Document ID: SEC-2020-1232-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2020-08-04T04:00Z

[Federal Register Volume 85, Number 150 (Tuesday, August 4, 2020)]
[Notices]
[Pages 47280-47283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16873]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89421; File No. SR-ISE-2020-30]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, 
Sections 1, 3, and 6

July 29, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 47281]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 20, 2020, 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 Options 7, Section 6, Other Options 
Fees and Rebates. The Exchange also proposes an amendment to Options 7, 
Section 1, General Provisions, and Options 7, Section 3, Regular Order 
Fees and Rebates.
    The Exchange originally filed the proposed pricing change on July 
9, 2020 (SR-ISE-2020-29). On July 20, 2020, the Exchange withdrew that 
filing and submitted this filing.
    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 proposes to amend Options 7, Section 6, Other Options 
Fees and Rebates. Specifically, the Exchange proposes to eliminate a 
discount in Options 7, Section 6H related to the Crossing Fee Cap. The 
Exchange also proposes an amendment to Options 7, Section 1, General 
Provisions, and Options 7, Section 3, Regular Order Fees and Rebates. 
Each change will be described below.
Options 7, Section 6
    Today, the Exchange offers a Crossing Fee Cap of $90,000 per month, 
per Member on all Firm Proprietary \3\ transactions that are part of 
the originating or contra-side of a Crossing Order \4\ within Options 
7, Section 6H. Members that elect, prior to the start of the month, to 
pay $65,000 per month, per Member are entitled to have their crossing 
fees capped at that level instead.
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    \3\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account. See Options 7, Section 1.
    \4\ Crossing Orders are contracts that are submitted as part of 
a Facilitation, Solicitation, PIM, Block or Qualified Contingent 
Cross order. All eligible volume from affiliated Members is 
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.
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    By way of background regarding the Crossing Fee Cap, today, fees 
charged by the Exchange for Responses to Crossing Orders are not 
included in the calculation of the monthly fee cap. Surcharge fees 
charged by the Exchange for licensed products and the fees for index 
options are set forth in Options 7, Section 5 and are not included in 
the calculation of the monthly fee cap. A service fee of $0.00 per side 
will apply to all order types that are eligible for the fee cap.\5\ 
Once the fee cap is reached, the service fee shall apply to eligible 
Firm Proprietary orders in all Nasdaq ISE products. The service fee is 
not calculated in reaching the cap. For purposes of the Crossing Fee 
Cap the Exchange will attribute eligible volume to the ISE Member on 
whose behalf the Crossing Order was executed.
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    \5\ The service fee shall apply once a member reaches the fee 
cap level and shall apply to every contract side above the fee cap. 
A member who does not reach the monthly fee cap will not be charged 
the service fee.
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    At this time, the Exchange is proposing to eliminate the 
opportunity for Members to elect, prior to the start of the month, to 
pay $65,000 per month, per Member to have their crossing fees capped at 
that level, instead of the current cap of $90,000 per month, per 
Member. The Exchange has offered this reduced cap since 2015, provided 
Members pay prior to the start of the month. While some Members did 
elect this option in prior years, and continued to elect this option 
through 2020, no new Member initially elected this option in 2020. The 
Exchange does not believe this discount incentivizes Members to bring 
Crossing Order flow to the Exchange as originally intended. With this 
proposal, the Exchange would not accept elections from Members to have 
their crossing fees capped at $65,000 for the month of July 2020 and 
moving forward. Finally, the Exchange notes that all Members remain 
eligible to have their fees capped at $90,000 per month, per Member.
    The Exchange proposes several technical amendments to Options 7, 
Section 6H including: (1) Adding punctuation; (2) capitalizing the term 
``member'' in several places; and (3) updating a citation from 
``Section III'' to ``Section 5.''
Options 7, Section 1
    The Exchange proposes an amendment to Options 7, Section 1, General 
Provisions. The Exchange proposes to amend the description of Penny 
Symbols to replace the term ``Penny Pilot Program'' with ``Penny 
Interval Program.'' On April 1, 2020 the Commission approved the 
amendment to the OLPP to make permanent the Pilot Program (the ``OLPP 
Program'').\6\ The Exchange recently filed a proposal to amend ISE 
Options 3, Section 3 to conform the rule to Section 3.1 of the Plan for 
the Purpose of Developing and Implementing Procedures Designed to 
Facilitate the Listing and Trading of Standardized Options (the 
``OLPP'').\7\ The Exchange's proposal amended ISE Options 3, Section 3 
to refer to a Penny Interval Program instead of a Penny Pilot Program. 
This proposed change to Options 7, Section 1 conforms the name of the 
program.
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    \6\ See Securities Exchange Act Release No. 88532 (April 1, 
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval 
Order'').
    \7\ See SR-ISE-2020-24 (not yet published).
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Options 7, Section 3
    The Exchange proposes to update an incorrect reference within 
Options 7, Section 3 to the Crossing Fee Cap to change the reference 
from ``Section IV.H'' to ``Options 7, Section 6.H.''

2. Statutory Basis

    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\9\ 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory

[[Page 47282]]

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.'' \10\
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    \10\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\11\ (``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.\12\ 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.'' \13\
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    \11\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \12\ See NetCoalition, at 534-535.
    \13\ Id. at 537.
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    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' . . . .'' \14\ 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.
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    \14\ 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)).
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Options 7, Section 6
    The Exchange believes that it is reasonable to amend Options 7, 
Section 6H to eliminate the opportunity for Members to elect, prior to 
the start of the month, to pay $65,000 per month, per Member to have 
their crossing fees capped at that level instead of at $90,000 per 
month, per Member. This discount was intended to incentivize members to 
bring Crossing Order flow to the Exchange. While some Members did elect 
this option in prior years, and continued to elect this option through 
2020, no new Member initially elected this option in 2020. The Exchange 
notes that only a small percentage of ISE Members elected this discount 
and, therefore, would no longer receive the discount going forward. The 
Exchange does not believe this discount incentivizes Members to bring 
Crossing Order flow to the Exchange as originally intended and, 
therefore, proposes to eliminate this discount. The Exchange was unable 
to incentivize any new Member to elect the discount in 2020 and, 
therefore, attract additional Crossing Order flow. The Exchange would 
continue to cap all Firm Proprietary transactions that are part of the 
originating or contra side of a Crossing Order at $90,000 per month, 
per Member.
    The Exchange believes that it is equitable and not unreasonably 
discriminatory to amend Options 7, Section 6H to eliminate the 
opportunity for Members to elect, prior to the start of the month, to 
pay $65,000 per month, per Member to have their crossing fees capped at 
that level instead of at $90,000 per month, per Member. The Exchange 
would not accept elections from any Member to have their crossing fees 
capped at $65,000 per month, per Member for the month of July 2020 and 
moving forward. Also, all Members remain eligible to have their fees 
capped at $90,000 per month, per Member. Specifically, with respect to 
the small percentage of ISE Members, who elected this discount and 
would no longer receive the discount, the Exchange notes that those 
Members would continue to be offered the opportunity to cap their 
crossing fees at $90,000. Also, the Exchange notes that it offers 
Members discounts and rebates to attract order flow to ISE. Depending 
on the amount of order flow attracted to the Exchange, certain 
discounts or rebates may be discontinued in favor of other discounts or 
rebates. For example, as of July 1, 2020, the Exchange began offering a 
Facilitation and Solicitation Break-up Rebate for Non-Select Symbols to 
encourage increased originating regular and complex Non-Nasdaq ISE 
Market Maker, Firm Proprietary/Broker-Dealer, Professional Customer, 
and Priority Customer order flow to the Facilitation and Solicited 
Order Mechanisms, thereby potentially increasing the initiation of and 
volume executed through such auctions. Additional auction order flow 
provides market participants with additional trading opportunities at 
potentially improved prices.\15\
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    \15\ See Securities Exchange Act Release No. 89321 (July 15, 
2020) (SR-ISE-2020-26).
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    The Exchange's proposed technical amendments to Options 7, Section 
6H are reasonable, equitable and not unfairly discriminatory. These 
amendments are non-substantive and clarify the current rule text.
Options 7, Section 1
    The Exchange's proposal to amend Options 7, Section 1 to replace 
the term ``Penny Pilot Program'' with ``Penny Interval Program'' is 
reasonable, equitable and not unfairly discriminatory. This amendment 
seeks to conform the name of the program, which governs the listing of 
certain standardized options.
Options 7, Section 3
    The Exchange's proposal to update an incorrect reference within 
Options 7, Section 3 to the Crossing Fee Cap is reasonable, equitable 
and not unfairly discriminatory. This change will bring clarity to the 
Pricing Schedule.

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.
Intermarket Competition
    The proposal does not impose an undue burden on intermarket 
competition. The Exchange believes its proposal remains competitive 
with other options markets and will offer market participants with 
another choice of where to transact options. 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 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.

[[Page 47283]]

Intramarket Competition
    The proposed amendments do not impose an undue burden on 
intramarket competition.
Options 7, Section 6
    The Exchange believes that it does not impose an undue burden on 
competition to amend Options 7, Section 6H to eliminate the opportunity 
for Members to elect, prior to the start of the month, to pay $65,000 
per month, per Member to have their crossing fees capped at that level 
instead of at $90,000 per month, per Member. The Exchange has offered 
this opportunity to all Members. While some Members did elect this 
option in prior years, and continued to elect this option through 2020, 
no new Member initially elected this option in 2020. Therefore, the 
Exchange believes that eliminating the opportunity for Members to 
elect, prior to the start of the month, to pay the discounted fee does 
not impose an undue burden on competition, as there was no new interest 
from Members, who had not previously elected this opportunity, in 2020 
to pay the lower fee. The Exchange would not accept elections from any 
Member to have their crossing fees capped at $65,000 per month, per 
Member for the month of July 2020 and moving forward. Also, all Members 
remain eligible to have their fees capped at $90,000 per month, per 
Member.
    The Exchange's proposed technical amendments to Options 7, Section 
6H are non-substantive and do not impose a burden on competition.
Options 7, Section 1
    The Exchange's proposal to amend Options 7, Section 1 to replace 
the term ``Penny Pilot Program'' with ``Penny Interval Program'' does 
not impose an undue burden on competition. This amendment seeks to 
conform the name of the program, which governs the listing of certain 
standardized options.
Options 7, Section 3
    The Exchange's proposal to update an incorrect reference within 
Options 7, Section 3 to the Crossing Fee Cap does not impose an undue 
burden on competition. This change will bring clarity to the Pricing 
Schedule.

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 \16\ and Rule 19b-4(f)(2) \17\ 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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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 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-2020-30 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-2020-30. 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-2020-30 and should be submitted on 
or before August 25, 2020.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-16873 Filed 8-3-20; 8:45 am]
BILLING CODE 8011-01-P