Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees, 8244-8248 [2017-01466]

Download as PDF 8244 Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Notices modified by Amendment No. 1, on an accelerated basis. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,44 that the proposed rule change (SR–Phlx–2016– 82), as modified by Amendment No. 1, be, and hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.45 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–01460 Filed 1–23–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79810; File No. SR– NASDAQ–2016–161] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Designation of Longer Period for Commission Action on Proposed Rule Change To Adopt a New Extended Life Priority Order Attribute Under Rule 4703, and To Make Related Changes to Rules 4702, 4752, 4753, 4754, and 4757 January 17, 2017. On November 17, 2016, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to adopt a new Extended Life Priority Order Attribute. The proposed rule change was published for comment in the Federal Register on December 5, 2016.3 The Commission has received six comment letters on the proposal.4 Section 19(b)(2) of the Act 5 provides that within 45 days of the publication of 44 See id. CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 79428 (November 30, 2016), 81 FR 87628. 4 See Letters to Brent J. Fields, Secretary, Commission, from Joseph Saluzzi and Sal Arnuk, Partners, Themis Trading LLC, dated December 19, 2016; Eric Swanson, EVP, General Counsel and Secretary, Bats Global Markets, Inc., dated December 22, 2016; Adam Nunes, Head of Business Development, Hudson River Trading LLC, dated December 22, 2016; Joanna Mallers, Secretary, FIA Principal Traders Group, dated December 23, 2016; Adam C. Cooper, Senior Managing Director and Chief Legal Officer, Citadel Securities, dated December 27, 2016; and Andrew Stevens, General Counsel, IMC Financial Markets, dated December 28, 2016. 5 15 U.S.C. 78s(b)(2). sradovich on DSK3GMQ082PROD with NOTICES 45 17 VerDate Sep<11>2014 19:36 Jan 23, 2017 Jkt 241001 notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day for this filing is January 19, 2017. The Commission is extending the 45day time period for Commission action on the proposed rule change. The Commission finds that it is appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the Exchange’s proposal, the comments received, and any response to the comments by the Exchange. Accordingly, pursuant to Section 19(b)(2) of the Act 6 and for the reasons stated above, the Commission designates March 5, 2017, as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR–NASDAQ–2016–161). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–01465 Filed 1–23–17; 8:45 am] BILLING CODE 8011–01–P [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 6 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(31). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 7 17 Frm 00071 Fmt 4703 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 SECURITIES AND EXCHANGE COMMISSION PO 00000 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. Sfmt 4703 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 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. E:\FR\FM\24JAN1.SGM 24JAN1 8245 Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Notices when Priority Customers 5 trade with other Priority Customers for such orders. 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 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. 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: A. QCC and Solicitation Rebate ➢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: ➢Non-‘‘Customer to Customer’’ and ‘‘Customer to Customer’’ volume will be aggregated in determining the applicable volume tier. Non-‘‘Customer to Customer’’ rebate Originating contract sides 0 to 99,999 ................................................................................................................................... 100,000 to 199,999 ...................................................................................................................... 200,000 to 499,999 ...................................................................................................................... 500,000 to 699,999 ...................................................................................................................... 700,000 to 999,999 ...................................................................................................................... 1,000,000+ ................................................................................................................................... 0.00 (0.05) (0.07) (0.08) (0.09) (0.11) ‘‘Customer to Customer’’ rebate 0.00 (0.01) (0.01) (0.03) (0.03) (0.03) ‘‘Customer to Customer’’ rebate PLUS* 0.00 (0.05) (0.05) (0.05) (0.05) (0.05) * PLUS rebate is for Members with total monthly unsolicited originating Facilitation contract side volume of 175,000 or more. sradovich on DSK3GMQ082PROD with NOTICES 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. The proposed changes would treat Professional Customers and Priority Customers the same with respect to fees 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. 6 See Securities Exchange Act Release No. 63955 (Feb. 24, 2011), 76 FR 11533 (Mar. 2, 2011) (SR– ISE–2010–73). 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. 9 See id. at 12. 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 10 See id. 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 11 ISE Continued VerDate Sep<11>2014 19:36 Jan 23, 2017 Jkt 241001 PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 E:\FR\FM\24JAN1.SGM 24JAN1 8246 Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Notices 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. 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-a-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. 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 sradovich on DSK3GMQ082PROD with NOTICES 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) 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. 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). 14 15 U.S.C. 78f(b). VerDate Sep<11>2014 19:36 Jan 23, 2017 Jkt 241001 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. 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 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 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 brokerdealers 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. It is reasonable to no longer assess a transaction fee for Professional 15 15 U.S.C. 78f(b)(4) and (5). Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37497, 37499 (June 29, 2005). 17 See id. at 534–535. 18 See id. at 534. 19 See id. at 537. 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). 16 See PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 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 largesized 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. 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 21 See ISE Rule 715(j). 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. 22 See E:\FR\FM\24JAN1.SGM 24JAN1 Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Notices ‘‘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. 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-toPriority 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: sradovich on DSK3GMQ082PROD with NOTICES 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 brokerdealers 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 Thus, because of the size of the orders, the sophistication of the investors involved, and the complexity of the transactions, pricing differentiation between Priority 24 See supra note 11. Securities Exchange Act Release No. 57254 (Feb. 1, 2008), 73 FR 7345, 7346 n.7 (Feb. 7, 2008). 25 See 26 See Securities and Exchange Act Release No. 63955 (February 24, 2011), 76 FR 11533 (March 2, 2011) (SR–ISE–2010–73). VerDate Sep<11>2014 19:36 Jan 23, 2017 Jkt 241001 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 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 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 27 See ISE Fee Schedule, supra note 7, at 17. id. 29 See id. at 6–7, 12–13. 30 See Securities Exchange Act Release No. 34– 77673 (Apr. 14, 2016), 81 FR 249009 (Apr. 21, 2016) (SR–Phlx–2016–51). 28 See PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 8247 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 NonCustomer orders. Professional Customer orders are identified based upon the average number of orders entered for a beneficial account.31 QCC orders are by definition largesized 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 31 See supra note 25. ISE Fee Schedule, supra note 7, at 17. 33 See id. 34 See id. at 6–7, 12–13. 32 See E:\FR\FM\24JAN1.SGM 24JAN1 8248 Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Notices competition for the reasons explained herein. 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 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: sradovich on DSK3GMQ082PROD with NOTICES Electronic Comments • Use 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 supra note 12. 36 See supra note 30. 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. 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 SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–664, OMB Control No. 3235–0740] Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of Investor Education and Advocacy, Washington, DC 20549–0213. Revision: 35 See VerDate Sep<11>2014 19:36 Jan 23, 2017 37 17 Jkt 241001 PO 00000 CFR 200.30–3(a)(12). Frm 00075 Fmt 4703 Sfmt 4703 Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies. ACTION: Notice. The SEC, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on a revised information collection, as required by the PRA. The SEC may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid OMB control number. The SEC previously received OMB approval for a voluntary information collection in the Joint Standards. The SEC now is soliciting comments on a revised information collection which adds a Diversity Assessment Report as an instrument to facilitate completion of the selfassessment described in the Joint Standards. DATES: Comments must be submitted on or before March 27, 2017. ADDRESSES: Please direct your written comments to Pamela Dyson, Chief Information Officer, Securities and Exchange Commission, c/o Remi PavlikSimon, 100 F Street NE., Washington, DC 20549, or send an email to PRA_ Mailbox@sec.gov, and include ‘‘SEC File No. 270–664—OMWI Diversity Assessment Report’’ in the subject line of the message. FOR FURTHER INFORMATION CONTACT: For further information about the information collection discussed in this revised notice, please contact Pamela A. Gibbs, Director, Office of Minority and Women Inclusion, (202) 551–6046, or Audrey B. Little, Senior Counsel, Office of Minority and Women Inclusion, (202) 551–6086, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. SUPPLEMENTARY INFORMATION: Under the PRA (44 U.S.C. 3501–3520), certain Federal agencies must obtain approval from OMB for each collection of information that they conduct or sponsor. ‘‘Collection of information’’ is defined in 44 U.S.C. 3502(3) (and 5 CFR 1320.3(c) of the PRA implementing regulations) to include agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. The PRA (44 U.S.C. 3506(c)(2)(A)) directs these Federal agencies to provide a 60-day notice in the Federal Register concerning each proposed collection of information before submitting the collection to OMB for approval. To comply with this requirement, the SEC SUMMARY: E:\FR\FM\24JAN1.SGM 24JAN1

Agencies

[Federal Register Volume 82, Number 14 (Tuesday, January 24, 2017)]
[Notices]
[Pages 8244-8248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01466]


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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.
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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 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.
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    \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.
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    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\
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    \6\ See Securities Exchange Act Release No. 63955 (Feb. 24, 
2011), 76 FR 11533 (Mar. 2, 2011) (SR-ISE-2010-73).
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    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.
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    \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.
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    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:
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    \9\ See id. at 12.
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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.

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                                                                  Non-``Customer   ``Customer to   ``Customer to
                   Originating contract sides                      to Customer''    Customer''      Customer''
                                                                      rebate          rebate       rebate PLUS*
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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)
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* 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.
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    \10\ See id.
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    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.
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    \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.
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    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.
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    \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).
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    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.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4) and (5).
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    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\
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    \16\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37497, 37499 (June 29, 2005).
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    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\
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    \17\ See id. at 534-535.
    \18\ See id. at 534.
    \19\ See id. at 537.
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    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.
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    \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).
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    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.
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    \21\ See ISE Rule 715(j).
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    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.
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    \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.
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    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:
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    \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 
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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).
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    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\
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    \27\ See ISE Fee Schedule, supra note 7, at 17.
    \28\ See id.
    \29\ See id. at 6-7, 12-13.
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    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\
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    \30\ See Securities Exchange Act Release No. 34-77673 (Apr. 14, 
2016), 81 FR 249009 (Apr. 21, 2016) (SR-Phlx-2016-51).
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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\
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    \31\ See supra note 25.
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    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.
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    \32\ See ISE Fee Schedule, supra note 7, at 17.
    \33\ See id.
    \34\ See id. at 6-7, 12-13.
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    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\
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    \35\ See supra note 12.
    \36\ See supra note 30.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act, 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 Comments

     Use 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.
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    \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