[Federal Register Volume 85, Number 140 (Tuesday, July 21, 2020)]
[Notices]
[Pages 44114-44117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15688]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89321; File No. SR-ISE-2020-26]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Pricing Schedule at Options 7
July 15, 2020.
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 July 1, 2020, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with
the Securities and Exchange Commission (``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, as described further below.
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
[[Page 44115]]
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. Each change is described below.
Response Fees
Today, for regular orders in Non-Select Symbols,\3\ the Exchange
charges all market participants a fee for Responses to Crossing Orders
\4\ (except PIM orders) that is $0.50 per contract. For complex orders
in Non-Select Symbols, this Response fee is $0.91 per contract for
Market Makers \5\ and $0.96 per contract for all other market
participants. In addition, for regular orders in Select Symbols \6\ and
Non-Select Symbols, the Exchange currently charges all market
participants a fee for Responses to PIM orders that is $0.35 per
contract. For complex orders in both Select and Non-Select Symbols, the
PIM Response fee is likewise $0.35 per contract for all market
participants.
---------------------------------------------------------------------------
\3\ ``Non-Select Symbols'' are options overlying all symbols
excluding Select Symbols.
\4\ ``Responses to Crossing Orders'' is any contra-side interest
submitted after the commencement of an auction in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, Block Order
Mechanism or Price Improvement Mechanism (``PIM'').
\5\ ``Market Makers'' are ``Competitive Market Makers'' and
``Primary Market Makers'' collectively. See Options 1, Section
1(a)(21).
\6\ ``Select Symbols'' are options overlying all symbols listed
on the Nasdaq ISE that are in the Penny Interval Program.
---------------------------------------------------------------------------
The Exchange now proposes to increase the Response fees described
above. Specifically, the fees for Responses to Crossing Orders (except
PIM orders) in Non-Select Symbols for both regular and complex orders
will increase to $1.10 per contract for all market participants. In
addition, the fees for Responses to PIM orders in Select Symbols for
regular and complex orders will increase to $0.50 per contract for all
market participants. Lastly, the fees for Responses to PIM orders in
Non-Select Symbols for regular and complex orders will increase to
$1.10 per contract for all market participants.
Facilitation and Solicitation Break-up Rebate
Currently, the Exchange provides a Facilitation and Solicitation
break-up rebate of $0.15 per contract for regular and complex orders in
Select Symbols. This rebate applies to all Non-Nasdaq ISE Market
Maker,\7\ Firm Proprietary \8\/Broker-Dealer,\9\ Professional
Customer,\10\ and Priority Customer \11\ orders submitted in 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 Exchange's order books. The Exchange
now proposes to adopt the same break-up rebate for regular and complex
orders in Non-Select Symbols, and apply the rebate in the same manner
to Non-Nasdaq ISE Market Maker, Firm Proprietary/Broker-Dealer,
Professional Customer, and Priority Customer orders. The Exchange also
proposes technical changes in note 4 of Options 7, Section 3 to revise
``orderbooks'' to ``order books,'' and in the Crossing Order Fees and
Rebates table in Options 7, Section 4 to revise ``Breakup Rebate'' to
``Break-up Rebate'' for greater consistency with the Pricing Schedule.
---------------------------------------------------------------------------
\7\ 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.
\8\ A ``Firm Proprietary'' order is an order submitted by a
member for its own proprietary account.
\9\ A ``Broker-Dealer'' order is an order submitted by a member
for a broker-dealer account that is not its own proprietary account.
\10\ A ``Professional Customer'' is a person or entity that is
not a broker/dealer and is not a Priority Customer.
\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).
---------------------------------------------------------------------------
Taker Fees
The Exchange currently charges all Non-Priority Customers \12\ a
taker fee of $0.72 per contract for regular orders in Non-Select
Symbols (except NDX and NQX).\13\ The Exchange now proposes to increase
this fee to $0.90 per contract for all Non-Priority Customers.
---------------------------------------------------------------------------
\12\ Non-Priority Customers include Market Makers, Non-Nasdaq
ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and
Professional Customers.
\13\ NDX and NQX, which are Non-Select Symbols, are presently
subject to separate pricing for index options in Section 5 of the
Pricing Schedule.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\14\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\15\ 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.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b).
\15\ 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'. . . .'' \16\
---------------------------------------------------------------------------
\16\ 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.'' \17\
---------------------------------------------------------------------------
\17\ 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
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
[[Page 44116]]
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.
Response Fees
The Exchange believes that the proposed increase to the fees for
responses to Crossing Orders is reasonable, equitable and not unfairly
discriminatory. With the proposed changes, the response fees will now
be uniform at $0.50 per contract for regular and complex orders in
Select Symbols, and at $1.10 per contract for regular and complex
orders in Non-Select Symbols, in both cases across all Crossing Orders
and all market participant types. While the response fees are
increasing under this proposal, the proposed fees are still within the
range of rates charged for similar auction mechanisms at other options
exchanges.\18\
---------------------------------------------------------------------------
\18\ See Nasdaq MRX (``MRX'') Pricing Schedule, Options 7,
Section 3, Table 2, and Section 5.E, which set forth comparable
rates for responses to Crossing Orders on MRX. For example, MRX
charges all market participants a $0.50 per contract fee for
responses to Crossing Orders in Penny Symbols and a $1.10 per
contract fee for responses to Crossing Orders in Non-Penny Symbols.
See also Cboe EDGX Options (``EDGX'') Fee Schedule, ``Automated
Improvement Mechanism (``AIM'') and Solicitation Auction Mechanism
(``SAM'') Pricing,'' which charges all market participants a fee of
$0.50 (Penny Pilot Securities) and $1.05 (Non-Penny Pilot
Securities) for AIM and SAM responses.
---------------------------------------------------------------------------
Facilitation and Solicitation Break-up Rebate
The Exchange believes that the proposed Facilitation and
Solicitation break-up rebates for Non-Select Symbols are reasonable
because these incentives will encourage use of the Facilitation and
Solicited Order Mechanisms. Specifically, the Exchange believes that
the proposed rebates will encourage increased originating regular and
complex 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. The
Exchange further believes that the proposed Facilitation and
Solicitation break-up rebates for Non-Select Symbols are set at
reasonable rates because they are aligned with the break-up rebates
currently provided for Select Symbols, as discussed above.
The Exchange believes that the proposed Facilitation and
Solicitation break-up rebates for Non-Select Symbols are equitable and
not unfairly discriminatory because the proposed 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 not receive the Facilitation and Solicitation
break-up rebates for 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 in Select Symbols 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.
Taker Fees
The Exchange believes that the proposed increase to the Non-Select
Symbol taker fees is reasonable, equitable and not unfairly
discriminatory. With the proposed changes, the taker fees will
uniformly increase to $0.90 per contract for all Non-Priority
Customers. The Exchange notes that Priority Customers will continue to
be assessed no taker fee for Non-Select Symbols under this proposal.
While the taker fees are increasing for Non-Priority Customers, the
proposed fees are within the range of taker fees at another options
exchange.\19\
---------------------------------------------------------------------------
\19\ See Cboe C2 Options (``C2'') Fees Schedule, ``Transaction
Fees,'' which charges the following fees in Non-Penny Classes for
orders that remove liquidity: $0.85 for Public Customer orders,
$0.90 for C2 Market Maker orders, and $0.93 for Non-Customer, Non-
Market Maker orders (Professional Customer, Firm, Broker/Dealer,
non-C2 Market Maker, JBO, etc.).
---------------------------------------------------------------------------
The Exchange believes that it is equitable and not unfairly
discriminatory to continue charging Priority Customers no taker fees in
Non-Select Symbols as the Exchange has historically offered lower
execution fees or rebates to those market participants. Furthermore,
Priority Customer order flow enhances liquidity on the Exchange for the
benefit of all market participants by providing more trading
opportunities, which in turn attracts Market Makers and other market
participants that may trade with this order flow.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In terms of intra-market
competition, the Exchange does not believe that its proposal will place
any category of market participant at a competitive disadvantage. The
proposed response fees for Crossing Orders will be consistent across
all market participants, as discussed above. In addition, the
Facilitation and Solicitation break-up rebates proposed for Non-Select
Symbols will be applied to market participants in the same manner as
the Facilitation and Solicitation break-up rebates are applied today
for Select Symbols. Lastly, the Non-Select Symbol taker fees will be
increased uniformly across all Non-Priority Customers while Priority
Customers will continue to be charged no taker fee.
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 this instance, while the Exchange is increasing
the response fees and taker fees in the manner discussed above, the
Exchange does not believe this will cause an undue burden on
competition as the increased fees are still within the range of similar
fees charged by other options exchanges.
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.
[[Page 44117]]
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 \20\ and Rule 19b-4(f)(2) \21\ 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.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78s(b)(3)(A)(ii).
\21\ 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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-ISE-2020-26 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-2020-26. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-ISE-2020-26 and should be submitted on
or before August 11, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
---------------------------------------------------------------------------
\22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15688 Filed 7-20-20; 8:45 am]
BILLING CODE 8011-01-P