[Federal Register Volume 89, Number 20 (Tuesday, January 30, 2024)]
[Notices]
[Pages 5971-5974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-01750]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99424; File No. SR-ISE-2024-04]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, 
Section 4

January 24, 2024.
    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 January 12, 2024, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Pricing Schedule at 
Options 7.\3\
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    \3\ The Exchange initially filed the proposed pricing change on 
January 2, 2024 (SR-ISE-2024-01). On January 12, 2024, the Exchange 
withdrew that filing and submitted this filing.
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    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 purpose of the proposed rule change is to amend the Exchange's 
Pricing Schedule at Options 7, Section 4, Complex Order Fees and 
Rebates, to amend note 9 related to the Complex Order Fee for PIM 
Orders.\4\
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    \4\ The PIM 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. See Options 3, Section 13.
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    Today, the Exchange assesses a $0.10 per contract Complex Order Fee 
for PIM Orders to all Non-Priority Customer \5\ market participants 
(Market Makers,\6\ Firm Proprietary \7\/Broker Dealers,\8\ and 
Professional Customers,\9\) in Select \10\ and Non-Select \11\ Symbols. 
Today, Priority Customers \12\ are not assessed Complex Order Fee for 
PIM Orders in Select and Non-Select Symbols. Today, note 9 to Options 
7, Section 4, reduces the $0.10 per contract fee to $0.05 per contract 
for all Non-Priority Customer orders provided Members execute an 
average daily volume (``ADV'') of 7,500 or more contracts in the PIM in 
a given month. Further, the $0.10 per contract Complex Order Fee for 
PIM Orders is reduced to $0.00 per contract for all Member orders 
provided the Members execute an ADV of 12,500 or more contracts in the 
Complex PIM. The Exchange applies the discounted fees retroactively to 
all eligible Complex PIM volume in that month once the threshold has 
been reached. Additionally, Complex Order Fees for PIM Orders 
(including Complex PIM Orders) apply to the originating and contra 
order.\13\
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    \5\ ``Non-Priority Customers'' include Market Makers, Non-Nasdaq 
ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and 
Professional Customers. See Options 7, Section 1(c).
    \6\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21).
    \7\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account. See Options 7, Section 1(c).
    \8\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account. 
See Options 7, Section 1(c).
    \9\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer. See Options 7, 
Section 1(c).
    \10\ ``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).
    \11\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols. See Options 7, Section 1(c).
    \12\ A ``Priority Customer'' is a person or entity that is not a 
broker/dealer in securities, and does not place more than 390 orders 
in listed options per day on average during a calendar month for its 
own beneficial account(s), as defined in Nasdaq ISE Options 1, 
Section 1(a)(37). Unless otherwise noted, when used in this Pricing 
Schedule the term ``Priority Customer'' includes ``Retail'' as 
defined below. See Options 7, Section 1(c).
    \13\ See note 11 of Options 7, Section 4.
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Proposal
    At this time, the Exchange proposes to amend note 9 of Options 7, 
Section 4 to revise the second sentence to instead provide that ``Other 
than for Priority Customer orders, Members that execute an ADV of 
12,500 or more contracts in a given month in the Complex PIM will be 
charged a $0.02 per contract fee.'' The Exchange will continue to 
reduce the Complex Order Fees for PIM Orders from $0.10 to $0.05 per 
contract for all Non-Priority Customers that execute an ADV of 7,500 or 
more contracts in the Complex PIM in a given month. At this time, the 
Exchange would decrease the reduction for Complex Order Fees for 
Complex PIM Orders for Non-Priority

[[Page 5972]]

Customers that execute an ADV of 12,500 or more contracts in a given 
month in the Complex PIM. Today, Priority Customers pay no Complex 
Order Fees for PIM Orders. Today, Members that execute an ADV of 12,500 
or more contracts in a given month in the Complex PIM pay no Complex 
Order Fees for PIM Orders, except for Priority Customers who pay no 
Complex Order Fees for any PIM Orders. With this change, Non-Priority 
Customers would pay a $0.02 per contract fee for Complex Order Fees for 
Complex PIM Orders, provided they execute an ADV of 12,500 or more 
contracts in a given month in the Complex PIM.
    The Exchange proposes to amend note 9 of Options 7, Section 4 to 
add the words ``Complex Fee for PIM Orders'' in place of ``fee'' to 
make clear the applicable fee. Today, the Exchange assesses Regular 
Order \14\ and Complex Order \15\ PIM Fees. The addition of the words 
``Complex Fee for PIM Orders'' clarifies that the fee in note 9 is a 
Complex Order fee. The Exchange proposes to add the words ``Other than 
for Priority Customer orders,'' to the beginning of the second 
sentence, similar to the first sentence, because Priority Customers pay 
no Complex Order Fee for PIM Orders today and would not have a fee to 
reduce. Additionally, the Exchange proposes to add the words ``in a 
given month'' to the second sentence, similar to the first sentence, to 
make clear the time period in which Members must execute the required 
ADV. Finally, the Exchange proposes to amend note 9 of Options 7, 
Section 4 to add the word ``Complex'' before ``PIM'' to make clear the 
note applies to Complex PIM Orders.
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    \14\ See Options 7, Section 3, Regular Order Fees and Rebates.
    \15\ See Options 7, Section 4, Complex Order Fees and Rebates.
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    Despite the decrease in the discount, the Exchange will continue to 
offer Non-Priority Customers an opportunity to pay a lower Complex 
Order Fees for PIM Orders.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\16\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\17\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to its Pricing Schedule are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for options 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \18\
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    \18\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \19\
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    \19\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options security transaction services. The Exchange is only one of 
seventeen options exchanges to which market participants may direct 
their order flow. Within this environment, market participants can 
freely and often do shift their order flow among the Exchange and 
competing venues in response to changes in their respective pricing 
schedules. As such, the proposal represents a reasonable attempt by the 
Exchange to increase its liquidity and market share relative to its 
competitors.
    The Exchange's proposal to amend note 9 of Options 7, Section 4 to 
decrease the reduction in the Complex Order Fee for PIM Orders for Non-
Priority Customers that execute an ADV of 12,500 or more contracts in a 
given month in the Complex PIM from paying no fee to paying $0.02 per 
contract is reasonable because, despite the decrease in the discount, 
the Exchange will continue to offer Non-Priority Customers an 
opportunity to pay a lower Complex Order Fees for PIM Orders from $0.10 
to $0.02 per contract. Additionally, the Exchange will continue to 
reduce the Complex Order Fees for Complex PIM Orders from $0.10 to 
$0.05 per contract for all Non-Priority Customers that execute an ADV 
of 7,500 or more contracts in the Complex PIM in a given month. Unlike 
other market participants, Priority Customers pay no Complex Order Fee 
for PIM Orders. The proposed $0.02 per contract Complex Order Fee for 
PIM Orders for Non-Priority Customers that execute an ADV of 12,500 or 
more contracts in a given month in the Complex PIM is competitive and 
remains lower than comparable fees at other options exchanges. BOX 
Exchange LLC (``BOX'') assesses a $0.05 per contract fee to its 
Professional Customer or Broker-Dealer and Market Maker for Complex 
Order Price Improvement Period (``COPIP'') Orders.\20\ Additionally, 
Miami International Securities Exchange, Inc. (``MIAX'') assesses a 
$0.30 per contract fee to Public Customers that are not a Priority 
Customer, MIAX Market Maker, Non-MIAX Market Maker, Non-Member Broker-
Dealer and Firm in its Complex Price Improvement Mechanism 
(``cPRIME'').\21\
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    \20\ See BOX's Fee Schedule.
    \21\ See MIAX's Fee Schedule.
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    The Exchange's proposal to amend note 9 of Options 7, Section 4 to 
decrease the reduction in the Complex Order Fee for PIM Orders for Non-
Priority Customers that execute an ADV of 12,500 or more contracts in a 
given month in the Complex PIM from paying no fee to paying $0.02 per 
contract is equitable and not unfairly discriminatory because all Non-
Priority Customers are eligible for the discount and would uniformly be 
assessed the lower fee provided they executed the requisite volume in a 
given month in the Complex PIM. Priority Customers are not eligible for 
the discount because they pay no Complex Order Fee for PIM Orders. 
Priority Customer liquidity benefits all market participants by 
providing more trading opportunities which attracts market makers. An

[[Page 5973]]

increase in the activity of these market participants (particularly in 
response to pricing) in turn facilitates tighter spreads which may 
cause an additional corresponding increase in order flow from other 
market participants. Attracting more liquidity from Priority Customers 
will benefit all market participants that trade on the ISE.
    The Exchange's proposal to amend note 9 of Options 7, Section 4 to 
add the words ``Complex Fee for PIM Orders'' in place of ``fee'' to 
make clear the applicable fee is reasonable because the addition of 
these words makes clear that the fees in note 9 are Complex Order fees 
as compared to Regular Order fees. The Exchange's proposal to add the 
words ``Other than for Priority Customer orders,'' to the beginning of 
the second sentence, similar to the first sentence, is reasonable 
because Priority Customers pay no Complex Order Fee for PIM Orders 
today and would not have a fee to reduce. The addition of the language 
makes clear that the fees apply to Non-Priority Customers. The 
Exchange's proposal to add the words ``in a given month'' to the second 
sentence, similar to the first sentence, is reasonable because it makes 
clear the time period in which Members must execute the required ADV. 
Finally, the Exchange's proposal to amend note 9 of Options 7, Section 
4 to add the word ``Complex'' before ``PIM'' is reasonable because it 
makes clear the note applies to Complex PIM Orders and not Regular PIM 
Orders. The technical amendments to the rule text of note 9 are 
intended to clarify the current rule text and do not substantively 
amend the rule text. The Exchange also believes the aforementioned 
technical amendments to the rule text of note 9 are equitable and not 
unfairly discriminatory as the rule text does not impact any Member.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
    In terms of inter-market competition, the Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem fee levels at a 
particular venue to be excessive, or rebate opportunities available at 
other venues to be more favorable. In such an environment, the Exchange 
must continually adjust its fees to remain competitive with other 
exchanges. Because competitors are free to modify their own fees in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee changes in this market may impose any burden on competition is 
extremely limited. 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.
    In terms of intra-market competition, the Exchange does not believe 
that this proposal will place any category of market participant at a 
competitive disadvantage. The Exchange's proposal to amend note 9 of 
Options 7, Section 4 to decrease the reduction in the Complex Order Fee 
for PIM Orders for Non-Priority Customers that execute an ADV of 12,500 
or more contracts in a given month in the Complex PIM from paying no 
fee to paying $0.02 per contract does not impose an undue burden on 
competition because all Non-Priority Customers are eligible for the 
discount and would uniformly be assessed the lower fee provided they 
executed the requisite volume in a given month in the Complex PIM. 
Unlike other market participants, Priority Customers are not eligible 
for the discount because they pay no Complex Order Fee for PIM Orders. 
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 (particularly in 
response to pricing) in turn facilitates tighter spreads which may 
cause an additional corresponding increase in order flow from other 
market participants. Attracting more liquidity from Priority Customers 
will benefit all market participants that trade on the ISE.
    The Exchange's proposal to amend note 9 of Options 7, Section 4 to 
add the words ``Complex Fee for PIM Orders'' in place of ``fee'' to 
make clear the applicable fee does not impose an undue burden on 
competition because the addition of these words makes clear that the 
fees in note 9 are Complex Order fees as compared to Regular Order 
fees. The Exchange's proposal to add the words ``Other than for 
Priority Customer orders,'' to the beginning of the second sentence, 
similar to the first sentence, does not impose an undue burden on 
competition because Priority Customers pay no Complex Order Fee for PIM 
Orders today and would not have a fee to reduce. Further, the addition 
of the language makes clear that the fees apply to Non-Priority 
Customers. The Exchange's proposal to add the words ``in a given 
month'' to the second sentence, similar to the first sentence, does not 
impose an undue burden on competition because it makes clear the time 
period in which Members must execute the required ADV. Finally, the 
Exchange's proposal to amend note 9 of Options 7, Section 4 to add the 
word ``Complex'' before ``PIM'' does not impose an undue burden on 
competition because it makes clear the note applies to Complex PIM 
Orders and not Regular PIM Orders. These technical amendments to the 
rule text of note 9 are intended to clarify the current rule text. The 
technical amendments do not substantively amend the rule text and do 
not impact any Member.

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 \22\ and Rule 19b-4(f)(2) \23\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is: (i) necessary or 
appropriate in the public interest; (ii) for the protection of 
investors; or (iii) otherwise in furtherance of the purposes of the 
Act. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or disapproved.
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    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \23\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#89fbfce5eca4eae6e4e4ece7fdfac9faeceaa7eee6ff"><span class="__cf_email__" data-cfemail="186a6d747d357b7775757d766c6b586b7d7b367f776e">[email protected]</span></a>. Please include 
file number SR-ISE-2024-04 on the subject line.

[[Page 5974]]

Paper Comments

    <bullet> 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-2024-04. 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-ISE-2024-04 and should be 
submitted on or before February 20, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01750 Filed 1-29-24; 8:45 am]
BILLING CODE 8011-01-P


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