[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10588-10590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03485]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96926; File No. SR-ISE-2023-05]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend ISE 
Pricing Schedule at Options 7, Section 6 To Modify the Crossing Fee Cap

February 14, 2023.
    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 1, 2023, 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, II, and III, 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 ISE Pricing Schedule at Options 
7, Section 6 to modify the Crossing Fee Cap.
    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 6.H to increase the Crossing Fee 
Cap.
    As set forth in Options 7, Section 6.H, the Exchange presently 
offers a Crossing Fee Cap of $150,000 per month, per Member, on all 
Firm Proprietary \3\ transactions that are part of the originating or 
contra-side of a Crossing Order.\4\ Fees charged by the Exchange for 
Responses to Crossing Orders \5\ are not included in the calculation of 
the monthly fee cap. Surcharge fees charged by the Exchange for 
licensed products and the fees for index options as set forth in 
Section 5 are not included in the calculation of the monthly fee 
cap.\6\ For purposes of the Crossing Fee Cap, the Exchange will 
attribute eligible volume to the Member on whose behalf the Crossing 
Order was executed.
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    \3\ A Firm Proprietary order is an order submitted by a member 
for its own proprietary account.
    \4\ Crossing Orders are contracts that are submitted as part of 
a Facilitation, Solicitation, PIM, Block or QCC order. All eligible 
volume from affiliated Members is aggregated for purposes of the 
Crossing Fee Cap, provided there is at least 75% common ownership 
between the Members as reflected on each Member's Form BD, Schedule 
A.
    \5\ ``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. See Options 7, Section 1(c).
    \6\ In addition, a service fee of $0.00 per side currently 
applies to all order types that are eligible for the fee cap. The 
service fee would apply once a Member reaches the fee cap level and 
would apply to every contract side above the fee cap. A Member who 
does not reach the monthly fee cap is not charged the service fee. 
Once the fee cap is reached, the service fee shall apply to eligible 
Firm Proprietary orders in all Nasdaq ISE products. The service fee 
is not calculated in reaching the cap.
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    At this time, the Exchange proposes to increase the Crossing Fee 
Cap from $150,000 to $200,000. The Exchange also proposes that once a 
Member exceeds the fee cap level, the Member will be subject to a 
reduced transaction fee of $0.02 per capped contract. Thus, if a Member 
exceeds the $200,000 Crossing Fee Cap in a given month, the Member 
would be charged a reduced fee of $0.02 per contract for their Crossing 
Orders instead of $0.20 (for Crossing Orders except orders submitted in 
the Price Improvement Mechanism (``PIM'')) \7\ or $0.10 (for PIM 
orders). The Exchange notes that Members may also currently qualify for 
discounted fees (or qualify for free executions) on their Firm 
Proprietary PIM orders if they meet certain PIM volume requirements.\8\

[[Page 10589]]

The Exchange therefore proposes to stipulate that the Member will be 
subject to a reduced transaction fee of $0.02 per capped contract, 
unless the Member also qualifies for free executions. The Exchange 
further proposes to delete all references to the service fee in this 
Section 6.H. As noted above, the Exchange currently does not charge any 
service fees in relation to the Crossing Fee Cap as this fee is set to 
$0.00, and the Exchange therefore proposes to delete this obsolete fee.
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    \7\ As described in Options 3, Section 13, PIM is a process by 
which an EAM can provide price improvement opportunities for a 
``Crossing Transaction,'' which is comprised of the order the EAM 
represents as agent (the ``Agency Order'') and a counter-side order 
for the full size of the Agency Order (the ``Counter-Side Order''). 
Upon the entry of a Crossing Transaction into the PIM, PIM responses 
(i.e., ``Improvement Orders'') may be entered during the auction 
exposure period.
    \8\ See Options 7, Section 3 (note 13) (providing that other 
than for Priority Customer orders, the $0.10 PIM fee is $0.05 per 
contract for orders executed by Members that execute an ADV of 7,500 
or more contracts in the PIM in a given month. Members that execute 
an ADV of 12,500 or more contracts in the PIM will be charged $0.02 
per contract. The discounted fees are applied retroactively to all 
eligible PIM volume in that month once the threshold has been 
reached); and Options 7, Section 4 (note 9) (providing that other 
than for Priority Customer orders, the $0.10 PIM fee is $0.05 per 
contract for orders executed by Members that execute an ADV of 7,500 
or more contracts in the PIM in a given month. Members that execute 
an ADV of 12,500 or more contracts in the PIM will not be charged a 
fee. The discounted fees are applied retroactively to all eligible 
PIM volume in that month once the threshold has been reached). As 
emphasized in the foregoing, a Member could potentially qualify for 
free executions on their PIM orders and also exceed the Crossing Fee 
Cap in a given month.
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    While the Crossing Fee Cap will increase under this proposal and 
Members will be charged a nominal transaction fee of $0.02 per capped 
contract once the fee cap level is exceeded, the Exchange believes that 
Members will continue to be incentivized to bring Firm Proprietary 
Crossing Order flow to ISE to achieve the benefits of the cap on their 
Crossing Order transactions fees.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 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' . . . .'' \11\
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    \11\ 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.'' \12\
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    \12\ 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.
    The Exchange believes that its proposal to increase the Crossing 
Fee Cap from $150,000 to $200,000 is reasonable. The Crossing Fee Cap 
was established to reward Members for executing a higher volume of Firm 
Proprietary Crossing Orders on the Exchange by capping the associated 
fees. The Exchange believes that the increased fee cap will be set at a 
level that continues to appropriately reward Members for executing high 
volumes of such Crossing Orders. Despite the proposed increase, the 
Exchange believes that Members will continue to be incentivized to 
bring Firm Proprietary Crossing Order flow to ISE to receive the 
benefits of capped fees for their Crossing Order transactions. In that 
vein, the Exchange believes that its proposal to begin charging a 
transaction fee of $0.02 per capped contract once the Member has 
exceeded the Crossing Fee Cap level is reasonable because it is a 
nominal amount compared to the $0.20 fee for Crossing Orders (except 
PIM orders) and the $0.10 fee for PIM orders normally assessed to 
Members for their Firm Proprietary orders. As such, the Exchange 
believes that the Crossing Fee Cap, as amended, still serves to lower 
fees for Members that transact certain qualifying Firm Proprietary 
Crossing Order volume on ISE, thus enabling these Members the ability 
to lower costs. The Exchange further believes that it is reasonable to 
assess no fees instead of assessing the reduced $0.02 transaction fee 
for capped contracts in the event the Member exceeds the Crossing Fee 
Cap level in a given month and also qualifies for free executions under 
a separate incentive program. Given the interactions of various 
incentive programs that apply to Crossing Orders (and in this case, PIM 
orders) as noted above, the Exchange wants to ensure that Members get 
the most favorable incentive they qualify for under its Pricing 
Schedule. The Exchange also believes that the proposed changes to 
remove all references to the service fee in the Crossing Fee Cap is 
reasonable. As noted above, the Exchange currently does not charge any 
service fees in relation to the Crossing Fee Cap as this fee is set to 
$0.00. The Exchange therefore proposes to delete this fee to avoid 
potential confusion by market participants.
    The Exchange believes that the proposed changes described above to 
the Crossing Fee Cap are equitable and not unfairly discriminatory 
because the changes will apply uniformly to all Members engaged in Firm 
Proprietary trading in options classes traded on the Exchange. The 
Exchange does not believe that it is unfairly discriminatory to offer 
the Crossing Fee Cap to Firm Proprietary transactions as differentiated 
pricing already exists on the Exchange's Pricing Schedule to encourage 
different segments of order flow. For instance, the Exchange generally 
provides Priority Customer \13\ orders more favorable pricing through 
lower or no transaction fees, including Priority Customer Crossing 
Orders that are presently assessed no fees, and through rebate 
opportunities like the Priority Customer rebate currently provided for 
adding liquidity in Non-Select Symbols.\14\ Professional Customer \15\ 
orders are presently charged a lower transaction fee for executed QCC 
orders and for orders

[[Page 10590]]

executed in the Solicited Order Mechanism ($0.10 for Professional 
Customers versus $0.20 for all other non-Priority Customers).\16\ 
Broker-Dealer \17\ and Firm Proprietary orders are incentivized in the 
Exchange's PIM and Facilitation Rebate program.\18\ Market Makers \19\ 
are offered rebates through the Exchange's Market Maker Plus 
program.\20\ The Exchange further believes there is nothing 
impermissible about offering the Crossing Fee Cap solely to Firm 
Proprietary transactions given that this practice is consistent with 
firm fee caps in place on other options exchanges.\21\ To the extent 
the amended Crossing Fee Cap continues to encourage additional Firm 
Proprietary Crossing Order flow to ISE, such increased order flow 
brings increased liquidity and additional opportunities for interaction 
with this order flow, which ultimately benefits all market 
participants.
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    \13\ 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).
    \14\ See Options 7, Sections 3 and 4. Non-Select Symbols are 
options overlying all symbols that are not included in the Penny 
Interval Program.
    \15\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \16\ See Options 7, Sections 3 (note 16) and Section 4 (note 
14).
    \17\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \18\ See Options 7, Sections 6.C.
    \19\ The term ``Market Makers'' refers to Competitive Market 
Makers and Primary Market Makers, collectively. See Options 1, 
Section 1(a)(21).
    \20\ See Options 7, Sections 3 (note 5).
    \21\ See, e.g., Monthly Firm Fee Cap in Nasdaq Phlx Options 7, 
Section 4; and Firm and Broker Dealer Monthly Fee Cap in NYSE Arca 
Options Fees and Charges at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.
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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 this proposal will 
place any category of market participant at a competitive disadvantage. 
As discussed above, the proposed changes to the Crossing Fee Cap will 
apply uniformly to all Members engaged in Firm Proprietary trading in 
options classes traded on the Exchange. To the extent the amended 
Crossing Fee Cap continues to provide an incentive for Members to bring 
additional Firm Proprietary Crossing Order flow to the Exchange, such 
order flow brings increased liquidity to the benefit of all market 
participants.
    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 
exchanges and with alternative trading systems 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. 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.\22\ 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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    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2023-05 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-2023-05. 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 such 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-2023-05 and should be submitted on 
or before March 14, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03485 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P


