Document ID: SEC-2019-0733-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2019-05-30T04:00Z

[Federal Register Volume 84, Number 104 (Thursday, May 30, 2019)]
[Notices]
[Pages 25097-25100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11235]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85923; File No. SR-ISE-2019-15]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Market Maker Plus Program Under Options 7, Section 3

May 23, 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 May 10, 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.
---------------------------------------------------------------------------

    \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 amend the Exchange's 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 
qualifications for Market Makers to achieving Market Maker Plus status.
    The Exchange initially filed the proposed pricing changes on May 1, 
2019 (SR-ISE-2019-13). On May 10, 2019, the Exchange withdrew that 
filing and submitted this filing.
    As set forth in note 5 under Section 3 of the Pricing Schedule, the 
Exchange operates a Market Maker Plus program for regular orders in 
Select Symbols \3\ that provides the below tiered rebates to Market 
Makers \4\ based on time spent quoting at the National Best Bid or 
National Best Offer (``NBBO'').\5\ This program is designed to reward 
Market Makers that contribute to market quality by maintaining tight 
markets in Select Symbols.
---------------------------------------------------------------------------

    \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\ If a Market Maker would qualify for a different Market Maker 
Plus tier in each of the two successive 30 calendar day periods, 
then the lower of the two Market Maker Plus tier rebates shall apply 
to all contracts. The Market Maker Plus tiered rebate amounts and 
the specified percentage thresholds outlined in this filing will 
remain unchanged under this proposal.

[[Page 25098]]

       Select Symbols Other Than SPY, QQQ, IWM, AMZN, FB, and NVDA
------------------------------------------------------------------------
      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)
------------------------------------------------------------------------

                            SPY, QQQ, and IWM
------------------------------------------------------------------------
    Market Maker Plus tier (specified      Regular Maker   Linked Maker
               Percentage)                    rebate          rebate
------------------------------------------------------------------------
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)
------------------------------------------------------------------------

                           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)
------------------------------------------------------------------------

    Market Makers are evaluated each trading day for the percentage of 
time spent on the NBBO for qualifying series that expire in two 
successive thirty calendar day periods beginning on that trading 
day.\6\ 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.\7\
---------------------------------------------------------------------------

    \6\ 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.
    \7\ Thus, for example, on May 1 the periods referenced above 
would include all expirations: (1) From May 1-May 30 and (2) from 
May 31-June 29.
---------------------------------------------------------------------------

    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. Thus, 
as currently implemented in the Exchange's billing system, the rebates 
are applied across the entire firm based on the highest Market Maker 
Plus tier achieved by one of the firm's badge/suffix combination in a 
particular symbol within a particular billing month.\8\ Furthermore, a 
Market Maker's worst quoting day each month for each of the two 
successive periods described above, on a per symbol basis, is excluded 
in calculating whether a Market Maker qualifies for this rebate.\9\
---------------------------------------------------------------------------

    \8\ For example, assume Market Maker A is configured to trade in 
AAPL in the following badge/suffix combinations: 123A, 123B, and 
123C, and is on the NBBO 95% of the time in 123A, 85% of the time in 
123B, and 10% of the time in 123C. Based on these facts, Market 
Maker A would qualify for the Tier 3 rebate of $0.22 per contract in 
AAPL for 123A based on a time at the NBBO of 95% or greater. In 
addition, Market Maker A would qualify for the same Tier 3 rebate in 
AAPL for 123B and 123C as the highest tier achieved is applied to 
all badge/suffix combinations.
    \9\ In addition, the Exchange may exclude from any member's 
monthly Market Maker Plus tier calculation any Unanticipated Event; 
provided that the Exchange will only remove the day for members that 
would have a lower time at the NBBO for the specified series with 
the day included. See Options 7, Section 1(a)(2) for the definition 
of ``Unanticipated Event.''
---------------------------------------------------------------------------

    While the Exchange believes that the Market Maker Plus program has 
been successful overall in encouraging better market quality in Select 
Symbols, and that the language selecting the highest badge/suffix 
combination of a firm seeks to reward the Market Maker for consistent 
quoting, the Exchange has also identified certain instances where 
allowing the program benefits to accrue to all badge/suffix 
combinations once a single badge/suffix combination qualifies for a 
Market Maker Plus tier would not necessarily improve market quality, 
particularly in instances where a Market Maker shuts down one of its 
badge/suffix combinations mid-month.
    For example, assume Market Maker A is configured to trade AAPL in 
the following badge/suffix combinations: 123A, 123B, and 123C. Assume 
further that Market Maker A's performance for the following trading 
days in May for both successive 30 calendar day periods are as follows:
     May 1: Market Maker A is at the NBBO for 95% of the time 
in 123A, and 50% of the time in 123B and 123C. As of May 1, Market 
Maker A would qualify for Market Maker Plus Tier 3 based on the tier 
achieved by 123A.
     May 2: Market Maker A is at the NBBO for 10% of the time 
in 123A, 123B, and 123C.
     May 3: Market Maker A decides to shut down 123A, and 
quotes at the NBBO for 50% of the time in 123B and 123C.
     Market Maker A is at the NBBO for 50% of the time in 123B 
and 123C for the rest of May.
    The Exchange currently rebates the above example based on the 
Market Maker Plus language which states that the Exchange will apply 
the rebate for the highest tier achieved for any badge/suffix 
combination quoting that symbol across all badge/suffix combinations 
that the member uses to trade in that symbol. The language also 
provides that a Market Maker's worst quoting day each month will be 
thrown out. As a result, Market Maker A would receive the $0.22 per 
contract Tier 3 rebate for May because the Exchange's billing system 
picked up 123A as the highest achieving badge/suffix combination within 
that month (which is then

[[Page 25099]]

applied across all badge/suffix combinations--i.e., 123B and 123C), and 
also struck May 2 as its worst quoting day. In this case, the market 
has not necessarily improved in this symbol because Market Maker A was 
quoting on 123A for only two days. This is further compounded by the 
fact that one of those days was thrown out under the current rule, such 
that Market Maker A only needed to quote above the Tier 3 threshold for 
one day in order to receive the rebate.
    The Exchange therefore proposes to change its Market Maker Plus 
qualifications to ensure that Market Makers make quality markets for a 
significant number of days within a month. In particular, the Exchange 
proposes to add the following language in Section 3, note 5: ``Only 
badge/suffix combinations quoting a minimum of ten trading days within 
the month will be used to determine whether the Market Maker Plus 
status has been met and the specific tier to be applied to the Market 
Maker's performance for that month.'' Thus under the proposal, Market 
Makers would need to quote in a badge/suffix combination for at least 
10 trading days within a given month as a prerequisite to qualifying 
for Market Maker Plus, and the Market Maker's quoting activity on such 
badge/suffix combination would be used to determine which Market Maker 
Plus tier (if any) applies to that Market Maker for that month.
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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange believes that the Market Maker Plus specification that 
the highest badge/suffix combination will be used for calculation 
honors the Market Maker Plus participants in their best efforts to 
improve the quality of the markets. The Exchange, in light of the above 
example and similar situations, would like to ensure that the 
participants of the Market Maker Plus program are making quality 
markets for an appreciable number of days in order to qualify for the 
enhanced rebate. The Exchange believes that the proposed changes to 
impose a minimum number of trading days for quoting on a single badge/
suffix combination to include that badge/suffix combination into the 
calculation of Market Maker Plus status are reasonable and equitable as 
these changes are designed to encourage Market Makers to make quality 
markets in Select Symbols and thereby further the goal of the Market 
Maker Plus program. The Exchange believes that the proposed minimum of 
ten trading days is reasonable and equitable because it requires a 
Market Maker to quote using a badge/suffix combination for a 
significant amount of days within a month in order to receive the 
enhanced rebates. The Exchange believes its proposal is appropriate in 
light of how the current program is implemented on the billing system, 
and avoids situations where members can glean program benefits without 
particularly improving market quality.
    The Exchange believes that the proposed changes to the 
qualifications to Market Maker Plus are not unfairly discriminatory as 
all Market Makers will be subject to the same qualification criteria 
for Market Maker Plus. The Exchange also continues to believe that it 
is not unfairly discriminatory to offer rebates under this program to 
only Market Makers since Market Makers and, in particular, those Market 
Makers that participate in the Market Maker Plus Program and achieve 
Market Maker Plus status, are subject to additional requirements and 
obligations (such as quoting obligations) 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 are 
designed to ensure that the goals of the Exchange's Market Maker Plus 
program are furthered by ensuring that Market Makers make quality 
markets in Select Symbols for a significant amount of days within the 
month. The Exchange 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 and rebates to remain 
competitive. 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.

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.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 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 rule-comments@sec.gov. Please include 
File Number SR-ISE-2019-15 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-2019-15. 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

[[Page 25100]]

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-
2019-15 and should be submitted on or before June 20, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11235 Filed 5-29-19; 8:45 am]
 BILLING CODE 8011-01-P