Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule at Options 7, 12616-12623 [2020-04290]
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Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Notices
may be issued and redeemed for the
underlying commodity. NYSE Arca
proposes to amend this rule to also
allow issuances and redemptions in
cash, or in a combination of the
underlying commodity and cash.271
Rule 8.201–E(c)(2) currently states that
the term ‘‘commodity’’ is defined in
Section 1(a)(4) of the Commodity
Exchange Act. NYSE Arca proposes to
update the reference for the definition of
the term ‘‘commodity’’ to Section 1(a)(9)
of the Commodity Exchange Act.272
1. Representations Made and Comments
Received
NYSE Arca states that the
Commission has previously approved
listing and trading on NYSE Arca of
Commodity-Based Trust Shares that
permit issuance and redemption of
shares for cash in whole or in part.273
NYSE Arca states that it believes that
such an alternative would allow a trust
issuing Commodity Based Trust Shares
to structure the procedures for issuance
and redemption of shares in a manner
that may provide operational
efficiencies and accommodate investors
who may wish to deliver or receive cash
rather than the underlying
commodity.274 NYSE Arca further
asserts that the proposed change will
facilitate the listing and trading of
additional types of exchange-traded
derivative securities products that will
enhance competition among market
participants, to the benefit of investors
and the marketplace.275
With regard to its proposed change to
Rule 8.201–E(c)(2), NYSE Arca states
that the change in cross-reference to the
definition of ‘‘commodity’’ in the
Commodity Exchange Act is to reflect
an amendment to the Commodity
Exchange Act included in the DoddFrank Wall Street Reform and Consumer
Protection Act of 2010.276
lotter on DSKBCFDHB2PROD with NOTICES
2. Analysis
The Commission is disapproving the
proposed rule change, as modified by
Amendment No. 1, on the basis that
NYSE Arca has not demonstrated that
its proposal to list and trade the Shares
is consistent with Section 6(b)(5) of the
Exchange Act. As such, in this order the
Commission does not reach the question
of whether these proposed amendments
to Rule 8.201–E are consistent with the
Exchange Act.
271 See
Notice, 84 FR at 56220.
id. at 56221.
273 See id. at 56220 & n.11.
274 See id. at 56220.
275 See id.
276 See id. at 56221.
272 See
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E. Other Comments
Comment letters also addressed the
general nature and uses of bitcoin; 277
the state of development of bitcoin as a
digital asset; 278 the inherent value of,
and risks of investing in, bitcoin; 279 the
desire of investors to gain access to
bitcoin through an ETP; 280 the volatility
of the spot price of bitcoin and the
potential volatility of the price of the
ETP; 281 the legitimacy or enhanced
regulatory protection that Commission
approval of the proposed ETP might
confer upon bitcoin as a digital asset; 282
the potential impact of Commission
approval of the proposed ETP on the
price of bitcoin and on bitcoin
markets; 283 the level of fees proposed
by the Sponsor; 284 the role of the U.S.
in promoting innovation through
bitcoin; 285 and the bitcoin network’s
effect on the environment.286
Ultimately, however, additional
discussion of these topics beyond that
included above is unnecessary, as they
do not further bear on the basis for the
Commission’s decision to disapprove
the proposal.
IV. Conclusion
For the reasons set forth above, the
Commission does not find, pursuant to
Section 19(b)(2) of the Exchange Act,
that the proposed rule change, as
modified by Amendment No. 1, is
consistent with the requirements of the
Exchange Act and the rules and
regulations thereunder applicable to a
national securities exchange, and in
particular, with Section 6(b)(5) of the
Exchange Act.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,
that proposed rule change SR–
NYSEArca–2019–39, as modified by
Amendment No. 1, is disapproved.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–04294 Filed 3–2–20; 8:45 am]
BILLING CODE 8011–01–P
277 See
Angel Letter at 3.
id. at 14; Letter from Alex Heuer (Oct. 16,
2019); Letter from James Williams (Dec. 19, 2019).
279 See, e.g., Angel Letter; Thompson Letter;
Letter from Alastair Holdsworth (Dec. 20, 2019).
280 See, e.g., Angel Letter; Letter from Scott Page
(July 5, 2019) (‘‘Page Letter’’).
281 See, e.g., Notice, 84 FR at 56228.
282 See, e.g., Angel Letter; Page Letter.
283 See, e.g., Angel Letter.
284 See, e.g., Letter from Avinash Shenoy (May 22,
2019).
285 See, e.g., Page Letter.
286 See Thompson Letter.
278 See
PO 00000
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88292; File No. SR–ISE–
2020–06]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the
Exchange’s Pricing Schedule at
Options 7
February 26, 2020.
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 February
12, 2020, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘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 the
Exchange’s Pricing Schedule at Options
7, as described further below.
The text of the proposed rule change
is available on the Exchange’s website at
https://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 at Options 7 with the
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Notices
objective of attracting additional volume
to the Exchange in Non-Select
Symbols,3 where the Exchange has seen
less activity than it has in Select
Symbols.4 Each change is described in
detail below.
The Exchange initially filed the
proposed rule change on February 3,
2020 (SR–ISE–2020–03). On February
12, 2020, the Exchange withdrew that
filing and submitted this filing.
Marketing Fee
By way of background, the Exchange
administers a marketing fee program
that helps Market Makers 5 establish
marketing fee arrangements with
Electronic Access Members (‘‘EAMs’’) in
exchange for those EAMs routing some
or all of their order flow to the Market
Maker.6 This program is funded through
a fee of $0.70 per contract, which is paid
by the Market Maker for each regular
Priority Customer 7 contract executed in
Non-Select Symbols.8
In connection with the proposed fee
changes to the regular Non-Select
Symbol pricing schedule described
below, the Exchange proposes to set this
marketing fee to $0.00 per contract. The
Exchange believes that the proposed fee
change will ensure that the total fees
paid by Market Makers for regular
executions in Non-Select Symbols will
remain at a level the Exchange believes
is appropriate. The Exchange also
proposes in Options 7, Section 6.E to
add language that makes clear no
marketing fees will be charged with the
proposed changes. In particular, the
Exchange will add that no marketing
fees are charged for Select and NonSelect Symbols. If the Exchange
determines to charge a marketing fee in
the future, it will do so pursuant to a
rule filing.
Non-Select Regular Order Pricing
As set forth in Options 7, Section 3,
the Exchange currently charges the
following transaction fees for regular
orders in Non-Select Symbols
(excluding index options): 9 $0.25 per
contract for Market Maker orders, $0.20
per contract for Market Maker orders
sent by EAMs, and $0.72 per contract
for Non-Nasdaq ISE Market Maker,10
Firm Proprietary 11/Broker-Dealer,12 and
Professional Customer 13 orders. The
Exchange applies the foregoing fees to
regular transactions regardless of
whether the order adds or removes
liquidity on ISE. The Exchange
currently does not charge a fee for
regular Priority Customer orders in NonSelect Symbols.
The Exchange now proposes to
replace the existing fee structure with a
maker/taker pricing model where all
market participants (except Priority
Customers) will be assessed a uniform
per contract ‘‘maker’’ fee for Non-Select
Symbol executions that add liquidity on
the Exchange, and a separate per
contract ‘‘taker’’ fee for Non-Select
Symbol executions that remove
liquidity.14 Generally speaking, the
proposed maker fees will be slightly
lower than the proposed taker fees in
Maker rebate/
fee
Market participant
lotter on DSKBCFDHB2PROD with NOTICES
Market Maker ...........................................
$0.70
3 ‘‘Non-Select Symbols’’ are options overlying all
symbols excluding Select Symbols.
4 ‘‘Select Symbols’’ are options overlying all
symbols listed on the Exchange that are in the
Penny Pilot Program.
5 The term ‘‘Market Makers’’ refers to
‘‘Competitive Market Makers’’ and ‘‘Primary Market
Makers’’ collectively. See Options 1, Section
1(a)(21).
6 The marketing fee is rebated proportionally to
the Members that paid the fee such that on a
monthly basis the market fee fund balance
administered by the Primary Market Maker for a
Group of options established under Options 2,
Section 3(b) does not exceed $100,000 and the
marketing fee fund balance administered by a
preferenced Competitive Market Maker for such a
Group does not exceed $100,000. A preferenced
Competitive Market Maker that elects not to
administer a fund will not be charged the marketing
fee. The Exchange assesses an administrative fee of
.45% on the total amount of the funds collected
each month. See Options 7, Section 6.E.
7 A ‘‘Priority Customer’’ is a person or entity that
is not a broker/dealer in securities, and does not
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Fee for
crossing
orders
except
PIM orders
Taker fee
$0.72
Frm 00124
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Fee for PIM
Orders
$0.20
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
Options 1, Section 1(a)(37).
8 The Exchange does not charge Market Makers a
marketing fee for regular Priority Customer
contracts in Select Symbols. Furthermore, the
marketing fee is currently waived for NDX, NQX,
MNX, Flash Orders and for Complex Orders in all
symbols.
9 Specifically, for all executions in regular NDX
and NQX orders, the Exchange charges the
applicable index options fees in Options 7, Section
5 instead.
10 A ‘‘Non-Nasdaq ISE Market Maker’’ is a market
maker as defined in Section 3(a)(38) of the
Securities Exchange Act of 1934, as amended,
registered in the same options class on another
options exchange.
11 A ‘‘Firm Proprietary’’ order is an order
submitted by a member for its own proprietary
account.
12 A ‘‘Broker-Dealer’’ order is an order submitted
by a member for a broker-dealer account that is not
its own proprietary account.
PO 00000
order to incentivize Members to
increase their liquidity adding activity
in Non-Select Symbols. The Exchange
also proposes to charge all market
participants higher taker fees for trades
executed against Priority Customer
Orders. The Exchange further proposes
to provide a significant maker rebate for
Priority Customer orders in Non-Select
Symbols, and to continue assessing no
taker fees for such orders.
In light of the proposed changes to
charge consistent maker/taker fees
across all non-Priority Customer orders,
the Exchange proposes to remove the
separate pricing for Market Maker
orders sent by EAMs from the NonSelect Symbol pricing schedule in
Options 7, Section 3, and instead
specify that the Market Maker fees in
Non-Select Symbols will also apply to
the Market Maker orders sent by
EAMs.15 With this change, the Exchange
also proposes to reduce the current fee
assessed to Market Makers for Crossing
Orders 16 (except PIM orders) from $0.25
to $0.20 per contract, which would align
this fee with the fee currently charged
to Market Maker orders sent by EAMs,
and to all other non-Priority Customer
orders. The Exchange currently charges
Market Makers (including Market Maker
orders sent by EAMs) the same fee for
PIM orders and for Responses to
Crossing Orders,17 and those fees will
remain unchanged with this proposal.
Accordingly, the new Non-Select
Symbol pricing in Options 7, Section 3
will be as follows:
$0.10
Fee for
responses to
crossing
orders
except
PIM orders
$0.50
Fee for
responses to
PIM orders
$0.35
13 A ‘‘Professional Customer’’ is a person or entity
that is not a broker/dealer and is not a Priority
Customer.
14 As discussed later in this filing, the Exchange
will also introduce a Market Maker Plus program
for Non-Select Symbols whereby qualifying Market
Makers would receive a discounted fee or rebate in
lieu of paying the proposed maker fee if they meet
the proposed tier threshold requirements.
15 This is similar to the approach for Select
Symbols today. See Options 7, Section 3, note 8.
16 A ‘‘Crossing Order’’ is an order executed in the
Exchange’s Facilitation Mechanism, Solicited Order
Mechanism, Price Improvement Mechanism (PIM)
or submitted as a Qualified Contingent Cross order.
For purposes of the Pricing Schedule, orders
executed in the Block Order Mechanism are also
considered Crossing Orders.
17 ‘‘Responses to Crossing Order’’ is any contraside interest submitted after the commencement of
an auction in the Exchange’s Facilitation
Mechanism, Solicited Order Mechanism, Block
Order Mechanism or PIM.
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Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Notices
Maker rebate/
fee
Market participant
Non-Nasdaq ISE Market Maker (FarMM)
Firm Proprietary/Broker-Dealer ................
Professional Customer .............................
Priority Customer .....................................
0.70
0.70
0.70
(0.86)
lotter on DSKBCFDHB2PROD with NOTICES
As noted above, the proposed taker
fees set forth in the table will apply to
orders that trade against non-Priority
Customer orders. When trading against
Priority Customer orders, the Exchange
proposes to charge a higher taker fee.
Specifically, non-Priority Customer
orders will be charged a taker fee of
$1.10 per contract for trades executed
against a Priority Customer. Priority
Customer orders will be charged a taker
fee of $0.86 per contract for trades
executed against a Priority Customer.18
As it relates to the new Priority
Customer maker rebate, the Exchange
also proposes to offer Members an
additional rebate of $0.14 per contract if
they execute more than 0.06% of
Regular Order Non-Select Symbol
Priority Customer Volume (excluding
Crossing Orders and Responses to
Crossing Orders) calculated as a
percentage of Customer Total
Consolidated Volume 19 per day in a
given month.20 The Exchange notes that
the proposed volume calculation
includes all regular order Priority
Customer volume that adds or removes
liquidity in Non-Select Symbols on the
Exchange, except for volume executed
as Crossing Orders and Responses to
Crossing Orders. Thus, Members that
transact in greater Non-Select Symbol
Priority Customer volume on the
Exchange (whether by adding or
removing liquidity) may be eligible to
receive rebates up to $1.00 per contract
on their Priority Customers regular
orders in Non-Select Symbols that add
liquidity to ISE.
Lastly, the Exchange proposes to
stipulate that for Priority Customer
orders adding liquidity in Non-Select
Symbols, there will be no fee charged or
rebate provided when trading against
Priority Customer complex orders that
leg into the regular order book.21 Today,
the Exchange does not charge any fee to
Priority Customer complex orders in
Non-Select Symbols that leg into the
18 See
proposed Options 7, Section 3, note 3.
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.
20 See proposed Options 7, Section 3, note 15.
21 See proposed Options 7, Section 3, note 18.
19 ‘‘Customer
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Fee for
crossing
orders
except
PIM orders
Taker fee
0.72
0.72
0.72
0.00
Fee for PIM
Orders
0.20
0.20
0.20
0.00
regular market and trade with resting
interest on the regular order book,
which may include resting Priority
Customer orders. As such, the Exchange
believes it is appropriate to not charge
a fee or provide a rebate to a Non-Select
Symbol Priority Customer order resting
on the regular order book when the
Non-Select Symbol Priority Customer
order legs out of the complex order book
and interacts with such interest.
Market Maker Plus in Non-Select
Symbols
The Exchange currently operates a
Market Maker Plus program for regular
orders in Select Symbols that provides
tiered rebates to Market Makers based
on time spent quoting at the national
best bid or offer (‘‘NBBO’’).22 This
program is designed to reward Market
Makers that contribute to market quality
by maintaining tight markets in Select
Symbols. Market Makers are evaluated
each trading day for the percentage of
time spent on the NBBO for qualifying
series that expire in two successive
thirty calendar day periods beginning
on that trading day. A Market Maker
Plus is a Market Maker who is on the
NBBO a specified percentage of the time
on average for the month based on daily
performance in the qualifying series for
each of the two successive periods
described above.23 If a Market Maker
would qualify for a different Market
Maker Plus tier in each of the two
successive periods described above,
then the lower of the two Market Maker
Plus tier rebates shall apply to all
contracts.24 A Market Maker’s worst
Options 7, Section 3, note 5.
series are series trading between
$0.03 and $3.00 (for options whose underlying
stock’s previous trading day’s last sale price was
less than or equal to $100) and between $0.10 and
$3.00 (for options whose underlying stock’s
previous trading day’s last sale price was greater
than $100) in premium.
24 Market Makers may enter quotes in a symbol
using one or more unique, exchange assigned
identifiers—i.e., badge/suffix combinations. Market
Maker Plus status is calculated independently
based on quotes entered in a symbol for each of the
Market Maker’s badge/suffix combinations, and the
highest tier achieved for any badge/suffix
combination quoting that symbol applies to
executions across all badge/suffix combinations that
the member uses to trade in that symbol. Only
0.10
0.10
0.10
0.00
Fee for
responses to
crossing
orders
except
PIM orders
0.50
0.50
0.50
0.50
Fee for
responses to
PIM orders
0.35
0.35
0.35
0.35
quoting day each month for each of the
two successive periods described above,
on a per symbol basis, will be excluded
in calculating whether a Market Maker
qualifies for this rebate. A Market Maker
who qualifies for Market Maker Plus
Tiers 2 or higher in at least four of the
previous six months will be eligible to
receive a reduced Tier 2 rebate in a
given month where the Market Maker
does not qualify for any Market Maker
Plus tiers. This rebate will be the
applicable Tier 2 rebate reduced by
$0.08 per contract.
The Exchange believes that the
Market Maker Plus program has been
successful overall in encouraging better
market quality and making the
Exchange a more attractive market for
Select Symbols. Accordingly, the
Exchange proposes to replicate this
success for Non-Select Symbols by
introducing a Market Maker Plus
program with substantially similar
qualifications in order to promote and
encourage liquidity in those particular
symbols. Specifically, Market Makers
that achieve Market Maker Plus Tiers 1–
3 as proposed below for executions in
Non-Select Symbols (excluding index
options) will be assessed the following
maker fee or rebate instead of paying the
$0.70 per contract maker fee as
proposed above: 25
Market maker plus tier
(specified percentage)
Tier 1 (80% to less than
90%) ..................................
Tier 2 (90% to less than
98%) ..................................
Tier 3 (98% or greater) .........
Maker fee/
rebate
$0.50
0.30
(0.40)
22 See
23 Qualifying
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The Market Maker Plus Tier 3 rebate
will be provided if the qualifying
Market Maker trades against nonPriority Customer orders. Qualifying
badge/suffix combinations quoting a minimum of
ten trading days within the month will be used to
determine whether the Market Maker Plus status
has been met and the specific tier to be applied to
the Market Maker’s performance for that month.
25 As with all Non-Select Symbol pricing in
Options 7, Section 3, the proposed Market Maker
Plus program will not apply to NDX and NQX
options, and the Exchange will charge the
applicable index options fees in Options 7, Section
5 instead.
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Market Makers that trade against
Priority Customer orders will be charged
a Market Maker Plus Tier 3 fee of $0.10
per contract instead of receiving the Tier
3 rebate.26
The Exchange also proposes to amend
the existing Market Maker Plus
provisions throughout to provide that
Market Makers that meet these
qualifications will be assessed the
applicable fee or rebate. Lastly, the
Exchange proposes to amend the
language around the reduced Tier 2
incentive currently provided to
qualifying Market Makers in Select
Symbols, and expand these provisions
to cover the proposed fees in the NonSelect Market Maker Plus program. The
Exchange proposes to specify that for
Select Symbols, this rebate will
continue to be the applicable Tier 2
rebate reduced by $0.08 per contract.
For Non-Select Symbols, this fee will be
the Tier 2 fee increased by $0.08 per
contract.
lotter on DSKBCFDHB2PROD with NOTICES
Market Maker Discount Tiers in NonSelect Symbols
Today, as set forth in Options 7,
Section 6.D, Market Makers that execute
a monthly volume of 250,000 contracts
or more in regular Non-Select Symbol
orders are entitled to a discounted rate
of $0.20 per contract instead of paying
the regular $0.25 per contract fee. The
Market Maker discount tiers were
originally adopted to incentivize greater
Market Maker activity in Non-Select
Symbols. With the introduction of the
new Market Maker Plus program for
Non-Select Symbols as described above,
the Exchange now proposes to eliminate
the Market Maker discount tiers.
Flash Orders
With the introduction of the maker/
taker fee structure proposed above for
Non-Select Symbols, the Exchange
proposes to amend how Flash Orders
will be charged under this proposal. By
way of background, a ‘‘Flash Order’’ is
an order that is exposed at the NBBO by
the Exchange to all Members for
execution, as provided under
Supplementary Material .02 to Options
5, Section 2. Today, Flash Orders are
assessed the applicable taker fee for the
initiation of a Flash Order and the
applicable maker rebate (only for Market
Makers that qualify for Market Maker
Plus) or maker fee for responses to the
Flash Order. Thus, for the initiation of
a Flash Order in Select Symbols, the
Exchange currently assesses a taker fee
of $0.45 per contract for Market Maker
orders (including Market Maker orders
sent by an EAM), $0.46 per contract for
26 See
proposed Options 7, Section 3, note 6.
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all other non-Priority Customer orders,
and $0.41 per contract for Priority
Customer orders. For responses to a
Flash Order in Select Symbols, the
Exchange currently assesses a maker fee
of $0.11 per contract for all non-Priority
Customer orders and no fee for Priority
Customer orders.27 As it relates to Flash
Orders in Non-Select Symbols, because
the Exchange does not currently
differentiate between maker and taker
fees for Non-Select Symbol executions,
Members today are charged the same fee
for initiating and responding to a Flash
Order. Specifically, the fee is $0.25 per
contract for Market Maker orders, $0.20
per contract for Market Maker orders
sent by EAMs, $0.72 per contract for all
other non-Priority Customer orders, and
$0.00 per contract for Priority Customer
orders. In addition to the
aforementioned fees and rebates, the
Exchange also pays a credit of $0.05 per
contract to a market participant that
responds to a Flash Order in Select or
Non-Select Symbols which executes
against a Priority Customer.
With the introduction of the maker/
taker fee structure proposed above for
Non-Select Symbols, the Exchange now
proposes to charge the applicable taker
fee for initiating Flash Orders in NonSelect Symbols. The fee for initiating
Flash Orders will therefore increase
from $0.25 to $0.72 per contract for
Market Makers and from $0.20 to $0.72
for Market Maker orders sent by
EAMs.28 The initiating fee, as proposed,
will remain the same for all other
market participants, ($0.72 per contract
for all other non-Priority Customer
orders, and $0.00 per contract for
Priority Customer orders).
In addition, the Exchange proposes to
charge all non-Priority Customer
responses to Flash Orders in Non-Select
Symbols a flat fee of $0.25 per contract,
and not charge a fee for Priority
Customer responses. The flash response
fee will therefore remain the same for
Market Maker orders, except Market
Maker orders sent by EAMs will see an
increase from $0.20 to $0.25 per
27 In addition, the maker fee is currently $0.11 for
Market Makers, except that (i) Market Makers that
qualify for Market Maker Plus would not pay this
fee if they meet the applicable tier thresholds set
forth in note 5 of Options 7, Section 3, and would
instead receive a rebate based on the Market Maker
Plus tier for which they qualify; (ii) no fee will be
charged or rebate provided when trading against
non-Priority Customer complex orders that leg into
the regular order book; and (iii) a $0.15 per contract
would apply instead of the $0.11 per contract maker
fee or applicable Market Maker Plus rebate when
trading against Priority Customer complex orders
that leg into the regular order book.
28 As discussed earlier in this filing, the Exchange
is proposing to remove the distinction between
Non-Select Symbol pricing for Market Makers and
for Market Maker orders sent by EAMs.
PO 00000
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12619
contract. For all other non-Priority
Customers, the flash response fee in
Non-Select Symbols will decrease from
$0.72 per contract to $0.25 per contract.
Lastly, for Priority Customers, the flash
response fee will remain the same at
$0.00 per contract.
The Exchange will continue to charge
the applicable Select Symbol taker fee
for initiating Flash Orders in those
symbols, which taker fees are not
changing under this proposal. Similarly,
the Exchange will continue to charge
the applicable Select Symbol maker
rebate or fee for responses to Flash
Orders in those symbols, which maker
pricing will remain the same under this
proposal. Accordingly, the Exchange
proposes to amend the existing Flash
Order provisions to differentiate pricing
for Select Symbols and Non-Select
Symbols where applicable.29 Lastly, the
Exchange proposes to remove the $0.05
credit discussed above for both Select
and Non-Select Symbols.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,30 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,31 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 Exchange’s proposed changes to
its Pricing Schedule are consistent with
the Act in several respects. As a
threshold matter, the Exchange is
subject to significant competitive forces
in the market for options securities
transaction services that constrain its
pricing determinations in that market.
The fact that this market is competitive
has long been recognized by the courts.
In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit
stated as follows: ‘‘[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
29 See proposed Options 7, Section 3, note 17.
The Exchange will also make technical changes to
replace the ‘‘Section I’’ references therein and to the
definition of Flash Order in Options 7, Section 1 to
‘‘Section 3.’’ The Exchange will also amend the first
two sentences of note 17 to correct a typo and for
better readability.
30 15 U.S.C. 78f(b).
31 15 U.S.C. 78f(b)(4) and (5).
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market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’. . . .’’ 32
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.’’ 33
Numerous indicia demonstrate the
competitive nature of this market. For
example, clear substitutes to the
Exchange exist in the market for equity
security transaction services. The
Exchange is only one of sixteen options
exchanges to which market participants
may direct their order flow. Within this
environment, market participants can
freely and often do shift their order flow
among the Exchange and competing
venues in response to changes in their
respective pricing schedules. Within the
foregoing context, the proposal
represents a reasonable attempt by the
Exchange to increase its liquidity and
market share relative to its competitors.
Marketing Fee
The Exchange believes that it is
reasonable to set the marketing fee to
$0.00 per contract because the Exchange
has proposed changes to its Non-Select
Symbol pricing that will result in
Market Makers paying higher maker/
taker fees than today.34 Eliminating the
marketing fee will keep total execution
costs down when Market Makers trade
against regular Priority Customer orders
in Non-Select Symbols. The Exchange
also believes that the proposed fee
change is equitable and not unfairly
discriminatory as no Market Makers
would be charged a marketing fee under
this proposal. The Exchange also
believes that it is reasonable, equitable
and not unfairly discriminatory to add
the language proposed in Options 7,
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32 NetCoalition
v. SEC, 615 F.3d 525, 539 (D.C.
Cir. 2010) (quoting Securities Exchange Act Release
No. 59039 (December 2, 2008), 73 FR 74770, 74782–
83 (December 9, 2008) (SR–NYSEArca–2006–21)).
33 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
34 As discussed above, the Non-Select Symbol fee
for Market Makers will increase from $0.25 to $0.70
per contract (maker fee) and to $0.72 per contract
(taker fee).
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Section 6.E as it will make clear that no
marketing fees will be charged for Select
and Non-Select Symbols with the
proposed changes, and that if the
Exchange determines to charge a
marketing fee in the future, it will do so
pursuant to a rule filing.
Non-Select Regular Order Pricing
The Exchange believes that the
proposed change to adopt the maker/
taker pricing model for regular NonSelect Symbol orders as described above
is reasonable as it is designed to
increase its liquidity and opportunities
for all members to trade on the
Exchange. Generally, the proposed
changes will replace the existing fees
with a new maker/taker fee structure
where market participants other than
Priority Customers are charged a fee
based on whether the market participant
adds or removes liquidity. Priority
Customer orders, meanwhile, will be
eligible for highly competitive maker
rebates or assessed no taker fees.35 With
these changes, all market participants
will also be charged a higher taker fee
for trades executed against Priority
Customers. For the reasons discussed in
the following paragraphs, the Exchange
believes that the proposed fee structure
will be beneficial to market participants
and will encourage an active and liquid
market in Non-Select Symbols on ISE.
Under the proposed pricing structure,
all non-Priority Customer orders will be
charged a uniform base execution fee for
adding liquidity (i.e., maker fee of $0.70
per contract) and for removing liquidity
(i.e., taker fee of $0.72 per contract). The
Exchange believes that the proposed
pricing is set at levels that will
encourage market participants to
increase their Non-Select Symbol
activity, especially activity that adds
liquidity, on the Exchange. While
Market Makers, including Market Maker
orders sent by EAMs, will be charged
higher fees than the fees currently
assessed, the Exchange believes that the
increased fees are appropriate to offset
the proposed significant Priority
Customer maker incentives (as
described below).36 Furthermore, the
Exchange believes that all market
participants will benefit from additional
liquidity created by the Priority
Customer rebates.
In addition, Priority Customer orders
will be eligible for free executions for
35 Furthermore, as discussed below for Market
Maker Plus, Market Makers will be eligible to
qualify for substantially lower fees or receive a
rebate based on their contribution to the market.
36 See supra note 35. Non-Select Symbol fees are
currently $0.25 per contract for Market Makers, and
$0.20 per contract for Market Maker orders sent by
EAMs.
PO 00000
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removing liquidity and paid a rebate of
$0.86 per contract for adding liquidity.
Members will also have the opportunity
to receive an additional $0.14 rebate if
they execute more than 0.06% of
Regular Order Non-Select Symbol
Priority Customer Volume (excluding
Crossing Orders and Responses to
Crossing Orders) calculated as a
percentage of Customer Total
Consolidated Volume per day in a given
month, for a total rebate of up to $1.00
per contract.37 Crossing Orders and
Responses to Crossing Orders will be
excluded from the proposed volume
calculation as this type of order flow is
subject to separate pricing, with various
incentives currently provided to
Members that trade in the Exchange’s
crossing mechanisms.
The Exchange is proposing to base the
additional Priority Customer maker
incentive on a percentage of industry
volume in recognition of the fact that
the volume executed by a Member may
rise or fall with industry volume. This
would allow the volume calculation to
be calibrated to current market volumes
rather than requiring the same amount
of volume regardless of market
conditions. In addition, by basing the
proposed volume calculation on Priority
Customer regular order volume that
adds or removes liquidity in Non-Select
Symbols on the Exchange, the Exchange
is seeking to incentivize Members to
increase market participation in NonSelect Symbols to qualify for the
additional rebate. The Exchange
believes that the significant rebate
incentives it is proposing to provide for
Priority Customer orders, taken together
with the $0.00 per contract taker fee,
will incentivize Members to bring
Priority Customer order flow in NonSelect Symbols, thereby creating
additional liquidity to the benefit of all
market participants and investors that
trade on the Exchange.
With respect to the increased taker
fees for trades executed against a
Priority Customer, the Exchange
believes that the proposed fees are
appropriate as they are designed to
offset the proposed maker rebate.38 As
described above, Priority Customers will
be offered significant maker incentives.
37 As discussed above, all regular Priority
Customer order volume that adds or removes
liquidity in Non-Select Symbols on the Exchange is
included in the proposed volume calculation,
except for volume executed as Crossing Orders and
Responses to Crossing Orders.
38 As discussed above, non-Priority Customers
will be charged a taker fee of $1.10 per contract
when trading against Priority Customers instead of
the $0.72 taker fee. Priority Customers will be
charged a taker fee of $0.86 per contract when
trading against Priority Customers instead of
receiving free executions.
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The Exchange believes that Members
will benefit from the additional
liquidity created by the Priority
Customer rebates, and it is therefore
appropriate to charge an increased taker
fee for trades executed against a Priority
Customer. The Exchange notes that
other options exchanges, including for
example its affiliate Nasdaq GEMX,
charge higher taker fees when the
counterparty is a Priority Customer.39
The Exchange also believes that it is
reasonable to stipulate that for Priority
Customer orders adding liquidity in
Non-Select Symbols, there will be no fee
charged or rebate provided when
trading against Priority Customer
complex orders that leg into the regular
order book. As discussed above, the
Exchange currently does not charge any
fee to Priority Customer complex orders
in Non-Select Symbols that leg into the
regular market and trade with resting
interest on the order book, which may
include resting Priority Customer
orders. As such, the Exchange believes
it is reasonable to not charge a fee or
provide a rebate to a Non-Select Symbol
Priority Customer order resting on the
regular order book when the Non-Select
Symbol Priority Customer order legs out
of the complex order book and interacts
with such interest.
The Exchange believes that the
proposed maker/taker pricing model in
Non-Select Symbols is equitable and not
unfairly discriminatory as all nonPriority Customer orders will be
assessed consistent maker/taker fees
under the Exchange’s proposal,
regardless of market participant
category. The Exchange believes it is
equitable and not unfairly
discriminatory to charge a lower fee (or
no fee), or to offer a rebate, for Priority
Customer orders as the Exchange has
historically offered lower execution fees
or rebates to those market participants.
Furthermore, Priority Customer order
flow enhances liquidity on the
Exchange for the benefit of all market
participants by providing more trading
opportunities, which in turn attracts
Market Makers and other market
participants that may trade with this
order flow.
Lastly, the Exchange believes it is
reasonable to no longer differentiate the
pricing between Market Makers and
Market Maker orders sent by EAMs in
light of the foregoing changes to adopt
a more standardized maker/taker pricing
model across all non-Priority
Customers. With this change, both
market participant categories will be
charged the same fees across all Non39 See
Nasdaq GEMX Pricing Schedule at Options
7, Section 3, note 16.
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Select Symbol orders, including
Crossing Orders and Responses to
Crossing Orders. As discussed above,
the current fees for PIM Orders and
Responses to Crossing Orders are
already consistent across both market
participant categories, except the fee for
all other Crossing Orders. The Exchange
therefore believes it is reasonable to
decrease this fee for Market Makers as
with this change Market Makers will be
charged the same fee as Market Maker
orders sent by EAMs as well as all other
non-Priority Customer orders. The
Exchange further believes that the
proposed changes to remove the
separate pricing for Market Maker
orders sent by EAMs are equitable and
not unfairly discriminatory as the
proposed fees for this category will now
be consistent with other non-Priority
Customer fees.
Market Maker Plus in Non-Select
Symbols
The Exchange believes that it is
reasonable to adopt the Market Maker
Plus program for Non-Select Symbols in
the manner discussed above as this
program is designed to encourage better
market quality and make ISE a more
attractive market for Non-Select
Symbols, similar to the existing Market
Maker Plus program for Select Symbols.
Under the proposed program, Market
Makers would be rewarded for
providing liquidity in Non-Select
Symbols with discounted fees or a
rebate if the Market Maker achieves a
higher Market Maker Plus tier based on
time spent quoting at the NBBO.40 The
Exchange believes that it is reasonable
to offer these fee incentives to Market
Makers that add liquidity because
Market Makers provide an important
function to the market when they
provide liquidity to other market
participants through their displayed
quotes. The Exchange believes that
incentivizing Market Makers to provide
liquidity through the proposed Market
Maker Plus program will create
additional displayed liquidity in NonSelect Symbols, and increase
opportunities for market participants to
trade, which benefits all market
participants in the quality of order
interaction.
The Exchange believes that the
proposed program is reasonable because
it is structured similarly to the existing
program for Select Symbols. As
proposed, the Market Maker Plus Tier
qualifications for Non-Select Symbols,
especially proposed Tier 2 and Tier 3,
40 As discussed above, this discounted fee or
rebate will be provided in lieu of the base maker
fee of $0.70 per contract.
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12621
will be slightly more stringent than the
existing tiers for Select Symbols.41
Because Non-Select Symbols generally
tend to trade less frequently and may
have wider NBBOs than Select Symbols,
the Exchange believes the proposed tier
qualifications are set at appropriate
levels that Market Makers could
potentially achieve if they choose to
engage in the program.
The Exchange believes that it is
reasonable to reduce the incentives for
Market Makers that qualify for Tier 3
under the proposed Market Maker Plus
program if they trade against Priority
Customer orders to help offset the
significantly competitive maker/taker
pricing proposed above for Priority
Customers.42 Nonetheless, the proposed
Tier 3 incentives will still be higher
than the proposed incentives in Tier 1
and Tier 2, even if the qualifying Market
Maker trades against a Priority
Customer, thereby ensuring that the
proposed program will be attractive to
participating Market Makers.
The Exchange believes that it is
reasonable to provide a reduced
incentive in Non-Select Symbols to
Market Makers who do not qualify for
any Market Maker Plus tiers in a given
month, but qualified for Market Maker
Plus Tier 2 or higher in at least four of
the previous six months. The Exchange
provides a similar reduced rebate today
for Select Symbols that is the applicable
Tier 2 rebate reduced by $0.08 per
contract. Because the proposed Tier 2
incentive for Non-Select Symbols will
be a fee instead of a rebate, the
Exchange believes it is appropriate to
offer a reduced incentive that is the Tier
2 fee increased by $0.08 per contract.
Similar to the existing reduced rebate
for Select Symbols, the Exchange
believes that this change will preserve
the intent of the Market Maker Plus
program to reward strong liquidity
providers, and avoids penalizing
participants while continuing to require
Market Makers to quote significantly at
the NBBO.
The Exchange believes that the
proposed Market Maker Plus program is
equitable and not unfairly
discriminatory as all Market Makers can
qualify for the same incentives under
the proposed program. Furthermore, the
41 For instance, the qualifications for the Market
Maker Plus Tiers in Select Symbols (other than
SPY, QQQ, IWM, AMZN, FB, and NVDA) are 85%
to less than 95% for Tier 2, and 95% or greater for
Tier 3. In Non-Select Symbols, Tier 2 will be 90%
to 98%, and Tier 3 will be 98% or greater.
42 As proposed, qualifying Market Makers that
trade against Priority Customers will be assessed a
fee of $0.10 per contract in Tier 3 instead of
receiving the $0.40 rebate that would be provided
to qualifying Market Makers that trade against nonPriority Customers.
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Exchange believes it is equitable and not
unfairly discriminatory to offer these
rebates to only Market Makers because
Market Makers, and in particular Market
Makers that achieve Market Maker Plus
status as proposed, are subject to
additional requirements and obligations
(such as quoting obligations) that other
market participants are not.
Market Maker Discount Tiers in NonSelect Symbols
The Exchange believes that it is
reasonable to eliminate the Market
Maker discount tiers set forth in Options
7, Section 6.D. Because the objective of
the new Market Maker Plus program for
Non-Select Symbols, as discussed
above, is to incentivize higher Market
Maker activity in Non-Select Symbols,
similar to the discounted fee today, the
Exchange believes it is no longer
necessary to offer the current incentive
alongside the new Market Maker Plus
program. The Exchange believes that
eliminating the Market Maker discount
tiers is equitable and not unfairly
discriminatory as it will apply
uniformly to all similarly situated
market participants.
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Flash Orders
The Exchange believes that the
proposed Flash Orders changes are
reasonable as they specify how the
Exchange will charge Members for Flash
Orders with the introduction of maker/
taker pricing in Non-Select Symbols.
Under the Exchange’s proposal, all nonPriority Customers will be charged a
uniform taker fee of $0.72 per contract
for initiating Flash Orders in Non-Select
Symbols, and a flat fee of $0.25 per
contract for responses to Flash Orders in
Non-Select Symbols. Priority Customers
will continue to receive free executions
in Non-Select Symbols, regardless of
initiating or responding to a Flash
Order. As discussed above, the pricing
for the initiation and response to Flash
Orders in Select Symbols will remain
unchanged for all market participant
types under this proposal.
The Exchange believes that the
proposed pricing for initiating and
responding to Flash Orders in NonSelect Symbols is equitable and not
unfairly discriminatory as the proposed
fees would be more standardized across
non-Priority Customer market
participant types. Furthermore, the
Exchange believes that it is equitable
and not unfairly discriminatory to
continue charging no fees to Priority
Customers for the initiation and
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17:19 Mar 02, 2020
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response to Flash Orders in Non-Select
Symbols for the same reasons discussed
above for the proposed Priority
Customer maker/taker pricing—i.e.,
because Priority Customer order flow
enhances liquidity on the Exchange to
the benefit of all market participants by
providing more trading opportunities.
The Exchange believes it is reasonable
to eliminate the $0.05 per contract flash
credit. The Exchange previously
adopted this credit to encourage
Members to participate in the flash
auction by responding to a Priority
Customer Flash Order. The Exchange no
longer believes that this incentive is
necessary with the proposed changes to
charge non-Priority Customers a lower
response fee of $0.25 per contract, and
is therefore removing it. The Exchange
also believes that the proposed removal
of this credit is equitable and not
unfairly discriminatory as it will apply
uniformly to all market participants. As
proposed, no market participant will be
eligible for a flash credit.
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 intra-market competition,
the Exchange does not believe that its
proposal will place any category of
market participant at a competitive
disadvantage. The Exchange believes
that all of the changes proposed above
will incentivize market participants to
direct liquidity in Non-Select Symbols
to the Exchange. While some aspects of
the proposal apply directly to Market
Makers (through the new Market Maker
Plus program) and Priority Customers
(through rebates or free executions
under the proposed maker/taker pricing
model), the Exchange believes that the
proposed changes taken together will
fortify and encourage activity, especially
liquidity adding activity, in Non-Select
Symbols. As noted above, all market
participants will benefit from any
increase in market activity that the
proposal effectuates.
In terms of inter-market competition,
the Exchange operates in a highly
competitive market in which market
participants can readily favor competing
venues if they deem fee levels at a
particular venue to be excessive, or
rebate opportunities available at other
venues to be more favorable. In such an
environment, the Exchange must
PO 00000
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continually adjust its fees to remain
competitive with other exchanges.
Because competitors are free to modify
their own fees in response, and because
market participants may readily adjust
their order routing practices, the
Exchange believes that the degree to
which fee changes in this market may
impose any burden on competition is
extremely limited.
Moreover, as noted above, price
competition between exchanges is
fierce, with liquidity and market share
moving freely between exchanges in
reaction to fee and rebate changes. In
sum, if the changes proposed herein are
unattractive to market participants, it is
likely that the Exchange will lose
market share as a result. Accordingly,
the Exchange does not believe that the
proposed changes will impair the ability
of members or competing order
execution venues to maintain their
competitive standing in the financial
markets.
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,43 and Rule
19b–4(f)(2) 44 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:
43 15
44 17
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U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
03MRN1
Federal Register / Vol. 85, No. 42 / Tuesday, March 3, 2020 / Notices
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ISE–2020–06 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–2020–06. 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 (https://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–2020–06 and should be
submitted on or before March 24, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–04290 Filed 3–2–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88293; File No. SR–GEMX–
2020–04]
Self-Regulatory Organizations; Nasdaq
GEMX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 7,
Section 3, Titled Regular Order Fees
and Rebates
February 26, 2020.
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 February
12, 2020, Nasdaq GEMX, LLC (‘‘GEMX’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘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
GEMX’s Pricing Schedule. Specifically,
the Exchange proposes to amend
12623
Options 7, Section 3, titled ‘‘Regular
Order Fees and Rebates.’’
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqgemx.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
GEMX proposes to amend its Pricing
Schedule at Options 7, Section 3, titled
‘‘Regular Order Fees and Rebates.’’
Specifically, GEMX proposes to amend
the Qualifying Tier Thresholds in Table
1.
The Exchange originally filed the
proposed pricing changes on February
3, 2020 (SR–GEMX–2020–01). On
February 12, 2020, the Exchange
withdrew that filing and submitted this
filing.
Today, GEMX has 4 tiers as part of its
Qualifying Tier Thresholds in Table 1 of
Options 7, Section 3 as follows:
Qualifying Tier Thresholds
TABLE 1
Tier
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Tier
Tier
Tier
Tier
1
2
3
4
.........
.........
.........
.........
Total affiliated member ADV
0–99,999 ...........................................................................................................................................
100,000–224,999, or executes 1% to less than 2% of Customer Total Consolidated Volume ......
225,000–349,999, or executes 2% to less than 3% of Customer Total Consolidated Volume ......
350,000 or more, or executes 3% or greater of Customer Total Consolidated Volume .................
All market participants can qualify for
Tiers 1 through 4, provided they meet
the requisite volume thresholds
specified in Table 1 above. The maker
and taker fees for all market participants
represented in Table 1, displayed above,
are dependent on qualifying for a
45 17
CFR 200.30–3(a)(12).
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17:19 Mar 02, 2020
particular tier. With respect to these
tiers, the highest tier threshold attained
applies retroactively in a given month to
all eligible traded contracts and applies
to all eligible market participants. All
eligible volume from affiliated Members
will be aggregated in determining
1 15
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applicable tiers, provided there is at
least 75% common ownership between
the Members as reflected on each
Member’s Form BD, Schedule A.
The Exchange proposes to amend the
current Qualifying Tier Thresholds for
Non-Priority Customers by replacing the
ADV thresholds with total industry
2 17
Sfmt 4703
0–19,999.
20,000–99,999.
100,000–149,999.
150,000 or more.
CFR 240.19b–4.
E:\FR\FM\03MRN1.SGM
03MRN1
]]>Agencies
[Federal Register Volume 85, Number 42 (Tuesday, March 3, 2020)]
[Notices]
[Pages 12616-12623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04290]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88292; File No. SR-ISE-2020-06]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Pricing Schedule at Options 7
February 26, 2020.
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 February 12, 2020, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``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 the Exchange's Pricing Schedule at
Options 7, as described further below.
The text of the proposed rule change is available on the Exchange's
website at https://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 at Options 7 with the
[[Page 12617]]
objective of attracting additional volume to the Exchange in Non-Select
Symbols,\3\ where the Exchange has seen less activity than it has in
Select Symbols.\4\ Each change is described in detail below.
---------------------------------------------------------------------------
\3\ ``Non-Select Symbols'' are options overlying all symbols
excluding Select Symbols.
\4\ ``Select Symbols'' are options overlying all symbols listed
on the Exchange that are in the Penny Pilot Program.
---------------------------------------------------------------------------
The Exchange initially filed the proposed rule change on February
3, 2020 (SR-ISE-2020-03). On February 12, 2020, the Exchange withdrew
that filing and submitted this filing.
Marketing Fee
By way of background, the Exchange administers a marketing fee
program that helps Market Makers \5\ establish marketing fee
arrangements with Electronic Access Members (``EAMs'') in exchange for
those EAMs routing some or all of their order flow to the Market
Maker.\6\ This program is funded through a fee of $0.70 per contract,
which is paid by the Market Maker for each regular Priority Customer
\7\ contract executed in Non-Select Symbols.\8\
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\5\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See Options 1,
Section 1(a)(21).
\6\ The marketing fee is rebated proportionally to the Members
that paid the fee such that on a monthly basis the market fee fund
balance administered by the Primary Market Maker for a Group of
options established under Options 2, Section 3(b) does not exceed
$100,000 and the marketing fee fund balance administered by a
preferenced Competitive Market Maker for such a Group does not
exceed $100,000. A preferenced Competitive Market Maker that elects
not to administer a fund will not be charged the marketing fee. The
Exchange assesses an administrative fee of .45% on the total amount
of the funds collected each month. See Options 7, Section 6.E.
\7\ 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 Options 1,
Section 1(a)(37).
\8\ The Exchange does not charge Market Makers a marketing fee
for regular Priority Customer contracts in Select Symbols.
Furthermore, the marketing fee is currently waived for NDX, NQX,
MNX, Flash Orders and for Complex Orders in all symbols.
---------------------------------------------------------------------------
In connection with the proposed fee changes to the regular Non-
Select Symbol pricing schedule described below, the Exchange proposes
to set this marketing fee to $0.00 per contract. The Exchange believes
that the proposed fee change will ensure that the total fees paid by
Market Makers for regular executions in Non-Select Symbols will remain
at a level the Exchange believes is appropriate. The Exchange also
proposes in Options 7, Section 6.E to add language that makes clear no
marketing fees will be charged with the proposed changes. In
particular, the Exchange will add that no marketing fees are charged
for Select and Non-Select Symbols. If the Exchange determines to charge
a marketing fee in the future, it will do so pursuant to a rule filing.
Non-Select Regular Order Pricing
As set forth in Options 7, Section 3, the Exchange currently
charges the following transaction fees for regular orders in Non-Select
Symbols (excluding index options): \9\ $0.25 per contract for Market
Maker orders, $0.20 per contract for Market Maker orders sent by EAMs,
and $0.72 per contract for Non-Nasdaq ISE Market Maker,\10\ Firm
Proprietary \11\/Broker-Dealer,\12\ and Professional Customer \13\
orders. The Exchange applies the foregoing fees to regular transactions
regardless of whether the order adds or removes liquidity on ISE. The
Exchange currently does not charge a fee for regular Priority Customer
orders in Non-Select Symbols.
---------------------------------------------------------------------------
\9\ Specifically, for all executions in regular NDX and NQX
orders, the Exchange charges the applicable index options fees in
Options 7, Section 5 instead.
\10\ A ``Non-Nasdaq ISE Market Maker'' is a market maker as
defined in Section 3(a)(38) of the Securities Exchange Act of 1934,
as amended, registered in the same options class on another options
exchange.
\11\ A ``Firm Proprietary'' order is an order submitted by a
member for its own proprietary account.
\12\ A ``Broker-Dealer'' order is an order submitted by a member
for a broker-dealer account that is not its own proprietary account.
\13\ A ``Professional Customer'' is a person or entity that is
not a broker/dealer and is not a Priority Customer.
---------------------------------------------------------------------------
The Exchange now proposes to replace the existing fee structure
with a maker/taker pricing model where all market participants (except
Priority Customers) will be assessed a uniform per contract ``maker''
fee for Non-Select Symbol executions that add liquidity on the
Exchange, and a separate per contract ``taker'' fee for Non-Select
Symbol executions that remove liquidity.\14\ Generally speaking, the
proposed maker fees will be slightly lower than the proposed taker fees
in order to incentivize Members to increase their liquidity adding
activity in Non-Select Symbols. The Exchange also proposes to charge
all market participants higher taker fees for trades executed against
Priority Customer Orders. The Exchange further proposes to provide a
significant maker rebate for Priority Customer orders in Non-Select
Symbols, and to continue assessing no taker fees for such orders.
---------------------------------------------------------------------------
\14\ As discussed later in this filing, the Exchange will also
introduce a Market Maker Plus program for Non-Select Symbols whereby
qualifying Market Makers would receive a discounted fee or rebate in
lieu of paying the proposed maker fee if they meet the proposed tier
threshold requirements.
---------------------------------------------------------------------------
In light of the proposed changes to charge consistent maker/taker
fees across all non-Priority Customer orders, the Exchange proposes to
remove the separate pricing for Market Maker orders sent by EAMs from
the Non-Select Symbol pricing schedule in Options 7, Section 3, and
instead specify that the Market Maker fees in Non-Select Symbols will
also apply to the Market Maker orders sent by EAMs.\15\ With this
change, the Exchange also proposes to reduce the current fee assessed
to Market Makers for Crossing Orders \16\ (except PIM orders) from
$0.25 to $0.20 per contract, which would align this fee with the fee
currently charged to Market Maker orders sent by EAMs, and to all other
non-Priority Customer orders. The Exchange currently charges Market
Makers (including Market Maker orders sent by EAMs) the same fee for
PIM orders and for Responses to Crossing Orders,\17\ and those fees
will remain unchanged with this proposal.
---------------------------------------------------------------------------
\15\ This is similar to the approach for Select Symbols today.
See Options 7, Section 3, note 8.
\16\ A ``Crossing Order'' is an order executed in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement
Mechanism (PIM) or submitted as a Qualified Contingent Cross order.
For purposes of the Pricing Schedule, orders executed in the Block
Order Mechanism are also considered Crossing Orders.
\17\ ``Responses to Crossing Order'' is any contra-side interest
submitted after the commencement of an auction in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, Block Order
Mechanism or PIM.
---------------------------------------------------------------------------
Accordingly, the new Non-Select Symbol pricing in Options 7,
Section 3 will be as follows:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fee for
Fee for responses to Fee for
Market participant Maker rebate/ Taker fee crossing Fee for PIM crossing responses to
fee orders except Orders orders except PIM orders
PIM orders PIM orders
--------------------------------------------------------------------------------------------------------------------------------------------------------
Market Maker............................................ $0.70 $0.72 $0.20 $0.10 $0.50 $0.35
[[Page 12618]]
Non-Nasdaq ISE Market Maker (FarMM)..................... 0.70 0.72 0.20 0.10 0.50 0.35
Firm Proprietary/Broker-Dealer.......................... 0.70 0.72 0.20 0.10 0.50 0.35
Professional Customer................................... 0.70 0.72 0.20 0.10 0.50 0.35
Priority Customer....................................... (0.86) 0.00 0.00 0.00 0.50 0.35
--------------------------------------------------------------------------------------------------------------------------------------------------------
As noted above, the proposed taker fees set forth in the table will
apply to orders that trade against non-Priority Customer orders. When
trading against Priority Customer orders, the Exchange proposes to
charge a higher taker fee. Specifically, non-Priority Customer orders
will be charged a taker fee of $1.10 per contract for trades executed
against a Priority Customer. Priority Customer orders will be charged a
taker fee of $0.86 per contract for trades executed against a Priority
Customer.\18\
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\18\ See proposed Options 7, Section 3, note 3.
---------------------------------------------------------------------------
As it relates to the new Priority Customer maker rebate, the
Exchange also proposes to offer Members an additional rebate of $0.14
per contract if they execute more than 0.06% of Regular Order Non-
Select Symbol Priority Customer Volume (excluding Crossing Orders and
Responses to Crossing Orders) calculated as a percentage of Customer
Total Consolidated Volume \19\ per day in a given month.\20\ The
Exchange notes that the proposed volume calculation includes all
regular order Priority Customer volume that adds or removes liquidity
in Non-Select Symbols on the Exchange, except for volume executed as
Crossing Orders and Responses to Crossing Orders. Thus, Members that
transact in greater Non-Select Symbol Priority Customer volume on the
Exchange (whether by adding or removing liquidity) may be eligible to
receive rebates up to $1.00 per contract on their Priority Customers
regular orders in Non-Select Symbols that add liquidity to ISE.
---------------------------------------------------------------------------
\19\ ``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.
\20\ See proposed Options 7, Section 3, note 15.
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Lastly, the Exchange proposes to stipulate that for Priority
Customer orders adding liquidity in Non-Select Symbols, there will be
no fee charged or rebate provided when trading against Priority
Customer complex orders that leg into the regular order book.\21\
Today, the Exchange does not charge any fee to Priority Customer
complex orders in Non-Select Symbols that leg into the regular market
and trade with resting interest on the regular order book, which may
include resting Priority Customer orders. As such, the Exchange
believes it is appropriate to not charge a fee or provide a rebate to a
Non-Select Symbol Priority Customer order resting on the regular order
book when the Non-Select Symbol Priority Customer order legs out of the
complex order book and interacts with such interest.
---------------------------------------------------------------------------
\21\ See proposed Options 7, Section 3, note 18.
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Market Maker Plus in Non-Select Symbols
The Exchange currently operates a Market Maker Plus program for
regular orders in Select Symbols that provides tiered rebates to Market
Makers based on time spent quoting at the national best bid or offer
(``NBBO'').\22\ This program is designed to reward Market Makers that
contribute to market quality by maintaining tight markets in Select
Symbols. Market Makers are evaluated each trading day for the
percentage of time spent on the NBBO for qualifying series that expire
in two successive thirty calendar day periods beginning on that trading
day. A Market Maker Plus is a Market Maker who is on the NBBO a
specified percentage of the time on average for the month based on
daily performance in the qualifying series for each of the two
successive periods described above.\23\ If a Market Maker would qualify
for a different Market Maker Plus tier in each of the two successive
periods described above, then the lower of the two Market Maker Plus
tier rebates shall apply to all contracts.\24\ A Market Maker's worst
quoting day each month for each of the two successive periods described
above, on a per symbol basis, will be excluded in calculating whether a
Market Maker qualifies for this rebate. A Market Maker who qualifies
for Market Maker Plus Tiers 2 or higher in at least four of the
previous six months will be eligible to receive a reduced Tier 2 rebate
in a given month where the Market Maker does not qualify for any Market
Maker Plus tiers. This rebate will be the applicable Tier 2 rebate
reduced by $0.08 per contract.
---------------------------------------------------------------------------
\22\ See Options 7, Section 3, note 5.
\23\ Qualifying series are series trading between $0.03 and
$3.00 (for options whose underlying stock's previous trading day's
last sale price was less than or equal to $100) and between $0.10
and $3.00 (for options whose underlying stock's previous trading
day's last sale price was greater than $100) in premium.
\24\ Market Makers may enter quotes in a symbol using one or
more unique, exchange assigned identifiers--i.e., badge/suffix
combinations. Market Maker Plus status is calculated independently
based on quotes entered in a symbol for each of the Market Maker's
badge/suffix combinations, and the highest tier achieved for any
badge/suffix combination quoting that symbol applies to executions
across all badge/suffix combinations that the member uses to trade
in that symbol. Only badge/suffix combinations quoting a minimum of
ten trading days within the month will be used to determine whether
the Market Maker Plus status has been met and the specific tier to
be applied to the Market Maker's performance for that month.
---------------------------------------------------------------------------
The Exchange believes that the Market Maker Plus program has been
successful overall in encouraging better market quality and making the
Exchange a more attractive market for Select Symbols. Accordingly, the
Exchange proposes to replicate this success for Non-Select Symbols by
introducing a Market Maker Plus program with substantially similar
qualifications in order to promote and encourage liquidity in those
particular symbols. Specifically, Market Makers that achieve Market
Maker Plus Tiers 1-3 as proposed below for executions in Non-Select
Symbols (excluding index options) will be assessed the following maker
fee or rebate instead of paying the $0.70 per contract maker fee as
proposed above: \25\
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\25\ As with all Non-Select Symbol pricing in Options 7, Section
3, the proposed Market Maker Plus program will not apply to NDX and
NQX options, and the Exchange will charge the applicable index
options fees in Options 7, Section 5 instead.
------------------------------------------------------------------------
Maker fee/
Market maker plus tier (specified percentage) rebate
------------------------------------------------------------------------
Tier 1 (80% to less than 90%)........................... $0.50
Tier 2 (90% to less than 98%)........................... 0.30
Tier 3 (98% or greater)................................. (0.40)
------------------------------------------------------------------------
The Market Maker Plus Tier 3 rebate will be provided if the
qualifying Market Maker trades against non-Priority Customer orders.
Qualifying
[[Page 12619]]
Market Makers that trade against Priority Customer orders will be
charged a Market Maker Plus Tier 3 fee of $0.10 per contract instead of
receiving the Tier 3 rebate.\26\
---------------------------------------------------------------------------
\26\ See proposed Options 7, Section 3, note 6.
---------------------------------------------------------------------------
The Exchange also proposes to amend the existing Market Maker Plus
provisions throughout to provide that Market Makers that meet these
qualifications will be assessed the applicable fee or rebate. Lastly,
the Exchange proposes to amend the language around the reduced Tier 2
incentive currently provided to qualifying Market Makers in Select
Symbols, and expand these provisions to cover the proposed fees in the
Non-Select Market Maker Plus program. The Exchange proposes to specify
that for Select Symbols, this rebate will continue to be the applicable
Tier 2 rebate reduced by $0.08 per contract. For Non-Select Symbols,
this fee will be the Tier 2 fee increased by $0.08 per contract.
Market Maker Discount Tiers in Non-Select Symbols
Today, as set forth in Options 7, Section 6.D, Market Makers that
execute a monthly volume of 250,000 contracts or more in regular Non-
Select Symbol orders are entitled to a discounted rate of $0.20 per
contract instead of paying the regular $0.25 per contract fee. The
Market Maker discount tiers were originally adopted to incentivize
greater Market Maker activity in Non-Select Symbols. With the
introduction of the new Market Maker Plus program for Non-Select
Symbols as described above, the Exchange now proposes to eliminate the
Market Maker discount tiers.
Flash Orders
With the introduction of the maker/taker fee structure proposed
above for Non-Select Symbols, the Exchange proposes to amend how Flash
Orders will be charged under this proposal. By way of background, a
``Flash Order'' is an order that is exposed at the NBBO by the Exchange
to all Members for execution, as provided under Supplementary Material
.02 to Options 5, Section 2. Today, Flash Orders are assessed the
applicable taker fee for the initiation of a Flash Order and the
applicable maker rebate (only for Market Makers that qualify for Market
Maker Plus) or maker fee for responses to the Flash Order. Thus, for
the initiation of a Flash Order in Select Symbols, the Exchange
currently assesses a taker fee of $0.45 per contract for Market Maker
orders (including Market Maker orders sent by an EAM), $0.46 per
contract for all other non-Priority Customer orders, and $0.41 per
contract for Priority Customer orders. For responses to a Flash Order
in Select Symbols, the Exchange currently assesses a maker fee of $0.11
per contract for all non-Priority Customer orders and no fee for
Priority Customer orders.\27\ As it relates to Flash Orders in Non-
Select Symbols, because the Exchange does not currently differentiate
between maker and taker fees for Non-Select Symbol executions, Members
today are charged the same fee for initiating and responding to a Flash
Order. Specifically, the fee is $0.25 per contract for Market Maker
orders, $0.20 per contract for Market Maker orders sent by EAMs, $0.72
per contract for all other non-Priority Customer orders, and $0.00 per
contract for Priority Customer orders. In addition to the
aforementioned fees and rebates, the Exchange also pays a credit of
$0.05 per contract to a market participant that responds to a Flash
Order in Select or Non-Select Symbols which executes against a Priority
Customer.
---------------------------------------------------------------------------
\27\ In addition, the maker fee is currently $0.11 for Market
Makers, except that (i) Market Makers that qualify for Market Maker
Plus would not pay this fee if they meet the applicable tier
thresholds set forth in note 5 of Options 7, Section 3, and would
instead receive a rebate based on the Market Maker Plus tier for
which they qualify; (ii) no fee will be charged or rebate provided
when trading against non-Priority Customer complex orders that leg
into the regular order book; and (iii) a $0.15 per contract would
apply instead of the $0.11 per contract maker fee or applicable
Market Maker Plus rebate when trading against Priority Customer
complex orders that leg into the regular order book.
---------------------------------------------------------------------------
With the introduction of the maker/taker fee structure proposed
above for Non-Select Symbols, the Exchange now proposes to charge the
applicable taker fee for initiating Flash Orders in Non-Select Symbols.
The fee for initiating Flash Orders will therefore increase from $0.25
to $0.72 per contract for Market Makers and from $0.20 to $0.72 for
Market Maker orders sent by EAMs.\28\ The initiating fee, as proposed,
will remain the same for all other market participants, ($0.72 per
contract for all other non-Priority Customer orders, and $0.00 per
contract for Priority Customer orders).
---------------------------------------------------------------------------
\28\ As discussed earlier in this filing, the Exchange is
proposing to remove the distinction between Non-Select Symbol
pricing for Market Makers and for Market Maker orders sent by EAMs.
---------------------------------------------------------------------------
In addition, the Exchange proposes to charge all non-Priority
Customer responses to Flash Orders in Non-Select Symbols a flat fee of
$0.25 per contract, and not charge a fee for Priority Customer
responses. The flash response fee will therefore remain the same for
Market Maker orders, except Market Maker orders sent by EAMs will see
an increase from $0.20 to $0.25 per contract. For all other non-
Priority Customers, the flash response fee in Non-Select Symbols will
decrease from $0.72 per contract to $0.25 per contract. Lastly, for
Priority Customers, the flash response fee will remain the same at
$0.00 per contract.
The Exchange will continue to charge the applicable Select Symbol
taker fee for initiating Flash Orders in those symbols, which taker
fees are not changing under this proposal. Similarly, the Exchange will
continue to charge the applicable Select Symbol maker rebate or fee for
responses to Flash Orders in those symbols, which maker pricing will
remain the same under this proposal. Accordingly, the Exchange proposes
to amend the existing Flash Order provisions to differentiate pricing
for Select Symbols and Non-Select Symbols where applicable.\29\ Lastly,
the Exchange proposes to remove the $0.05 credit discussed above for
both Select and Non-Select Symbols.
---------------------------------------------------------------------------
\29\ See proposed Options 7, Section 3, note 17. The Exchange
will also make technical changes to replace the ``Section I''
references therein and to the definition of Flash Order in Options
7, Section 1 to ``Section 3.'' The Exchange will also amend the
first two sentences of note 17 to correct a typo and for better
readability.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\30\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\31\ 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.
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange's proposed changes to its Pricing Schedule are
consistent with the Act in several respects. As a threshold matter, the
Exchange is subject to significant competitive forces in the market for
options securities transaction services that constrain its pricing
determinations in that market. The fact that this market is competitive
has long been recognized by the courts. In NetCoalition v. Securities
and Exchange Commission, the D.C. Circuit stated as follows: ``[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
[[Page 12620]]
market share percentages for granted' because `no exchange possesses a
monopoly, regulatory or otherwise, in the execution of order flow from
broker dealers'. . . .'' \32\
---------------------------------------------------------------------------
\32\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------
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.'' \33\
---------------------------------------------------------------------------
\33\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
equity security transaction services. The Exchange is only one of
sixteen options exchanges to which market participants may direct their
order flow. Within this environment, market participants can freely and
often do shift their order flow among the Exchange and competing venues
in response to changes in their respective pricing schedules. Within
the foregoing context, the proposal represents a reasonable attempt by
the Exchange to increase its liquidity and market share relative to its
competitors.
Marketing Fee
The Exchange believes that it is reasonable to set the marketing
fee to $0.00 per contract because the Exchange has proposed changes to
its Non-Select Symbol pricing that will result in Market Makers paying
higher maker/taker fees than today.\34\ Eliminating the marketing fee
will keep total execution costs down when Market Makers trade against
regular Priority Customer orders in Non-Select Symbols. The Exchange
also believes that the proposed fee change is equitable and not
unfairly discriminatory as no Market Makers would be charged a
marketing fee under this proposal. The Exchange also believes that it
is reasonable, equitable and not unfairly discriminatory to add the
language proposed in Options 7, Section 6.E as it will make clear that
no marketing fees will be charged for Select and Non-Select Symbols
with the proposed changes, and that if the Exchange determines to
charge a marketing fee in the future, it will do so pursuant to a rule
filing.
---------------------------------------------------------------------------
\34\ As discussed above, the Non-Select Symbol fee for Market
Makers will increase from $0.25 to $0.70 per contract (maker fee)
and to $0.72 per contract (taker fee).
---------------------------------------------------------------------------
Non-Select Regular Order Pricing
The Exchange believes that the proposed change to adopt the maker/
taker pricing model for regular Non-Select Symbol orders as described
above is reasonable as it is designed to increase its liquidity and
opportunities for all members to trade on the Exchange. Generally, the
proposed changes will replace the existing fees with a new maker/taker
fee structure where market participants other than Priority Customers
are charged a fee based on whether the market participant adds or
removes liquidity. Priority Customer orders, meanwhile, will be
eligible for highly competitive maker rebates or assessed no taker
fees.\35\ With these changes, all market participants will also be
charged a higher taker fee for trades executed against Priority
Customers. For the reasons discussed in the following paragraphs, the
Exchange believes that the proposed fee structure will be beneficial to
market participants and will encourage an active and liquid market in
Non-Select Symbols on ISE.
---------------------------------------------------------------------------
\35\ Furthermore, as discussed below for Market Maker Plus,
Market Makers will be eligible to qualify for substantially lower
fees or receive a rebate based on their contribution to the market.
---------------------------------------------------------------------------
Under the proposed pricing structure, all non-Priority Customer
orders will be charged a uniform base execution fee for adding
liquidity (i.e., maker fee of $0.70 per contract) and for removing
liquidity (i.e., taker fee of $0.72 per contract). The Exchange
believes that the proposed pricing is set at levels that will encourage
market participants to increase their Non-Select Symbol activity,
especially activity that adds liquidity, on the Exchange. While Market
Makers, including Market Maker orders sent by EAMs, will be charged
higher fees than the fees currently assessed, the Exchange believes
that the increased fees are appropriate to offset the proposed
significant Priority Customer maker incentives (as described
below).\36\ Furthermore, the Exchange believes that all market
participants will benefit from additional liquidity created by the
Priority Customer rebates.
---------------------------------------------------------------------------
\36\ See supra note 35. Non-Select Symbol fees are currently
$0.25 per contract for Market Makers, and $0.20 per contract for
Market Maker orders sent by EAMs.
---------------------------------------------------------------------------
In addition, Priority Customer orders will be eligible for free
executions for removing liquidity and paid a rebate of $0.86 per
contract for adding liquidity. Members will also have the opportunity
to receive an additional $0.14 rebate if they execute more than 0.06%
of Regular Order Non-Select Symbol Priority Customer Volume (excluding
Crossing Orders and Responses to Crossing Orders) calculated as a
percentage of Customer Total Consolidated Volume per day in a given
month, for a total rebate of up to $1.00 per contract.\37\ Crossing
Orders and Responses to Crossing Orders will be excluded from the
proposed volume calculation as this type of order flow is subject to
separate pricing, with various incentives currently provided to Members
that trade in the Exchange's crossing mechanisms.
---------------------------------------------------------------------------
\37\ As discussed above, all regular Priority Customer order
volume that adds or removes liquidity in Non-Select Symbols on the
Exchange is included in the proposed volume calculation, except for
volume executed as Crossing Orders and Responses to Crossing Orders.
---------------------------------------------------------------------------
The Exchange is proposing to base the additional Priority Customer
maker incentive on a percentage of industry volume in recognition of
the fact that the volume executed by a Member may rise or fall with
industry volume. This would allow the volume calculation to be
calibrated to current market volumes rather than requiring the same
amount of volume regardless of market conditions. In addition, by
basing the proposed volume calculation on Priority Customer regular
order volume that adds or removes liquidity in Non-Select Symbols on
the Exchange, the Exchange is seeking to incentivize Members to
increase market participation in Non-Select Symbols to qualify for the
additional rebate. The Exchange believes that the significant rebate
incentives it is proposing to provide for Priority Customer orders,
taken together with the $0.00 per contract taker fee, will incentivize
Members to bring Priority Customer order flow in Non-Select Symbols,
thereby creating additional liquidity to the benefit of all market
participants and investors that trade on the Exchange.
With respect to the increased taker fees for trades executed
against a Priority Customer, the Exchange believes that the proposed
fees are appropriate as they are designed to offset the proposed maker
rebate.\38\ As described above, Priority Customers will be offered
significant maker incentives.
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The Exchange believes that Members will benefit from the additional
liquidity created by the Priority Customer rebates, and it is therefore
appropriate to charge an increased taker fee for trades executed
against a Priority Customer. The Exchange notes that other options
exchanges, including for example its affiliate Nasdaq GEMX, charge
higher taker fees when the counterparty is a Priority Customer.\39\
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\38\ As discussed above, non-Priority Customers will be charged
a taker fee of $1.10 per contract when trading against Priority
Customers instead of the $0.72 taker fee. Priority Customers will be
charged a taker fee of $0.86 per contract when trading against
Priority Customers instead of receiving free executions.
\39\ See Nasdaq GEMX Pricing Schedule at Options 7, Section 3,
note 16.
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The Exchange also believes that it is reasonable to stipulate that
for Priority Customer orders adding liquidity in Non-Select Symbols,
there will be no fee charged or rebate provided when trading against
Priority Customer complex orders that leg into the regular order book.
As discussed above, the Exchange currently does not charge any fee to
Priority Customer complex orders in Non-Select Symbols that leg into
the regular market and trade with resting interest on the order book,
which may include resting Priority Customer orders. As such, the
Exchange believes it is reasonable to not charge a fee or provide a
rebate to a Non-Select Symbol Priority Customer order resting on the
regular order book when the Non-Select Symbol Priority Customer order
legs out of the complex order book and interacts with such interest.
The Exchange believes that the proposed maker/taker pricing model
in Non-Select Symbols is equitable and not unfairly discriminatory as
all non-Priority Customer orders will be assessed consistent maker/
taker fees under the Exchange's proposal, regardless of market
participant category. The Exchange believes it is equitable and not
unfairly discriminatory to charge a lower fee (or no fee), or to offer
a rebate, for Priority Customer orders as the Exchange has historically
offered lower execution fees or rebates to those market participants.
Furthermore, Priority Customer order flow enhances liquidity on the
Exchange for the benefit of all market participants by providing more
trading opportunities, which in turn attracts Market Makers and other
market participants that may trade with this order flow.
Lastly, the Exchange believes it is reasonable to no longer
differentiate the pricing between Market Makers and Market Maker orders
sent by EAMs in light of the foregoing changes to adopt a more
standardized maker/taker pricing model across all non-Priority
Customers. With this change, both market participant categories will be
charged the same fees across all Non-Select Symbol orders, including
Crossing Orders and Responses to Crossing Orders. As discussed above,
the current fees for PIM Orders and Responses to Crossing Orders are
already consistent across both market participant categories, except
the fee for all other Crossing Orders. The Exchange therefore believes
it is reasonable to decrease this fee for Market Makers as with this
change Market Makers will be charged the same fee as Market Maker
orders sent by EAMs as well as all other non-Priority Customer orders.
The Exchange further believes that the proposed changes to remove the
separate pricing for Market Maker orders sent by EAMs are equitable and
not unfairly discriminatory as the proposed fees for this category will
now be consistent with other non-Priority Customer fees.
Market Maker Plus in Non-Select Symbols
The Exchange believes that it is reasonable to adopt the Market
Maker Plus program for Non-Select Symbols in the manner discussed above
as this program is designed to encourage better market quality and make
ISE a more attractive market for Non-Select Symbols, similar to the
existing Market Maker Plus program for Select Symbols. Under the
proposed program, Market Makers would be rewarded for providing
liquidity in Non-Select Symbols with discounted fees or a rebate if the
Market Maker achieves a higher Market Maker Plus tier based on time
spent quoting at the NBBO.\40\ The Exchange believes that it is
reasonable to offer these fee incentives to Market Makers that add
liquidity because Market Makers provide an important function to the
market when they provide liquidity to other market participants through
their displayed quotes. The Exchange believes that incentivizing Market
Makers to provide liquidity through the proposed Market Maker Plus
program will create additional displayed liquidity in Non-Select
Symbols, and increase opportunities for market participants to trade,
which benefits all market participants in the quality of order
interaction.
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\40\ As discussed above, this discounted fee or rebate will be
provided in lieu of the base maker fee of $0.70 per contract.
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The Exchange believes that the proposed program is reasonable
because it is structured similarly to the existing program for Select
Symbols. As proposed, the Market Maker Plus Tier qualifications for
Non-Select Symbols, especially proposed Tier 2 and Tier 3, will be
slightly more stringent than the existing tiers for Select Symbols.\41\
Because Non-Select Symbols generally tend to trade less frequently and
may have wider NBBOs than Select Symbols, the Exchange believes the
proposed tier qualifications are set at appropriate levels that Market
Makers could potentially achieve if they choose to engage in the
program.
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\41\ For instance, the qualifications for the Market Maker Plus
Tiers in Select Symbols (other than SPY, QQQ, IWM, AMZN, FB, and
NVDA) are 85% to less than 95% for Tier 2, and 95% or greater for
Tier 3. In Non-Select Symbols, Tier 2 will be 90% to 98%, and Tier 3
will be 98% or greater.
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The Exchange believes that it is reasonable to reduce the
incentives for Market Makers that qualify for Tier 3 under the proposed
Market Maker Plus program if they trade against Priority Customer
orders to help offset the significantly competitive maker/taker pricing
proposed above for Priority Customers.\42\ Nonetheless, the proposed
Tier 3 incentives will still be higher than the proposed incentives in
Tier 1 and Tier 2, even if the qualifying Market Maker trades against a
Priority Customer, thereby ensuring that the proposed program will be
attractive to participating Market Makers.
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\42\ As proposed, qualifying Market Makers that trade against
Priority Customers will be assessed a fee of $0.10 per contract in
Tier 3 instead of receiving the $0.40 rebate that would be provided
to qualifying Market Makers that trade against non-Priority
Customers.
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The Exchange believes that it is reasonable to provide a reduced
incentive in Non-Select Symbols to Market Makers who do not qualify for
any Market Maker Plus tiers in a given month, but qualified for Market
Maker Plus Tier 2 or higher in at least four of the previous six
months. The Exchange provides a similar reduced rebate today for Select
Symbols that is the applicable Tier 2 rebate reduced by $0.08 per
contract. Because the proposed Tier 2 incentive for Non-Select Symbols
will be a fee instead of a rebate, the Exchange believes it is
appropriate to offer a reduced incentive that is the Tier 2 fee
increased by $0.08 per contract. Similar to the existing reduced rebate
for Select Symbols, the Exchange believes that this change will
preserve the intent of the Market Maker Plus program to reward strong
liquidity providers, and avoids penalizing participants while
continuing to require Market Makers to quote significantly at the NBBO.
The Exchange believes that the proposed Market Maker Plus program
is equitable and not unfairly discriminatory as all Market Makers can
qualify for the same incentives under the proposed program.
Furthermore, the
[[Page 12622]]
Exchange believes it is equitable and not unfairly discriminatory to
offer these rebates to only Market Makers because Market Makers, and in
particular Market Makers that achieve Market Maker Plus status as
proposed, are subject to additional requirements and obligations (such
as quoting obligations) that other market participants are not.
Market Maker Discount Tiers in Non-Select Symbols
The Exchange believes that it is reasonable to eliminate the Market
Maker discount tiers set forth in Options 7, Section 6.D. Because the
objective of the new Market Maker Plus program for Non-Select Symbols,
as discussed above, is to incentivize higher Market Maker activity in
Non-Select Symbols, similar to the discounted fee today, the Exchange
believes it is no longer necessary to offer the current incentive
alongside the new Market Maker Plus program. The Exchange believes that
eliminating the Market Maker discount tiers is equitable and not
unfairly discriminatory as it will apply uniformly to all similarly
situated market participants.
Flash Orders
The Exchange believes that the proposed Flash Orders changes are
reasonable as they specify how the Exchange will charge Members for
Flash Orders with the introduction of maker/taker pricing in Non-Select
Symbols. Under the Exchange's proposal, all non-Priority Customers will
be charged a uniform taker fee of $0.72 per contract for initiating
Flash Orders in Non-Select Symbols, and a flat fee of $0.25 per
contract for responses to Flash Orders in Non-Select Symbols. Priority
Customers will continue to receive free executions in Non-Select
Symbols, regardless of initiating or responding to a Flash Order. As
discussed above, the pricing for the initiation and response to Flash
Orders in Select Symbols will remain unchanged for all market
participant types under this proposal.
The Exchange believes that the proposed pricing for initiating and
responding to Flash Orders in Non-Select Symbols is equitable and not
unfairly discriminatory as the proposed fees would be more standardized
across non-Priority Customer market participant types. Furthermore, the
Exchange believes that it is equitable and not unfairly discriminatory
to continue charging no fees to Priority Customers for the initiation
and response to Flash Orders in Non-Select Symbols for the same reasons
discussed above for the proposed Priority Customer maker/taker
pricing--i.e., because Priority Customer order flow enhances liquidity
on the Exchange to the benefit of all market participants by providing
more trading opportunities.
The Exchange believes it is reasonable to eliminate the $0.05 per
contract flash credit. The Exchange previously adopted this credit to
encourage Members to participate in the flash auction by responding to
a Priority Customer Flash Order. The Exchange no longer believes that
this incentive is necessary with the proposed changes to charge non-
Priority Customers a lower response fee of $0.25 per contract, and is
therefore removing it. The Exchange also believes that the proposed
removal of this credit is equitable and not unfairly discriminatory as
it will apply uniformly to all market participants. As proposed, no
market participant will be eligible for a flash credit.
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 intra-market competition, the Exchange does not believe
that its proposal will place any category of market participant at a
competitive disadvantage. The Exchange believes that all of the changes
proposed above will incentivize market participants to direct liquidity
in Non-Select Symbols to the Exchange. While some aspects of the
proposal apply directly to Market Makers (through the new Market Maker
Plus program) and Priority Customers (through rebates or free
executions under the proposed maker/taker pricing model), the Exchange
believes that the proposed changes taken together will fortify and
encourage activity, especially liquidity adding activity, in Non-Select
Symbols. As noted above, all market participants will benefit from any
increase in market activity that the proposal effectuates.
In terms of inter-market competition, the Exchange operates in a
highly competitive market in which market participants can readily
favor competing venues if they deem fee levels at a particular venue to
be excessive, or rebate opportunities available at other venues to be
more favorable. In such an environment, the Exchange must continually
adjust its fees to remain competitive with other exchanges. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
Moreover, as noted above, price competition between exchanges is
fierce, with liquidity and market share moving freely between exchanges
in reaction to fee and rebate changes. In sum, if the changes proposed
herein are unattractive to market participants, it is likely that the
Exchange will lose market share as a result. Accordingly, the Exchange
does not believe that the proposed changes will impair the ability of
members or competing order execution venues to maintain their
competitive standing in the financial markets.
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,\43\ and Rule 19b-4(f)(2) \44\ thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is: (i) Necessary or
appropriate in the public interest; (ii) for the protection of
investors; or (iii) otherwise in furtherance of the purposes of the
Act. If the Commission takes such action, the Commission shall
institute proceedings to determine whether the proposed rule should be
approved or disapproved.
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\43\ 15 U.S.C. 78s(b)(3)(A)(ii).
\44\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
[[Page 12623]]
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-ISE-2020-06 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-2020-06. 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 (https://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-2020-06 and should be submitted on
or before March 24, 2020.
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\45\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04290 Filed 3-2-20; 8:45 am]
BILLING CODE 8011-01-P
