Document ID: SEC-2018-1255-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2018-08-13T04:00Z

[Federal Register Volume 83, Number 156 (Monday, August 13, 2018)]
[Notices]
[Pages 40096-40099]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17255]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83790; File No. SR-ISE-2018-69]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to the 
Regular Order Take Fee and the QCC and Solicitation Order Rebate

August 7, 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 July 25, 2018, 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.
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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 ISE Schedule of Fees to: (i) 
Increase the Regular Order Take Fee in SPY, QQQ, IWM, and VXX for 
Priority Customers; \3\ and; (2) not pay the ``Customer to Customer'' 
Orders rebate for QCC and solicited orders between two Priority 
Customers.
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    \3\ 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 Rule 
100(a)(37A). Unless otherwise noted, when used in the Schedule of 
Fees the term ``Priority Customer'' includes ``Retail'' as defined 
in the Schedule of Fees. See Preface to ISE Schedule of Fees.
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    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 ISE 
Schedule of Fees at Section I, entitled ``Regular Order Fees and 
Rebates'' as well as the Section IV, entitled ``Other Options Fees

[[Page 40097]]

and Rebates'' within Section A, ``QCC and Solicitation Rebate.'' Each 
proposed change is described in more detail below. The Exchange 
believes that each of the proposed rule changes will permit the 
Exchange to remain competitive in options trading.
Taker Fees
    Currently, the Exchange charges a Regular Order Taker Fee for 
Select Symbols, other than Priority Customer orders in SPY, QQQ, IWM, 
and VXX, of: $0.45 per contract for Market Maker orders,\4\ $0.44 per 
contract for Priority Customer orders and $0.46 per contract for Non-
Nasdaq ISE Market Makers \5\ (FarMM), Firm Proprietary \6\/Broker 
Dealer,\7\ and Professional Customers \8\ orders. The Regular Order 
Taker Fee for Priority Customer orders in SPY, QQQ, IWM, and VXX is 
$0.37 per contract. The Exchange proposes to increase this Regular 
Order Taker Fee in SPY, QQQ, IWM, and VXX to $0.40 per contract for 
Priority Customer orders. While the Exchange is increasing this fee, 
the Exchange believes that the fee remains competitive. Also, this fee 
continues to be lower than other Regular Order Taker Fees for SPY, QQQ, 
IWM, and VXX assessed to non-Priority Customers.
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    \4\ ``Market makers'' refers to ``Competitive Market Makers'' 
and ``Primary Market Makers'' collectively. See ISE Rule 100(a)(28).
    \5\ 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. See Preface to ISE Schedule of Fees.
    \6\ A ``Firm Proprietary'' order is an order submitted by a 
Member for its own proprietary account. See Preface to ISE Schedule 
of Fees.
    \7\ ``Broker-Dealer'' order is an order submitted by a Member 
for a broker-dealer account that is not its own proprietary account. 
See Preface to ISE Schedule of Fees.
    \8\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer. See Preface to 
ISE Schedule of Fees.
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QCC and Solicitation Rebate
    Currently, ISE Members using Qualified Contingent Cross (``QCC'') 
orders \9\ and/or other solicited crossing orders, including solicited 
orders executed in the Solicitation,\10\ Facilitation \11\ or Price 
Improvement Mechanism (``PIM'') \12\, receive rebates for each 
originating contract side in all symbols traded on the Exchange. Once a 
Member reaches a certain volume threshold in QCC orders and/or 
solicited crossing orders during a month, the Exchange provides rebates 
to that Member for all of its QCC and solicited crossing order traded 
contracts for that month.\13\ The applicable rebates are applied on QCC 
and solicited crossing order traded contracts once the volume threshold 
is met. Today, Members receive the Non-``Customer to Customer'' rebate 
for all QCC and/or other solicited crossing orders except for QCC and 
solicited orders between two Priority Customers. QCC and solicited 
orders between two Priority Customers receive the ``Customer to 
Customer'' Orders \14\ rebate. Non-``Customer to Customer'' and 
``Customer to Customer'' volume is aggregated in determining the 
applicable volume tier. The current volume threshold and corresponding 
rebates are as follows:
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    \9\ 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 below, coupled with a contra-side order or orders 
totaling an equal number of contracts. See ISE Rule 715(j).
    \10\ The Solicited Order Mechanism is a process by which an EAM 
can attempt to execute orders of 500 or more contracts it represents 
as agent against contra orders that it solicited. Each order entered 
into the Solicited Order Mechanism shall be designated as all-or-
none. See ISE Rule 716(e).
    \11\ 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 Rule 716(d).
    \12\ PIM is a process by which an Electronic Access Member can 
provide price improvement opportunities for a transaction wherein 
the Electronic Access Member seeks to facilitate an order it 
represents as agent, and/or a transaction wherein the Electronic 
Access Member solicited interest to execute against an order it 
represents as agent (a ``Crossing Transaction'').
    \13\ 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.
    \14\ A ``Customer to Customer'' order is a QCC or other 
solicited order between two Priority Customers.

------------------------------------------------------------------------
                                    Non-``Customer to    ``Customer to
    Originating contract sides      customer'' rebate  customer'' rebate
------------------------------------------------------------------------
0 to 99,999.......................              $0.00              $0.00
100,000 to 199,999................             (0.05)             (0.01)
200,000 to 499,999................             (0.07)             (0.01)
500,000 to 749,999................             (0.09)             (0.03)
750,000 to 999,999................             (0.10)             (0.03)
1,000,000+........................             (0.11)             (0.03)
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    At this time, the Exchange proposes to not pay the ``Customer to 
Customer'' Orders rebate for QCC and solicited orders between two 
Priority Customers. The Exchange proposes to amend its Schedule of Fees 
to make clear that such a rebate will not be paid. ``Customer-to-
Customer'' Rebates are being removed from the table within the Schedule 
of Fees. The Exchange notes that this rebate did not attract volume as 
anticipated when the rebate was implemented. The Exchange is also 
amending the sentence that provides, ``Non-``Customer to Customer'' and 
``Customer to Customer'' volume will be aggregated in determining the 
applicable volume tier'' with language which removes the term 
``Customer to Customer'' and instead descriptively defines that volume. 
The proposed sentence states, ``Volume resulting from all QCC and 
solicited orders will be aggregated in determining the applicable 
volume tier.'' In addition the Exchange is removing references to 
``Non-``Customer to Customer'' rebate'' and simply noting the term 
``rebate.'' The Exchange believes that the term Non-``Customer to 
Customer'' is no longer necessary. The language makes clear that 
Members will receive the rebate for all QCC and/or other solicited 
crossing orders except for QCC and solicited orders between two 
Priority Customers. No other changes are being made to the manner in 
which rebates are calculated or paid.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\15\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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

[[Page 40098]]

discrimination between customers, issuers, brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4) and (5).
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Taker Fees
    The Exchange believes that the proposed change to increase Regular 
Order Priority Customer Taker Fees in SPY, QQQ, IWM, and VXX from $0.37 
to $0.40 per contract is reasonable because the increased Taker Fee 
remains competitive and will continue to be attractive to market 
participants. Priority Customers will continue to receive reduced 
Regular Order Taker Fees in SPY, QQQ, IWM, and VXX, which represent 
some of the most heavily traded symbols on ISE. In particular, the 
proposed Taker Fees are lower than Taker Fees assessed to Priority 
Customer orders in other Select Symbols \17\ as well as Taker Fees 
assessed to other market participants.\18\ As such, the Exchange 
believes that the proposed Regular Order Taker Fees will continue to 
attract order flow to the benefit of all market participants that trade 
on the Exchange.
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    \17\ Currently, ISE charges a Regular Order Taker Fee for Select 
Symbols, other than SPY, QQQ, IWM, and VXX, of $0.44 per contract 
for Priority Customer orders.
    \18\ Currently, the Exchange charges a Regular Order Taker Fee 
for Select Symbols of $0.45 per contract for Market Maker orders and 
$0.46 per contract for FarMM, Firm Proprietary/Broker Dealer, and 
Professional Customers orders.
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    The Exchange believes that the proposed change to increase Regular 
Order Priority Customer Taker Fees in SPY, QQQ, IWM, and VXX from $0.37 
to $0.40 per contract is equitable and not unfairly discriminatory 
because despite the increase to the fee, Priority Customer interest 
will continue to be assessed the lowest Regular Order Taker Fees in 
these symbols. Priority Customer interest brings valuable liquidity to 
the market, which liquidity benefits other market participants. 
Priority Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts Market Makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
QCC and Solicitation Rebate
    The Exchange believes that the proposed change to not pay the 
``Customer to Customer'' Rebate for QCC and solicited orders between 
two Priority Customers is reasonable. Despite the removal of the 
rebate, the Exchange believes that the proposal will continue to 
encourage Members to transact QCC and/or other solicited crossing 
orders on ISE. The Exchange notes that Customer-to-Customer Orders will 
continue to be aggregated with all other volume to determine the 
applicable volume tier for rebates.
    The Exchange believes that the proposed change to not pay the 
``Customer to Customer'' Orders rebate for QCC and solicited orders 
between two Priority Customers is equitable and not unfairly 
discriminatory because the Exchange would uniformly not pay any Member 
a rebate for Customer-to-Customer Orders. The Customer-to-Customer 
Orders will continue to be counted toward the rebates for all market 
participants that qualify for such rebates.

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. With respect to the increase to 
the Regular Order Taker Fees for Priority Customers in SPY, QQQ, IWM, 
and VXX, the Exchange does not believe this proposal imposes an undue 
burden on competition because despite the increase to the fee, Priority 
Customer interest will continue to be assessed the lowest Regular Order 
Taker Fees in these symbols. Priority Customer interest brings valuable 
liquidity to the market, which liquidity benefits other market 
participants. Priority Customer liquidity benefits all market 
participants by providing more trading opportunities, which attracts 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
    With respect to the proposed change to not pay the ``Customer to 
Customer'' Orders rebate for QCC and solicited orders between two 
Priority Customers, the Exchange does not believe this proposal imposes 
an undue burden on competition because the Exchange would uniformly not 
pay any Member a rebate for Customer-to-Customer Orders. The Customer-
to-Customer Orders will continue to be counted toward the rebates for 
all market participants that qualify for such rebates.

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\ and Rule 19b-4(f)(2) \20\ 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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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \20\ 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 [email protected]. Please include 
File Number SR-ISE-2018-69 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-2018-69. 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

[[Page 40099]]

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-
2018-69 and should be submitted on or before September 4, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17255 Filed 8-10-18; 8:45 am]
 BILLING CODE 8011-01-P