Document ID: SEC-2023-1489-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2023-12-20T05:00Z

[Federal Register Volume 88, Number 243 (Wednesday, December 20, 2023)]
[Notices]
[Pages 88206-88208]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27914]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99171; File No. SR-ISE-2023-36]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the Fees 
for Options on the Nasdaq 100 Index in the Exchange's Pricing Schedule 
at Options 7

December 14, 2023.
    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 December 8, 2023, 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 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 fees for Nasdaq 100 Index 
options in the Exchange's Pricing Schedule at Options 7, Section 5A. 
While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on December 1, 2023.
    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 purpose of the proposed rule change is to amend the fees for 
NDX \3\

[[Page 88207]]

in Options 7, Section 5A. The Exchange initially filed the proposed 
pricing changes on November 30, 2023 (SR-ISE-2023-34). On December 8, 
2023, the Exchange withdrew that filing and submitted this filing.
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    \3\ For purposes of the Pricing Schedule, ``NDX'' means A.M. or 
P.M. settled options on the full value of the Nasdaq 100[supreg] 
Index. See Options 7, Section 1(c).
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    Today, the Exchange assesses a transaction fee of $0.75 per 
contract for all Non-Priority Customer \4\ regular NDX orders. Priority 
Customers \5\ currently receive free executions in regular NDX orders. 
In accordance with note 1 of Options 7, Section 5.A, the applicable 
complex order fees for Non-Select Symbols \6\ in Options 7, Section 4 
apply to all executions in complex NDX orders.\7\ As such, Priority 
Customers currently receive free executions in complex NDX orders.\8\
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    \4\ ``Non-Priority Customers'' include Market Makers, Non-Nasdaq 
ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and 
Professional Customers.
    \5\ 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).
    \6\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols. ``Select Symbols'' are options overlying 
all symbols listed on the Nasdaq ISE that are in the Penny Interval 
Program.
    \7\ See generally Options 7, Section 4 (setting forth maker/
taker fees for Non-Select Symbols, including NDX, pursuant to which 
Priority Customers are assessed no fees today). In addition, the 
Exchange does not offer the tiered Priority Customer complex order 
rebates in Section 4 for orders in NDX. See Options 7, Section 4, 
note 4.
    \8\ Id.
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    The Exchange now proposes to begin assessing all Priority Customer 
NDX executions (i.e., regular and complex) a $0.25 per contract 
transaction fee. In connection with this change, the Exchange also 
proposes to amend note 1 of Options 7, Section 5.A to exclude Priority 
Customer complex NDX executions from the Section 4 complex fees, and to 
make clear that Priority Customer complex NDX executions will now be 
assessed a $0.25 per contract fee instead. As amended, note 1 will 
provide that for all executions in complex NDX orders for Non-Priority 
Customers, the applicable complex order fees for Non-Select Symbols in 
Section 4 will apply. Further, for all executions in complex NDX orders 
for Priority Customers, the fee will be $0.25 per contract. The 
Exchange notes that the proposed $0.25 per contract fee amount is in 
line with customer transaction fees assessed on other index 
products.\9\ The Exchange also proposes to assess a surcharge of $0.25 
per contract to all Priority Customer complex executions in NDX.\10\ As 
such, Priority Customer complex executions in NDX will be assessed a 
total of $0.50 per contract (i.e., the base $0.25 per contract fee plus 
the $0.25 per contract surcharge). The Exchange notes that the proposed 
surcharge amount is within the range of surcharges assessed for 
customer transactions in other products at other options exchanges.\11\
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    \9\ For example, Cboe Options (``Cboe'') currently assesses a 
$0.25 per contract customer transaction fee for MXEA and MXEF 
options, $0.35 per contract for OEX and XEO options, and $0.36 per 
contract (if premium <$1.00) or $0.45 per contract (if premium >= 
$1.00) for SPX and SPESG options. See Cboe Fees Schedule.
    \10\ See proposed note 2 of Options 7, Section 5.A.
    \11\ For example, Cboe currently assesses customers a $0.25 per 
contract exotic surcharge and a $0.21 per contract execution 
surcharge in SPX and SPESG options. See Cboe Fees Schedule. In 
addition, the Exchange's affiliate, Nasdaq Phlx LLC (``Phlx'') 
current assesses customers a $0.25 per contract complex surcharge 
for executions in singly-listed U.S. dollar-settled foreign currency 
options. See Phlx Options 7, Section 5.D.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes it is reasonable to begin assessing a $0.25 
per contract transaction fee to all Priority Customer executions (i.e., 
regular and complex) in NDX and a $0.25 per contract surcharge to 
complex Priority Customer executions in NDX because the proposed 
pricing reflects the proprietary nature of this product. Similar to 
other proprietary products like options overlying the Nasdaq 100 
Reduced Value Index (``NQX'') and the Nasdaq 100 Micro Index (``XND''), 
the Exchange seeks to recoup the operational costs of listing 
proprietary products.\14\ Also, pricing by symbol is a common practice 
on many U.S. options exchanges as a means to incentivize order flow to 
be sent to an exchange for execution in particular products. Other 
options exchanges price by symbol.\15\ Further, the Exchange notes that 
market participants are offered different ways to gain exposure to the 
Nasdaq 100 Index, whether through the Exchange's proprietary products 
like options overlying NDX, NQX, or XND, or separately through multi-
listed options overlying Invesco QQQ Trust (``QQQ'').\16\ Offering such 
products provides market participants with a variety of choices in 
selecting the product they desire to utilize in order to gain exposure 
to the Nasdaq 100 Index. When exchanges are able to recoup costs 
associated with offering proprietary products, it incentivizes growth 
and competition for the innovation of additional products.
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    \14\ By way of example, in analyzing an obvious error, the 
Exchange would have additional data points available in establishing 
a theoretical price for a multiply listed option as compared to a 
proprietary product, which requires additional analysis and 
administrative time to comply with Exchange rules to resolve an 
obvious error.
    \15\ See supra note 9.
    \16\ QQQ is an exchange-traded fund based on the same Nasdaq 100 
Index as NDX, NQX, and XND.
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    The Exchange further believes that the proposed pricing described 
above is reasonable because the proposal is designed to update fees for 
the Exchange's services to reflect their current value--rather than 
their value when the Exchange last updated NDX pricing five years ago 
\17\--based on the Exchange's ability to deliver value to its customers 
by offering proprietary products on its market like NDX.
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    \17\ The Exchange has not amended NDX transaction fees since 
2018, so the fees have remained at $0.75 per contract for Non-
Customers and $0.00 for Priority Customers during this time. See 
Securities Exchange Act Release No. 83144 (May 1, 2018), 83 FR 20107 
(May 7, 2018) (SR-ISE-2018-38).
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    While the pricing for Priority Customer NDX orders is increasing 
under this proposal, the Exchange believes that the proposal is 
reasonable and would continue to incentivize market participants to 
transact in Priority Customer NDX orders because Priority Customers 
would continue to be charged at a lower rate for NDX than Non-Priority 
Customers. As a result, the Exchange believes that the proposed pricing 
is structured in a way that continues to encourage market participants, 
especially Priority Customers, to transact in NDX on ISE. An increase 
in Priority Customer order flow would benefit all market participants 
through quality of order interaction and increased trading 
opportunities. As noted above, the proposed fee and surcharge amounts 
are in line with customer fees and surcharges assessed on other index 
products at other options exchanges.\18\
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    \18\ See supra note 9 and 11.
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    The Exchange's proposal to assess a $0.25 per contract transaction 
fee to all Priority Customer NDX orders and to assess a $0.25 per 
contract surcharge to complex Priority Customer NDX orders is equitable 
and not unfairly discriminatory it will apply uniformly to all 
similarly situated market

[[Page 88208]]

participants. The Exchange believes it is equitable and not unfairly 
discriminatory to continue charging Priority Customers NDX orders at a 
generally lower rate than Non-Priority Customers NDX orders \19\ as the 
Exchange has historically provided more favorable pricing to Priority 
Customers in its Pricing Schedule.\20\ Priority Customer orders bring 
valuable liquidity to the market by providing more trading 
opportunities, which, in turn, 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 to the benefit of all market participants.
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    \19\ As described above, regular Priority Customer NDX 
executions will be assessed $0.25 per contract under this proposal, 
and complex Priority Customer NDX executions will be assessed a 
total of $0.50 per contract under this proposal (i.e., base fee plus 
complex surcharge). Regular Non-Priority Customer NDX executions 
will continue to be assessed $0.75 per contract. As it relates to 
complex Non-Priority Customer NDX executions, the Exchange notes 
that in certain instances, Non-Priority Customers may be assessed a 
lower complex fee in Section 4 than the $0.50 complex fee proposed 
for Priority Customers. Specifically, Non-Priority Customers could 
be assessed the $0.20 per contract complex Maker Fee for Non-Select 
Symbols (NDX is a Non-Select Symbol). However, the Non-Priority 
Customer complex Taker Fee for Non-Select Symbols still remains at a 
much higher level ($1.10) than the $0.50 complex fee proposed for 
Priority Customer NDX executions. See Options 7, Section 4.
    \20\ For example, Priority Customers presently receive free 
executions in regular and complex orders, as discussed earlier in 
this filing.
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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. 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. As noted above, market participants are offered an 
opportunity to transact in NDX, NQX, or XND, or separately execute 
options overlying QQQ. Offering these products provides market 
participants with a variety of choices in selecting the product they 
desire to use to gain exposure to the Nasdaq 100 Index. Furthermore, 
the proposed fee amounts are in line with customer transaction fees and 
surcharges assessed on other products at another options exchange.\21\
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    \21\ See supra notes 9 and 11.
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    Further, the Exchange does not believe that its proposal to begin 
assessing a $0.25 per contract transaction fee for all Priority 
Customer NDX orders and $0.25 per contract surcharge for complex 
Priority Customer NDX orders will impose an undue burden on intra-
market competition because Priority Customers will continue to be 
assessed more favorable pricing than Non-Priority Customers for NDX 
orders, which is in line with how the Exchange historically assessed 
fees for these market participants. As discussed above, Priority 
Customer order flow enhances liquidity on the Exchange for the benefit 
of all market participants.

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 \22\ and Rule 19b-4(f)(2) \23\ 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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    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \23\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-ISE-2023-36 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-2023-36. 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-ISE-2023-36 and should be 
submitted on or before January 10, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27914 Filed 12-19-23; 8:45 am]
BILLING CODE 8011-01-P