[Federal Register Volume 82, Number 209 (Tuesday, October 31, 2017)]
[Notices]
[Pages 50469-50472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23580]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81941; File No. SR-ISE-2017-93]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rules for 
Excluding Days From the Exchange's ADV and Market Maker Plus Tier 
Calculations in the Schedule of Fees

October 25, 2017.
    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 October 11, 2017, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's provisions for 
excluding a day from its volume calculations for purposes of 
determining volume based pricing, and to adopt language that allows the 
Exchange to remove a day from Market Maker Plus tiers whenever a day is 
removed from the Exchange's volume calculations.
    The text of the proposed rule change is available on the Exchange's 
Web site at www.ise.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 the proposed rule change is to amend the Exchange's 
provisions for excluding a day from its volume calculations for 
purposes of determining volume based pricing, and to adopt language 
that allows the Exchange to remove a day from Market Maker Plus tiers 
whenever a day is removed from the Exchange's volume calculations.
    To avoid penalizing members when aberrant low volume days result 
from systems or other issues at the Exchange,

[[Page 50470]]

or where the Exchange closes early for holiday observance, the Exchange 
has language in its Schedule of Fees allowing it to exclude certain 
days from its average daily volume (``ADV'') calculations. Currently, 
language in the Exchange's Schedule of Fees provides that, for purposes 
of determining ADV for certain incentive programs,\3\ any day that the 
Exchange, or complex order book, as appropriate, is not open for the 
entire trading day or the Exchange instructs members in writing to 
route their orders to other markets may be excluded from such 
calculation; provided that the Exchange will only remove the day for 
members that would have a lower ADV with the day included. The proposed 
rule change would: (1) Apply the rules for excluding a day to all ADV 
calculations rather than specified incentive programs,\4\ and (2) 
remove the Exchange's ability to separately exclude a day for the 
regular and complex order books.\5\ As proposed, with these two 
changes, the Exchange's rules will state that any day that the market 
is not open for the entire trading day or the Exchange instructs 
members in writing to route their orders to other markets may be 
excluded from the ADV calculation; provided that the Exchange will only 
remove the day for members that would have a lower ADV with the day 
included. The Exchange will inform members of any day that is to be 
excluded from its ADV calculations through an Options Trader Alert.
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    \3\ The current language in the Schedule of Fees applies to the 
calculation of Priority Customer Complex ADV used to determine 
pricing for Priority Customer complex order tiers and a discounted 
Market Maker taker fee in complex orders. See Schedule of Fees, II. 
Complex Order Fees and Rebates. It also applies to the calculation 
of a member's ADV in unsolicited Crossing Orders for the Member 
Order Routing Program. See Schedule of Fees, IV. Other Options Fees 
and Rebates, E. Member Order Routing Program.
    \4\ See id. Since the proposed language will now apply to all 
current and future programs administered by the Exchange that are 
based on ADV, the Exchange proposes to move it to the Preface of its 
Schedule of Fees. For example, PIM and FX Options tiered pricing, 
currently in the Schedule of Fees at Sections III would now be 
subject to the proposed rule change in the Preface as a result of 
this rule change.
    \5\ See Securities Exchange Act Release No. 73601 (November 11, 
2014), 79 FR 69170 (November 20, 2014) (SR-ISE-2014-51).
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    Currently, the Exchange's rules for removing a day from its ADV 
calculations apply to specific ADV calculations. In particular, the 
Exchange can remove a day from tier calculations for the following 
programs: (1) Priority Customer complex order rebates,\6\ and a Market 
Maker taker fee discount in complex orders that is also based on 
Priority Customer Complex ADV; \7\ and (2) Member Order Routing Program 
rebates.\8\ The Exchange now believes that it is appropriate to expand 
this provision to cover all ADV calculations rather than limit it to 
specific enumerated programs. Applying this rule to all ADV 
calculations will benefit members by permitting the Exchange to exclude 
aberrant low volume days from its ADV calculations regardless of the 
specific pricing program impacted. As is the case today, the Exchange 
will only remove the day for members that would have a lower ADV with 
the day included.
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    \6\ The Exchange provides ADV based tiered rebates to Priority 
Customer complex orders that trade with non-Priority Customer orders 
in the complex order book or trade with quotes and orders on the 
regular order book. See Section I and II of ISE's Schedule of Fees.
    \7\ The Market Maker complex order taker fee in Select Symbols 
fee is reduced from $0.47 per contract to $0.44 per contract for 
Market Makers with total affiliated Priority Customer Complex ADV of 
150,000 or more contracts. See Section I of ISE's Schedule of Fees.
    \8\ The Member Order Routing Program is a program that provides 
tiered rebates to order routing firms that select the Exchange as 
the default routing destination for unsolicited Crossing Orders. See 
Section IV, E of the Schedule of Fees.
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    Furthermore, the current rules for removing a day may be applied 
separately for the regular and complex order books, allowing the 
Exchange to remove a day based on separate impact to the regular or 
complex market. In connection with the changes discussed above, the 
Exchange also proposes to eliminate the ability to separately exclude a 
day for the regular and complex order books by adding the general 
interpretation to the Preface section so that it applies universally. 
Although the Exchange had previously filed rule changes that consider 
the regular and complex order books separately, the Exchange no longer 
believes that it is necessary to do so, and will therefore not exclude 
days where, for example, only the complex order book experiences a 
systems issue. With this rule change the Exchange would generally 
exclude days for either the simple or complex order books where any 
systems issue occurs. The Exchange' tiers seek to incentive market 
participants to transact a greater amount of liquidity on the ISE 
markets. The Exchange does not desire to disincentive a member simply 
because the day is shortened due to a holiday or because the market has 
experienced an unexpected closure. The proposal seeks to provide market 
participants with the ability to plan for and in the case of unexpected 
events, not be harmed by shortened or closed days. By not considering 
the simple and complex order books separately, the Exchange believes 
that market participants will be incentivized to send both simple and 
complex order flow without concern on days whether a market event has 
occurred. This rule change will simplify the operation of this rule. 
The Exchange notes that NASDAQ PHLX, LLC (``Phlx''), which also trades 
complex orders, excludes a day for the entire market rather than only 
for a specific segment of order flow.\9\
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    \9\ See the Preface to Phlx's Pricing Schedule.
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    Finally, the Exchange operates a Market Maker Plus program that 
provides tiered rebates to Market Makers \10\ in Select Symbols \11\ 
based on time at the national best bid or offer (``NBBO''). 
Specifically, a Market Maker Plus is a Market Maker who is on the NBBO 
a specified percentage of the time for series trading between $0.03 and 
$3.00 (for options whose underlying stock's previous trading day's last 
sale price was less than or equal to $100) and between $0.10 and $3.00 
(for options whose underlying stock's previous trading day's last sale 
price was greater than $100) in premium in each of the front two 
expiration months. The specified percentage is at least 80% but lower 
than 85% of the time for Tier 1, at least 85% but lower than 95% of the 
time for Tier 2, and at least 95% of the time for Tier 3.\12\ Market 
Makers that qualify for Market Maker Plus receive a maker rebate for 
regular orders in Select Symbols of $0.15 per contract for Tier 1, 
$0.18 per contract for Tier 2,\13\ and $0.22 per contract for Tier 
3,\14\ instead of the regular maker fee of $0.10 per contract.\15\ 
Market Maker Plus is designed to reward Maker Makers that make quality 
markets. As discussed above, however, member

[[Page 50471]]

participation, including Market Maker participation, is generally lower 
on days when the Exchange is experiencing a system or other issue that 
results in the market not being open for the entire trading day or the 
Exchange instructing members in writing to route their orders to other 
markets. Similar to the treatment described above for ADV calculations, 
the Exchange similarly believes that it is appropriate to remove these 
days from the Market Maker Plus calculation to avoid penalizing Market 
Makers on days that the Exchange is experiencing an issue. The Exchange 
therefore proposes to adopt language that provides that, other than 
days where the Exchange closes early for holiday observance, any day 
that the market is not open for the entire trading day or the Exchange 
instructs members in writing to route their orders to other markets may 
be excluded from the Market Maker Plus tier calculation; provided that 
the Exchange will only remove the day for members that would have a 
lower time at the NBBO for the specified series with the day included.
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    \10\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(25).
    \11\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Pilot Program.
    \12\ A Market Maker's single best and single worst quoting days 
each month based on the front two expiration months, on a per symbol 
basis, will be excluded in calculating whether a Market Maker 
qualifies for this rebate, if doing so will qualify a Market Maker 
for the rebate.
    \13\ This rebate is $0.16 per contract in SPY and QQQ, except 
when trading against complex orders that leg into the regular book. 
A Market Maker that achieves Tier 2 Market Maker Plus in either SPY 
or QQQ will receive this rebate in both SPY and QQQ.
    \14\ This rebate is $0.20 per contract in SPY and QQQ, except 
when trading against complex orders that leg into the regular book 
under footnote 10 above. A Market Maker that achieves Tier 3 Market 
Maker Plus in either SPY or QQQ will receive this rebate in both SPY 
and QQQ.
    \15\ A $0.10 per contract fee applies when trading against 
Priority Customer complex orders that leg into the regular order 
book. There will be no fee charged or rebate provided when trading 
against non-Priority Customer complex orders that leg into the 
regular order book.
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    The proposed rule text would allow the Exchange to provide relief 
to Market Makers as to the Market Maker Plus tier calculation similar 
to that provided for ADV tiers, except that the Exchange does not 
proposes to use this authority to remove days from the Market Maker 
Plus tier calculation where the Exchange closes early for holiday 
observance. While Market Makers can plan for known events, such as a 
holiday, they are unable to plan for market events which may close the 
market for part of a trading day. The Exchange believes that permitting 
the exception for the unanticipated event therefore provides 
flexibility to Market Makers in anticipating where to send order flow. 
The Exchange desires to incentivize Market Makers to send order flow to 
ISE to meet their tier requirements.
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 believes that the proposed change to the ADV 
calculation is reasonable and equitable as it provides a new framework 
for removing days from the Exchange's volume calculations that the 
Exchange believes is beneficial to members. The proposed rule change 
would apply the rules for excluding a day to all ADV calculations 
rather than specified incentive programs, thereby further protecting 
members if the Exchange experiences a systems or other issue that 
results in a day being excluded from the Exchange's ADV calculations. 
Without this change, members would only have the day excluded for the 
specific ADV based pricing programs described in this filing, and would 
not get the benefit for other un-enumerated programs. While the 
Exchange had previously filed to separately consider the regular and 
complex books, the Exchange no longer believes that this authority is 
necessary. By not considering the simple and complex order books 
separately, the Exchange believes that market participants will be 
incentivized to send both simple and complex order flow without concern 
on days whether a market event has occurred. The Exchange believes that 
this change will make this rule easier to administer without having a 
significant impact on members. Moreover, the Exchange believes that the 
proposed changes preserve the Exchange's intent behind adopting volume-
based pricing. Finally, the Exchange further believes that the proposed 
change is not unfairly discriminatory because it applies equally to all 
members and ADV calculations.
    The Exchange also believes that the proposed language for Market 
Maker Plus tier calculations is reasonable and equitable since it would 
allow the Exchange to remove a day from its Market Maker Plus tier 
calculations in similar circumstances as the Exchange currently removes 
days from its ADV calculations, and only when beneficial to the member. 
The Exchange believes that this proposed change is appropriate as it 
avoids penalizing Market Makers on days where the Exchange is 
experiencing a systems or other issue. Without this change, Market 
Makers that are wary of participation on the Exchange following an 
issue at the Exchange could fall into a lower Market Maker Plus tier, 
resulting in an effective cost increase for those members. The proposed 
language for removing a day from the Market Maker Plus tier calculation 
mirrors the language currently in place for the ADV calculation, except 
that the Exchange proposes that it will not remove days where the 
Exchange closes early for holiday observance. While Market Makers can 
plan for known events, such as a holiday, they are unable to plan for 
market events which may close the market for part of a trading day. The 
Exchange believes that permitting the exception for the unanticipated 
event therefore provides flexibility to Market Makers in anticipating 
where to send order flow. The Exchange desires to incentivize Market 
Makers to send order flow to ISE to meet their tier requirements. The 
Exchange believes that this is appropriate to incentivize Market Makers 
to continue making quality markets where the Exchange is not 
experiencing an issue and merely closes early for holiday observance. 
Finally, the Exchange believes that the proposed language for the 
Market Maker Plus tier calculation is not unfairly discriminatory as 
all Market Makers have the ability to qualify for Market Maker Plus by 
making quality markets on the Exchange and can therefore benefit from 
the proposed changes. As explained above, all members also benefit from 
a similar provision that applies to the Exchange's ADV calculations.

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 proposed rule change would 
apply the rules for excluding a day to all ADV calculations rather than 
specified incentive programs, thereby further protecting members if the 
Exchange experiences a systems or other issue that results in a day 
being excluded from the Exchange's ADV calculations. This rule changes 
does not impose an undue burden on competition because without this 
change, members would only have the day excluded for the specific ADV 
based pricing programs described in this filing, and would not get the 
benefit for other un-enumerated programs. The Exchange will uniformly 
apply the proposed language related to ADV based pricing programs. The 
proposal to not consider the simple and complex order books separately 
does not impose an undue burden on competition because the Exchange 
would uniformly calculate the ADV based pricing programs in a uniform 
manner for all market participants. The Exchange believes that this 
change will make this rule easier to administer without having a 
significant impact on members. Moreover, the Exchange believes that the 
proposed changes preserve the Exchange's intent behind adopting volume-
based pricing.

[[Page 50472]]

Finally, the Exchange further believes that the proposed change is not 
unfairly discriminatory because it applies equally to all members and 
ADV calculations.
    The proposed rule change is designed adopt a new provision covering 
the Market Make Plus tier calculation. The proposed language for 
removing a day from the Market Maker Plus tier calculation mirrors the 
language currently in place for the ADV calculation, except that the 
Exchange proposes that it will not remove days where the Exchange 
closes early for holiday observance. While Market Makers can plan for 
known events, such as a holiday, they are unable to plan for market 
events which may close the market for part of a trading day. The 
Exchange believes that permitting the exception for the unanticipated 
event therefore provides flexibility to Market Makers in anticipating 
where to send order flow. The Exchange desires to incentivize Market 
Makers to send order flow to ISE to meet their tier requirements. The 
Exchange believes that the proposed modifications to its ADV and Market 
Maker Plus tier calculations are pro-competitive and will result in 
lower total costs to end users, a positive outcome of competitive 
markets.
    The Exchange operates in a highly competitive market in which 
market participants can readily direct their order flow to competing 
venues. In such an environment, the Exchange must continually review, 
and consider adjusting, its fees and rebates to remain competitive with 
other exchanges. For the reasons described above, the Exchange believes 
that the proposed fee changes reflect this competitive environment.

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 \18\ and Rule 19b-4(f)(2) \19\ 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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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \19\ 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 (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#d7a5a2bbb2fab4b8babab2b9a3a497a4b2b4f9b0b8a1"><span class="__cf_email__" data-cfemail="e496918881c9878b8989818a9097a4978187ca838b92">[email protected]</span></a>. Please include 
File Number SR-ISE-2017-93 on the subject line.

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-2017-93. 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 Web site (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 Web site 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-2017-93 and should be 
submitted on or before November 21, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-23580 Filed 10-30-17; 8:45 am]
 BILLING CODE 8011-01-P


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