Document ID: SEC-2019-0358-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2019-03-28T04:00Z

[Federal Register Volume 84, Number 60 (Thursday, March 28, 2019)]
[Notices]
[Pages 11844-11847]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05922]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85396; File No. SR-ISE-2019-07]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the Market 
Maker Plus Program

March 22, 2019.
    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 March 11, 2019, 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 Market Maker Plus program under 
Options 7, Section 3.
    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 the proposed rule change is to amend the Exchange's 
Market Maker Plus program, as described in detail below.

[[Page 11845]]

    As set forth in Section 3 of the Pricing Schedule, the Exchange 
operates a Market Maker Plus program for regular orders in Select 
Symbols \3\ where Market Makers \4\ that contribute to market quality 
by maintaining tight markets are eligible for enhanced rebates. Market 
Makers are evaluated each trading day for the percentage of time spent 
on the National Best Bid or National Best Offer (``NBBO'') for 
qualifying series that expire in two successive thirty calendar day 
periods beginning on that trading day. A Market Maker Plus is a Market 
Maker who is on the NBBO a specified percentage of the time on average 
for the month based on daily performance in the qualifying series for 
each of the two successive periods described above. Qualifying series 
are 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. If a Market Maker would qualify for a different 
Market Maker Plus tier in each of the two successive periods described 
above, then the lower of the two Market Maker Plus tier rebates shall 
apply to all contracts.\5\ These general qualification requirements 
will remain unchanged with the amendments to the applicable Market 
Maker Plus rebates described in this proposed rule change.
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    \3\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Pilot Program.
    \4\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(32).
    \5\ Market Makers may enter quotes in a symbol using one or more 
unique, exchange assigned identifiers--i.e., badge/suffix 
combinations. Market Maker Plus status is calculated independently 
based on quotes entered in a symbol for each of the Market Maker's 
badge/suffix combinations, and the highest tier achieved for any 
badge/suffix combination quoting that symbol applies to executions 
across all badge/suffix combinations that the member uses to trade 
in that symbol. A Market Maker's worst quoting day each month for 
each of the two successive periods described above, on a per symbol 
basis, will be excluded in calculating whether a Market Maker 
qualifies for this rebate.
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    Market Maker orders in Select Symbols are charged a maker fee of 
$0.11 per contract; \6\ provided that Market Makers that qualify for 
Market Maker Plus will not pay this fee if they meet the applicable 
tier thresholds set forth in the table below, and will instead receive 
the below maker rebates based on the applicable tier for which they 
qualify.\7\
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    \6\ This fee also applies to Market Maker orders sent to the 
Exchange by Electronic Access Members.
    \7\ A $0.15 per contract fee applies instead of the applicable 
fee or rebate 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.

               Select Symbols Other Than SPY, QQQ, and IWM
------------------------------------------------------------------------
      Market Maker Plus tier (specified percentage)        Maker rebate
------------------------------------------------------------------------
Tier 1 (80% to less than 85%)...........................         ($0.15)
Tier 2 (85% to less than 95%)...........................          (0.18)
Tier 3 (95% or greater).................................          (0.22)
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                            SPY, QQQ, and IWM
------------------------------------------------------------------------
    Market Maker Plus tier (specified      Regular Maker   Linked Maker
               percentage)                    rebate        rebate \8\
------------------------------------------------------------------------
Tier 1 (70% to less than 80%)...........         ($0.00)             N/A
Tier 2 (80% to less than 85%)...........          (0.18)          (0.15)
Tier 3 (85% to less than 90%)...........          (0.22)          (0.19)
Tier 4 (90% or greater).................          (0.26)          (0.23)
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    The Exchange now proposes to introduce a separate rebate program 
for Market Makers that achieve Market Maker Plus in options overlying 
symbols AMZN, FB, or NVDA in order to promote and encourage liquidity 
in those particular Select Symbols.\9\ Specifically, Market Makers that 
achieve Market Maker Plus Tiers 1-3 as proposed below for executions in 
AMZN, FB, or NVDA will receive the following maker rebates:
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    \8\ To encourage Market Makers to maintain quality markets in 
SPY, QQQ, and IWM in particular, members that maintain tight markets 
in those symbols are eligible for higher regular maker rebates and 
may also be eligible for linked maker rebates, as shown in the table 
above. Specifically, the following symbols are linked for purposes 
of the linked maker rebate: (1) SPY and QQQ, and (2) SPY and IWM. 
Market Makers that qualify for Market Maker Plus Tiers 2-4 above for 
executions in SPY, QQQ, and IWM may be eligible for a linked maker 
rebate in a linked symbol in addition to the regular maker rebate 
for the applicable tier. The linked maker rebate applies to 
executions in SPY, QQQ, and IWM if the Market Maker does not achieve 
the applicable tier in that symbol but achieves the tier (i.e., any 
of the Market Maker Plus Tiers 2-4) for any badge/suffix combination 
in the other linked symbol, in which case the higher tier achieved 
applies to both symbols. If a Market Maker would qualify for a 
linked maker rebate in SPY based on the tier achieved in QQQ and the 
tier achieved in IWM, then the higher of the two linked maker 
rebates will be applied to SPY. The regular maker rebate will be 
provided in the symbol that qualifies the Market Maker for the 
higher tier based on percentage of time at the NBBO.
    \9\ Qualifying Market Makers will continue to receive the maker 
rebates described above in products other than AMZN, FB, and NVDA.

------------------------------------------------------------------------
      Market Maker Plus tier (specified percentage)        Maker rebate
------------------------------------------------------------------------
Tier 1 (70% to less than 85%)...........................         ($0.15)
Tier 2 (85% to less than 95%)...........................          (0.18)
Tier 3 (95% or greater).................................          (0.22)
------------------------------------------------------------------------

    The proposed rebates for AMZN, FB, and NVDA are the same as the 
rebates currently provided for Select Symbols (other than SPY, QQQ, and 
IWM), except that the proposal lowers the minimum qualification in Tier 
1 from 80% to 70% for AMZN, FB, and NVDA.
    In addition, the Exchange proposes to ``link'' the benefits 
associated with the Market Maker's performance in AMZN, FB, and NVDA 
such that the proposed Tiers 1-3 maker rebates will apply to executions 
in AMZN, FB, or NVDA if the Market Maker does not achieve the 
applicable tier in that symbol, but achieves the tier (i.e., proposed 
Tiers 1-3) for any badge/suffix combination in the other two symbols. 
Once the applicable tier--any of proposed Tiers 1, 2 or 3--is achieved 
for two out of the three symbols AMZN, FB, or NVDA, the Market Maker 
will be eligible for a maker rebate in the third symbol, which will be 
provided in addition to the maker rebate for the applicable tier 
achieved in the other two symbols. If a Market Maker would qualify for 
different Market Maker Plus Tiers 1-3 in the two symbols, then the 
lower of the two maker rebates will be applied to the third symbol. 
Thus, for example, if a Market Maker achieves Tier 1 in AMZN and Tier 2 
in FB, the Market Maker would receive the Tier 1 maker rebate in NVDA 
($0.15 per contract), Tier 1

[[Page 11846]]

maker rebate in AMZN ($0.15 per contract), and Tier 2 maker rebate in 
FB ($0.18 per contract). The Exchange notes that this rebate will be 
provided in the third symbol regardless of time at the NBBO (i.e., 
there is no minimum tier threshold to be met in the third symbol for 
the ``linked'' maker rebate). As such, if all three symbols separately 
achieve any of Market Maker Plus Tiers 1-3, the symbol that achieves 
the tier with the lowest maker rebate will instead receive the same 
maker rebate as the symbol that achieved the next lowest tier. For 
example, if a Market Maker achieves Tier 1 in AMZN, Tier 2 in FB, and 
Tier 3 in NVDA, the Market Maker would receive the $0.18 per contract 
``linked'' Tier 2 maker rebate in AMZN based on their FB performance, 
the $0.18 per contract Tier 2 maker rebate in FB, and the $0.22 per 
contract Tier 3 maker rebate in NVDA.
    Because the Exchange is introducing a separate rebate program for 
AMZN, FB, and NVDA, the associated rebate table heading for Select 
Symbols other than SPY, QQQ, and IWM will be expanded to include AMZN, 
FB, and NVDA under this proposal.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that it is reasonable and equitable to offer 
special rebates for Market Makers that achieve Market Maker Plus in 
AMZN, FB or NVDA. As proposed, Market Makers would receive the same 
tiered rebates in those three symbols as the tiered rebates provided in 
Select Symbols other than SPY, QQQ, and IWM (i.e., $0.15, $0.18, and 
$0.22 per contract). Furthermore, the proposal lowers the minimum 
qualification in Tier 1 for percentage of time spent quoting at the 
NBBO to 70% less than 85% for AMZN, FB, and NVDA (as opposed to 80% to 
less than 85% for Select Symbols other than SPY, QQQ, and IWM). The 
proposed rule change will therefore allow Market Makers that would not 
qualify for Market Maker Plus in AMZN, FB, or NVDA today to qualify for 
the $0.15 per contract maker rebate based on a time at the NBBO of at 
least 70% of the time pursuant to proposed Tier 1.
    In addition, the proposal links the benefits associated with the 
Market Maker's performance in AMZN, FB, and NVDA so that the Market 
Maker would be able to receive a maker rebate in any of those symbols 
by meeting the requirements of Market Maker Plus Tiers 1-3 in the other 
two, as further described above. Accordingly, the Exchange believes 
that Market Makers would be incentivized by the ability to earn this 
linked rebate, in addition to the applicable tiered rebates provided in 
the other two symbols, to maintain quality markets in those three 
symbols on ISE.
    The Market Maker Plus program is designed to attract liquidity from 
Market Makers and provide incentives for those Market Makers to 
maintain tight markets, measured by time spent quoting at the NBBO. For 
the reasons discussed above, the Exchange believes that the proposed 
rule change has the potential to further benefit market quality by 
encouraging Market Makers to maintain tight markets in AMZN, FB, and 
NVDA, which are highly active symbols within the industry, thereby 
creating a more active and liquid market for options traded on the 
Exchange. Furthermore, the Exchange believes that these three symbols 
have significant interest amongst retail options investors, as the 
underlying stocks themselves are high-priced with each currently priced 
above $150 per share. The proposed pricing incentive for Market Makers 
is therefore meant to encourage more trading activity on the Exchange 
amongst all market participant types by encouraging Market Makers to 
maintain tight markets in these symbols.
    The Exchange also believes that the proposed changes are not 
unfairly discriminatory as all Market Makers can qualify for the same 
rebates based on achieving the appropriate tier of Market Maker Plus in 
AMZN, FB, and NVDA. Furthermore, the Exchange continues to believe that 
it is not unfairly discriminatory to offer these rebates only to Market 
Makers because Market Makers, and in particular, those Market Makers 
that achieve Market Maker Plus status, are subject to additional 
requirements and obligations (such as quoting requirements) that other 
market participants are not.

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 changes to Market 
Maker Plus to introduce a separate rebate program for AMZN, FB, and 
NVDA are designed to increase competition by encouraging Market Makers 
to provide liquidity and maintain tight markets in these high volume 
symbols on ISE. The Exchange operates in a highly competitive market in 
which market participants can readily direct their order flow to 
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. 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,\12\ and Rule 19b-4(f)(2) \13\ 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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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 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

     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-2019-07 on the subject line.

[[Page 11847]]

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-2019-07. 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-2019-07 and should be submitted on 
or before April 18, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05922 Filed 3-27-19; 8:45 am]
 BILLING CODE 8011-01-P