66826 Federal Register / Vol. 83, No. 247 / Thursday, December 27, 2018 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 ‘‘Market Makers’’ refers to ‘‘Competitive Market 

Makers’’ and ‘‘Primary Market Makers’’ collectively. 

See Rule 100(a)(32). 

4BX Options Market Makers (including Lead 

Market Makers) can execute no more than 25% of 

their total volume outside of their registered options 

classes. See BX Options Rules, Chapter VII, Section 

6(e). In addition, CBOE Rule 8.7, Interpretations 

and Policies .03 provides that 75% of a MarketMaker’s total contract volume must be in classes to 

which the Market-Maker is appointed. Accordingly, 

only 25% of a CBOE Market-Maker’s contract 

volume can be in non-appointed classes. CBOE 

Rule 8.7 applies equally to Lead Market-Makers and 

Designated Primary Market-Makers in the same 

manner as Market-Makers. The Exchange also notes 

that NYSE Arca Options does not impose a strict 

percentage limitation on its market makers for 

transacting in non-appointed classes. See NYSE 

Arca Options Rules 6.37–O(d) and 6.37B–O. 

5 Id. 

6See Rule 804(e)(2). 7See Rule 804(e)(2). See also Securities Exchange 

Act Release No. 84580 (November 14, 2018), 83 FR 

58649 (November 20, 2018) (SR–ISE–2018–90). 

8See Rule 701(c)(3). 

9 15 U.S.C. 78f(b). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84859; File No. SR–ISE– 

2018–98] 

Self-Regulatory Organizations; Nasdaq 

ISE, LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Market 

Makers Trading in Non-Appointed 

Options Classes 

December 19, 2018. 

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 

12, 2018, Nasdaq ISE, LLC (‘‘ISE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Rule 805(b) relating to Market Makers 3

trading in non-appointed options 

classes. 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://ise.cchwallstreet.com/, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of this rule change is to 

amend Rule 805(b) relating to Market 

Makers trading in non-appointed 

options classes. 

Rule 805(b) presently governs the 

submission of orders by Market Makers 

in non-appointed options classes. 

Subparagraphs (b)(2) and (b)(3) place 

limitations on the overall percentage of 

executions that can occur in the nonappointed options classes. Specifically, 

subparagraph (b)(2) limits a Competitive 

Market Maker’s (‘‘CMM’’) total number 

of contracts executed in non-appointed 

options classes to 25% of the CMM’s 

total number of contracts executed in its 

appointed options classes and with 

respect to which it was quoting 

pursuant to Rule 804(e)(1), and 

subparagraph (b)(3) limits a Primary 

Market Maker’s (‘‘PMM’’) total number 

of contracts executed in non-appointed 

options classes to 10% of the PMM’s 

total number of contracts executed in its 

appointed classes. 

The Exchange now proposes in 

subparagraph (b)(3) to increase the 

overall percentage of executions that 

can occur in a PMM’s non-appointed 

options classes from 10% to 25% to 

align with the CMM allowance as well 

as other options exchanges, including 

its affiliated options market, BX 

Options.4 The Exchange adopted the 

10% volume limitation for PMMs as 

part of its application to be registered as 

a national securities exchange, and 

initially restricted PMMs in this manner 

because as a nascent exchange, it sought 

to promote PMM activity in their 

appointed options classes in order to 

encourage liquidity on the Exchange. 

Since then, there has been a 

proliferation of options classes added to 

the Exchange for trading, and the 

Exchange therefore believes that the 

10% limitation is restrictive in light of 

the current environment. The Exchange 

does not believe that its proposal will 

adversely impact the quality of the 

Exchange’s market or lead to a material 

decrease in liquidity. As noted above, 

other options exchanges are operating 

today with similar or more generous 

allowances for its market makers 

without sacrificing market quality, and 

the Exchange believes that its proposed 

increase will likewise not result in a 

decrease of market quality.5

Furthermore, Market Makers and in 

particular, PMMs, will continue to be 

subject to the highest standard 

applicable on the Exchange to provide 

liquidity. For instance as set forth in 

Rule 804(e)(2), PMMs are held to the 

highest quoting standards on the 

Exchange. Specifically, PMMs are 

required to provide two-sided 

quotations in 90% of the cumulative 

number of seconds for which that 

PMM’s appointed options class is open 

for trading.6 Furthermore, PMMs are 

required to quote in certain options 

series of their appointed classes that are 

excluded from the quoting requirements 

of CMMs (i.e., Quarterly Options Series, 

Adjusted Options Series, and long-term 

options). In addition, the Exchange can 

announce a higher percentage than the 

current 90% quoting requirement if 

doing so would be in the interest of a 

fair and orderly market.7 PMMs are also 

required to enter quotes in their 

appointed options classes and 

participate in the Opening Process.8

Accordingly, the Exchange believes that 

the foregoing obligations will continue 

to ensure that PMMs will provide 

liquidity in their appointed options 

classes notwithstanding the proposed 

increase in the trading allowance in 

non-appointed classes. 

In addition, the Exchange believes 

that the proposed increase in the overall 

percentage from 10% to 25% will bring 

ISE in line with other options 

exchanges, and permit its Market 

Makers to effectively compete with 

market makers on other options 

exchanges. Moreover, applying 

requirements that are substantially 

similar to other options exchanges will 

remove a significant compliance burden 

on market makers who provide liquidity 

across multiple options exchanges. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,9 in general, and furthers the 


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Federal Register / Vol. 83, No. 247 / Thursday, December 27, 2018 / Notices 66827 

10 15 U.S.C. 78f(b)(5). 

11See note 4 above. 

12See notes 6 ¥ 8 above, with accompanying 

text. 

13See e.g., Securities Exchange Act Release No. 

35786 (May 31, 1995), 60 FR 30122 (June 7, 1995) 

(SR–Amex–94–51) (order approving proposal by 

American Stock Exchange, Inc. relating to the in 

person trading volume requirement for registered 

options traders). 

14See Rule 803(b)(1)—(4). 

15See notes 6 and 7 above, with accompanying 

text. 

16See Rule 803(d)(1) and (2). 

17See note 4 above. 

objectives of Section 6(b)(5) of the Act,10

in particular, in that it is designed to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general to protect 

investors and the public interest. In 

particular, the Exchange believes that 

the proposed rule change promotes just 

and equitable principles of trade 

because it reduces an outdated 

restriction on PMMs, and simplifies the 

application of the rule by imposing the 

same 25% volume limitation on all 

Market Makers. The purpose of limiting 

the number of contracts executed in 

non-appointed classes to a small 

percentage of contracts executed in 

appointed classes was to encourage 

Market Makers to provide liquidity in 

their appointed classes. As discussed 

above, the Exchange initially adopted 

the 10% volume limitation for PMMs 

because as a nascent exchange, it sought 

to promote PMM activity in their 

appointed options classes in order to 

encourage liquidity on the Exchange. 

Since then, there has been a 

proliferation of options classes added to 

the Exchange for trading, and the 

Exchange therefore believes that the 

10% limitation is restrictive in light of 

the current environment. Other options 

exchanges are operating today with 

similar or more generous allowances for 

its market makers without sacrificing 

market quality, and the Exchange 

therefore believes that the proposed 

increase will not result in a decrease of 

quality on its own market.11 In addition, 

the Exchange believes that the 

heightened obligations for PMMs to 

participate in the Opening Process and 

provide intra-day quotes will continue 

to ensure that PMMs provide liquidity 

in their appointed options classes 

notwithstanding the proposed increase 

in the trading allowance in nonappointed classes.12 As discussed 

above, the proposed rule change will 

also conform ISE’s Market Maker 

obligations to the requirements of other 

options markets, which will promote 

the application of consistent compliance 

standards for market makers who 

provide liquidity across multiple 

options exchanges. 

Furthermore, such volume limitations 

were traditionally put in place and 

especially important at ‘‘floor-based’’ 

exchanges, since market makers were 

limited in the number of classes in 

which they could physically make 

markets, and it was in the floor-based 

exchange’s interest that market makers 

focus their market making abilities on 

their appointed classes.13 Although 

limitations on trading in non-appointed 

classes may be less important on a fully 

electronic exchange since electronic 

quoting and trading systems allow 

market makers to make markets and 

provide liquidity in many more options 

classes than on a floor-based exchange, 

ISE still believes focusing its Market 

Makers on trading in their appointed 

classes is important for providing 

liquidity in those classes. In this 

respect, the Exchange believes that its 

proposal would continue to meet that 

objective because the proposed 

limitation for PMMs would still require 

that a substantial percentage (i.e., 75%) 

of a PMM’s transactions be effected in 

their appointed classes. 

Finally, in determining to revise 

requirements for its Market Makers, the 

Exchange is mindful of the balance 

between the obligations and benefits 

provided to Market Makers. While the 

proposal will change obligations 

currently in place for Market Makers, 

the Exchange does not believe that these 

changes reduce the overall obligations 

applicable to Market Makers. In this 

respect, the Exchange still imposes 

many obligations on Market Makers to 

maintain a fair and orderly market in 

their appointed classes, which the 

Exchange believes eliminates the risk of 

a material decrease in liquidity.14 In 

addition, Market Makers are required to 

abide by quoting requirements in their 

appointed options classes in order to 

maintain the status of a Market Maker, 

and PMMs in particular are held to the 

highest quoting standards on the 

Exchange.15 As further discussed above, 

PMMs are also required to enter quotes 

and participate during the Opening 

Process, pursuant to Rule 701. Lastly, 

the Exchange also notes that for nonappointed options classes of Market 

Makers, Rule 803(d) would continue to 

prohibit a Market Maker from engaging 

in transactions for an account in which 

it has an interest that are 

disproportionate in relation to, or in 

derogation of, the performance of its 

obligations as specified in Rule 803(b) 

with respect to its appointed options 

classes. In particular, Market Makers 

would be prohibited from (1) 

individually or as a group, intentionally 

or unintentionally, dominating the 

market in options contracts of a 

particular class and (2) effecting 

purchases or sales on the Exchange 

except in a reasonable and orderly 

manner.16 Accordingly, the proposal 

supports the quality of the Exchange’s 

markets by helping to ensure that 

Market Makers and in particular, PMMs, 

will continue to be obligated to and 

have incentives to provide liquidity in 

their appointed classes. Ultimately, the 

benefit that the proposed rule change 

confers upon PMMs by increasing the 

percentage of contracts executed in the 

PMM’s non-appointed classes from 10% 

to 25% is offset by the PMM’s continued 

responsibilities to provide significant 

liquidity to the market to the benefit of 

market participants. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange does not believe that its 

proposal will impose an undue burden 

on intra-market competition because it 

will align the percentage limitations for 

both PMMs and CMMs to 25% of their 

non-appointed classes, and will treat all 

Market Makers uniformly in this 

respect. In terms of inter-market 

competition, the Exchange operates in a 

highly competitive market in which 

market participants can send order flow 

to competing exchanges if they deem 

trading practices at a particular 

exchange to be onerous or cumbersome. 

The proposal to increase the limitation 

on the percentage of contracts executed 

in a PMM’s non-appointed classes from 

10% to 25% will serve to better align 

the Exchange’s requirements with those 

in place at other options exchanges, 

which enhances the ability of its Market 

Makers to effectively compete with 

market makers on other options 

exchanges.17

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 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 


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66828 Federal Register / Vol. 83, No. 247 / Thursday, December 27, 2018 / Notices 

18 15 U.S.C. 78s(b)(3)(A)(iii). 

19 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

the proposed rule change at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Exchange has satisfied this 

requirement. 

20 17 CFR 240.19b–4(f)(6). 

21 17 CFR 240.19b–4(f)(6)(iii). 

22For purposes only of waiving the 30-day 

operative delay, the Commission also has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 23 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A)(iii) of the Act 18 and 

subparagraph (f)(6) of Rule 19b–4 

thereunder.19

A proposed rule change filed 

pursuant to Rule 19b–4(f)(6) under the 

Act 20 normally does not become 

operative for 30 days after the date of its 

filing. However, Rule 19b–4(f)(6)(iii) 21

permits the Commission to designate a 

shorter time if such action is consistent 

with the protection of investors and the 

public interest. ISE has requested that 

the Commission waive the 30-day 

operative delay contained in Rule 19b– 

4(f)(6)(iii). The Commission believes 

that waiver of the 30-day operative 

delay is consistent with the protection 

of investors and the public interest. The 

proposal raises no novel issues. As the 

Exchange notes, other options markets 

require their market makers to a 25% 

restriction for trading in non-appointed 

classes. Further, pursuant to the 

proposal, PMMs’ obligation to their 

appointed classes would remain 

unchanged. Accordingly, the 

Commission waives the operative delay 

and designates the proposed rule change 

operative upon filing.22

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 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. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

ISE–2018–98 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–2018–98. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. 

All submissions should refer to File 

Number SR–ISE–2018–98 and should be 

submitted on or before January 17, 2019. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.23

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–28003 Filed 12–26–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84855; File No. SR–FINRA– 

2018–041] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Make Technical 

Revisions and One Minor Correction to 

the Supplemental Statement of Income 

Required To Be Filed Pursuant to 

FINRA Rule 4524 (Supplemental 

FOCUS Information) 

December 19, 2018. 

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 

12, 2018, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) 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 FINRA. FINRA has 

designated the proposed rule change as 

constituting a ‘‘non-controversial’’ rule 

change under paragraph (f)(6) of Rule 

19b–4 under the Act,3 which renders 

the proposal effective upon receipt of 

this filing by the Commission. 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 

FINRA is proposing a rule change to 

make technical revisions and one minor 

correction to the Supplemental 

Statement of Income (‘‘SSOI’’) required 

to be filed pursuant to FINRA Rule 4524 

(Supplemental FOCUS Information). 

The technical revisions would conform 

the SSOI with amendments to SEC Form 

X–17A–5 (the ‘‘FOCUS Report’’) that the 

SEC has adopted. 

The text of the proposed rule change 

is available on FINRA’s website at 

http://www.finra.org, at the principal 

office of FINRA 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, 

FINRA included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 


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