[Federal Register Volume 87, Number 55 (Tuesday, March 22, 2022)]
[Notices]
[Pages 16274-16277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-05977]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94427; File No. SR-ISE-2022-06]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Market 
Maker Plus Tier 1b Rebate for SPY, QQQ, and IWM

March 16, 2022.
    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 1, 2022, 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 its Pricing Schedule at Options 7, 
Section 3 to increase the Market Maker Plus Tier 1b rebate for SPY, 
QQQ, and IWM.
    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

[[Page 16275]]

Pricing Schedule at Options 7, Section 3 to increase the Market Maker 
Plus Tier 1b rebate for SPY, QQQ, and IWM.
    Today, the Exchange operates a Market Maker Plus program for 
regular orders in Select Symbols \3\ and Non-Select Symbols \4\ that 
provides tiered incentives to Market Makers \5\ based on time spent 
quoting at the National Best Bid or National Best Offer (``NBBO'').\6\ 
This program is designed to reward Market Makers that contribute to 
market quality by maintaining tight markets in symbols traded on the 
Exchange. In particular, Market Makers that qualify for this program 
will not pay the maker fee of $0.18 per contract (in Select Symbols) or 
$0.70 per contract (in Non-Select Symbols), and will instead receive 
incentives based on the applicable Market Maker Plus Tier for which 
they qualify. 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.\7\
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    \3\ ``Select Symbols'' are options overlying all symbols listed 
on the Exchange that are in the Penny Interval Program.
    \4\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
    \5\ The term ``Market Makers'' refers to Competitive Market 
Makers and Primary Market Makers, collectively.
    \6\ See Options 7, Section 3, note 5.
    \7\ 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.
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    For SPY, QQQ, and IWM, the Exchange currently provides the below 
marker rebates based on the applicable Market Maker Plus tier for which 
the Market Maker qualifies.

                            SPY, QQQ, and IWM
------------------------------------------------------------------------
                                                     Regular     Linked
  Market maker plus tier  (specified percentage)      maker      maker
                                                      rebate     rebate
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Tier 1a (50% to less than 65%)....................    ($0.00)        N/A
Tier 1b (65% to less than 80%) or (over 50% and       ($0.05)        N/A
 adds liquidity in the qualifying symbol that is
 executed at a volume of greater than 0.10% of
 Customer Total Consolidated Volume)..............
Tier 2 (80% to less than 85%) or (over 50% and        ($0.18)    ($0.15)
 adds liquidity in the qualifying symbol that is
 executed at a volume of greater than 0.20% of
 Customer Total Consolidated Volume)..............
Tier 3 (85% to less than 90%) or (over 50% and        ($0.22)    ($0.19)
 adds liquidity in the qualifying symbol that is
 executed at a volume of greater than 0.25% of
 Customer Total Consolidated Volume)..............
Tier 4 (90% or greater) or (over 50% and adds         ($0.26)    ($0.23)
 liquidity in the qualifying symbol that is
 executed at a volume of greater than 0.50% of
 Customer Total Consolidated Volume)..............
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    The Exchange now proposes to increase the Market Maker Plus Tier 1b 
rebate from $0.05 to $0.10 per contract. No other changes are being 
made to the Market Maker Plus program under this proposal.
    By increasing the Tier 1b rebate, the Exchange seeks to further 
incentivize Market Makers to participate in the Market Maker Plus 
program for SPY, QQQ, and IWM. By fortifying participation in this 
program, the Exchange believes that the proposed changes will continue 
to encourage Market Makers to post quality markets in SPY, QQQ, and 
IWM, thereby improving trading conditions for all market participants 
through narrower bid-ask spreads and increased depth of liquidity 
available at the inside market.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\9\ 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 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'. . . .'' \10\
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    \10\ 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.'' \11\
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    \11\ 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

[[Page 16276]]

attempt by the Exchange to increase its liquidity and market share 
relative to its competitors.
    In particular, the Exchange's proposal to increase the SPY, QQQ, 
and IWM Tier 1b rebate from $0.05 to $0.10 per contract is a reasonable 
attempt to fortify participation in the Market Maker Plus program and 
improve market quality on ISE. The Exchange will apply the proposed 
changes to SPY, QQQ, and IWM as they are three of the most actively 
traded symbols on ISE, so the Exchange believes that further 
incentivizing liquidity in these three names will have a significant 
and beneficial impact on market quality on ISE.
    The Exchange also believes that the proposed changes are equitable 
and not unfairly discriminatory as all Market Makers would be eligible 
to receive the increased Tier 1b rebate in SPY, QQQ, and IWM by meeting 
the quoting requirements described above. Furthermore, the Exchange 
continues to believe that it is not unfairly discriminatory to offer 
this program's incentives to Market Makers only. Market Makers, and in 
particular, those Market Makers that participate in and qualify for the 
Market Maker Plus program, add value through continuous quoting, and 
are subject to additional requirements and obligations (such as quoting 
obligations) that other market participants are not. Lastly, the 
proposed changes will further encourage Market Makers to maintain tight 
markets in SPY, QQQ, and IWM, thereby increasing liquidity and 
attracting additional order flow to the Exchange, which will benefit 
all market participants in the quality of order interaction.

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, while the proposed increase 
to the SPY, QQQ, and IWM Tier 1b rebate would apply directly to Market 
Makers that participate in the Market Maker Plus program, the Exchange 
believes that the proposed changes will further strengthen 
participation in the program, ultimately to the benefit of all market 
participants. As discussed above, continuing to encourage participation 
in the Market Maker Plus program will improve market quality by 
incentivizing Market Makers to provide significant quoting at the NBBO. 
This, in turn, improves trading conditions for all market participants 
through narrower bid-ask spreads and increased depth of liquidity 
available at the inside market, thereby attracting additional order 
flow to the Exchange.
    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 and rebates to remain competitive with 
other exchanges. Because competitors are free to modify their own fees 
in response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee changes in this market may impose any burden on competition is 
extremely limited.
    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \12\ and Rule 19b-4(f)(2) \13\ 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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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 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 [email protected]. Please include 
File Number SR-ISE-2022-06 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-2022-06. 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-2022-06 and should be submitted on 
or before April 12, 2022.


[[Page 16277]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-05977 Filed 3-21-22; 8:45 am]
BILLING CODE 8011-01-P


