[Federal Register Volume 87, Number 57 (Thursday, March 24, 2022)]
[Notices]
[Pages 16816-16819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06189]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94468; File No. SR-ISE-2022-07]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Qualifications for the Market Maker Plus Program in Options 7, Section 
3

March 18, 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 4, 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 the qualifications for the 
Exchange's Market Maker Plus program in its Pricing Schedule at Options 
7, Section 3.
    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 
qualifications for the Exchange's Market Maker Plus program in its 
Pricing Schedule at Options 7, Section 3. The Exchange initially filed 
the proposed pricing changes on February 23, 2022 (SR-ISE-2022-05). On 
March 4, 2022, the Exchange withdrew that filing and submitted this 
filing.
    Today, the Exchange operates a Market Maker Plus program for 
regular orders in Select Symbols \3\ and Non-Select Symbols \4\ that 
provides the below tiered incentives to Market Makers \5\ based on time 
spent quoting at the National Best Bid or National Best Offer 
(``NBBO''). This program is designed to reward Market Makers that 
contribute to market quality by maintaining tight markets in Select and 
Non-Select Symbols.
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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.

       Select Symbols Other Than SPY, QQQ, IWM, AMZN, FB, and NVDA
------------------------------------------------------------------------
      Market Maker Plus tier (specified percentage)        Maker rebate
------------------------------------------------------------------------
Tier 1 (80% to less than 85%)...........................         ($0.15)
Tier 2 (85% to less than 95%)...........................          (0.18)
Tier 3 (95% or greater).................................          (0.22)
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                            SPY, QQQ, and IWM
------------------------------------------------------------------------
    Market Maker Plus tier (specified      Regular Maker   Linked Maker
               percentage)                    rebate          rebate
------------------------------------------------------------------------
Tier 1a (50% to less than 65%)..........         ($0.00)             N/A
Tier 1b (65% to less than 80%) or (over           (0.05)             N/A
 50% and 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            (0.18)         ($0.15)
 50% and 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            (0.22)          (0.19)
 50% and 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          (0.26)          (0.23)
 adds liquidity in the qualifying symbol
 that is executed at a volume of greater
 than 0.50% of Customer Total
 Consolidated Volume)...................
------------------------------------------------------------------------


                           AMZN, FB, and NVDA
------------------------------------------------------------------------
      Market Maker Plus tier (specified percentage)        Maker rebate
------------------------------------------------------------------------
Tier 1 (70% to less than 85%)...........................         ($0.15)
Tier 2 (85% to less than 95%)...........................          (0.18)

[[Page 16817]]

 
Tier 3 (95% or greater).................................          (0.22)
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              Non-Select Symbols (Excluding Index Options)
------------------------------------------------------------------------
                                                            Maker fee/
     Market Maker Plus tier  (specified percentage)           rebate
------------------------------------------------------------------------
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)
------------------------------------------------------------------------

    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.\6\ A Market Maker's worst quoting day each 
month for each of the two successive periods described above, on a per 
symbol basis, is excluded in calculating whether a Market Maker 
qualifies for this fee or rebate. In addition, a Market Maker who 
qualifies for Market Maker Plus Tiers 2 or higher in at least four of 
the previous six months are eligible to receive a reduced Tier 2 
incentive in a given month where the Market Maker does not qualify for 
any Market Maker Plus tiers. For Select Symbols, this rebate is the 
applicable Tier 2 rebate reduced by $0.08 per contract. For Non-Select 
Symbols, this fee is the Tier 2 fee increased by $0.08 per contract.
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    \6\ 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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    The Exchange now proposes to amend existing language around the 
reduced Tier 2 incentive to provide that a Market Maker who qualifies 
for Market Maker Plus Tier 2 or higher in at least four of the previous 
six months will be eligible to receive a reduced Tier 2 incentive in a 
given month where the Market Maker does not qualify for Market Maker 
Plus Tier 2 or higher. The Exchange also proposes to add that for the 
avoidance of doubt, if a Market Maker has achieved Tier 2 or higher in 
at least four of the previous six months, but does not achieve Tier 2 
or higher in the current month, that Market Maker will receive the 
better of the reduced Tier 2 incentive or any applicable Tier 1 
incentive the Market Maker qualified for in the current month. The 
Exchange is proposing this language to avoid inadvertently penalizing 
Market Makers that qualify for a Market Maker Plus Tier 1 incentive in 
a given month, yet receive a lower incentive than if that Market Maker 
achieved no Market Maker Plus tier in the same time frame. 
Specifically, a Market Maker that qualifies for the SPY, QQQ, and IWM 
Market Maker Plus Tier 1b incentive in a given month would receive a 
rebate of $0.05 per contract today. If that Market Maker did not 
qualify for any tier in the same month, but had qualified for SPY, QQQ, 
and IWM Market Maker Plus Tiers 2 or higher in four of the prior six 
months, the Market Maker would receive a reduced Tier 2 incentive of 
$0.10 (i.e., $0.18 Tier 2 rebate minus $0.08).\7\ The Exchange believes 
that providing a lower rebate in such instances where the Market Maker 
had better performance by percentage of time spent at the NBBO versus 
paying a higher rebate solely due to the four month lookback protection 
is contrary to the intent of the Market Maker Plus program, which is to 
reward Market Makers that contribute to market quality by maintaining 
tight markets in symbols traded on the Exchange. The proposed language 
will therefore make clear that in the foregoing instance, the Exchange 
would provide the qualifying Market Maker with the higher incentive of 
$0.10 versus the $0.05 incentive.
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    \7\ The Exchange has found an instance where a Market Maker fell 
into this category.
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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

[[Page 16818]]

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 attempt by the Exchange to 
increase its liquidity and market share relative to its competitors.
    As discussed above, the Exchange's proposal is intended to avoid 
inadvertently penalizing Market Makers that qualify for the SPY, QQQ, 
and IWM Market Maker Plus Tier 1b incentive in a given month, yet 
receive a lower incentive than if that Market Maker achieved no Market 
Maker Plus tier in the same time frame (i.e., $0.05 versus $0.10 per 
contract rebate). The Exchange believes that providing a lower rebate 
in such instances where the Market Maker had better performance by 
percentage of time spent at the NBBO versus paying a higher rebate 
solely due to the four month lookback protection is contrary to the 
intent of the Market Maker Plus program to reward Market Makers that 
maintain tight markets in symbols traded on the Exchange. The Exchange 
believes that the proposed language reasonably addresses this 
unintended gap and will continue to encourage Market Makers to post 
tight markets by rewarding Market Makers with higher incentives to 
achieve better performance.
    The Exchange believes that the proposed language is equitable and 
not unfairly discriminatory as all Market Makers are subject to the 
same qualification criteria for Market Maker Plus. The Exchange also 
believes 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 language will continue to encourage Market Makers to post 
tight markets in symbols traded on the Exchange, thereby increasing 
liquidity and attracting additional order flow to the Exchange, which 
benefits 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 language 
would apply directly to Market Makers that participate in the Market 
Maker Plus program, the Exchange believes that the proposed changes 
will continue to fortify 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-2022-07 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-2022-07. 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 16819]]

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-2022-07 and should be 
submitted on or before April 14, 2022.

    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. 2022-06189 Filed 3-23-22; 8:45 am]
BILLING CODE 8011-01-P


