[Federal Register Volume 86, Number 49 (Tuesday, March 16, 2021)]
[Notices]
[Pages 14482-14484]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05342]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91295; File No. SR-ISE-2021-03]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Pricing Schedule at Options 7, Section 3

March 10, 2021.
    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 2, 2021, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``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 3 (Regular Order Fees and Rebates), as described 
further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, 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, Section 3 (Regular Order Fees and 
Rebates) to: (i) Decrease the Priority Customer \3\ taker fee in Select 
Symbols,\4\ and (ii) increase the Non-Priority Customer \5\ maker fee 
in Select Symbols.
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    \3\ A ``Priority Customer'' is a person or entity that is not a 
broker/dealer in securities, and does not place more than 390 orders 
in listed options per day on average during a calendar month for its 
own beneficial account(s), as defined in Nasdaq ISE Options 1, 
Section 1(a)(37).
    \4\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Interval Program.
    \5\ ``Non-Priority Customers'' include Market Makers, Non-Nasdaq 
ISE Market Makers, Firm Proprietary/Broker Dealers, and Professional 
Customers.
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    The Exchange initially filed the proposed pricing changes on March 
1, 2021 (SR-ISE-2021-02). On March 2, 2021, the Exchange withdrew that 
filing and submitted this filing.
    Today, Priority Customers are charged a taker fee of $0.41 per 
contract for regular orders in Select Symbols. The Exchange now 
proposes to decrease this fee to $0.37 per contract for Priority 
Customers.
    Today, all Non-Priority Customers are charged a maker fee of $0.11 
per contract for regular orders in Select Symbols. The Exchange now 
proposes to increase this fee to $0.18 per contract for all Non-
Priority Customers.\6\
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    \6\ The Exchange notes that under this proposal, Market Makers 
that qualify for Market Maker Plus in Select Symbols will continue 
to receive the applicable Market Maker Plus rebates in Select 
Symbols set forth in note 5 of Options 7, Section 3, and will not 
pay the proposed $0.18 per contract maker fee.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to its Pricing Schedule are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for options 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \9\
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    \9\ 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.'' \10\
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    \10\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options security transaction services. The Exchange is only one of 
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. As such, 
the proposal represents a reasonable attempt by the Exchange to 
increase its liquidity and market share relative to its competitors.

[[Page 14483]]

    The Exchange believes that the proposed decrease for the Priority 
Customer taker fee in Select Symbols is reasonable, equitable, and not 
unfairly discriminatory. As discussed above, this fee will decrease 
from $0.41 to $0.37 per contract for Priority Customers. The Exchange 
seeks to incentivize Priority Customer participation, in particular, 
Priority Customer activity to remove liquidity in Select Symbols, with 
the proposed change. As amended, Priority Customers will continue to be 
charged the lowest taker fee in Select Symbols.\11\ The Exchange 
believes that it is equitable and not unfairly discriminatory to charge 
Priority Customers a lower taker fee than other market participants as 
the Exchange has historically offered lower execution fees to Priority 
Customers. 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 who may interact with this order flow.
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    \11\ Today, the Exchange charges all Non-Priority Customers 
(except Market Makers) a taker fee of $0.46 per contract in Select 
Symbols. Marker Makers are currently charged a taker fee of $0.45 
per contract in Select Symbols.
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    The Exchange believes that the proposed increase for the Non-
Priority Customer maker fees in Select Symbols is reasonable, 
equitable, and not unfairly discriminatory. As discussed above, this 
fee will increase from $0.11 to $0.18 per contract for all Non-Priority 
Customers. While the maker fee is increasing for Non-Priority 
Customers, the proposed increase is intended to offset the cost of 
decreasing the Priority Customer taker fee proposed above. Furthermore, 
the Exchange notes that the proposed maker fees remain lower than maker 
fees at another options exchange.\12\
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    \12\ See, e.g., Nasdaq PHLX (``Phlx'') Pricing Schedule at 
Options 7, Section 4, which assesses Lead Market Makers and Market 
Makers an electronic options transaction charge of $0.22 per 
contract in Penny Symbols, and Professionals, Broker-Dealers, and 
Firms an electronic options transaction charge of $0.48 per contract 
in Penny Symbols.
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    The Exchange believes that the proposed maker fees in Select 
Symbols is equitable and not fairly discriminatory because they will be 
increased uniformly for all Non-Priority Customers. Priority Customers 
will continue to be assessed no maker fees in Select Symbols under this 
proposal. For the same reasons discussed above for the proposed 
Priority Customer taker fees, the Exchange believes that it is 
equitable and not unfairly discriminatory to continue offering a lower 
rate to Priority Customers compared to other market participants.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. 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 
proposed Select Symbol taker fee will be decreased for Priority 
Customers, who will continue to be charged at a lower rate than all 
other market participants for removing liquidity on the Exchange. The 
proposed Select Symbol maker fee will be increased uniformly for all 
Non-Priority Customers, while Priority Customers will continue to be 
assessed no fee for adding liquidity on the Exchange. As discussed 
above, the Exchange has historically charged lower rates to Priority 
Customers compared to other market participants. The Exchange believes 
that this incentivizes increased Priority Customer order flow, which 
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 who may interact 
with this order flow.
    In terms of inter-market competition, the Exchange notes that it 
operates in a highly competitive market in which 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 
options 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. For example, while the Exchange is increasing the 
maker fees for Non-Priority Customers in Select Symbols under this 
proposal, the Exchange does not believe this will cause an undue burden 
on inter-market competition as the proposed fees remain lower than 
similar fees charged by other options exchanges such as Phlx.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \13\ and Rule 19b-4(f)(2) \14\ 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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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 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-2021-03 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-2021-03. 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

[[Page 14484]]

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-2021-03 and should be 
submitted on or before April 6, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05342 Filed 3-15-21; 8:45 am]
BILLING CODE 8011-01-P


