82 FR 8244 - Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 14 (January 24, 2017)
Federal Register Volume 82, Issue 14 (January 24, 2017)
| Page Range | 8244-8248 | |
| FR Document | 2017-01466 |
[Federal Register Volume 82, Number 14 (Tuesday, January 24, 2017)] [Notices] [Pages 8244-8248] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-01466] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79811; File No. SR-ISE-2017-01] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees January 17, 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 January 3, 2017, the International Securities Exchange, LLC (``ISE'' or ``Exchange'') filed with the Securities and Exchange Commission (``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. --------------------------------------------------------------------------- \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 Schedule of Fees as described in more detail below. The text of the proposed rule change is available on the Exchange's Web site at http://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 Exchange's Schedule of Fees to eliminate, for all symbols other than FX symbols, the $0.20 per contract fee applicable to Professional Customers \3\ for the initiating or contra side of Qualified Contingent Cross (``QCC'') orders or orders executed in the Solicitation Mechanism (``Solicitation'' orders). The proposed rule change will lower the rebates that the Exchange provides to members acting as agent when Professional Customers trade with other Professional Customers and when they trade with Priority Customers for QCC and other solicited crossing orders \4\ to the same per contract rates and volume tiers that the Exchange presently provides to members acting as agent [[Page 8245]] when Priority Customers \5\ trade with other Priority Customers for such orders. --------------------------------------------------------------------------- \3\ A ``Professional Customer'' is a person or entity that is not a broker/dealer and is not a Priority Customer. See ISE Rule 100(37C). \4\ As used herein, the phrase ``other solicited crossing orders'' refers to solicited crossing orders executed in the Solicitation, Facilitation, and Price Improvement Mechanisms. \5\ Under ISE Rule 100(37A), a ``Priority Customer'' is a person or entity that: (i) is not a broker or dealer in securities; and (ii) does not place more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s). Pursuant to ISE Rule 713, Priority Customer orders are executed before other trading interest at the same price. --------------------------------------------------------------------------- As set forth in ISE Rule 715(j), a QCC is an option order type that allows members to cross at least 1,000 contracts without exposure, as long as: (i) the agency/originating side of the trade consists of an order of at least 1,000 contracts and (ii) the order is part of a Qualified Contingent Trade (``QCT''). As is further set forth in the Supplementary Material to ISE Rule 715, a QCT is a transaction consisting of two or more component orders, executed as agent or principal, where: (a) At least one component is an NMS Stock, as defined in Rule 600 of Regulation NMS under the Exchange Act of 1934; (b) all the components are effected with a product or price contingency that either has been agreed to by all respective counterparties or arranged for by a broker-dealer as principal or agent; (c) the execution of one component is contingent upon the execution of all other components at or near the same time; (d) the specific relationship between the component orders (e.g., the spread between the prices of the component orders) is determined by the time the contingent order is placed; (e) the component orders bear a derivative relationship to one another, represent different classes of shares of the same issuer, or involve the securities of participants in mergers or with intentions to merge that have been announced or cancelled; and (f) the transaction is fully hedged (without regard to any prior existing position) as a result of other components of the contingent trade. The Commission first approved the QCC order type for ISE on February 24, 2011.\6\ --------------------------------------------------------------------------- \6\ See Securities Exchange Act Release No. 63955 (Feb. 24, 2011), 76 FR 11533 (Mar. 2, 2011) (SR-ISE-2010-73). --------------------------------------------------------------------------- Today, the Exchange assesses a fee of $0.20 per contract to Professional Customers for QCC and other solicited crossing orders.\7\ It does not assess a fee for such orders to Priority Customers.\8\ The Exchange proposes to eliminate the fee it charges to Professional Customers for QCC and Solicitation orders. --------------------------------------------------------------------------- \7\ See ISE Schedule of Fees, updated Nov. 1, 2016, at 6, available at https://www.ise.com/assets/documents/OptionsExchange/legal/fee/ISE_fee_schedule.pdf (``ISE Fee Schedule''). \8\ See id. --------------------------------------------------------------------------- The Exchange also pays rebates on QCC and other solicited crossing orders once specified volume thresholds are met during each month.\9\ The existing rebate schedule and corresponding explanatory notes are as follows: --------------------------------------------------------------------------- \9\ See id. at 12. --------------------------------------------------------------------------- A. QCC and Solicitation Rebate [rtarr8]Members using the Qualified Contingent Cross (QCC) and/or other solicited crossing orders, including solicited orders executed in the Solicitation, Facilitation or Price Improvement Mechanisms, will receive rebates according to the table below for each originating contract side in all symbols traded on the Exchange. Once a Member reaches a certain volume threshold in QCC orders and/or solicited crossing orders during a month, the Exchange will provide rebates to that Member for all of its QCC and solicited crossing order traded contracts for that month. The applicable rebates will be applied on QCC and solicited crossing order traded contracts once the volume threshold is met. Members will receive the Non-``Customer to Customer'' rebate for all QCC and/or other solicited crossing orders except for QCC and solicited orders between two Priority Customers. QCC and solicited orders between two Priority Customers will receive the ``Customer to Customer'' rebate or ``Customer to Customer'' Rebate PLUS, respectively. The volume threshold and corresponding rebates are as follows: [rtarr8]Non-``Customer to Customer'' and ``Customer to Customer'' volume will be aggregated in determining the applicable volume tier. ---------------------------------------------------------------------------------------------------------------- Non-``Customer ``Customer to ``Customer to Originating contract sides to Customer'' Customer'' Customer'' rebate rebate rebate PLUS* ---------------------------------------------------------------------------------------------------------------- 0 to 99,999..................................................... 0.00 0.00 0.00 100,000 to 199,999.............................................. (0.05) (0.01) (0.05) 200,000 to 499,999.............................................. (0.07) (0.01) (0.05) 500,000 to 699,999.............................................. (0.08) (0.03) (0.05) 700,000 to 999,999.............................................. (0.09) (0.03) (0.05) 1,000,000+...................................................... (0.11) (0.03) (0.05) ---------------------------------------------------------------------------------------------------------------- * PLUS rebate is for Members with total monthly unsolicited originating Facilitation contract side volume of 175,000 or more. As set forth in this schedule, the Exchange presently provides rebates to members acting as agents for QCC trades involving Professional Customers (both Professional-to-Professional and Professional-to-Priority trades) in accordance with the ``Non-`Customer to Customer' '' schedule for all qualifying executed QCC and solicited crossing orders, while it provides rebates to members acting as agents for such trades involving all Priority Customers (Priority-to-Priority trades) in accordance with the ``Customer to Customer'' or ``Customer to Customer Rebate Plus'' schedules.\10\ The Exchange proposes to modify its rebate schedule to state that QCC and other solicited crossing orders between Professional Customers or between Professional Customers and Priority Customers will qualify for rebates in accordance with the ``Customer to Customer'' or ``Customer to Customer Rebate Plus'' schedules. --------------------------------------------------------------------------- \10\ See id. --------------------------------------------------------------------------- The proposed changes would treat Professional Customers and Priority Customers the same with respect to fees for QCC and Solicitation orders. It would also treat QCC and other solicited crossing orders involving all Professional Customers, all Priority Customers, and a mix of Priority and Professional Customers the same with respect to rebates. The Exchange believes that it is not necessary to differentiate Professional Customers and Priority Customers for these purposes because QCC and Solicitation orders are not executed pursuant to a priority scheme.\11\ Moreover, because of the size [[Page 8246]] of these orders, the sophistication of the investors involved, and the complexity of the transactions, there is little practical difference between Priority Customers and Professional Customers with respect to QCC and Solicitation orders. --------------------------------------------------------------------------- \11\ ISE Rules provide that if, at the time a QCC or Solicitation order is entered, a Priority Customer order exists on the Exchange's order book, then in certain instances, the QCC or Solicitation order will be cancelled or the order will be executed against the Priority Customer order. See Rules 716(e) & 721. These Rules do not suggest that in this instance, the Priority Customer would receive execution priority because such a trade would be executed outside of the QCC or Solicitation Mechanism. We also note that the transaction fee schedule applicable to QCC and Solicitation orders would not apply to this trade. --------------------------------------------------------------------------- The Exchange also proposes to eliminate transaction fees for Professional Customers engaged in QCC and Solicitation orders as a means of attracting more such orders to the Exchange and to retain the business of Professional Customers vis-[agrave]-vis competing exchanges that do not presently charge Professional Customers such fees.\12\ The Exchange notes that a recent modification to the ISE Rules caused many of its Priority Customers to be re-classified as Professional Customers.\13\ Whereas these Customers, as Priority Customers, previously incurred no fees for executing QCC and Solicitation orders, they will incur such fees going forward as Professional Customers absent the proposed rule change. --------------------------------------------------------------------------- \12\ See NYSE AMEX Options Fee Schedule, effective Dec. 15, 2016, at https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf; NYSE Arca Options Fees and Charges, effective Nov. 3, 2016, at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf; NASDAQ PHLX LLC Pricing Schedule, at http://www.nasdaqtrader.com/Micro.aspx?id=phlxpricing. \13\ See Securities Exchange Act Release No. 34-78788 (Sept. 8, 2016), 81 FR 63252 (Sept. 14, 2016) (SR-ISE-2016-19). --------------------------------------------------------------------------- To the extent that the Exchange proposes to eliminate fees for its Professional Customers that execute QCC and Solicitation orders, the rationale for providing rebates is diminished for QCC and other solicited crossing orders involving Professional Customers trading with other Professional Customers and with Priority Customers. Accordingly, the Exchange proposes to reduce the levels of rebates it provides for QCC and other solicited crossing orders involving Professional Customers trading with other Professional Customers and with Priority Customers to the same levels as it provides to such trades involving two Priority Customers. 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 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.'' \16\ --------------------------------------------------------------------------- \16\ See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37497, 37499 (June 29, 2005). --------------------------------------------------------------------------- Likewise, in NetCoalition v. Securities and Exchange Commission (``NetCoalition''),\17\ the D.C. Circuit upheld the Commission's use of a market-based approach in evaluating the fairness of market data fees against a challenge claiming that Congress mandated a cost-based approach.\18\ As the court emphasized, the Commission ``intended in Regulation NMS that `market forces, rather than regulatory requirements' play a role in determining the market data . . . to be made available to investors and at what cost.'' \19\ --------------------------------------------------------------------------- \17\ See id. at 534-535. \18\ See id. at 534. \19\ See id. at 537. --------------------------------------------------------------------------- Further, ``[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'. . . .'' \20\ Although the court and the SEC were discussing the cash equities markets, the Exchange believes that these views apply with equal force to the options markets. --------------------------------------------------------------------------- \20\ See id. at 539 (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21). --------------------------------------------------------------------------- It is reasonable to no longer assess a transaction fee for Professional Customer QCC and Solicitation orders and to pay a reduced rebate on Professional Customer orders because the distinction that necessitated the differentiation as between Priority Customer and Professional Customer orders is not meaningful with respect to QCC and Solicitation orders. QCC orders are orders to buy or sell at least 1,000 contracts.\21\ These large-sized contingent orders are complex in nature and have a stock-tied component, which requires the option leg to be executed at the NBBO or better. The parties to a contingent trade are focused on the spread or ratio between the transaction prices for each of the component instruments (i.e., the net price of the entire contingent trade), rather than on the absolute price of any single component. Also, no Priority Customer priority exists with respect to QCC Orders as with orders transacted within the order book. Permitting Professional Customer orders to be treated similar to Priority Customer orders with respect to this order type may attract more QCC and Solicitation orders to the Exchange because the Exchange would no longer assess a QCC or Solicitation order transaction fee for Professional Customer orders. --------------------------------------------------------------------------- \21\ See ISE Rule 715(j). --------------------------------------------------------------------------- Further, the Exchange recently amended its definition of a Professional Customer to add specificity with respect to the manner in which the volume threshold will be calculated to determine if orders should be treated as Professional Customer.\22\ Currently, members are required to review their Customers' activity on at least a quarterly basis to determine whether orders that are not for the account of a broker-dealer should be represented as Priority Customer orders or Professional Customer orders.\23\ The Exchange anticipates that the specificity added to the Professional Customer definition may cause current market participants that mark orders as ``Priority Customer'' to be required to mark those orders as [[Page 8247]] ``Professional Customer'' instead as the calendar quarter comes to a close. Thus, orders that these market participants would have marked as ``Priority Customer,'' and that would not have been subject to a QCC transaction fee, would, in absence of this proposal, be marked ``Professional Customer'' and incur a QCC transaction fee. With this proposal, such Professional Customer orders would not be assessed a QCC transaction fee. --------------------------------------------------------------------------- \22\ See supra note 13. \23\ Orders for any customer that had an average of more than 390 orders per day during any month of a calendar quarter must be represented as Professional Orders for the next calendar quarter. Members will be required to conduct a quarterly review and make any appropriate changes to the way in which they are representing orders within five days after the end of each calendar quarter. While Members only will be required to review their accounts on a quarterly basis, if during a quarter the Exchange identifies a customer for which orders are being represented as Priority Customer Orders but that has averaged more than 390 orders per day during a month, the Exchange will notify the Member and the Member will be required to change the manner in which it is representing the customer's orders within five days. See 81 FR at 63253, n.4. --------------------------------------------------------------------------- The Exchange believes that no longer assessing a QCC transaction fee for Professional Customer orders and paying a reduced QCC rebate on Professional Customer-to-Professional Customer and Professional Customer-to-Priority Customer orders is equitable and not unfairly discriminatory because QCC and Solicitation orders are distinctive from transactions executed within the order book. Whereas orders executed within the order book grant Priority Customers execution priority over other market participants, QCC and Solicitation orders do not grant execution priority.\24\ Insofar as the rationale for distinguishing between Priority Customers and Professional Customers was to prevent market professionals, which have access to sophisticated trading systems with functionality unavailable to retail Customers, from taking advantage of retail Customers' execution priority over non-retail Customer orders,\25\ this rationale does not apply to QCC or Solicitation orders. As the Commission noted when it approved the QCC order type on the Exchange: --------------------------------------------------------------------------- \24\ See supra note 11. \25\ See Securities Exchange Act Release No. 57254 (Feb. 1, 2008), 73 FR 7345, 7346 n.7 (Feb. 7, 2008). The Commission believes that those customers participating in QCC Orders will likely be sophisticated investors who should understand that, without a requirement of exposure for QCC Orders, their order would not be given an opportunity for price improvement on the Exchange. These customers should be able to assess whether the net prices they are receiving for their QCC Order are competitive, and who will have the ability to choose among broker- dealers if they believe the net price one broker-dealer provides is not competitive. Further, broker-dealers are subject to a duty of best execution for their customers' orders, and that duty does not --------------------------------------------------------------------------- change for QCC Orders.\26\ \26\ See Securities and Exchange Act Release No. 63955 (February 24, 2011), 76 FR 11533 (March 2, 2011) (SR-ISE-2010-73). --------------------------------------------------------------------------- Thus, because of the size of the orders, the sophistication of the investors involved, and the complexity of the transactions, pricing differentiation between Priority Customer and Professional Customer orders is unnecessary with respect to QCC and Solicitation orders. With respect to distinguishing Professional Customer orders from other Non-Customer participant orders, the Exchange notes that these other market participants are distinct from Professional Customers for purposes of assessing QCC transaction fees. With respect to Firm Proprietary and Non-ISE Market Makers, for example, these market participants are eligible for a Crossing Fee Cap of $75,000 per month.\27\ These participants are not subject to QCC transaction fees once the Crossing Fee Cap is met in a given month.\28\ Market Makers are eligible for fee discounts, on a tiered basis, for regular orders in non-select symbols.\29\ --------------------------------------------------------------------------- \27\ See ISE Fee Schedule, supra note 7, at 17. \28\ See id. \29\ See id. at 6-7, 12-13. --------------------------------------------------------------------------- Insofar as the Exchange proposes to eliminate the fees it charges to Professional Customers for QCC and Solicitation orders, the Exchange believes that it would no longer be equitable to pay rebates at existing levels to members acting as agent when Professional Customers trade with Priority Customers and other Professional Customers for QCC and other solicited crossing orders. Thus, the Exchange proposes to reduce these rebates to the same levels as those it pays for QCC orders involving Priority Customers trading with other Priority Customers. Finally, the Exchange notes that the Commission recently approved a similar proposal by Phlx to eliminate its QCC transactions fees and rebates for its professional customers.\30\ --------------------------------------------------------------------------- \30\ See Securities Exchange Act Release No. 34-77673 (Apr. 14, 2016), 81 FR 249009 (Apr. 21, 2016) (SR-Phlx-2016-51). --------------------------------------------------------------------------- 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 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 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, that the degree to which fee changes in this market may impose any burden on competition is extremely limited. The initial purpose of the distinction between a Priority Customer order and a Professional Customer order was to prevent market professionals, which have access to sophisticated trading systems that contain functionality not available to retail Customers, from taking advantage of Priority Customer priority, where retail Customer orders are given execution priority over Non-Customer orders. Professional Customer orders are identified based upon the average number of orders entered for a beneficial account.\31\ --------------------------------------------------------------------------- \31\ See supra note 25. --------------------------------------------------------------------------- QCC orders are by definition large-sized contingent orders that have a stock-tied component. The parties to a contingent trade are focused on the spread or ratio between the transaction prices for each of the component instruments (i.e., the net price of the entire contingent trade), rather than on the absolute price of any single component. Treating Priority Customer orders and Professional Customer orders in the same manner in terms of pricing with respect to QCC and Solicitation orders does not provide any advantage to a Professional Customer. The distinction does not create an opportunity to burden competition, for the reasons stated herein with respect to execution priority as well as the reasons below. With respect to distinguishing Professional Customer orders from other Non-Customer participant orders, the Exchange notes that these other market participants are distinct from Professional Customers for purposes of assessing QCC transaction fees. With respect to Firm Proprietary and Non-ISE Market Makers, for example, these market participants are eligible for a Crossing Fee Cap of $75,000 per month.\32\ These participants are not subject to QCC transaction fees once the Crossing Fee Cap is met in a given month.\33\ Market Makers are eligible for fee discounts, on a tiered basis, for regular orders in non-select symbols.\34\ Also, Priority Customer-to-Professional Customer orders do not impose an undue burden on intra-market [[Page 8248]] competition for the reasons explained herein. --------------------------------------------------------------------------- \32\ See ISE Fee Schedule, supra note 7, at 17. \33\ See id. \34\ See id. at 6-7, 12-13. --------------------------------------------------------------------------- The Exchange's proposal does not place on undue burden on inter- market competition because the QCC order type is similar on other options exchanges and these exchanges may also file to eliminate the distinction between Priority Customers and Professionals for the QCC order type.\35\ The Exchange notes that the Commission recently approved a similar proposal by Phlx to eliminate both its QCC transactions fees and its rebates for its professional customers.\36\ --------------------------------------------------------------------------- \35\ See supra note 12. \36\ See supra note 30. --------------------------------------------------------------------------- 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 subparagraph (f)(2) of Rule 19b-4 thereunder,21 [sic] because it establishes a due, fee, or other charge imposed by ISE. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or 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. 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 CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR-ISE-2017-01 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-2017-01. 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-2017-01 and should be submitted by February 14, 2017. --------------------------------------------------------------------------- \37\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\37\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-01466 Filed 1-23-17; 8:45 am] BILLING CODE 8011-01-P
![8244 Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Notices
modified by Amendment No. 1, on an notice of the filing of a proposed rule Items I, II, and III, below, which Items
accelerated basis. change, or within such longer period up have been prepared by the Exchange.
to 90 days as the Commission may The Commission is publishing this
VI. Conclusion
designate if it finds such longer period notice to solicit comments on the
It is therefore ordered, pursuant to to be appropriate and publishes its proposed rule change from interested
Section 19(b)(2) of the Act,44 that the reasons for so finding or as to which the persons.
proposed rule change (SR–Phlx–2016– self-regulatory organization consents,
82), as modified by Amendment No. 1, the Commission shall either approve the I. Self-Regulatory Organization’s
be, and hereby is, approved on an proposed rule change, disapprove the Statement of the Terms of Substance of
accelerated basis. proposed rule change, or institute the Proposed Rule Change
For the Commission, by the Division of proceedings to determine whether the The Exchange proposes to amend the
Trading and Markets, pursuant to delegated proposed rule change should be Schedule of Fees as described in more
authority.45 disapproved. The 45th day for this filing detail below.
Eduardo A. Aleman, is January 19, 2017. The text of the proposed rule change
Assistant Secretary. The Commission is extending the 45- is available on the Exchange’s Web site
[FR Doc. 2017–01460 Filed 1–23–17; 8:45 am] day time period for Commission action at http://www.ise.com, at the principal
BILLING CODE 8011–01–P
on the proposed rule change. The office of the Exchange, and at the
Commission finds that it is appropriate Commission’s Public Reference Room.
to designate a longer period within
which to take action on the proposed II. Self-Regulatory Organization’s
SECURITIES AND EXCHANGE Statement of the Purpose of, and
COMMISSION rule change so that it has sufficient time
to consider the Exchange’s proposal, the Statutory Basis for, the Proposed Rule
[Release No. 34–79810; File No. SR– comments received, and any response to Change
NASDAQ–2016–161]
the comments by the Exchange. In its filing with the Commission, the
Accordingly, pursuant to Section Exchange included statements
Self-Regulatory Organizations; The
19(b)(2) of the Act 6 and for the reasons concerning the purpose of and basis for
Nasdaq Stock Market LLC; Notice of
stated above, the Commission the proposed rule change and discussed
Designation of Longer Period for
designates March 5, 2017, as the date by any comments it received on the
Commission Action on Proposed Rule
which the Commission shall either proposed rule change. The text of these
Change To Adopt a New Extended Life
approve or disapprove, or institute statements may be examined at the
Priority Order Attribute Under Rule
proceedings to determine whether to places specified in Item IV below. The
4703, and To Make Related Changes to
disapprove, the proposed rule change Exchange has prepared summaries, set
Rules 4702, 4752, 4753, 4754, and 4757
(File No. SR–NASDAQ–2016–161). forth in sections A, B, and C below, of
January 17, 2017. For the Commission, by the Division of the most significant aspects of such
On November 17, 2016, The Nasdaq Trading and Markets, pursuant to delegated statements.
Stock Market LLC (‘‘Nasdaq’’ or authority.7
‘‘Exchange’’) filed with the Securities A. Self-Regulatory Organization’s
Eduardo A. Aleman,
and Exchange Commission Statement of the Purpose of, and
Assistant Secretary.
(‘‘Commission’’), pursuant to Section Statutory Basis for, the Proposed Rule
[FR Doc. 2017–01465 Filed 1–23–17; 8:45 am] Change
19(b)(1) of the Securities Exchange Act BILLING CODE 8011–01–P
of 1934 (‘‘Act’’) 1 and Rule 19b–4 1. Purpose
thereunder,2 a proposed rule change to
The purpose of the proposed rule
adopt a new Extended Life Priority SECURITIES AND EXCHANGE change is to amend the Exchange’s
Order Attribute. The proposed rule COMMISSION Schedule of Fees to eliminate, for all
change was published for comment in
[Release No. 34–79811; File No. SR–ISE– symbols other than FX symbols, the
the Federal Register on December 5, 2017–01] $0.20 per contract fee applicable to
2016.3 The Commission has received six
Professional Customers 3 for the
comment letters on the proposal.4 Self-Regulatory Organizations;
Section 19(b)(2) of the Act 5 provides initiating or contra side of Qualified
International Securities Exchange, Contingent Cross (‘‘QCC’’) orders or
that within 45 days of the publication of LLC; Notice of Filing and Immediate orders executed in the Solicitation
Effectiveness of Proposed Rule Mechanism (‘‘Solicitation’’ orders). The
44 See id.
45 17
Change To Amend the Schedule of proposed rule change will lower the
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
Fees rebates that the Exchange provides to
2 17 CFR 240.19b–4.
January 17, 2017. members acting as agent when
3 See Securities Exchange Act Release No. 79428
Pursuant to Section 19(b)(1) of the Professional Customers trade with other
(November 30, 2016), 81 FR 87628. Professional Customers and when they
4 See Letters to Brent J. Fields, Secretary, Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 trade with Priority Customers for QCC
Commission, from Joseph Saluzzi and Sal Arnuk,
Partners, Themis Trading LLC, dated December 19, notice is hereby given that on January 3, and other solicited crossing orders 4 to
2016; Eric Swanson, EVP, General Counsel and 2017, the International Securities the same per contract rates and volume
Secretary, Bats Global Markets, Inc., dated
Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’) tiers that the Exchange presently
December 22, 2016; Adam Nunes, Head of Business provides to members acting as agent
sradovich on DSK3GMQ082PROD with NOTICES
Development, Hudson River Trading LLC, dated filed with the Securities and Exchange
December 22, 2016; Joanna Mallers, Secretary, FIA Commission (‘‘Commission’’) the
Principal Traders Group, dated December 23, 2016; proposed rule change as described in 3 A ‘‘Professional Customer’’ is a person or entity
Adam C. Cooper, Senior Managing Director and that is not a broker/dealer and is not a Priority
Chief Legal Officer, Citadel Securities, dated Customer. See ISE Rule 100(37C).
6 15 U.S.C. 78s(b)(2).
December 27, 2016; and Andrew Stevens, General 4 As used herein, the phrase ‘‘other solicited
7 17 CFR 200.30–3(a)(31).
Counsel, IMC Financial Markets, dated December crossing orders’’ refers to solicited crossing orders
28, 2016. 1 15 U.S.C. 78s(b)(1).
executed in the Solicitation, Facilitation, and Price
5 15 U.S.C. 78s(b)(2). 2 17 CFR 240.19b–4. Improvement Mechanisms.
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![8246 Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Notices
of these orders, the sophistication of the of the Act,15 in particular, in that it Customer QCC and Solicitation orders
investors involved, and the complexity provides for the equitable allocation of and to pay a reduced rebate on
of the transactions, there is little reasonable dues, fees and other charges Professional Customer orders because
practical difference between Priority among members and issuers and other the distinction that necessitated the
Customers and Professional Customers persons using any facility, and is not differentiation as between Priority
with respect to QCC and Solicitation designed to permit unfair Customer and Professional Customer
orders. discrimination between customers, orders is not meaningful with respect to
The Exchange also proposes to issuers, brokers, or dealers. QCC and Solicitation orders.
eliminate transaction fees for The Commission and the courts have QCC orders are orders to buy or sell
Professional Customers engaged in QCC repeatedly expressed their preference at least 1,000 contracts.21 These large-
and Solicitation orders as a means of for competition over regulatory sized contingent orders are complex in
attracting more such orders to the intervention in determining prices, nature and have a stock-tied component,
Exchange and to retain the business of products, and services in the securities which requires the option leg to be
Professional Customers vis-à-vis markets. In Regulation NMS, while executed at the NBBO or better. The
competing exchanges that do not adopting a series of steps to improve the parties to a contingent trade are focused
presently charge Professional Customers current market model, the Commission on the spread or ratio between the
such fees.12 The Exchange notes that a highlighted the importance of market transaction prices for each of the
recent modification to the ISE Rules forces in determining prices and SRO component instruments (i.e., the net
caused many of its Priority Customers to revenues and, also, recognized that price of the entire contingent trade),
be re-classified as Professional current regulation of the market system rather than on the absolute price of any
Customers.13 Whereas these Customers, ‘‘has been remarkably successful in single component. Also, no Priority
as Priority Customers, previously promoting market competition in its Customer priority exists with respect to
incurred no fees for executing QCC and broader forms that are most important to QCC Orders as with orders transacted
Solicitation orders, they will incur such investors and listed companies.’’ 16 within the order book. Permitting
Likewise, in NetCoalition v. Securities Professional Customer orders to be
fees going forward as Professional
and Exchange Commission treated similar to Priority Customer
Customers absent the proposed rule
(‘‘NetCoalition’’),17 the D.C. Circuit orders with respect to this order type
change.
upheld the Commission’s use of a may attract more QCC and Solicitation
To the extent that the Exchange market-based approach in evaluating the
proposes to eliminate fees for its orders to the Exchange because the
fairness of market data fees against a Exchange would no longer assess a QCC
Professional Customers that execute challenge claiming that Congress
QCC and Solicitation orders, the or Solicitation order transaction fee for
mandated a cost-based approach.18 As Professional Customer orders.
rationale for providing rebates is the court emphasized, the Commission Further, the Exchange recently
diminished for QCC and other solicited ‘‘intended in Regulation NMS that amended its definition of a Professional
crossing orders involving Professional ‘market forces, rather than regulatory Customer to add specificity with respect
Customers trading with other requirements’ play a role in determining to the manner in which the volume
Professional Customers and with the market data . . . to be made threshold will be calculated to
Priority Customers. Accordingly, the available to investors and at what determine if orders should be treated as
Exchange proposes to reduce the levels cost.’’ 19 Professional Customer.22 Currently,
of rebates it provides for QCC and other Further, ‘‘[n]o one disputes that members are required to review their
solicited crossing orders involving competition for order flow is ‘fierce.’ Customers’ activity on at least a
Professional Customers trading with . . . As the SEC explained, ‘[i]n the U.S. quarterly basis to determine whether
other Professional Customers and with national market system, buyers and orders that are not for the account of a
Priority Customers to the same levels as sellers of securities, and the broker- broker-dealer should be represented as
it provides to such trades involving two dealers that act as their order-routing Priority Customer orders or Professional
Priority Customers. agents, have a wide range of choices of Customer orders.23 The Exchange
2. Statutory Basis where to route orders for execution’; anticipates that the specificity added to
[and] ‘no exchange can afford to take its the Professional Customer definition
The Exchange believes that its market share percentages for granted’ may cause current market participants
proposal is consistent with Section 6(b) because ‘no exchange possesses a that mark orders as ‘‘Priority Customer’’
of the Act,14 in general, and furthers the monopoly, regulatory or otherwise, in to be required to mark those orders as
objectives of Sections 6(b)(4) and 6(b)(5) the execution of order flow from broker
dealers’. . . .’’ 20 Although the court 21 See ISE Rule 715(j).
because such a trade would be executed outside of and the SEC were discussing the cash 22 See supra note 13.
the QCC or Solicitation Mechanism. We also note equities markets, the Exchange believes 23 Orders for any customer that had an average of
that the transaction fee schedule applicable to QCC more than 390 orders per day during any month of
and Solicitation orders would not apply to this that these views apply with equal force
a calendar quarter must be represented as
trade. to the options markets. Professional Orders for the next calendar quarter.
12 See NYSE AMEX Options Fee Schedule, It is reasonable to no longer assess a Members will be required to conduct a quarterly
effective Dec. 15, 2016, at https://www.nyse.com/ transaction fee for Professional review and make any appropriate changes to the
publicdocs/nyse/markets/amex-options/NYSE_ way in which they are representing orders within
Amex_Options_Fee_Schedule.pdf; NYSE Arca 15 15 five days after the end of each calendar quarter.
Options Fees and Charges, effective Nov. 3, 2016, U.S.C. 78f(b)(4) and (5).
While Members only will be required to review
sradovich on DSK3GMQ082PROD with NOTICES
16 See Securities Exchange Act Release No. 51808
at https://www.nyse.com/publicdocs/nyse/markets/ their accounts on a quarterly basis, if during a
arca-options/NYSE_Arca_Options_Fee_ (June 9, 2005), 70 FR 37497, 37499 (June 29, 2005).
17 See id. at 534–535.
quarter the Exchange identifies a customer for
Schedule.pdf; NASDAQ PHLX LLC Pricing which orders are being represented as Priority
Schedule, at http://www.nasdaqtrader.com/ 18 See id. at 534.
Customer Orders but that has averaged more than
Micro.aspx?id=phlxpricing. 19 See id. at 537.
390 orders per day during a month, the Exchange
13 See Securities Exchange Act Release No. 34– 20 See id. at 539 (quoting Securities Exchange Act will notify the Member and the Member will be
78788 (Sept. 8, 2016), 81 FR 63252 (Sept. 14, 2016) Release No. 59039 (December 2, 2008), 73 FR required to change the manner in which it is
(SR–ISE–2016–19). 74770, 74782–83 (December 9, 2008) (SR– representing the customer’s orders within five days.
14 15 U.S.C. 78f(b). NYSEArca-2006–21). See 81 FR at 63253, n.4.
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![8248 Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Notices
competition for the reasons explained Commission, 100 F Street NE., Joint Standards for Assessing the Diversity
herein. Washington, DC 20549–1090. Policies and Practices of Entities
The Exchange’s proposal does not Regulated by the Agencies.
All submissions should refer to File
place on undue burden on inter-market ACTION: Notice.
Number SR–ISE–2017–01. This file
competition because the QCC order type
number should be included on the SUMMARY: The SEC, as part of its
is similar on other options exchanges
subject line if email is used. To help the continuing effort to reduce paperwork
and these exchanges may also file to
Commission process and review your and respondent burden, invites the
eliminate the distinction between
comments more efficiently, please use general public and other Federal
Priority Customers and Professionals for
only one method. The Commission will agencies to take this opportunity to
the QCC order type.35 The Exchange
post all comments on the Commission’s comment on a revised information
notes that the Commission recently
Internet Web site (http://www.sec.gov/ collection, as required by the PRA. The
approved a similar proposal by Phlx to
rules/sro.shtml). Copies of the SEC may not conduct or sponsor, and a
eliminate both its QCC transactions fees
submission, all subsequent respondent is not required to respond
and its rebates for its professional
amendments, all written statements to, an information collection unless it
customers.36
with respect to the proposed rule displays a currently valid OMB control
C. Self-Regulatory Organization’s change that are filed with the number. The SEC previously received
Statement on Comments on the Commission, and all written OMB approval for a voluntary
Proposed Rule Change Received From communications relating to the information collection in the Joint
Members, Participants, or Others proposed rule change between the Standards. The SEC now is soliciting
No written comments were either Commission and any person, other than comments on a revised information
solicited or received. those that may be withheld from the collection which adds a Diversity
public in accordance with the Assessment Report as an instrument to
III. Date of Effectiveness of the provisions of 5 U.S.C. 552, will be facilitate completion of the self-
Proposed Rule Change and Timing for available for Web site viewing and assessment described in the Joint
Commission Action printing in the Commission’s Public Standards.
The foregoing rule change has become Reference Room, 100 F Street NE., DATES: Comments must be submitted on
effective pursuant to Section Washington, DC 20549, on official or before March 27, 2017.
19(b)(3)(A)(ii) of the Act, 20 and business days between the hours of ADDRESSES: Please direct your written
subparagraph (f)(2) of Rule 19b–4 10:00 a.m. and 3:00 p.m. Copies of the comments to Pamela Dyson, Chief
thereunder,21 [sic] because it filing also will be available for Information Officer, Securities and
establishes a due, fee, or other charge inspection and copying at the principal Exchange Commission, c/o Remi Pavlik-
imposed by ISE. At any time within 60 office of the Exchange. All comments Simon, 100 F Street NE., Washington,
days of the filing of such proposed rule received will be posted without change; DC 20549, or send an email to PRA_
change, the Commission summarily may the Commission does not edit personal Mailbox@sec.gov, and include ‘‘SEC File
temporarily suspend such rule change if identifying information from No. 270–664—OMWI Diversity
it appears to the Commission that such submissions. You should submit only Assessment Report’’ in the subject line
action is necessary or appropriate in the information that you wish to make of the message.
public interest, for the protection of available publicly. All submissions
FOR FURTHER INFORMATION CONTACT: For
investors, or otherwise in furtherance of should refer to File Number SR–ISE–
2017–01 and should be submitted by further information about the
the purposes of the Act. If the information collection discussed in this
Commission takes such action, the February 14, 2017.
revised notice, please contact Pamela A.
Commission shall institute proceedings For the Commission, by the Division of Gibbs, Director, Office of Minority and
to determine whether the proposed rule Trading and Markets, pursuant to delegated Women Inclusion, (202) 551–6046, or
should be approved or disapproved. authority.37
Audrey B. Little, Senior Counsel, Office
Eduardo A. Aleman, of Minority and Women Inclusion, (202)
IV. Solicitation of Comments
Assistant Secretary. 551–6086, Securities and Exchange
Interested persons are invited to [FR Doc. 2017–01466 Filed 1–23–17; 8:45 am] Commission, 100 F Street NE.,
submit written data, views, and
BILLING CODE 8011–01–P Washington, DC 20549.
arguments concerning the foregoing,
SUPPLEMENTARY INFORMATION: Under the
including whether the proposed rule
change is consistent with the Act. PRA (44 U.S.C. 3501–3520), certain
SECURITIES AND EXCHANGE Federal agencies must obtain approval
Comments may be submitted by any of COMMISSION
the following methods: from OMB for each collection of
information that they conduct or
Electronic Comments [SEC File No. 270–664, OMB Control No. sponsor. ‘‘Collection of information’’ is
3235–0740] defined in 44 U.S.C. 3502(3) (and 5 CFR
• Use the Commission’s Internet
comment form (http://www.sec.gov/ 1320.3(c) of the PRA implementing
Proposed Collection; Comment regulations) to include agency requests
rules/sro.shtml); or Request
• Send an email to rule-comments@ or requirements that members of the
sec.gov. Please include File Number SR– public submit reports, keep records, or
Upon Written Request, Copies Available provide information to a third party.
sradovich on DSK3GMQ082PROD with NOTICES
ISE–2017–01 on the subject line. From: Securities and Exchange The PRA (44 U.S.C. 3506(c)(2)(A))
Paper Comments Commission, Office of Investor directs these Federal agencies to provide
Education and Advocacy,
• Send paper comments in triplicate a 60-day notice in the Federal Register
Washington, DC 20549–0213. concerning each proposed collection of
to Secretary, Securities and Exchange
Revision: information before submitting the
35 See supra note 12. collection to OMB for approval. To
36 See supra note 30. 37 17 CFR 200.30–3(a)(12). comply with this requirement, the SEC
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Document Created: 2018-02-01 15:12:07
Document Modified: 2018-02-01 15:12:07
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 8244 |
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