Document ID: SEC-2022-1153-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2022-08-30T04:00Z

[Federal Register Volume 87, Number 167 (Tuesday, August 30, 2022)]
[Notices]
[Pages 53025-53030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-18587]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95590; File No. SR-ISE-2022-16]

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

August 24, 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 9, 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 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Pricing Schedule at 
Options 7, as described further below.\3\
---------------------------------------------------------------------------

    \3\ The Exchange originally filed SR-ISE-2022-15 on August 1, 
2022. On August 9, 2022, the Exchange withdrew SR-ISE-2022-15 and 
submitted this rule change.
---------------------------------------------------------------------------

    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 Exchange's 
Pricing Schedule at Options 7. Each change is described below.
Price Improvement Auctions, Options 7, Sections 3 and 6
    Currently, for Regular Orders \4\ in Select \5\ and Non-Select 
Symbols,\6\ the Exchange assesses all non-Priority Customer market 
participants a Fee for PIM \7\ Orders of $0.10 per contract.\8\ 
Additionally, today, for Regular Orders in Select Symbols, the Exchange 
assesses all market participants a Fee for Responses to PIM Orders of 
$0.50 per contract. Finally, today, for Regular Orders in Non-Select 
Symbols, the Exchange assesses all market participants a Fee for 
Responses to PIM Orders of $1.10 per contract.\9\
---------------------------------------------------------------------------

    \4\ A ``Regular Order'' is an order that consists of only a 
single option series and is not submitted with a stock leg.
    \5\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Interval Program. See 
Options 7, Section 1(c).
    \6\ ``Non-Select Symbols'' are options overlying all symbols 
excluding Select Symbols. See Options 7, Section 1(c).
    \7\ PIM is the Exchange's Price Improvement Auction as described 
in Options 3, Section 13. A PIM is comprised of the order the 
Electronic Access Member represents as agent (the ``Agency Order'') 
and a counter-side order for the full size of the Agency Order (the 
``Counter-Side Order''). Responses, including the Counter-Side 
Order, and Improvement Orders may be entered during the exposure 
period. See Options 3, Section 13.
    \8\ Priority Customers are not assessed a Fee for PIM Orders. 
Also, Fees for PIM Orders apply to the originating and contra order. 
Further, other than for Priority Customer orders, this fee is $0.05 
per contract for orders executed by Members that execute an ADV of 
7,500 or more contracts in the PIM in a given month. Members that 
execute an ADV of 12,500 or more contracts in the PIM are charged 
$0.02 per contract. The discounted fees are applied retroactively to 
all eligible PIM volume in that month once the threshold has been 
reached. See notes 2 and 13 within the Pricing Schedule at Options 
7, Section 3.
    \9\ PIM pricing is specified in Options 7, Section 3, Regular 
Order Fees and Rebates.
---------------------------------------------------------------------------

    Similar to break-up rebates for the Exchange's Facilitation 
Mechanism and Solicited Order Mechanism,\10\ the Exchange proposes to 
pay Electronic Access Members \11\ that utilize PIM to execute more 
than 0.75% of Priority Customer \12\ volume of Regular Orders, 
calculated as a percentage of Customer Total Consolidated Volume 
(``TCV'') per day in a given month, a PIM Break-Up Rebate of $0.25 per 
contract for Select Symbols and $0.60 per contract for Non-Select 
Symbols for Priority Customer Orders under 100 contracts that are 
submitted to PIM and do not trade with their contra order except when 
those contracts trade against unrelated quotes or orders.\13\
---------------------------------------------------------------------------

    \10\ See Options 3, Section 11(b) and (d).
    \11\ The term ``Electronic Access Member'' or ``EAM'' means a 
Member that is approved to exercise trading privileges associated 
with EAM Rights. See General 1, Section 1(a)(6).
    \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 Nasdaq ISE Options 1, 
Section 1(a)(37). Unless otherwise noted, when used in this Pricing 
Schedule the term ``Priority Customer'' includes ``Retail'' as 
defined below. See Options 7, Section 1(c).
    \13\ The applicable fee would be applied to any contracts for 
which a rebate is provided.
---------------------------------------------------------------------------

    The Exchange seeks to incentivize Electronic Access Members to 
submit a greater amount of smaller, more typically sized Priority 
Customer orders into PIM for price improvement with the proposed 
pricing. The Exchange believes the 100 contract threshold represents 
such small-sized orders.
    Today, the Exchange offers a PIM Rebate within Options 7, Section 
6, Other Options Fees and Rebates. Specifically, Options 7, Section 6B 
pays a rebate to Electronic Access Members utilizing either the 
Facilitation Mechanism or PIM for unsolicited Crossing Orders, whereby 
the contra-side party of the Crossing Order (1) is either Firm 
Proprietary or Broker-Dealer and (2) has total affiliated Average Daily 
Volume (``ADV'') of 250,000 or more contracts. Electronic Access 
Members that qualify for this rebate are eligible to earn the following 
rebates during a given month:

------------------------------------------------------------------------
                  Originating contract sides                     Rebate
------------------------------------------------------------------------
0 to 199,999.................................................    ($0.02)
200,000 or more..............................................     (0.03)
------------------------------------------------------------------------

    Once a Member reaches or exceeds the volume threshold to qualify 
for a $0.03 per originating contract side rebate during a given month, 
then the Member will receive the $0.03 per contract rebate for all of 
its originating contract sides that qualify for the PIM and 
Facilitation Rebate during that month, including for the Member's first

[[Page 53026]]

qualifying 0-199,999 originating contract sides. Further, Electronic 
Access Members that qualify for the PIM rebates on their unsolicited 
Crossing Orders \14\ may also earn additional rebates.\15\
---------------------------------------------------------------------------

    \14\ 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 this Pricing Schedule, orders executed in the 
Block Order Mechanism are also considered Crossing Orders. See 
Options 7, Section 1(c).
    \15\ Members that achieve combined Qualified Contingent Cross 
(``QCC'') and Solicitation Originating Contracts Sides of more than 
1,000,000 during a given month can earn an additional rebate of 
($0.01) per originating contract side on their unsolicited Crossing 
Orders that qualify for the PIM and Facilitation Rebate program. 
Also, Members that achieve Priority Customer Complex Order ADV of 
between 100,000-224,999 contracts can earn an additional rebate of 
($0.01) per originating contract side on all of their unsolicited 
Crossing Orders that qualify for the PIM and Facilitation Rebate 
program; however, this additional rebate will be ($0.02) per 
originating contract on all unsolicited Crossing Orders that qualify 
for the PIM and Facilitation Rebate Program to the extent that 
Members achieve Priority Customer Complex Order ADV of 225,000 or 
more contracts. See Options 7, Section 6B.
---------------------------------------------------------------------------

    At this time, the Exchange proposes to offer another rebate to 
Electronic Access Members that utilize PIM to execute more than 0.75% 
of Priority Customer volume in Regular Orders, calculated as a 
percentage of Customer TCV per day in a given month. The Exchange 
proposes to pay these Electronic Access Members a rebate of $0.11 per 
contract for Priority Customer Regular Orders under 100 contracts that 
are submitted to PIM. The rebate would be paid to the Agency Order as 
that term is defined within Options 3, Section 13. Eligible volume from 
Affiliated Members \16\ would be aggregated in calculating the 
percentage. Additionally, the Exchange proposes to pay this rebate in 
lieu of other PIM rebates within Options 7, Section 6B, provided this 
rebate is higher than other rebates within Options 7, Section 6B. In 
the event a Crossing Transaction consists of two Priority Customer 
Orders, the Exchange would not pay this rebate.
---------------------------------------------------------------------------

    \16\ An ``Affiliated Member'' is a Member that shares at least 
75% common ownership with a particular Member as reflected on the 
Member's Form BD, Schedule A. See Options 7, Section 1(c).
---------------------------------------------------------------------------

    As noted above, the Exchange seeks to incentivize Electronic Access 
Members to submit a greater amount of smaller sized Priority Customer 
orders into PIM for price improvement with the proposed pricing and, 
therefore, is proposing to pay the proposed rebate on orders under 100 
contracts.
    The Exchange notes that all Electronic Access Members may 
participate in a PIM.\17\ Accordingly, the proposed rebates are 
designed to incentivize Electronic Access Members to submit a greater 
amount of Regular Orders executed in PIM to the Exchange, particularly 
Priority Customer PIM volume.
---------------------------------------------------------------------------

    \17\ Any solicited Counter-Side Orders submitted by an 
Electronic Access Member to trade against Agency Orders may not be 
for the account of a Nasdaq ISE Market Maker assigned to the options 
class. See Supplementary Material .06 to Options 3, Section 13.
---------------------------------------------------------------------------

Priority Customer Complex Order Rebates, Options 7, Section 4
    Currently, the Exchange provides rebates to Priority Customer 
complex orders based on the volume that a Member traded as provided for 
within Options 7, Section 4, Complex Order Fees and Rebates. 
Specifically, the Exchange calculates Total Affiliated Member or 
Affiliated Entity \18\ Complex Order Volume (excluding Crossing Orders 
and Responses to Crossing Order) as a percentage of Customer TCV to 
determine the rebate amount.\19\ The Exchange pays Priority Customer 
complex orders rebates based on a ten-tier pricing model. The rebates 
for Select Symbols and Non-Select Symbols are paid to Members based on 
the percentage of Customer TCV executed in a particular symbol. The 
current rebate tiers are as follows:
---------------------------------------------------------------------------

    \18\ An ``Affiliated Entity'' is a relationship between an 
Appointed Market Maker and an Appointed OFP for purposes of 
qualifying for certain pricing specified in the Schedule of Fees. 
Market Makers and OFPs are required to send an email to the Exchange 
to appoint their counterpart, at least 3 business days prior to the 
last day of the month to qualify for the next month. The Exchange 
will acknowledge receipt of the emails and specify the date the 
Affiliated Entity is eligible for applicable pricing, as specified 
in the Pricing Schedule. Each Affiliated Entity relationship will 
commence on the 1st of a month and may not be terminated prior to 
the end of any month. An Affiliated Entity relationship will 
automatically renew each month until or unless either party 
terminates earlier in writing by sending an email to the Exchange at 
least 3 business days prior to the last day of the month to 
terminate for the next month. Affiliated Members may not qualify as 
a counterparty comprising an Affiliated Entity. Each Member may 
qualify for only one (1) Affiliated Entity relationship at any given 
time. See Options 7, Section 1(c).
    \19\ The rebate for the highest tier volume achieved is applied 
retroactively to all eligible Priority Customer Complex volume once 
the threshold has been reached. Members do not receive rebates for 
net zero complex orders. For purposes of determining which complex 
orders qualify as ``net zero'' the Exchange counts all complex 
orders that leg in to the Regular Order book and are executed at a 
net price per contract that is within a range of $0.01 credit and 
$0.01 debit.
    All Complex Order volume executed on the Exchange, including 
volume executed by Affiliated Members, is included in the volume 
calculation, except for volume executed as Crossing Orders and 
Responses to Crossing Orders. Affiliated Entities may aggregate 
their Complex Order volume for purposes of calculating Priority 
Customer Rebates. The Appointed OFP would receive the rebate 
associated with the qualifying volume tier based on aggregated 
volume. See notes 7, 13 and 16 within the Pricing Schedule at 
Options 7, Section 4.

                                            Priority Customer Rebates
----------------------------------------------------------------------------------------------------------------
                                          Total affiliated member or affiliated
                                         entity complex order volume (excluding
 Priority customer complex tier \(7)\       crossing orders and responses to        Rebate for    Rebate for non-
             \(13)\ \(16)\                  crossing orders) calculated as a          select      select symbols
                                              percentage of customer total         symbols \(1)\    \(1)\ \(4)\
                                                   consolidated volume
----------------------------------------------------------------------------------------------------------------
Tier 1................................  0.000%-0.200%...........................         ($0.25)         ($0.40)
Tier 2................................  Above 0.200%-0.400%.....................          (0.30)          (0.55)
Tier 3................................  Above 0.400%-0.450%.....................          (0.35)          (0.70)
Tier 4................................  Above 0.450%-0.750%.....................          (0.40)          (0.75)
Tier 5................................  Above 0.750%-1.000%.....................          (0.45)          (0.80)
Tier 6................................  Above 1.000%-1.350%.....................          (0.47)          (0.80)
Tier 7................................  Above 1.350%-2.000%.....................          (0.48)          (0.80)
Tier 8................................  Above 2.000%-2.750%.....................          (0.52)          (0.85)
Tier 9................................  Above 2.750%-4.500%.....................          (0.52)          (0.86)
Tier 10...............................  Above 4.500%............................          (0.53)          (0.88)
----------------------------------------------------------------------------------------------------------------

    The Exchange offers the Priority Customer complex order rebates to 
encourage Members to bring complex volume to the Exchange, including 
incentivizing Members to bring Priority Customer complex orders 
specifically to earn the associated rebates.

[[Page 53027]]

    The Exchange proposes to amend the volume requirement for Priority 
Customer complex order Tier 7 from the current level of ``above 1.350%-
2.00%'' to ``above 1.350%-1.750%.'' The Exchange also proposes to 
adjust Priority Customer complex order Tier 8 from the current level of 
``above 2.000%-2.750%'' to ``above 1.750%-2.750%.'' \20\ By lowering 
the qualification for Priority Customer complex order Tier 8, which 
offers a higher rebate of $0.52 per contract for Select Symbols as 
compared to $0.48 per contract for Priority Customer complex order Tier 
7 and a higher rebate of $0.85 per contract for Non-Select Symbols as 
compared to $0.80 per contract for Priority Customer complex order Tier 
7, the Exchange seeks to incentivize Members to continue to bring 
Priority Customer complex orders specifically to earn the higher 
Priority Customer complex order Tier 8 associated rebates.
---------------------------------------------------------------------------

    \20\ Currently no Member qualifies for Priority Customer complex 
order Tier 8.
---------------------------------------------------------------------------

    The Exchange notes that all Members may elect to qualify for the 
Priority Customer complex rebates by submitting complex order flow to 
the Exchange and earn a rebate on their Priority Customer complex 
volume. Accordingly, the proposed changes are designed to increase the 
amount of complex order flow Members bring to the Exchange, 
particularly Priority Customer complex volume, and further encourage 
them to contribute to a deeper, more liquid market to the benefit of 
all market participants.
Technical Amendments
    The Exchange proposes to make technical amendments to Options 7, 
Section 6B to remove the words ``Price Improvement Mechanism'' and the 
parenthesis around the word ``PIM'' because this term is already 
defined within the term ``Crossing Order'' at Options 7, Section 1(c).
    The Exchange proposes to capitalize the work ``affiliated'' in 
Options 7, Section 6B because the term ``Affiliated Member'' is defined 
within Options 7, Section 1(c).
    The Exchange proposes to remove the phrase ``provided there is at 
least 75% common ownership between the Members as reflected on each 
Member's Form BD, Schedule A'' because the term ``Affiliated Member'' 
is defined in Options 7, Section 1(c) as a Member that shares at least 
75% common ownership with a particular Member as reflected on the 
Member's Form BD, Schedule A.
    Finally, the Exchange proposes to remove the extra period at the 
end of Options 7, Section 6B.
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.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

The Proposal Is Reasonable
    The proposed changes to its Pricing Schedule are reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for options transaction 
services that constrain its pricing determinations in that market. The 
fact that this market is competitive has long been recognized by the 
courts. In NetCoalition v. Securities and Exchange Commission \23\ 
(``NetCoalition''), the D.C. Circuit stated, ``[n]o one disputes that 
competition for order flow is `fierce.' . . . As the SEC explained, 
`[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers' . . . .'' \24\
---------------------------------------------------------------------------

    \23\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \24\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options transaction services. The Exchange is only one of sixteen 
options exchanges to which market participants may direct their order 
flow. Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules. Within the 
foregoing context, the proposal represents a reasonable attempt by the 
Exchange to attract additional order flow to the Exchange and increase 
its market share relative to its competitors.
Price Improvement Auctions, Options 7, Sections 3 and 6
    The Exchange's proposal to pay Priority Customer PIM Break-Up 
Rebates of $0.25 per contract for Select Symbols and $0.60 per contract 
for Non-Select Symbols to Electronic Access Members that utilize PIM to 
execute more than 0.75% of Priority Customer volume in Regular Orders, 
which would be calculated as a percentage of Customer TCV per day in a 
given month, for orders under 100 contracts is reasonable because it is 
designed to incentivize additional participation in PIM by encouraging 
market participants to send additional order flow to the Exchange in 
order to benefit from the increased rebates. In particular, the 
Exchange believes that this proposal will incentivize Electronic Access 
Members to submit a greater amount of smaller Priority Customer orders 
into PIM for price improvement with the proposed pricing. The Exchange 
believes it is reasonable to pay the rebate for orders of 100 contracts 
or less because the Exchange seeks to incentivize small-sized orders to 
be solicited for entry into PIM for price improvement.
    The Exchange's proposal to pay Priority Customer PIM Break-Up 
Rebates of $0.25 per contract for Select Symbols and $0.60 per contract 
for Non-Select Symbols to Members that utilize PIM to execute more than 
0.75% of Priority Customer volume in Regular Orders, which would be 
calculated as a percentage of Customer TCV per day in a given month, 
for orders under 100 contracts is equitable and not unfairly 
discriminatory because any Electronic Access Member may participate in 
a PIM.\25\ While only Electronic Access Members may initiate a PIM, 
Market Makers may respond to a PIM. While this incentive is 
specifically targeted towards Priority Customer orders, the Exchange 
does not believe that this is unfairly discriminatory. Of note, today, 
Priority Customers pay no Fees for PIM Orders. 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 (particularly in response to pricing) in 
turn facilitates tighter spreads which may cause an additional

[[Page 53028]]

corresponding increase in order flow from other market participants. 
Attracting more liquidity from Priority Customers will benefit all 
market participants that trade on the ISE. Also, the 100 contracts 
threshold would be uniformly applied in paying the rebate.
---------------------------------------------------------------------------

    \25\ Any solicited Counter-Side Orders submitted by an 
Electronic Access Member to trade against Agency Orders may not be 
for the account of a Nasdaq ISE Market Maker assigned to the options 
class. See Supplementary Material .06 to Options 3, Section 13.
---------------------------------------------------------------------------

    The Exchange's proposal to offer another rebate for PIM executions 
to Electronic Access Members that utilize PIM to execute more than 
0.75% of Priority Customer volume in Regular Orders, calculated as a 
percentage of Customer TCV per day in a given month, for Priority 
Customer Regular Orders executed in PIM under 100 contracts is 
reasonable because it is designed to incentivize additional 
participation in PIM by encouraging market participants to send 
additional order flow to the Exchange in order to benefit from the 
increased rebates. In particular, the Exchange believes that this 
additional rebate will incentivize Electronic Access Members to submit 
a greater amount of smaller-sized orders to be solicited for entry into 
PIM for price improvement. Aggregating volume from Affiliated Members 
in calculating the percentage will allow Electronic Access Members to 
obtain greater rebates and, thereby, should attract additional Priority 
Customer order flow to the Exchange. Not paying the $0.11 per contract 
rebate in the event a Crossing Transaction consists of two Priority 
Customer Orders is reasonable because Priority Customers pay no fees 
for PIM.
    The Exchange's proposal to offer another rebate for PIM executions 
to Electronic Access Members that utilize PIM to execute more than 
0.75% of Priority Customer volume in Regular Orders, calculated as a 
percentage of Customer TCV per day in a given month, for Priority 
Customer Regular Orders executed in PIM under 100 contracts is 
equitable and not unfairly discriminatory because any Electronic Access 
Member may enter orders into PIM.\26\ While only Electronic Access 
Members may initiate a PIM, the Exchange notes that Market Makers may 
respond to a PIM. While this incentive is specifically targeted towards 
Priority Customer orders, the Exchange does not believe that this is 
unfairly discriminatory. Of note, today, Priority Customers pay no Fees 
for PIM Orders. 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 
(particularly in response to pricing) in turn facilitates tighter 
spreads which may cause an additional corresponding increase in order 
flow from other market participants. Attracting more liquidity from 
Priority Customers will benefit all market participants that trade on 
the ISE. Also, the 100 contracts threshold would be uniformly applied 
in paying the rebate. All Electronic Access Members may aggregate 
volume from Affiliated Members to receive the rebate. It is not novel 
to limit a rebate by contract size. For example, ISE currently pays a 
reduced complex order rebate in Select Symbols where the largest leg of 
the Complex Order is under fifty (50) contracts and trades with quotes 
and orders on the Regular Order book.\27\ Additionally, Cboe Exchange, 
Inc. (``Cboe'') has a similar concept of limiting certain fee 
incentives in its Fees Schedule for smaller sized customer orders.\28\
---------------------------------------------------------------------------

    \26\ Any solicited Counter-Side Orders submitted by an 
Electronic Access Member to trade against Agency Orders may not be 
for the account of a Nasdaq ISE Market Maker assigned to the options 
class. See Supplementary Material .06 to Options 3, Section 13.
    \27\ ISE's rebate is paid per contract per leg if the order 
trades with non-Priority Customer orders in the Complex Order Book. 
This rebate is reduced by $0.15 per contract in Select Symbols where 
the largest leg of the Complex Order is under fifty (50) contracts 
and trades with quotes and orders on the Regular Order book. 
Further, no Priority Customer Complex Order rebates are provided in 
Select Symbols if any leg of the order that trades with interest on 
the Regular Order book is fifty (50) contracts or more. Also, no 
Priority Customer Complex Order rebates are provided in Non-Select 
Symbols if any leg of the order trades with interest on the Regular 
Order book, irrespective of order size. See note 1 of ISE Options 7, 
Section 4.
    \28\ See Cboe Fees Schedule at footnote 9. Cboe waives 
transaction fees for customer orders removing liquidity that are of 
99 contracts or less in ETF and ETN options.
---------------------------------------------------------------------------

Priority Customer Complex Order Rebates, Options 7, Section 4
    The Exchange's proposal to amend the volume requirement for 
Priority Customer complex order Tier 7 from the current level of 
``above 1.350%-2.00%'' to ``above 1.350%-1.750%'' and amend Priority 
Customer complex order Tier 8 from the current level of ``above 2.000%-
2.750%'' to ``above 1.750%-2.750%'' is reasonable because by lowering 
the qualification for Priority Customer complex order Tier 8, which 
offers a higher rebate of $0.52 per contract for Select Symbols as 
compared to $0.48 per contract for Priority Customer complex order Tier 
7 and a higher rebate of $0.85 per contract for Non-Select Symbols as 
compared to $0.80 per contract for Priority Customer complex order Tier 
7, the Exchange seeks to incentivize Members to continue to bring 
Priority Customer complex orders specifically to earn the higher 
Priority Customer complex order Tier 8 associated rebates.\29\ The 
ability to earn a higher rebate as a result of the lower volume 
requirement is intended to further incentivize Members to bring 
additional complex order flow, including Priority Customer complex 
order flow, to the Exchange. The proposed changes are designed to make 
the rebates more achievable and attractive to existing and potential 
market participants. The Priority Customer complex rebate program is 
optional and available to all Members that choose to send complex order 
flow to the Exchange to earn a rebate on their Priority Customer 
complex volume. To the extent the program, as modified, continues to 
attract complex volume to the Exchange, the Exchange believes that the 
proposed changes would improve the Exchange's overall competitiveness 
and strengthen its market quality for all market participants.
---------------------------------------------------------------------------

    \29\ Currently no Member qualifies for Priority Customer complex 
order Tier 8.
---------------------------------------------------------------------------

    The Exchange's proposal to amend the volume requirement for 
Priority Customer complex order Tier 7 from the current level of 
``above 1.350%-2.00%'' to ``above 1.350%-1.750%'' and amend Priority 
Customer complex order Tier 8 from the current level of ``above 2.000%-
2.750%'' to ``above 1.750%-2.750%'' is equitable and not unfairly 
discriminatory because any Member who brings complex order flow to the 
Exchange may qualify for the rebates. The Exchange believes that the 
proposed changes to Priority Customer complex order Tiers 7 and 8 are 
an equitable allocation of rebates because the Exchange seeks to 
further incentivize all Members to bring a significant amount of 
complex volume to the Exchange in order to earn the highest range of 
Priority Customer complex rebates offered by the Exchange. Accordingly, 
the Exchange believes that the changes to Priority Customer complex 
order Tiers 7 and 8 are reasonably designed to provide further 
incentives for all Members interested in meeting the tier criteria to 
submit additional Priority Customer complex volume to achieve the 
higher rebates. Further, any Member may choose to qualify for the 
rebate program by sending complex order flow to the Exchange. By 
encouraging all Members to bring significant amounts of complex order 
flow (i.e., to qualify for the higher tiers) in order to earn a rebate 
on their Priority Customer complex orders, the Exchange seeks to 
provide more trading opportunities for all market participants, promote 
price discovery,

[[Page 53029]]

and improve the overall market quality of the Exchange.
Technical Amendments
    The technical amendments proposed herein are non-substantive 
because these amendments remove redundant defined terms, capitalize a 
defined term, and correct a grammatical error.

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.
Intermarket Competition
    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 impose any burden on competition 
is extremely limited because other options exchanges offer similar 
price improvement auctions as well as break-up rebates and customer 
complex order rebates.
    Moreover, as noted above, price competition between exchanges is 
fierce, with liquidity and market share moving freely between exchanges 
in reaction to fee and rebate changes. In sum, if the changes proposed 
herein are unattractive to market participants, it is likely that the 
Exchange will lose market share as a result. Accordingly, the Exchange 
does not believe that the proposed changes will impair the ability of 
members or competing order execution venues to maintain their 
competitive standing in the financial markets.
Intramarket Competition
    The proposal is designed to attract additional liquidity to ISE. 
Specifically, amending the Priority Customer complex order rebates and 
adopting two new PIM rebates will incentivize market participants to 
direct liquidity to the Exchange. All market participants will benefit 
from any increase in market activity that the proposal effectuates.
Price Improvement Auctions, Options 7, Sections 3 and 6
    The Exchange's proposal to pay Priority Customer PIM Break-Up 
Rebates within Options 7, Section 3, and offer another rebate for PIM 
executions within Options 7, Section 6B, do not impose an undue burden 
on competition because any Electronic Access Member may enter orders 
into PIM.\30\ While only Electronic Access Members may initiate a PIM, 
the Exchange does not believe that this creates an undue burden on 
competition because Market Makers may respond to a PIM. While this 
incentive is specifically targeted towards Priority Customer orders, 
the Exchange does not believe that this is unfairly discriminatory. 
Today, Priority Customers pay no fees for PIM Orders. 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 (particularly in response to pricing) in 
turn facilitates tighter spreads which may cause an additional 
corresponding increase in order flow from other market participants. 
Attracting more liquidity from Priority Customers will benefit all 
market participants that trade on the ISE.
---------------------------------------------------------------------------

    \30\ Any solicited Counter-Side Orders submitted by an 
Electronic Access Member to trade against Agency Orders may not be 
for the account of a Nasdaq ISE Market Maker assigned to the options 
class. See Supplementary Material .06 to Options 3, Section 13.
---------------------------------------------------------------------------

Priority Customer Complex Order Rebates, Options 7, Section 4
    The Exchange's proposal to amend the volume requirement for 
Priority Customer complex order Tier 7 from the current level of 
``above 1.350%-2.00%'' to ``above 1.350%-1.750%'' and amend Priority 
Customer complex order Tier 8 from the current level of ``above 2.000%-
2.750%'' to ``above 1.750%-2.750%'' does not impose an undue burden on 
competition because it will not place any category of Exchange 
participant at a competitive disadvantage. Any Member who brings 
complex order flow to the Exchange may qualify for the rebates. The 
Exchange seeks to further incentivize all Members to bring a 
significant amount of complex volume to the Exchange in order to earn 
the highest range of Priority Customer complex rebates offered by the 
Exchange. Further, any Member may choose to qualify for the rebate 
program by sending complex order flow to the Exchange.
Technical Amendments
    The technical amendments proposed herein are non-substantive 
because these amendments remove redundant defined terms, capitalize a 
defined term, and correct a grammatical error.

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 \31\ and Rule 19b-4(f)(2) \32\ 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.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \32\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2022-16 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-2022-16. 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/

[[Page 53030]]

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-2022-16 and should be 
submitted on or before September 20, 2022.
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-18587 Filed 8-29-22; 8:45 am]
BILLING CODE 8011-01-P