82 FR 24753 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees To Decrease Member Order Routing Program Rebates

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 102 (May 30, 2017)

[Federal Register Volume 82, Number 102 (Tuesday, May 30, 2017)]
[Notices]
[Pages 24753-24755]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-10972]



[[Page 24753]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80744; File No. SR-ISE-2017-47]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees To Decrease Member Order Routing Program Rebates

May 23, 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 16, 2017, 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.\3\ 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.
    \3\ The Exchange initially filed the proposed rule change as SR-
ISE-2017-38 on April 27, 2017. On May 5, 2017, the Exchange withdrew 
SR-ISE-2017-38 and submitted SR-ISE-2017-43 as a replacement. On May 
16, 2017, the Exchange withdrew SR-ISE-2017-43 and submitted this 
filing. The Exchange has designated the proposed changes to be 
operative on May 1, 2017.
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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 its Schedule of Fees to decrease 
rebates for members that participate in the Member Order Routing 
Program.
    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 Exchange operates the Member Order Routing Program 
(``MORP''),\4\ which is a program that provides enhanced rebates to 
order routing firms that select the Exchange as the default routing 
destination for unsolicited Crossing Orders.\5\ On March 10, 2017, the 
Exchange made changes to the program to allow members to opt in to MORP 
for specific sessions rather than on a member-wide basis, and to 
increase MORP rebates for members that participate in the program.\6\ 
As described in more detail below, the Exchange now proposes to 
decrease MORP rebates consistent with the previous rebates provided 
prior to that proposed rule change.\7\ Members will continue to be able 
to opt in to MORP for specific sessions rather than on a member-wide 
basis.
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    \4\ See Securities Exchange Act Release No. 74706 (April 10, 
2016), 80 FR 20522 (April 16, 2016) (SR-ISE-2015-11).
    \5\ A ``Crossing Order'' is an order executed in the Exchange's 
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement 
Mechanism (``PIM'') or submitted as a Qualified Contingent Cross 
(``QCC'') order. For purposes of the fee schedule, orders executed 
in the Block Order Mechanism are also considered Crossing Orders.
    \6\ See Securities Exchange Act Release No. 80267 (March 17, 
2017), 82 FR 14929 (March 23, 2017) (SR-ISE-2017-24). As provided in 
the above filing, a member may designate one or more sessions to be 
eligible for MORP. A session is connection to the exchange over 
which a member submits orders. See Section V.C. of the Schedule of 
Fees. If a session is designated as eligible for MORP all 
requirements for the program must be met for that session. To be 
eligible to participate in MORP an EAM must: (1) Designate, in 
writing, to the Exchange which sessions are MORP eligible according 
to the criteria below; (2) provide to its clients, systems that 
enable the electronic routing of option orders to all of the U.S. 
options exchanges, including ISE; (3) interface with ISE to access 
the Exchange's electronic options trading platform; (4) offer to its 
clients a customized interface and routing functionality such that 
ISE will be the default destination for all unsolicited Crossing 
Orders entered by the EAM, provided that market conditions allow the 
Crossing Order to be executed on ISE; (5) configure its own option 
order routing functionality such that ISE will be the default 
destination for all unsolicited Crossing Orders, provided that 
market conditions allow the Crossing Order to be executed on ISE, 
with respect to all option orders as to which the EAM has routing 
discretion; and (6) ensure that the default routing functionality 
permits users submitting option orders through such system to 
manually override the ISE as the default destination on an order-by-
order basis.
    On the Schedule of Fees, the requirement to designate which 
sessions are MORP eligible ends in a period. As a non-substantive 
conforming change, the Exchange proposes to change this to a semi-
colon.
    \7\ The Exchange initially filed the proposed pricing changes on 
April 27, 2017 (SR-ISE-2017-38). On May 5, 2017, the Exchange 
withdrew that filing and submitted this filing [sic].
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Rebate for Unsolicited Crossing Orders
    Currently, an EAM that is MORP eligible receives a rebate for all 
unsolicited Crossing Orders of $0.065 per originating contract side, 
provided that the member executes a minimum average daily volume 
(``ADV'') in unsolicited Crossing Orders of at least 30,000 originating 
contract sides though their MORP designated sessions. This rebate is 
increased to $0.07 per originating contract side, provided that the 
member executes a higher ADV in unsolicited Crossing Orders of 100,000 
originating contract sides.\8\ The Exchange proposes to decrease the 
MORP rebate for eligible members that execute from 30,000 to 99,999 
originating contract sides to $0.05 per originating contract side. The 
MORP rebate for eligible members that execute 100,000 or more 
originating contract sides will remain $0.07 per originating contract 
side.
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    \8\ The rebate for the highest tier achieved is applied 
retroactively to all eligible contracts traded in a given month. For 
purposes of determining whether the member meets the above ADV 
thresholds, any day that the Exchange 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.
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Facilitation and Solicitation Break-Up Rebate
    In addition, any EAM that qualifies for the MORP rebate by 
executing an ADV of 30,000 originating contract sides or more on their 
MORP designated sessions is also eligible for increased Facilitation 
and Solicitation break-up rebates \9\ for their Non-ISE Market 
Maker,\10\ Firm Proprietary,\11\ Broker-Dealer,\12\ Professional 
Customer,\13\ and

[[Page 24754]]

Priority Customer orders.\14\ Currently, MORP eligible members that 
execute a qualifying ADV in unsolicited Crossing Orders of at least 
30,000 originating contract sides, receive a Facilitation and 
Solicitation break-up rebate that is $0.42 per contract for regular and 
complex orders in Select Symbols,\15\ $0.20 per contract for regular 
orders in Non-Select Symbols,\16\ $1.08 per contract for complex orders 
in Non-Select Symbols, and $0.15 per contract for regular and complex 
orders in foreign exchange option classes (``FX Options''). The 
Exchange proposes to decrease these Facilitation and Solicitation 
break-up rebates for MORP-eligible members to $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. Regular and complex orders in FX 
Options will continue to receive a Facilitation and Solicitation break-
up rebate of $0.15 per contract.
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    \9\ Break-up rebates 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 Exchange's orderbooks. 
The applicable fee for Crossing Orders is applied to any contracts 
for which a rebate is provided.
    \10\ A ``Non-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.
    \11\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \12\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \13\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \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 ISE Rule 100(a)(37A).
    \15\ ``Select Symbols'' are options overlying all symbols listed 
on the ISE that are in the Penny Pilot Program.
    \16\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\18\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes the proposed decreases to MORP rebates, 
including the rebate for unsolicited Crossing Orders, and the 
Facilitation and Solicitation break-up rebate, are reasonable and 
equitable because the proposed rebates are set at amounts previously 
offered and will continue to be attractive to members that participate 
in the program.\19\ Under MORP, which is a voluntary rebate program, 
the Exchange currently provides enhanced rebates to EAMs that connect 
directly to the Exchange and provide their clients with order routing 
functionality that includes all U.S. options exchanges, including ISE. 
Although the Exchange proposes to decrease the rebates, the Exchange 
still believes that members will continue to be incentivized to 
participate in the program. The Exchange believes that the proposed 
rebates will be attractive to members to opt in to MORP.
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    \19\ See supra note 3.
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    In addition, the Exchange believes that the proposed rebates are 
not unfairly discriminatory as they apply to all EAMs that meet the 
program requirements and opt in to the program. Any EAM that 
participates in the program will be provided the rebates on an equal 
and non-discriminatory basis based on the order flow executed on the 
Exchange. While MORP is targeted towards unsolicited Crossing Order 
flow, the Exchange offers other incentive programs to promote and 
encourage growth in other business areas, including, for example, 
rebates for Market Makers that routinely quote at the national best bid 
or offer,\20\ and volume-based Priority Customer complex order 
rebates.\21\ Furthermore, solicited Crossing Orders benefit from the 
QCC and Solicitation Rebate, which applies to all QCC and/or other 
solicited Crossing Orders, including solicited orders executed in the 
Solicitation, Facilitation or Price Improvement Mechanisms. The 
Exchange believes that MORP is appropriately tailored to the order flow 
that the Exchange is seeking to attract, and will benefit all market 
participants that trade on ISE by encouraging additional liquidity.
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    \20\ See Schedule of Fees, Section I, Regular Order Fees and 
Rebates, Market Maker Plus.
    \21\ See Schedule of Fees, Section II, Complex Order Fees and 
Rebates.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\22\ 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. Order routing 
firms that participate in MORP and select the Exchange as the default 
routing destination for unsolicited Crossing Orders will continue to 
receive enhanced rebates that are set at levels consistent with those 
previously offered on ISE. 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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    \22\ 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,\23\ and Rule 19b-4(f)(2) \24\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is: (i) Necessary or 
appropriate in the public interest; (ii) for the protection of 
investors; or (iii) otherwise in furtherance of the purposes of the 
Act. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or disapproved.
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    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \24\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ISE-2017-47 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-2017-47. 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

[[Page 24755]]

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-2017-47 and should be submitted on or before June 
20, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10972 Filed 5-26-17; 8:45 am]
BILLING CODE 8011-01-P