Document ID: SEC-2021-1449-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2021-10-20T04:00Z

[Federal Register Volume 86, Number 200 (Wednesday, October 20, 2021)]
[Notices]
[Pages 58121-58124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-22807]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93314; File No. SR-ISE-2021-21)

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Pricing Schedule at Options 7, Section 6.A To Modify the QCC 
and Solicitation Rebate Program

October 14, 2021.
    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 September 30, 2021, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III, 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, Section 6.A to modify its Qualified Contingent Cross 
(``QCC'') and Solicitation rebate program, as described further below.
    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.] [sic]

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

[[Page 58122]]

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 modify the Exchange's 
QCC \3\ and Solicitation Rebate program in Options 7, Section 6.A by: 
(i) Providing a new additional rebate of $0.01 per originating contract 
side to qualifying Members, and (ii) amending the qualifications for 
the existing $0.01 additional rebate. The Exchange also proposes a 
technical amendment in Options 7, Section 4. Each change is discussed 
in detail below.
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    \3\ A QCC Order is comprised of an originating order to buy or 
sell at least 1000 contracts that is identified as being part of a 
qualified contingent trade, as that term is defined in Supplementary 
Material .01 to Options 3, Section 7, coupled with a contra-side 
order or orders totaling an equal number of contracts. See Options 
3, Section 7(j).
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    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on October 1, 2021.
Background
    Today, Members using QCC and/or other solicited orders executed in 
the Solicitation \4\ or Facilitation \5\ Mechanisms (together with QCC, 
collectively, ``Solicited Orders'') receive rebates for each 
originating contract side in all symbols traded on the Exchange. Once a 
Member reaches a certain volume threshold in Solicited Orders during a 
month, the Exchange provides rebates to that Member for all of its 
eligible Solicited Order traded contracts for that month.\6\ Rebates 
will be applied to Solicited Order traded contracts once the volume 
threshold is met. Members will receive the rebate for all Solicited 
Orders except for Solicited Orders between two Priority Customers.\7\ 
Solicited Orders between two Priority Customers will not receive any 
rebate. The volume threshold and corresponding rebates are as 
follows:\8\
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    \4\ The Solicitation or Solicited Order Mechanism is a process 
by which an Electronic Access Member (``EAM'') can attempt to 
execute orders of 500 or more contracts it represents as agent 
against contra orders that it solicited. See Options 3, Section 
11(d).
    \5\ The Facilitation Mechanism is a process by which an EAM can 
execute a transaction wherein the EAM seeks to facilitate a block-
size order it represents as agent, and/or a transaction wherein the 
EAM solicited interest to execute against a block-size order it 
represents as agent. See Options 3, Section 11(b).
    \6\ All eligible volume from affiliated Members will be 
aggregated in determining QCC and Solicitation volume totals, 
provided there is at least 75% common ownership between the Members 
as reflected on each Member's Form BD, Schedule A.
    \7\ 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).
    \8\ Volume resulting from all Solicited Orders will be 
aggregated in determining the applicable volume tier.

------------------------------------------------------------------------
                  Originating contract sides                     Rebate
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0 to 99,999..................................................      $0.00
100,000 to 199,999...........................................     (0.05)
200,000 to 499,999...........................................     (0.07)
500,000 to 749,999...........................................     (0.09)
750,000 to 999,999...........................................     (0.10)
1,000,000+...................................................     (0.11)
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    For Members that achieve the highest volume threshold of 1,000,000 
or more originating contract sides, the Exchange also currently 
provides an additional rebate of $0.01 per originating contract side on 
Solicited Orders that qualify for the QCC and Solicitation Rebate 
program if the Member achieves in a given month: (i) Combined Solicited 
Order volume of more than 1,750,000 originating contract sides and (ii) 
Priority Customer Complex Tiers 6-9 in Section 4 (the ``note * 
incentive'').\9\ The purpose of this incentive is to encourage Members 
to provide high volumes of Solicited Order activity well above the 
highest QCC and Solicitation Rebate volume tier of 1,000,000 or more 
originating contract sides, and also provide significant complex order 
volume.
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    \9\ As set forth in Options 7, Section 4, Priority Customer 
Complex Tiers are based on Total Affiliated Member or Affiliated 
Entity complex order volume (excluding Crossing Orders and Responses 
to Crossing Orders) calculated as a percentage of Customer Total 
Consolidated Volume.
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New QCC and Solicitation Incentive
    To further encourage Solicited Order and complex order flow, the 
Exchange now proposes to provide a new additional incentive that will 
be structured similarly to the existing note * incentive, except the 
proposed incentive will also be applied to the lower QCC and 
Solicitation Rebate volume tiers (in addition to the highest volume 
tier). Furthermore, Members will be able to qualify for the proposed 
incentive by achieving less stringent Priority Customer Complex Tiers 
in Section 4. Specifically, the Exchange proposes that Members will 
receive an additional rebate of $0.01 per originating contract side on 
Solicited Orders that qualify for the QCC and Solicitation Rebate 
program if they achieve Priority Customer Complex Tier 2 or higher in a 
given month (the ``note & incentive'').
    The note & incentive will be applied to all of the QCC and 
Solicitation Rebate volume tiers except for the lowest tier (for which 
the Exchange does not currently provide a QCC and Solicitation Rebate). 
This additional rebate opportunity will be cumulative of the base 
rebates so that qualifying Members could receive up to $0.06 in the 
second QCC and Solicitation Rebate volume tier, $0.08 in the third 
tier, $0.10 in the fourth tier, $0.11 in the fifth tier, and $0.13 in 
the sixth and highest tier (i.e., the $0.11 base rebate, the $0.01 note 
* incentive, and the $0.01 note & incentive).
    While structured similarly to the existing note * incentive, the 
proposed incentive will be less stringent in that it will require 
Members to send a lower amount of Solicited Order and complex order 
volume in order to qualify for the incentive. As such, the proposed 
note & incentive may be more readily accessible to Members. If more 
Members find this rebate is accessible to them, then more will seek to 
qualify for it by sending Solicited Order and complex order flow to the 
Exchange.
Existing QCC and Solicitation Incentive
    As described above, the Exchange currently offers the $0.01 note * 
incentive to qualifying Members if they achieve in a given month: (i) 
Combined Solicited Order volume of more than 1,750,000 originating 
contract sides and (ii) Priority Customer Complex Tiers 6-9 in Section 
4. When the Exchange adopted the note * incentive in 2019, there were 
only nine Priority Customer Complex Tiers in Section 4.\10\ The 
Exchange has since amended its Pricing Schedule to adopt Priority 
Customer Complex Tier 10, and now proposes to update the existing 
Priority Customer Complex Tier qualification in the note * incentive 
accordingly.\11\ As amended, the qualification will require Members to 
achieve Priority Customer Complex Tier 6 or higher. The amended 
qualification will therefore include Priority Customer Complex Tier 10 
while also giving the Exchange flexibility to accommodate any similar 
changes to its Priority Customer Complex Tiers going forward. The 
Exchange notes that no Member is

[[Page 58123]]

currently achieving both Priority Customer Complex Tier 10 and combined 
Solicited Order volume of more than 1,750,000 originating contract 
sides to receive the $0.01 additional incentive, so expects that the 
proposed changes will have minimal impact.
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    \10\ See Securities Exchange Act Release No. 85647 (April 15, 
2019), 84 FR 16300 (April 18, 2019) (SR-ISE-2019-09) (the ``2019 
Filing'').
    \11\ See Securities Exchange Act Release No. 90501 (November 24, 
2020), 85 FR 77328 (December 1, 2020) (SR-ISE-2020-39) (the ``2020 
Filing'').
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Technical Amendment
    The Exchange proposes a minor, technical amendment in note 16 of 
Options 7, Section 4, which currently describes the Priority Customer 
Complex Tiers, to add a reference to Affiliated Entity \12\ within the 
note's first sentence. The proposed change will simply align the note's 
language with corresponding language presently in the header of the 
Priority Customer complex rebates table.
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    \12\ 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 Schedule of Fees. 
Market Makers and OFPs are required to send an email to the Exchange 
to appoint their counterpart, at least 3 business days prior to the 
last day of the month to qualify for the next month. The Exchange 
will acknowledge receipt of the emails and specify the date the 
Affiliated Entity is eligible for applicable pricing, as specified 
in the Schedule of Fees. Each Affiliated Entity relationship will 
commence on the 1st of a month and may not be terminated prior to 
the end of any month. An Affiliated Entity relationship will 
terminate after a one (1) year period, unless either party 
terminates earlier in writing by sending an email to the Exchange at 
least 3 business days prior to the last day of the month to 
terminate for the next month. Affiliated Entity relationships must 
be renewed annually by each party sending an email to the Exchange. 
Affiliated Members may not qualify as a counterparty comprising an 
Affiliated Entity. Each Member may qualify for only one (1) 
Affiliated Entity relationship at any given time.
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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's proposed changes to its Pricing Schedule are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for options 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[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'. . . .'' \15\
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    \15\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(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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    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.'' \16\
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    \16\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options security transaction services. The Exchange is only one of 
sixteen options exchanges to which market participants may direct their 
order flow. Within this environment, market participants can freely and 
often do shift their order flow among the Exchange and competing venues 
in response to changes in their respective pricing schedules. As such, 
the proposal represents a reasonable attempt by the Exchange to 
increase its liquidity and market share relative to its competitors.
New QCC and Solicitation Incentive
    The Exchange believes that its proposal to provide Members with an 
additional incentive of $0.01 per originating contract side on 
Solicited Orders that qualify for the QCC and Solicitation Rebate 
program if they achieve Priority Customer Complex Tier 2 or higher in a 
given month is reasonable because this incentive is intended to 
encourage Members to send more Solicited Order and complex order flow 
to the Exchange. As discussed above, the proposed note & incentive is 
similar to the existing note * incentive, except the proposed incentive 
will be less stringent in that it will require Members to send a lower 
amount of Solicited Order and complex order volume in order to qualify 
for the incentive. As such, the proposed note & incentive may be more 
readily accessible to Members. If more Members find this rebate is 
accessible to them, then more will seek to qualify for it by sending 
Solicited Order and complex order flow to the Exchange. All market 
participants benefit from increased order interaction when more order 
flow is available on ISE.
    The Exchange further believes that the proposed note & incentive is 
equitable and not unfairly discriminatory because any Member may 
qualify for the proposed incentive by submitting the requisite volume 
of Solicited Orders and complex orders. Furthermore, the Exchange will 
uniformly apply the proposed incentive to all qualifying Members.
Existing QCC and Solicitation Incentive
    The Exchange believes that the proposed changes to amend the 
existing qualification in the note * incentive is reasonable for the 
following reasons. First, the proposed changes would more closely align 
to the Exchange's original intent in the 2019 Filing to provide the 
note * incentive to qualifying Members that achieved anything above 
1.000% of Total Affiliated Member or Affiliated Entity Complex Order 
Volume (Excluding Crossing Orders and Responses to Crossing Orders) 
calculated as a percentage of Customer Total Consolidated Volume (i.e., 
Priority Customer Complex Tiers 6-9 at the time of the 2019 
Filing).\17\ The 2020 Filing amended, among other changes, the Priority 
Customer Complex Tiers by adding a new Tier 10 as the highest tier and 
adjusting the volume percentages in Tiers 8 and 9 accordingly.\18\ The 
volume percentages in Tier 6, however, remained the same with the 2020 
Filing, so even with the addition of Tier 10, corresponding changes 
should have been made to the note * incentive qualifications to include 
Tier 10 to align with the original intent of this incentive. Second, as 
noted above, the proposed changes to include Tier 10 in the incentive 
qualifications are expected to have minimal impact as no Member is 
currently achieving both Priority Customer Complex Tier 10 and combined 
Solicited Order volume of more than 1,750,000 originating contract

[[Page 58124]]

sides to receive the $0.01 additional rebate.
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    \17\ See 2019 Filing.
    \18\ See 2020 Filing.
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    Lastly, the Exchange believes that the proposed changes to the 
existing qualification are equitable and not unfairly discriminatory 
because any Member may qualify for the note * incentive by submitting 
the requisite volume of Solicited Orders and complex orders. The 
Exchange will apply the amended qualification to all qualifying Members 
uniformly.
Technical Amendment
    The Exchange's proposal to amend note 16 in Options 7, Section 4 is 
reasonable, equitable, and not unfairly discriminatory. As discussed 
above, the Exchange is simply aligning the note's language 
corresponding language currently in the header of the Priority Customer 
complex rebates table. The Exchange believes that the proposed changes 
will bring clarity and transparency to the Exchange's 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.
    In terms of intra-market competition, the Exchange does not believe 
that its proposal will place any category of market participant at a 
competitive disadvantage. As discussed above, any Member may qualify 
for the QCC and Solicitation Rebates, including the note * incentive 
and the proposed note & incentive. The proposed changes are primarily 
aimed at attracting greater Solicited Order and complex order flow to 
the Exchange. To the extent the Exchange's proposal incentivizes 
Members to bring more order flow to ISE, the Exchange believes that the 
resulting additional volume and liquidity will benefit all market 
participants.
    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 
options 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 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 exchanges 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.\19\ 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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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 [email protected]. Please include 
File Number SR-ISE-2021-21 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-2021-21. 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-2021-21 and should be submitted on 
or before November 10, 2021.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22807 Filed 10-19-21; 8:45 am]
BILLING CODE 8011-01-P