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, 33231-33234 [2020-11646]
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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Notices
submissions should refer to File
Number SR–GEMX–2020–12 and
should be submitted on or before June
22, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–11647 Filed 5–29–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88939; File No. SR–ISE–
2020–20]
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
May 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 May 11,
2020, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend 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 Exchange proposes to amend its
Pricing Schedule at Options 7 to: (i)
Adjust the Market Maker Plus regular
maker rebate for SPY, QQQ, and IWM,
and (ii) modify its QCC and Solicitation
Rebate program. The Exchange has
designated the proposed pricing
changes to be operative on May 1, 2020.
Each change is described below.
ISE initially filed the proposed rule
change on April 30, 2020 (SR–ISE–
2020–19). On May 11, 2020, ISE
withdrew that filing and submitted this
this filing.
Market Maker Plus
The Exchange currently operates a
Market Maker Plus program for regular
orders in Select 3 and Non-Select
Symbols,4 which provides tiered
incentives to Market Makers 5 based on
the percentage of time spent quoting at
the national best bid or offer (‘‘NBBO’’).6
Market Makers that qualify for this
program will not pay the maker fee of
$0.11 per contract (in Select Symbols) or
$0.70 (in Non-Select Symbols), and will
instead receive incentives based on the
applicable Market Maker Plus Tier for
which they qualify. 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.7 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. 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 fees or rebates would
apply to all contracts.8 A Market
Maker’s worst quoting day each month
for each of the two successive periods
described above, on a per symbol basis,
is excluded in calculating whether a
Market Maker qualifies for this
incentive.9 These general qualification
requirements will remain unchanged
with the modifications to the applicable
Market Maker Plus incentives described
herein.
For SPY, QQQ, and IWM, the
Exchange currently provides the below
maker rebates based on the applicable
Market Maker Plus tier for which the
Market Maker qualifies.
SPY, QQQ, AND IWM
Regular maker
rebate
Market maker plus tier (specified percentage)
Tier 1 ........................................................................................................................................................................
(70% to less than 80%) ...........................................................................................................................................
Tier 2 (80% to less than 85%) ................................................................................................................................
28 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 ‘‘Select Symbols’’ are options overlying all
symbols listed on the Exchange that are in the
Penny Pilot Program.
4 ‘‘Non-Select Symbols’’ are options overlying all
symbols except Select Symbols.
5 The term ‘‘Market Makers’’ refers to
‘‘Competitive Market Makers’’ and ‘‘Primary Market
Makers’’ collectively. See Options 1, Section
1(a)(21).
6 See Options 7, Section 3, note 5.
7 Qualifying series are series trading between
$0.03 and $3.00 (for options whose underlying
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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.
8 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
PO 00000
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($0.00)
($0.18)
Linked maker
rebate
N/A
($0.15)
badge/suffix combinations quoting a minimum of
ten trading days within the month is 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.
9 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 incentive in a given month where the Market
Maker does not qualify for any Market Maker Plus
tiers. For Select Symbols, this rebate is the
applicable Tier 2 rebate reduced by $0.08 per
contract. For Non-Select Symbols, this fee is the
Tier 2 fee increased by $0.08 per contract.
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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Notices
SPY, QQQ, AND IWM—Continued
Regular maker
rebate
Market maker plus tier (specified percentage)
Tier 3 (85% to less than 90%) ................................................................................................................................
Tier 4 (90% or greater) ............................................................................................................................................
The Exchange now proposes to
replace Market Maker Plus Tier 1 with
new Tier 1a and Tier 1b. As proposed,
the Market Maker Plus Tier qualification
requirements and associated incentive
will be as follows: (1) 50% to less than
65% to qualify for the $0.00 per contract
Tier 1a regular maker rebate (i.e., free
executions instead of paying the $0.11
per contract maker fee), and (2) 65% to
less than 80% to qualify for the $0.05
per contract Tier 1b regular maker
rebate. Current Market Maker Plus Tiers
2–4 as set forth above and the associated
maker rebates will remain unchanged
under this proposal. In addition, the
Exchange will not offer any linked
maker rebates for proposed Tiers 1a and
1b.
The proposed changes are intended to
fortify Market Maker participation in the
Exchange’s Market Maker Plus program
for SPY, QQQ, and IWM. By lowering
the percentage of time required to be
spent quoting at the NBBO that is
necessary to qualify for the $0.00 and
$0.05 per contract regular maker rebates
in Tier 1a and Tier 1b, respectively, the
Exchange seeks to make it easier for
Market Makers to qualify as Market
Maker Plus in SPY, QQQ, and IWM, and
to better enable existing Market Maker
Plus participants to maintain their
qualifications as such. By fortifying
participation in this program, the
Exchange believes that the proposed
changes will continue to encourage
Market Makers to post quality markets
in SPY, QQQ, and IWM, thereby
improving trading conditions for all
market participants through narrower
bid-ask spreads and increased depth of
liquidity available at the inside market.
QCC and Solicitation Rebate
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Currently, Members using the
Qualified Contingent Cross (‘‘QCC’’) 10
and/or other solicited crossing orders,
including solicited orders executed in
10 A QCC Order is comprised of an originating
order to buy or sell at least 1000 contracts that is
identified as being part of a qualified contingent
trade, as that term is defined in Supplementary
Material .01 to Options 3, Section 7, coupled with
a contra-side order or orders totaling an equal
number of contracts. See Options 3, Section 7(j).
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the Solicitation,11 Facilitation 12 or Price
Improvement Mechanisms (‘‘PIM’’),13
receive rebates for each originating
contract side in all symbols traded on
the Exchange.14 Once a Member reaches
a certain volume threshold in QCC
orders and/or other solicited crossing
orders during a month, the Exchange
provides rebates to that Member for all
of its QCC and solicited crossing order
traded contracts for that month. The
applicable rebates are applied on QCC
and solicited crossing order traded
contracts once the volume threshold is
met. Members receive the rebate for all
QCC and/or other solicited crossing
orders except for QCC and solicited
orders between two Priority
Customers,15 which do not receive any
rebate.
At this time, the Exchange proposes to
no longer provide the QCC and
Solicitation Rebate to solicited orders
executed in PIM. The Exchange has
observed that few members have
received this rebate, with little
associated volume.16 To effect this
change, the Exchange proposes to
remove the reference to PIM in Section
6.A. In addition, the Exchange proposes
to add a new defined term ‘‘Solicited
Orders,’’ which will encompass QCC
orders and/or other solicited orders
11 The Solicited Order Mechanism is a process by
which an Electronic Access Member (‘‘EAM’’) can
attempt to execute orders of 500 or more contracts
it represents as agent against contra orders that it
solicited. Each order entered into the Solicited
Order Mechanism shall be designated as all-ornone. See Options 3, Section 11(d).
12 The Facilitation Mechanism is a process by
which an EAM can execute a transaction wherein
the EAM seeks to facilitate a block-size order it
represents as agent, and/or a transaction wherein
the EAM solicited interest to execute against a
block-size order it represents as agent. See Options
3, Section 11(b).
13 The PIM is a process by which an EAM can
provide price improvement opportunities for a
transaction wherein the EAM seeks to facilitate an
order it represents as agent, and/or a transaction
wherein the EAM solicited interest to execute
against an order it represents as agent. See Options
3, Section 13.
14 See Options 7, Section 6.A.
15 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 Options 1,
Section 1(a)(37).
16 For example, of the contract sides that qualified
for the QCC and Solicitation Rebate in March 2020,
less than 1% of that volume represented solicited
PIM orders.
PO 00000
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($0.22)
($0.26)
Linked maker
rebate
($0.19)
($0.23)
executed in the Solicitation and
Facilitation Mechanisms, and use this
defined term throughout Section 6.A to
make clear what types of solicited
crossing orders will qualify the Member
for the QCC and Solicitation Rebate. The
volume thresholds and applicable
rebates will remain unchanged under
this proposal.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,17 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,18 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees, and other charges
among members and issuers and other
persons using any facility, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The Exchange’s proposed changes to
its Pricing Schedule are reasonable 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 market
share percentages for granted’ because
‘no exchange possesses a monopoly,
regulatory or otherwise, in the execution
of order flow from broker dealers’
. . . .’’ 19
The Commission and the courts have
repeatedly expressed their preference
for competition over regulatory
intervention in determining prices,
products, and services in the securities
17 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
19 NetCoalition v. SEC, 615 F.3d 525, 539 (DC Cir.
2010) (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782–83
(December 9, 2008) (SR–NYSEArca–2006–21)).
18 15
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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.’’ 20
Numerous indicia demonstrate the
competitive nature of this market. For
example, clear substitutes to the
Exchange exist in the market for options
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. As such,
the proposal represents a reasonable
attempt by the Exchange to increase its
liquidity and market share relative to its
competitors.
Market Maker Plus
The Exchange believes that the
proposed changes to its Market Maker
Plus program for SPY, QQQ, and IWM
are reasonable and equitable for several
reasons. As noted above, the Exchange’s
proposal is intended to fortify
participation in this program and
improve market quality on ISE. The
Exchange’s proposal to lower the
required percentage of time spent at the
NBBO to qualify for Market Maker Plus
Tiers 1a and 1b will improve the overall
incentive to Market Makers to
participate in this program by making it
easier for Market Makers to qualify for
Market Maker Plus in SPY, QQQ, and
IWM. By broadening the Market Maker
Plus in this manner, the Exchange will
encourage new participants in the
program and help ensure that existing
Market Maker Plus participants
continue to qualify as such.
The Exchange will apply the
proposed changes to SPY, QQQ, and
IWM as they are three of the most
actively traded symbols on ISE, and the
Exchange therefore believes that
incentivizing liquidity in these three
names will have a significant and
beneficial impact on market quality on
the Exchange. Further, the Exchange
believes that the proposed Tier 1a and
Tier 1b qualifications for SPY, QQQ,
and IWM will continue to require
Market Makers to quote at the NBBO for
20 Securities
Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
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a significant percentage of time in order
to glean the benefits of the associated
incentives.21 For the foregoing reasons,
the Exchange believes that its proposal
will further encourage Market Makers to
maintain tight markets in SPY, QQQ,
and IWM, thereby increasing liquidity
and attracting additional order flow to
the Exchange, which will benefit all
market participants in the quality of
order interaction.
The Exchange also believes that the
proposed changes to the Market Maker
Plus program for SPY, QQQ, and IWM
are not unfairly discriminatory as all
Market Makers can qualify for this
program by meeting the requirements
that are designed to incentivize Market
Makers to maintain quality markets. In
addition, the Exchange continues to
believe that it is not unfairly
discriminatory to offer rebates under
this program to only Market Makers.
Market Makers, and in particular, those
Market Makers that participate in the
Market Maker Plus program and achieve
Market Maker Plus status, add value
through continuous quoting and are
subject to additional requirements and
obligations (such as quoting obligations)
that other market participants are not.
QCC and Solicitation Rebate
The Exchange believes that it is
reasonable to no longer provide the QCC
and Solicitation Rebate to solicited
orders executed in PIM. As noted above,
few Members have received this rebate
for solicited PIM orders, and related
volume is low.22 As such, the Exchange
believes that the proposed elimination
will have minimal impact on Members.
Furthermore, the Exchange notes that it
already offers competitive pricing for
PIM orders. For instance, the Exchange
currently assesses a fee of $0.10 per
contract for regular and complex PIM
orders to all market participants (other
than Priority Customers for which the
Exchange currently charges no fee),
which is significantly lower than the
Exchange’s other transaction fees,
including the fees assessed to other
Crossing Orders.23 Furthermore, this
$0.10 per contract fee may be further
21 As proposed, a Market Maker would need to be
on the NBBO 50% to less than 65% of the time to
qualify for the Tier 1a rebate of $0.00, and 65% to
less than 80% of the time for the Tier 1b rebate of
$0.05.
22 See supra note 16.
23 A ‘‘Crossing Order’’ is an order executed in the
Exchange’s Facilitation Mechanism, Solicited Order
Mechanism, PIM or submitted as a QCC order. For
purposes of this Pricing Schedule, orders executed
in the Block Order Mechanism are also considered
Crossing Orders. Today, the Exchange charges all
non-Priority Customers a $0.20 per contract fee for
regular and complex Crossing Orders except PIM
orders. Priority Customers are not charged Crossing
Order fees. See Options 7, Section 3 and Section 4.
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33233
reduced if the non-Priority Customer
executes a certain ADV threshold in
PIM in a given month.24 Accordingly,
the Exchange believes that its pricing
structure for PIM, with the proposed
changes, will continue to encourage
market participant PIM activity,
including solicited PIM activity, and
will streamline its PIM incentive
structure.
The Exchange also believes that its
proposal is equitable and not unfairly
discriminatory because with the
proposed changes, no market
participant will receive the rebate for
solicited PIM orders. Accordingly, the
Exchange’s proposal will apply
uniformly to all market participants.
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
Exchange market participant at a
competitive disadvantage. The proposed
changes to the Market Maker Plus
program for SPY, QQQ, and IWM are
intended to improve market quality by
fortifying and encouraging participation
in this program. As discussed above, the
Exchange believes that its proposal will
encourage all Market Makers to improve
market quality by providing significant
quoting at the NBBO in SPY, QQQ, and
IWM, which in turn improves trading
conditions for all market participants
through narrower bid-ask spreads and
increased depth of liquidity available at
the inside market, thereby attracting
additional order flow to the Exchange.
As it relates to the proposed elimination
of the rebate for solicited PIM orders,
the Exchange believes that its proposal
will continue to encourage market
participant activity in PIM given the
Exchange’s competitive PIM pricing
structure, as discussed above.
Accordingly, the Exchange believes that
the proposed changes will continue to
attract order flow to the Exchange,
thereby encouraging additional volume
and liquidity to the benefit of all market
participants.
In terms of inter-market competition,
the Exchange notes that it operates in a
highly competitive market in which
market participants can readily favor
competing venues if they deem fee
24 See Options 7, Section 3, note 13 (setting forth
discounted PIM fees for regular orders) and Section
4, note 9 (setting forth discounted PIM fees for
complex orders).
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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Notices
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
options 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 25 and Rule
19b–4(f)(2) 26 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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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:
SECURITIES AND EXCHANGE
COMMISSION
Electronic comments
[Release No. 34–88960/May 27, 2020]
• 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–2020–20 on the subject line.
Order Under Section 17A and Section
36 of the Securities Exchange Act of
1934 Extending Temporary
Exemptions From Specified Provisions
of the Exchange Act and Certain Rules
Thereunder
Paper comments
On March 20, 2020, the Securities and
Exchange Commission (‘‘Commission’’)
issued an order pursuant to its authority
under Sections 36 and 17A(c)(1) of the
Exchange Act that granted transfer
agents (and other persons with regard to
Exchange Act section 17(f)(2) and Rule
17f–2 thereunder) the following
temporary exemptions: (1) Transfer
agents from the requirements of
Sections 17A and 17(f)(1) of the
Exchange Act, as well as Rules 17Ad–
1 through 17Ad–11, 17Ad–13 through
17Ad–20, and 17f–1 thereunder; and (2)
transfer agents and other persons subject
to such requirements, from the
requirements of Section 17(f)(2) of the
Exchange Act and Rule 17f–2
thereunder (collectively, the
‘‘Exemptions’’).1 The Exemptions were
granted in light of the challenges that
may be presented by COVID–19 and are
scheduled to expire on May 30, 2020.
The Commission understands from
transfer agents and their representatives,
as well as other persons, that COVID–19
may continue to present challenges in
timely meeting certain of their
obligations under the federal securities
laws. For this reason and the reasons
stated in the Order originally granting
the Exemptions, the Commission finds
that extending the Exemptions until
June 30, 2020, pursuant to its authority
under Sections 36 and 17A(c)(1) of the
Exchange Act, is appropriate in the
public interest and consistent with the
protection of investors.
Accordingly, It Is Ordered, pursuant
to Sections 17A and 36 of the Exchange
Act, that the time period for the
Exemptions specified in the Order are
hereby extended to June 30, 2020 where
the conditions below are satisfied.
• 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–2020–20. 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–2020–20 and should be
submitted on or before June 22, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–11646 Filed 5–29–20; 8:45 am]
BILLING CODE 8011–01–P
25 15
U.S.C. 78s(b)(3)(A)(ii).
26 17 CFR 240.19b–4(f)(2).
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27 17
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Conditions
(a) A registrant or other person relying
on the Order must provide written
notification to the Commission by June
30, 2020 of the following: 2
1 See Securities Exchange Act Release No. 34–
88488 (March 20, 2020), 85 FR 17122 (March 26,
2020) (‘‘Order’’).
2 A registrant or other person who is relying on
the Order and has already provided a written
notification to the Commission may rely on this
extension without submitting another written
notification solely with respect to the Exempted
E:\FR\FM\01JNN1.SGM
01JNN1
]]>Agencies
[Federal Register Volume 85, Number 105 (Monday, June 1, 2020)]
[Notices]
[Pages 33231-33234]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11646]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88939; File No. SR-ISE-2020-20]
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
May 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 May 11, 2020, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's 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 Exchange proposes to amend its Pricing Schedule at Options 7
to: (i) Adjust the Market Maker Plus regular maker rebate for SPY, QQQ,
and IWM, and (ii) modify its QCC and Solicitation Rebate program. The
Exchange has designated the proposed pricing changes to be operative on
May 1, 2020. Each change is described below.
ISE initially filed the proposed rule change on April 30, 2020 (SR-
ISE-2020-19). On May 11, 2020, ISE withdrew that filing and submitted
this this filing.
Market Maker Plus
The Exchange currently operates a Market Maker Plus program for
regular orders in Select \3\ and Non-Select Symbols,\4\ which provides
tiered incentives to Market Makers \5\ based on the percentage of time
spent quoting at the national best bid or offer (``NBBO'').\6\ Market
Makers that qualify for this program will not pay the maker fee of
$0.11 per contract (in Select Symbols) or $0.70 (in Non-Select
Symbols), and will instead receive incentives based on the applicable
Market Maker Plus Tier for which they qualify. 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.\7\ 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. 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 fees or rebates would apply to all
contracts.\8\ A Market Maker's worst quoting day each month for each of
the two successive periods described above, on a per symbol basis, is
excluded in calculating whether a Market Maker qualifies for this
incentive.\9\ These general qualification requirements will remain
unchanged with the modifications to the applicable Market Maker Plus
incentives described herein.
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\3\ ``Select Symbols'' are options overlying all symbols listed
on the Exchange that are in the Penny Pilot Program.
\4\ ``Non-Select Symbols'' are options overlying all symbols
except Select Symbols.
\5\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See Options 1,
Section 1(a)(21).
\6\ See Options 7, Section 3, note 5.
\7\ 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.
\8\ 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 is 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.
\9\ 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 incentive in a given month
where the Market Maker does not qualify for any Market Maker Plus
tiers. For Select Symbols, this rebate is the applicable Tier 2
rebate reduced by $0.08 per contract. For Non-Select Symbols, this
fee is the Tier 2 fee increased by $0.08 per contract.
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For SPY, QQQ, and IWM, the Exchange currently provides the below
maker rebates based on the applicable Market Maker Plus tier for which
the Market Maker qualifies.
SPY, QQQ, and IWM
------------------------------------------------------------------------
Market maker plus tier (specified Regular maker Linked maker
percentage) rebate rebate
------------------------------------------------------------------------
Tier 1.................................. ($0.00) N/A
(70% to less than 80%)..................
Tier 2 (80% to less than 85%)........... ($0.18) ($0.15)
[[Page 33232]]
Tier 3 (85% to less than 90%)........... ($0.22) ($0.19)
Tier 4 (90% or greater)................. ($0.26) ($0.23)
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The Exchange now proposes to replace Market Maker Plus Tier 1 with
new Tier 1a and Tier 1b. As proposed, the Market Maker Plus Tier
qualification requirements and associated incentive will be as follows:
(1) 50% to less than 65% to qualify for the $0.00 per contract Tier 1a
regular maker rebate (i.e., free executions instead of paying the $0.11
per contract maker fee), and (2) 65% to less than 80% to qualify for
the $0.05 per contract Tier 1b regular maker rebate. Current Market
Maker Plus Tiers 2-4 as set forth above and the associated maker
rebates will remain unchanged under this proposal. In addition, the
Exchange will not offer any linked maker rebates for proposed Tiers 1a
and 1b.
The proposed changes are intended to fortify Market Maker
participation in the Exchange's Market Maker Plus program for SPY, QQQ,
and IWM. By lowering the percentage of time required to be spent
quoting at the NBBO that is necessary to qualify for the $0.00 and
$0.05 per contract regular maker rebates in Tier 1a and Tier 1b,
respectively, the Exchange seeks to make it easier for Market Makers to
qualify as Market Maker Plus in SPY, QQQ, and IWM, and to better enable
existing Market Maker Plus participants to maintain their
qualifications as such. By fortifying participation in this program,
the Exchange believes that the proposed changes will continue to
encourage Market Makers to post quality markets in SPY, QQQ, and IWM,
thereby improving trading conditions for all market participants
through narrower bid-ask spreads and increased depth of liquidity
available at the inside market.
QCC and Solicitation Rebate
Currently, Members using the Qualified Contingent Cross (``QCC'')
\10\ and/or other solicited crossing orders, including solicited orders
executed in the Solicitation,\11\ Facilitation \12\ or Price
Improvement Mechanisms (``PIM''),\13\ receive rebates for each
originating contract side in all symbols traded on the Exchange.\14\
Once a Member reaches a certain volume threshold in QCC orders and/or
other solicited crossing orders during a month, the Exchange provides
rebates to that Member for all of its QCC and solicited crossing order
traded contracts for that month. The applicable rebates are applied on
QCC and solicited crossing order traded contracts once the volume
threshold is met. Members receive the rebate for all QCC and/or other
solicited crossing orders except for QCC and solicited orders between
two Priority Customers,\15\ which do not receive any rebate.
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\10\ A QCC Order is comprised of an originating order to buy or
sell at least 1000 contracts that is identified as being part of a
qualified contingent trade, as that term is defined in Supplementary
Material .01 to Options 3, Section 7, coupled with a contra-side
order or orders totaling an equal number of contracts. See Options
3, Section 7(j).
\11\ The Solicited Order Mechanism is a process by which an
Electronic Access Member (``EAM'') can attempt to execute orders of
500 or more contracts it represents as agent against contra orders
that it solicited. Each order entered into the Solicited Order
Mechanism shall be designated as all-or-none. See Options 3, Section
11(d).
\12\ The Facilitation Mechanism is a process by which an EAM can
execute a transaction wherein the EAM seeks to facilitate a block-
size order it represents as agent, and/or a transaction wherein the
EAM solicited interest to execute against a block-size order it
represents as agent. See Options 3, Section 11(b).
\13\ The PIM is a process by which an EAM can provide price
improvement opportunities for a transaction wherein the EAM seeks to
facilitate an order it represents as agent, and/or a transaction
wherein the EAM solicited interest to execute against an order it
represents as agent. See Options 3, Section 13.
\14\ See Options 7, Section 6.A.
\15\ 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 Options 1, Section
1(a)(37).
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At this time, the Exchange proposes to no longer provide the QCC
and Solicitation Rebate to solicited orders executed in PIM. The
Exchange has observed that few members have received this rebate, with
little associated volume.\16\ To effect this change, the Exchange
proposes to remove the reference to PIM in Section 6.A. In addition,
the Exchange proposes to add a new defined term ``Solicited Orders,''
which will encompass QCC orders and/or other solicited orders executed
in the Solicitation and Facilitation Mechanisms, and use this defined
term throughout Section 6.A to make clear what types of solicited
crossing orders will qualify the Member for the QCC and Solicitation
Rebate. The volume thresholds and applicable rebates will remain
unchanged under this proposal.
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\16\ For example, of the contract sides that qualified for the
QCC and Solicitation Rebate in March 2020, less than 1% of that
volume represented solicited PIM orders.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\17\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\18\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees, and
other charges among members and issuers and other persons using any
facility, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed changes to its Pricing Schedule are
reasonable 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 market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers' . . . .'' \19\
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\19\ NetCoalition v. SEC, 615 F.3d 525, 539 (DC Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities
[[Page 33233]]
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.'' \20\
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\20\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options 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. As such,
the proposal represents a reasonable attempt by the Exchange to
increase its liquidity and market share relative to its competitors.
Market Maker Plus
The Exchange believes that the proposed changes to its Market Maker
Plus program for SPY, QQQ, and IWM are reasonable and equitable for
several reasons. As noted above, the Exchange's proposal is intended to
fortify participation in this program and improve market quality on
ISE. The Exchange's proposal to lower the required percentage of time
spent at the NBBO to qualify for Market Maker Plus Tiers 1a and 1b will
improve the overall incentive to Market Makers to participate in this
program by making it easier for Market Makers to qualify for Market
Maker Plus in SPY, QQQ, and IWM. By broadening the Market Maker Plus in
this manner, the Exchange will encourage new participants in the
program and help ensure that existing Market Maker Plus participants
continue to qualify as such.
The Exchange will apply the proposed changes to SPY, QQQ, and IWM
as they are three of the most actively traded symbols on ISE, and the
Exchange therefore believes that incentivizing liquidity in these three
names will have a significant and beneficial impact on market quality
on the Exchange. Further, the Exchange believes that the proposed Tier
1a and Tier 1b qualifications for SPY, QQQ, and IWM will continue to
require Market Makers to quote at the NBBO for a significant percentage
of time in order to glean the benefits of the associated
incentives.\21\ For the foregoing reasons, the Exchange believes that
its proposal will further encourage Market Makers to maintain tight
markets in SPY, QQQ, and IWM, thereby increasing liquidity and
attracting additional order flow to the Exchange, which will benefit
all market participants in the quality of order interaction.
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\21\ As proposed, a Market Maker would need to be on the NBBO
50% to less than 65% of the time to qualify for the Tier 1a rebate
of $0.00, and 65% to less than 80% of the time for the Tier 1b
rebate of $0.05.
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The Exchange also believes that the proposed changes to the Market
Maker Plus program for SPY, QQQ, and IWM are not unfairly
discriminatory as all Market Makers can qualify for this program by
meeting the requirements that are designed to incentivize Market Makers
to maintain quality markets. In addition, the Exchange continues to
believe that it is not unfairly discriminatory to offer rebates under
this program to only Market Makers. Market Makers, and in particular,
those Market Makers that participate in the Market Maker Plus program
and achieve Market Maker Plus status, add value through continuous
quoting and are subject to additional requirements and obligations
(such as quoting obligations) that other market participants are not.
QCC and Solicitation Rebate
The Exchange believes that it is reasonable to no longer provide
the QCC and Solicitation Rebate to solicited orders executed in PIM. As
noted above, few Members have received this rebate for solicited PIM
orders, and related volume is low.\22\ As such, the Exchange believes
that the proposed elimination will have minimal impact on Members.
Furthermore, the Exchange notes that it already offers competitive
pricing for PIM orders. For instance, the Exchange currently assesses a
fee of $0.10 per contract for regular and complex PIM orders to all
market participants (other than Priority Customers for which the
Exchange currently charges no fee), which is significantly lower than
the Exchange's other transaction fees, including the fees assessed to
other Crossing Orders.\23\ Furthermore, this $0.10 per contract fee may
be further reduced if the non-Priority Customer executes a certain ADV
threshold in PIM in a given month.\24\ Accordingly, the Exchange
believes that its pricing structure for PIM, with the proposed changes,
will continue to encourage market participant PIM activity, including
solicited PIM activity, and will streamline its PIM incentive
structure.
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\22\ See supra note 16.
\23\ A ``Crossing Order'' is an order executed in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, PIM or submitted
as a QCC order. For purposes of this Pricing Schedule, orders
executed in the Block Order Mechanism are also considered Crossing
Orders. Today, the Exchange charges all non-Priority Customers a
$0.20 per contract fee for regular and complex Crossing Orders
except PIM orders. Priority Customers are not charged Crossing Order
fees. See Options 7, Section 3 and Section 4.
\24\ See Options 7, Section 3, note 13 (setting forth discounted
PIM fees for regular orders) and Section 4, note 9 (setting forth
discounted PIM fees for complex orders).
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The Exchange also believes that its proposal is equitable and not
unfairly discriminatory because with the proposed changes, no market
participant will receive the rebate for solicited PIM orders.
Accordingly, the Exchange's proposal will apply uniformly to all market
participants.
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 Exchange market
participant at a competitive disadvantage. The proposed changes to the
Market Maker Plus program for SPY, QQQ, and IWM are intended to improve
market quality by fortifying and encouraging participation in this
program. As discussed above, the Exchange believes that its proposal
will encourage all Market Makers to improve market quality by providing
significant quoting at the NBBO in SPY, QQQ, and IWM, which in turn
improves trading conditions for all market participants through
narrower bid-ask spreads and increased depth of liquidity available at
the inside market, thereby attracting additional order flow to the
Exchange. As it relates to the proposed elimination of the rebate for
solicited PIM orders, the Exchange believes that its proposal will
continue to encourage market participant activity in PIM given the
Exchange's competitive PIM pricing structure, as discussed above.
Accordingly, the Exchange believes that the proposed changes will
continue to attract order flow to the Exchange, thereby encouraging
additional volume and liquidity to the benefit of all market
participants.
In terms of inter-market competition, the Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee
[[Page 33234]]
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 options 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 \25\ and Rule 19b-4(f)(2) \26\ 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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\25\ 15 U.S.C. 78s(b)(3)(A)(ii).
\26\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-ISE-2020-20 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-2020-20. 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-2020-20 and should be submitted on
or before June 22, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11646 Filed 5-29-20; 8:45 am]
BILLING CODE 8011-01-P
