Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Market Maker Plus Program Under Options 7, Section 3, Regular Order Fees and Rebates, 80848-80852 [2020-27390]
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80848
Federal Register / Vol. 85, No. 240 / Monday, December 14, 2020 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27397 Filed 12–11–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90596; File No. SR–ISE–
2020–40]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the
Exchange’s Market Maker Plus
Program Under Options 7, Section 3,
Regular Order Fees and Rebates
December 8, 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 November
24, 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 Market Maker Plus program
under Options 7, Section 3, ‘‘Regular
Order Fees and Rebates.’’
The Exchange originally filed the
proposed pricing change on November
2, 2020 (SR–ISE–2020–36). On
November 12, 2020, the Exchange
withdrew SR–ISE–2020–36 and
submitted SR–ISE–2020–35 on
November 13, 2020. On November 24,
2020 the Exchange withdrew SR–ISE–
2020–35 and submitted this
replacement filing.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/ise/rules, 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 the
Market Maker Plus program under
Options 7, Section 3, ‘‘Regular Order
Fees and Rebates.’’ The purpose of the
proposed rule change is to amend
certain qualifications for Market Makers
to achieve Market Maker Plus status in
order to continue to incentivize Market
Makers to add liquidity on ISE.
Background
As set forth in Options 7, Section 3 of
the Pricing Schedule, the Exchange
operates a Market Maker Plus program
for regular orders in Select Symbols 3
and Non-Select Symbols 4 that provides
the below tiered rebates to Market
Makers 5 based on time spent quoting at
the National Best Bid or National Best
Offer (‘‘NBBO’’). This program is
designed to reward Market Makers that
contribute to market quality by
maintaining tight markets in Select and
Non-Select Symbols.
SELECT SYMBOLS OTHER THAN SPY, QQQ, IWM, AMZN, FB, AND NVDA
Market maker plus tier (specified percentage)
Maker rebate
Tier 1 (80% to less than 85%) ............................................................................................................................................................
Tier 2 (85% to less than 95%) ............................................................................................................................................................
Tier 3 (95% or greater) ........................................................................................................................................................................
($0.15)
(0.18)
(0.22)
SPY, QQQ, AND IWM
Regular maker
rebate
Market maker plus tier (specified percentage)
Tier
Tier
Tier
Tier
Tier
1a (50% to less than 65%) ..............................................................................................................................
1b (65% to less than 80%) ..............................................................................................................................
2 (80% to less than 85%) ................................................................................................................................
3 (85% to less than 90%) ................................................................................................................................
4 (90% or greater) ............................................................................................................................................
($0.00)
(0.05)
(0.18)
(0.22)
(0.26)
Linked maker
rebate (9) (12)
N/A
N/A
(0.15)
(0.19)
(0.23)
AMZN, FB, AND NVDA
Maker rebate (14)
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Market maker plus tier (specified percentage)
Tier 1 (70% to less than 85%) ............................................................................................................................................................
Tier 2 (85% to less than 95%) ............................................................................................................................................................
30 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 Nasdaq ISE that are in the
Penny Interval Program. See Options 7, Section 1.
4 ‘‘Non-Select Symbols’’ are options overlying all
symbols excluding Select Symbols. See Options 7,
Section 1.
1 15
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PO 00000
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($0.15)
(0.18)
5 The term ‘‘Market Makers’’ refers to
‘‘Competitive Market Makers’’ and ‘‘Primary Market
Makers’’ collectively. See Options 1, Section
1(a)(20).
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AMZN, FB, AND NVDA—Continued
Maker rebate (14)
Market maker plus tier (specified percentage)
Tier 3 (95% or greater) ........................................................................................................................................................................
(0.22)
NON-SELECT SYMBOLS (EXCLUDING INDEX OPTIONS) (7)
Maker fee/rebate
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) ........................................................................................................................................................................
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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. 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. If a Market
Maker would qualify for a different
Market Maker Plus tier in each of the
two successive 30 calendar day periods,
then the lower of the two Market Maker
Plus tier rebates shall apply to all
contracts.6
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 rebate.7
6 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.
7 In addition, the Exchange may exclude from any
member’s monthly Market Maker Plus tier
calculation any Unanticipated Event; provided that
the Exchange will only remove the day for members
that would have a lower time at the NBBO for the
specified series with the day included. See Options
7, Section 1(a)(2) for the definition of
‘‘Unanticipated Event.’’
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Proposal
The Exchange proposes to amend
Tiers 1b, 2, 3 and Tier 4 of the Market
Maker Plus qualifications for options
overlying SPY, QQQ and IWM. Today,
a Market Maker that is on the NBBO
65% to less than 80% of the time, on
average for the month based on daily
performance in the qualifying series,
qualifies for the SPY, QQQ and IWM
Tier 1b. Today, a Market Maker that is
on the NBBO 80% to less than 85% of
the time, on average for the month based
on daily performance in the qualifying
series, qualifies for the SPY, QQQ and
IWM Tier 2. Today, a Market Maker that
is on the NBBO 85% to less than 90%
of the time, on average for the month
based on daily performance in the
qualifying series, qualifies for the SPY,
QQQ and IWM Tier 3. Today, a Market
Maker that is on the NBBO 90% or
greater of the time, on average for the
month based on daily performance in
the qualifying series, qualifies for the
SPY, QQQ and IWM Tier 4.
The Exchange proposes to amend the
SPY, QQQ and IWM Market Maker Plus
qualifications for Tiers 1b, 2, 3 and Tier
4 by adding an alternative means to
qualify for these tiers. The Exchange
proposes for SPY, QQQ and IWM Tier
1b, that in addition to the current
qualification, a Market Maker that is on
the NBBO over 50% of the time, on
average for the month based on daily
performance in the qualifying series,
and adds liquidity in the qualifying
symbol that is executed at a volume of
greater than 0.10% of Customer Total
Consolidated Volume 8 may also qualify
for the SPY, QQQ and IWM Tier 1b. The
Exchange proposes for SPY, QQQ and
IWM Tier 2, that in addition to the
current qualification, a Market Maker
8 0.10% of Customer Total Consolidated Volume
is approximately 22,000 contracts per day.
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. See Options
7, Section 1(b).
PO 00000
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$0.50
0.30
(6) (0.40)
that is on the NBBO over 50% of the
time, on average for the month based on
daily performance in the qualifying
series, and adds liquidity in the
qualifying symbol that is executed at a
volume of greater than 0.20% of
Customer Total Consolidated Volume 9
may also qualify for the SPY, QQQ and
IWM Tier 2. The Exchange proposes for
SPY, QQQ and IWM Tier 3, that in
addition to the current qualification, a
Market Maker that is on the NBBO over
50% of the time, on average for the
month based on daily performance in
the qualifying series, and adds liquidity
in the qualifying symbol that is
executed at a volume of greater than
0.25% of Customer Total Consolidated
Volume 10 may also qualify for the SPY,
QQQ and IWM Tier 3. Additionally, the
Exchange proposes for SPY, QQQ and
IWM Tier 4, that in addition to the
current qualification, a Market Maker
that is on the NBBO over 50% of the
time, on average for the month based on
daily performance in the qualifying
series, and adds liquidity in the
qualifying symbol that is executed at a
volume of greater than 0.50% of
Customer Total Consolidated Volume 11
may also qualify for the SPY, QQQ and
IWM Tier 4.12 The Exchange believes
that these alternative qualifications for
SPY, QQQ and IWM Tiers 1b, 2, 3 and
4 will provide greater depth of liquidity
9 0.20% of Customer Total Consolidated Volume
is approximately 44,000 contracts per day.
10 0.25% of Customer Total Consolidated Volume
is approximately 55,000 contracts per day.
11 0.50% of Customer Total Consolidated Volume
is approximately 110,000 contracts per day.
12 For example, if a Market Maker adds 40,000
contracts of liquidity in SPY on ISE and the average
Customer Total Consolidated Volume for the month
is 20,000,000 per day, then the Market Maker would
have a percentage of 0.20% (40,000 divided by
20,000,000) of Customer Total Consolidated
Volume and would qualify for Tier 2 in SPY and
would be entitled to the $0.18 per contract Regular
Maker Rebate and the $0.15 per contract Linked
Maker Rebate. The Exchange arrives at 40,000
contracts by accumulating all executed volume that
added liquidity (including quotes and orders) by a
particular Market Maker Participant in SPY.
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in SPY, QQQ and IWM, and, in turn,
attract additional volume on ISE.
No rate changes are proposed for SPY,
QQQ and IWM Tiers 1b, 2, 3 or 4 for the
Regular Maker Rebate or the Linked
Maker Rebate.
The Exchange also proposes to add a
period at the end of Options 7, Section
3 after note 18 in the Pricing Schedule.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,13 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,14 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’. . ..’’ 15
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
13 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
15 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)).
14 15
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broader forms that are most important to
investors and listed companies.’’ 16
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.
The Exchange’s proposal to amend
the SPY, QQQ and IWM Tiers 1b, 2, 3
and Tier 4 qualifications by adding an
alternative means 17 to qualify for these
tiers is reasonable. With respect to SPY,
QQQ and IWM, Market Makers may
continue to qualify for Tier 1b, by being
on the NBBO 65% to less than 80% of
the time, on average for the month based
on daily performance in the qualifying
series. Likewise, Market Makers may
continue to qualify for SPY, QQQ and
IWM Tier 2, by being on the NBBO 80%
to less than 85% of the time, on average
for the month based on daily
performance in the qualifying series.
Market Makers may continue to qualify
for SPY, QQQ and IWM Tier 3 by being
16 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
17 The Exchange proposes for SPY, QQQ and
IWM Tier 1b, that in addition to the current
qualification, a Market Maker that is on the NBBO
over 50% of the time, on average for the month
based on daily performance in the qualifying series,
and adds liquidity in the qualifying symbol that is
executed at a volume of greater than 0.10% of
Customer Total Consolidated Volume may also
qualify for the SPY, QQQ and IWM Tier 1b. The
Exchange proposes for SPY, QQQ and IWM Tier 2,
that in addition to the current qualification, a
Market Maker that is on the NBBO over 50% of the
time, on average for the month based on daily
performance in the qualifying series, and adds
liquidity in the qualifying symbol that is executed
at a volume of greater than 0.20% of Customer Total
Consolidated Volume may also qualify for the SPY,
QQQ and IWM Tier 2. The Exchange proposes for
SPY, QQQ and IWM Tier 3, that in addition to the
current qualification, a Market Maker that is on the
NBBO over 50% of the time, on average for the
month based on daily performance in the qualifying
series, and adds liquidity in the qualifying symbol
that is executed at a volume of greater than 0.25%
of Customer Total Consolidated Volume may also
qualify for the SPY, QQQ and IWM Tier 3.
Additionally, the Exchange proposes for SPY, QQQ
and IWM Tier 4, that in addition to the current
qualification, a Market Maker that is on the NBBO
over 50% of the time, on average for the month
based on daily performance in the qualifying series,
and adds liquidity in the qualifying symbol that is
executed at a volume of greater than 0.50% of
Customer Total Consolidated Volume may also
qualify for the SPY, QQQ and IWM Tier 4.
PO 00000
Frm 00090
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on the NBBO 85% to less than 90% of
the time, on average for the month based
on daily performance in the qualifying
series. Finally, Market Makers may
continue to qualify for SPY, QQQ and
IWM Tier 4 by being on the NBBO 90%
or greater of the time, on average for the
month based on daily performance in
the qualifying series. In summary,
Market Makers that met the SPY, QQQ
and IWM Tier 1b, 2, 3 or 4 qualifications
last month would continue to qualify for
those tiers, provided each trading day
they continued to spend the same
percentage of time on the NBBO for
qualifying series. With this proposal, the
Exchange believes that these alternative
qualifications for SPY, QQQ and IWM
in Tiers 1b, 2, 3 and 4 will provide an
opportunity for Market Makers to
contribute greater depth of liquidity in
SPY, QQQ and IWM on ISE, and, in
turn, attract additional customer volume
on ISE. The Exchange notes that the
alternative qualifications, which require
that Market Makers add liquidity in
Customer volume, will incentivize
Marker Makers to tighten their quotes to
execute against an increased number of
orders, which benefits all Members who
may interact with that interest on ISE’s
Order Book.
The Exchange’s proposal to amend
the SPY, QQQ and IWM Tiers 1b, 2, 3
and Tier 4 qualifications by adding an
alternative means to qualify for these
tiers is equitable and not unfairly
discriminatory. The proposal would
continue to require Market Makers who
qualify for the Market Maker Plus
program to quote significantly at the
NBBO, thereby continuing to contribute
to market quality in a meaningful way.
All Market Makers will be subject to the
same qualification criteria for Market
Maker Plus. The Exchange also
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 18 and are subject to additional
requirements and obligations (such as
quoting obligations) 19 that other market
participants are not.
The Exchange will apply the
proposed changes to SPY, QQQ, and
IWM as they are three of the most
actively traded symbols on ISE. The
Exchange believes that providing an
alternative means for Market Makers to
qualify for Market Maker Plus tiers will
18 See
19 See
Options 2, Section 5.
Options 2, Section 4 and Options 3, Section
8(c).
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incentivize additional liquidity in these
three names, which will have a
beneficial impact on market quality on
the Exchange. Further, the Exchange
believes that the proposed new Tier 1b,
2, 3 and 4 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. 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 and, will benefit all
market participants in the quality of
order interaction.
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.
Inter-Market Competition
The proposal does not impose an
undue burden on inter-market
competition. The Exchange believes its
proposal remains competitive with
other options markets and will offer
market participants with another choice
of where to transact options. The
Exchange notes that it operates in a
highly competitive market in which
market participants can readily favor
competing venues if they deem fee
levels at a particular venue to be
excessive, or rebate opportunities
available at other venues to be more
favorable. In such an environment, the
Exchange must continually adjust its
fees to remain competitive with other
exchanges that have been exempted
from compliance with the statutory
standards applicable to exchanges.
Because competitors are free to modify
their own fees in response, and because
market participants may readily adjust
their order routing practices, the
Exchange believes that the degree to
which fee changes in this market may
impose any burden on competition is
extremely limited.
Intra-Market Competition
The Exchange’s proposal to amend
the SPY, QQQ and IWM Tiers 1b, 2, 3
and Tier 4 qualifications by adding an
alternative means 20 to qualify for these
tiers does not impose an undue burden
on competition. The proposal would
continue to require Market Makers who
qualify for the Market Maker Plus
program to quote significantly at the
NBBO, thereby continuing to contribute
to market quality in a meaningful way.
All Market Makers will be subject to the
same qualification criteria for Market
Maker Plus. The Exchange also
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 21 and are subject to additional
requirements and obligations (such as
quoting obligations 22) that other market
participants are not.
The Exchange will apply the
proposed changes to SPY, QQQ, and
IWM as they are three of the most
actively traded symbols on ISE. The
Exchange believes that providing an
alternative means for Market Makers to
qualify for Market Maker Plus tiers will
incentivize additional liquidity in these
three names which will have a
beneficial impact on market quality on
the Exchange. Further, the Exchange
believes that the proposed new Tier 1b,
2, 3 and 4 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. 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.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act 23 and Rule
19b–4(f)(2) 24 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is: (i)
Necessary or appropriate in the public
21 See
22 See
8(c).
23 15
20 See
note 17 above.
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Options 2, Section 5.
Options 2, Section 4 and Options 3, Section
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
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80851
interest; (ii) for the protection of
investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ISE–2020–40 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–2020–40. 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
E:\FR\FM\14DEN1.SGM
14DEN1
80852
Federal Register / Vol. 85, No. 240 / Monday, December 14, 2020 / Notices
Number SR–ISE–2020–40 and should be
submitted on or before January 4, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27390 Filed 12–11–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90606; File No. SR–NSCC–
2020–020]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change to Establish
Implementation Date of National
Securities Clearing Corporation’s
Enhancements to the Haircut-Based
Volatility Charge Applicable to Illiquid
Securities and UITs and Making
Certain Other Changes to Procedure
XV
December 8, 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 December
7, 2020, National Securities Clearing
Corporation (‘‘NSCC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the clearing agency. NSCC filed the
proposed rule change pursuant to
Section 19(b)(3)(A) 3 of the Act and
subparagraph (f)(4) 4 of Rule 19b–4
thereunder. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change consists of
amendments to the NSCC Rules &
Procedures (the ‘‘Rules’’) 5 in order to
establish order to establish the
implementation date of rule changes
submitted pursuant to rule filing SR–
jbell on DSKJLSW7X2PROD with NOTICES
25 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(4).
5 Capitalized terms not defined herein are defined
in the Rules, available at
https://dtcc.com/∼/media/Files/Downloads/legal/
rules/nscc_rules.pdf.
1 15
VerDate Sep<11>2014
02:51 Dec 12, 2020
Jkt 253001
NSCC–2020–003 (‘‘Rule Filing’’) 6 and
advance notice SR–NSCC–2020–802
(‘‘Advance Notice’’).7
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency 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
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
On November 6, 2020, the Securities
and Exchange Commission (the
‘‘Commission’’) issued a notice of no
objection to the Advance Notice,8 which
was filed with the Commission pursuant
to Section 806(e)(1) of Title VIII of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act entitled the
Payment, Clearing, and Settlement
Supervision Act of 2010 9 and Rule 19b–
4(n)(1)(i) of the Act.10 The Commission
also issued an order approving the Rule
Filing on November 24, 2020,11 which
was filed by NSCC pursuant to Section
19(b)(2) of the Act.12
The purpose of the Rule Filing and
the Advance Notice is to amend the
Rules to enhance the calculation of
certain components of the Clearing
Fund formula.
NSCC is filing this proposed rule
change to establish the rule changes
submitted pursuant to the Rule Filing
and the Advance Notice will be
implemented by February 28, 2021.
NSCC would add a legend to Rule 1
(Definitions and Descriptions) of the
Rules (‘‘Rule 1’’) 13 and Procedure XV
(Clearing Fund Formula and Other
Matters) of the Rules (‘‘Procedure
6 See Securities Exchange Act Release No. 88474
(March 25, 2020), 85 FR 17910 (March 31, 2020)
(SR–NSCC–2020–003).
7 See Securities Exchange Act Release No. 88615
(April 9, 2020), 85 FR 21037 (April 15, 2020) (SR–
NSCC–2020–802).
8 See Securities Exchange Act Release No. 90367
(November 6, 2020) 85 FR 73099 (November 16,
2020) (SR–NSCC–2020–802).
9 12 U.S.C. 5465(e)(1).
10 17 CFR 240.19b–4(n)(1)(i).
11 See Securities Exchange Act Release No. 90502
(November 24, 2020) (SR–NSCC–2020–003).
12 15 U.S.C. 78s(b)(2).
13 Rule 1, supra note 5.
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
XV’’) 14 to state that the rule changes
submitted pursuant to the Rule Filing
and the Advance Notice have been
approved and not objected to,
respectively, but are not yet
implemented. The legends would
provide that these rule changes would
be implemented by February 28, 2021
and include the file numbers of the Rule
Filing and the Advance Notice. The
legends would also state that when the
rule changes are implemented, NSCC
will announce the implementation by
important notice and the legends would
automatically be removed from Rule 1
and Procedure XV.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act
requires, in part, that the Rules be
designed to (i) promote the prompt and
accurate clearance and settlement of
securities transactions and (ii) remove
impediments to and perfect the
mechanism of a national system for the
prompt and accurate clearance and
settlement of securities transactions,
and, in general, to protect investors and
the public interest.15 The proposed rule
change would establish the
implementation date of rule changes
described above and provide Members
with an understanding of when these
rule changes will begin to affect them.
Knowing when the rule changes will
begin to affect Members would enable
them to timely fulfill their obligations to
NSCC, which would in turn ensure
NSCC’s processes work as intended.
Therefore, NSCC believes that the
proposed rule change would promote
the prompt and accurate clearance and
settlement of securities transactions as
well as remove impediments to and
perfect the mechanism of a national
system for the prompt and accurate
clearance and settlement of securities
transactions, consistent with Section
17A(b)(3)(F) of the Act cited above.
(B) Clearing Agency’s Statement on
Burden on Competition
NSCC does not believe that the
proposed rule change to establish an
implementation date for the rule
changes described above would have
any impact, or impose any burden, on
competition because the proposed rule
change is intended to provide additional
clarity in the Rules with respect to when
these rule changes would be
implemented. As such, the proposed
rule change would not affect the rights
or obligations of the Members or NSCC
other than establishing when the rule
14 Procedure
15 15
E:\FR\FM\14DEN1.SGM
XV, supra note 5.
U.S.C. 78q–1(b)(3)(F).
14DEN1
]]>Agencies
[Federal Register Volume 85, Number 240 (Monday, December 14, 2020)]
[Notices]
[Pages 80848-80852]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27390]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90596; File No. SR-ISE-2020-40]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Market Maker Plus Program Under Options 7, Section 3,
Regular Order Fees and Rebates
December 8, 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 November 24, 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 Market Maker Plus
program under Options 7, Section 3, ``Regular Order Fees and Rebates.''
The Exchange originally filed the proposed pricing change on
November 2, 2020 (SR-ISE-2020-36). On November 12, 2020, the Exchange
withdrew SR-ISE-2020-36 and submitted SR-ISE-2020-35 on November 13,
2020. On November 24, 2020 the Exchange withdrew SR-ISE-2020-35 and
submitted this replacement filing.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, 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 the Market Maker Plus program under
Options 7, Section 3, ``Regular Order Fees and Rebates.'' The purpose
of the proposed rule change is to amend certain qualifications for
Market Makers to achieve Market Maker Plus status in order to continue
to incentivize Market Makers to add liquidity on ISE.
Background
As set forth in Options 7, Section 3 of the Pricing Schedule, the
Exchange operates a Market Maker Plus program for regular orders in
Select Symbols \3\ and Non-Select Symbols \4\ that provides the below
tiered rebates to Market Makers \5\ based on time spent quoting at the
National Best Bid or National Best Offer (``NBBO''). This program is
designed to reward Market Makers that contribute to market quality by
maintaining tight markets in Select and Non-Select Symbols.
---------------------------------------------------------------------------
\3\ ``Select Symbols'' are options overlying all symbols listed
on the Nasdaq ISE that are in the Penny Interval Program. See
Options 7, Section 1.
\4\ ``Non-Select Symbols'' are options overlying all symbols
excluding Select Symbols. See Options 7, Section 1.
\5\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See Options 1,
Section 1(a)(20).
Select Symbols Other Than SPY, QQQ, IWM, AMZN, FB, and NVDA
------------------------------------------------------------------------
Market maker plus tier (specified percentage) Maker rebate
------------------------------------------------------------------------
Tier 1 (80% to less than 85%)........................... ($0.15)
Tier 2 (85% to less than 95%)........................... (0.18)
Tier 3 (95% or greater)................................. (0.22)
------------------------------------------------------------------------
SPY, QQQ, and IWM
------------------------------------------------------------------------
Linked maker
Market maker plus tier (specified Regular maker rebate (9)
percentage) rebate (12)
------------------------------------------------------------------------
Tier 1a (50% to less than 65%).......... ($0.00) N/A
Tier 1b (65% to less than 80%).......... (0.05) N/A
Tier 2 (80% to less than 85%)........... (0.18) (0.15)
Tier 3 (85% to less than 90%)........... (0.22) (0.19)
Tier 4 (90% or greater)................. (0.26) (0.23)
------------------------------------------------------------------------
AMZN, FB, and NVDA
------------------------------------------------------------------------
Maker rebate
Market maker plus tier (specified percentage) \(14)\
------------------------------------------------------------------------
Tier 1 (70% to less than 85%)........................... ($0.15)
Tier 2 (85% to less than 95%)........................... (0.18)
[[Page 80849]]
Tier 3 (95% or greater)................................. (0.22)
------------------------------------------------------------------------
Non-Select Symbols (Excluding Index Options) \(7)\
------------------------------------------------------------------------
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)................................. \(6)\ (0.40)
------------------------------------------------------------------------
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. 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. If a Market Maker
would qualify for a different Market Maker Plus tier in each of the two
successive 30 calendar day periods, then the lower of the two Market
Maker Plus tier rebates shall apply to all contracts.\6\
---------------------------------------------------------------------------
\6\ 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.
---------------------------------------------------------------------------
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 rebate.\7\
---------------------------------------------------------------------------
\7\ In addition, the Exchange may exclude from any member's
monthly Market Maker Plus tier calculation any Unanticipated Event;
provided that the Exchange will only remove the day for members that
would have a lower time at the NBBO for the specified series with
the day included. See Options 7, Section 1(a)(2) for the definition
of ``Unanticipated Event.''
---------------------------------------------------------------------------
Proposal
The Exchange proposes to amend Tiers 1b, 2, 3 and Tier 4 of the
Market Maker Plus qualifications for options overlying SPY, QQQ and
IWM. Today, a Market Maker that is on the NBBO 65% to less than 80% of
the time, on average for the month based on daily performance in the
qualifying series, qualifies for the SPY, QQQ and IWM Tier 1b. Today, a
Market Maker that is on the NBBO 80% to less than 85% of the time, on
average for the month based on daily performance in the qualifying
series, qualifies for the SPY, QQQ and IWM Tier 2. Today, a Market
Maker that is on the NBBO 85% to less than 90% of the time, on average
for the month based on daily performance in the qualifying series,
qualifies for the SPY, QQQ and IWM Tier 3. Today, a Market Maker that
is on the NBBO 90% or greater of the time, on average for the month
based on daily performance in the qualifying series, qualifies for the
SPY, QQQ and IWM Tier 4.
The Exchange proposes to amend the SPY, QQQ and IWM Market Maker
Plus qualifications for Tiers 1b, 2, 3 and Tier 4 by adding an
alternative means to qualify for these tiers. The Exchange proposes for
SPY, QQQ and IWM Tier 1b, that in addition to the current
qualification, a Market Maker that is on the NBBO over 50% of the time,
on average for the month based on daily performance in the qualifying
series, and adds liquidity in the qualifying symbol that is executed at
a volume of greater than 0.10% of Customer Total Consolidated Volume
\8\ may also qualify for the SPY, QQQ and IWM Tier 1b. The Exchange
proposes for SPY, QQQ and IWM Tier 2, that in addition to the current
qualification, a Market Maker that is on the NBBO over 50% of the time,
on average for the month based on daily performance in the qualifying
series, and adds liquidity in the qualifying symbol that is executed at
a volume of greater than 0.20% of Customer Total Consolidated Volume
\9\ may also qualify for the SPY, QQQ and IWM Tier 2. The Exchange
proposes for SPY, QQQ and IWM Tier 3, that in addition to the current
qualification, a Market Maker that is on the NBBO over 50% of the time,
on average for the month based on daily performance in the qualifying
series, and adds liquidity in the qualifying symbol that is executed at
a volume of greater than 0.25% of Customer Total Consolidated Volume
\10\ may also qualify for the SPY, QQQ and IWM Tier 3. Additionally,
the Exchange proposes for SPY, QQQ and IWM Tier 4, that in addition to
the current qualification, a Market Maker that is on the NBBO over 50%
of the time, on average for the month based on daily performance in the
qualifying series, and adds liquidity in the qualifying symbol that is
executed at a volume of greater than 0.50% of Customer Total
Consolidated Volume \11\ may also qualify for the SPY, QQQ and IWM Tier
4.\12\ The Exchange believes that these alternative qualifications for
SPY, QQQ and IWM Tiers 1b, 2, 3 and 4 will provide greater depth of
liquidity
[[Page 80850]]
in SPY, QQQ and IWM, and, in turn, attract additional volume on ISE.
---------------------------------------------------------------------------
\8\ 0.10% of Customer Total Consolidated Volume is approximately
22,000 contracts per day. 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. See Options 7, Section 1(b).
\9\ 0.20% of Customer Total Consolidated Volume is approximately
44,000 contracts per day.
\10\ 0.25% of Customer Total Consolidated Volume is
approximately 55,000 contracts per day.
\11\ 0.50% of Customer Total Consolidated Volume is
approximately 110,000 contracts per day.
\12\ For example, if a Market Maker adds 40,000 contracts of
liquidity in SPY on ISE and the average Customer Total Consolidated
Volume for the month is 20,000,000 per day, then the Market Maker
would have a percentage of 0.20% (40,000 divided by 20,000,000) of
Customer Total Consolidated Volume and would qualify for Tier 2 in
SPY and would be entitled to the $0.18 per contract Regular Maker
Rebate and the $0.15 per contract Linked Maker Rebate. The Exchange
arrives at 40,000 contracts by accumulating all executed volume that
added liquidity (including quotes and orders) by a particular Market
Maker Participant in SPY.
---------------------------------------------------------------------------
No rate changes are proposed for SPY, QQQ and IWM Tiers 1b, 2, 3 or
4 for the Regular Maker Rebate or the Linked Maker Rebate.
The Exchange also proposes to add a period at the end of Options 7,
Section 3 after note 18 in the Pricing Schedule.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\13\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ 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.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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'. . ..'' \15\
---------------------------------------------------------------------------
\15\ 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.'' \16\
---------------------------------------------------------------------------
\16\ 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
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.
The Exchange's proposal to amend the SPY, QQQ and IWM Tiers 1b, 2,
3 and Tier 4 qualifications by adding an alternative means \17\ to
qualify for these tiers is reasonable. With respect to SPY, QQQ and
IWM, Market Makers may continue to qualify for Tier 1b, by being on the
NBBO 65% to less than 80% of the time, on average for the month based
on daily performance in the qualifying series. Likewise, Market Makers
may continue to qualify for SPY, QQQ and IWM Tier 2, by being on the
NBBO 80% to less than 85% of the time, on average for the month based
on daily performance in the qualifying series. Market Makers may
continue to qualify for SPY, QQQ and IWM Tier 3 by being on the NBBO
85% to less than 90% of the time, on average for the month based on
daily performance in the qualifying series. Finally, Market Makers may
continue to qualify for SPY, QQQ and IWM Tier 4 by being on the NBBO
90% or greater of the time, on average for the month based on daily
performance in the qualifying series. In summary, Market Makers that
met the SPY, QQQ and IWM Tier 1b, 2, 3 or 4 qualifications last month
would continue to qualify for those tiers, provided each trading day
they continued to spend the same percentage of time on the NBBO for
qualifying series. With this proposal, the Exchange believes that these
alternative qualifications for SPY, QQQ and IWM in Tiers 1b, 2, 3 and 4
will provide an opportunity for Market Makers to contribute greater
depth of liquidity in SPY, QQQ and IWM on ISE, and, in turn, attract
additional customer volume on ISE. The Exchange notes that the
alternative qualifications, which require that Market Makers add
liquidity in Customer volume, will incentivize Marker Makers to tighten
their quotes to execute against an increased number of orders, which
benefits all Members who may interact with that interest on ISE's Order
Book.
---------------------------------------------------------------------------
\17\ The Exchange proposes for SPY, QQQ and IWM Tier 1b, that in
addition to the current qualification, a Market Maker that is on the
NBBO over 50% of the time, on average for the month based on daily
performance in the qualifying series, and adds liquidity in the
qualifying symbol that is executed at a volume of greater than 0.10%
of Customer Total Consolidated Volume may also qualify for the SPY,
QQQ and IWM Tier 1b. The Exchange proposes for SPY, QQQ and IWM Tier
2, that in addition to the current qualification, a Market Maker
that is on the NBBO over 50% of the time, on average for the month
based on daily performance in the qualifying series, and adds
liquidity in the qualifying symbol that is executed at a volume of
greater than 0.20% of Customer Total Consolidated Volume may also
qualify for the SPY, QQQ and IWM Tier 2. The Exchange proposes for
SPY, QQQ and IWM Tier 3, that in addition to the current
qualification, a Market Maker that is on the NBBO over 50% of the
time, on average for the month based on daily performance in the
qualifying series, and adds liquidity in the qualifying symbol that
is executed at a volume of greater than 0.25% of Customer Total
Consolidated Volume may also qualify for the SPY, QQQ and IWM Tier
3. Additionally, the Exchange proposes for SPY, QQQ and IWM Tier 4,
that in addition to the current qualification, a Market Maker that
is on the NBBO over 50% of the time, on average for the month based
on daily performance in the qualifying series, and adds liquidity in
the qualifying symbol that is executed at a volume of greater than
0.50% of Customer Total Consolidated Volume may also qualify for the
SPY, QQQ and IWM Tier 4.
---------------------------------------------------------------------------
The Exchange's proposal to amend the SPY, QQQ and IWM Tiers 1b, 2,
3 and Tier 4 qualifications by adding an alternative means to qualify
for these tiers is equitable and not unfairly discriminatory. The
proposal would continue to require Market Makers who qualify for the
Market Maker Plus program to quote significantly at the NBBO, thereby
continuing to contribute to market quality in a meaningful way. All
Market Makers will be subject to the same qualification criteria for
Market Maker Plus. The Exchange also 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 \18\ and are
subject to additional requirements and obligations (such as quoting
obligations) \19\ that other market participants are not.
---------------------------------------------------------------------------
\18\ See Options 2, Section 5.
\19\ See Options 2, Section 4 and Options 3, Section 8(c).
---------------------------------------------------------------------------
The Exchange will apply the proposed changes to SPY, QQQ, and IWM
as they are three of the most actively traded symbols on ISE. The
Exchange believes that providing an alternative means for Market Makers
to qualify for Market Maker Plus tiers will
[[Page 80851]]
incentivize additional liquidity in these three names, which will have
a beneficial impact on market quality on the Exchange. Further, the
Exchange believes that the proposed new Tier 1b, 2, 3 and 4
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. 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 and, will benefit all market participants in the quality
of order interaction.
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.
Inter-Market Competition
The proposal does not impose an undue burden on inter-market
competition. The Exchange believes its proposal remains competitive
with other options markets and will offer market participants with
another choice of where to transact options. The Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges that have been exempted from compliance with the statutory
standards applicable to exchanges. Because competitors are free to
modify their own fees in response, and because market participants may
readily adjust their order routing practices, the Exchange believes
that the degree to which fee changes in this market may impose any
burden on competition is extremely limited.
Intra-Market Competition
The Exchange's proposal to amend the SPY, QQQ and IWM Tiers 1b, 2,
3 and Tier 4 qualifications by adding an alternative means \20\ to
qualify for these tiers does not impose an undue burden on competition.
The proposal would continue to require Market Makers who qualify for
the Market Maker Plus program to quote significantly at the NBBO,
thereby continuing to contribute to market quality in a meaningful way.
All Market Makers will be subject to the same qualification criteria
for Market Maker Plus. The Exchange also 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 \21\ and
are subject to additional requirements and obligations (such as quoting
obligations \22\) that other market participants are not.
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\20\ See note 17 above.
\21\ See Options 2, Section 5.
\22\ See Options 2, Section 4 and Options 3, Section 8(c).
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The Exchange will apply the proposed changes to SPY, QQQ, and IWM
as they are three of the most actively traded symbols on ISE. The
Exchange believes that providing an alternative means for Market Makers
to qualify for Market Maker Plus tiers will incentivize additional
liquidity in these three names which will have a beneficial impact on
market quality on the Exchange. Further, the Exchange believes that the
proposed new Tier 1b, 2, 3 and 4 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. 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \23\ and Rule 19b-4(f)(2) \24\ thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is: (i) Necessary or
appropriate in the public interest; (ii) for the protection of
investors; or (iii) otherwise in furtherance of the purposes of the
Act. If the Commission takes such action, the Commission shall
institute proceedings to determine whether the proposed rule should be
approved or disapproved.
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\23\ 15 U.S.C. 78s(b)(3)(A)(ii).
\24\ 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-2020-40 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-2020-40. 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
[[Page 80852]]
Number SR-ISE-2020-40 and should be submitted on or before January 4,
2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27390 Filed 12-11-20; 8:45 am]
BILLING CODE 8011-01-P
