Document ID: SEC-2019-0298-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2019-03-19T04:00Z

[Federal Register Volume 84, Number 53 (Tuesday, March 19, 2019)]
[Notices]
[Pages 10133-10136]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05091]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85307; File No. SR-ISE-2019-03]

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

March 13, 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 February 27, 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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[[Page 10134]]

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.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on March 1, 2019.
    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 provide a 
supplemental rebate in addition to the linked maker rebate for SPY, 
QQQ, and IWM, as described in detail below.
Background
Market Maker Plus
    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
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------------------------------------------------------------------------
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
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Market Maker Plus tier                           Regular          Linked
(specified percentage)                             Maker           Maker
                                                  rebate          rebate
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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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    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,

[[Page 10135]]

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.\8\
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    \8\ Thus, for example, if a Market Maker achieves Tier 1 in SPY, 
Tier 2 in QQQ, and Tier 3 in IWM, the Market Maker would receive the 
$0.18 per contract Tier 2 regular maker rebate in QQQ, the $0.22 per 
contract Tier 3 regular maker rebate in IWM, and the $0.19 per 
contract Tier 3 linked maker rebate in SPY--i.e., based on the 
Market Maker achieving Tier 3 in IWM.
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Priority Customer Complex Order Rebates
    The Exchange currently has a pricing structure in place that 
provides rebates to Priority Customer \9\ complex orders in order to 
encourage members to bring that order flow to the Exchange. The 
Exchange provides these rebates to members that achieve Priority 
Customer Complex Tiers \10\ in Select Symbols and Non-Select Symbols 
\11\ (other than NDX, NQX or MNX).\12\ All complex order volume 
executed on the Exchange, including volume executed by Affiliated 
Members,\13\ is included in the volume calculation, except for volume 
executed as Crossing Orders \14\ and Responses to Crossing Orders.\15\ 
Affiliated Entities \16\ may also aggregate their complex order volume 
for purposes of qualifying Appointed OFPs for these Priority Customer 
rebates.\17\ As set forth in Section 4 of the Pricing Schedule, there 
are currently nine Priority Customer Complex Tiers as follows:
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    \9\ 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 Rule 
100(a)(37A).
    \10\ The Priority Customer Complex Tiers are based on total 
Affiliated Member or Affiliated Entity complex order volume 
(excluding Crossing Orders and Responses to Crossing Orders), and 
are calculated as a percentage of Customer Total Consolidated Volume 
(hereinafter, ``Complex Order Volume Percentage''). ``Customer Total 
Consolidated Volume'' means the total national volume cleared at The 
Options Clearing Corporation in the Customer range in equity and ETF 
options in that month.
    \11\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
    \12\ Rebates are provided per contract per leg if the order 
trades with non-Priority Customer orders in the complex order book 
or trades with quotes and orders on the regular order book.
    \13\ An ``Affiliated Member'' is a Member that shares at least 
75% common ownership with a particular Member as reflected on the 
Member's Form BD, Schedule A.
    \14\ A ``Crossing Order'' is an order executed in the Exchange's 
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement 
Mechanism (PIM) or submitted as a Qualified Contingent Cross order. 
For purposes of this Pricing Schedule, orders executed in the Block 
Order Mechanism are also considered Crossing Orders.
    \15\ ``Responses to Crossing Orders'' are any contra-side 
interest submitted after the commencement of an auction in the 
Exchange's Facilitation Mechanism, Solicited Order Mechanism, Block 
Order Mechanism or PIM.
    \16\ An ``Affiliated Entity'' is a relationship between an 
Appointed Market Maker and an Appointed OFP for purposes of 
qualifying for certain pricing specified in the Pricing Schedule. An 
``Appointed Market Maker'' is a Market Maker who has been appointed 
by an Order Flow Provider (``OFP'') for purposes of qualifying as an 
Affiliated Entity. An ``Appointed OFP'' is an OFP (i.e., a member, 
other than a Market Maker, that submits orders, as agent or 
principal, to the Exchange) who has been appointed by a Market Maker 
for purposes of qualifying as an Affiliated Entity. Each member may 
qualify for only one Affiliated Entity relationship at any given 
time. Affiliated Members are not eligible to enter an Affiliated 
Entity relationship.
    \17\ The Appointed OFP would receive the rebate associated with 
the qualifying volume tier based on aggregated volume.

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                                                                                    Rebate for    Rebate for non-
        Priority Customer complex tier           Complex order volume percentage  select symbols  select symbols
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Tier 1........................................  0.000-0.200.....................         ($0.25)         ($0.40)
Tier 2........................................  Above 0.200-0.400...............          (0.30)          (0.55)
Tier 3........................................  Above 0.400-0.600...............          (0.35)          (0.70)
Tier 4........................................  Above 0.600-0.750...............          (0.40)          (0.75)
Tier 5........................................  Above 0.750-1.000...............          (0.45)          (0.80)
Tier 6........................................  Above 1.000-1.500...............          (0.46)          (0.80)
Tier 7........................................  Above 1.500-2.000...............          (0.48)          (0.80)
Tier 8........................................  Above 2.000-3.250...............          (0.50)          (0.85)
Tier 9........................................  Above 3.250.....................          (0.50)          (0.85)
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Proposal
    At this time, the Exchange proposes that to the extent Market 
Makers qualify for the foregoing Priority Customer complex order rebate 
in Tiers 7-9, they may also become eligible to earn a supplemental 
rebate in addition to the linked maker rebate tiers 2-4 in SPY, QQQ, 
and IWM provided to Market Makers that qualify for Market Maker Plus, 
as described above. Specifically, if Market Makers separately achieve 
Priority Customer complex tiers 7-9, they will earn an additional $0.01 
per contract rebate on executions in SPY, QQQ, or IWM that qualify for 
the linked maker rebate program, in addition to the linked rebates 
tiers 2-4. As proposed, Market Makers that qualify for Priority 
Customer complex tiers 7-9 will receive a linked maker rebate of $0.16 
per contract in tier 2, $0.20 per contract in tier 3, and $0.24 per 
contract in tier 4, provided that they also meet the qualifications of 
the applicable linked maker rebate tier.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\18\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\19\ 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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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed changes to provide a 
supplementary $0.01 per contract rebate in addition to the linked maker 
rebate tiers 2-4, provided the Market Maker achieves Priority Customer 
complex tiers 7-9 is reasonable because this incentive is intended to 
encourage Market Makers that maintain quality markets and qualify for 
Market Maker Plus to continue send more complex order flow to the 
Exchange to achieve Priority Customer complex tiers 7-9 in order to 
earn the additional $0.01 rebate. All market participants benefit from 
increased order interaction when more order flow is available on ISE. 
The

[[Page 10136]]

Exchange also believes that the proposed changes will continue to 
encourage better market quality in SPY, QQQ, and IWM as Market Makers 
would be able to earn the supplemental rebate in addition to the linked 
maker rebates that they may qualify for today.
    The Exchange believes that the proposed changes to provide the 
supplemental $0.01 rebate to qualifying Market Makers are not unfairly 
discriminatory as the changes apply to all Market Makers orders based 
on achieving the required Priority Customer complex tier, and 
qualifying for the linked maker rebate program by way of achieving the 
required Market Maker Plus tier in SPY, QQQ, or IWM. 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 Exchange believes that the 
proposed changes will encourage Market Makers that maintain quality 
markets and qualify for Market Maker Plus to continue send more complex 
order flow to the Exchange to achieve Priority Customer complex tiers 
7-9 in order to earn the additional $0.01 rebate. All market 
participants benefit from increased order interaction when more order 
flow is available 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,\20\ and Rule 19b-4(f)(2) \21\ 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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    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \21\ 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-2019-03 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-2019-03. 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-2019-03 and should be submitted on 
or before April 9, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05091 Filed 3-18-19; 8:45 am]
BILLING CODE 8011-01-P