Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend ISE Options 7, Section 4, 387-393 [2022-28544]
Download as PDF
<![CDATA[
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–MIAX–2022–47 and should
be submitted on or before January 25,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
J. Matthew DeLesDernier,
Deputy Secretary.
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:
[FR Doc. 2022–28545 Filed 1–3–23; 8:45 am]
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–
MIAX–2022–47 on the subject line.
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend ISE Options 7,
Section 4
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–MIAX–2022–47. 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
VerDate Sep<11>2014
16:55 Jan 03, 2023
Jkt 259001
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 96587; File No. SR–ISE–2022–
29]
December 28, 2022.
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
13, 2022, 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
ISE’s Pricing Schedule at Options 7,
Section 4.3
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
39 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Exchange originally filed SR–ISE–2022–27
on December 1, 2022. On December 13, 2022, the
Exchange withdrew SR–ISE–2022–27 and
submitted this rule change.
1 15
PO 00000
Frm 00050
Fmt 4703
Sfmt 4703
387
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
ISE’s Pricing Schedule at Options 7,
Section 4, Complex Order Fees and
Rebates. The Exchange proposes to: (1)
increase Complex Order Priority
Customer 4 Rebates for Select Symbols 5
and Non-Select Symbols; 6 (2) increase
Complex Order Taker Fees for NonSelect Symbols; and (3) amend notes 3
and 8 of Options 7, Section 4 related to
Complex Orders. Each change will be
described below.
Complex Order Priority Customer
Rebates
The Exchange proposes to amend
Tiers 6 through 10 of the Complex Order
Priority Customer Rebates for Select
Symbols and Non-Select Symbols. The
Exchange currently offers Members
Complex Order Priority Customer
Rebates based on a percentage of Total
Affiliated Member or Affiliated Entity
Complex Order Volume (excluding
Crossing Orders 7 and Responses to
Crossing Orders 8) Calculated as a
Percentage of Customer Total
Consolidated Volume. The Exchange
4 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 ISE Options 1,
Section 1(a)(37). Unless otherwise noted, the term
‘‘Priority Customer’’ includes ‘‘Retail.’’ See Options
7, Section 1(c).
5 ‘‘Select Symbols’’ are options overlying all
symbols listed on the Nasdaq ISE that are in the
Penny Interval Program. See Options 7, Section
1(c).
6 ‘‘Non-Select Symbols’’ are options overlying all
symbols excluding Select Symbols. See Options 7,
Section 1(c).
7 A ‘‘Crossing Order’’ is an order executed in the
Exchange’s Facilitation Mechanism, Solicited Order
Mechanism, Price Improvement Mechanism (PIM)
or submitted as a Qualified Contingent Cross order.
For purposes of this Pricing Schedule, orders
executed in the Block Order Mechanism are also
considered Crossing Orders. See Options 7, Section
1(c).
8 ‘‘Responses to Crossing Order’’ is any contraside interest submitted after the commencement of
an auction in the Exchange’s Facilitation
Mechanism, Solicited Order Mechanism, Block
Order Mechanism or PIM. See Options 7, Section
1(c).
E:\FR\FM\04JAN1.SGM
04JAN1
388
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Notices
offers ten tiers of Complex Order
rebates. Currently, the Priority Customer
Rebates for Select Symbols and Non-
Select Symbols for Complex Orders are
as follows:
PRIORITY CUSTOMER REBATES
Total affiliated member or affiliated entity complex order volume
(excluding crossing orders and responses to crossing orders)
calculated as a percentage of customer total consolidated volume
Priority customer
complex tier
Tier
Tier
Tier
Tier
Tier
Tier
Tier
Tier
Tier
Tier
1 ....................
2 ....................
3 ....................
4 ....................
5 ....................
6 ....................
7 ....................
8 ....................
9 ....................
10 ..................
Rebate for
select
symbols
0.000%–0.200% ............................................................................................................................
Above 0.200%–0.400% .................................................................................................................
Above 0.400%–0.450% .................................................................................................................
Above 0.450%–0.750% .................................................................................................................
Above 0.750%–1.000% .................................................................................................................
Above 1.000%–1.350% .................................................................................................................
Above 1.350%–1.750% .................................................................................................................
Above 1.750%–2.750% .................................................................................................................
Above 2.750%–4.500% .................................................................................................................
Above 4.500% ...............................................................................................................................
The Exchange proposes to amend
Complex Order Priority Customer
Rebate Tiers 6 through Tier 10 for both
Select Symbols and Non-Select
Symbols. With this proposal, the
Exchange would increase the Complex
Order Priority Customer Rebates for
Select Symbols as follows: Tier 6 would
increase from $0.47 to $0.48 per
contract, Tier 7 would increase from
$0.48 to $0.51 per contract, Tier 8
would increase from $0.52 to $0.55 per
contract, Tier 9 would increase from
$0.52 to $0.56 per contract, and Tier 10
would increase from $0.53 to $0.57 per
contract. Also, the Exchange would
increase the Complex Order Priority
Customer Rebates for Non-Select
Symbols as follows: Tier 6 would
increase from $0.80 to $0.85 per
contract, Tier 7 would increase from
$0.80 to $0.92 per contract, Tier 8
would increase from $0.85 to $1.03 per
contract, Tier 9 would increase from
($0.25)
(0.30)
(0.35)
(0.40)
(0.45)
(0.47)
(0.48)
(0.52)
(0.52)
(0.53)
Rebate for
non-select
symbols
($0.40)
(0.55)
(0.70)
(0.75)
(0.80)
(0.80)
(0.80)
(0.85)
(0.86)
(0.88)
$0.86 to $1.04 per contract, and Tier 10
would increase from $0.88 to $1.05 per
contract. The Exchange believes that
these increased Complex Order Priority
Customer Rebates will attract more
Complex Order flow to ISE.
Complex Order Maker and Taker Fees
Today, the Exchange assesses the
following Complex Order Maker and
Taker Fees:
MAKER AND TAKER FEES
Maker
fee for
select
symbols
Market participant
Market Maker ...................................................................
Non-Nasdaq ISE Market Maker (FarMM) ........................
Firm Proprietary/Broker-Dealer ........................................
Professional Customer .....................................................
Priority Customer .............................................................
khammond on DSKJM1Z7X2PROD with NOTICES
The Exchange proposes to increase
the Complex Order Taker Fees for NonSelect Symbols. Specifically, the
Exchange proposes to increase the
Complex Order Taker Fees for NonSelect Symbols as follows: Market
Maker 9 from $0.86 to $0.98 per
contract, Non-Nasdaq ISE Market Maker
(FarMM) 10 from $0.88 to $0.98 per
9 The
term ‘‘Market Makers’’ refers to
‘‘Competitive Market Makers’’ and ‘‘Primary Market
Makers’’ collectively. See Options 1, Section
1(a)(21).
10 A ‘‘Non-Nasdaq ISE Market Maker’’ is a market
maker as defined in Section 3(a)(38) of the
Securities Exchange Act of 1934, as amended,
registered in the same options class on another
options exchange. See ISE Options 7, Section 1(c).
VerDate Sep<11>2014
16:55 Jan 03, 2023
Jkt 259001
$0.10
0.20
0.10
0.10
0.00
Maker
fee for
non-select
symbols
$0.20
0.20
0.20
0.20
0.00
Maker fee
for select
symbols
when trading
against
priority
customer
$0.50
0.50
0.50
0.50
0.00
contract, Firm Proprietary 11/BrokerDealer 12 from $0.88 to $0.98 per
contract, and Professional Customer 13
from $0.88 to $0.98 per contract.
Priority Customers would continue to be
assessed no Complex Order Taker Fees
for Non-Select Symbols. The Exchange’s
proposal would increase Complex Order
Taker Fees in Non-Select Symbols for
11 A ‘‘Firm Proprietary’’ order is an order
submitted by a member for its own proprietary
account. See ISE Options 7, Section 1(c).
12 A ‘‘Broker-Dealer’’ order is an order submitted
by a member for a broker-dealer account that is not
its own proprietary account. See ISE Options 7,
Section 1(c).
13 A ‘‘Professional Customer’’ is a person or entity
that is not a broker/dealer and is not a Priority
Customer. See ISE Options 7, Section 1(c).
PO 00000
Frm 00051
Fmt 4703
Sfmt 4703
Maker fee for
non-select
symbols
when trading
against priority
customer
$0.86
0.88
0.88
0.88
0.00
Taker
fee for
select
symbols
$0.50
0.50
0.50
0.50
0.00
Taker fee
for
non-select
symbols
$0.86
0.88
0.88
0.88
0.00
Non-Priority Customers 14 to afford
Complex Order Priority Customers
greater rebates.
The Exchange also proposes to amend
notes 3 and 8 within Options 7, Section
4 related to Complex Orders. Currently,
note 3 applies to a Market Maker’s
Maker Fee for Select Symbols when
trading against a Priority Customer in
Complex Orders and to a Market
Maker’s Taker Fee for Select Symbols in
Complex Orders. Current note 3
provides, ‘‘This fee is $0.49 per contract
for Market Makers that achieve Priority
Customer Complex Tier 8, $0.47 per
14 ‘‘Non-Priority Customers’’ include Market
Makers, Non-Nasdaq ISE Market Makers (FarMMs),
Firm Proprietary/Broker-Dealers, and Professional
Customers. See ISE Options 7, Section 1(c).
E:\FR\FM\04JAN1.SGM
04JAN1
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
contract for Market Makers that achieve
Priority Customer Complex Tier 9, and
$0.44 per contract for Market Makers
that achieve Priority Customer Complex
Tier 10.’’
The Exchange proposes to eliminate
the current note 3 and no longer offer
lower Complex Order Maker Fees for
Select Symbols when trading against
Priority Customer or Complex Order
Taker Fees in Select Symbols to
Members who achieve Priority
Customer Complex Order Rebate Tiers
8, 9 or 10. Instead, the Exchange
proposes to offer Members an
opportunity to lower the Non-Priority
Customer Complex Order Taker Fees in
Select Symbols from $0.50 to $0.38 per
contract on orders that execute against
Priority Customer Complex Orders
entered by an Affiliated Member 15 or
Affiliated Entity.16 Today, Affiliated
Members and Affiliated Entities may
aggregate certain volume for purposes of
receiving increased rebates or
discounted fees including Complex
Order Priority Customer Rebates. The
Exchange’s proposal would offer
Members an opportunity to lower their
Complex Order Taker Fee in Select
Symbols provided the order that
executes against Priority Customer
Complex Orders in Select Symbols was
entered by an Affiliated Member or
Affiliated Entity. Note 3 would
incentivize Members to execute orders
on ISE in an effort to pay lower NonPriority Customer Complex Order Taker
Fees in Select Symbols. Additionally,
note 3 would exclude Complex Orders
executed in the Facilitation
Mechanism,17 the Solicited Order
15 An ‘‘Affiliated Member’’ is a Member that
shares at least 75% common ownership with a
particular Member as reflected on the Member’s
Form BD, Schedule A. See Options 7, Section 1(c).
16 An ‘‘Affiliated Entity’’ is a relationship between
an Appointed Market Maker and an Appointed OFP
for purposes of qualifying for certain pricing
specified in the Schedule of Fees. Market Makers
and OFPs are required to send an email to the
Exchange to appoint their counterpart, at least 3
business days prior to the last day of the month to
qualify for the next month. The Exchange will
acknowledge receipt of the emails and specify the
date the Affiliated Entity is eligible for applicable
pricing, as specified in the Pricing Schedule. Each
Affiliated Entity relationship will commence on the
1st of a month and may not be terminated prior to
the end of any month. An Affiliated Entity
relationship will automatically renew each month
until or unless either party terminates earlier in
writing by sending an email to the Exchange at least
3 business days prior to the last day of the month
to terminate for the next month. Affiliated Members
may not qualify as a counterparty comprising an
Affiliated Entity. Each Member may qualify for only
one (1) Affiliated Entity relationship at any given
time. See Options 7, Section 1(c).
17 The Facilitation Mechanism is a process by
which an Electronic Access Member can execute a
transaction wherein the Electronic Access Member
seeks to facilitate a block-size order it represents as
agent, and/or a transaction wherein the Electronic
VerDate Sep<11>2014
16:55 Jan 03, 2023
Jkt 259001
Mechanism 18 and the Price
Improvement Mechanism 19 where these
auction mechanisms have separate
pricing. As proposed, note 3 would
provide, ‘‘This Taker Fee is $0.38 per
contract when executed against Priority
Customer Complex Orders in Select
Symbols entered by an Affiliated
Member or Affiliated Entity, excluding
Complex Orders executed in the
Facilitation Mechanism, Solicited Order
Mechanism, and Price Improvement
Mechanism.’’
The Exchange believes that the
proposed note 3 reduced Non-Priority
Customer Complex Order Taker Fees for
Select Symbols will attract order flow to
ISE. As proposed, Priority Customers
are eligible for increased Complex Order
Rebates and continue to pay no
Complex Order Taker Fees. The
Exchange believes that the increased
Complex Order Priority Customer
Rebates and $0.00 per contract Complex
Order Priority Customer Taker Fee taken
together with the opportunity for lower
Non-Priority Customer Complex Order
Taker Fees for Select Symbols will
continue to encourage an active and
liquid market in Complex Order Select
Symbols on ISE.
The Exchange proposes to amend note
8 within Options 7, Section 4 related to
Complex Orders. Currently, note 8
applies to Complex Order Non-Priority
Customer Taker Fees for Non-Select
Symbols. Current note 8 provides, ‘‘A
$0.05 per contract surcharge will be
assessed to non-Priority Customer
Complex Orders that take liquidity from
the Complex Order Book, excluding
Complex Orders executed in the
Facilitation Mechanism, Solicited Order
Mechanism, Price Improvement
Mechanism and ‘‘exposure’’ auctions
pursuant to Options 3, Section 14(c)(3).’’
The Exchange proposes to amend note
8 to increase the surcharge from $0.05
to $0.12 per contract. The surcharge was
originally adopted to offset the costs of
providing the Complex Order Priority
Customer Rebates. With the proposed
Access Member solicited interest to execute against
a block-size order it represents as agent. See
Options 3, Section 11(b).
18 The Solicited Order Mechanism is a process by
which an Electronic Access Member can attempt to
execute orders of 500 or more contracts it represents
as agent (the ‘‘Agency Order’’) 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).
19 The Price Improvement Mechanism is a process
by which an Electronic Access Member can provide
price improvement opportunities for a transaction
wherein the Electronic Access Member seeks to
facilitate an order it represents as agent, and/or a
transaction wherein the Electronic Access Member
solicited interest to execute against an order it
represents as agent (a ‘‘Crossing Transaction’’). See
Options 3, Section 13.
PO 00000
Frm 00052
Fmt 4703
Sfmt 4703
389
increased to Complex Order Priority
Customer Rebates described herein, the
Exchange proposes to increase the
surcharge from $0.05 to $0.12 per
contract. The Exchange believes that it
is appropriate to revisit this surcharge
and increase it at this time.
Additionally, the Exchange proposes to
continue to assess the surcharge to nonPriority Customer Complex Orders that
take liquidity from the Complex Order
Book, but now proposes to assess the
surcharge when those orders are
executed against Priority Customer
Complex Orders. The proposed change
is intended to align more closely the
surcharge to the Complex Order Priority
Customer Rebates. Finally, the Exchange
proposes to continue to exclude
Complex Orders entered in the
Facilitation Mechanism, Solicited Order
Mechanism, and Price Improvement
Mechanism, but include Exposure
Complex Orders 20 and Exposure Only
Complex Orders 21 pursuant to Options
3, Section 14(b)(13) and (14)).22 The
Exchange notes that there is separate
pricing for the auction mechanisms,
however Exposure Complex Orders and
Exposure Only Complex Orders do not
have separate pricing and these orders
20 An Exposure Complex Order is an order that
will be exposed upon entry as provided in
Supplementary Material .01 to this Options 3,
Section 12 if eligible, or entered on the Complex
Order Book if not eligible. Any unexecuted balance
of an Exposure Complex Order remaining upon the
completion of the exposure process will be entered
on the Complex Order Book. See Options 3, Section
14(b)(13).
21 An Exposure Only Complex Order is an order
that will be exposed upon entry as provided in
Supplementary Material .01 to this Rule if eligible,
or cancelled if not eligible. Any unexecuted balance
of an Exposure Only Complex Order remaining
upon the completion of the exposure process will
be cancelled. See Options 3, Section 14(b)(14).
22 Today, note 8 within Options 7, Section 4
excludes ‘‘exposure’’ auctions pursuant to Options
3, Section 14(c)(3). The Exchange notes that
Exposure Complex Orders and Exposure Only
Complex Orders are the two order types that are
utilized by Members to designate an order as
eligible for the Complex Order Exposure described
within Supplementary Material .01 to Options 3,
Section 14. The original rule change cited
‘‘exposure’’ auctions pursuant to ISE Rule
722(b)(3)(iii) which rule text was relocated to 722(b)
Supplementary Material .01 to Rule 722 and later
became Supplementary .01 to Options 3, Section
14. See Securities Exchange Act Release Nos. 82644
(February 6, 2018), 83 FR 6069 (February 12, 2018)
(SR–ISE–2018–10) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend
the Exchange’s Schedule of Fees To Modify
Complex Order Fees and Rebates); 84373 (October
5, 2018), 83 FR 51730 (October 12, 2018) (SR–ISE–
2018–56) (Notice of Filing of Amendment No. 1 and
Order Granting Accelerated Approval of a Proposed
Rule Change, as Modified by Amendment No. 1, To
Amend Its Rules Relating to Complex Orders); and
86138 (June 18, 2019), 84 FR 29567 (June 24, 2019)
(SR–ISE–2019–17) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Relocate
ISE’s Rules From Their Current Place in the
Rulebook Into the New Rulebook Shell).
E:\FR\FM\04JAN1.SGM
04JAN1
390
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Notices
are exposed upon entry and may not be
entered on the Complex Order Book.
The Exchange proposes to subject
Exposure Complex Orders and Exposure
Only Complex Orders to the same
pricing as other orders entered into the
Complex Order Book. The Proposed
note 8 would provide, ‘‘A $0.12 per
contract surcharge will be assessed to
Non-Priority Customer Complex Orders
that take liquidity from the Complex
Order Book (including Exposure
Complex Orders and Exposure Only
Complex Orders pursuant to Options 3,
Section 14(b)(13) and (14)) when
executed against Priority Customer
Complex Orders, excluding Complex
Orders executed in the Facilitation
Mechanism, Solicited Order
Mechanism, and Price Improvement
Mechanism.’’ With this amendment, the
Exchange seeks to fortify Member
participation in the Complex Order
Priority Customer rebate program and
incentivize increased Complex Order
volume on the Exchange. Note 8 would
continue to apply to Complex Order
Non-Priority Customer Taker Fees for
Non-Select Symbols and, as proposed,
would also apply to Non-Priority
Customer Taker Fees for Select
Symbols.
Technical Amendment
The Exchange also proposes to amend
‘‘non-Priority Customer’’ to ‘‘NonPriority Customer’’ within notes 1 and
8 of Options 7, Section 4. This term is
defined within Options 7, Section 1(c).
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,23 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,24 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.
khammond on DSKJM1Z7X2PROD with NOTICES
The Proposal Is Reasonable
The 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 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
23 15
24 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
VerDate Sep<11>2014
16:55 Jan 03, 2023
Jkt 259001
and Exchange Commission 25
(‘‘NetCoalition’’), the D.C. Circuit stated,
‘‘[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’. . . .’’ 26
Numerous indicia demonstrate the
competitive nature of this market. For
example, clear substitutes to the
Exchange exist in the market for options
transaction services. The Exchange is
only one of sixteen options exchanges to
which market participants may direct
their order flow. Within this
environment, market participants can
freely and often do shift their order flow
among the Exchange and competing
venues in response to changes in their
respective pricing schedules. Within the
foregoing context, the proposal
represents a reasonable attempt by the
Exchange to attract additional order
flow to the Exchange and increase its
market share relative to its competitors.
Priority Customer Rebate Tiers 6
through 10 for Select Symbols and NonSelect Symbols would receive larger
rebates.
The Exchange’s proposal to amend
Complex Order Tiers 6 through 10 of the
Priority Customer Rebates for Select
Symbols and Non-Select Symbols is
equitable and not unfairly
discriminatory. Today, Complex Order
Rebates are only offered to Priority
Customer Complex Orders. Priority
Customer liquidity is the most sought
after liquidity. Priority Customer
liquidity benefits all market participants
by providing more trading
opportunities, which attracts Market
Makers. An increase in the activity of
these market participants in turn
facilitates tighter spreads, which may
cause an additional corresponding
increase in order flow from other market
participants. Paying Complex Order
Priority Customer Rebates is consistent
with the treatment of Priority Customers
on MIAX Emerald, LLC.27
Complex Order Priority Customer
Rebates
The Exchange’s proposal to increase
Complex Order Priority Customer
Rebate Tiers 6 through 10 for Select
Symbols and Non-Select Symbols is
reasonable because the increased
Priority Customer Rebates would attract
additional Complex Order Priority
Customer order flow to ISE in both
Select Symbols and Non-Select
Symbols. All Members may interact
with the Complex Order Priority
Customer order flow attracted by these
higher rebates. Specifically, the
Exchange believes that its proposal,
which, among other things, increases
rebate amounts where Members can
qualify for larger rebates, is reasonable
as it will encourage Members to increase
the amount of Priority Customer
Complex Orders that they send to the
Exchange instead of sending this order
flow to a competing options exchange.
The Exchange believes that with the
proposed rebate levels, Members who
submit the same amount of order flow
as they do today for Complex Order
Maker and Taker Fees
The Exchange’s proposal to increase
the Complex Order Taker Fees for NonSelect Symbols is reasonable because
the proposal would permit ISE to offer
higher Complex Order Priority
Customer Rebates to attract additional
Priority Customer order flow to ISE in
both Select Symbols and Non-Select
Symbols. All Members may interact
with the Complex Order Priority
Customer order flow attracted by these
higher rebates. While the Exchange is
increasing the Complex Order Taker
Fees for Non-Select Symbols, the
Exchange believes that market
participants will continue to be
incentivized to send Complex Order
Priority Customer order flow to ISE to
obtain the Priority Customer Complex
Order Rebates offered by the Exchange.
Additionally, the increased Complex
Order Taker Fees remain competitive
with BOX Exchange LLC (‘‘BOX’’).28
Overall, combined with the proposed
larger Priority Customer Complex Order
rebates, the Exchange believes that the
proposed change will generally allow
the Exchange and its Members to better
compete for Complex Order flow by
increasing Priority Customer liquidity
thus enhancing competition.
The Exchange’s proposal to increase
the Complex Order Taker Fees for NonSelect Symbols is equitable and not
unfairly discriminatory. The Exchange
25 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
26 Id. at 539 (quoting Securities Exchange Act
Release No. 59039 (December 2, 2008), 73 FR
74770, 74782–83 (December 9, 2008) (SR–
NYSEArca–2006–21)).
27 See MIAX Emerald’s Fee Schedule. MIAX
Emerald pays complex orders from Priority
Customers the highest rebates.
28 See BOX complex orders fees for non-public
customers which range from $0.98 to $1.00 per
contract.
PO 00000
Frm 00053
Fmt 4703
Sfmt 4703
E:\FR\FM\04JAN1.SGM
04JAN1
khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Notices
would uniformly assess a $0.98 per
contract Complex Order Taker Fee for
Non-Select Symbols to all Non-Priority
Customers. Priority Customers would
continue to be assessed no Complex
Order Taker Fee for Non-Select
Symbols. Priority Customer liquidity is
the most sought after liquidity. Priority
Customer liquidity benefits all market
participants by providing more trading
opportunities, which attracts Market
Makers. An increase in the activity of
these market participants in turn
facilitates tighter spreads, which may
cause an additional corresponding
increase in order flow from other market
participants.
The Exchange’s proposal to amend
note 3 within Options 7, Section 4 with
respect to Complex Order Taker Fees for
Select Symbols is reasonable because
the Exchange would assess a lower NonPriority Customer Complex Order Taker
Fee ($0.38 vs. $0.50 per contract) in
Select Symbols when an order that was
entered by an Affiliated Member or
Affiliated Entity executes against
Priority Customer Complex Orders in
Select Symbols. While the proposal
would eliminate the current note 3,
thereby no longer offering lower
Complex Order Maker Fees for Select
Symbols when trading against Priority
Customers and Taker Fees for Select
Symbols to Members who achieve
Priority Customer Complex Order
Rebate Tiers 8, 9 or 10, the Exchange
would offer Members an opportunity to
lower Non-Priority Customer Complex
Orders Taker Fees in Select Symbols
from $0.50 to $0.38 per contract when
an order that executed against Priority
Customer Complex Orders is entered by
an Affiliated Member or Affiliated
Entity. Today, Affiliated Members and
Affiliated Entities may aggregate certain
volume for purposes of receiving
increased rebates or discounted fees.29
The Exchange’s proposal is reasonable
because it would offer Members the
opportunity to lower their Non-Priority
Customer Complex Order Taker Fee in
Select Symbols, provided they execute
against Priority Customer Complex
Orders in Select Symbols that was
entered by an Affiliated Member or
Affiliated Entity. The proposal to
exclude Complex Orders executed in
the Exchange’s various auction
mechanisms from the proposed NonPriority Customer Complex Order
surcharge is reasonable because those
auction mechanisms are subject to
separate pricing. Proposed note 3 would
incentivize Members to execute orders
29 Affiliated Members may not qualify as a
counterparty comprising an Affiliated Entity. See
Options 7, Section 1(c).
VerDate Sep<11>2014
16:55 Jan 03, 2023
Jkt 259001
on ISE in an effort to pay a lower NonPriority Customer Complex Order Taker
Fee in Select Symbols. The Exchange
believes that the proposed note 3
reduced Complex Order Non-Priority
Customer Taker Fee for Select Symbols
will attract order flow to ISE. As
proposed, Priority Customers are
eligible for increased Complex Order
Rebates and continue to pay no
Complex Order Taker Fees. The
Exchange believes that the higher
Complex Order Priority Customer
Rebates and the $0.00 per contract
Complex Order Priority Customer Taker
Fee taken together with the opportunity
for a lower Complex Order Non-Priority
Customer Taker Fee for Select Symbols,
will continue to encourage an active and
liquid market in Non-Select Symbols on
ISE. Also, the Exchange proposes to
continue to incentivize certain
Members, who are not Affiliated
Members or Affiliated Entities, to enter
into such a relationship for the purpose
of aggregating volume executed on the
Exchange to qualify to reduce their
Complex Order Non-Priority Customer
Taker Fee in Select Symbols.
The Exchange’s proposal to amend
note 3 within Options 7, Section 4 with
respect to Complex Order Taker Fees for
Select Symbols is equitable and not
unfairly discriminatory because all NonPriority Customers would be assessed a
lower Complex Order Taker Fee in
Select Symbols when executing against
Priority Customer Complex Orders in
Select Symbols entered by an Affiliated
Member or Affiliated Entity. Priority
Customers pay no Complex Order Taker
Fees in Select Symbols and, therefore,
are not offered the lower fee.
Additionally, offering Members the
opportunity to lower their Non-Priority
Customer Complex Order Taker Fee in
Select Symbols provided they execute
against Priority Customer Complex
Orders in Select Symbols that was
entered by an Affiliated Member or
Affiliated Entity is equitable and not
unfairly discriminatory as it relates to
Members who are not Affiliated
Members or Affiliated Entities because
any Member may enter into such a
relationship for the purpose of
aggregating volume executed on the
Exchange to qualify to reduce their
Complex Order Non-Priority Customer
Taker Fee in Select Symbols. Finally,
the criteria for assessing the lower NonPriority Customer Complex Orders
Taker Fee would be uniformly applied
all Members.
The Exchange’s proposal to amend
note 8 within Options 7, Section 4
related to Complex Orders to increase
the surcharge from $0.05 to $0.12 per
contract is reasonable because the
PO 00000
Frm 00054
Fmt 4703
Sfmt 4703
391
Exchange is also increasing the Complex
Order Priority Customer Rebates. The
surcharge was originally adopted to
offset the costs of providing the
Complex Order Priority Customer
Rebates.30 Assessing this surcharge to
only those orders that take liquidity
from the market is reasonable because
the Exchange wants to continue to
encourage market participation for those
participants that seek to add liquidity
on ISE. Additionally, the Exchange’s
proposal to assess the surcharge to NonPriority Customer Complex Orders that
take liquidity from the Complex Order
Book when those orders are executed
against Priority Customer Complex
Orders is reasonable because it will
more closely align the surcharge to the
Complex Order Priority Customer
Rebates.
Continuing to exclude Complex
Orders executed in the Facilitation
Mechanism, Solicited Order
Mechanism, and Price Improvement
Mechanism from the proposed NonPriority Customer Complex Order
surcharge is reasonable because those
auction mechanisms are subject to
separate pricing. The Exchange desires
to continue to encourage participation
within those auction mechanisms.
Subjecting Exposure Complex Orders
and Exposure Only Complex Orders
pursuant to Options 3, Section 14(b)(13)
and (14) to the note 8 surcharge is
reasonable because there is no separate
pricing for these order types that are
entered into Complex Exposure within
Supplementary .01 to Options 3, Section
14. These order types are exposed upon
entry and may not be entered on the
Complex Order Book. The Exchange
believes it is reasonable to subject
Exposure Complex Orders and Exposure
Only Complex Orders to the same
pricing as other orders entered into the
Complex Order Book which would
include the Non-Priority Customer
Complex Order surcharge. With this
amendment, the Exchange seeks to
fortify Member participation in the
Complex Order Priority Customer rebate
program and incentivize increased
Complex Order volume on the
Exchange. Finally, applying note 8 to
Taker Fees for Select Symbols as well as
Non-Select Symbols is reasonable
because the Exchange offers Complex
Order Priority Customer Rebates for
both Select Symbols and Non-Select
Symbols. The surcharge is designed to
offset the costs of providing the
30 See Securities Exchange Act Release No. 82644
(February 6, 2018), 83 FR 6069 (February 12, 2018)
(SR–ISE–2018–10) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend
the Exchange’s Schedule of Fees To Modify
Complex Order Fees and Rebates).
E:\FR\FM\04JAN1.SGM
04JAN1
khammond on DSKJM1Z7X2PROD with NOTICES
392
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Notices
Complex Order Priority Customer
Rebates.
The Exchange’s proposal to amend
note 8 within Options 7, Section 4
related to Complex Orders to increase
the surcharge from $0.05 to $0.12 per
contract is equitable and not unfairly
discriminatory because the surcharge
would be uniformly applied to all
Members who transact Non-Priority
Customer Complex Orders that take
liquidity from the Complex Order Book,
including Exposure Complex Orders
and Exposure Only Complex Orders,
when executed against Priority
Customer Complex Orders, excluding
Complex Orders executed in the
Facilitation Mechanism, Solicited Order
Mechanism, and Price Improvement
Mechanism. Additionally, the criteria
for assessing the surcharge would be
uniformly applied to all Members for
Taker Fees in both Select and NonSelect Symbols. Continuing to exclude
Complex Orders executed in the
Facilitation Mechanism, Solicited Order
Mechanism, and Price Improvement
Mechanism from the proposed NonPriority Customer Complex Order
surcharge is equitable and not unfairly
discriminatory because those auction
mechanisms are subject to separate
pricing. The Exchange desires to
continue to encourage participation
within those auction mechanisms.
Subjecting Exposure Complex Orders
and Exposure Only Complex Orders
pursuant to Options 3, Section 14(b)(13)
and (14) to the note 8 surcharge is
equitable and not unfairly
discriminatory because there is no
separate pricing for these order types
that are entered into Complex Exposure
within Supplementary .01 to Options 3,
Section 14. These order types are
exposed upon entry and may not be
entered on the Complex Order Book.
The Exchange believes it is equitable
and not unfairly discriminatory to
subject Exposure Complex Orders and
Exposure Only Complex Orders to the
same pricing as other orders entered
into the Complex Order Book which
would include the Non-Priority
Customer Complex Order surcharge.
Any Member may utilize the
Facilitation Mechanism, the Solicited
Order Mechanism, and the Price
Improvement Mechanism 31 as well as
Exposure Complex Orders and Exposure
Only Complex Orders.
31 The Exchange notes that with respect to the
Price Improvement Mechanism, an Initiating Order
may not be a solicited order for the account of any
Exchange Lead Market Maker, SQT, RSQT or nonstreaming Market Maker assigned in the affected
series. See Options 3, Section 13(a)(8).
VerDate Sep<11>2014
16:55 Jan 03, 2023
Jkt 259001
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.
Intermarket Competition
The Exchange operates in a highly
competitive market in which market
participants can readily favor competing
venues if they deem fee levels at a
particular venue to be excessive, or
rebate opportunities available at other
venues to be more favorable. In such an
environment, the Exchange must
continually adjust its fees to remain
competitive with other exchanges.
Because competitors are free to modify
their own fees in response, and because
market participants may readily adjust
their order routing practices, the
Exchange believes that the degree to
which pricing changes in this market
may impose any burden on competition
is extremely limited because other
options exchanges offer similar rebate
programs as well as maker/taker
pricing.32
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.
Intramarket Competition
The Exchange’s proposal to amend
Complex Order Tiers 6 through 10 of the
Priority Customer Rebates for Select
Symbols and Non-Select does not
impose an undue burden on
competition. Today, Complex Order
Rebates are only offered to Priority
Customer Complex Orders. Priority
Customer liquidity is the most sought
after liquidity. Priority Customer
liquidity benefits all market participants
by providing more trading
opportunities, which attracts Market
Makers. An increase in the activity of
these market participants in turn
facilitates tighter spreads, which may
cause an additional corresponding
increase in order flow from other market
participants. Paying Complex Order
Priority Customer Rebates is consistent
32 See
PO 00000
MIAX Emerald’s Fee Schedule.
Frm 00055
Fmt 4703
Sfmt 4703
with the treatment of Priority Customers
on MIAX Emerald, LLC where orders
from Priority Customers are also paid
the highest rebates.33
The Exchange’s proposal to increase
the Complex Order Taker Fees for NonSelect Symbols does not impose an
undue burden on competition because
all Non-Priority Customers would
uniformly be assessed a $0.98 per
contract Complex Order Taker Fee for
Non-Select Symbols. Priority Customers
would continue to be assessed no
Complex Order Taker Fee for NonSelect Symbols. Priority Customer
liquidity is the most sought after
liquidity. Priority Customer liquidity
benefits all market participants by
providing more trading opportunities,
which attracts Market Makers. An
increase in the activity of these market
participants in turn facilitates tighter
spreads, which may cause an additional
corresponding increase in order flow
from other market participants.
The Exchange’s proposal to amend
note 3 within Options 7, Section 4 with
respect to Complex Order Taker Fees for
Select Symbols does not impose an
undue burden on competition because
all Non-Priority Customers would be
assessed a lower Complex Order Taker
Fee in Select Symbols when executing
against Priority Customer Complex
Orders in Select Symbols entered by an
Affiliated Member or Affiliated Entity.
Priority Customers pay no Complex
Order Taker Fees in Select Symbols and,
therefore, are not offered the lower fee.
Additionally, offering Members the
opportunity to lower their Non-Priority
Customer Complex Order Taker Fee in
Select Symbols provided they execute
against Priority Customer Complex
Orders in Select Symbols that was
entered by an Affiliated Member or
Affiliated Entity does not impose an
undue burden on competition as it
relates to Members who are not
Affiliated Members or Affiliated Entities
because any Member may enter into
such a relationship for the purpose of
aggregating volume executed on the
Exchange to qualify to reduce their
Complex Order Non-Priority Customer
Taker Fee in Select Symbols. Finally,
the criteria for assessing the lower NonPriority Customer Complex Orders
Taker Fee would be uniformly applied
all Members.
The Exchange’s proposal to amend
note 8 within Options 7, Section 4
related to Complex Orders to increase
the surcharge from $0.05 to $0.12 per
contract does not impose an undue
burden on competition because the
surcharge would be uniformly applied
33 See
E:\FR\FM\04JAN1.SGM
MIAX Emerald’s Fee Schedule.
04JAN1
Federal Register / Vol. 88, No. 2 / Wednesday, January 4, 2023 / Notices
to all Members who transact NonPriority Customer Complex Orders that
take liquidity from the Complex Order
Book, including Exposure Complex
Orders and Exposure Only Complex
Orders, when executed against Priority
Customer Complex Orders, excluding
Complex Orders executed in the
Facilitation Mechanism, Solicited Order
Mechanism, and Price Improvement
Mechanism. Additionally, the criteria
for assessing the surcharge would be
uniformly applied to all Members for
Taker Fees in both Select and NonSelect Symbols. Continuing to exclude
Complex Orders executed in the
Facilitation Mechanism, Solicited Order
Mechanism, and Price Improvement
Mechanism from the proposed NonPriority Customer Complex Order
surcharge is equitable and not unfairly
discriminatory because those auction
mechanisms are subject to separate
pricing. The Exchange desires to
continue to encourage participation
within those auction mechanisms.
Subjecting Exposure Complex Orders
and Exposure Only Complex Orders
pursuant to Options 3, Section 14(b)(13)
and (14) to the note 8 surcharge is
equitable and not unfairly
discriminatory because there is no
separate pricing for these order types
that are entered into Complex Exposure
within Supplementary .01 to Options 3,
Section 14. These order types are
exposed upon entry and may not be
entered on the Complex Order Book.
The Exchange believes it is equitable
and not unfairly discriminatory to
subject Exposure Complex Orders and
Exposure Only Complex Orders to the
same pricing as other orders entered
into the Complex Order Book which
would include the Non-Priority
Customer Complex Order surcharge.
Any Member may utilize the
Facilitation Mechanism, the Solicited
Order Mechanism, and the Price
Improvement Mechanism 34 as well as
Exposure Complex Orders and Exposure
Only Complex Orders.
khammond on DSKJM1Z7X2PROD with NOTICES
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.
34 The Exchange notes that with respect to the
Price Improvement Mechanism, an Initiating Order
may not be a solicited order for the account of any
Exchange Lead Market Maker, SQT, RSQT or nonstreaming Market Maker assigned in the affected
series. See Options 3, Section 13(a)(8).
VerDate Sep<11>2014
16:55 Jan 03, 2023
Jkt 259001
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 35 and Rule
19b–4(f)(2) 36 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is: (i)
necessary or appropriate in the public
interest; (ii) for the protection of
investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ISE–2022–29 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–2022–29. 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
35 15
36 17
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
Frm 00056
Fmt 4703
Sfmt 4703
393
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–2022–29 and should be
submitted on or before January 25, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–28544 Filed 1–3–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
34793; File No. 812–15420]
VanEck Russia ETF and VanEck
Russia Small-Cap ETF, Series of
VanEck ETF Trust, and Van Eck
Associates Corporation; Notice of
Application and Temporary Order
December 28, 2022.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application and a
temporary order under section 22(e)(3)
of the Investment Company Act of 1940
(the ‘‘Act’’).
AGENCY:
Applicants
request a temporary order to permit
each of VanEck Russia ETF and VanEck
Russia Small-Cap ETF (each, a ‘‘Fund,’’
and collectively, the ‘‘Funds’’), series of
VanEck ETF Trust (the ‘‘Trust’’), to
suspend the right of redemption of its
outstanding redeemable securities and
postpone the date of payment of
redemption proceeds with respect to
redemption orders received but not yet
paid.
APPLICANTS: The Trust, on behalf of the
Funds, and Van Eck Associates
Corporation, the Funds’ investment
adviser (‘‘Adviser’’ and together with
the Trust, the ‘‘Applicants’’).
FILING DATE: The application was filed
on December 28, 2022.
HEARING OR NOTIFICATION OF HEARING:
Interested persons may request a
SUMMARY OF APPLICATION:
37 17
E:\FR\FM\04JAN1.SGM
CFR 200.30–3(a)(12).
04JAN1
]]>Agencies
[Federal Register Volume 88, Number 2 (Wednesday, January 4, 2023)]
[Notices]
[Pages 387-393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-28544]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 96587; File No. SR-ISE-2022-29]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend ISE
Options 7, Section 4
December 28, 2022.
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 13, 2022, 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 ISE's Pricing Schedule at Options 7,
Section 4.\3\
---------------------------------------------------------------------------
\3\ The Exchange originally filed SR-ISE-2022-27 on December 1,
2022. On December 13, 2022, the Exchange withdrew SR-ISE-2022-27 and
submitted this rule change.
---------------------------------------------------------------------------
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 ISE's Pricing Schedule at Options 7,
Section 4, Complex Order Fees and Rebates. The Exchange proposes to:
(1) increase Complex Order Priority Customer \4\ Rebates for Select
Symbols \5\ and Non-Select Symbols; \6\ (2) increase Complex Order
Taker Fees for Non-Select Symbols; and (3) amend notes 3 and 8 of
Options 7, Section 4 related to Complex Orders. Each change will be
described below.
---------------------------------------------------------------------------
\4\ 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 ISE Options 1, Section
1(a)(37). Unless otherwise noted, the term ``Priority Customer''
includes ``Retail.'' See Options 7, Section 1(c).
\5\ ``Select Symbols'' are options overlying all symbols listed
on the Nasdaq ISE that are in the Penny Interval Program. See
Options 7, Section 1(c).
\6\ ``Non-Select Symbols'' are options overlying all symbols
excluding Select Symbols. See Options 7, Section 1(c).
---------------------------------------------------------------------------
Complex Order Priority Customer Rebates
The Exchange proposes to amend Tiers 6 through 10 of the Complex
Order Priority Customer Rebates for Select Symbols and Non-Select
Symbols. The Exchange currently offers Members Complex Order Priority
Customer Rebates based on a percentage of Total Affiliated Member or
Affiliated Entity Complex Order Volume (excluding Crossing Orders \7\
and Responses to Crossing Orders \8\) Calculated as a Percentage of
Customer Total Consolidated Volume. The Exchange
[[Page 388]]
offers ten tiers of Complex Order rebates. Currently, the Priority
Customer Rebates for Select Symbols and Non-Select Symbols for Complex
Orders are as follows:
---------------------------------------------------------------------------
\7\ A ``Crossing Order'' is an order executed in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement
Mechanism (PIM) or submitted as a Qualified Contingent Cross order.
For purposes of this Pricing Schedule, orders executed in the Block
Order Mechanism are also considered Crossing Orders. See Options 7,
Section 1(c).
\8\ ``Responses to Crossing Order'' is any contra-side interest
submitted after the commencement of an auction in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, Block Order
Mechanism or PIM. See Options 7, Section 1(c).
Priority Customer Rebates
----------------------------------------------------------------------------------------------------------------
Total affiliated member or affiliated
entity complex order volume (excluding
crossing orders and responses to Rebate for Rebate for
Priority customer complex tier crossing orders) calculated as a select non-select
percentage of customer total symbols symbols
consolidated volume
----------------------------------------------------------------------------------------------------------------
Tier 1........................................ 0.000%-0.200%......................... ($0.25) ($0.40)
Tier 2........................................ Above 0.200%-0.400%................... (0.30) (0.55)
Tier 3........................................ Above 0.400%-0.450%................... (0.35) (0.70)
Tier 4........................................ Above 0.450%-0.750%................... (0.40) (0.75)
Tier 5........................................ Above 0.750%-1.000%................... (0.45) (0.80)
Tier 6........................................ Above 1.000%-1.350%................... (0.47) (0.80)
Tier 7........................................ Above 1.350%-1.750%................... (0.48) (0.80)
Tier 8........................................ Above 1.750%-2.750%................... (0.52) (0.85)
Tier 9........................................ Above 2.750%-4.500%................... (0.52) (0.86)
Tier 10....................................... Above 4.500%.......................... (0.53) (0.88)
----------------------------------------------------------------------------------------------------------------
The Exchange proposes to amend Complex Order Priority Customer
Rebate Tiers 6 through Tier 10 for both Select Symbols and Non-Select
Symbols. With this proposal, the Exchange would increase the Complex
Order Priority Customer Rebates for Select Symbols as follows: Tier 6
would increase from $0.47 to $0.48 per contract, Tier 7 would increase
from $0.48 to $0.51 per contract, Tier 8 would increase from $0.52 to
$0.55 per contract, Tier 9 would increase from $0.52 to $0.56 per
contract, and Tier 10 would increase from $0.53 to $0.57 per contract.
Also, the Exchange would increase the Complex Order Priority Customer
Rebates for Non-Select Symbols as follows: Tier 6 would increase from
$0.80 to $0.85 per contract, Tier 7 would increase from $0.80 to $0.92
per contract, Tier 8 would increase from $0.85 to $1.03 per contract,
Tier 9 would increase from $0.86 to $1.04 per contract, and Tier 10
would increase from $0.88 to $1.05 per contract. The Exchange believes
that these increased Complex Order Priority Customer Rebates will
attract more Complex Order flow to ISE.
Complex Order Maker and Taker Fees
Today, the Exchange assesses the following Complex Order Maker and
Taker Fees:
Maker and Taker Fees
----------------------------------------------------------------------------------------------------------------
Maker fee for
Maker fee for non-select
Maker fee Maker fee select symbols symbols when Taker fee Taker fee
Market participant for for non- when trading trading for for non-
select select against against select select
symbols symbols priority priority symbols symbols
customer customer
----------------------------------------------------------------------------------------------------------------
Market Maker.................... $0.10 $0.20 $0.50 $0.86 $0.50 $0.86
Non-Nasdaq ISE Market Maker 0.20 0.20 0.50 0.88 0.50 0.88
(FarMM)........................
Firm Proprietary/Broker-Dealer.. 0.10 0.20 0.50 0.88 0.50 0.88
Professional Customer........... 0.10 0.20 0.50 0.88 0.50 0.88
Priority Customer............... 0.00 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------------------------------------------
The Exchange proposes to increase the Complex Order Taker Fees for
Non-Select Symbols. Specifically, the Exchange proposes to increase the
Complex Order Taker Fees for Non-Select Symbols as follows: Market
Maker \9\ from $0.86 to $0.98 per contract, Non-Nasdaq ISE Market Maker
(FarMM) \10\ from $0.88 to $0.98 per contract, Firm Proprietary \11\/
Broker-Dealer \12\ from $0.88 to $0.98 per contract, and Professional
Customer \13\ from $0.88 to $0.98 per contract. Priority Customers
would continue to be assessed no Complex Order Taker Fees for Non-
Select Symbols. The Exchange's proposal would increase Complex Order
Taker Fees in Non-Select Symbols for Non-Priority Customers \14\ to
afford Complex Order Priority Customers greater rebates.
---------------------------------------------------------------------------
\9\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See Options 1,
Section 1(a)(21).
\10\ A ``Non-Nasdaq ISE Market Maker'' is a market maker as
defined in Section 3(a)(38) of the Securities Exchange Act of 1934,
as amended, registered in the same options class on another options
exchange. See ISE Options 7, Section 1(c).
\11\ A ``Firm Proprietary'' order is an order submitted by a
member for its own proprietary account. See ISE Options 7, Section
1(c).
\12\ A ``Broker-Dealer'' order is an order submitted by a member
for a broker-dealer account that is not its own proprietary account.
See ISE Options 7, Section 1(c).
\13\ A ``Professional Customer'' is a person or entity that is
not a broker/dealer and is not a Priority Customer. See ISE Options
7, Section 1(c).
\14\ ``Non-Priority Customers'' include Market Makers, Non-
Nasdaq ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers,
and Professional Customers. See ISE Options 7, Section 1(c).
---------------------------------------------------------------------------
The Exchange also proposes to amend notes 3 and 8 within Options 7,
Section 4 related to Complex Orders. Currently, note 3 applies to a
Market Maker's Maker Fee for Select Symbols when trading against a
Priority Customer in Complex Orders and to a Market Maker's Taker Fee
for Select Symbols in Complex Orders. Current note 3 provides, ``This
fee is $0.49 per contract for Market Makers that achieve Priority
Customer Complex Tier 8, $0.47 per
[[Page 389]]
contract for Market Makers that achieve Priority Customer Complex Tier
9, and $0.44 per contract for Market Makers that achieve Priority
Customer Complex Tier 10.''
The Exchange proposes to eliminate the current note 3 and no longer
offer lower Complex Order Maker Fees for Select Symbols when trading
against Priority Customer or Complex Order Taker Fees in Select Symbols
to Members who achieve Priority Customer Complex Order Rebate Tiers 8,
9 or 10. Instead, the Exchange proposes to offer Members an opportunity
to lower the Non-Priority Customer Complex Order Taker Fees in Select
Symbols from $0.50 to $0.38 per contract on orders that execute against
Priority Customer Complex Orders entered by an Affiliated Member \15\
or Affiliated Entity.\16\ Today, Affiliated Members and Affiliated
Entities may aggregate certain volume for purposes of receiving
increased rebates or discounted fees including Complex Order Priority
Customer Rebates. The Exchange's proposal would offer Members an
opportunity to lower their Complex Order Taker Fee in Select Symbols
provided the order that executes against Priority Customer Complex
Orders in Select Symbols was entered by an Affiliated Member or
Affiliated Entity. Note 3 would incentivize Members to execute orders
on ISE in an effort to pay lower Non-Priority Customer Complex Order
Taker Fees in Select Symbols. Additionally, note 3 would exclude
Complex Orders executed in the Facilitation Mechanism,\17\ the
Solicited Order Mechanism \18\ and the Price Improvement Mechanism \19\
where these auction mechanisms have separate pricing. As proposed, note
3 would provide, ``This Taker Fee is $0.38 per contract when executed
against Priority Customer Complex Orders in Select Symbols entered by
an Affiliated Member or Affiliated Entity, excluding Complex Orders
executed in the Facilitation Mechanism, Solicited Order Mechanism, and
Price Improvement Mechanism.''
---------------------------------------------------------------------------
\15\ An ``Affiliated Member'' is a Member that shares at least
75% common ownership with a particular Member as reflected on the
Member's Form BD, Schedule A. See Options 7, Section 1(c).
\16\ An ``Affiliated Entity'' is a relationship between an
Appointed Market Maker and an Appointed OFP for purposes of
qualifying for certain pricing specified in the Schedule of Fees.
Market Makers and OFPs are required to send an email to the Exchange
to appoint their counterpart, at least 3 business days prior to the
last day of the month to qualify for the next month. The Exchange
will acknowledge receipt of the emails and specify the date the
Affiliated Entity is eligible for applicable pricing, as specified
in the Pricing Schedule. Each Affiliated Entity relationship will
commence on the 1st of a month and may not be terminated prior to
the end of any month. An Affiliated Entity relationship will
automatically renew each month until or unless either party
terminates earlier in writing by sending an email to the Exchange at
least 3 business days prior to the last day of the month to
terminate for the next month. Affiliated Members may not qualify as
a counterparty comprising an Affiliated Entity. Each Member may
qualify for only one (1) Affiliated Entity relationship at any given
time. See Options 7, Section 1(c).
\17\ The Facilitation Mechanism is a process by which an
Electronic Access Member can execute a transaction wherein the
Electronic Access Member seeks to facilitate a block-size order it
represents as agent, and/or a transaction wherein the Electronic
Access Member solicited interest to execute against a block-size
order it represents as agent. See Options 3, Section 11(b).
\18\ The Solicited Order Mechanism is a process by which an
Electronic Access Member can attempt to execute orders of 500 or
more contracts it represents as agent (the ``Agency Order'') 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).
\19\ The Price Improvement Mechanism is a process by which an
Electronic Access Member can provide price improvement opportunities
for a transaction wherein the Electronic Access Member seeks to
facilitate an order it represents as agent, and/or a transaction
wherein the Electronic Access Member solicited interest to execute
against an order it represents as agent (a ``Crossing
Transaction''). See Options 3, Section 13.
---------------------------------------------------------------------------
The Exchange believes that the proposed note 3 reduced Non-Priority
Customer Complex Order Taker Fees for Select Symbols will attract order
flow to ISE. As proposed, Priority Customers are eligible for increased
Complex Order Rebates and continue to pay no Complex Order Taker Fees.
The Exchange believes that the increased Complex Order Priority
Customer Rebates and $0.00 per contract Complex Order Priority Customer
Taker Fee taken together with the opportunity for lower Non-Priority
Customer Complex Order Taker Fees for Select Symbols will continue to
encourage an active and liquid market in Complex Order Select Symbols
on ISE.
The Exchange proposes to amend note 8 within Options 7, Section 4
related to Complex Orders. Currently, note 8 applies to Complex Order
Non-Priority Customer Taker Fees for Non-Select Symbols. Current note 8
provides, ``A $0.05 per contract surcharge will be assessed to non-
Priority Customer Complex Orders that take liquidity from the Complex
Order Book, excluding Complex Orders executed in the Facilitation
Mechanism, Solicited Order Mechanism, Price Improvement Mechanism and
``exposure'' auctions pursuant to Options 3, Section 14(c)(3).'' The
Exchange proposes to amend note 8 to increase the surcharge from $0.05
to $0.12 per contract. The surcharge was originally adopted to offset
the costs of providing the Complex Order Priority Customer Rebates.
With the proposed increased to Complex Order Priority Customer Rebates
described herein, the Exchange proposes to increase the surcharge from
$0.05 to $0.12 per contract. The Exchange believes that it is
appropriate to revisit this surcharge and increase it at this time.
Additionally, the Exchange proposes to continue to assess the surcharge
to non-Priority Customer Complex Orders that take liquidity from the
Complex Order Book, but now proposes to assess the surcharge when those
orders are executed against Priority Customer Complex Orders. The
proposed change is intended to align more closely the surcharge to the
Complex Order Priority Customer Rebates. Finally, the Exchange proposes
to continue to exclude Complex Orders entered in the Facilitation
Mechanism, Solicited Order Mechanism, and Price Improvement Mechanism,
but include Exposure Complex Orders \20\ and Exposure Only Complex
Orders \21\ pursuant to Options 3, Section 14(b)(13) and (14)).\22\ The
Exchange notes that there is separate pricing for the auction
mechanisms, however Exposure Complex Orders and Exposure Only Complex
Orders do not have separate pricing and these orders
[[Page 390]]
are exposed upon entry and may not be entered on the Complex Order
Book. The Exchange proposes to subject Exposure Complex Orders and
Exposure Only Complex Orders to the same pricing as other orders
entered into the Complex Order Book. The Proposed note 8 would provide,
``A $0.12 per contract surcharge will be assessed to Non-Priority
Customer Complex Orders that take liquidity from the Complex Order Book
(including Exposure Complex Orders and Exposure Only Complex Orders
pursuant to Options 3, Section 14(b)(13) and (14)) when executed
against Priority Customer Complex Orders, excluding Complex Orders
executed in the Facilitation Mechanism, Solicited Order Mechanism, and
Price Improvement Mechanism.'' With this amendment, the Exchange seeks
to fortify Member participation in the Complex Order Priority Customer
rebate program and incentivize increased Complex Order volume on the
Exchange. Note 8 would continue to apply to Complex Order Non-Priority
Customer Taker Fees for Non-Select Symbols and, as proposed, would also
apply to Non-Priority Customer Taker Fees for Select Symbols.
---------------------------------------------------------------------------
\20\ An Exposure Complex Order is an order that will be exposed
upon entry as provided in Supplementary Material .01 to this Options
3, Section 12 if eligible, or entered on the Complex Order Book if
not eligible. Any unexecuted balance of an Exposure Complex Order
remaining upon the completion of the exposure process will be
entered on the Complex Order Book. See Options 3, Section 14(b)(13).
\21\ An Exposure Only Complex Order is an order that will be
exposed upon entry as provided in Supplementary Material .01 to this
Rule if eligible, or cancelled if not eligible. Any unexecuted
balance of an Exposure Only Complex Order remaining upon the
completion of the exposure process will be cancelled. See Options 3,
Section 14(b)(14).
\22\ Today, note 8 within Options 7, Section 4 excludes
``exposure'' auctions pursuant to Options 3, Section 14(c)(3). The
Exchange notes that Exposure Complex Orders and Exposure Only
Complex Orders are the two order types that are utilized by Members
to designate an order as eligible for the Complex Order Exposure
described within Supplementary Material .01 to Options 3, Section
14. The original rule change cited ``exposure'' auctions pursuant to
ISE Rule 722(b)(3)(iii) which rule text was relocated to 722(b)
Supplementary Material .01 to Rule 722 and later became
Supplementary .01 to Options 3, Section 14. See Securities Exchange
Act Release Nos. 82644 (February 6, 2018), 83 FR 6069 (February 12,
2018) (SR-ISE-2018-10) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Amend the Exchange's Schedule of Fees To
Modify Complex Order Fees and Rebates); 84373 (October 5, 2018), 83
FR 51730 (October 12, 2018) (SR-ISE-2018-56) (Notice of Filing of
Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Its
Rules Relating to Complex Orders); and 86138 (June 18, 2019), 84 FR
29567 (June 24, 2019) (SR-ISE-2019-17) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Relocate ISE's
Rules From Their Current Place in the Rulebook Into the New Rulebook
Shell).
---------------------------------------------------------------------------
Technical Amendment
The Exchange also proposes to amend ``non-Priority Customer'' to
``Non-Priority Customer'' within notes 1 and 8 of Options 7, Section 4.
This term is defined within Options 7, Section 1(c).
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\23\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\24\ 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.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Proposal Is Reasonable
The 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 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 \25\
(``NetCoalition''), the D.C. Circuit stated, ``[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'. . . .'' \26\
---------------------------------------------------------------------------
\25\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\26\ Id. at 539 (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008)
(SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------
Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options transaction services. The Exchange is only one of sixteen
options exchanges to which market participants may direct their order
flow. Within this environment, market participants can freely and often
do shift their order flow among the Exchange and competing venues in
response to changes in their respective pricing schedules. Within the
foregoing context, the proposal represents a reasonable attempt by the
Exchange to attract additional order flow to the Exchange and increase
its market share relative to its competitors.
Complex Order Priority Customer Rebates
The Exchange's proposal to increase Complex Order Priority Customer
Rebate Tiers 6 through 10 for Select Symbols and Non-Select Symbols is
reasonable because the increased Priority Customer Rebates would
attract additional Complex Order Priority Customer order flow to ISE in
both Select Symbols and Non-Select Symbols. All Members may interact
with the Complex Order Priority Customer order flow attracted by these
higher rebates. Specifically, the Exchange believes that its proposal,
which, among other things, increases rebate amounts where Members can
qualify for larger rebates, is reasonable as it will encourage Members
to increase the amount of Priority Customer Complex Orders that they
send to the Exchange instead of sending this order flow to a competing
options exchange. The Exchange believes that with the proposed rebate
levels, Members who submit the same amount of order flow as they do
today for Complex Order Priority Customer Rebate Tiers 6 through 10 for
Select Symbols and Non-Select Symbols would receive larger rebates.
The Exchange's proposal to amend Complex Order Tiers 6 through 10
of the Priority Customer Rebates for Select Symbols and Non-Select
Symbols is equitable and not unfairly discriminatory. Today, Complex
Order Rebates are only offered to Priority Customer Complex Orders.
Priority Customer liquidity is the most sought after liquidity.
Priority Customer liquidity benefits all market participants by
providing more trading opportunities, which attracts Market Makers. An
increase in the activity of these market participants in turn
facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Paying Complex Order Priority Customer Rebates is consistent with the
treatment of Priority Customers on MIAX Emerald, LLC.\27\
---------------------------------------------------------------------------
\27\ See MIAX Emerald's Fee Schedule. MIAX Emerald pays complex
orders from Priority Customers the highest rebates.
---------------------------------------------------------------------------
Maker and Taker Fees
The Exchange's proposal to increase the Complex Order Taker Fees
for Non-Select Symbols is reasonable because the proposal would permit
ISE to offer higher Complex Order Priority Customer Rebates to attract
additional Priority Customer order flow to ISE in both Select Symbols
and Non-Select Symbols. All Members may interact with the Complex Order
Priority Customer order flow attracted by these higher rebates. While
the Exchange is increasing the Complex Order Taker Fees for Non-Select
Symbols, the Exchange believes that market participants will continue
to be incentivized to send Complex Order Priority Customer order flow
to ISE to obtain the Priority Customer Complex Order Rebates offered by
the Exchange. Additionally, the increased Complex Order Taker Fees
remain competitive with BOX Exchange LLC (``BOX'').\28\ Overall,
combined with the proposed larger Priority Customer Complex Order
rebates, the Exchange believes that the proposed change will generally
allow the Exchange and its Members to better compete for Complex Order
flow by increasing Priority Customer liquidity thus enhancing
competition.
---------------------------------------------------------------------------
\28\ See BOX complex orders fees for non-public customers which
range from $0.98 to $1.00 per contract.
---------------------------------------------------------------------------
The Exchange's proposal to increase the Complex Order Taker Fees
for Non-Select Symbols is equitable and not unfairly discriminatory.
The Exchange
[[Page 391]]
would uniformly assess a $0.98 per contract Complex Order Taker Fee for
Non-Select Symbols to all Non-Priority Customers. Priority Customers
would continue to be assessed no Complex Order Taker Fee for Non-Select
Symbols. Priority Customer liquidity is the most sought after
liquidity. Priority Customer liquidity benefits all market participants
by providing more trading opportunities, which attracts Market Makers.
An increase in the activity of these market participants in turn
facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
The Exchange's proposal to amend note 3 within Options 7, Section 4
with respect to Complex Order Taker Fees for Select Symbols is
reasonable because the Exchange would assess a lower Non-Priority
Customer Complex Order Taker Fee ($0.38 vs. $0.50 per contract) in
Select Symbols when an order that was entered by an Affiliated Member
or Affiliated Entity executes against Priority Customer Complex Orders
in Select Symbols. While the proposal would eliminate the current note
3, thereby no longer offering lower Complex Order Maker Fees for Select
Symbols when trading against Priority Customers and Taker Fees for
Select Symbols to Members who achieve Priority Customer Complex Order
Rebate Tiers 8, 9 or 10, the Exchange would offer Members an
opportunity to lower Non-Priority Customer Complex Orders Taker Fees in
Select Symbols from $0.50 to $0.38 per contract when an order that
executed against Priority Customer Complex Orders is entered by an
Affiliated Member or Affiliated Entity. Today, Affiliated Members and
Affiliated Entities may aggregate certain volume for purposes of
receiving increased rebates or discounted fees.\29\ The Exchange's
proposal is reasonable because it would offer Members the opportunity
to lower their Non-Priority Customer Complex Order Taker Fee in Select
Symbols, provided they execute against Priority Customer Complex Orders
in Select Symbols that was entered by an Affiliated Member or
Affiliated Entity. The proposal to exclude Complex Orders executed in
the Exchange's various auction mechanisms from the proposed Non-
Priority Customer Complex Order surcharge is reasonable because those
auction mechanisms are subject to separate pricing. Proposed note 3
would incentivize Members to execute orders on ISE in an effort to pay
a lower Non-Priority Customer Complex Order Taker Fee in Select
Symbols. The Exchange believes that the proposed note 3 reduced Complex
Order Non-Priority Customer Taker Fee for Select Symbols will attract
order flow to ISE. As proposed, Priority Customers are eligible for
increased Complex Order Rebates and continue to pay no Complex Order
Taker Fees. The Exchange believes that the higher Complex Order
Priority Customer Rebates and the $0.00 per contract Complex Order
Priority Customer Taker Fee taken together with the opportunity for a
lower Complex Order Non-Priority Customer Taker Fee for Select Symbols,
will continue to encourage an active and liquid market in Non-Select
Symbols on ISE. Also, the Exchange proposes to continue to incentivize
certain Members, who are not Affiliated Members or Affiliated Entities,
to enter into such a relationship for the purpose of aggregating volume
executed on the Exchange to qualify to reduce their Complex Order Non-
Priority Customer Taker Fee in Select Symbols.
---------------------------------------------------------------------------
\29\ Affiliated Members may not qualify as a counterparty
comprising an Affiliated Entity. See Options 7, Section 1(c).
---------------------------------------------------------------------------
The Exchange's proposal to amend note 3 within Options 7, Section 4
with respect to Complex Order Taker Fees for Select Symbols is
equitable and not unfairly discriminatory because all Non-Priority
Customers would be assessed a lower Complex Order Taker Fee in Select
Symbols when executing against Priority Customer Complex Orders in
Select Symbols entered by an Affiliated Member or Affiliated Entity.
Priority Customers pay no Complex Order Taker Fees in Select Symbols
and, therefore, are not offered the lower fee. Additionally, offering
Members the opportunity to lower their Non-Priority Customer Complex
Order Taker Fee in Select Symbols provided they execute against
Priority Customer Complex Orders in Select Symbols that was entered by
an Affiliated Member or Affiliated Entity is equitable and not unfairly
discriminatory as it relates to Members who are not Affiliated Members
or Affiliated Entities because any Member may enter into such a
relationship for the purpose of aggregating volume executed on the
Exchange to qualify to reduce their Complex Order Non-Priority Customer
Taker Fee in Select Symbols. Finally, the criteria for assessing the
lower Non-Priority Customer Complex Orders Taker Fee would be uniformly
applied all Members.
The Exchange's proposal to amend note 8 within Options 7, Section 4
related to Complex Orders to increase the surcharge from $0.05 to $0.12
per contract is reasonable because the Exchange is also increasing the
Complex Order Priority Customer Rebates. The surcharge was originally
adopted to offset the costs of providing the Complex Order Priority
Customer Rebates.\30\ Assessing this surcharge to only those orders
that take liquidity from the market is reasonable because the Exchange
wants to continue to encourage market participation for those
participants that seek to add liquidity on ISE. Additionally, the
Exchange's proposal to assess the surcharge to Non-Priority Customer
Complex Orders that take liquidity from the Complex Order Book when
those orders are executed against Priority Customer Complex Orders is
reasonable because it will more closely align the surcharge to the
Complex Order Priority Customer Rebates.
---------------------------------------------------------------------------
\30\ See Securities Exchange Act Release No. 82644 (February 6,
2018), 83 FR 6069 (February 12, 2018) (SR-ISE-2018-10) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
the Exchange's Schedule of Fees To Modify Complex Order Fees and
Rebates).
---------------------------------------------------------------------------
Continuing to exclude Complex Orders executed in the Facilitation
Mechanism, Solicited Order Mechanism, and Price Improvement Mechanism
from the proposed Non-Priority Customer Complex Order surcharge is
reasonable because those auction mechanisms are subject to separate
pricing. The Exchange desires to continue to encourage participation
within those auction mechanisms. Subjecting Exposure Complex Orders and
Exposure Only Complex Orders pursuant to Options 3, Section 14(b)(13)
and (14) to the note 8 surcharge is reasonable because there is no
separate pricing for these order types that are entered into Complex
Exposure within Supplementary .01 to Options 3, Section 14. These order
types are exposed upon entry and may not be entered on the Complex
Order Book. The Exchange believes it is reasonable to subject Exposure
Complex Orders and Exposure Only Complex Orders to the same pricing as
other orders entered into the Complex Order Book which would include
the Non-Priority Customer Complex Order surcharge. With this amendment,
the Exchange seeks to fortify Member participation in the Complex Order
Priority Customer rebate program and incentivize increased Complex
Order volume on the Exchange. Finally, applying note 8 to Taker Fees
for Select Symbols as well as Non-Select Symbols is reasonable because
the Exchange offers Complex Order Priority Customer Rebates for both
Select Symbols and Non-Select Symbols. The surcharge is designed to
offset the costs of providing the
[[Page 392]]
Complex Order Priority Customer Rebates.
The Exchange's proposal to amend note 8 within Options 7, Section 4
related to Complex Orders to increase the surcharge from $0.05 to $0.12
per contract is equitable and not unfairly discriminatory because the
surcharge would be uniformly applied to all Members who transact Non-
Priority Customer Complex Orders that take liquidity from the Complex
Order Book, including Exposure Complex Orders and Exposure Only Complex
Orders, when executed against Priority Customer Complex Orders,
excluding Complex Orders executed in the Facilitation Mechanism,
Solicited Order Mechanism, and Price Improvement Mechanism.
Additionally, the criteria for assessing the surcharge would be
uniformly applied to all Members for Taker Fees in both Select and Non-
Select Symbols. Continuing to exclude Complex Orders executed in the
Facilitation Mechanism, Solicited Order Mechanism, and Price
Improvement Mechanism from the proposed Non-Priority Customer Complex
Order surcharge is equitable and not unfairly discriminatory because
those auction mechanisms are subject to separate pricing. The Exchange
desires to continue to encourage participation within those auction
mechanisms. Subjecting Exposure Complex Orders and Exposure Only
Complex Orders pursuant to Options 3, Section 14(b)(13) and (14) to the
note 8 surcharge is equitable and not unfairly discriminatory because
there is no separate pricing for these order types that are entered
into Complex Exposure within Supplementary .01 to Options 3, Section
14. These order types are exposed upon entry and may not be entered on
the Complex Order Book. The Exchange believes it is equitable and not
unfairly discriminatory to subject Exposure Complex Orders and Exposure
Only Complex Orders to the same pricing as other orders entered into
the Complex Order Book which would include the Non-Priority Customer
Complex Order surcharge. Any Member may utilize the Facilitation
Mechanism, the Solicited Order Mechanism, and the Price Improvement
Mechanism \31\ as well as Exposure Complex Orders and Exposure Only
Complex Orders.
---------------------------------------------------------------------------
\31\ The Exchange notes that with respect to the Price
Improvement Mechanism, an Initiating Order may not be a solicited
order for the account of any Exchange Lead Market Maker, SQT, RSQT
or non-streaming Market Maker assigned in the affected series. See
Options 3, Section 13(a)(8).
---------------------------------------------------------------------------
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.
Intermarket Competition
The Exchange operates in a highly competitive market in which
market participants can readily favor competing venues if they deem fee
levels at a particular venue to be excessive, or rebate opportunities
available at other venues to be more favorable. In such an environment,
the Exchange must continually adjust its fees to remain competitive
with other exchanges. Because competitors are free to modify their own
fees in response, and because market participants may readily adjust
their order routing practices, the Exchange believes that the degree to
which pricing changes in this market may impose any burden on
competition is extremely limited because other options exchanges offer
similar rebate programs as well as maker/taker pricing.\32\
---------------------------------------------------------------------------
\32\ See MIAX Emerald's Fee Schedule.
---------------------------------------------------------------------------
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.
Intramarket Competition
The Exchange's proposal to amend Complex Order Tiers 6 through 10
of the Priority Customer Rebates for Select Symbols and Non-Select does
not impose an undue burden on competition. Today, Complex Order Rebates
are only offered to Priority Customer Complex Orders. Priority Customer
liquidity is the most sought after liquidity. Priority Customer
liquidity benefits all market participants by providing more trading
opportunities, which attracts Market Makers. An increase in the
activity of these market participants in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants. Paying Complex Order Priority
Customer Rebates is consistent with the treatment of Priority Customers
on MIAX Emerald, LLC where orders from Priority Customers are also paid
the highest rebates.\33\
---------------------------------------------------------------------------
\33\ See MIAX Emerald's Fee Schedule.
---------------------------------------------------------------------------
The Exchange's proposal to increase the Complex Order Taker Fees
for Non-Select Symbols does not impose an undue burden on competition
because all Non-Priority Customers would uniformly be assessed a $0.98
per contract Complex Order Taker Fee for Non-Select Symbols. Priority
Customers would continue to be assessed no Complex Order Taker Fee for
Non-Select Symbols. Priority Customer liquidity is the most sought
after liquidity. Priority Customer liquidity benefits all market
participants by providing more trading opportunities, which attracts
Market Makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
The Exchange's proposal to amend note 3 within Options 7, Section 4
with respect to Complex Order Taker Fees for Select Symbols does not
impose an undue burden on competition because all Non-Priority
Customers would be assessed a lower Complex Order Taker Fee in Select
Symbols when executing against Priority Customer Complex Orders in
Select Symbols entered by an Affiliated Member or Affiliated Entity.
Priority Customers pay no Complex Order Taker Fees in Select Symbols
and, therefore, are not offered the lower fee. Additionally, offering
Members the opportunity to lower their Non-Priority Customer Complex
Order Taker Fee in Select Symbols provided they execute against
Priority Customer Complex Orders in Select Symbols that was entered by
an Affiliated Member or Affiliated Entity does not impose an undue
burden on competition as it relates to Members who are not Affiliated
Members or Affiliated Entities because any Member may enter into such a
relationship for the purpose of aggregating volume executed on the
Exchange to qualify to reduce their Complex Order Non-Priority Customer
Taker Fee in Select Symbols. Finally, the criteria for assessing the
lower Non-Priority Customer Complex Orders Taker Fee would be uniformly
applied all Members.
The Exchange's proposal to amend note 8 within Options 7, Section 4
related to Complex Orders to increase the surcharge from $0.05 to $0.12
per contract does not impose an undue burden on competition because the
surcharge would be uniformly applied
[[Page 393]]
to all Members who transact Non-Priority Customer Complex Orders that
take liquidity from the Complex Order Book, including Exposure Complex
Orders and Exposure Only Complex Orders, when executed against Priority
Customer Complex Orders, excluding Complex Orders executed in the
Facilitation Mechanism, Solicited Order Mechanism, and Price
Improvement Mechanism. Additionally, the criteria for assessing the
surcharge would be uniformly applied to all Members for Taker Fees in
both Select and Non-Select Symbols. Continuing to exclude Complex
Orders executed in the Facilitation Mechanism, Solicited Order
Mechanism, and Price Improvement Mechanism from the proposed Non-
Priority Customer Complex Order surcharge is equitable and not unfairly
discriminatory because those auction mechanisms are subject to separate
pricing. The Exchange desires to continue to encourage participation
within those auction mechanisms. Subjecting Exposure Complex Orders and
Exposure Only Complex Orders pursuant to Options 3, Section 14(b)(13)
and (14) to the note 8 surcharge is equitable and not unfairly
discriminatory because there is no separate pricing for these order
types that are entered into Complex Exposure within Supplementary .01
to Options 3, Section 14. These order types are exposed upon entry and
may not be entered on the Complex Order Book. The Exchange believes it
is equitable and not unfairly discriminatory to subject Exposure
Complex Orders and Exposure Only Complex Orders to the same pricing as
other orders entered into the Complex Order Book which would include
the Non-Priority Customer Complex Order surcharge. Any Member may
utilize the Facilitation Mechanism, the Solicited Order Mechanism, and
the Price Improvement Mechanism \34\ as well as Exposure Complex Orders
and Exposure Only Complex Orders.
---------------------------------------------------------------------------
\34\ The Exchange notes that with respect to the Price
Improvement Mechanism, an Initiating Order may not be a solicited
order for the account of any Exchange Lead Market Maker, SQT, RSQT
or non-streaming Market Maker assigned in the affected series. See
Options 3, Section 13(a)(8).
---------------------------------------------------------------------------
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 \35\ and Rule 19b-4(f)(2) \36\ 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.
---------------------------------------------------------------------------
\35\ 15 U.S.C. 78s(b)(3)(A)(ii).
\36\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-ISE-2022-29 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-2022-29. 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-2022-29 and should be submitted on
or before January 25, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
---------------------------------------------------------------------------
\37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-28544 Filed 1-3-23; 8:45 am]
BILLING CODE 8011-01-P
