Document ID: SEC-2017-2122-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2017-12-20T05:00Z

[Federal Register Volume 82, Number 243 (Wednesday, December 20, 2017)]
[Notices]
[Pages 60455-60458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27340]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82320; File No. SR-ISE-2017-103]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Calculation of the Member Order Routing Program

December 14, 2017.
    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 November 29, 2017, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed 
with the Securities

[[Page 60456]]

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 its Schedule of Fees to amend the 
calculation of the Member Order Routing Program.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on December 1, 2017.
    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 Exchange operates the Member Order Routing Program 
(``MORP''),\3\ which is a program that provides enhanced rebates to 
order routing firms that select the Exchange as the default routing 
destination for unsolicited Crossing Orders.\4\ This proposal seeks to 
exclude options overlying NDX \5\ from the calculation of MORP for 
purposes of rebates.
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    \3\ See Securities Exchange Act Release No. 74706 (April 10, 
2016), 80 FR 20522 (April 16, 2016) (SR-ISE-2015-11). A Member may 
designate one or more sessions to be eligible for MORP. A session is 
connection to the exchange over which a member submits orders. See 
Section V.C. of the Schedule of Fees. If a session is designated as 
eligible for MORP all requirements for the program must be met for 
that session.
    \4\ A ``Crossing Order'' is an order executed in the Exchange's 
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement 
Mechanism (``PIM'') or submitted as a Qualified Contingent Cross 
(``QCC'') order. For purposes of the fee schedule, orders executed 
in the Block Order Mechanism are also considered Crossing Orders.
    \5\ NDX represents options on the Nasdaq 100 Index traded under 
the symbol NDX (``NDX'').
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    Eligible MORP Electronic Access Members (EAMS) that execute a 
monthly average daily volume (ADV) in unsolicited Crossing Orders of 
30,000 originating contract sides or more on their MORP designated 
sessions are eligible for increased Facilitation and Solicitation 
break-up rebates in addition to enhanced rebates for Unsolicited 
Crossing Orders. Break-up rebates, which are shown in the table below, 
apply instead of rebates described in Sections I, II, and III of the 
Schedule of Fees, and will be provided for contracts that are submitted 
to the Facilitation and Solicited Order Mechanisms that do not trade 
with their contra order except when those contracts trade against pre-
existing orders and quotes on the Exchange's order books. The 
applicable fee for Crossing Orders is applied to any contracts for 
which a rebate is provided.
    Facilitation and Solicitation Break-Up Rebates are as follows:

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                                                          Regular orders      Complex     Regular orders      Complex                         Complex
                   Market participant                        in select       orders in     in non-select  orders in  non- Regular orders   orders in FX
                                                              symbols     select symbols      symbols     select symbols   in FX options      options
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Market Maker............................................             N/A             N/A             N/A             N/A             N/A             N/A
Non-Nasdaq ISE Market Maker (FarMM).....................         ($0.35)         ($0.35)         ($0.15)         ($0.80)         ($0.15)         ($0.15)
Firm Proprietary/Broker-Dealer..........................          (0.35)          (0.35)          (0.15)          (0.80)          (0.15)          (0.15)
Professional Customer...................................          (0.35)          (0.35)          (0.15)          (0.80)          (0.15)          (0.15)
Priority Customer.......................................          (0.35)          (0.35)          (0.15)          (0.80)          (0.15)          (0.15)
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    Currently, an EAM that is MORP eligible receives a rebate for all 
unsolicited Crossing Orders of $0.05 per originating contract side, 
provided that the member executes a minimum ADV in unsolicited Crossing 
Orders of 30,000 to 99,999 originating contract sides though their MORP 
designated sessions. If the member executed greater than 100,000 
originating contract sides, the rebate for all unsolicited Crossing 
Orders is $0.07 per originating contract side.\6\ No rebate is paid for 
volume below 30,000 originating contract sides.
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    \6\ The rebate for the highest tier achieved is applied 
retroactively to all eligible contracts traded in a given month. For 
purposes of determining whether the member meets the above ADV 
thresholds, any day that the Exchange is not open for the entire 
trading day or the Exchange instructs members in writing to route 
their orders to other markets may be excluded from such calculation; 
provided that the Exchange will only remove the day for members that 
would have a lower ADV with the day included.
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    With respect to the Facilitation and Solicitation Break-Up Rebate, 
any EAM that qualifies for the MORP rebate by executing an ADV of 
30,000 originating contract sides or more on their MORP designated 
sessions is also eligible for increased Facilitation and Solicitation 
break-up rebates \7\ for their Non-ISE Market Maker,\8\ Firm 
Proprietary,\9\ Broker-Dealer,\10\ Professional Customer,\11\ and 
Priority Customer orders.\12\ Currently, MORP eligible members that 
execute a qualifying ADV in unsolicited Crossing Orders of at least 
30,000 originating contract sides, receive a Facilitation and 
Solicitation break-up rebate that is $0.35 per contract for regular and 
complex orders

[[Page 60457]]

in Select Symbols,\13\ $0.15 per contract for regular orders in Non-
Select Symbols,\14\ $0.80 per contract for complex orders in Non-Select 
Symbols, and $0.15 per contract for regular and complex orders in 
foreign exchange option classes (``FX Options'').
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    \7\ Break-up rebates are provided for contracts that are 
submitted to the Facilitation and Solicited Order Mechanisms that do 
not trade with their contra order except when those contracts trade 
against pre-existing orders and quotes on the Exchange's orderbooks. 
The applicable fee for Crossing Orders is applied to any contracts 
for which a rebate is provided.
    \8\ A ``Non-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.
    \9\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \10\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \11\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \12\ 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 ISE Rule 100(a)(37A).
    \13\ ``Select Symbols'' are options overlying all symbols listed 
on the ISE that are in the Penny Pilot Program.
    \14\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
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Proposal
    This proposal would exclude options overlying NDX from the monthly 
ADV when calculating the originating contract side for unsolicited 
Crossing Orders executed by an eligible EAM on their MORP designated 
sessions. NDX would not be subject to unsolicited Crossing Orders 
rebates and Facilitation and Solicitation break-up rebates. NDX will 
continue to be subject to Section I Index Options pricing for simple 
orders and Non-Select pricing for complex orders.
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 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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    The Exchange's proposal to exclude options overlying NDX from the 
monthly ADV when calculating unsolicited Crossing Orders rebates and 
also from Facilitation and Solicitation break-up rebates is reasonable 
because the MORP will continue to be attractive to members that 
participate in the program.\17\ Under MORP, which is a voluntary rebate 
program, the Exchange currently provides enhanced rebates to EAMs that 
connect directly to the Exchange and provide their clients with order 
routing functionality that includes all U.S. options exchanges, 
including ISE. Even with the exclusion of NDX from the MORP monthly ADV 
and rebates, the Exchange still believes that Members will continue to 
be incentivized to participate in the program. The Exchange today 
prices Index Options separately from other multiply-listed options.\18\ 
This practice of pricing certain products separately is not novel.\19\
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    \17\ See note 3 above.
    \18\ See Section I of the ISE Schedule of Fees.
    \19\ See Nasdaq Phlx's Pricing Schedule at Section I which 
offers separate pricing for options overlying SPY.
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    The Exchange's proposal to exclude options overlying NDX from the 
monthly ADV when calculating unsolicited Crossing Orders rebates and 
also from Facilitation and Solicitation break-up rebates is equitable 
and not unfairly discriminatory because no Member would be eligible to 
include NDX in monthly ADV and receive MORP rebates. The Exchange would 
uniformly calculate tiers and pay rebates associated with MORP.
    Any EAM that participates in the program will be provided the 
rebates on an equal and non-discriminatory basis based on the order 
flow executed on the Exchange.

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

    In accordance with Section 6(b)(8) of the Act,\20\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Order routing 
firms that participate in MORP and select the Exchange as the default 
routing destination for unsolicited Crossing Orders will continue to 
receive enhanced rebates. The exclusion from NDX from the monthly ADV 
when calculating unsolicited Crossing Orders rebates and also from 
Facilitation and Solicitation break-up rebates will apply uniformly to 
all ISE Members. Other exchanges price certain symbols differently.\21\
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    \20\ 15 U.S.C. 78f(b)(8).
    \21\ See note 19 above.
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    The Exchange operates in a highly competitive market in which 
market participants can readily direct their order flow to competing 
venues. In such an environment, the Exchange must continually review, 
and consider adjusting, its fees and rebates to remain competitive with 
other exchanges. For the reasons described above, the Exchange believes 
that the proposed fee changes reflect this competitive environment.

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\ 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).
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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-2017-103 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-2017-103. 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,

[[Page 60458]]

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-2017-103 and should be 
submitted on or before January 10, 2018.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27340 Filed 12-19-17; 8:45 am]
 BILLING CODE 8011-01-P