Document ID: SEC-2018-0916-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2018-06-18T04:00Z

[Federal Register Volume 83, Number 117 (Monday, June 18, 2018)]
[Notices]
[Pages 28272-28273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12927]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83411; File No. SR-ISE-2018-50]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Section 
IV.D of the Exchange's Schedule of Fees

June 12, 2018.
    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 May 30, 2018, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to Section IV.D. of the Exchange's Schedule 
of Fees, as described further below. 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 this proposed rule change is to amend certain Market 
Maker \3\ fees for Regular Orders in Non-Select Symbols \4\ and FX 
Options.
---------------------------------------------------------------------------

    \3\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(28).
    \4\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols. ``Select Symbols'' are options overlying 
all symbols listed on ISE that are in the Penny Pilot Program.
---------------------------------------------------------------------------

    Presently, the Exchange charges a base execution fee of $0.25 per 
contract to Members who trade 250,000 contracts or less in a calendar 
month in Non-Select Symbols and FX Options, and a fee of $0.20 per 
contract if a Member trades more than 250,000 contracts in Non-Select 
Symbols and FX Options in a calendar month. In addition, once a Member 
reaches the highest tier, the fee applicable to that tier will apply 
retroactively to all Market Maker contracts for Regular Orders in Non-
Select Symbols and FX Options. Presently, the Exchange waives this fee 
entirely for Market Makers that execute Flash Orders.\5\
---------------------------------------------------------------------------

    \5\ A ``Flash Order'' is an order that is exposed at the 
National Best Bid and Offer by the Exchange to all Members for 
execution prior to routing the order to another exchange or 
cancelling it, as provided under Supplementary Material .02 to ISE 
Rule 1901.
---------------------------------------------------------------------------

    The Exchange proposes to eliminate this fee waiver for Flash 
Orders, such that Market Makers that execute Flash Orders will be 
subject to one of the two foregoing fee tiers. However, the Exchange 
notes that Flash Orders will remain exempt from the $0.70 per contract 
Marketing Fee that it otherwise charges to Market Makers pursuant to 
Section IV.E of the Exchange's Schedule of Fees. The Exchange will also 
continue to provide credits to Market Makers that respond to Customer 
Flash Orders, pursuant to Section IV.G.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\7\ 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    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.'' \8\
---------------------------------------------------------------------------

    \8\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Likewise, in NetCoalition v. Securities and Exchange Commission \9\ 
(``NetCoalition'') the D.C. Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\10\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . . to be 
made available to investors and at what cost.'' \11\
---------------------------------------------------------------------------

    \9\ NetCoalition v. SEC, 615 F.3d 525 (DC Cir. 2010).
    \10\ See NetCoalition, at 534-535.
    \11\ Id. at 537.
---------------------------------------------------------------------------

    Further, ``[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' . . . .'' \12\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
---------------------------------------------------------------------------

    \12\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    The Exchange believes it is reasonable and equitable to eliminate 
the fee waiver for Flash orders because the fee that the Exchange 
proposes to charge for

[[Page 28273]]

such orders are within the range of fees assessed by other exchanges 
employing similar pricing schemes. As noted above, pursuant to Section 
IV.E of the Exchange's Schedule of Fees, the Exchange does not charge a 
$.70 per contract marketing fee for Flash Orders, whereas MIAX and CBOE 
do so.\13\ The Exchange also provides a credit to Market Makers that 
respond to Flash Orders, pursuant to Section IV.G. As such, even with 
the proposed rule change, the Exchange's fee structure for Flash Orders 
will remain materially less expensive than the fee structures of other 
exchanges. Moreover, the Exchange operates in a highly competitive 
market in which market participants can readily direct order flow to 
another exchange if they deem fee levels at a particular exchange to be 
excessive.
---------------------------------------------------------------------------

    \13\ See Miax Options Options Fee Schedule, Section 1(b) (Mar. 
1, 2018); CBOE Exchange Inc. Fees Schedule (May 1, 2018).
---------------------------------------------------------------------------

    The Exchange also believes its proposal is not unfairly 
discriminatory because the proposed fees for Flash Orders would apply 
uniformly to all similarly situated Market Makers.

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 and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to 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 this instance, the Exchange's proposal does not impose a burden 
on competition because the Exchange's execution services are completely 
voluntary and subject to extensive competition both from other 
exchanges and from off-exchange venues. Moreover, even with the 
proposed rule change, the range of fees that Exchange proposes to 
charge its Market Makers for Flash orders will remain competitive with 
the fees that other exchange charge. As noted above, pursuant to 
Section IV.E of the Exchange's Schedule of Fees, the Exchange does not 
charge a $.70 per contract marketing fee for Flash Orders, whereas MIAX 
and CBOE do so.\14\ The Exchange also provides a credit to Market 
Makers that respond to Flash Orders, pursuant to Section IV.G. Thus, 
even with the proposed rule change, the Exchange's fee structure for 
Flash Orders will remain materially less expensive than the fee 
structures of other exchanges.
---------------------------------------------------------------------------

    \14\ See Miax Options Options Fee Schedule, Section 1(b) (Mar. 
1, 2018); CBOE Exchange Inc. Fees Schedule (May 1, 2018).
---------------------------------------------------------------------------

    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.

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,\15\ and Rule 19b-4(f)(2) \16\ 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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 [email protected]. Please include 
File Number SR-ISE-2018-50 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-2018-50. 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-2018-50 and should be submitted on 
or before July 9, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-12927 Filed 6-15-18; 8:45 am]
 BILLING CODE 8011-01-P