Document ID: SEC-2022-1171-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2022-09-06T04:00Z

[Federal Register Volume 87, Number 171 (Tuesday, September 6, 2022)]
[Notices]
[Pages 54583-54586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19114]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 95637; File No. SR-ISE-2022-17]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Adopt New 
Conflicts of Interest Rules

August 30, 2022.
    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 August 18, 2022, 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, II, and III, below, 
which Items have been prepared by the Exchange. The Exchange filed the 
proposed rule change as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt two new rules within Sections 26 and 
27 of Options 10. Also, the Exchange proposes to make other technical 
amendments.
    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 adopt two new rules within Sections 26 and 
27 of Options 10. Also, the Exchange proposes to make technical 
amendments to General 2, Organization and Administration; Options 1, 
Section 1, Definitions; and Options 4A, Section 12, Terms of Index 
Options Contracts. Each change is described below.
Proposed Options 10, Section 26
    The Exchange proposes to adopt a new Options 10, Section 26, titled 
``Transactions Involving ISE Employees'' that is substantively 
identical to FINRA Rule 2070. This proposed rule is intended to address

[[Page 54584]]

conflicts of interest involving ISE and its employees.
    The Exchange proposes to adopt rule text within proposed Options 
10, Section 26(a) that requires a Member, when it has actual notice 
that an ISE employee has a financial interest or controls trading in an 
account, to promptly obtain and implement an instruction from the 
employee directing that duplicate account statements be provided by the 
Member to ISE.
    The Exchange proposes to adopt rule text within proposed Options 
10, Section 26(b) that prohibits a Member from directly or indirectly 
making any loan of money or securities to an ISE employee. This 
proposed prohibition would not apply to loans made in the context of 
disclosed, routine banking and brokerage agreements, or loans that are 
clearly motivated by a personal or family relationship.
    Finally, the Exchange proposes to adopt rule text within proposed 
Options 10, Section 26(c) that prohibits any Member from directly or 
indirectly giving, or permitting to be given, anything of more than 
nominal value to any ISE employee who has responsibility for a 
regulatory matter involving the Member. This prohibition would apply 
regardless of the annual dollar limitation set forth in proposed 
Options 10, Section 27, which is discussed below. The term ``regulatory 
matter'' is proposed to be defined to include, without limitation, 
examinations, disciplinary proceedings, membership applications, 
listing applications, delisting proceedings, and dispute-resolution 
proceedings that involve the Member.
    The Exchange believes that requiring a Member to direct that 
duplicate account statements be provided by the Member to ISE when it 
has actual notice that an ISE employee has a financial interest or 
controls trading in an account, prohibiting Members from making any 
loan of money or securities to an ISE employee subject to the 
exceptions set forth herein, and prohibiting Members from directly or 
indirectly giving, or permitting to be given, anything above nominal 
value to any ISE employee who has responsibility for a ``regulatory 
matter'' involving the Member will avoid conflicts of interest for ISE 
and its employees in the regulation of its Members. With this proposal, 
ISE Members who are also FINRA members would be subject to this rule 
which is substantively identical to FINRA Rule 2070. Additionally, ISE 
Members who are not FINRA members would also be subject to proposed 
Options 10, Section 26 to the extent that such Members conduct business 
with the public.
Proposed Options 10, Section 27
    The Exchange proposes to adopt a new Options 10, Section 27, titled 
``Influencing or Rewarding Employees of Others'' that is substantively 
identical to FINRA Rule 3220. This proposed rule is intended to provide 
a limitation on gifts and thereby govern influencing or rewarding the 
employees of others.
    The Exchange proposes to adopt rule text within proposed Options 
10, Section 27(a) that prohibits a Member or person associated with a 
Member from directly or indirectly giving or permitting to be given 
anything of value, including gratuities, in excess of one hundred 
dollars per individual per year to any person, principal, proprietor, 
employee, agent or representative of another person where such payment 
or gratuity is in relation to the business of the employer of the 
recipient of the payment or gratuity. A gift of any kind would be 
considered a gratuity.
    The Exchange proposes to adopt rule text within proposed Options 
10, Section 27(b) that provides that Options 10, Section 27 shall not 
apply to contracts of employment with or to compensation for services 
rendered by persons enumerated in paragraph (a) provided that there is 
in existence prior to the time of employment or before the services are 
rendered, a written agreement between the Member and the person who is 
to be employed to perform such services. Such agreement would include 
the nature of the proposed employment, the amount of the proposed 
compensation, and the written consent of such person's employer or 
principal. The Exchange notes that this express exclusion for payments 
made pursuant to a bone fide, prior written agreement in paragraph (b) 
is excluded from the dollar value consideration in paragraph (a).
    The Exchange proposes to adopt rule text within proposed Options 
10, Section 27(c) that requires a separate record of all payments or 
gratuities in any amount known to the Member, the employment agreement 
referred to in paragraph (b) and further requires the Member to retain 
any employment compensation paid as a result thereof for the period 
specified by Rule 17a-4 of the Exchange Act.\5\
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    \5\ 17 CFR 240.17a-4.
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    Proposed Options 10, Section 27 prevents gifts in excess of a fixed 
amount, currently $100. The Exchange believes that there is no business 
need to justify giving gifts in amounts greater than the limit 
specified in the rule. With this proposal, ISE Members who are also 
FINRA members would be subject to this rule which is substantively 
identical to FINRA Rule 3220. Additionally, ISE Members who are not 
FINRA members would also be subject to proposed Options 10, Section 27 
to the extent that such Members conduct business with the public. The 
Exchange believes this proposed rule appropriately protects against 
improprieties that might arise when substantial gifts or monetary 
payments are given to certain persons.
Technical Amendments
    The Exchange proposes to reserve rules within General 2, 
Organization and Administration in addition to currently reserved 
Sections 13 through 22, to harmonize ISE's rules with those of Nasdaq 
affiliate exchanges. Specifically, the Exchange proposes to reserve new 
Sections 23 and 24 within General 2 and add an ``s'' to the word 
``Section.''
    The Exchange proposes to amend a citation within the definition of 
``proprietary trading'' at Options 1, Section 1(a)(41). The citation to 
``General 4, Section 1.1210'' is incorrect. The citation should be to 
``General 4, Section 1210''. Correcting this citation will avoid 
confusion.
    The Exchange proposes to remove the word ``pilot'' within 
Supplementary Material to Options 4A, Section 12. Options 4A, Section 
12 describes the options listing rules. The Quarterly Options Series 
pilot program was approved in 2009.\6\ The Exchange proposes to remove 
this updated reference to the pilot.
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    \6\ See Securities Exchange Act Release No. 60275 (July 9, 
2009), 74 FR 34809 (July 17, 2009) (SR-ISE-2009-50) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To 
Permanently Establish the Quarterly Options Series Pilot Program).
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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 Section 
6(b)(5) of the Act,\8\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general to protect investors and the public interest. 
Together, proposed Options 10, Sections 26 and 27 address conflicts of 
interest by adopting rules that govern influencing or rewarding the 
employees of others and transactions involving ISE

[[Page 54585]]

employees. The Exchange believes that adopting rules substantively 
identical to FINRA will help avoid confusion among Members of the 
Exchange who conduct business with the public that are also members of 
FINRA and would harmonize the Exchange's rules with FINRA rules with 
respect to conflicts of interest, resulting in greater uniformity and 
less burdensome and more efficient regulatory compliance. As such, the 
proposed rule change would foster cooperation and coordination with 
persons engaged in facilitating transactions in securities and would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    Proposed Options 10, Section 26 is consistent with the Act and 
protects investors and the general public by requiring a Member to 
direct that duplicate account statements be provided by the Member to 
ISE when it has actual notice that an ISE employee has a financial 
interest or controls trading in an account, prohibiting Members from 
making any loan of money or securities to an ISE employee subject to 
the exceptions set forth herein, and prohibiting Members from directly 
or indirectly giving, or permitting to be given, anything above nominal 
value to any ISE employee who has responsibility for a ``regulatory 
matter'' involving the Member. These proposed rules are intended to 
avoid conflicts of interest for ISE and its employees in the regulation 
of its Members.
    Proposed Options 10, Section 27 is consistent with the Act and 
protects investors and the general public by preventing gifts in excess 
of a fixed amount, currently $100, because there is no business need to 
justify giving gifts in amounts greater than the limit specified in the 
rule. Options 10, Section 27 in conjunction with Options 10, Section 
26, as proposed, protects investors and the general public by 
addressing conflicts of interest and governs influencing or rewarding 
the employees of others and transactions involving ISE employees.
Technical Amendments
    The Exchange's proposal to reserve new Sections 23 and 24 within 
General 2, amend a citation within the definition of ``proprietary 
trading'' within Options 1, Section 1, and remove the word ``pilot'' 
within Supplementary Material to Options 4A, Section 12 are non-
substantive amendments.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.
Proposed Options 10, Sections 26 and 27
    The proposed rule change is not designed to address any competitive 
issues but rather to provide greater harmonization among Exchange and 
FINRA rules of similar purpose, resulting in less burdensome and more 
efficient regulatory compliance for common members. The Exchange's 
proposal to adopt new Options 10, Sections 26 and 27 does not impose an 
undue burden on competition as all Members that conduct business with 
the public would be subject to the proposed rules. Further, ISE Members 
who are also FINRA members would be subject to these rules which are 
substantively identical to FINRA Rules 2070 and 3220.
Technical Amendments
    The Exchange's proposal to reserve new Sections 23 and 24 within 
General 2, amend a citation within the definition of ``proprietary 
trading'' within Options 1, Section 1, and remove the word ``pilot'' 
within Supplementary Material to Options 4A, Section 12 are non-
substantive amendments.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \9\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    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 necessary or 
appropriate in the public interest, for the protection of investors, or 
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.

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ISE-2022-17 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-2022-17. 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 (https://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

[[Page 54586]]

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-2022-17 and should be 
submitted on or before September 27, 2022.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19114 Filed 9-2-22; 8:45 am]
BILLING CODE 8011-01-P