Document ID: SEC-2023-1341-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2023-11-21T05:00Z

[Federal Register Volume 88, Number 223 (Tuesday, November 21, 2023)]
[Notices]
[Pages 81122-81125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25665]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98952; File No. SR-ISE-2023-27]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Adopt Pricing 
for Index Options on the Nasdaq 100 Micro Index

November 15, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 7, 2023, 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 to adopt pricing for index options on the Nasdaq 100 Micro 
Index.\3\
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    \3\ The Exchange withdrew SR-ISE-2023-25 on November 7, 2023 and 
replaced it with the instant 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 Exchange recently filed an immediately effective rule change to 
list index options on the Nasdaq 100 Micro Index (``XND'') on ISE.\4\ 
XND will be same in all respects as the current Nasdaq 100 Index 
options contract (``NDX'') listed on the Exchange, except it will be 
based on 1/100th of the value of Nasdaq 100 Index, and will be P.M.-
settled with an exercise settlement value based on the closing index 
value of Nasdaq 100 Index on the day of expiration.\5\
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    \4\ See ISE-2023-24 (not yet noticed). Currently, XND Options 
trade on Phlx.
    \5\ Id. The Exchange notes that similar features are available 
with other index options contracts listed on the Exchange, including 
P.M. settled options on the full value of the Nasdaq-100 Index 
(``NDXP'').
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    The Exchange now proposes to amend its Pricing Schedule to adopt 
pricing for XND. By way of background, certain proprietary products 
such as NDX, NDXP and the Nasdaq 100 Reduced Value Index (``NQX'') are 
commonly excluded from a variety of fee programs.\6\ The Exchange notes 
that the reason for such exclusion is because the Exchange has expended 
considerable resources developing and maintaining its proprietary 
products. Similar to NDX, NDXP, and NQX, XND is a

[[Page 81123]]

proprietary product. As such, the Exchange proposes to establish 
transaction fees for XND that are similarly structured to the 
transaction fees for NDX, NDXP, and NQX with some differences as noted 
below. The Exchange also proposes to exclude XND from several pricing 
programs in the same manner as which NDX, NDXP, and NQX are excluded 
today.
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    \6\ Nasdaq Phlx LLC (``Phlx'') lists XND today and excludes XND 
from a variety of its pricing programs. See Phlx's Pricing Schedule 
at Options 7.
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Fee Programs
    Today, Options 7, Section 3, Regular Order Fees and Rebates, 
reflects the regular order fees and rebates applicable to ISE. Today, 
the Exchange specifies in note 7 of Options 7, Section 3 that for all 
executions in regular NDX and NQX orders, the applicable index options 
fees in Section 5 will apply. The Exchange proposes to add pricing for 
XND options in note 7 of Options 7, Section 5 so it will also apply to 
XND.
    Similarly, today, Options 7, Section 4, Complex Order Fees and 
Rebates, reflects complex order fees and rebates applicable to ISE. 
Today, the Exchange specifies in note 5 of Options 7, Section 4 that 
for all executions in complex NQX orders, the NQX index options fees in 
Section 5 will apply. The Exchange proposes to add XND in note 5 of 
Options 7, Section 4 so it will also apply to XND. Additionally, note 4 
of Options 7, Section 4 provides that no Priority Customer complex 
order rebates will be paid for orders in NDX, NQX or MNX. The Exchange 
proposes to add XND in note 4 of Options 7, Section 4 so it will also 
apply to XND.
    As set forth in Options 7, Section 6.H, the Exchange currently caps 
Crossing Order \7\ fees at $200,000 per month, per Member on all Firm 
Proprietary transactions that are part of the originating or contra 
side of a Crossing Order. Once a Member exceeds the fee cap level the 
Member will be subject to a reduced transaction fee of $0.02 per capped 
contract, unless the Member also qualifies for free executions. Today, 
fees charged by the Exchange for Responses to Crossing Orders, 
surcharge fees charged by the Exchange for licensed products, and fees 
for index options as set forth in Options 7, Section 5 are not included 
in the calculation of the monthly Crossing Fee Cap. At this time, the 
Exchange proposes to similarly exclude fees charged for Responses to 
Crossing Orders, surcharge fees for licensed products, and fees for 
index options as set forth in Options 7, Section 5 from the calculation 
of the monthly Crossing Fee Cap.
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    \7\ Crossing Orders are contracts that are submitted as part of 
a Facilitation, Solicitation, PIM, Block or QCC order. All eligible 
volume from affiliated Members will be aggregated for purposes of 
the Crossing Fee Cap, provided there is at least 75% common 
ownership between the Members as reflected on each Member's Form BD, 
Schedule A. Fees charged by the Exchange for Responses to Crossing 
Orders are not included in the calculation of the monthly fee cap. 
For purposes of the Crossing Fee Cap the Exchange attributes 
eligible volume to the ISE Member on whose behalf the Crossing Order 
was executed.
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    Today, Options 7, Section 5, Index Options Fees and Rebates, 
reflects the pricing for various proprietary products including NDXP, 
NDX and NQX. At this time, the Exchange proposes to establish a similar 
pricing structure for XND that was adopted for XND on Phlx,\8\ where 
all Non-Priority Customers \9\ will be assessed a uniform fee of $0.10 
per contract, and Priority Customers \10\ will not be assessed a fee. 
The Exchange also proposes to assess Non-Priority Customers a surcharge 
of $0.10 per contract in XND in Options 7, Section 5D, similar to Phlx 
Options 7, Section 5A.\11\ The Exchange is proposing to assess lower 
Non-Priority Customer fees and a lower surcharge for XND as compared to 
NDX and NDXP because XND is based on 1/100 of the value of the Nasdaq 
100 Index whereas both NDX and NDXP are based on the full value of the 
Nasdaq 100 Index. The Exchange's proposal seeks to assess identical 
fees for XND as are currently assessed on Phlx for XND options.\12\
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    \8\ See Phlx Options 7, Section 5A.
    \9\ ``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).
    \10\ 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).
    \11\ The Exchange proposes to re-letter current ``C'' as ``D'' 
in Options 7, Section 5.
    \12\ See Phlx Options 7, Section 5A.
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    Today, NDX, NDXP, NQX and the Mini-Nasdaq-100 Index (``MNX'') are 
excluded from the Marketing Fee in Options 7, Section 6E. The Exchange 
proposes to update Options 7, Section 6E to similarly exclude XND from 
the Marketing Fee. The Exchange notes that the Marketing Fee is 
currently set to $0.00 per contract.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes it is reasonable to assess the proposed Non-
Priority Customer $0.10 per contract fee and the $0.10 per contract 
surcharge as discussed above for XND because the proposed pricing 
reflects the exclusive and proprietary nature of this product. Similar 
to NDX, NDXP, and NQX, the Exchange seeks to recoup the operational 
costs for listing proprietary products.\15\ Also, pricing by symbol is 
a common practice on many U.S. options exchanges as a means to 
incentivize order flow to be sent to an exchange for execution in 
particular products. Other options exchanges price by symbol.\16\ 
Further, the Exchange notes that with its products, market participants 
are offered an opportunity to transact in NDX, NDXP, NQX, or XND, or 
separately execute options overlying PowerShares QQQ Trust 
(``QQQ'').\17\ Offering such proprietary products provides market 
participants with a variety of choices in selecting the product they 
desire to utilize in order to transact in the Nasdaq 100 Index. When 
exchanges are able to recoup costs associated with offering proprietary 
products, it incentivizes growth and competition for the innovation of 
additional products.
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    \15\ By way of example, in analyzing an obvious error, the 
Exchange would have additional data points available in establishing 
a theoretical price for a multiply listed option as compared to a 
proprietary product, which requires additional analysis and 
administrative time to comply with Exchange rules to resolve an 
obvious error.
    \16\ See pricing for the Mini-RUT Index options (``MRUT'') on 
Cboe Exchange, Inc.'s Fees Schedule.
    \17\ QQQ is an exchange-traded fund based on the same Nasdaq 100 
Index as NDX, NDXP, and XND.
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    Further, the Exchange believes that the proposed rates for XND are 
reasonable because they mirror the fees assessed by Phlx for XND \18\ 
and the fees are well within the range of fees assessed for the 
Exchange's other proprietary products, namely NDX and NDXP.\19\ The 
Exchange believes it is reasonable to charge lower rates for XND 
compared to NDX and NDXP because XND is based on 1/100 of the

[[Page 81124]]

value of the Nasdaq 100 Index while both NDX and NDXP are based on the 
full value of the Nasdaq 100 Index. The Exchange's proposal seeks to 
assess identical fees for XND as are currently assessed on Phlx for XND 
options.\20\
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    \18\ See Phlx Options 7, Section 5A.
    \19\ Specifically, the Exchange is proposing to assess Non-
Priority Customers a $0.10 per contract fee in XND while Priority 
Customers will receive free executions. Today, the Exchange assesses 
Non-Priority Customers a $0.75 per contract fee for both NDX and 
NDXP, and does not assess Priority Customers a fee. Additionally, 
the Exchange is proposing to assess Non-Priority Customers a 
surcharge of $0.10 per contract for XND whereas today, Non-Priority 
Customers are assessed a surcharge of $0.25 per contract for NDX and 
NDXP.
    \20\ See Phlx Options 7, Section 5A.
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    The Exchange's proposal to assess the proposed Non-Priority 
Customer $0.10 per contract fee and the $0.10 per contract surcharge is 
equitable and not unfairly discriminatory because the Exchange will 
assess these fees uniformly to all Non-Priority Customers. The Exchange 
similarly believes that the proposed $0.10 per contract XND surcharge 
is equitable and not unfairly discriminatory because it will apply 
uniformly to all Non-Priority Customers. The Exchange believes it is 
equitable and not unfairly discriminatory to assess no XND fees to 
Priority Customers because Priority Customer orders bring valuable 
liquidity to the market, which liquidity benefits other market 
participants. Priority Customer liquidity benefits all market 
participants by providing more trading opportunities, which attracts 
Primary Market Makers and 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.
Fee Programs
    The proposed amendments to note 7 in Options 7, Section 3 and notes 
4 and 5 in Options 7, Section 4, in connection with the application of 
the adopted pricing in Options 7, Section 5, are reasonable as the 
Exchange will apply the proposed Options 7, Section 5 pricing for 
options transacted in XND as opposed to the pricing in Options 7, 
Sections 3 and 4. The Exchange believes that the proposed amendments to 
note 7 in Options 7, Section 3 and notes 4 and 5 in Options 7, Section 
4, in connection with the application of the adopted pricing in Options 
7, Section 5, are equitable and not unfairly discriminatory because the 
Exchange will uniformly apply the pricing in Options 7, Section 5 for 
options transacted in XND.
    The Exchange believes that its proposal to eliminate the Priority 
Customer complex order rebates for XND is reasonable because even after 
the elimination of the rebate, Priority Customer complex orders in XND 
will not be assessed any complex order transaction fees. As noted 
above, the Priority Customer complex order rebates are likewise 
currently eliminated for NDX, NDXP and NQX. The Exchange's proposal to 
eliminate the Priority Customer complex order rebates for XND is 
equitable and not unfairly discriminatory because all transactions in 
XND will uniformly not be eligible for the rebates.
    The Exchange believes that its proposal to exclude fees charged for 
Responses to Crossing Orders, surcharge fees for licensed products, and 
fees for index options as set forth in Options 7, Section 5 from the 
calculation of the monthly Crossing Fee Cap is reasonable because XND 
will be an exclusively listed product. Similar to NDX, NDXP and NQX, 
which are also excluded from the Crossing Fee Cap, the Exchange seeks 
to recoup the operational costs for listing proprietary products. The 
Exchange further believes that its proposal to exclude fees charged for 
Responses to Crossing Orders, surcharge fees for licensed products, and 
fees for index options as set forth in Options 7, Section 5 from the 
calculation of the monthly Crossing Fee Cap is equitable and not 
unfairly discriminatory because all fees charged for Responses to 
Crossing Orders, surcharge fees for licensed products, and fees for 
index options will uniformly be excluded from the Crossing Fee Cap.
    The Exchange believes it is reasonable to not apply the Marketing 
Fee to XND as other proprietary products, namely NDX, NQX, and MNX, are 
currently excluded from the Marketing Fee and are all based on the 
Nasdaq 100 Index. Also, the Exchange believes it is reasonable to 
exclude XND from the Marketing Fee because the purpose of the Marketing 
Fee is to generate more Priority Customer order flow to the Exchange. 
Because XND will be an exclusively listed product on Phlx, the Exchange 
does not believe that applying a Marketing Fee is necessary for this 
product. Also, of note the Marketing Fee is currently set to $0.00 per 
contract. The Exchange believes it is equitable and not unfairly 
discriminatory to not apply the Marketing Fee to XND because all 
transactions in XND will uniformly not be subject to the Marketing Fee.

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. The Exchange notes that with its products, market 
participants are offered an opportunity to transact in NDX, NDXP, NQX, 
or XND, or separately execute options overlying QQQ. Offering these 
products provides market participants with a variety of choices in 
selecting the product they desire to utilize to transact in the Nasdaq 
100 Index.
    Further, the Exchange does not believe that the proposed rule 
change will impose any burden on intra-market competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because the proposed XND pricing will apply uniformly to all similarly 
situated market participants. Specifically, all Non-Priority Customers 
will be assessed a uniform fee of $0.10 per contract and an options 
surcharge of $0.10 per contract while Priority Customers receive free 
executions. As discussed above, Priority Customer liquidity benefits 
all market participants by providing more trading opportunities, which 
attracts other market participants, thus facilitating tighter spreads 
and increased order flow.

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 \21\ and Rule 19b-4(f)(2) \22\ 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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    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \22\ 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.

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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-2023-27 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-2023-27. 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-2023-27 and should be 
submitted on or before December 12, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25665 Filed 11-20-23; 8:45 am]
BILLING CODE 8011-01-P