83 FR 6069 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Schedule of Fees To Modify Complex Order Fees and Rebates

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 29 (February 12, 2018)

[Federal Register Volume 83, Number 29 (Monday, February 12, 2018)]
[Notices]
[Pages 6069-6071]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-02727]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82644; File No. SR-ISE-2018-10]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Schedule of Fees To Modify Complex Order Fees and Rebates

February 6, 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 January 30, 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 Exchange's Schedule of Fees.
    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 Exchange's 
Schedule of Fees to modify certain complex order fees and rebates in 
Section II, and to make a number of non-substantive changes to update 
certain section headings. Each change is described below.\3\
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    \3\ The Exchange initially filed the proposed pricing changes on 
January 2, 2018 (SR-ISE-2018-02). On January 11, 2018, the Exchange 
withdrew that filing and submitted SR-ISE-2018-05. On January 22, 
2018, the Exchange withdrew SR-ISE-2018-05 and submitted SR-ISE-
2018-08. On January 30, 2018, the Exchange withdrew SR-ISE-2018-08 
and submitted this filing.
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Priority Customer Complex Order Rebate for Select Symbols
    Currently as set forth in Section II of the Schedule of Fees, the 
Exchange provides rebates to Priority Customer \4\ complex orders that 
trade with Non-Priority Customer \5\ complex orders in the complex 
order book or trade with quotes and orders on the regular order book. 
Rebates are tiered based on a member's average daily volume (``ADV'') 
executed during a given month as follows: 0 to 14,999 contracts (``Tier 
1''), 15,000 to 44,999 contracts (``Tier 2''), 45,000 to 59,999 
contracts (``Tier 3''), 60,000 to 74,999 contracts (``Tier 4''), 75,000 
to 99,999 contracts (``Tier 5''), 100,000 to 124,999 contracts (``Tier 
6''), 125,000 to 224,999 contracts (``Tier 7''), and 225,000 or more 
contracts (``Tier 8''). In Select Symbols,\6\ the rebate is $0.26 per 
contract for Tier 1, $0.30 per contract for Tier 2, $0.36 per contract 
for Tier 3, $0.41 per contract for Tier 4, $0.42 per contract for Tier 
5, $0.44 per contract for Tier 6, $0.46 per contract for Tier 7, and 
$0.49 per contract for Tier 8. The Exchange now proposes to increase 
the rebate amounts to $0.45 in Tier 6 and $0.50 in Tier 8.
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    \4\ 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).
    \5\ Non-Priority Customer includes Market Maker, Non-Nasdaq GEMX 
Market Maker, Firm Proprietary, Broker-Dealer, and Professional 
Customer.
    \6\ ``Select Symbols'' are options overlying all symbols listed 
on ISE that are in the Penny Pilot Program.
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Non-Priority Customer Complex Order Taker Fee for Select Symbols
    Currently, the Exchange charges a complex order taker fee for 
Select Symbols that is $0.47 per contract for Market Maker \7\ orders 
(or $0.44 per contract for Market Makers with total affiliated Priority 
Customer Complex ADV of 150,000 or more contracts),\8\ and $0.48 per 
contract for Non-Nasdaq ISE Market Maker,\9\ Firm Proprietary \10\/
Broker-Dealer,\11\ and Professional Customer \12\ orders. Priority 
Customer orders are not charged a complex order taker fee for Select 
Symbols. The Exchange now proposes to increase the complex order taker 
fee to $0.50 per contract for Non-Priority Customer orders in Select 
Symbols. As proposed, Market Makers with total affiliated Priority 
Customer Complex ADV of

[[Page 6070]]

150,000 or more contracts will continue to receive the discounted fee 
of $0.44. Additionally, preferenced Market Makers will continue to 
receive the applicable discount of $0.02 per contract when trading 
against Priority Customer order preferenced to them in the complex 
order book.\13\
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    \7\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively.
    \8\ Nasdaq ISE Market Makers making or taking liquidity 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).
    \9\ A ``Non-Nasdaq ISE Market Maker'' is a market maker as 
defined in Section 3(a)(38) of the Securities Exchange Act of 1934, 
as amended, registered in the same options class on another options 
exchange.
    \10\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \11\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \12\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \13\ See note 8 above.
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Non-Priority Customer Complex Surcharge for Non-Select Symbols
    The Exchange proposes to amend Section II of the Schedule of Fees 
to adopt a surcharge of $0.03 per contract on Non-Priority Customer 
complex orders in Non-Select Symbols \14\ that take liquidity from the 
complex order book. For clarification, the proposed Non-Priority 
Customer complex surcharge will not apply to orders executed or 
submitted in the Exchange's various auction mechanisms.\15\
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    \14\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
    \15\ Today, the complex order auctions consist of the 
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement 
Mechanism and ``exposure'' auctions pursuant to ISE Rule 
722(b)(3)(iii).
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Update Fee Schedule Headings
    Currently, the Exchange's Schedule of Fees contains a number of 
section headings that are not currently reflected in the Table of 
Contents. The Exchange added or eliminated these headings as parts of 
previous rule changes, and inadvertently did not make the corresponding 
updates to the Table of Contents.\16\ Accordingly, the Exchange 
proposes to update the Table of Contents to make its Schedule of Fees 
easier to read. The Exchange also proposes to renumber Section VIII.J 
to Section VIII.K in connection with these clean-up changes.
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    \16\ In particular, the Exchange deleted Sections V.C, VI.B, and 
VII.D, and added Sections V.D, VI.C, VI.E-VI.I, and VIII.J as parts 
of previous rule changes to amend ISE's Schedule of Fees. See 
Securities Exchange Release No. 68324 (November 30, 2012), 77 FR 
72901 (December 6, 2012) (SR-ISE-2012-89); Securities Exchange 
Release No. 81095 (July 7, 2017), 82 FR 32409 (July 13, 2017) (SR-
ISE-2017-62); Securities Exchange Release No. 81903 (October 19, 
2017), 82 FR 49450 (October 25, 2017) (SR-ISE-2017-91); and 
Securities Exchange Release No. 82446 (January 5, 2018), 83 FR 1446 
(January 11, 2018) (SR-ISE-2017-112).
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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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Priority Customer Complex Order Rebate for Select Symbols
    The Exchange believes that it is reasonable to increase the rebates 
provided to Priority Customer complex orders in the manner discussed 
above, as these proposed rebates are designed to attract additional 
Priority Customer complex order volume to the Exchange. The Exchange 
already provides volume-based tiered rebates for Priority Customer 
complex orders, and believes that increasing the rebates will 
incentivize members to send additional order flow to ISE in order to 
achieve these rebates for their Priority Customer complex order volume, 
creating additional liquidity to the benefit of all members that trade 
complex orders on the Exchange.
    The Exchange notes that Priority Customer orders will continue to 
receive complex order rebates,\19\ while other market participants will 
continue to pay a fee. The Exchange does not believe that this is 
unfairly discriminatory as a Priority Customer is by definition not a 
broker or dealer in securities, and does not place more than 390 orders 
in listed options per day on average during a calendar month for its 
own beneficial account(s). This limitation does not apply to 
participants whose behavior is substantially similar to that of market 
professionals, including Professional Customers, who will generally 
submit a higher number of orders (many of which do not result in 
executions) than Priority Customers.
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    \19\ With the exception of responses to complex crossing orders, 
including complex PIM orders, where Priority Customers are charged a 
fee like other market participants.
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Non-Priority Customer Complex Order Taker Fee for Select Symbols
    The Exchange believes that it is reasonable to increase the complex 
order taker fee to $0.50 per contract for Non-Priority Customer orders 
in Select Symbols because the increased taker fees are designed to 
offset the enhanced Priority Customer rebates discussed above. 
Furthermore, the proposed taker fees are set at levels that the 
Exchange believes will continue to be attractive to market participants 
that trade on ISE. As noted above, Market Makers with total affiliated 
Priority Customer Complex ADV of 150,000 or more contracts will 
continue to receive the discounted fee of $0.44 under this proposal. 
Additionally, preferenced Market Makers will continue to receive the 
applicable discount of $0.02 per contract when trading against Priority 
Customer order preferenced to them in the complex order book.\20\
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    \20\ See note 8 above.
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    The Exchange's proposal to increase the Non-Priority Customer 
complex order taker fee is equitable and not unfairly discriminatory 
because the increased fee will apply to all similarly-situated market 
participants. As noted above, Priority Customers will continue to 
receive complex order rebates, while other market participants will 
continue to pay a fee. The Exchange does not believe that this is 
unfairly discriminatory for the reasons discussed above. The Exchange 
also notes that Market Maker orders will continue to be eligible for 
lower fees than other non-Priority Customer orders. The Exchange does 
not believe that it is unfairly discriminatory provide lower fees to 
Market Maker orders as Market Makers are subject to additional 
requirements and obligations (such as quoting requirements) that other 
market participants are not.
Non-Priority Customer Complex Surcharge for Non-Select Symbols
    The Exchange believes that its proposal to adopt a surcharge of 
$0.03 per contract on Non-Priority Customer complex orders in Non-
Select Symbols that take liquidity from the complex order book is 
reasonable, equitable and not unfairly discriminatory. Assessing this 
surcharge to only those orders that take liquidity from the market is 
reasonable because the Exchange wants to continue to encourage market 
participation for those participants that seek to add liquidity on ISE. 
In addition, the Exchange believes that excluding complex orders 
executed in the Exchange's various auction mechanisms from the proposed 
Non-Priority Customer complex surcharge is reasonable for the reasons 
that follow. The proposed complex surcharge will not apply to complex 
orders executed in the Facilitation Mechanism, Solicited Order 
Mechanism and Price Improvement Mechanism as such orders have separate 
pricing in Section II of the Schedule of Fees, and the Exchange wants 
to continue to encourage participation within these auction mechanisms. 
The Exchange also believes that the exclusion of ``exposure'' auctions 
pursuant to ISE Rule 722(b)(3)(iii) from the Non-Priority Customer 
complex surcharge is reasonable because the Exchange wants to encourage 
participation in this auction and have it continue to be attractive to 
market participants who

[[Page 6071]]

will be assessed the lower fee. The Exchange believes that the complex 
fee structure as proposed will remain attractive to market 
participants, who will continue to be charged lower fees for adding 
liquidity to the complex order book than for removing liquidity. ISE 
notes that other options exchanges assess similar surcharges on complex 
orders that remove liquidity from the complex order book.\21\
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    \21\ Nasdaq PHLX (``Phlx''), CBOE Options (``CBOE''), and MIAX 
Options (``MIAX'') assess similar surcharges for complex order 
executions that remove liquidity from the complex order book for 
non-penny classes. See Phlx Pricing Schedule, Section II, note 7; 
CBOE Fees Schedule, Complex Surcharge, and note 35; and MIAX Fee 
Schedule, Sections (1)(a)(i) and (ii).
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    The Exchange's proposal to adopt the $0.03 per contract Non-
Priority Customer complex order surcharge in the manner discussed above 
is equitable and not unfairly discriminatory because the surcharge will 
apply to all similarly-situated market participants.
Update Fee Schedule Headings
    The Exchange believes that the clean-up changes to update the 
section headings in its Schedule of Fees is reasonable, equitable and 
not unfairly discriminatory because these are non-substantive changes 
intended to make the Schedule of Fees more transparent to members and 
investors.

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 proposed fees and rebates 
are designed to attract additional order flow to ISE, and the Exchange 
believes that its complex order pricing remains attractive to market 
participants. The Exchange 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. 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.

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,\22\ and Rule 19b-4(f)(2) \23\ 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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    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \23\ 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-2018-10 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-2018-10. 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-2018-10 and should be submitted on 
or before March 5, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02727 Filed 2-9-18; 8:45 am]
 BILLING CODE 8011-01-P