[Federal Register Volume 88, Number 119 (Thursday, June 22, 2023)]
[Notices]
[Pages 40883-40886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-13220]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97736; File No. SR-ISE-2023-12]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, 
Sections 3 and 6

June 15, 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 June 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 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 and Options 7, 
Section 6, Other Options Fees and Rebates.
    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 40884]]

Pricing Schedule at Options 7, Section 3, Regular Order Fees and 
Rebates, and Options 7, Section 6, Other Options Fees and Rebates.
Options 7, Section 3
    Currently, for Regular Orders \3\ in Select \4\ and Non-Select 
Symbols,\5\ the Exchange assesses all Non-Priority Customer \6\ market 
participants a Fee for PIM \7\ Orders of $0.10 per contract.\8\ 
Additionally, today, for Regular Orders in Select Symbols, the Exchange 
assesses all market participants a Fee for Responses to PIM Orders of 
$0.50 per contract. Finally, today, for Regular Orders in Non-Select 
Symbols, the Exchange assesses all market participants a Fee for 
Responses to PIM Orders of $1.10 per contract.\9\
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    \3\ A ``Regular Order'' is an order that consists of only a 
single option series and is not submitted with a stock leg.
    \4\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Interval Program. See 
Options 7, Section 1(c).
    \5\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols. See Options 7, Section 1(c).
    \6\ ``Non-Priority Customers'' include Market Makers, Non-Nasdaq 
ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and 
Professional Customers.
    \7\ PIM is the Exchange's Price Improvement Auction as described 
in Options 3, Section 13. A PIM is comprised of the order the 
Electronic Access Member represents as agent (the ``Agency Order'') 
and a counter-side order for the full size of the Agency Order (the 
``Counter-Side Order''). Responses, including the Counter-Side 
Order, and Improvement Orders may be entered during the exposure 
period. See Options 3, Section 13.
    \8\ Priority Customers are not assessed a Fee for PIM Orders. 
Also, Fees for PIM Orders apply to the originating and contra order. 
Further, other than for Priority Customer orders, this 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 are 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. See notes 2 and 13 within the Pricing Schedule at Options 
7, Section 3.
    \9\ PIM pricing is specified in Options 7, Section 3, Regular 
Order Fees and Rebates.
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    Today, the Exchange pays Electronic Access Members \10\ that 
utilize PIM to execute more than 0.75% of Priority Customer \11\ volume 
of Regular Orders, calculated as a percentage of Customer Total 
Consolidated Volume (``TCV'') per day in a given month, a PIM Break-Up 
Rebate of $0.26 per contract for Select Symbols and $0.60 per contract 
for Non-Select Symbols for Priority Customer Regular Orders under 100 
contracts that are submitted to PIM and do not trade with their contra 
order except when those contracts trade against unrelated quotes or 
orders.\12\
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    \10\ The term ``Electronic Access Member'' or ``EAM'' means a 
Member that is approved to exercise trading privileges associated 
with EAM Rights. See General 1, section 1(a)(6).
    \11\ 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). Unless otherwise noted, when used in this Pricing 
Schedule the term ``Priority Customer'' includes ``Retail'' as 
defined below. See Options 7, Section 1(c).
    \12\ See note 19 of Options 7, Section 3. Also, the Exchange 
notes that the applicable fee is applied to any contracts for which 
a rebate is provided.
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    At this time, the Exchange proposes to amend the incentive in note 
19 of Options 7, Section 3 to increase the 100 contract requirement to 
250 contracts. The Exchange seeks to continue to incentivize Electronic 
Access Members to submit a greater amount of smaller, more typically 
sized Priority Customer orders into PIM for price improvement with the 
proposed pricing. The Exchange believes the 100 contract threshold may 
be too narrow to represent all small-sized orders and would like to 
expand the contract size to 250 contracts to capture a greater amount 
of smaller sized orders. All Electronic Access Members may participate 
in a PIM.\13\ Accordingly, the rebates, as amended, are designed to 
incentivize Electronic Access Members to submit a greater amount of 
Regular Orders executed in PIM to the Exchange, particularly Priority 
Customer PIM volume.
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    \13\ Any solicited Counter-Side Orders submitted by an 
Electronic Access Member to trade against Agency Orders may not be 
for the account of a Nasdaq ISE Market Maker assigned to the options 
class. See Supplementary Material .06 to Options 3, Section 13.
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Options 7, Section 6
    Today, the Exchange offers a PIM Rebate within Options 7, Section 
6, Other Options Fees and Rebates. Specifically, Options 7, Section 
6.C, PIM and Facilitation Rebate, pays a rebate of $0.11 per contract 
to Electronic Access Members that utilize PIM to execute more than 
0.75% of Priority Customer volume in Regular Orders, calculated as a 
percentage of TCV per day in a given month.\14\ The rebate is paid for 
Priority Customer Regular Orders under 100 contracts that are submitted 
to PIM.\15\
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    \14\ Eligible volume from Affiliated Members will be aggregated 
in calculating the percentage.
    \15\ The rebate is paid to the Agency Order as that term is 
defined within Options 3, Section 13. In the event a Crossing 
Transaction consists of two Priority Customer Orders, the Exchange 
would not pay this rebate.
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    At this time, the Exchange proposes to amend the PIM Rebate within 
Options 7, Section 6.C to increase the 100 contract requirement to 250 
contracts. The Exchange seeks to continue to incentivize Electronic 
Access Members to submit a greater amount of smaller, more typically 
sized Priority Customer orders into PIM for price improvement with the 
proposed pricing. The Exchange believes the 100 contract threshold may 
be too narrow to represent all small-sized orders and would like to 
expand the contract size to 250 contracts to capture a greater amount 
of smaller sized orders. All Electronic Access Members may participate 
in a PIM.\16\ Accordingly, the rebate, as amended, is designed to 
incentivize Electronic Access Members to submit a greater amount of 
Regular Orders executed in PIM to the Exchange, particularly Priority 
Customer PIM volume.
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    \16\ Any solicited Counter-Side Orders submitted by an 
Electronic Access Member to trade against Agency Orders may not be 
for the account of a Nasdaq ISE Market Maker assigned to the options 
class. See Supplementary Material .06 to Options 3, Section 13.
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    The Exchange also proposes to amend the sentence that states, 
``Provided this rebate is higher than other rebates within Options 7, 
Section 6B, this rebate will be paid in lieu of other rebates within 
this Section B.'' The references to section ``B'' should be to section 
``C''.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\17\ in general, and furthers the objectives of 
sections 6(b)(4) and 6(b)(5) of the Act,\18\ 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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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
    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 \19\ 
(``NetCoalition''), the D.C. Circuit stated, ``[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

[[Page 40885]]

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'. . . .'' \20\
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    \19\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \20\ Id. at 539 (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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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options 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. Within the 
foregoing context, the proposal represents a reasonable attempt by the 
Exchange to attract additional order flow to the Exchange and increase 
its market share relative to its competitors.
Options 7, Section 3
    The Exchange's proposal to amend the incentive in note 19 of 
Options 7, Section 3 to increase the 100 contract requirement to 250 
contracts with respect to the Priority Customer PIM Break-Up Rebate is 
reasonable because it is designed to incentivize additional 
participation in PIM by encouraging market participants to send 
additional order flow to the Exchange in order to benefit from the 
increased rebates. In particular, the Exchange believes that this 
proposal will incentivize Electronic Access Members to submit a greater 
amount of Regular Orders executed in PIM to the Exchange, particularly 
Priority Customer PIM volume. The Exchange believes it is reasonable to 
pay the rebate for orders of 250 contracts or less because the current 
100 contract threshold may be too narrow to represent all small-sized 
orders. The Exchange would like to expand the contract size to 250 
contracts to capture a greater amount of smaller sized Priority 
Customer orders for purposes of the rebate. The Exchange believes the 
increased contract size will incentivize a greater amount of small-
sized Priority Customer orders to be solicited for entry into PIM for 
price improvement.
    The Exchange's proposal to amend the incentive in note 19 of 
Options 7, Section 3 to increase the 100 contract requirement to 250 
contracts with respect to the Priority Customer PIM Break-Up Rebate is 
equitable and not unfairly discriminatory because any Electronic Access 
Member may participate in a PIM.\21\ While only Electronic Access 
Members may initiate a PIM, Market Makers may respond to a PIM. While 
this incentive is specifically targeted towards Priority Customer 
orders, the Exchange does not believe that this is unfairly 
discriminatory. Of note, today, Priority Customers pay no Fees for PIM 
Orders. Priority Customer liquidity benefits all market participants by 
providing more trading opportunities which attracts market makers. An 
increase in the activity of these market participants (particularly in 
response to pricing) in turn facilitates tighter spreads which may 
cause an additional corresponding increase in order flow from other 
market participants. Attracting more liquidity from Priority Customers 
will benefit all market participants that trade on the ISE. Also, the 
250 contracts threshold would be uniformly applied in paying the 
rebate.
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    \21\ Any solicited Counter-Side Orders submitted by an 
Electronic Access Member to trade against Agency Orders may not be 
for the account of a Nasdaq ISE Market Maker assigned to the options 
class. See Supplementary Material .06 to Options 3, Section 13.
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Options 7, Section 6
    The Exchange's proposal to amend the PIM rebate in Options 7, 
Section 6.C to increase the 100 contract requirement to 250 contracts 
with respect to Priority Customer Regular Orders is reasonable because 
it is designed to incentivize additional participation in PIM by 
encouraging market participants to send additional order flow to the 
Exchange in order to benefit from the increased rebates. In particular, 
the Exchange believes that this proposal will incentivize Electronic 
Access Members to submit a greater amount of Regular Orders executed in 
PIM to the Exchange, particularly Priority Customer PIM volume. The 
Exchange believes it is reasonable to pay the rebate for orders of 250 
contracts or less because the current 100 contract threshold may be too 
narrow to represent all small-sized orders. The Exchange would like to 
expand the contract size to 250 contracts to capture a greater amount 
of smaller sized Priority Customer orders for purposes of the rebate. 
The Exchange believes the increased contract size will incentivize a 
greater amount of small-sized Priority Customer orders to be solicited 
for entry into PIM for price improvement.
    The Exchange's proposal to amend the PIM rebate in Options 7, 
Section 6.C to increase the 100 contract requirement to 250 contracts 
with respect to Priority Customer Regular Orders is equitable and not 
unfairly discriminatory because any Electronic Access Member may 
participate in a PIM.\22\ While only Electronic Access Members may 
initiate a PIM, Market Makers may respond to a PIM. While this 
incentive is specifically targeted towards Priority Customer orders, 
the Exchange does not believe that this is unfairly discriminatory. Of 
note, today, Priority Customers pay no Fees for PIM Orders. Priority 
Customer liquidity benefits all market participants by providing more 
trading opportunities which attracts market makers. An increase in the 
activity of these market participants (particularly in response to 
pricing) in turn facilitates tighter spreads which may cause an 
additional corresponding increase in order flow from other market 
participants. Attracting more liquidity from Priority Customers will 
benefit all market participants that trade on the ISE. Also, the 250 
contracts threshold would be uniformly applied in paying the rebate.
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    \22\ Any solicited Counter-Side Orders submitted by an 
Electronic Access Member to trade against Agency Orders may not be 
for the account of a Nasdaq ISE Market Maker assigned to the options 
class. See Supplementary Material .06 to Options 3, Section 13.
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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.
Intermarket Competition
    The Exchange 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. 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 because other options exchanges offer similar 
price improvement auctions as well as break-up rebates and customer 
order rebates.
    Moreover, as noted above, price competition between exchanges is 
fierce, with liquidity and market share moving freely between exchanges 
in

[[Page 40886]]

reaction to fee and rebate changes. 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.
Intramarket Competition
    The proposal is designed to attract additional liquidity to ISE. 
Specifically, amending the incentives to obtain greater PIM Break-Up 
Rebates will incentivize market participants to direct liquidity to 
ISE's PIM. All market participants will benefit from any increase in 
market activity that the proposal effectuates.
Options 7, Section 3
    The Exchange's proposal to amend the incentive in note 19 of 
Options 7, Section 3 to increase the 100 contract requirement to 250 
contracts with respect to the Priority Customer PIM Break-Up Rebate 
does not impose an undue burden on competition because any Electronic 
Access Member may enter orders into PIM. While only Electronic Access 
Members may initiate a PIM, the Exchange does not believe that this 
creates an undue burden on competition because Market Makers may 
respond to a PIM. While this incentive is specifically targeted towards 
Priority Customer orders, the Exchange does not believe that this is 
unfairly discriminatory. Today, Priority Customers pay no fees for PIM 
Orders. Priority Customer liquidity benefits all market participants by 
providing more trading opportunities which attracts market makers. An 
increase in the activity of these market participants (particularly in 
response to pricing) in turn facilitates tighter spreads which may 
cause an additional corresponding increase in order flow from other 
market participants. Attracting more liquidity from Priority Customers 
will benefit all market participants that trade on the ISE. Also, the 
250 contracts threshold would be uniformly applied in paying the 
rebate.
Options 7, Section 6
    The Exchange's proposal to amend the PIM rebate in Options 7, 
Section 6.C to increase the 100 contract requirement to 250 contracts 
with respect to Priority Customer Regular Orders does not impose an 
undue burden on competition because any Electronic Access Member may 
participate in a PIM. While only Electronic Access Members may initiate 
a PIM, Market Makers may respond to a PIM. While this incentive is 
specifically targeted towards Priority Customer orders, the Exchange 
does not believe that this is unfairly discriminatory. Of note, today, 
Priority Customers pay no Fees for PIM Orders. Priority Customer 
liquidity benefits all market participants by providing more trading 
opportunities which attracts market makers. An increase in the activity 
of these market participants (particularly in response to pricing) in 
turn facilitates tighter spreads which may cause an additional 
corresponding increase in order flow from other market participants. 
Attracting more liquidity from Priority Customers will benefit all 
market participants that trade on the ISE. Also, the 250 contracts 
threshold would be uniformly applied in paying the rebate.

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 \23\ and Rule 19b-4(f)(2) \24\ 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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    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \24\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-ISE-2023-12 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-2023-12. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-ISE-2023-12 and should be 
submitted on or before July 13, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-13220 Filed 6-21-23; 8:45 am]
BILLING CODE 8011-01-P


