82 FR 23435 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees To Modify Fees and Rebates for PIM Orders

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 97 (May 22, 2017)

[Federal Register Volume 82, Number 97 (Monday, May 22, 2017)]
[Notices]
[Pages 23435-23437]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-10306]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80684; File No. SR-ISE-2017-39]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees To Modify Fees and Rebates for PIM Orders

May 16, 2017.
    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 May 1, 2017, 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.
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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 Schedule of Fees to modify fees 
charged and rebates provided for orders executed in the Price 
Improvement Mechanism.
    The text of the proposed rule change is available on the Exchange's 
Web site at www.ise.com, 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 Schedule of 
Fees to modify fees charged and rebates provided for orders executed in 
the Price Improvement Mechanism (``PIM''). In particular, the proposed 
rule change makes the following changes for both regular and complex 
orders in Select Symbols \3\ and Non-Select Symbols: \4\ (1) Amends the 
fee PIM orders other than Priority Customer \5\ orders to be $0.10 per 
contract, regardless of the size of the order; (2) provides discounted 
fees for PIM orders such that members that execute an average daily 
volume (``ADV'') of 7,500 or more contracts in the PIM in a given month 
will pay a fee of $0.05 per contract, and Members that execute an ADV 
of 12,500 or more contracts in the PIM in a given month will not pay a 
fee for PIM orders; (3) amends the fee for Responses to PIM orders to 
be $0.20 per contract; and (4) eliminates the PIM break-up rebate. Each 
of these proposed changes are described in more detail below.
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    \3\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Pilot Program.
    \4\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
    \5\ 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 Rule 
100(a)(37A).
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Fee for PIM Orders
    Currently, regular and complex PIM orders of 100 or fewer contracts 
in Select and Non-Select Symbols are charged a fee of $0.05 per 
contract for Market Maker,\6\ Non-Nasdaq ISE Market Maker,\7\ Firm 
Proprietary,\8\ Broker-

[[Page 23436]]

Dealer, and Professional Customer \9\ orders (``non-Priority Customer 
orders''); \10\ Priority Customer orders receive free executions in the 
PIM. This fee for non-Priority Customer PIM orders of 100 or fewer 
contracts is reduced to $0.03 per contract for orders executed by 
Members that have an ADV of 20,000 or more Priority Customer contracts 
in a given month executed in the PIM.\11\ PIM orders of more than 100 
contracts pay the fee for Crossing Orders, which is $0.20 per contract 
for Non-Nasdaq ISE Market Maker, Firm Proprietary, Broker-Dealer, and 
Professional Customer orders for both regular and complex orders in 
Select and Non-Select Symbols.\12\ Regular Market Maker orders in 
Select Symbols and Market Maker complex orders in both Select and Non-
Select Symbols are charged a fee of $0.20 per contract; Regular Market 
Maker orders in Non-Select Symbols are also charged a fee of $0.20 per 
contract if sent by an Electronic Access Member (``EAM'') and are 
otherwise charged a fee of $0.25 per contract, subject to applicable 
tier discounts.\13\
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    \6\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Nasdaq ISE 
Rule 100(a)(25).
    \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 ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \10\ Fees apply to the originating and contra order. Firm 
Proprietary and Non-Nasdaq ISE Market Maker contracts traded are 
subject to the Crossing Fee Cap, as provided in section IV.H of the 
Schedule of Fees. The Schedule of Fees is currently missing a 
reference indicating that footnote 6 under section II., Complex 
Order Fees and Rebate, relating to the Crossing Fee Cap applies to 
the fee for PIM orders. The Exchange proposes to add this reference.
    \11\ This discounted fee is applied retroactively to all 
eligible PIM volume in that month once the threshold has been 
reached. Priority Customer ADV includes all volume in all symbols 
and order types. All eligible volume from affiliated Members will be 
aggregated in determining total affiliated Priority Customer ADV, 
provided there is at least 75% common ownership between the Members 
as reflected on each Member's Form BD, Schedule A. For purposes of 
determining Priority Customer ADV, any day that the regular order 
book is not open for the entire trading day or the Exchange 
instructs members in writing to route their orders to other markets 
may be excluded from such calculation; provided that the Exchange 
will only remove the day for members that would have a lower ADV 
with the day included.
    \12\ Fees apply to the originating and contra order. Firm 
Proprietary and Non-Nasdaq ISE Market Maker contracts traded are 
subject to the Crossing Fee Cap, as provided in section IV.H of the 
Schedule of Fees.
    \13\ See Schedule of Fees, section IV.C.
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    The Exchange now proposes to: (1) Adopt a fee of $0.10 per contract 
for non-Priority Customer orders executed in the PIM, and (2) remove 
the distinction between PIM orders of 100 or fewer contracts and PIM 
orders of more than 100 contracts. As proposed, non-Priority Customer 
PIM orders for both regular and complex, and in both Select and Non-
Select Symbols, will be charged a fee of $0.10 per contract. In 
addition, the Exchange proposes to allow members to qualify for lower 
fees (or no fees) based on the amount of volume they execute in the 
PIM. In particular, members that execute an ADV of 7,500 or more 
contracts in the PIM in a given month will be charged a reduced fee of 
$0.05 per contract, and members that execute an ADV of 12,500 or more 
contracts will not be charged a fee for PIM orders. As is the case for 
the Exchange's other volume based fees, the discounted fees will be 
applied retroactively to all eligible PIM volume in that month once the 
threshold has been reached.
PIM Response Fees and Break-Up Rebates
    Currently, for regular orders in Select and Non-Select Symbols, the 
Exchange charges all market participants a fee of $0.50 per contract 
for Responses to Crossing Orders. For complex orders, the fee for 
Responses to Crossing Orders is $0.48 per contract in Select Symbols 
for all market participants, and in Non-Select Symbols is $0.91 per 
contract for Market Maker orders and $0.96 per contract for Non-Nasdaq 
ISE Market Maker, Firm Proprietary, Broker-Dealer, Professional 
Customer, and Priority Customer orders. In addition, the Exchange 
provides a PIM break-up rebate for contracts that are submitted to PIM 
that do not trade with their contra order.\14\ This PIM break-up Rebate 
is provided to Non-Nasdaq ISE Market Maker, Firm Proprietary, Broker-
Dealer, Professional Customer, and Priority Customer orders, and is 
$0.35 per contract for regular and complex orders in Select Symbols, 
$0.15 per contract for regular orders in Non-Select Symbols, and $0.80 
per contract for complex orders in Non-Select Symbols. The Exchange now 
proposes to (1) charge a lower fee of $0.20 per contract for Responses 
to PIM orders for all market participants, and (2) eliminate the PIM 
break-up rebate provided for contracts that do not trade with their 
contra order.
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    \14\ The applicable fee is applied to any contracts for which a 
rebate is provided. For complex orders submitted to the PIM the 
rebate is provided per contract leg except when those contracts 
trade against pre-existing orders and quotes on the Exchange's order 
books.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\15\ in general, and furthers the objectives of 
sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4) and (5).
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Fee for PIM Orders
    The Exchange believes that the proposed fees for PIM orders are 
reasonable and equitable because they are designed to increase 
participation in the PIM. In particular, the Exchange believes that the 
proposed fee for PIM orders is reasonable and equitable as it is 
designed to reward members that send a high volume of PIM orders to the 
Exchange. As proposed, although the Exchange is removing incentives for 
small PIM orders of 100 or fewer contracts, members will pay a fee for 
PIM orders that remains lower than the fees charged for other Crossing 
Orders, and will qualify for volume based discounts, including free 
executions in the PIM for members that meet the higher proposed volume 
threshold. The Exchange believes that this fee structure will 
incentivize members to execute their orders in the PIM to the benefit 
of all market participants that trade on the Exchange. Furthermore, the 
Exchange believes that this proposed change is not unfairly 
discriminatory as all non-Priority Customer orders will continue to be 
subject to the same fees, and can qualify for further discounts based 
on volume executed in the PIM. Priority Customer orders will also 
continue to receive free executions in the PIM. The Exchange believes 
that it is equitable and not unfairly discriminatory to charge lower 
fees for Priority Customer orders as a Priority Customer is by 
definition not a broker or 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). This limitation does 
not apply to participants whose behavior is substantially similar to 
that of market professionals, including, Professional Customers, who 
will generally submit a higher number of orders than Priority 
Customers. Furthermore, the Exchange notes that all market participants 
can qualify for free executions in the PIM if the member executes the 
required volume of contracts in the PIM.
PIM Response Fees and Break-Up Rebates
    The Exchange also believes that the proposed changes to PIM 
response fees and break-up rebates are reasonable and equitable as they 
are designed to make it more attractive for market participants

[[Page 23437]]

to respond to PIM auctions, thereby increasing price improvement 
opportunities for PIM orders. As proposed, market participants that 
respond to PIM auctions will pay a response fee that is significantly 
lower than that charged for responses to other Crossing Orders, and 
members that initiate a PIM auction will no longer qualify for break-up 
rebates if they enter an order into the PIM that does not trade against 
its contra order. The Exchange believes that these changes will make it 
easier for firms to participate in the PIM by responding to these 
auctions with price improvement. Furthermore, the Exchange does not 
believe that the proposed rule change is unfairly discriminatory as all 
market participants that respond to PIM auctions will be charged the 
same fee for Responses to PIM orders, and no market participants will 
be eligible for PIM break-up rebates, which are being eliminated.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with section 6(b)(8) of the Act,\17\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. To the contrary, 
the Exchange believes that the proposed fee change is pro-competitive 
as it is designed to provide incentives for members to submit orders to 
the PIM, and to encourage members to respond to PIM auctions and 
thereby increase price improvement opportunities for orders submitted 
to the PIM. The Exchange operates in a highly competitive market in 
which market participants can readily direct their order flow to 
competing venues. In such an environment, the Exchange must continually 
review, and consider adjusting, its fees and rebates to remain 
competitive with other exchanges. For the reasons described above, the 
Exchange believes that the proposed fee changes reflect this 
competitive environment.
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    \17\ 15 U.S.C. 78f(b)(8).
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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,\18\ and Rule 19b-4(f)(2) \19\ 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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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \19\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ISE-2017-39 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-2017-39. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISE-2017-39 and should be 
submitted on or before June 12, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10306 Filed 5-19-17; 8:45 am]
 BILLING CODE 8011-01-P