 
proposed, are subject to additional requirements and obligations (such 
as quoting obligations) that other market participants are not.
Market Maker Discount Tiers in Non-Select Symbols
    The Exchange believes that it is reasonable to eliminate the Market 
Maker discount tiers set forth in Options 7, Section 6.D. Because the 
objective of the new Market Maker Plus program for Non-Select Symbols, 
as discussed above, is to incentivize higher Market Maker activity in 
Non-Select Symbols, similar to the discounted fee today, the Exchange 
believes it is no longer necessary to offer the current incentive 
alongside the new Market Maker Plus program. The Exchange believes that 
eliminating the Market Maker discount tiers is equitable and not 
unfairly discriminatory as it will apply uniformly to all similarly 
situated market participants.
Flash Orders
    The Exchange believes that the proposed Flash Orders changes are 
reasonable as they specify how the Exchange will charge Members for 
Flash Orders with the introduction of maker/taker pricing in Non-Select 
Symbols. Under the Exchange's proposal, all non-Priority Customers will 
be charged a uniform taker fee of $0.72 per contract for initiating 
Flash Orders in Non-Select Symbols, and a flat fee of $0.25 per 
contract for responses to Flash Orders in Non-Select Symbols. Priority 
Customers will continue to receive free executions in Non-Select 
Symbols, regardless of initiating or responding to a Flash Order. As 
discussed above, the pricing for the initiation and response to Flash 
Orders in Select Symbols will remain unchanged for all market 
participant types under this proposal.
    The Exchange believes that the proposed pricing for initiating and 
responding to Flash Orders in Non-Select Symbols is equitable and not 
unfairly discriminatory as the proposed fees would be more standardized 
across non-Priority Customer market participant types. Furthermore, the 
Exchange believes that it is equitable and not unfairly discriminatory 
to continue charging no fees to Priority Customers for the initiation 
and response to Flash Orders in Non-Select Symbols for the same reasons 
discussed above for the proposed Priority Customer maker/taker 
pricing--i.e., because Priority Customer order flow enhances liquidity 
on the Exchange to the benefit of all market participants by providing 
more trading opportunities.
    The Exchange believes it is reasonable to eliminate the $0.05 per 
contract flash credit. The Exchange previously adopted this credit to 
encourage Members to participate in the flash auction by responding to 
a Priority Customer Flash Order. The Exchange no longer believes that 
this incentive is necessary with the proposed changes to charge non-
Priority Customers a lower response fee of $0.25 per contract, and is 
therefore removing it. The Exchange also believes that the proposed 
removal of this credit is equitable and not unfairly discriminatory as 
it will apply uniformly to all market participants. As proposed, no 
market participant will be eligible for a flash credit.

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. The Exchange believes that all of the changes 
proposed above will incentivize market participants to direct liquidity 
in Non-Select Symbols to the Exchange. While some aspects of the 
proposal apply directly to Market Makers (through the new Market Maker 
Plus program) and Priority Customers (through rebates or free 
executions under the proposed maker/taker pricing model), the Exchange 
believes that the proposed changes taken together will fortify and 
encourage activity, especially liquidity adding activity, in Non-Select 
Symbols. As noted above, all market participants will benefit from any 
increase in market activity that the proposal effectuates.
    In terms of inter-market competition, the Exchange 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.
    Moreover, as noted above, price competition between exchanges is 
fierce, with liquidity and market share moving freely between exchanges 
in reaction to fee and rebate changes. 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,\43\ and Rule 19b-4(f)(2) \44\ 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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    \43\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \44\ 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:

[[Page 12623]]

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-2020-06 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-2020-06. 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 (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 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 10:00 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ISE-2020-06 and should be submitted on 
or before March 24, 2020.
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    \45\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04290 Filed 3-2-20; 8:45 am]
 BILLING CODE 8011-01-P


