
[Federal Register Volume 88, Number 241 (Monday, December 18, 2023)]
[Notices]
[Pages 87468-87476]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27674]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99142; File No. SR-ISE-2023-35]


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

December 12, 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 December 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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.
    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 to: (i) decrease the Fees for Crossing 
Orders,\3\ except Price Improvement Mechanism or ``PIM'' Orders,\4\ in 
Sections 3 and 4, (ii) eliminate the Crossing Fee Cap in Section 6.H 
and reserve certain footnotes related to the cap, (iii) increase the 
Facilitation \5\ and Solicitation \6\ Break-Up Rebates in Sections 3 
and 4, (iv) eliminate the Fees for Crossing Orders applicable to 
Professional Customers \7\ for Qualified Contingent Cross or ``QCC'' 
Orders \8\ and SOM Orders in Sections 3 and 4, (v) amend the 
Solicitation Rebate in Section 6.A, and (vi) amend the QCC

[[Page 87469]]

Rebate Program in Section 6.B. Each change is discussed in detail 
below.
---------------------------------------------------------------------------

    \3\ A ``Crossing Order'' is an order executed in the Exchange's 
Facilitation Mechanism, Solicited Order Mechanism (``SOM''), Price 
Improvement Mechanism (``PIM'') or submitted as a Qualified 
Contingent Cross (``QCC'') order. For purposes of the Pricing 
Schedule, orders executed in the Block Order Mechanism are also 
considered Crossing Orders. See Options 7, Section 1(c).
    \4\ The PIM is a process by which an Electronic Access Member 
can provide price improvement opportunities for a transaction 
wherein the Electronic Access Member seeks to facilitate an order it 
represents as agent, and/or a transaction wherein the Electronic 
Access Member solicited interest to execute against an order it 
represents as agent. See Options 3, Section 13.
    \5\ The Facilitation Mechanism is a process by which an 
Electronic Access Member can execute a transaction wherein the 
Electronic Access Member seeks to facilitate a block-size order it 
represents as agent, and/or a transaction wherein the Electronic 
Access Member solicited interest to execute against a block-size 
order it represents as agent. Electronic Access Members must be 
willing to execute the entire size of orders entered into the 
Facilitation Mechanism. See Options 3, Section 11(b). Complex 
Facilitation is described in Options 3, Section 11(c).
    \6\ The Solicited Order Mechanism or ``SOM'' is a process by 
which an Electronic Access Member can attempt to execute orders of 
500 or more contracts it represents as agent (the ``Agency Order'') 
against contra orders that it solicited. Each order entered into the 
Solicited Order Mechanism shall be designated as all-or-none. See 
Options 3, Section 11(d). The Complex Solicited Order Mechanism is 
described in Options 3, Section 11(e).
    \7\ A ''Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer. See Options 7, 
Section 1(c).
    \8\ A QCC Order is comprised of an originating order to buy or 
sell at least 1000 contracts that is identified as being part of a 
qualified contingent trade, as that term is defined in Supplementary 
Material .01 to Options 3, Section 7, coupled with a contra-side 
order or orders totaling an equal number of contracts. See Options 
3, Section 7(j).
---------------------------------------------------------------------------

Fees for Crossing Orders, Except PIM Orders, and Crossing Fee Cap
    Today, the Exchange assesses all Non-Priority Customers \9\ a $0.20 
per contract Regular Order \10\ Fee for Crossing Orders, which fee does 
not apply to PIM Orders, in Select \11\ and Non-Select \12\ Symbols, 
excluding Index Options.\13\ Priority Customers \14\ are not assessed a 
Regular Order Fee for Crossing Orders, except PIM Orders, in Select and 
Non-Select Symbols. The Regular Order Fees for Crossing Orders, except 
PIM Orders, apply to the originating and contra orders.\15\ Today, 
Regular Order Firm Proprietary \16\ contracts traded are subject to the 
Crossing Fee Cap, as provided in Options 7, Section 6.H.\17\ With the 
Crossing Fee Cap, fees are capped at $200,000 per month, per Member on 
all Firm Proprietary transactions that are part of the originating or 
contra side of a Crossing Order. Once a Member exceeds the fee cap 
level, the Member is subject to a reduced transaction fee of $0.02 per 
capped contract, unless the Member also qualifies for free executions.
---------------------------------------------------------------------------

    \9\ ``Non-Priority Customers'' include Market Makers, Non-Nasdaq 
ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and 
Professional Customers. See Options 7, Section 1(c).
    \10\ A ``Regular Order'' is an order that consists of only a 
single option series and is not submitted with a stock leg. See 
Options 7, Section 1(c).
    \11\ ``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).
    \12\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols. See Options 7, Section 1(c).
    \13\ For all executions in regular NDX, XND and NQX orders, the 
applicable index options fees in Section 5 will apply. See note 7 of 
Options 7, Section 3.
    \14\ 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).
    \15\ See note 2 of Options 7, Section 3.
    \16\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account. See Options 7, Section 1(c).
    \17\ See note 1 of Options 7, Section 3.
---------------------------------------------------------------------------

    The Exchange proposes to decrease the Non-Priority Customer Regular 
Order Fee for Crossing Orders, except for PIM Orders, from $0.20 to 
$0.17 per contract in Select and Non-Select Symbols. Priority Customers 
will continue to not be assessed a Regular Order Fee for Crossing 
Orders, except for PIM Orders, in Select and Non-Select Symbols. The 
Exchange proposes to no longer offer the Crossing Fee Cap for Firm 
Proprietary contracts and would therefore reserve note 1 of Options 7, 
Section 3. The Exchange is also reserving the Regular Order Crossing 
Fee Cap in Options 7, Section 6.H for Select and Non-Select Symbols as 
the Crossing Fee Cap would not apply to pricing in Options 7, Section 4 
as explained below. Despite the elimination of the Crossing Fee Cap, 
the Exchange believes that the decreased Regular Order Fees for 
Crossing Orders, except PIM Orders, in Select and Non-Select Symbols 
will continue to attract certain Crossing Orders to the Exchange.
    Similarly, today, the Exchange assesses Non-Priority Customers a 
$0.17 per contract Complex Order Fee for Crossing Orders, except PIM 
Orders, for Select and Non-Select Symbols. Priority Customers are 
assessed no Complex Order Fee for Crossing Orders, except PIM Orders, 
for Select and Non-Select Symbols. The Complex Order Fees for Crossing 
Orders, except PIM Orders, apply to the originating and contra 
orders.\18\ Today, Complex Order Firm Proprietary contracts traded are 
subject to the Crossing Fee Cap, as provided in Options 7, Section 
6.H.\19\ Also, other than for Priority Customer orders, the Complex 
Order Fee for Crossing Orders is reduced to $0.05 per contract for 
orders executed by Members that execute an average daily volume 
(``ADV'') of 7,500 or more contracts in the PIM in a given month.\20\ 
Further, Members that execute an ADV of 12,500 or more contracts in the 
PIM will not be charged a fee.\21\
---------------------------------------------------------------------------

    \18\ See note 11 of Options 7, Section 4.
    \19\ See note 6 of Options 7, Section 4.
    \20\ See note 10 of Options 7, Section 4. The discounted fees 
are applied retroactively to all eligible PIM volume in that month 
once the threshold has been reached.
    \21\ Id.
---------------------------------------------------------------------------

    Similar to Regular Orders, the Exchange proposes to decrease the 
Non-Priority Customer Complex Order Fee for Crossing Orders, except PIM 
Orders, from $0.20 to $0.17 per contract for Select and Non-Select 
Symbols. Priority Customers will continue to not be assessed a Complex 
Order Fee for Crossing Orders, except PIM Orders, in Select and Non-
Select Symbols. Similar to Regular Orders, the Exchange proposes to no 
longer offer the Crossing Fee Cap for Firm Proprietary contracts and 
would therefore reserve note 6 of Options 7, Section 4. As mentioned 
herein, the Exchange is also reserving the Crossing Fee Cap in Options 
7, Section 6.H. Despite the elimination of the Crossing Fee Cap, the 
Exchange believes that the decreased Complex Order Fees for Crossing 
Orders, except PIM Orders, in Select and Non-Select Symbols will 
continue to attract Crossing Orders to the Exchange.
Facilitation and Solicitation Break-Up Rebates
    Today, pursuant to Options 7, Section 3, the Exchange pays Non-
Nasdaq ISE Market Makers (FarMM),\22\ Firm Proprietary \23\/Broker 
Dealers,\24\ Professionals and Priority Customers a Regular Order 
Facilitation and Solicitation Break-up Rebate of $0.15 per contract in 
Select and Non-Select Symbols. Market Makers \25\ are not paid a 
Regular Order Facilitation and Solicitation Break-up Rebate in Select 
and Non-Select Symbols. The Exchange proposes to increase the Regular 
Order Facilitation and Solicitation Break-up Rebate from $0.15 to $0.20 
per contract in Select and Non-Select Symbols for Non-Nasdaq ISE Market 
Makers (FarMM), Firm Proprietary/Broker Dealers, Professionals and 
Priority Customers. Market Makers would continue to not be paid a 
Regular Order Facilitation and Solicitation Break-up Rebate in Select 
and Non-Select Symbols. The Exchange believes that the increase to the 
Regular Order Facilitation and Solicitation Break-up Rebate will 
attract ISE Members to utilize the Facilitation and Solicitation 
Mechanisms.
---------------------------------------------------------------------------

    \22\ A ``Non-Nasdaq ISE Market Maker'' is a market maker as 
defined in section 3(a)(38) of the Securities Exchange Act of 1934, 
as amended, registered in the same options class on another options 
exchange. See Options 7, Section 1(c).
    \23\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account. See Options 7, Section 1(c).
    \24\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account. 
See Options 7, Section 1(c).
    \25\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21).
---------------------------------------------------------------------------

    Today, pursuant to Options 7, Section 4, the Exchange pays Non-
Nasdaq ISE Market Makers (FarMM), Firm Proprietary/Broker Dealers, 
Professionals and Priority Customers a Complex Order Facilitation and 
Solicitation Break-up Rebate of $0.15 per contract in Select and Non-
Select Symbols. Market Makers are not paid a Complex Order Facilitation 
and Solicitation Break-up Rebate in Select and Non-Select Symbols. The 
Exchange proposes to increase the Complex Order Facilitation and 
Solicitation Break-up Rebate from $0.15 to $0.20 per contract in Select 
and Non-Select Symbols for Non-Nasdaq ISE Market Makers (FarMM), Firm 
Proprietary/Broker Dealers, Professionals and Priority Customers. 
Market Makers would

[[Page 87470]]

continue to not be paid a Complex Order Facilitation and Solicitation 
Break-up Rebate in Select and Non-Select Symbols. The Exchange believes 
that the increase to the Complex Order Facilitation and Solicitation 
Break-up Rebate will attract ISE Members to utilize the Facilitation 
and Solicitation Mechanisms.
    Today, Facilitation and Solicitation Break-up Rebates for Regular 
Order and Comple Order Select and Non-Select Symbols are provided for 
contracts that are submitted to the Facilitation and Solicited Order 
Mechanisms that do not trade with their contra order except when those 
contracts trade against pre-existing orders and quotes on the Exchanges 
order books.\26\ The applicable fee is applied to any contracts for 
which a rebate is provided.\27\ The Exchange proposes to amend this 
sentence in note 4 of Options 7, Section 3 and note 2 of Options 7, 
Section 4 to more specifically provide, ``The applicable Fee for 
Responses to Crossing Orders is applied to any contracts for which a 
rebate is provided.'' The Exchange believes that this proposed change 
to the wording of the sentence does not substantively amend the 
sentence, rather it conforms the reference to the Fee for Crossing 
Orders to the title of the fees in the tables of Options 7, Sections 3 
and 4, which is the Fee for Responses to Crossing Orders for Regular 
Orders and Complex Orders in Select and Non-Select Symbols. This 
amendment adds clarity to the fee being referenced.
---------------------------------------------------------------------------

    \26\ See note 4 in Options 7, Section 3 and note 2 in Options 7, 
Section 4.
    \27\ Id.
---------------------------------------------------------------------------

Professional Customer QCC and SOM Fees For Crossing Orders
    As noted above, today, Professional Customers are assessed a $0.20 
per contract Regular Order and Complex Order Fee for Crossing Orders, 
except PIM Orders, in Select and Non-Select Symbols. Also, today, 
transaction fees applicable to Professional Customers for an order 
submitted as a QCC Order and orders executed in the Solicited Order 
Mechanism would be assessed a $0.10 per contract Regular Order and 
Complex Order Fee for Crossing Orders, except PIM Orders, instead of 
$0.20 per contract, in Select and Non-Select Symbols.\28\
---------------------------------------------------------------------------

    \28\ See note 16 of Options 7, Section 3 and note 14 of Options 
7, Section 4.
---------------------------------------------------------------------------

    At this time, the Exchange proposes to amend note 16 of Options 7, 
Section 3 and note 14 of Options 7, Section 4 to provide, ``Fees for 
Crossing Orders applicable to Professional Customers for an order 
submitted as a Qualified Contingent Cross order and orders executed in 
the Exchange's Solicited Order Mechanism will be $0.00 per contract.'' 
The Exchange proposes to substitute the words ``Transaction fees'' with 
``Fees for Crossing Orders'' to conform to the title of the fees in the 
tables in Options 7, Sections 3 and 4, thereby providing additional 
clarity. The Exchange also proposes to eliminate the Professional 
Customer Regular Order and Complex Order Fee for Crossing Orders, 
except PIM Orders, in Select and Non-Select Symbols, when the order is 
submitted as a QCC Order or a SOM Order. The Exchange believes that 
reducing the Professional Customer Regular Order and Complex Order Fee 
for Crossing Orders, except PIM Orders, in Select and Non-Select 
Symbols, when the order is submitted as a QCC Order or a SOM Order from 
$0.10 to $0.00 per contract will attract additional Professional 
Customer QCC and SOM Orders to the Exchange.
Solicitation Rebate
Background
    Today, the Exchange offers a Solicitation Rebate program in Options 
7, Section 6.A whereby Members using QCC and/or other solicited orders 
executed in the Solicited Order Mechanism or Facilitation Mechanism 
receive rebates for solicited orders executed in the Solicited Order or 
Facilitation Mechanisms (``Solicited Orders'') according to the table 
in Section 6.A for each originating contract side in all symbols traded 
on the Exchange. Volume associated with QCC executions are aggregated 
in calculating the Solicitation Rebate volume tiers in Section 6.A, but 
Members that execute QCC volume receive the QCC Rebate in Section 6.B 
instead.
    Once a Member reaches a certain volume threshold in combined QCC 
and Solicited Orders during a month, the Exchange provides rebates to 
that Member for all of its Solicited Order traded contracts for that 
month.\29\ Today, Members receive the rebate for all Solicited Orders 
except for Solicited Orders between two Priority Customers. Solicited 
Orders between two Priority Customers do not receive any rebates under 
the Solicitation Rebate program. The volume threshold and corresponding 
rebates in Section 6.A are currently as follows:
---------------------------------------------------------------------------

    \29\ All eligible volume from affiliated Members will be 
aggregated in determining the combined QCC and Solicited Order 
volume totals, provided there is at least 75% common ownership 
between the Members as reflected on each Member's Form BD, Schedule 
A.

------------------------------------------------------------------------
                                 Originating contract
                                        sides                Rebate
------------------------------------------------------------------------
Tier 1........................  0 to 99,999..........              $0.00
Tier 2........................  100,000 to 199,999...             (0.05)
Tier 3........................  200,000 to 499,999...             (0.07)
Tier 4........................  500,000 to 749,999...             (0.09)
Tier 5........................  750,000 to 999,999...             (0.10)
Tier 6........................  1,000,000+...........             (0.11)
------------------------------------------------------------------------

    Volume resulting from all QCC and Solicited Orders is aggregated in 
determining the applicable volume tier set forth above. For Members 
that achieve the highest volume threshold of 1,000,000 or more 
originating contract sides (i.e., tier 6), the Exchange also currently 
provides an additional rebate of $0.01 per originating contract side on 
Solicited Orders that qualify for the Solicitation Rebate program if 
the Member achieves in a given month: (i) combined QCC and Solicited 
Order volume of more than 1,750,000 originating contract sides and (ii) 
Priority Customer Complex Tier 6 or higher in Section 4 (the ``note * 
incentive'').\30\ In addition, the Exchange provides an additional 
rebate of $0.01 per originating contract side on Solicited Orders that 
qualify for the Solicitation Rebate program, which is applied to each 
Solicitation Rebate volume tier where the Member receives the rebate 
(i.e., tier 2 or higher), if the Member also achieves Priority Customer 
Complex Tier 2 or higher in a given

[[Page 87471]]

month (the ``note & incentive''). Thus, qualifying Members may receive 
up to $0.06 in tier 2, $0.08 in tier 3, $0.10 in tier 4, $0.11 in tier 
5, and $0.13 in tier 6 (i.e., the $0.11 base rebate, the $0.01 note * 
incentive, and the $0.01 note & incentive).
---------------------------------------------------------------------------

    \30\ As set forth in Options 7, Section 4, Priority Customer 
Complex Tiers are based on Total Affiliated Member or Affiliated 
Entity complex order volume (excluding Crossing Orders and Responses 
to Crossing Orders) calculated as a percentage of Customer Total 
Consolidated Volume.
---------------------------------------------------------------------------

Proposal
    The Exchange now proposes to amend the Solicitation Rebate program 
in a number of ways. First, the Exchange proposes to no longer provide 
any rebates under this program when both sides of the Solicited Order 
transaction are between two Professional Customers or between a 
Priority Customer and a Professional Customer. This will be in addition 
to the current restriction that Solicited Orders between two Priority 
Customers will not receive any rebate under the Solicitation Rebate 
program. As such, the Exchange will only provide the Solicitation 
Rebate when at least one side of the Solicited Order is neither a 
Priority Customer nor Professional Customer (i.e., when at least one 
side is a Market Maker, Non-ISE Market Maker, or Firm Proprietary/
Broker-Dealer). As amended, the language governing the Solicitation 
Rebate program in Section 6.A will provide:

    Members will receive the rebate for all Solicited Orders when at 
least one side of the Solicited Order is neither a Priority Customer 
nor Professional Customer. Solicited Orders between two Priority 
Customers, two Professional Customers, or a Priority Customer and a 
Professional Customer will not receive any rebate.

    The Exchange is proposing to exclude Professional Customers from 
the Solicitation Rebate in the manner described above because it is 
also proposing to eliminate the fees applicable to Professional 
Customers for orders executed in the Solicited Order Mechanism (which 
are included as Solicited Orders for purposes of qualifying for and 
receiving the Solicitation Rebate).\31\ As such, the Exchange believes 
that Members will continue to be incentivized to send Professional 
Customer Solicited Orders to the Exchange without the added incentive 
of the Solicitation Rebate.
---------------------------------------------------------------------------

    \31\ As discussed above, the Exchange is proposing to eliminate 
the fees applicable to Professional Customers for SOM Orders and for 
QCC Orders. See proposed note 16 of Options 7, Section 3 and 
proposed note 14 of Options 7, Section 4.
---------------------------------------------------------------------------

    The Exchange also proposes to amend the volume thresholds and 
rebate amounts described above as follows:

------------------------------------------------------------------------
                 Originating contract sides                     Rebate
------------------------------------------------------------------------
0 to 749,999................................................     ($0.10)
750,000 to 1,499,999........................................      (0.11)
1,500,000+..................................................      (0.12)
------------------------------------------------------------------------

    As described above, the Exchange is proposing to condense the 
current Solicitation Rebate volume tiers 1-4 into one new base volume 
tier, and increase the rebate to $0.10 for all qualifying Members.\32\ 
The current Solicitation Rebate volume tier 5 will be amended as the 
second highest volume tier, and expanded to be capped at a higher level 
of volume (1,499,999 versus the current 999,999 originating contract 
sides). The Exchange is also increasing the rebate to $0.11 per 
contract for this tier.\33\ As it relates to the highest volume tier 
under this proposal (i.e., 1,500,000+ originating contract sides), the 
Exchange is likewise increasing the rebate to $0.12 per contract.\34\ 
As such, Members would generally receive higher rebates under this 
proposal for achieving the same amount of volume as they do today.\35\
---------------------------------------------------------------------------

    \32\ Today, the rebates in tiers 1--4 range from $0.00 to $0.09 
per contract for qualifying Members.
    \33\ Today, the tier 5 rebate is $0.10 per contract for 
qualifying Members.
    \34\ Today, the highest tier 6 rebate is $0.11 per contract for 
qualifying Members.
    \35\ The Exchange notes that if a Member reaches a volume 
threshold between 1,000,000 to 1,499,999 originating contract sides 
in a given month, they would continue to receive the same rebate 
amount (i.e., $0.11 per contract) under this proposal as they do 
currently.
---------------------------------------------------------------------------

    Lastly, the Exchange proposes to apply the note & incentive to the 
new base volume tier such that qualifying Members may be eligible to 
receive an additional rebate of $0.01 per originating contract side in 
addition to the $0.10 rebate.\36\ Today, Members in the current base 
Solicitation Rebate tier are not eligible to receive this additional 
rebate. With the proposed extension to the new base tier, the Exchange 
seeks to encourage Members to send more order flow, particularly 
Solicited Order and complex order flow, to ISE.
---------------------------------------------------------------------------

    \36\ As discussed above, Members may qualify for the note & 
incentive if they qualify for the Solicitation Rebate program and 
they also achieve Priority Customer Complex Tier 2 or higher in a 
given month.
---------------------------------------------------------------------------

QCC Rebate
Background
    Today, the Exchange offers a QCC Rebate program in Options 7, 
Section 6.B whereby Members that submit QCC Orders when at least one 
side of the QCC transaction is a Non-Priority Customer receive the QCC 
Rebates in Section 6.B. By implication, the QCC Rebates are not 
available when both sides of the QCC transaction are Priority 
Customers. QCC Rebates are paid to each originating contract side 
(``QCC Agency Side'') in all symbols traded on the Exchange. 
Specifically:
     When only one side of the QCC transaction is a Non-
Priority Customer, the Member would receive a $0.14 per contract rebate 
for each QCC Agency Side (``QCC Rebate 1'')
     When both sides of the QCC transaction are Non-Priority 
Customers, the Member would receive a $0.22 per contract rebate for 
each QCC Agency Side today (``QCC Rebate 2'').
    In addition, the Exchange currently offers an additional incentive 
of $0.03 per contract for each QCC Agency Side that qualifies for the 
QCC Rebate program if they achieve Priority Customer Complex Tier 2 or 
higher in a given month. The additional incentive is applied to each 
QCC Rebate and is cumulative of the QCC Rebates so that qualifying 
Members could receive up to $0.17 per contract for each QCC Agency Side 
when only one side of the QCC transaction is a Non-Priority Customer, 
and up to $0.25 per contract for each QCC Agency Side when both sides 
of the QCC transaction are Non-Priority Customers.
Proposal
    The Exchange now proposes to no longer provide any rebates under 
this program when both sides of the QCC transaction are between two 
Professional Customers or between a Priority Customer and a 
Professional Customer. This will be in addition to the current 
restriction that QCC Orders between two Priority Customers would not 
receive any rebates. Specifically, Section 6.B will be amended to 
provide that Members that submit QCC Orders when at least one side of 
the QCC transaction is neither a Priority Customer nor Professional 
Customer will receive the QCC Rebates in Section 6.B. This is similar 
to the proposed changes in the Solicitation Rebate program where the 
Exchange is likewise proposing to exclude Professional Customers from 
the Solicitation Rebate in the manner described above. Similar to the 
Solicitation Rebate changes, the Exchange is proposing to exclude 
Professional Customers from the QCC Rebates because it is also 
proposing to eliminate the fees applicable to Professional Customers 
for QCC Orders.\37\ As such, the Exchange believes that Members will 
continue to be incentivized to send Professional Customer QCC Orders to 
the Exchange

[[Page 87472]]

without the added incentive of the QCC Rebates.
---------------------------------------------------------------------------

    \37\ As discussed above, the Exchange is proposing to eliminate 
the fees applicable to Professional Customers for QCC Orders and for 
SOM Orders. See proposed note 16 of Options 7, Section 3 and 
proposed note 14 of Options 7, Section 4.
---------------------------------------------------------------------------

    The Exchange also proposes to amend QCC Rebate 1 and QCC Rebate 2 
to similarly exclude Professional Customers and to increase the rebate 
amounts. Specifically, QCC Rebate 1 will be amended to provide that 
when only one side of the QCC transaction is neither a Priority 
Customer nor Professional Customer, the Member will receive a $0.15 per 
contract rebate for each QCC Agency Side. QCC Rebate 2 will be amended 
to provide that when both sides of the QCC transaction are not any 
combination of Priority Customers and/or Professional Customers, the 
Member will receive a $0.23 per contract rebate for each QCC Agency 
Side. The Exchange also proposes to specifically delineate the QCC 
Rebates into two separate sections titled ``QCC Rebate 1'' and ``QCC 
Rebate 2.''
    Further, the Exchange proposes to amend the additional QCC 
incentive by decreasing the amount from $0.03 to $0.01 per contract as 
applied to QCC Rebate 1. The qualifications for this incentive will 
remain unchanged. Accordingly, the Exchange will add the following 
language in the QCC Rebate 1 section: ``Members will receive an 
additional rebate of $0.01 per contract for each QCC Agency Side that 
qualifies for QCC Rebate 1 if they achieve Priority Customer Complex 
Tier 2 or higher in a given month.''
    The Exchange also proposes to amend additional incentive as applied 
to QCC Rebate 2 by increasing the amount from $0.03 to $0.04 per 
contract. As noted above, the incentive qualifications will remain 
unchanged. Accordingly, the Exchange will add the following language in 
the QCC Rebate 2 section: ``Members will receive an additional rebate 
of $0.03 per contract for each QCC Agency Side that qualifies for QCC 
Rebate 2 if they achieve Priority Customer Complex Tier 2 or higher in 
a given month.''
    The additional incentives will continue to be cumulative of the QCC 
Rebates so that qualifying Members could receive up to $0.16 per 
contract for each QCC Agency Side when only one side of the QCC 
transaction is neither a Priority Customer nor Professional Customer, 
and up to $0.27 per contract for each QCC Agency Side when both sides 
of the QCC transaction are not any combination of Priority Customers 
and/or Professional Customers.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\38\ in general, and furthers the objectives of 
sections 6(b)(4) and 6(b)(5) of the Act,\39\ 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.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78f(b).
    \39\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    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'. . . .'' \40\
---------------------------------------------------------------------------

    \40\ 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)).
---------------------------------------------------------------------------

    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.'' \41\
---------------------------------------------------------------------------

    \41\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    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 
seventeen 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.
Fees for Crossing Orders Except PIM Orders and Crossing Fee Cap
    The Exchange's proposal to decrease the Non-Priority Customer 
Regular Order and Complex Order Fees for Crossing Orders, except for 
PIM Orders, from $0.20 to $0.17 per contract, in Select and Non-Select 
Symbols, is reasonable because the reduction in these fees should 
attract additional Crossing Orders to the Exchange. Priority Customers 
will continue to not be assessed a Regular Order or Complex Order Fee 
for Crossing Orders in Select and Non-Select Symbols.
    The Exchange's proposal to decrease the Non-Priority Customer 
Regular Order and Complex Order Fees for Crossing Orders, except for 
PIM Orders, from $0.20 to $0.17 per contract, in Select and Non-Select 
Symbols, is equitable and not unfairly discriminatory as all Non-
Priority Customer Regular Order and Complex Order Fees for Crossing 
Orders will be reduced in Select and Non-Select Symbols. The Exchange 
believes that it is equitable and not unfairly discriminatory to not 
assess Priority Customers a Regular Order or Complex Order Fee for 
Crossing Orders in Select and Non-Select Symbols. 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 in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants.
    The Exchange's proposal to no longer offer the Crossing Fee Cap for 
Firm Proprietary contracts is reasonable because the Exchange is 
lowering Non-Priority Customer Regular Order and Complex Order Fees for 
Crossing Orders, except for PIM Orders, from $0.20 to $0.17 per 
contract, in Select and Non-Select Symbols. Despite the elimination of 
the Crossing Fee Cap, the Exchange believes that the decreased Regular 
Order and Complex Order Fees for Crossing Orders, except PIM Orders, in 
Select and Non-Select Symbols will continue to attract Crossing Orders 
to the Exchange.
    The Exchange's proposal to no longer offer the Crossing Fee Cap for 
Firm

[[Page 87473]]

Proprietary contracts is equitable and not unfairly discriminatory 
because no Member would be offered an opportunity to cap their Firm 
Proprietary transactions.
Facilitation and Solicitation Break-Up Rebates
    The Exchange's proposal to increase the Regular Order and Complex 
Order Facilitation and Solicitation Break-up Rebates from $0.15 to 
$0.20 per contract, in Select and Non-Select Symbols, for Non-Nasdaq 
ISE Market Makers (FarMM), Firm Proprietary/Broker Dealers, 
Professionals and Priority Customers is reasonable because the increase 
will attract ISE Members to utilize the Facilitation and Solicitation 
Mechanisms. Specifically, the Exchange believes that the increased 
Facilitation and Solicitation Break-up Rebates will encourage increased 
originating Regular Order and Complex Order Non-Nasdaq ISE Market 
Maker, Firm Proprietary/Broker-Dealer, Professional Customer, and 
Priority Customer order flow to the Facilitation and Solicited Order 
Mechanisms, thereby potentially increasing the initiation of and volume 
executed through such auctions. Additional auction order flow provides 
market participants with additional trading opportunities at 
potentially improved prices. Market Makers would continue to not be 
paid a Regular Order Facilitation and Solicitation Break-up Rebate in 
Select and Non-Select Symbols.
    The Exchange's proposal to increase the Regular Order and Complex 
Order Facilitation and Solicitation Break-up Rebates from $0.15 to 
$0.20 per contract, in Select and Non-Select Symbols, for Non-Nasdaq 
ISE Market Makers (FarMM), Firm Proprietary/Broker Dealers, 
Professionals and Priority Customers is equitable and not unfairly 
discriminatory because the increased Facilitation and Solicitation 
Break-up Rebates will apply equally to all non-Market Maker originating 
orders submitted to the Facilitation and Solicited Order Mechanisms 
that do not trade with their contra orders (except when those 
originating contracts trade against pre-existing orders and quotes on 
the Exchange's order books). While Market Makers will continue to not 
receive Regular Order and Complex Order Facilitation and Solicitation 
Break-up Rebates for Select and Non-Select Symbols, the Exchange 
believes that the application of the rebate is equitable and not 
unfairly discriminatory because Market Makers are not eligible for 
Facilitation and Solicitation Break-up Rebates today. In addition, the 
Exchange currently offers Market Makers other rebate programs that do 
not apply to non-Market Makers, such as the Market Maker Plus Program.
    The Exchange's proposal to amend note 4 of Options 7, Section 3 and 
note 2 of Options 7, Section 4 to more specifically provide, ``The 
applicable Fee for Responses to Crossing Orders is applied to any 
contracts for which a rebate is provided'' is reasonable, equitable and 
not unfairly discriminatory because the amendment conforms the 
reference to the Fees for Crossing Orders for Regular Orders and 
Complex Orders to the title of the fee in the tables of Options 7, 
Sections 3 and 4, which is the Fee for Responses to Crossing Orders. 
This amendment adds clarity to the fee being referenced.
Professional Customer QCC and SOM Fees for Crossing Orders
    The Exchange's proposal to amend note 16 of Options 7, Section 3 
and note 14 of Options 7, Section 4 to provide, ``Fees for Crossing 
Orders applicable to Professional Customers for an order submitted as a 
Qualified Contingent Cross order and orders executed in the Exchange's 
Solicited Order Mechanism will be $0.00 per contract'' is reasonable 
because reducing the Professional Customer Regular Order and Complex 
Order Fees for Crossing Orders, except PIM Orders, in Select and Non-
Select Symbols, when the order is submitted as a QCC Order or a SOM 
Order from $0.10 to $0.00 per contract will attract additional 
Professional Customer QCC and SOM Orders to the Exchange. The proposed 
fee is designed to be attractive to Professional Customers that trade 
on ISE, and the fee is lower than the Regular Order and Complex Order 
Fees for Crossing Orders, except PIM Orders, in Select and Non-Select 
Symbols, except for Priority Customers. Additional auction order flow 
provides market participants with additional trading opportunities at 
potentially improved prices.
    The Exchange's proposal to amend note 16 of Options 7, Section 3 
and note 14 of Options 7, Section 4 to provide, ``Fees for Crossing 
Orders applicable to Professional Customers for an order submitted as a 
Qualified Contingent Cross order and orders executed in the Exchange's 
Solicited Order Mechanism will be $0.00 per contract'' is equitable and 
not unfairly discriminatory because providing Professional Customers a 
lower Fee for Crossing Orders in Regular Orders and Complex Orders in 
Select and Non-Select Symbols submitted as a QCC or SOM Order will 
allow other market participants the opportunity to interact with those 
orders in the applicable auctions. The Exchange does not believe that 
it is unfairly discriminatory to offer Professional Customers lower 
Fees for Crossing Orders for QCC and SOM Orders because differentiated 
pricing encourages different segments of order flow. For instance, the 
Exchange generally provides Priority Customer orders more favorable 
pricing through lower or no transaction fees, including Priority 
Customer Crossing Orders that are presently assessed no fees. 
Professional Customer orders are presently charged a lower transaction 
fee for QCC and SOM Orders ($0.10 for Professional Customers versus 
$0.20 for all other non-Priority Customers). Additionally, Broker-
Dealer and Firm Proprietary orders are incentivized in the Exchange's 
PIM and Facilitation Rebate program.\42\ Market Makers are offered 
rebates through the Exchange's Market Maker Plus program.\43\ The 
Exchange further believes there is nothing impermissible about offering 
Professional Customers lower transaction fee for QCC and SOM Orders 
given that this practice is consistent with lower Professional Fees for 
QCC on other options exchanges.\44\ To the extent the amended lower 
transaction fee for QCC and SOM Orders offered to Professional 
Customers continues to encourage market participants to send additional 
QCC and SOM Orders to ISE, such increased order flow brings increased 
liquidity and additional opportunities for interaction with this order 
flow, which ultimately benefits all market participants.
---------------------------------------------------------------------------

    \42\ See Options 7, Sections 6.C.
    \43\ See note 5 at Options 7, Sections 3.
    \44\ See Nasdaq Phlx LLC (``Phlx'') Options 7, Section 4. Phlx 
does not assess a QCC Transaction Fee to Customers and 
Professionals. See also BOX Exchange LLC's (``BOX'') Fee Schedule at 
Section IV, D. BOX does not assess a QCC Transaction Fee to 
Customers and Professionals.
---------------------------------------------------------------------------

    Amending note 16 of Options 7, Section 3 and note 14 of Options 7, 
Section 4 to specifically refer to ``Fees for Crossing Orders'' is 
reasonable, equitable and not unfairly discriminatory because it will 
conform the wording to the title of the fees in the tables in Options 
7, Sections 3 and 4 for Regular Orders and Complex Orders, thereby 
adding clarity.
Solicitation Rebate
    The Exchange believes that the proposed changes to the Solicitation 
Rebate program are reasonable for the reasons that follow. The Exchange 
believes it is reasonable to exclude Professional Customers from the 
Solicitation Rebate program in the manner described above because it is

[[Page 87474]]

simultaneously proposing to eliminate the fees applicable to 
Professional Customers for SOM Orders (which are included as Solicited 
Orders for purposes of qualifying for and receiving the Solicitation 
Rebate). As such, the Exchange believes that Members will continue to 
be incentivized to send more Professional Customer Solicited Orders to 
the Exchange without the added incentive of the Solicitation Rebate.
    The Exchange also believes that the proposed volume thresholds and 
rebate amounts for the Solicitation Rebate program are set at 
reasonable levels that would encourage additional Solicited Order flow 
to ISE. As described above, Members would generally receive higher 
rebates under this proposal for achieving the same amount of volume as 
they do today.\45\ As such, more Members may seek to qualify for the 
proposed Solicitation Rebates by sending additional Solicited Order 
flow to ISE, which benefits all market participants through quality of 
order interaction and increased trading opportunities.
---------------------------------------------------------------------------

    \45\ As noted above, if a Member reaches a volume threshold 
between 1,000,000 to 1,499,999 originating contract sides in a given 
month, they would continue to receive the same rebate amount (i.e., 
$0.11 per contract) under this proposal as they do currently.
---------------------------------------------------------------------------

    The Exchange further believes that its proposal to apply the note & 
incentive to the new base volume tier is reasonable as it is intended 
to encourage Members to send more Solicited Order and complex order 
flow to the Exchange. Today, Members in the current base volume tier 
are not eligible for the note & incentive. Under this proposal, Members 
may now be eligible to receive an additional rebate of $0.01 per 
originating contract side in addition to the $0.10 base rebate on their 
Solicited Orders that qualify for the Solicitation Rebate program if 
the Member also achieves Priority Customer Complex Tier 2 or higher in 
a given month. To the extent the proposal incentivizes Members to send 
more order flow (particularly Solicited Order and complex order flow) 
to ISE, all market participants will benefit from increased order 
interaction when more order flow is available on the Exchange.
    The Exchange believes that the proposed changes to the Solicitation 
Rebate program in Options 7, Section 6.A are equitable and not unfairly 
discriminatory because all Members will be eligible for the proposed 
rebates by sending Solicited Order and complex order flow to the 
Exchange. Further, the Exchange believes that excluding Professional 
Customers from the Solicitation Rebate program in the manner described 
above and applying the proposed rebates only where at least one party 
to the Solicited Order is neither a Priority Customer nor Professional 
Customer is equitable and not unfairly discriminatory because the 
Exchange is simultaneously eliminating the transaction fees for 
Professional Customer SAM Orders (which are included as Solicited 
Orders for purposes of qualifying for and receiving the Solicitation 
Rebate) under this proposal. As such, the Exchange believes that 
Members will continue to be incentivized to send Professional Customer 
Solicited Orders to the Exchange without the added incentive of the 
proposed rebates. In addition, to the extent the proposed Solicitation 
Rebate program encourages Members to send more Solicited Order and 
complex order flow to ISE, all market participants will benefit from 
the resulting additional liquidity and trading opportunities on ISE.
QCC Rebate
    The Exchange believes that the proposed changes to the QCC Rebate 
program are reasonable for the reasons that follow. The Exchange 
believes it is reasonable to exclude Professional Customers from the 
QCC Rebate program in the manner described above because it is 
simultaneously proposing to eliminate the fees applicable to 
Professional Customers for their QCC Orders. As such, the Exchange 
believes that Members will continue to be incentivized to send more 
Professional Customer QCC Orders to the Exchange without the added 
incentive of the QCC Rebates.
    The Exchange also believes that the proposed changes to QCC Rebate 
1 and QCC Rebate 2 are reasonable because the rebate amounts are 
increasing. As discussed above, QCC Rebate 1 will be amended to provide 
that when only one side of the QCC transaction is neither a Priority 
Customer nor Professional Customer, the Member will receive a $0.15 per 
contract rebate for each QCC Agency Side (increased from $0.14 per 
contract). QCC Rebate 2 will be amended to provide that when both sides 
of the QCC transaction are not any combination of Priority Customers 
and/or Professional Customers, the Member will receive a $0.23 per 
contract rebate for each QCC Agency Side (increased from $0.22 per 
contract). With the proposed changes, more Members may seek to qualify 
for proposed QCC Rebate 1 and proposed QCC Rebate 2 by sending 
additional QCC Order flow to ISE, which benefits all market 
participants through quality of order interaction and increased trading 
opportunities.
    The Exchange further believes that the proposed changes to the 
additional QCC incentives are reasonable. As applied to QCC Rebate 1, 
the Exchange is proposing to lower the additional incentive amount from 
$0.03 to $0.01 per contract. As applied to QCC Rebate 2, the Exchange 
is proposing to increase the additional incentive amount from $0.03 to 
$0.04 per contract.\46\ With the additional incentives, Members will be 
eligible to receive up to $0.16 per contract if they also qualify for 
QCC Rebate 1, and up to $0.27 per contract if they also qualify for QCC 
Rebate 2. The Exchange believes that the proposed additional incentives 
are structured at appropriate levels that would continue to encourage 
additional QCC and complex order flow to ISE, which benefits all market 
participants in the quality of order interaction and through increased 
trading opportunities.
---------------------------------------------------------------------------

    \46\ As described above, Members are eligible to receive the 
additional incentives for each QCC Agency Side that qualifies for 
the QCC Rebate program if they achieve Priority Customer Complex 
Tier 2 or higher in a given month. These qualifications are not 
changing under this proposal.
---------------------------------------------------------------------------

    The Exchange believes that the proposed changes to the QCC Rebate 
program in Options 7, Section 6.B are equitable and not unfairly 
discriminatory because all Members will be eligible for the proposed 
rebates by sending more QCC and complex order flow to the Exchange. The 
Exchange further believes that excluding Professional Customers from 
the QCC Rebate program in the manner described above and applying the 
proposed rebates only where at least one party to the QCC transaction 
is neither a Priority Customer nor Professional Customer is equitable 
and not unfairly discriminatory because the Exchange is simultaneously 
eliminating transaction fees for Professional Customer QCC Orders under 
this proposal. As such, the Exchange believes that Members will 
continue to be incentivized to send Professional Customer QCC Orders to 
the Exchange without the added incentive of the proposed rebates. In 
addition, to the extent the proposed QCC Rebate program encourages 
Members to send more QCC Order and complex order flow to ISE, all 
market participants will benefit from the resulting additional 
liquidity and trading opportunities.

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

[[Page 87475]]

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.
Fees for Crossing Orders Except PIM Orders and Crossing Fee Cap
    The Exchange's proposal to decrease the Non-Priority Customer 
Regular Order and Complex Order Fees for Crossing Orders, except for 
PIM Orders, from $0.20 to $0.17 per contract, in Select and Non-Select 
Symbols, does not impose an undue burden on competition because all 
Non-Priority Customer Regular Order and Complex Order Fees for Crossing 
Orders will be reduced in Select and Non-Select Symbols. 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 in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants.
    The Exchange's proposal to no longer offer the Crossing Fee Cap for 
Firm Proprietary contracts does not impose an undue burden on 
competition because no Member would be offered an opportunity to cap 
their Firm Proprietary transactions.
Facilitation and Solicitation Break-Up Rebates
    The Exchange's proposal to increase the Regular Order and Complex 
Order Facilitation and Solicitation Break-up Rebates from $0.15 to 
$0.20 per contract, in Select and Non-Select Symbols, for Non-Nasdaq 
ISE Market Makers (FarMM), Firm Proprietary/Broker Dealers, 
Professionals and Priority Customers does not impose an undue burden on 
competition because the increased Facilitation and Solicitation Break-
up Rebates will apply equally to all non-Market Maker originating 
orders submitted to the Facilitation and Solicited Order Mechanisms 
that do not trade with their contra orders (except when those 
originating contracts trade against pre-existing orders and quotes on 
the Exchange's order books). Today, Market Makers are not eligible for 
Facilitation and Solicitation Break-up Rebates. Conversely, the 
Exchange currently offers Market Makers other rebate programs that do 
not apply to non-Market Makers, such as the Market Maker Plus Program.
    The Exchange's proposal to amend note 4 of Options 7, Section 3 and 
note 2 of Options 7, Section 4 to more specifically provide, ``The 
applicable Fee for Responses to Crossing Orders is applied to any 
contracts for which a rebate is provided'' does not impose an undue 
burden on competition because the amendment conforms the reference to 
the Fees for Crossing Orders for Regular Orders and Complex Orders to 
the title of the fee in the tables of Options 7, Sections 3 and 4, 
which is the Fee for Responses to Crossing Orders. This amendment adds 
clarity to the fee being referenced.
Professional Customer QCC and SOM Fees for Crossing Orders
    The Exchange's proposal to amend note 16 of Options 7, Section 3 
and note 14 of Options 7, Section 4 to provide, ``Fees for Crossing 
Orders applicable to Professional Customers for an order submitted as a 
Qualified Contingent Cross order and orders executed in the Exchange's 
Solicited Order Mechanism will be $0.00 per contract'' does not impose 
an undue burden on competition because providing Professional Customers 
a lower Fee for Crossing Orders in Regular Orders and Complex Orders in 
Select and Non-Select Symbols submitted as a QCC or SOM Order will 
allow other market participants the opportunity to interact with those 
orders in the applicable auctions. The Exchange believes that offering 
Professional Customers lower Fees for Crossing Orders for QCC and SOM 
Orders does not impose an undue burden on competition because 
differentiated pricing encourages different segments of order flow. For 
instance, the Exchange generally provides Priority Customer orders more 
favorable pricing through lower or no transaction fees, including 
Priority Customer Crossing Orders that are presently assessed no fees. 
Professional Customer orders are presently charged a lower transaction 
fee for QCC and SOM Orders ($0.10 for Professional Customers versus 
$0.20 for all other non-Priority Customers). Additionally, Broker-
Dealer and Firm Proprietary orders are incentivized in the Exchange's 
PIM and Facilitation Rebate program.\47\ Market Makers are offered 
rebates through the Exchange's Market Maker Plus program.\48\ The 
Exchange further believes there is nothing impermissible about offering 
Professional Customers lower transaction fee for QCC and SOM Orders 
given that this practice is consistent with lower Professional Fees for 
QCC on other options exchanges.\49\ To the extent the amended lower 
transaction fee for QCC and SOM Orders offered to Professional 
Customers continues to encourage market participants to send additional 
QCC and SOM Orders to ISE, such increased order flow brings increased 
liquidity and additional opportunities for interaction with this order 
flow, which ultimately benefits all market participants.
---------------------------------------------------------------------------

    \47\ See Options 7, Sections 6.C.
    \48\ See note 5 at Options 7, Sections 3.
    \49\ See Nasdaq Phlx LLC (``Phlx'') Options 7, Section 4. Phlx 
does not assess a QCC Transaction Fee to Customers and 
Professionals. See also BOX Exchange LLC's (``BOX'') Fee Schedule at 
Section IV, D. BOX does not assess a QCC Transaction Fee to 
Customers and Professionals.
---------------------------------------------------------------------------

    Amending note 16 of Options 7, Section 3 and note 14 of Options 7, 
Section 4 to specifically refer to ``Fees for Crossing Orders'' does 
not impose an undue burden on competition because it will conform the 
wording to the title of the fees in the tables in Options 7, Sections 3 
and 4 for Regular Orders and Complex Orders, thereby adding clarity.
Solicitation Rebate
    The Exchange believes that the proposed changes to the Solicitation 
Rebate program in Options 7, Section 6.A do not impose an undue burden 
on intra-market competition because all Members will be eligible for 
the proposed rebates by sending Solicited Order and complex order flow 
to the Exchange. As discussed above, the Exchange is proposing to 
exclude Professional Customers from the Solicitation Rebate program in 
the manner described above and to apply the proposed rebates only where 
at least one party to the Solicited Order is neither a Priority 
Customer nor Professional Customer because the Exchange is 
simultaneously eliminating the transaction fees for Professional 
Customer SAM Orders (which are included as Solicited Orders for 
purposes of qualifying for and receiving the Solicitation Rebate) under 
this proposal. As such, the Exchange believes that Members will 
continue to be incentivized to send Professional Customer Solicited 
Orders to the Exchange without the added incentive of the proposed 
rebates. In addition, to the extent the proposed Solicitation Rebate 
program encourages Members to send more Solicited Order and complex 
order flow to ISE, all market participants will benefit from the 
resulting additional liquidity and trading opportunities on ISE.
QCC Rebate
    The Exchange believes that the proposed changes to the QCC Rebate 
program in Options 7, Section 6.B do

[[Page 87476]]

not impose an undue burden on competition because all Members will be 
eligible for the proposed rebates by sending more QCC and complex order 
flow to the Exchange. The Exchange is proposing to exclude Professional 
Customers from the QCC Rebate program in the manner described above and 
to apply the proposed rebates only where at least one party to the QCC 
transaction is neither a Priority Customer nor Professional Customer 
because the Exchange is simultaneously eliminating transaction fees for 
Professional Customer QCC Orders under this proposal. As such, the 
Exchange believes that Members will continue to be incentivized to send 
Professional Customer QCC Orders to the Exchange without the added 
incentive of the proposed rebates. In addition, to the extent the 
proposed QCC Rebate program encourages Members to send more QCC Order 
and complex order flow to ISE, all market participants will benefit 
from the resulting additional liquidity and trading opportunities.
    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. 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 \50\ and Rule 19b-4(f)(2) \51\ 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.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \51\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2023-35 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-2023-35. 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-2023-35 and should be 
submitted on or before January 8, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\52\
---------------------------------------------------------------------------

    \52\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27674 Filed 12-15-23; 8:45 am]
BILLING CODE 8011-01-P


