Document ID: SEC-2018-0674-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2018-05-01T04:00Z

[Federal Register Volume 83, Number 84 (Tuesday, May 1, 2018)]
[Notices]
[Pages 19123-19126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09115]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83105; File No. SR-ISE-2018-36]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the Market 
Maker Plus Program Under the Schedule of Fees

April 25, 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 April 11, 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 Market Maker Plus program under 
the Schedule of Fees.
    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

[[Page 19124]]

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 a Market Maker Plus program for regular 
orders in Select Symbols \3\ whereby Market Makers \4\ that contribute 
to market quality by maintaining tight markets are eligible for 
enhanced rebates. The purpose of the proposed rule change is to amend 
the linked maker rebate for SPY and QQQ, and adopt a similar rebate 
structure for IWM, as described in more detail below. The Exchange 
believes that the proposed changes will encourage Market Makers to make 
quality markets in certain actively traded symbols, and thereby further 
the goals of the Market Maker Plus program.
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    \3\ ``Select Symbols'' are options overlying all symbols listed 
on the Nasdaq ISE that are in the Penny Pilot Program.
    \4\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See ISE Rule 
100(a)(28).
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    Market Makers are evaluated each trading day for the percentage of 
time spent on the National Best Bid or National Best Offer (``NBBO'') 
for qualifying series that expire in two successive thirty calendar day 
periods beginning on that trading day. A Market Maker Plus is a Market 
Maker who is on the NBBO a specified percentage of the time on average 
for the month based on daily performance in the qualifying series for 
each of the two successive periods described above. Qualifying series 
are series trading between $0.03 and $3.00 (for options whose 
underlying stock's previous trading day's last sale price was less than 
or equal to $100) and between $0.10 and $3.00 (for options whose 
underlying stock's previous trading day's last sale price was greater 
than $100) in premium. If a Market Maker would qualify for a different 
Market Maker Plus tier in each of the two successive periods described 
above, then the lower of the two Market Maker Plus tier rebates shall 
apply to all contracts.\5\ These general qualification requirements 
will remain unchanged with the amendments to the applicable Market 
Maker Plus rebates described in this proposed rule change.
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    \5\ Market Makers may enter quotes in a symbol using one or more 
unique, exchange assigned identifiers--i.e., badge/suffix 
combinations. Market Maker Plus status is calculated independently 
based on quotes entered in a symbol for each of the Market Maker's 
badge/suffix combinations, and the highest tier achieved for any 
badge/suffix combination quoting that symbol applies to executions 
across all badge/suffix combinations that the member uses to trade 
in that symbol.
    A Market Maker's worst quoting day each month for each of the 
two successive periods described above, on a per symbol basis, will 
be excluded in calculating whether a Market Maker qualifies for this 
rebate.
    Other than days where the Exchange closes early for holiday 
observance, any day that the market 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 the Market Maker 
Plus tier calculation; provided that the Exchange will only remove 
the day for members that would have a lower time at the NBBO for the 
specified series with the day included.
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    Market Maker orders in Select Symbols are charged a maker fee of 
$0.10 per contract; \6\ provided that Market Makers that qualify for 
Market Maker Plus will not pay this fee if they meet the applicable 
tier thresholds set forth in the table below, and will instead receive 
the maker rebates described in the table based on the applicable tier 
for which they qualify.\7\
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    \6\ This fee also applies to Market Maker orders sent to the 
Exchange by Electronic Access Members.
    \7\ A $0.10 per contract fee applies instead of the applicable 
Market Maker Plus rebate when trading against Priority Customer 
complex orders that leg into the regular order book. There will be 
no fee charged or rebate provided when trading against non-Priority 
Customer complex orders that leg into the regular order book.

                  Select Symbols Other Than SPY and QQQ
------------------------------------------------------------------------
     Market maker plus tier  (specified percentage)        Maker rebate
------------------------------------------------------------------------
Tier 1 (80% to less than 85%)...........................         ($0.15)
Tier 2 (85% to less than 95%)...........................         ($0.18)
Tier 3 (95% or greater).................................         ($0.22)
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                               SPY and QQQ
------------------------------------------------------------------------
   Market maker plus tier  (specified      Regular maker   Linked maker
               percentage)                    rebate          rebate
------------------------------------------------------------------------
Tier 1 (70% to less than 80%)...........         ($0.00)             N/A
Tier 2 (80% to less than 85%)...........         ($0.18)         ($0.16)
Tier 3 (85% to less than 90%)...........         ($0.22)         ($0.20)
Tier 4 (90% or greater).................         ($0.26)         ($0.24)
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    To encourage Market Makers to maintain quality markets in SPY and 
QQQ in particular, members that maintain tight markets in those symbols 
are eligible for higher regular maker rebates and may also be eligible 
for linked maker rebates, as shown in the table above. Specifically, 
Market Makers that qualify for Market Maker Plus Tiers 2-4 for 
executions in SPY or QQQ may be eligible for a linked maker rebate in 
addition to the regular maker rebate for the applicable tier. The 
linked maker rebate applies to executions in SPY or QQQ if the Market 
Maker does not achieve the applicable tier in that symbol but achieves 
the tier (i.e., any of Market Maker Plus Tiers 2-4) for any badge/
suffix combination in the other symbol, in which case the higher tier 
achieved applies to both symbols. The regular maker rebate will be 
provided in the symbol that qualifies the Market Maker for the higher 
tier based on percentage of time at the NBBO.
    The Exchange now proposes two changes to the above rebates. First, 
the Exchange proposes to amend the linked maker rebate for SPY and QQQ. 
Specifically, the Exchange proposes to reduce each of the linked maker 
rebates for SPY and QQQ by one cent per contract such that the 
applicable maker rebate is: (1) $0.15 per contract for Tier 2, (2) 
$0.19 per contract for Tier 3, and (3) $0.23 per contract for Tier 4.
    Second, the Exchange proposes adopt this rebate structure for IWM 
by providing a higher maker rebate in this symbol along with the 
ability to earn linked maker rebates. With the proposed changes, Market 
Makers that meet the requirements of the Market Maker Plus program will 
receive an enhanced rebate in IWM that is equivalent to the rebate 
provided in SPY and QQQ today--i.e., (1) $0.00 per contract (i.e., no 
fee or rebate) for Tier 1, (2) $0.18 per contract for Tier 2, (3) $0.22 
per contract for Tier 3, and (3) $0.26 per contract for Tier 4.
    In addition, the Exchange proposes to adopt the same linked maker 
structure for SPY and IWM as is currently in place for SPY and QQQ. As 
such, the

[[Page 19125]]

Schedule of Fees would provide that the following symbols are linked 
for purposes of the linked maker rebate: (1) SPY and QQQ (i.e., as is 
the case today), and (2) SPY and IWM (i.e., the proposed linked maker 
rebates for SPY and IWM). Linked maker rebates for SPY and IWM would be 
the same as those provided for SPY and QQQ--i.e., no linked maker 
rebate for Tier 1, and a linked maker rebate of $0.15 per contract for 
Tier 2, $0.19 per contract for Tier 3, and $0.23 per contract for Tier 
4--and would be paid based on the same qualification criteria described 
above for SPY and QQQ.
    Because SPY would be separately linked to both QQQ and IWM, the 
Schedule of Fees would also provide that if a Market Maker would 
qualify for a linked maker rebate in SPY based on the tier achieved in 
QQQ and the tier achieved in IWM then the higher of the two linked 
maker rebates will be applied to SPY. Thus, for example, if a Market 
Maker achieves Tier 1 in SPY, Tier 2 in QQQ, and Tier 3 in IWM, the 
Market Maker would receive the Tier 2 regular maker rebate of $0.18 per 
contract in QQQ, the Tier 3 regular maker rebate of $0.22 per contract 
in IWM, and the Tier 3 linked maker rebate of $0.19 per contract in 
SPY--i.e., based on achieving Tier 3 in IWM.
    Furthermore, the Exchange proposes to amend other language 
concerning the Market Maker Plus Program to reinforce the enhanced 
rebate structure for SPY, QQQ, and IWM. This includes changing the 
associated table headings to reference (1) Select Symbols other than 
SPY, QQQ, and IWM, and (2) SPY, QQQ, and IWM. It also includes 
referencing IWM in the footnote that describes the linked maker 
rebates, and adding language that references linked symbols--i.e., SPY/
QQQ and SPY/IWM.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\9\ 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed changes to the Market Maker 
Plus program in SPY and QQQ are reasonable and equitable as the 
proposed linked maker rebate is only slightly lower than the current 
linked maker rebate, and is set at a level that the Exchange believes 
will continue to encourage Market Makers to make tight markets in these 
symbols. Furthermore, the Exchange believes that the effect of lower 
rebate is more than offset by the ability to achieve higher rebates 
based on the proposed structure for IWM, which would provide for the 
first time an enhanced rebate for Market Makers that achieve Market 
Maker Plus in IWM, as well as an additional avenue for Market Makers to 
benefit from a linked maker rebate for SPY and IWM.
    In addition, the Exchange believes that the proposed changes to the 
Market Maker Plus program for IWM are reasonable and equitable as these 
changes would increase rebates for Market Makers that qualify for 
Market Maker Plus in IWM, including linked maker rebates that will now 
be provided between SPY and IWM in addition to SPY and QQQ. The 
Exchange has selected IWM to benefit from increased rebates--including 
increased linked maker rebates that are tied to SPY--as IWM is among 
the most actively traded symbols traded on ISE, similar to SPY and QQQ, 
which benefit from a similar treatment today. Because SPY is the most 
single most actively traded product on the Exchange overall, it will be 
linked to both QQQ and IWM, which the Exchange believes will serve as 
an important incentive for Market Makers that support the Exchange by 
making quality markets. The rule also provides that in the event a 
Market Maker is eligible for linked maker rebates in SPY based on the 
tier achieved in QQQ and the tier achieved in IWM then the higher of 
the two linked maker rebates will be applied to SPY, thereby ensuring 
that the Market Maker will always benefit from the higher incentive.
    The Market Maker Plus program is designed to attract liquidity from 
Market Makers and provide incentives for those Market Makers to 
maintain tight markets, measured by time spent quoting at the NBBO. The 
Exchange believes the proposed rule change will further encourage 
Market Makers to maintain quality markets in the most actively traded 
symbols on ISE, to the benefit of all market participants that trade on 
the Exchange. Specifically, the proposed changes may encourage better 
market quality in IWM as Market Makers are incentivized by higher 
rebates and the ability to earn linked maker rebates in SPY. Similarly, 
the Exchange believes that the proposed changes may encourage better 
market quality in SPY as Market Makers would be able to earn linked 
maker rebates in IWM in addition to the other rebates that they may 
qualify for today. Furthermore, the proposed rebates and rebate 
structure for IWM would be identical to that in place for SPY and QQQ, 
which the Exchange believes has successfully encouraged Market Makers 
to make quality markets on ISE. The Exchange therefore believes that 
expanding this program has the potential to further benefit market 
quality on ISE, creating a more active and liquid market for options 
traded on the Exchange.
    The Exchange also believes that the proposed changes are not 
unfairly discriminatory as all Market Makers can qualify for Market 
Maker Plus by meeting program requirements that are designed to 
incentivize Market Markets to maintain quality markets. With the 
proposed changes, SPY, QQQ, and IWM will each be subject to enhanced 
rebates that are designed to incentivize Market Makers to make quality 
markets in these highly active symbols. Market Makers that show 
commitment to market quality by maintaining quotes that qualify them 
for a higher tier in these symbols will earn higher rebates, including 
the possibility to earn linked maker rebates. Furthermore, the Exchange 
continues to believe that it is not unfairly discriminatory to offer 
these rebates only to Market Makers as Market Makers, and, in 
particular, those Market Makers that achieve Market Maker Plus status, 
are subject to additional requirements and obligations (such as quoting 
requirements) that other market participants are not.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed changes to the 
Market Maker Plus program are designed to increase competition by 
encouraging Market Makers to provide liquidity and maintain tight 
markets in some of the most actively traded symbols on the Exchange. 
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. 
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

[[Page 19126]]

changes in this market may 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,\10\ and Rule 19b-4(f)(2) \11\ 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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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 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-2018-36 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-2018-36. 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 (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-2018-36 and should be submitted on 
or before May 22, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09115 Filed 4-30-18; 8:45 am]
BILLING CODE 8011-01-P