Document ID: SEC-2018-0572-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2018-04-11T04:00Z

[Federal Register Volume 83, Number 70 (Wednesday, April 11, 2018)]
[Notices]
[Pages 15662-15664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-07405]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82999; File No. SR-ISE-2018-28]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Schedule of Fees To Clarify the Fees and Rebates for the 
Complex Order Exposure Auction Pursuant to Rule 722(b)(3)(iii)

April 5, 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 March 23, 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 Exchange's Schedule of Fees to 
provide greater clarity as to how the Exchange currently charges 
complex orders executed during an exposure auction pursuant to Rule 
722(b)(3)(iii) (``Exposure Auction'').
    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 provide greater clarity as to how the Exchange 
currently charges complex orders executed during an Exposure Auction 
pursuant to Rule 722(b)(3)(iii). An Exposure Auction is automatically 
initiated when a member submits an eligible complex order that is 
marked for price improvement.\3\ Because Exposure Auctions are 
initiated by complex orders entered on the complex order book, they are 
charged based on the same maker/taker scheme as is applicable to other 
complex orders that are executed on the complex order book rather than 
the separate pricing defined for Crossing Orders.\4\ Specifically, the 
Exchange treats the originating side of Exposure Auction orders as 
adding liquidity, and the contra side as taking liquidity, for the 
purpose of determining applicable fees and rebates. Since the Schedule 
of Fees does not currently indicate the manner in which the Exchange 
treats the originating or contra side of Exposure Auction orders, the 
Exchange proposes to add the following language in Section II: ``During 
an ``exposure'' auction pursuant to Rule 722(b)(3)(iii), the 
originating side of the auction order will be assessed the applicable 
maker fee or rebate, and the contra side will be assessed the 
applicable taker fee or rebate.''
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    \3\ Pursuant to Rule 722(b)(3)(iii), the marked complex order is 
exposed for a period of up to one-second. When the Exchange first 
adopted Rule 722(b)(3)(iii), it indicated that this exposure period, 
which provided members an opportunity for price improvement, was not 
considered an ``auction.'' See Securities Exchange Act Release No. 
57706 (April 24, 2008), 73 FR 23517 (April 30, 2008) (SR-ISE-2007-
77) (``2007 Filing''). Notwithstanding the 2007 Filing, this feature 
would be considered an auction today.
    \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 order. 
For purposes of the Fee Schedule, orders executed in the Block Order 
Mechanism are also considered Crossing Orders.
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    Thus, based on current rates, the Exchange charges the originating 
side of Non-Priority Customer \5\ Exposure Auction orders that trade 
against other Non-Priority Customer orders a maker fee of $0.10 per 
contract in Select

[[Page 15663]]

Symbols \6\ for Market Maker,\7\ Firm Proprietary \8\/Broker-Dealer,\9\ 
and Professional Customer \10\ orders, and $0.20 per contract in Select 
Symbols for Non-Nasdaq ISE Market Maker \11\ orders. In Non-Select 
Symbols,\12\ the originating side is charged a $0.20 per contract maker 
fee for all Non-Priority Customer orders. The contra side Non-Priority 
Customer order is charged a taker fee of $0.50 per contract in Select 
Symbols for Market Maker (or $0.44 per contract for Market Makers with 
total affiliated Priority Customer Complex ADV of 150,000 or more 
contracts),\13\ Non-Nasdaq ISE Market Maker, Firm Proprietary/Broker-
Dealer, and Professional Customer orders. In Non-Select Symbols, the 
contra side Non-Priority Customer order is charged a $0.86 per contract 
taker fee for Market Maker orders,\14\ and a $0.88 per contract taker 
fee for Non-Nasdaq ISE Market Maker, Firm Proprietary/Broker-Dealer, 
and Professional Customer orders.\15\
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    \5\ Non-Priority Customer includes Market Maker, Non-Nasdaq ISE 
Market Maker, Firm Proprietary, Broker-Dealer, and Professional 
Customer.
    \6\ ``Select Symbols'' are options overlying all symbols listed 
on ISE that are in the Penny Pilot Program.
    \7\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively.
    \8\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \9\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \10\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \11\ 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.
    \12\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols.
    \13\ Further, Nasdaq ISE Market Makers making or taking 
liquidity receive a discount of $0.02 when trading against Priority 
Customer orders preferenced to them in the Complex Order Book in 
equity options that are able to be listed and traded on more than 
one options exchange. This discount does not apply to FX Options 
Symbols or to option classes designated by the Exchange to receive a 
guaranteed allocation pursuant to Nasdaq ISE Rule 722(b)(3)(i)(B).
    \14\ Id.
    \15\ The Exchange also currently charges a $0.03 per contract 
complex surcharge for Non-Priority Customer complex orders in Non-
Select Symbols that take liquidity from the complex order book, 
excluding complex orders executed in the Facilitation Mechanism, 
Solicited Order Mechanism, Price Improvement Mechanism and Exposure 
Auctions. See Securities Exchange Act Release No. 82644 (February 6, 
2018), 83 FR 6069 (February 12, 2018) (SR-ISE-2018-10).
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    When Non-Priority Customer orders trade against Priority Customer 
\16\ orders in Exposure Auctions and the originating side is a Non-
Priority Customer order, the originating side is charged a maker fee of 
$0.47 per contract in Select Symbols for Market Maker orders (or $0.44 
per contract for Market Makers with total affiliated Priority Customer 
Complex ADV of 150,000 or more contracts),\17\ and $0.48 per contract 
for Non-Nasdaq ISE Market Maker, Firm Proprietary/Broker-Dealer, and 
Professional Customer orders. In Non-Select Symbols, the originating 
side is charged a $0.86 per contract maker fee for Market Maker 
orders,\18\ and a $0.88 per contract maker fee for Non-Nasdaq ISE 
Market Maker, Firm Proprietary/Broker-Dealer, and Professional Customer 
orders. The contra side Priority Customer order is paid a volume-based 
tiered rebate,\19\ which currently ranges from $0.26 per contract in 
Select Symbols (if the member executes Priority Customer Complex ADV of 
0 to 14,999 contracts in a given month) to $0.50 per contract in Select 
Symbols (if the member executes Priority Customer Complex ADV of 
225,000 or more contracts in a given month). In Non-Select Symbols, the 
tiered rebate paid to the contra side Priority Customer order currently 
ranges from $0.40 per contract (if the member executes Priority 
Customer Complex ADV of 0 to 14,999 contracts in a given month) to 
$0.85 per contract (if the member executes Priority Customer Complex 
ADV of 225,000 or more contracts in a given month).
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    \16\ 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).
    \17\ See note 13 above.
    \18\ Id.
    \19\ The Exchange provides rebates to members for adding and 
taking liquidity based on tiers that reflect their Priority Customer 
Complex average daily volume (``ADV'') executed during a given 
month.
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    When Non-Priority Customer orders trade against Priority Customer 
orders in Exposure Auctions and the originating side is a Priority 
Customer order, the originating side receives the tiered rebate in 
Select and Non-Select Symbols, as discussed above. The contra side Non-
Priority Customer is charged the taker fee in Select and Non-Select 
Symbols, as discussed above.\20\ Lastly, when Priority Customer orders 
trade against Priority Customer orders in Exposure Auctions, neither 
the originating side nor the contra side is charged a fee or given a 
rebate because the Exchange currently does not charge a maker or taker 
fee for Priority Customer complex orders, and provides a rebate only if 
the Priority Customer complex order trades against a Non-Priority 
Customer complex order, as described above.
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    \20\ See note 15 above.
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    While the proposed change discussed above is consistent with 
current practice, the Exchange believes that the clarifications will 
eliminate any potential confusion around how Exposure Auction orders 
are charged today.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\21\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\22\ 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. The Exchange believes that it 
is reasonable, equitable and not unfairly discriminatory to clarify in 
Section II of the Schedule of Fees as to how the Exchange currently 
charges Exposure Auction orders, as further discussed above. The 
Exchange believes that the proposed change will eliminate any potential 
confusion around how Exposure Auction orders are charged today, and 
will make the Schedule of Fees more transparent to members and 
investors.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(4) and (5).
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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. The proposed change is not 
intended to address any competitive issues but rather to provide more 
clarity and transparency regarding how Exposure Auction orders are 
charged today. The Exchange 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. 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

[[Page 15664]]

impose any burden on competition is extremely limited.

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,\23\ and Rule 19b-4(f)(2) \24\ 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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    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \24\ 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-2018-28 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-2018-28. 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-2018-28 and should be submitted on 
or before May 2, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-07405 Filed 4-10-18; 8:45 am]
BILLING CODE 8011-01-P