Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish a Priority Customer Complex Order Surcharge and Provide an Additional Rebate per Originating Contract Side to Qualifying Members, 16300-16303 [2019-07822]

Download as PDF 16300 Federal Register / Vol. 84, No. 75 / Thursday, April 18, 2019 / Notices Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.6 On January 15, 2019, the Commission issued an order instituting proceedings under Section 19(b)(2)(B) of the Act 7 to determine whether to approve or disapprove the proposed rule change (‘‘OIP’’).8 The Commission received one comment on the proposal in response to the OIP.9 Section 19(b)(2) of the Act 10 provides that, after initiating disapproval proceedings, the Commission shall issue an order approving or disapproving the proposed rule change not later than 180 days after the date of publication of notice of filing of the proposed rule change. The Commission may extend the period for issuing an order approving or disapproving the proposed rule change, however, by not more than 60 days if the Commission determines that a longer period is appropriate and publishes the reasons for such determination. The proposed rule change was published for notice and comment in the Federal Register on October 18, 2018. The 180th day after publication of the Notice is April 16, 2019, and June 15, 2019 is an additional 60 days from that date. The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider the proposed rule change and the comment letters. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,11 designates June 15, 2019, as the date by which the Commission shall either approve or disapprove the proposed rule change (File No. SR–NYSE–2018–46). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–07824 Filed 4–17–19; 8:45 am] jbell on DSK30RV082PROD with NOTICES BILLING CODE 8011–01–P 6 See Securities Exchange Act Release No. 84680 (November 29, 2018), 83 FR 62942 (December 8, 2018). The Commission designated January 16, 2019, as the date by which it should approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change. 7 15 U.S.C. 78s(b)(2)(B). 8 See Securities Exchange Act Release No. 84984 (January 15, 2019), 84 FR 0855 (January 31, 2019). 9 See Letter to Secretary, Commission, from Jeffrey P. Mahoney, General Counsel, Council of Institutional Investors, dated February 11, 2019 (‘‘CII Letter II’’). 10 15 U.S.C. 78s(b)(2). 11 Id. 12 17 CFR 200.30–3(a)(57). VerDate Sep<11>2014 17:37 Apr 17, 2019 Jkt 247001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85647; File No. SR–ISE– 2019–09] Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish a Priority Customer Complex Order Surcharge and Provide an Additional Rebate per Originating Contract Side to Qualifying Members April 15, 2019. 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 April 1, 2019, 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Pricing Schedule in Options 7. 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 1 15 2 17 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00062 Fmt 4703 Sfmt 4703 Pricing Schedule in Options 7 to: (1) Establish a $0.05 per contract surcharge for Priority Customer 3 complex orders in SPY that leg into the regular order book; and (2) amend its QCC and Solicitation Rebate program to provide an additional rebate of $0.01 per originating contract side to qualifying members. Priority Customer Complex Order Surcharge The Exchange currently has a pricing structure in place that provides rebates to Priority Customer complex orders in order to encourage members to bring that order flow to the Exchange. The Exchange provides these rebates to members that achieve Priority Customer Complex Tiers 4 in Select Symbols 5 and Non-Select Symbols 6 (other than NDX, NQX or MNX). All complex order volume executed on the Exchange, including volume executed by Affiliated Members,7 is included in the volume calculation, except for volume executed as Crossing Orders 8 and Responses to Crossing Orders.9 Affiliated Entities 10 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 The Priority Customer Complex Tiers are based on total Affiliated Member or Affiliated Entity complex order volume (excluding Crossing Orders and Responses to Crossing Orders), and are calculated as a percentage of Customer Total Consolidated Volume (hereinafter, ‘‘Complex Order Volume Percentage’’). ‘‘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. 5 ‘‘Select Symbols’’ are options overlying all symbols listed on the Nasdaq ISE that are in the Penny Pilot Program. SPY is a Select Symbol. 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 this Pricing Schedule, orders executed in the Block Order Mechanism are also considered Crossing Orders. 9 ‘‘Responses to Crossing Orders’’ are any contraside interest submitted after the commencement of an auction in the Exchange’s Facilitation Mechanism, Solicited Order Mechanism, Block Order Mechanism or PIM. 10 An ‘‘Affiliated Entity’’ is a relationship between an Appointed Market Maker and an Appointed OFP for purposes of qualifying for certain pricing specified in the Pricing Schedule. An ‘‘Appointed Market Maker’’ is a Market Maker who has been appointed by an Order Flow Provider (‘‘OFP’’) for purposes of qualifying as an Affiliated Entity. An ‘‘Appointed OFP’’ is an OFP (i.e., a member, other than a Market Maker, that submits orders, as agent or principal, to the Exchange) who has been appointed by a Market Maker for purposes of E:\FR\FM\18APN1.SGM 18APN1 16301 Federal Register / Vol. 84, No. 75 / Thursday, April 18, 2019 / Notices may also aggregate their complex order volume for purposes of qualifying Appointed OFPs for these Priority Customer rebates.11 Rebates are provided per contract per leg if the Priority Customer complex order trades with non-Priority Customer orders in the complex order book or trades with quotes and orders on the regular order book.12 Priority customer complex tier Tier Tier Tier Tier Tier Tier Tier Tier Tier 1 2 3 4 5 6 7 8 9 ................................................ ................................................ ................................................ ................................................ ................................................ ................................................ ................................................ ................................................ ................................................ 0.000%–0.200% ........................................................................................ Above 0.200%–0.400% ............................................................................. Above 0.400%–0.600% ............................................................................. Above 0.600%–0.750% ............................................................................. Above 0.750%–1.000% ............................................................................. Above 1.000%–1.500% ............................................................................. Above 1.500%–2.000% ............................................................................. Above 2.000%–3.250% ............................................................................. Above 3.250% ........................................................................................... jbell on DSK30RV082PROD with NOTICES qualifying as an Affiliated Entity. Each member may qualify for only one Affiliated Entity relationship at any given time. Affiliated Members are not eligible to enter an Affiliated Entity relationship. 11 The Appointed OFP would receive the rebate associated with the qualifying volume tier based on aggregated volume. 12 The rebate for the highest tier volume achieved is applied retroactively to all eligible Priority Customer complex volume once the threshold has been reached. 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 into 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. 13 As discussed above, the Exchange currently provides the Tiers 1–9 Priority Customer complex 17:37 Apr 17, 2019 Rebate for select symbols Complex order volume percentage Going forward, the Exchange proposes to impose a $0.05 per contract surcharge on Priority Customer complex orders in SPY that leg into the regular order book, which will be applied in addition to the applicable rebate.13 For example, if a member qualifies for Priority Customer Complex Tier 1, the member’s Priority Customer complex orders in SPY that leg into the regular order book for nonnet zero activity will earn $0.20 per contract (i.e., $0.25 per contract rebate for Select Symbols minus the $0.05 per contract surcharge). If, however, the member’s SPY Priority Customer complex orders execute against nonPriority Customer orders in the complex order book instead of legging into the regular order book, those orders will earn the $0.25 per contract rebate and not be assessed the $0.05 surcharge. The Exchange is proposing this surcharge to reduce the costs of such transactions. Not only does the Exchange provide the tiered rebates discussed above to Priority Customer complex orders, but the Exchange also does not charge any maker or taker fees for such orders.14 VerDate Sep<11>2014 As set forth in Section 4 of the Pricing Schedule, there are currently nine Priority Customer Complex Tiers as follows: Jkt 247001 QCC and Solicitation Rebate Originating contract sides Currently, members using the Qualified Contingent Cross (‘‘QCC’’) 15 and/or other solicited crossing orders, including solicited orders executed in the Solicitation,16 Facilitation 17 or Price Improvement Mechanisms (‘‘PIM’’),18 receive rebates 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 provides rebates to that member for all of its QCC and solicited crossing order traded contracts for that month.19 The applicable rebates are applied on QCC and solicited crossing order traded contracts once the volume threshold is met. Members receive the rebate for all QCC and/or other solicited crossing orders except for QCC and solicited orders between two Priority Customers, which do not receive any rebate. Today, the volume thresholds and corresponding rebates are as follows: Originating contract sides 0 to 99,999 ........................... 100,000 to 199,999 .............. 200,000 to 499,999 .............. Rebate $0.00 (0.05) (0.07) order rebates to non-net zero Priority Customer complex orders that leg into the regular order book. See supra note 12, with accompanying text. 14 See Options 7, Section 4. 15 A QCC Order is comprised of an originating order to buy or sell at least 1000 contracts that is identified as being part of a qualified contingent trade, as that term is defined in Supplementary Material .01 to Rule 715, coupled with a contra-side order or orders totaling an equal number of contracts. See Rule 715(j). 16 The Solicited Order Mechanism is a process by which an Electronic Access Member (‘‘EAM’’) can attempt to execute orders of 500 or more contracts it represents as agent against contra orders that it solicited. Each order entered into the Solicited Order Mechanism shall be designated as all-ornone. See Rule 716(e). PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 ($0.25) (0.30) (0.35) (0.40) (0.45) (0.46) (0.48) (0.50) (0.50) 500,000 to 749,999 .............. 750,000 to 999,999 .............. 1,000,000+ ............................ Rebate for non-select symbols ($0.40) (0.55) (0.70) (0.75) (0.80) (0.80) (0.80) (0.85) (0.85) Rebate (0.09) (0.10) (0.11) At this time, the Exchange proposes to provide an additional incentive for members that achieve high volumes of QCC and other solicited crossing activity well above the current highest volume threshold of more than 1,000,000 originating contract sides and also provide significant complex order volume in a given month. Specifically, members will receive an additional rebate of $0.01 per originating contract side on QCC and/or other solicited crossing orders that qualify for the QCC and Solicitation Rebate program if they achieve in a given month: (i) Combined QCC and other solicited crossing order volume of more than 1,750,000 originating contract sides and (ii) Priority Customer Complex Tiers 6–9, as described above. This additional rebate opportunity will be cumulative of the $0.11 base rebate since qualifying members will have exceeded requisite volume threshold to receive the additional $0.01 incentive for a total of $0.12 per originating contract side on 17 The Facilitation Mechanism is a process by which an EAM can execute a transaction wherein the EAM seeks to facilitate a block-size order it represents as agent, and/or a transaction wherein the EAM solicited interest to execute against a block-size order it represents as agent. See Rule 716(d). 18 PIM is a process by which an EAM can provide price improvement opportunities for a transaction wherein the EAM seeks to facilitate an order it represents as agent, and/or a transaction wherein the EAM solicited interest to execute against an order it represents as agent. See Rule 723. 19 All eligible volume from affiliated members will be aggregated in determining QCC and Solicitation volume totals, provided there is at least 75% common ownership between the members as reflected on each member’s Form BD, Schedule A. E:\FR\FM\18APN1.SGM 18APN1 16302 Federal Register / Vol. 84, No. 75 / Thursday, April 18, 2019 / Notices QCC and solicited crossing order traded contracts. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,20 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,21 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. jbell on DSK30RV082PROD with NOTICES Priority Customer Complex Order Surcharge The Exchange believes that it is reasonable to establish a $0.05 per contract surcharge for Priority Customer complex orders in SPY that leg into the regular order book. As noted above, the Exchange is proposing this surcharge on Priority Customer complex orders in SPY, which is one of the most heavily traded symbols on ISE, to recoup the costs of such transactions. Not only does the Exchange provide the tiered rebates discussed above to Priority Customer complex orders, but the Exchange also does not charge any maker or taker fees for such orders. Despite the proposed change, the Exchange believes that the complex order pricing structure will continue to encourage members to bring Priority Customer complex order flow to ISE as the surcharge is minimal and only applies in limited circumstances (i.e., when SPY Priority Customer complex orders leg into the regular order book). Finally, the Exchange notes that members will still net a rebate for each Priority Customer Complex Tier even after the surcharge is applied. The Exchange believes that the proposed surcharge is equitable and not unfairly discriminatory because the Exchange will uniformly apply this fee to all similarly situated market participants. Even with this surcharge, SPY complex order pricing for Priority Customers will continue to be lower than for all other market participants. The Exchange does not believe that this pricing structure is unfairly discriminatory because Priority Customer orders bring valuable liquidity to the market, which in turn benefits other market participants by increasing their opportunities to trade. QCC and Solicitation Rebate The Exchange believes that its proposal to provide a supplementary 20 15 21 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). VerDate Sep<11>2014 17:37 Apr 17, 2019 $0.01 rebate cumulative of the base $0.11 rebate to members that achieve in a given month both combined QCC and other solicited crossing order volume of more than 1,750,000 originating contract sides and Priority Customer Complex Tiers 6–9 is reasonable because this incentive is intended to encourage members that achieve high volumes of QCC and other solicited crossing activity to continue to send more complex order flow to the Exchange to achieve Priority Customer Complex Tiers 6–9 to earn the additional $0.01 rebate. All market participants benefit from increased order interaction when more order flow is available on ISE. The Exchange also believes that the proposed changes will continue to encourage members to submit greater numbers of QCC and other solicited crossing orders to ISE to receive the additional rebate. Furthermore, the Exchange notes that it currently has other incentive programs to promote and encourage growth in specific business areas to garnish greater order flow. For example, the Exchange offers additional rebates to members that achieve high volumes of unsolicited PIM and Facilitation activity as well as complex activity.22 The Exchange also believes that the proposed changes are equitable and not unfairly discriminatory because any member may qualify for the proposed supplemental rebate by submitting QCC and other solicited crossing orders as well as complex orders. Finally, the Exchange will apply the proposed incentive uniformly to all members’ orders that meet the requisite volume thresholds. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. As it relates to the proposed surcharge for Priority Customer complex orders in SPY, the Exchange believes that its proposal will continue to encourage members to send more complex order flow to ISE given that the surcharge will apply in limited circumstances, and that Priority Customers will still earn a rebate in each Priority Customer Complex Tier even after the surcharge is applied. The Exchange further believes that the additional QCC and Solicitation Rebate proposed above will encourage members to submit more QCC and other solicited crossing orders as well as 22 See Options 7, Section 6.B (PIM and Facilitation Rebate). Jkt 247001 PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 complex orders. Accordingly, the Exchange believes that the fees and rebates proposed above will continue to attract order flow to the Exchange, thereby encouraging additional volume and liquidity. All market participants benefit from increased order interaction when more order flow is available on ISE. The Exchange operates in a highly competitive market in which market participants can readily direct their order flow to 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. 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,23 and Rule 19b–4(f)(2) 24 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. 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 23 15 24 17 E:\FR\FM\18APN1.SGM U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). 18APN1 Federal Register / Vol. 84, No. 75 / Thursday, April 18, 2019 / Notices • Send an email to rule-comments@ sec.gov. Please include File Number SR– ISE–2019–09 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–2019–09. 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–2019–09 and should be submitted on or before May 9, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–07822 Filed 4–17–19; 8:45 am] BILLING CODE 8011–01–P jbell on DSK30RV082PROD with NOTICES SECURITIES AND EXCHANGE COMMISSION Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 25 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:37 Apr 17, 2019 Jkt 247001 100 F Street NE, Washington, DC 20549–2736. Extension: Rule 20a–1, SEC File No. 270– 132, OMB Control No. 3235–0158. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (the ‘‘Commission’’) is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget for extension and approval. Rule 20a–1 (17 CFR 270.20a–1) was adopted under Section 20(a) of the Investment Company Act of 1940 (‘‘1940 Act’’) (15 U.S.C. 80a–20(a)) and concerns the solicitation of proxies, consents, and authorizations with respect to securities issued by registered investment companies (‘‘Funds’’). More specifically, rule 20a–1 under the 1940 Act (15 U.S.C. 80a–1 et seq.) requires that the solicitation of a proxy, consent, or authorization with respect to a security issued by a Fund be in compliance with Regulation 14A (17 CFR 240.14a–1 et seq.), Schedule 14A (17 CFR 240.14a–101), and all other rules and regulations adopted pursuant to section 14(a) of the Securities Exchange Act of 1934 (‘‘1934 Act’’) (15 U.S.C. 78n(a)). It also requires, in certain circumstances, a Fund’s investment adviser or a prospective adviser, and certain affiliates of the adviser or prospective adviser, to transmit to the person making the solicitation the information necessary to enable that person to comply with the rules and regulations applicable to the solicitation. In addition, rule 20a–1 instructs Funds that have made a public offering of securities and that hold security holder votes for which proxies, consents, or authorizations are not being solicited, to refer to section 14(c) of the 1934 Act (15 U.S.C. 78n(c)) and the information statement requirements set forth in the rules thereunder. The types of proposals voted upon by Fund shareholders include not only the typical matters considered in proxy solicitations made by operating companies, such as the election of directors, but also include issues that are unique to Funds, such as the approval of an investment advisory contract and the approval of changes in fundamental investment policies of the Fund. Through rule 20a–1, any person making a solicitation with respect to a security issued by a Fund must, similar to operating company solicitations, comply with the rules and regulations adopted pursuant to Section 14(a) of the PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 16303 1934 Act. Some of those Section 14(a) rules and regulations, however, include provisions specifically related to Funds, including certain particularized disclosure requirements set forth in Item 22 of Schedule 14A under the 1934 Act. Rule 20a–1 is intended to ensure that investors in Fund securities are provided with appropriate information upon which to base informed decisions regarding the actions for which Funds solicit proxies. Without rule 20a–1, Fund issuers would not be required to comply with the rules and regulations adopted under Section 14(a) of the 1934 Act, which are applicable to non-Fund issuers, including the provisions relating to the form of proxy and disclosure in proxy statements. The staff currently estimates that approximately 1,333 proxy statements are filed by Funds annually. Based on staff estimates and information from the industry, the staff estimates that the average annual burden associated with the preparation and submission of proxy statements is 85 hours per response, for a total annual burden of 113,305 hours (1,333 responses × 85 hours per response = 113,305). In addition, the staff estimates the costs for purchased services, such as outside legal counsel, proxy statement mailing, and proxy tabulation services, to be approximately $30,000 per proxy solicitation. Rule 20a–1 does not involve any recordkeeping requirements. Providing the information required by the rule is mandatory and information provided under the rule will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid control number. Written comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency’s estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Please direct your written comments to Charles Riddle, Acting Director/Chief Information Officer, Securities and Exchange Commission, C/O Candace E:\FR\FM\18APN1.SGM 18APN1

Agencies

[Federal Register Volume 84, Number 75 (Thursday, April 18, 2019)]
[Notices]
[Pages 16300-16303]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07822]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85647; File No. SR-ISE-2019-09]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Establish a 
Priority Customer Complex Order Surcharge and Provide an Additional 
Rebate per Originating Contract Side to Qualifying Members

April 15, 2019.
    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 April 1, 2019, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Pricing Schedule in Options 7.
    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 
Pricing Schedule in Options 7 to: (1) Establish a $0.05 per contract 
surcharge for Priority Customer \3\ complex orders in SPY that leg into 
the regular order book; and (2) amend its QCC and Solicitation Rebate 
program to provide an additional rebate of $0.01 per originating 
contract side to qualifying members.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

Priority Customer Complex Order Surcharge
    The Exchange currently has a pricing structure in place that 
provides rebates to Priority Customer complex orders in order to 
encourage members to bring that order flow to the Exchange. The 
Exchange provides these rebates to members that achieve Priority 
Customer Complex Tiers \4\ in Select Symbols \5\ and Non-Select Symbols 
\6\ (other than NDX, NQX or MNX). All complex order volume executed on 
the Exchange, including volume executed by Affiliated Members,\7\ is 
included in the volume calculation, except for volume executed as 
Crossing Orders \8\ and Responses to Crossing Orders.\9\ Affiliated 
Entities \10\

[[Page 16301]]

may also aggregate their complex order volume for purposes of 
qualifying Appointed OFPs for these Priority Customer rebates.\11\ 
Rebates are provided per contract per leg if the Priority Customer 
complex order trades with non-Priority Customer orders in the complex 
order book or trades with quotes and orders on the regular order 
book.\12\
---------------------------------------------------------------------------

    \4\ The Priority Customer Complex Tiers are based on total 
Affiliated Member or Affiliated Entity complex order volume 
(excluding Crossing Orders and Responses to Crossing Orders), and 
are calculated as a percentage of Customer Total Consolidated Volume 
(hereinafter, ``Complex Order Volume Percentage''). ``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.
    \5\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Pilot Program. SPY is a 
Select Symbol.
    \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 this Pricing Schedule, orders executed in the Block 
Order Mechanism are also considered Crossing Orders.
    \9\ ``Responses to Crossing Orders'' are 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\ An ``Affiliated Entity'' is a relationship between an 
Appointed Market Maker and an Appointed OFP for purposes of 
qualifying for certain pricing specified in the Pricing Schedule. An 
``Appointed Market Maker'' is a Market Maker who has been appointed 
by an Order Flow Provider (``OFP'') for purposes of qualifying as an 
Affiliated Entity. An ``Appointed OFP'' is an OFP (i.e., a member, 
other than a Market Maker, that submits orders, as agent or 
principal, to the Exchange) who has been appointed by a Market Maker 
for purposes of qualifying as an Affiliated Entity. Each member may 
qualify for only one Affiliated Entity relationship at any given 
time. Affiliated Members are not eligible to enter an Affiliated 
Entity relationship.
    \11\ The Appointed OFP would receive the rebate associated with 
the qualifying volume tier based on aggregated volume.
    \12\ The rebate for the highest tier volume achieved is applied 
retroactively to all eligible Priority Customer complex volume once 
the threshold has been reached. 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 into 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.
---------------------------------------------------------------------------

    As set forth in Section 4 of the Pricing Schedule, there are 
currently nine Priority Customer Complex Tiers as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                    Rebate for    Rebate for non-
       Priority customer complex tier          Complex order volume percentage    select symbols  select symbols
----------------------------------------------------------------------------------------------------------------
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%-0.750%................          (0.40)          (0.75)
Tier 5.....................................  Above 0.750%-1.000%................          (0.45)          (0.80)
Tier 6.....................................  Above 1.000%-1.500%................          (0.46)          (0.80)
Tier 7.....................................  Above 1.500%-2.000%................          (0.48)          (0.80)
Tier 8.....................................  Above 2.000%-3.250%................          (0.50)          (0.85)
Tier 9.....................................  Above 3.250%.......................          (0.50)          (0.85)
----------------------------------------------------------------------------------------------------------------

    Going forward, the Exchange proposes to impose a $0.05 per contract 
surcharge on Priority Customer complex orders in SPY that leg into the 
regular order book, which will be applied in addition to the applicable 
rebate.\13\ For example, if a member qualifies for Priority Customer 
Complex Tier 1, the member's Priority Customer complex orders in SPY 
that leg into the regular order book for non-net zero activity will 
earn $0.20 per contract (i.e., $0.25 per contract rebate for Select 
Symbols minus the $0.05 per contract surcharge). If, however, the 
member's SPY Priority Customer complex orders execute against non-
Priority Customer orders in the complex order book instead of legging 
into the regular order book, those orders will earn the $0.25 per 
contract rebate and not be assessed the $0.05 surcharge.
---------------------------------------------------------------------------

    \13\ As discussed above, the Exchange currently provides the 
Tiers 1-9 Priority Customer complex order rebates to non-net zero 
Priority Customer complex orders that leg into the regular order 
book. See supra note 12, with accompanying text.
---------------------------------------------------------------------------

    The Exchange is proposing this surcharge to reduce the costs of 
such transactions. Not only does the Exchange provide the tiered 
rebates discussed above to Priority Customer complex orders, but the 
Exchange also does not charge any maker or taker fees for such 
orders.\14\
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    \14\ See Options 7, Section 4.
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QCC and Solicitation Rebate
    Currently, members using the Qualified Contingent Cross (``QCC'') 
\15\ and/or other solicited crossing orders, including solicited orders 
executed in the Solicitation,\16\ Facilitation \17\ or Price 
Improvement Mechanisms (``PIM''),\18\ receive rebates 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 provides rebates 
to that member for all of its QCC and solicited crossing order traded 
contracts for that month.\19\ The applicable rebates are applied on QCC 
and solicited crossing order traded contracts once the volume threshold 
is met. Members receive the rebate for all QCC and/or other solicited 
crossing orders except for QCC and solicited orders between two 
Priority Customers, which do not receive any rebate. Today, the volume 
thresholds and corresponding rebates are as follows:
---------------------------------------------------------------------------

    \15\ A QCC Order is comprised of an originating order to buy or 
sell at least 1000 contracts that is identified as being part of a 
qualified contingent trade, as that term is defined in Supplementary 
Material .01 to Rule 715, coupled with a contra-side order or orders 
totaling an equal number of contracts. See Rule 715(j).
    \16\ The Solicited Order Mechanism is a process by which an 
Electronic Access Member (``EAM'') can attempt to execute orders of 
500 or more contracts it represents as agent against contra orders 
that it solicited. Each order entered into the Solicited Order 
Mechanism shall be designated as all-or-none. See Rule 716(e).
    \17\ The Facilitation Mechanism is a process by which an EAM can 
execute a transaction wherein the EAM seeks to facilitate a block-
size order it represents as agent, and/or a transaction wherein the 
EAM solicited interest to execute against a block-size order it 
represents as agent. See Rule 716(d).
    \18\ PIM is a process by which an EAM can provide price 
improvement opportunities for a transaction wherein the EAM seeks to 
facilitate an order it represents as agent, and/or a transaction 
wherein the EAM solicited interest to execute against an order it 
represents as agent. See Rule 723.
    \19\ All eligible volume from affiliated members will be 
aggregated in determining QCC and Solicitation volume totals, 
provided there is at least 75% common ownership between the members 
as reflected on each member's Form BD, Schedule A.

------------------------------------------------------------------------
               Originating contract sides                     Rebate
------------------------------------------------------------------------
0 to 99,999.............................................           $0.00
100,000 to 199,999......................................          (0.05)
200,000 to 499,999......................................          (0.07)
500,000 to 749,999......................................          (0.09)
750,000 to 999,999......................................          (0.10)
1,000,000+..............................................          (0.11)
------------------------------------------------------------------------

    At this time, the Exchange proposes to provide an additional 
incentive for members that achieve high volumes of QCC and other 
solicited crossing activity well above the current highest volume 
threshold of more than 1,000,000 originating contract sides and also 
provide significant complex order volume in a given month. 
Specifically, members will receive an additional rebate of $0.01 per 
originating contract side on QCC and/or other solicited crossing orders 
that qualify for the QCC and Solicitation Rebate program if they 
achieve in a given month: (i) Combined QCC and other solicited crossing 
order volume of more than 1,750,000 originating contract sides and (ii) 
Priority Customer Complex Tiers 6-9, as described above. This 
additional rebate opportunity will be cumulative of the $0.11 base 
rebate since qualifying members will have exceeded requisite volume 
threshold to receive the additional $0.01 incentive for a total of 
$0.12 per originating contract side on

[[Page 16302]]

QCC and solicited crossing order traded contracts.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\20\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\21\ 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.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

Priority Customer Complex Order Surcharge
    The Exchange believes that it is reasonable to establish a $0.05 
per contract surcharge for Priority Customer complex orders in SPY that 
leg into the regular order book. As noted above, the Exchange is 
proposing this surcharge on Priority Customer complex orders in SPY, 
which is one of the most heavily traded symbols on ISE, to recoup the 
costs of such transactions. Not only does the Exchange provide the 
tiered rebates discussed above to Priority Customer complex orders, but 
the Exchange also does not charge any maker or taker fees for such 
orders. Despite the proposed change, the Exchange believes that the 
complex order pricing structure will continue to encourage members to 
bring Priority Customer complex order flow to ISE as the surcharge is 
minimal and only applies in limited circumstances (i.e., when SPY 
Priority Customer complex orders leg into the regular order book). 
Finally, the Exchange notes that members will still net a rebate for 
each Priority Customer Complex Tier even after the surcharge is 
applied.
    The Exchange believes that the proposed surcharge is equitable and 
not unfairly discriminatory because the Exchange will uniformly apply 
this fee to all similarly situated market participants. Even with this 
surcharge, SPY complex order pricing for Priority Customers will 
continue to be lower than for all other market participants. The 
Exchange does not believe that this pricing structure is unfairly 
discriminatory because Priority Customer orders bring valuable 
liquidity to the market, which in turn benefits other market 
participants by increasing their opportunities to trade.
QCC and Solicitation Rebate
    The Exchange believes that its proposal to provide a supplementary 
$0.01 rebate cumulative of the base $0.11 rebate to members that 
achieve in a given month both combined QCC and other solicited crossing 
order volume of more than 1,750,000 originating contract sides and 
Priority Customer Complex Tiers 6-9 is reasonable because this 
incentive is intended to encourage members that achieve high volumes of 
QCC and other solicited crossing activity to continue to send more 
complex order flow to the Exchange to achieve Priority Customer Complex 
Tiers 6-9 to earn the additional $0.01 rebate. All market participants 
benefit from increased order interaction when more order flow is 
available on ISE. The Exchange also believes that the proposed changes 
will continue to encourage members to submit greater numbers of QCC and 
other solicited crossing orders to ISE to receive the additional 
rebate. Furthermore, the Exchange notes that it currently has other 
incentive programs to promote and encourage growth in specific business 
areas to garnish greater order flow. For example, the Exchange offers 
additional rebates to members that achieve high volumes of unsolicited 
PIM and Facilitation activity as well as complex activity.\22\
---------------------------------------------------------------------------

    \22\ See Options 7, Section 6.B (PIM and Facilitation Rebate).
---------------------------------------------------------------------------

    The Exchange also believes that the proposed changes are equitable 
and not unfairly discriminatory because any member may qualify for the 
proposed supplemental rebate by submitting QCC and other solicited 
crossing orders as well as complex orders. Finally, the Exchange will 
apply the proposed incentive uniformly to all members' orders that meet 
the requisite volume thresholds.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. As it relates to the proposed 
surcharge for Priority Customer complex orders in SPY, the Exchange 
believes that its proposal will continue to encourage members to send 
more complex order flow to ISE given that the surcharge will apply in 
limited circumstances, and that Priority Customers will still earn a 
rebate in each Priority Customer Complex Tier even after the surcharge 
is applied. The Exchange further believes that the additional QCC and 
Solicitation Rebate proposed above will encourage members to submit 
more QCC and other solicited crossing orders as well as complex orders. 
Accordingly, the Exchange believes that the fees and rebates proposed 
above will continue to attract order flow to the Exchange, thereby 
encouraging additional volume and liquidity. All market participants 
benefit from increased order interaction when more order flow is 
available on ISE.
    The Exchange operates in a highly competitive market in which 
market participants can readily direct their order flow to 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. 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,\23\ and Rule 19b-4(f)(2) \24\ 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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \24\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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

[[Page 16303]]

     Send an email to [email protected]. Please include 
File Number SR-ISE-2019-09 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-2019-09. 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-2019-09 and should be submitted on 
or before May 9, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07822 Filed 4-17-19; 8:45 am]
BILLING CODE 8011-01-P