83 FR 28681 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees Related to Complex Orders

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 119 (June 20, 2018)

[Federal Register Volume 83, Number 119 (Wednesday, June 20, 2018)]
[Notices]
[Pages 28681-28684]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-13161]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83431; File No. SR-ISE-2018-51]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees Related to Complex Orders

June 14, 2018.
    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 June 1, 2018, 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 related to 
Complex Orders traded on the Exchange.
    The text of the proposed rule change is available on the Exchange's 
website at http://ise.cchwallstreet.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 related to Complex Orders traded on the Exchange. Specifically, 
the Exchange

[[Page 28682]]

proposes to: (1) Reduce the volume requirements for Priority Customer 
\3\ Complex Tier 9, and (2) eliminate the discount for Market Maker \4\ 
Complex Orders that trade against Priority Customer Complex Orders 
preferenced to them in the complex order book.
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    \3\ 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).
    \4\ ``Market Maker'' refers to ``Competitive Market Makers'' and 
``Primary Market Makers'' collectively. See ISE Rule 100(a)(28).
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I. Priority Customer Complex Order Rebates

    Currently, the Exchange has a fee structure in place for Complex 
Orders that provides rebates to Priority Customer Complex Orders in 
order to encourage Members to bring that order flow to the Exchange. 
Specifically, Priority Customer Complex Orders that trade with non-
Priority Customer orders in the complex order book or trade with quotes 
and orders on the regular order book are provided rebates in Select 
Symbols \5\ and Non-Select Symbols \6\ (other than NDX and MNX) based 
on nine volume tiers, as shown in the table below. The Priority 
Customer Complex Tiers are based on Total Affiliated Member \7\ Complex 
Order Volume (Excluding Crossing Orders \8\ and Responses to Crossing 
Orders \9\) Calculated as a Percentage of Customer Total Consolidated 
Volume \10\ (hereinafter, ``Complex Order Volume Percentage''). All 
Complex Order volume executed on the Exchange, including volume 
executed by Affiliated Members, is included in the volume calculation, 
except for volume executed as Crossing Orders and Responses to Crossing 
Orders. Rebates are provided per contract per leg, and once the 
threshold has been reached the rebate for the highest tier is applied 
retroactively to all eligible Priority Customer Complex volume.\11\
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    \5\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Pilot Program.
    \6\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
    \7\ An ``Affiliated Member'' is a Member that shares at least 
75% common ownership with a particular Member as reflected on the 
Member's Form BD, Schedule A.
    \8\ 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 order. 
For purposes of the Fee Schedule, orders executed in the Block Order 
Mechanism are also considered Crossing Orders.
    \9\ A ``Response to a Crossing Order'' is any contra-side 
interest submitted after the commencement of an auction in the 
Exchange's Facilitation Mechanism, Solicited Order Mechanism, Block 
Order Mechanism or PIM.
    \10\ ``Customer Total Consolidated Volume'' means the total 
national volume cleared at The Options Clearing Corporation in the 
Customer range in equity and ETF options in that month.
    \11\ Members will not receive rebates for net zero complex 
orders. For purposes of determining which complex orders qualify as 
``net zero'' the Exchange will count all complex orders that leg in 
to the regular order book and are executed at a net price per 
contract that is within a range of $0.01 credit and $0.01 debit.
    \12\ 15 U.S.C. 78f(b).

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                                                                                    Rebate for    Rebate for non-
       Priority customer complex tier          Complex order volume percentage    select symbols  select symbols
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Tier 1.....................................  0.000-0.200........................         ($0.25)         ($0.40)
Tier 2.....................................  Above 0.200-0.400..................          (0.30)          (0.55)
Tier 3.....................................  Above 0.400-0.600..................          (0.35)          (0.70)
Tier 4.....................................  Above 0.600-0.800..................          (0.40)          (0.75)
Tier 5.....................................  Above 0.800-1.000..................          (0.45)          (0.80)
Tier 6.....................................  Above 1.000-1.600..................          (0.46)          (0.80)
Tier 7.....................................  Above 1.600-2.000..................          (0.48)          (0.80)
Tier 8.....................................  Above 2.000-3.500..................          (0.50)          (0.85)
Tier 9.....................................  Above 3.500........................          (0.50)          (0.85)
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    Currently, a Member must execute a Complex Order Volume Percentage 
of above 3.5% to qualify for Priority Customer Complex Tier 9. The 
Exchange now proposes to reduce the Complex Order Volume Percentage 
requirement to above 3.25%, thereby making Priority Customer Complex 
Order Tier 9 easier for Members to achieve. As proposed, Members with a 
Complex Order Volume Percentage above 2% and up to 3.25% will qualify 
for Priority Customer Complex Tier 8, while Members with a Complex 
Order Volume Percentage above 3.25% will qualify for Priority Customer 
Complex Tier 9. Although Priority Customer Complex Order Tier 8 and 9 
are currently eligible for the same $0.50 per contract rebate in Select 
Symbols and $0.85 per contract rebate in Non-Select Symbols, the lower 
proposed volume requirements for Priority Customer Complex Tier 9 will 
benefit Market Makers that currently receive discounted Complex Order 
fees in Select Symbols if they achieve this Priority Customer Complex 
Tier. Specifically, Market Maker Complex Orders in Select Symbols are 
charged a fee of $0.44 per contract for either taking liquidity, or 
providing liquidity to a Priority Customer Complex Order, provided that 
the firm achieves Priority Customer Complex Tier 9. This fee is 
discounted from the regular taker fee of $0.50 per contract (reduced to 
$0.47 per contract for Priority Customer Complex Tier 8) and the maker 
fee of $0.47 per contract for trading against a Priority Customer. 
Thus, reducing the volume requirements for achieving Priority Customer 
Complex Tier 9 will make it easier for Market Makers to achieve the 
discounted $0.44 per contract rate.

II. Preferenced Market Maker Complex Order Discount

    Currently, Market Makers making or taking liquidity in Select 
Symbols or Non-Select Symbols receive a discount of $0.02 when trading 
against Priority Customer orders preferenced to them in the complex 
order book in equity options that are able to be listed and traded on 
more than one options exchange. This discount does not apply to FX 
Options Symbols or to option classes designated by the Exchange to 
receive a guaranteed allocation pursuant to Nasdaq ISE Rule 
722(b)(3)(i)(B). The Exchange now proposes to eliminate this discount. 
With the recent introduction of new pricing incentives for Complex 
Orders, which include the discounted Market Maker fees described in the 
section above, the Exchange does not believe that an additional 
incentive for preferenced orders is necessary to attract Complex Order 
flow.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5)

[[Page 28683]]

of the Act,\13\ 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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    \13\ 15 U.S.C. 78f(b)(4) and (5).
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I. Priority Customer Complex Order Rebates

    The Exchange believes it is reasonable and equitable to reduce the 
volume requirements for Priority Customer Complex Order Tier 9 as this 
change will make it easier for Members to achieve this tier. The 
proposed change is designed to incentivize Members to trade Complex 
Orders on the Exchange. While the proposed change will not have any 
impact on Priority Customer Complex Order rebates since the rebates are 
currently the same for Priority Customer Complex Tier 8 and 9, the 
Exchange also offers discounted Complex Order fees in Select Symbols 
for Market Makers that achieve higher Priority Customer Complex Tiers. 
With the proposed change, Market Makers may find it easier to achieve 
the higher tier of discounted fee, and thereby lower their execution 
costs when trading on the Exchange. Furthermore, the Exchange believes 
that the proposed change to the Priority Customer Complex Order Tiers 
is equitable and not unfairly discriminatory as this change is designed 
to increase trading by Market Makers, which may benefit other market 
participants that will have an increased opportunity to trade in 
Complex Orders. Market Makers are subject to additional requirements 
and obligations (such as quoting requirements) that other market 
participants are not. The Exchange believes that the mix of incentives 
that it provides will encourage an active market in Complex Orders from 
Market Makers and other market participants.

II. Preferenced Market Maker Complex Order Discount

    The Exchange believes that it is reasonable and equitable to 
eliminate the preferenced Market Maker Complex Order discount as the 
Exchange has recently introduced new incentives for Market Makers that 
trade Complex Orders. Specifically, Market Makers are now eligible for 
tiered Complex Order taker fees based on achieving Priority Customer 
Complex Tier 8 or 9. With the changes to the Priority Customer Complex 
Tier 9 volume requirements discussed above, the highest tier of 
discount will be even easier for Market Makers to achieve. The Exchange 
therefore believes that an additional discount based on receiving 
preferenced Priority Customer Complex Orders is no longer necessary. 
Furthermore, the Exchange believes that eliminating this fee discount 
is equitable and not unfairly discriminatory as this discount will no 
longer be available for any Market Makers. Market Makers may instead 
qualify for the other Complex Order discounts based on meeting the 
applicable volume requirements.

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. The Exchange believes that its 
Complex Order fees and rebates remain competitive with those on other 
options markets, and will continue to attract order flow to the 
Exchange, thereby encouraging additional volume and liquidity to the 
benefit of all market participants. 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.

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,\14\ and Rule 19b-4(f)(2) \15\ 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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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 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-2018-51 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-2018-51. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ISE-2018-51 and should be submitted on 
or before July 11, 2018.


[[Page 28684]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13161 Filed 6-19-18; 8:45 am]
 BILLING CODE 8011-01-P