Document ID: SEC-2018-1687-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2018-10-31T04:00Z

[Federal Register Volume 83, Number 211 (Wednesday, October 31, 2018)]
[Notices]
[Pages 54791-54793]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-23732]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84487; File No. SR-ISE-2018-87]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchanges Schedule of Fees To Modify the Crossing Fee Cap

October 25, 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 October 11, 2018, 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 Schedule of Fees to 
modify the Crossing Fee Cap, 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 the proposed rule change is to amend the Exchange's 
Schedule of Fees to exclude Non-Nasdaq ISE Market Makers \3\ from the 
Crossing Fee Cap in Section IV.H.
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    \3\ A ``Non-Nasdaq ISE Market Maker'' is a market maker as 
defined in Section 3(a)(38) of the Securities Exchange Act of 1934, 
as amended, registered in the same options class on another options 
exchange.
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    By way of background, Crossing Orders are contracts that are 
submitted as part of a Facilitation, Solicitation, Price Improvement 
Mechanism (``PIM''), Block or QCC order. As set forth in Section IV.H 
of the Schedule of Fees, the Exchange currently caps Crossing Order 
fees at $90,000 per month per member on all Firm Proprietary and Non-
Nasdaq Market Maker transactions that are part of the originating or 
contra side of a Crossing Order.\4\ The following fees are not included 
in the calculation of the monthly Crossing Fee cap: (1) Fees for 
Responses to Crossing Orders, (2) surcharge fees for licensed products 
and the fees for index options as set forth in Section III, and (3) 
service fee.\5\ For purposes of the Crossing Fee Cap the Exchange 
attributes eligible volume to the ISE Member on whose behalf the 
Crossing Order was executed.\6\ The Exchange now seeks to exclude Non-
Nasdaq ISE Market Maker transactions from the Crossing Fee Cap, and 
make related changes to remove references to Non-Nasdaq ISE Market 
Maker contracts throughout its Schedule of Fees where the Crossing Fee 
Cap is described.
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    \4\ Members that elect prior to the start of the month to pay 
$65,000 per month will have these crossing fees capped at that level 
instead. All eligible volume from affiliated Members will be 
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.
    \5\ A service fee of $0.00 per side applies to all order types 
that are eligible for the fee cap. The service fee does not apply 
once a Member reaches the fee cap level and does 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. Once the fee 
cap is reached, the service fee applies to eligible Firm Proprietary 
and Non-Nasdaq ISE market Maker orders in all Nasdaq ISE products. 
The service fee is not calculated in reaching the cap.
    \6\ The Exchange's fee cap is functionally similar to the 
Clearing Trading Permit Holder Fee Cap in place at Cboe Exchange 
(``CBOE''), and the Monthly Firm Fee Cap in place at Nasdaq PHLX 
(``Phlx''). See CBOE Fees Schedule, Equity Options Rate Table, 
Clearing Trading Permit Holder Fee Cap, footnote 11; and Phlx 
Pricing Schedule, Section II, Monthly Firm Fee Cap.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\8\ in particular, in that it

[[Page 54792]]

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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Crossing Fee Cap was established to reward members for 
executing a high volume of Firm Proprietary and Non-Nasdaq ISE Market 
Maker Crossing Orders on the Exchange. However, the Exchange has 
determined that this program has not proven to be effective in 
encouraging Non-Nasdaq ISE Market Maker volume in Crossing Orders and 
therefore believes it is reasonable to eliminate the Crossing Fee Cap 
for these market participants. Furthermore, the Exchange believes that 
it is reasonable to no longer apply the Crossing Fee Cap to Non-Nasdaq 
ISE Market Maker transactions because other options exchanges offer 
similar fee caps that only apply to firm proprietary orders.\9\
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    \9\ See CBOE Fees Schedule, Equity Options Rate Table, Clearing 
Trading Permit Holder Fee Cap, footnote 11 (providing in relevant 
part that the ``. . . Clearing Trading Permit Holder Fee Cap in all 
products except Underlying Symbol List A (34) excluding binary 
options (the ``Fee Cap'') and Sector Indexes (47), the Cboe Options 
Proprietary Products Sliding Scale for Clearing Trading Permit 
Holder Proprietary Orders (the ``Proprietary Products Sliding 
Scale''), the Clearing Trading Permit Holder Proprietary VIX Sliding 
Scale (the ``VIX Sliding Scale''), and the Supplemental VIX Total 
Firm Discount (the Supplemental VIX Discount'') apply to (i) 
Clearing Trading Permit Holder proprietary orders (``F'' origin 
code), and (ii) orders of Non-Trading Permit Holder Affiliates of a 
Clearing Trading Permit Holder. A ``Non-Trading Permit Holder 
Affiliate'' for this purpose is a 100% wholly owned affiliate or 
subsidiary of a Clearing Trading Permit Holder that is registered as 
a United States or foreign broker-dealer and that is not a Cboe 
Options Trading Permit Holder. Only proprietary orders of the Non-
Trading Permit Holder Affiliate that clear through a Cboe Options-
registered OCC clearing number(s) will be included in calculating 
the Fee Cap, Proprietary Products Sliding Scale, VIX Sliding Scale, 
and Supplemental VIX Discount.''). In addition, Phlx's Monthly Firm 
Fee Cap is only offered to firm proprietary orders. See Phlx Pricing 
Schedule, Section II, Monthly Firm Fee Cap.
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    The Exchange further believes that the proposed fee change is 
equitable and not unfairly discriminatory because it would apply 
uniformly to all members engaged in Firm Proprietary trading in options 
classes traded on the Exchange. The Exchange's decision to no longer 
apply the Crossing Fee Cap to Non-Nasdaq ISE Market Maker orders is not 
unfairly discriminatory because as noted above, the Exchange has 
determined that this program has not proven to be effective in 
encouraging Non-Nasdaq ISE Market Maker volume in Crossing Orders and 
as a matter of practice, members submitting Firm Proprietary orders are 
most likely to use or pre-pay the Crossing Fee Cap. As such, the 
Exchange believes there will be minimal impact on removing this fee cap 
for Non-Nasdaq ISE Market Maker orders. Moreover, the proposed variance 
between Firm Proprietary and Non-Nasdaq ISE Market Maker participants 
does not misalign pricing in that Firm Proprietary orders already 
benefit from certain pricing advantages that Non-Nasdaq ISE Market 
Makers do not also enjoy, such as a PIM and Facilitation rebate as well 
as a lower complex order maker fee.\10\ Such differentiated pricing 
exists today on another options exchange.\11\ The Exchange believes 
there is nothing impermissible about ISE offering the Crossing Fee Cap 
solely to Firm Proprietary transactions given that this practice is 
consistent with the above examples and the fee caps in place at other 
options exchanges.\12\ Furthermore, to the extent the Crossing Fee Cap 
provides an incentive for Firm Proprietary orders to transact order 
flow on the Exchange, such order flow brings increased liquidity to the 
benefit of all market participants, including Non-Nasdaq ISE Market 
Makers.
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    \10\ See Schedule of Fees, Section IV.B. See Schedule of Fees, 
Section II (assessing Non-Nasdaq ISE Market Maker orders a complex 
order maker fee of $0.20 per contract in Select Symbols, while Firm 
Proprietary orders are assessed the lower $0.10 per contract maker 
fee).
    \11\ CBOE assesses a reduced transaction fee to Clearing Trading 
Permit Holder Proprietary participants, which clear in the Firm 
range at The Options Clearing Corporation, of $0.43 per contract for 
electronic Penny Classes and $0.70 per contract for electronic Non-
Penny Classes. In contrast, CBOE assesses Non-Trading Permit Holder 
Market Makers a $0.47 per contract fee for electronic Penny Classes 
and a $0.75 per contract fee for electronic Non-Penny Classes. See 
CBOE Fees Schedule.
    \12\ See note 9 above.
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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. Although the Exchange is no 
longer including Non-Nasdaq ISE Market Maker transactions in the 
Crossing Fee Cap, as described above, the Exchange notes that other 
options exchanges offer similar fee caps that apply only to firm 
proprietary orders and the Exchange therefore seeks to modify its fee 
cap for competitive reasons.\13\ 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. For 
the reasons discussed above, the Exchange believes that the proposed 
fee change reflects this competitive environment.
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    \13\ See note 9 above.
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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.\14\ 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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    \14\ 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-2018-87 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.

[[Page 54793]]

All submissions should refer to File Number SR-ISE-2018-87. 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-2018-87 and should be submitted on 
or before November 21, 2018.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-23732 Filed 10-30-18; 8:45 am]
 BILLING CODE 8011-01-P