82 FR 48865 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Assess Fees for Specialized Quote Feed and SQF Purge Ports

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 202 (October 20, 2017)

[Federal Register Volume 82, Number 202 (Friday, October 20, 2017)]
[Notices]
[Pages 48865-48867]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-22757]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81882; File No. SR-ISE-2017-87]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Assess Fees for 
Specialized Quote Feed and SQF Purge Ports

October 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 October 2, 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, II, and III, 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 proposal to amend its Schedule of Fees, as 
described further below.
    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 is proposing to amend its Schedule of Fees to assess 
fees for Specialized Quote Feed (``SQF'') \3\ and SQF Purge \4\ Ports 
that Market Makers \5\ utilize to connect to the Exchange. The Exchange 
recently completed the migration of the Exchange's T7 trading

[[Page 48866]]

system to the Nasdaq INET architecture.\6\ This technology re-platform 
included the adoption of new connectivity options, including SQF and 
SQF Purge Ports,\7\ which are the same as the connectivity options 
currently used to connect to the Exchange's affiliates, including 
Nasdaq GEMX (``GEMX''), Nasdaq Options Market (``NOM''), Nasdaq BX 
(``BX''), and Nasdaq Phlx (``Phlx'').\8\ During the migration period, 
Market Makers had to use both old application programming interface 
(``API'') sessions (``old API Ports'') and new SQF Ports to connect to 
the Exchange.\9\ To help its members transition through the migration 
period, the Exchange filed a fee proposal regarding the old API Ports 
and the new SQF Ports.\10\ As part of that filing, the Exchange added 
the following language in Section V of the Schedule of Fees in order to 
avoid double charging Market Makers who were using both the old and new 
connectivity options to access the Exchange while also allowing the 
Exchange to recoup the costs of supporting its architecture 
(``migration accommodation language''):
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    \3\ SQF is an interface that allows market makers to connect and 
send quotes, sweeps and auction responses into the Exchange. Data 
includes the following: (1) Options Auction Notifications (e.g., 
opening imbalance, Flash, PIM, Solicitation and Facilitation or 
other information); (2) Options Symbol Directory Messages; (3) 
System Event Messages (e.g., start of messages, start of system 
hours, start of quoting, start of opening); (4) Option Trading 
Action Messages (e.g., halts, resumes); (5) Execution Messages; (6) 
Quote Messages (quote/sweep messages, risk protection triggers or 
purge notifications).
    \4\ SQF Purge is a specific port for the SQF interface that only 
receives and notifies of purge requests from the market maker.
    \5\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \6\ See Securities Exchange Act Release No. 80432 (April 11, 
2017), 82 FR 18191 (April 17, 2017) (SR-ISE-2017-03).
    \7\ When the Exchange adopted these new ports, it initially did 
not assess any fees so that members would not be double charged for 
connectivity to the old Exchange architecture and the new Nasdaq 
INET architecture. See Securities Exchange Act Release No. 81095 
(July 7, 2017), 82 FR 32409 (July 13, 2017) (SR-ISE-2017-62).
    \8\ See GEMX Schedule of Fees, IV. Access Services, Port Fees, 
3. Ports; NOM Rules, Chapter XV Options Pricing, Sec. 3 NOM--Ports 
and other Services; BX Rules, Chapter XV Options Pricing, Sec. 3 
BX--Ports and other Services; and Phlx Pricing Schedule, VII. Other 
Member Fees, B. Port Fees.
    \9\ The Exchange migrated on a symbol by symbol basis thereby 
requiring the use of both the old API Ports on T7 and the new SQF 
Ports on INET for a period of time.
    \10\ See Securities Exchange Act Release No. 81213 (July 26, 
2017), 82 FR 35855 (August 1, 2017) (SR-ISE-2017-73) (hereinafter 
``Prior SQF Filing'').
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    (1) In Section V.D of the Schedule of Fees, it is currently noted 
for the monthly $1,000 SQF Port Fee that: ``A Market Maker who was not 
subject to the API Session Fee in Section V.C.1 prior to July 3, 2017 
will be assessed the above SQF Port Fee from July 3, 2017 through 
September 29, 2017. This SQF Port Fee will not apply to Market Makers 
that are subject to the Fixed Fee in Section V.E.''
    (2) Section V.E of the Schedule of Fees presently reads: ``Market 
Makers that are subject to the API Session Fee in Section V.C.1 as of 
July 3, 2017 will be subject a monthly fixed fee that reflects the 
average of API Session Fees assessed to that Market Maker for the 
months of March, April, and May 2017 (``Fixed Fee'') in lieu of the API 
Session Fee. This Fixed Fee will be assessed to these Market Makers 
from July 3, 2017 through September 29, 2017, and applies both to API 
sessions and SQF ports used to connect to Nasdaq ISE. The Fixed Fee 
will be charged for all of the API sessions and SQF ports used in a 
given month during this time period, not per port.''
    As discussed above, the Exchange completed its migration to INET, 
and the old API Ports have accordingly been eliminated and only the new 
SQF Ports are being utilized. As such, these instances of the migration 
accommodation language are no longer needed and are therefore being 
deleted.
    The Exchange also seeks to amend Section V.D of the Schedule of 
Fees to increase the monthly $1,000 SQF Port Fee to $1,100 per SQF Port 
and to begin assessing a monthly $1,100 SQF Purge Port Fee per SQF 
Purge Port. The proposed SQF and SQF Purge Port Fees will apply to all 
Market Makers. The Exchange believes that its pricing remains 
competitive.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    As discussed above, the Exchange added the migration accommodation 
language and the associated Fixed Fee and $1,000 SQF Port Fee in 
Section V of the Schedule of Fees in order to avoid double charging 
members while also allowing the Exchange to recoup the costs of 
supporting its architecture. At the time these fees were put into 
place, the Exchange recognized that there may not be a one-to-one 
relationship between the number of the old API Ports and the new SQF 
Ports needed to connect to the Exchange due to the different 
infrastructure of the two trading systems.\13\ The Exchange expected, 
however, that the quoting needs and other trading activity of Market 
Makers would remain relatively constant throughout the migration and 
across the two platforms.\14\ As such, the Exchange stated that it 
would use the time period between July 3, 2017 and September 29, 2017 
to monitor the manner in which all Market Makers connect to the new 
INET trading system, and would reassess whether the related fees 
assessed to Market Makers were adequate and reasonable.\15\ During this 
three-month time frame, the Exchange has looked at the manner in which 
all Market Makers connect to INET to determine the proposed $1,100 SQF 
and SQF Purge Port Fees, and believes that these fees are adequate and 
reasonable in light of how all Market Makers use these ports to access 
the Exchange. Furthermore, the Exchange believes that assessing all 
Market Makers the proposed fees is reasonable because members no longer 
have connectivity to the old Exchange architecture (and therefore no 
longer need to maintain two sets of ports), and are using only the new 
SQF Ports to connect to the Exchange.
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    \13\ See Prior SQF Filing at 35856.
    \14\ Id.
    \15\ Id. at 35858.
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    In addition, the Exchange believes that the proposed SQF and SQF 
Purge Port Fees of $1,100 per port, per month are reasonable because 
they are in line with the fees assessed by other exchanges. For 
example, GEMX assesses a fee of $1,250 per port, per month for SQF and 
SQF Purge Ports today.\16\ The Exchange also notes that Bats BZX 
Exchange, Inc. (``Bats BZX'') assesses a $1,500 fee to its market 
makers for Ports with Bulk Quoting Capabilities.\17\
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    \16\ See GEMX Schedule of Fees, IV. Access Services, Port Fees, 
3. Ports.
    \17\ See Bats BZX Fee Schedule at: https://www.bats.com/us/options/membership/fee_schedule/bzx/.
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    The Exchange also believes that the proposed fees are an equitable 
allocation and not unfairly discriminatory because the Exchange will 
apply these fees uniformly to all similarly situated members.
    The Exchange believes that deleting the migration accommodation 
language from Section V of the Schedule of Fees is reasonable, 
equitable and not unfairly discriminatory because the migration is now 
completed and the migration accommodation language is therefore no 
longer needed. Deleting outdated rule text will bring greater clarity 
to the Exchange's Schedule of Fees.

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. As explained above, the 
proposed SQF and SQF Purge Port Fees are assessed uniformly to all 
Market Makers at a rate that is

[[Page 48867]]

representative of their typical usage of the new ports. Moreover, the 
proposed fees are in line with the fees assessed by other exchanges for 
the same or similar connectivity.
    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 and with alternative trading systems 
that have been exempted from compliance with the statutory standards 
applicable to 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 fee 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.\18\ 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).
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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-2017-87 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2017-87. 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-2017-87 and should be 
submitted on or before November 13, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-22757 Filed 10-19-17; 8:45 am]
BILLING CODE 8011-01-P