[Federal Register Volume 85, Number 59 (Thursday, March 26, 2020)]
[Notices]
[Pages 17123-17126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06287]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88443; File No. SR-ISE-2020-12]


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

March 20, 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 March 10, 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, Section 4, titled ``Complex Order Fees and Rebates.''
    The Exchange originally filed the proposed pricing changes on March 
2, 2020 (SR-ISE-2020-09). On March 10, 2020, the Exchange withdrew that 
filing and submitted this filing.
    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 Exchange proposes to amend the Exchange's Pricing Schedule at 
Options 7, Section 4, titled ``Complex Order Fees and Rebates'' to 
decrease certain rebate tiers to attract Priority Customer Complex 
Order flow to ISE.
    Today, ISE offers a nine tier Priority Customer Complex Order 
rebate structure as follows:

[[Page 17124]]



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                                               Total affiliated member or
                                            affiliated entity complex order
                                           volume (excluding crossing orders     Rebate for      Rebate for non-
   Priority customer complex tier \(7)\    and responses to crossing orders)   select symbols    select symbols
              \(13)\ \(16)\                  calculated as a percentage of          \(1)\          \(1)\ \(4)\
                                              customer total consolidated
                                                         volume
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Tier 1...................................  0.000%-0.200%....................           ($0.25)           ($0.40)
Tier 2...................................  Above 0.200%-0.400%..............            (0.30)            (0.55)
Tier 3...................................  Above 0.400%-0.600%..............            (0.35)            (0.70)
Tier 4...................................  Above 0.600%-0.750%..............            (0.40)            (0.75)
Tier 5...................................  Above 0.750%-1.000%..............            (0.45)            (0.80)
Tier 6...................................  Above 1.000%-1.500%..............            (0.46)            (0.80)
Tier 7...................................  Above 1.500%-2.000%..............            (0.48)            (0.80)
Tier 8...................................  Above 2.000%-2.75%...............            (0.50)            (0.85)
Tier 9...................................  Above 2.75%......................            (0.52)            (0.85)
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    Specifically, with respect to the Tier 4 Priority Customer Complex 
Order rebate, a Member must execute a Complex Order volume percentage 
of above 0.600% to 0.750% to qualify for the $0.40 per contract rebate 
in Select Symbols and a $0.75 per contract rebate in Non-Select 
Symbols. Also, with respect to the Tier 3 Priority Customer Complex 
Order rebate, a Member must execute a Complex Order volume percentage 
\3\ of above 0.400 to 0.600% to qualify for a $0.35 per contract rebate 
in Select Symbols and an $0.70 per contract rebate in Non-Select 
Symbols. The Exchange proposes to amend the Tier 4 rebate from above 
0.600% to 0.750% to above 0.450% to 0.750%. Further, the Exchange 
proposes to make a corresponding change to the qualifications for the 
Tier 3 volume qualification to amend it from above 0.400 to 0.600% to 
above 0.400 to 0.450% to align the qualifications for Tier 3 to the 
qualifications proposed for Tier 4.
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    \3\ Complex Order volume percentage is described as 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.
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    Specifically, with respect to the Tier 6 Priority Customer Complex 
Order rebate, a Member must execute a Complex Order volume percentage 
of above 1.000% to 1.500% to qualify for a $0.46 per contract rebate in 
Select Symbols and an $0.80 per contract rebate in Non-Select Symbols. 
Also, with respect to the Tier 7 Priority Customer Complex Order 
rebate, a Member must execute a Complex Order volume percentage of 
above 1.500% to 2.000% to qualify for the $0.48 per contract rebate in 
Select Symbols and an $0.80 per contract rebate in Non-Select Symbols. 
The Exchange proposes to amend the Tier 7 volume qualification from 
above 1.500% to 2.000% to above 1.350% to 2.000%. Further, the Exchange 
proposes to make a corresponding change to the qualifications for the 
Tier 6 rebate to amend it from above 1.000% to 1.500% to above 1.000% 
to 1.350% to align the qualifications for Tier 6 to the qualifications 
proposed for Tier 7.
    Further, with respect to the Priority Customer Complex Tier 8 
rebate, a Member must execute a Complex Order volume percentage of 
above 2.000% to 2.75% to qualify for the $0.50 per contract rebate in 
Select Symbols and an $0.85 per contract rebate in Non-Select Symbols. 
Also, with respect to the Priority Customer Complex Tier 9 rebate, a 
Member must execute a Complex Order volume percentage of above 2.75% to 
qualify for the $0.52 per contract rebate in Select Symbols and an 
$0.85 per contract rebate in Non-Select Symbols. The Exchange proposes 
to amend the Tier 9 volume qualification from above 2.75% to above 
2.600%. Further, the Exchange proposes to make a corresponding change 
to the qualifications for the Tier 8 rebate to amend it from above 
2.000% to 2.75% to above 2.000% to 2.600% to align the qualifications 
for Tier 8 to the qualifications proposed for Tier 9.
    The Exchange notes that all Members may elect to qualify for the 
Priority Customer Complex Order rebates by submitting Complex Order 
flow to the Exchange and earning a rebate on their Priority Customer 
Complex Order volume. Accordingly, the proposed changes are designed to 
increase the amount of Complex Order flow that Members submit to ISE, 
particularly Priority Customer Complex Order volume, and further 
encourage Members to contribute to a deeper, more liquid market to the 
benefit of all market participants.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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    The 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 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' . . . .'' \6\
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    \6\ 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.'' \7\
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    \7\ 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

[[Page 17125]]

example, clear substitutes to the Exchange exist in the market for 
options transaction services. The Exchange is only one options venue to 
which market participants may direct their order flow. Competing 
options exchanges offer similar tiered pricing structures to that of 
the Exchange, including schedules of rebates and fees that apply based 
upon Members achieving certain volume thresholds.\8\
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    \8\ See, generally, Nasdaq Phlx LLC and The Nasdaq Options 
Market LLC as examples of options exchanges with tiered pricing 
structures.
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    Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules. As such, the 
proposal represents a reasonable attempt by the Exchange to increase 
its liquidity and market share relative to its competitors.
    The Exchange's proposal to decrease the volume requirements for 
Priority Customer Complex Order rebate Tiers 4, 7 and 9, and also make 
conforming changes to Priority Customer Complex Order rebate Tiers 3, 6 
and 8 to align those tier qualifications with the proposed 
qualification amendments to Tiers 4, 7 and 9, is reasonable. The 
Exchange believes that the proposed amendments to Tiers 4, 7 and 9 of 
the Priority Customer Complex Order rebate program, which lower the 
volume qualifications for those tiers, represents a reasonable attempt 
by the Exchange to fortify participation in the Priority Customer 
Complex Order rebate program. In particular, the Exchange's proposal is 
intended to encourage Members to submit additional amounts of Priority 
Customer Complex Order volume to obtain a higher rebate. The Exchange 
notes that the proposed amendments should not result in lower rebates 
for any Member submitting the same volume as the Member submitted in 
the prior month. The Exchange is lowering the qualification criteria 
for various tiers within Options 7, Section 4 to provide a more 
deterministic outcome for an array of Members to qualify for the same 
Customer Complex Order rebates as in prior months. The Exchange 
believes that lowering the volume requirements for Tiers 4, 7 and 9 of 
the Priority Customer Complex Order rebate program will further 
incentivize Members to transact additional Complex Order flow, 
including Priority Customer Complex Order flow, to achieve higher 
rebates. Lowering the volume requirements for Tiers 4, 7, and 9 of the 
Priority Customer Complex Order rebate program makes these tiers more 
achievable and attractive to existing and potential program 
participants. As noted above, the Priority Customer Complex Order 
rebate program is optional and available to all Members that choose to 
transact Complex Order flow on ISE in order to earn a rebate on their 
Priority Customer Complex Order volume. To the extent the program, as 
modified, continues to attract Complex Order volume to the Exchange, 
the Exchange believes that the proposed changes would improve the 
Exchange's overall competitiveness and strengthen its market quality 
for all market participants.
    The Exchange's proposal to decrease the volume requirements for 
Priority Customer Complex Order rebate Tiers 4, 7 and 9, and also make 
conforming changes to Priority Customer Complex Order rebate Tiers 3, 6 
and 8 to align those tier qualifications with the proposed 
qualification amendments to Tiers 4, 7 and 9, is equitable and not 
unfairly discriminatory. Any Member may choose to qualify for the 
rebate program by transacting the requisite amount of Priority Customer 
Complex Order flow on ISE. By encouraging all Members to transact 
significant amounts of Priority Customer Complex Order flow (i.e., to 
qualify for the higher tiers) in order to earn a higher rebate on their 
Priority Customer Complex Orders, the Exchange seeks to provide more 
trading opportunities for all market participants, thereby promoting 
price discovery, and improving the overall market quality of the 
Exchange. Furthermore, the proposed changes to the Priority Customer 
Complex Order rebate program to lower the volume requirements for Tiers 
4, 7 and 9 are equitable and not unfairly discriminatory because any 
Member who transacts Priority Customer Complex Order flow on ISE may 
qualify for the rebates. The Tier 1 Priority Customer Complex Order 
rebate does not require a minimum amount of volume to qualify for the 
rebate tier. Any volume up to .20% would earn a Tier 1 Priority 
Customer Complex Order rebate of $0.25 for Select Symbols and a $0.40 
rebate in Non-Select Symbols. The Exchange believes that the proposed 
changes will further incentivize all Members to transact a significant 
amount of Priority Customer Complex Order volume on ISE in order to 
obtain the highest range of Priority Customer Complex Order rebate 
offered under this program. The Exchange anticipates all Members that 
currently qualify for these rebates will continue to do so under this 
proposal. To the extent the proposed changes encourage additional 
Members to strive for the modified tiers and thus attract more Priority 
Customer Complex Order volume to the Exchange, this increased order 
flow would improve the overall quality and attractiveness of the 
Exchange. The Exchange notes that all market participants stand to 
benefit from increased liquidity as such increase promotes market 
depth, facilitates tighter spreads and enhances price discovery. 
Accordingly, the Exchange believes that the proposed amendments are 
reasonably designed to provide further incentives for all Members 
interested in meeting the tier criteria to submit additional Priority 
Customer Complex Order volume to achieve the higher rebates.

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.
Inter-Market Competition
    The proposal does not impose an undue burden on inter-market 
competition. The Exchange believes its proposal remains competitive 
with other options markets and will offer market participants with 
another choice of where to transact options. 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 that have been exempted from compliance with the statutory 
standards applicable to 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.
Intra-Market Competition
    The proposed pricing amendments do not impose an intra-market 
burden on competition. The Exchange's proposal to decrease the volume 
requirements for Priority Customer Complex Order rebate Tiers 4, 7 and 
9 and also make conforming changes to the qualifications for Tiers 3, 6 
and 8 to align those qualifications with the proposed qualifications to 
Tiers 4, 7 and 9, does

[[Page 17126]]

not impose an intra-market burden on competition. Any Member may choose 
to qualify for the rebate program by transacting the requisite amount 
of Priority Customer Complex Order flow on ISE. By encouraging all 
Members to transact significant amounts of Priority Customer Complex 
Order flow (i.e., to qualify for the higher tiers) in order to earn a 
rebate on their Priority Customer Complex Orders, the Exchange seeks to 
provide more trading opportunities for all market participants, thereby 
promoting price discovery, and improving the overall market quality of 
the Exchange. Furthermore, the proposed changes to the Priority 
Customer Complex Order rebate program to lower the volume requirements 
for Tiers 4, 7 and 9 are equitable and not unfairly discriminatory 
because any Member who transacts Complex Order flow on ISE may qualify 
for the rebates. The Tier 1 Priority Customer Complex Order rebate does 
not require a minimum amount of volume to qualify for the rebate tier. 
Any volume up to .20% would earn a Tier 1 Priority Customer Complex 
Order rebate of $0.25 for Select Symbols and a $0.40 rebate in Non-
Select Symbols. The Exchange anticipates all Members that currently 
qualify for these rebates will continue to do so under this proposal. 
The Exchange notes that all market participants stand to benefit from 
increased liquidity as such increase promotes market depth, facilitates 
tighter spreads and enhances price discovery.

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,\9\ and Rule 19b-4(f)(2) \10\ 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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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     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-2020-12 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-2020-12. 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-2020-12 and should be submitted on 
or before April 16, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06287 Filed 3-25-20; 8:45 am]
 BILLING CODE 8011-01-P


