Document ID: SEC-2023-0005-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2023-01-04T05:00Z

[Federal Register Volume 88, Number 2 (Wednesday, January 4, 2023)]
[Notices]
[Pages 387-393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-28544]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 96587; File No. SR-ISE-2022-29]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend ISE 
Options 7, Section 4

December 28, 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 December 13, 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.
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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 ISE's Pricing Schedule at Options 7, 
Section 4.\3\
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    \3\ The Exchange originally filed SR-ISE-2022-27 on December 1, 
2022. On December 13, 2022, the Exchange withdrew SR-ISE-2022-27 and 
submitted this rule change.
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    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 Exchange proposes to amend ISE's Pricing Schedule at Options 7, 
Section 4, Complex Order Fees and Rebates. The Exchange proposes to: 
(1) increase Complex Order Priority Customer \4\ Rebates for Select 
Symbols \5\ and Non-Select Symbols; \6\ (2) increase Complex Order 
Taker Fees for Non-Select Symbols; and (3) amend notes 3 and 8 of 
Options 7, Section 4 related to Complex Orders. Each change will be 
described below.
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    \4\ 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 Options 1, Section 
1(a)(37). Unless otherwise noted, the term ``Priority Customer'' 
includes ``Retail.'' See Options 7, Section 1(c).
    \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).
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Complex Order Priority Customer Rebates
    The Exchange proposes to amend Tiers 6 through 10 of the Complex 
Order Priority Customer Rebates for Select Symbols and Non-Select 
Symbols. The Exchange currently offers Members Complex Order Priority 
Customer Rebates based on a percentage of Total Affiliated Member or 
Affiliated Entity Complex Order Volume (excluding Crossing Orders \7\ 
and Responses to Crossing Orders \8\) Calculated as a Percentage of 
Customer Total Consolidated Volume. The Exchange

[[Page 388]]

offers ten tiers of Complex Order rebates. Currently, the Priority 
Customer Rebates for Select Symbols and Non-Select Symbols for Complex 
Orders are as follows:
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    \7\ 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).
    \8\ ``Responses to Crossing Order'' is any contra-side interest 
submitted after the commencement of an auction in the Exchange's 
Facilitation Mechanism, Solicited Order Mechanism, Block Order 
Mechanism or PIM. See Options 7, Section 1(c).

                                            Priority Customer Rebates
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                                                 Total affiliated member or affiliated
                                                entity complex order volume (excluding
                                                   crossing orders and responses to      Rebate for   Rebate for
        Priority customer complex tier             crossing orders) calculated as a        select     non-select
                                                     percentage of customer total         symbols      symbols
                                                          consolidated volume
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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%-1.750%...................       (0.48)       (0.80)
Tier 8........................................  Above 1.750%-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)
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    The Exchange proposes to amend Complex Order Priority Customer 
Rebate Tiers 6 through Tier 10 for both Select Symbols and Non-Select 
Symbols. With this proposal, the Exchange would increase the Complex 
Order Priority Customer Rebates for Select Symbols as follows: Tier 6 
would increase from $0.47 to $0.48 per contract, Tier 7 would increase 
from $0.48 to $0.51 per contract, Tier 8 would increase from $0.52 to 
$0.55 per contract, Tier 9 would increase from $0.52 to $0.56 per 
contract, and Tier 10 would increase from $0.53 to $0.57 per contract. 
Also, the Exchange would increase the Complex Order Priority Customer 
Rebates for Non-Select Symbols as follows: Tier 6 would increase from 
$0.80 to $0.85 per contract, Tier 7 would increase from $0.80 to $0.92 
per contract, Tier 8 would increase from $0.85 to $1.03 per contract, 
Tier 9 would increase from $0.86 to $1.04 per contract, and Tier 10 
would increase from $0.88 to $1.05 per contract. The Exchange believes 
that these increased Complex Order Priority Customer Rebates will 
attract more Complex Order flow to ISE.
Complex Order Maker and Taker Fees
    Today, the Exchange assesses the following Complex Order Maker and 
Taker Fees:

                                              Maker and Taker Fees
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                                                                           Maker fee for
                                                           Maker fee for    non-select
                                  Maker fee   Maker fee   select symbols   symbols when   Taker fee   Taker fee
       Market participant            for       for non-    when trading       trading        for       for non-
                                    select      select        against         against       select      select
                                   symbols     symbols       priority        priority      symbols     symbols
                                                             customer        customer
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Market Maker....................      $0.10        $0.20           $0.50           $0.86      $0.50        $0.86
Non-Nasdaq ISE Market Maker            0.20         0.20            0.50            0.88       0.50         0.88
 (FarMM)........................
Firm Proprietary/Broker-Dealer..       0.10         0.20            0.50            0.88       0.50         0.88
Professional Customer...........       0.10         0.20            0.50            0.88       0.50         0.88
Priority Customer...............       0.00         0.00            0.00            0.00       0.00         0.00
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    The Exchange proposes to increase the Complex Order Taker Fees for 
Non-Select Symbols. Specifically, the Exchange proposes to increase the 
Complex Order Taker Fees for Non-Select Symbols as follows: Market 
Maker \9\ from $0.86 to $0.98 per contract, Non-Nasdaq ISE Market Maker 
(FarMM) \10\ from $0.88 to $0.98 per contract, Firm Proprietary \11\/
Broker-Dealer \12\ from $0.88 to $0.98 per contract, and Professional 
Customer \13\ from $0.88 to $0.98 per contract. Priority Customers 
would continue to be assessed no Complex Order Taker Fees for Non-
Select Symbols. The Exchange's proposal would increase Complex Order 
Taker Fees in Non-Select Symbols for Non-Priority Customers \14\ to 
afford Complex Order Priority Customers greater rebates.
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    \9\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21).
    \10\ 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. See ISE Options 7, Section 1(c).
    \11\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account. See ISE Options 7, Section 
1(c).
    \12\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account. 
See ISE Options 7, Section 1(c).
    \13\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer. See ISE Options 
7, Section 1(c).
    \14\ ``Non-Priority Customers'' include Market Makers, Non-
Nasdaq ISE Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, 
and Professional Customers. See ISE Options 7, Section 1(c).
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    The Exchange also proposes to amend notes 3 and 8 within Options 7, 
Section 4 related to Complex Orders. Currently, note 3 applies to a 
Market Maker's Maker Fee for Select Symbols when trading against a 
Priority Customer in Complex Orders and to a Market Maker's Taker Fee 
for Select Symbols in Complex Orders. Current note 3 provides, ``This 
fee is $0.49 per contract for Market Makers that achieve Priority 
Customer Complex Tier 8, $0.47 per

[[Page 389]]

contract for Market Makers that achieve Priority Customer Complex Tier 
9, and $0.44 per contract for Market Makers that achieve Priority 
Customer Complex Tier 10.''
    The Exchange proposes to eliminate the current note 3 and no longer 
offer lower Complex Order Maker Fees for Select Symbols when trading 
against Priority Customer or Complex Order Taker Fees in Select Symbols 
to Members who achieve Priority Customer Complex Order Rebate Tiers 8, 
9 or 10. Instead, the Exchange proposes to offer Members an opportunity 
to lower the Non-Priority Customer Complex Order Taker Fees in Select 
Symbols from $0.50 to $0.38 per contract on orders that execute against 
Priority Customer Complex Orders entered by an Affiliated Member \15\ 
or Affiliated Entity.\16\ Today, Affiliated Members and Affiliated 
Entities may aggregate certain volume for purposes of receiving 
increased rebates or discounted fees including Complex Order Priority 
Customer Rebates. The Exchange's proposal would offer Members an 
opportunity to lower their Complex Order Taker Fee in Select Symbols 
provided the order that executes against Priority Customer Complex 
Orders in Select Symbols was entered by an Affiliated Member or 
Affiliated Entity. Note 3 would incentivize Members to execute orders 
on ISE in an effort to pay lower Non-Priority Customer Complex Order 
Taker Fees in Select Symbols. Additionally, note 3 would exclude 
Complex Orders executed in the Facilitation Mechanism,\17\ the 
Solicited Order Mechanism \18\ and the Price Improvement Mechanism \19\ 
where these auction mechanisms have separate pricing. As proposed, note 
3 would provide, ``This Taker Fee is $0.38 per contract when executed 
against Priority Customer Complex Orders in Select Symbols entered by 
an Affiliated Member or Affiliated Entity, excluding Complex Orders 
executed in the Facilitation Mechanism, Solicited Order Mechanism, and 
Price Improvement Mechanism.''
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    \15\ 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).
    \16\ 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).
    \17\ The Facilitation Mechanism is a process by which an 
Electronic Access Member can execute a transaction wherein the 
Electronic Access Member seeks to facilitate a block-size order it 
represents as agent, and/or a transaction wherein the Electronic 
Access Member solicited interest to execute against a block-size 
order it represents as agent. See Options 3, Section 11(b).
    \18\ The Solicited Order Mechanism is a process by which an 
Electronic Access Member can attempt to execute orders of 500 or 
more contracts it represents as agent (the ``Agency Order'') against 
contra orders that it solicited. Each order entered into the 
Solicited Order Mechanism shall be designated as all-or-none. See 
Options 3, Section 11(d).
    \19\ The Price Improvement Mechanism is a process by which an 
Electronic Access Member can provide price improvement opportunities 
for a transaction wherein the Electronic Access Member seeks to 
facilitate an order it represents as agent, and/or a transaction 
wherein the Electronic Access Member solicited interest to execute 
against an order it represents as agent (a ``Crossing 
Transaction''). See Options 3, Section 13.
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    The Exchange believes that the proposed note 3 reduced Non-Priority 
Customer Complex Order Taker Fees for Select Symbols will attract order 
flow to ISE. As proposed, Priority Customers are eligible for increased 
Complex Order Rebates and continue to pay no Complex Order Taker Fees. 
The Exchange believes that the increased Complex Order Priority 
Customer Rebates and $0.00 per contract Complex Order Priority Customer 
Taker Fee taken together with the opportunity for lower Non-Priority 
Customer Complex Order Taker Fees for Select Symbols will continue to 
encourage an active and liquid market in Complex Order Select Symbols 
on ISE.
    The Exchange proposes to amend note 8 within Options 7, Section 4 
related to Complex Orders. Currently, note 8 applies to Complex Order 
Non-Priority Customer Taker Fees for Non-Select Symbols. Current note 8 
provides, ``A $0.05 per contract surcharge will be assessed to non-
Priority Customer Complex Orders 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 pursuant to Options 3, Section 14(c)(3).'' The 
Exchange proposes to amend note 8 to increase the surcharge from $0.05 
to $0.12 per contract. The surcharge was originally adopted to offset 
the costs of providing the Complex Order Priority Customer Rebates. 
With the proposed increased to Complex Order Priority Customer Rebates 
described herein, the Exchange proposes to increase the surcharge from 
$0.05 to $0.12 per contract. The Exchange believes that it is 
appropriate to revisit this surcharge and increase it at this time. 
Additionally, the Exchange proposes to continue to assess the surcharge 
to non-Priority Customer Complex Orders that take liquidity from the 
Complex Order Book, but now proposes to assess the surcharge when those 
orders are executed against Priority Customer Complex Orders. The 
proposed change is intended to align more closely the surcharge to the 
Complex Order Priority Customer Rebates. Finally, the Exchange proposes 
to continue to exclude Complex Orders entered in the Facilitation 
Mechanism, Solicited Order Mechanism, and Price Improvement Mechanism, 
but include Exposure Complex Orders \20\ and Exposure Only Complex 
Orders \21\ pursuant to Options 3, Section 14(b)(13) and (14)).\22\ The 
Exchange notes that there is separate pricing for the auction 
mechanisms, however Exposure Complex Orders and Exposure Only Complex 
Orders do not have separate pricing and these orders

[[Page 390]]

are exposed upon entry and may not be entered on the Complex Order 
Book. The Exchange proposes to subject Exposure Complex Orders and 
Exposure Only Complex Orders to the same pricing as other orders 
entered into the Complex Order Book. The Proposed note 8 would provide, 
``A $0.12 per contract surcharge will be assessed to Non-Priority 
Customer Complex Orders that take liquidity from the Complex Order Book 
(including Exposure Complex Orders and Exposure Only Complex Orders 
pursuant to Options 3, Section 14(b)(13) and (14)) when executed 
against Priority Customer Complex Orders, excluding Complex Orders 
executed in the Facilitation Mechanism, Solicited Order Mechanism, and 
Price Improvement Mechanism.'' With this amendment, the Exchange seeks 
to fortify Member participation in the Complex Order Priority Customer 
rebate program and incentivize increased Complex Order volume on the 
Exchange. Note 8 would continue to apply to Complex Order Non-Priority 
Customer Taker Fees for Non-Select Symbols and, as proposed, would also 
apply to Non-Priority Customer Taker Fees for Select Symbols.
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    \20\ An Exposure Complex Order is an order that will be exposed 
upon entry as provided in Supplementary Material .01 to this Options 
3, Section 12 if eligible, or entered on the Complex Order Book if 
not eligible. Any unexecuted balance of an Exposure Complex Order 
remaining upon the completion of the exposure process will be 
entered on the Complex Order Book. See Options 3, Section 14(b)(13).
    \21\ An Exposure Only Complex Order is an order that will be 
exposed upon entry as provided in Supplementary Material .01 to this 
Rule if eligible, or cancelled if not eligible. Any unexecuted 
balance of an Exposure Only Complex Order remaining upon the 
completion of the exposure process will be cancelled. See Options 3, 
Section 14(b)(14).
    \22\ Today, note 8 within Options 7, Section 4 excludes 
``exposure'' auctions pursuant to Options 3, Section 14(c)(3). The 
Exchange notes that Exposure Complex Orders and Exposure Only 
Complex Orders are the two order types that are utilized by Members 
to designate an order as eligible for the Complex Order Exposure 
described within Supplementary Material .01 to Options 3, Section 
14. The original rule change cited ``exposure'' auctions pursuant to 
ISE Rule 722(b)(3)(iii) which rule text was relocated to 722(b) 
Supplementary Material .01 to Rule 722 and later became 
Supplementary .01 to Options 3, Section 14. See Securities Exchange 
Act Release Nos. 82644 (February 6, 2018), 83 FR 6069 (February 12, 
2018) (SR-ISE-2018-10) (Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change To Amend the Exchange's Schedule of Fees To 
Modify Complex Order Fees and Rebates); 84373 (October 5, 2018), 83 
FR 51730 (October 12, 2018) (SR-ISE-2018-56) (Notice of Filing of 
Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Its 
Rules Relating to Complex Orders); and 86138 (June 18, 2019), 84 FR 
29567 (June 24, 2019) (SR-ISE-2019-17) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Relocate ISE's 
Rules From Their Current Place in the Rulebook Into the New Rulebook 
Shell).
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Technical Amendment
    The Exchange also proposes to amend ``non-Priority Customer'' to 
``Non-Priority Customer'' within notes 1 and 8 of Options 7, Section 4. 
This term is defined within Options 7, Section 1(c).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\23\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\24\ 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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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(4) and (5).
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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 \25\ 
(``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'. . . .'' \26\
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    \25\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \26\ 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)).
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    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.
Complex Order Priority Customer Rebates
    The Exchange's proposal to increase Complex Order Priority Customer 
Rebate Tiers 6 through 10 for Select Symbols and Non-Select Symbols is 
reasonable because the increased Priority Customer Rebates would 
attract additional Complex Order Priority Customer order flow to ISE in 
both Select Symbols and Non-Select Symbols. All Members may interact 
with the Complex Order Priority Customer order flow attracted by these 
higher rebates. Specifically, the Exchange believes that its proposal, 
which, among other things, increases rebate amounts where Members can 
qualify for larger rebates, is reasonable as it will encourage Members 
to increase the amount of Priority Customer Complex Orders that they 
send to the Exchange instead of sending this order flow to a competing 
options exchange. The Exchange believes that with the proposed rebate 
levels, Members who submit the same amount of order flow as they do 
today for Complex Order Priority Customer Rebate Tiers 6 through 10 for 
Select Symbols and Non-Select Symbols would receive larger rebates.
    The Exchange's proposal to amend Complex Order Tiers 6 through 10 
of the Priority Customer Rebates for Select Symbols and Non-Select 
Symbols is equitable and not unfairly discriminatory. Today, Complex 
Order Rebates are only offered to Priority Customer Complex Orders. 
Priority Customer liquidity is the most sought after liquidity. 
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 in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
Paying Complex Order Priority Customer Rebates is consistent with the 
treatment of Priority Customers on MIAX Emerald, LLC.\27\
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    \27\ See MIAX Emerald's Fee Schedule. MIAX Emerald pays complex 
orders from Priority Customers the highest rebates.
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Maker and Taker Fees
    The Exchange's proposal to increase the Complex Order Taker Fees 
for Non-Select Symbols is reasonable because the proposal would permit 
ISE to offer higher Complex Order Priority Customer Rebates to attract 
additional Priority Customer order flow to ISE in both Select Symbols 
and Non-Select Symbols. All Members may interact with the Complex Order 
Priority Customer order flow attracted by these higher rebates. While 
the Exchange is increasing the Complex Order Taker Fees for Non-Select 
Symbols, the Exchange believes that market participants will continue 
to be incentivized to send Complex Order Priority Customer order flow 
to ISE to obtain the Priority Customer Complex Order Rebates offered by 
the Exchange. Additionally, the increased Complex Order Taker Fees 
remain competitive with BOX Exchange LLC (``BOX'').\28\ Overall, 
combined with the proposed larger Priority Customer Complex Order 
rebates, the Exchange believes that the proposed change will generally 
allow the Exchange and its Members to better compete for Complex Order 
flow by increasing Priority Customer liquidity thus enhancing 
competition.
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    \28\ See BOX complex orders fees for non-public customers which 
range from $0.98 to $1.00 per contract.
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    The Exchange's proposal to increase the Complex Order Taker Fees 
for Non-Select Symbols is equitable and not unfairly discriminatory. 
The Exchange

[[Page 391]]

would uniformly assess a $0.98 per contract Complex Order Taker Fee for 
Non-Select Symbols to all Non-Priority Customers. Priority Customers 
would continue to be assessed no Complex Order Taker Fee for Non-Select 
Symbols. Priority Customer liquidity is the most sought after 
liquidity. 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 in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
    The Exchange's proposal to amend note 3 within Options 7, Section 4 
with respect to Complex Order Taker Fees for Select Symbols is 
reasonable because the Exchange would assess a lower Non-Priority 
Customer Complex Order Taker Fee ($0.38 vs. $0.50 per contract) in 
Select Symbols when an order that was entered by an Affiliated Member 
or Affiliated Entity executes against Priority Customer Complex Orders 
in Select Symbols. While the proposal would eliminate the current note 
3, thereby no longer offering lower Complex Order Maker Fees for Select 
Symbols when trading against Priority Customers and Taker Fees for 
Select Symbols to Members who achieve Priority Customer Complex Order 
Rebate Tiers 8, 9 or 10, the Exchange would offer Members an 
opportunity to lower Non-Priority Customer Complex Orders Taker Fees in 
Select Symbols from $0.50 to $0.38 per contract when an order that 
executed against Priority Customer Complex Orders is entered by an 
Affiliated Member or Affiliated Entity. Today, Affiliated Members and 
Affiliated Entities may aggregate certain volume for purposes of 
receiving increased rebates or discounted fees.\29\ The Exchange's 
proposal is reasonable because it would offer Members the opportunity 
to lower their Non-Priority Customer Complex Order Taker Fee in Select 
Symbols, provided they execute against Priority Customer Complex Orders 
in Select Symbols that was entered by an Affiliated Member or 
Affiliated Entity. The proposal to exclude Complex Orders executed in 
the Exchange's various auction mechanisms from the proposed Non-
Priority Customer Complex Order surcharge is reasonable because those 
auction mechanisms are subject to separate pricing. Proposed note 3 
would incentivize Members to execute orders on ISE in an effort to pay 
a lower Non-Priority Customer Complex Order Taker Fee in Select 
Symbols. The Exchange believes that the proposed note 3 reduced Complex 
Order Non-Priority Customer Taker Fee for Select Symbols will attract 
order flow to ISE. As proposed, Priority Customers are eligible for 
increased Complex Order Rebates and continue to pay no Complex Order 
Taker Fees. The Exchange believes that the higher Complex Order 
Priority Customer Rebates and the $0.00 per contract Complex Order 
Priority Customer Taker Fee taken together with the opportunity for a 
lower Complex Order Non-Priority Customer Taker Fee for Select Symbols, 
will continue to encourage an active and liquid market in Non-Select 
Symbols on ISE. Also, the Exchange proposes to continue to incentivize 
certain Members, who are not Affiliated Members or Affiliated Entities, 
to enter into such a relationship for the purpose of aggregating volume 
executed on the Exchange to qualify to reduce their Complex Order Non-
Priority Customer Taker Fee in Select Symbols.
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    \29\ Affiliated Members may not qualify as a counterparty 
comprising an Affiliated Entity. See Options 7, Section 1(c).
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    The Exchange's proposal to amend note 3 within Options 7, Section 4 
with respect to Complex Order Taker Fees for Select Symbols is 
equitable and not unfairly discriminatory because all Non-Priority 
Customers would be assessed a lower Complex Order Taker Fee in Select 
Symbols when executing against Priority Customer Complex Orders in 
Select Symbols entered by an Affiliated Member or Affiliated Entity. 
Priority Customers pay no Complex Order Taker Fees in Select Symbols 
and, therefore, are not offered the lower fee. Additionally, offering 
Members the opportunity to lower their Non-Priority Customer Complex 
Order Taker Fee in Select Symbols provided they execute against 
Priority Customer Complex Orders in Select Symbols that was entered by 
an Affiliated Member or Affiliated Entity is equitable and not unfairly 
discriminatory as it relates to Members who are not Affiliated Members 
or Affiliated Entities because any Member may enter into such a 
relationship for the purpose of aggregating volume executed on the 
Exchange to qualify to reduce their Complex Order Non-Priority Customer 
Taker Fee in Select Symbols. Finally, the criteria for assessing the 
lower Non-Priority Customer Complex Orders Taker Fee would be uniformly 
applied all Members.
    The Exchange's proposal to amend note 8 within Options 7, Section 4 
related to Complex Orders to increase the surcharge from $0.05 to $0.12 
per contract is reasonable because the Exchange is also increasing the 
Complex Order Priority Customer Rebates. The surcharge was originally 
adopted to offset the costs of providing the Complex Order Priority 
Customer Rebates.\30\ Assessing this surcharge to only those orders 
that take liquidity from the market is reasonable because the Exchange 
wants to continue to encourage market participation for those 
participants that seek to add liquidity on ISE. Additionally, the 
Exchange's proposal to assess the surcharge to Non-Priority Customer 
Complex Orders that take liquidity from the Complex Order Book when 
those orders are executed against Priority Customer Complex Orders is 
reasonable because it will more closely align the surcharge to the 
Complex Order Priority Customer Rebates.
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    \30\ See Securities Exchange Act Release No. 82644 (February 6, 
2018), 83 FR 6069 (February 12, 2018) (SR-ISE-2018-10) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
the Exchange's Schedule of Fees To Modify Complex Order Fees and 
Rebates).
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    Continuing to exclude Complex Orders executed in the Facilitation 
Mechanism, Solicited Order Mechanism, and Price Improvement Mechanism 
from the proposed Non-Priority Customer Complex Order surcharge is 
reasonable because those auction mechanisms are subject to separate 
pricing. The Exchange desires to continue to encourage participation 
within those auction mechanisms. Subjecting Exposure Complex Orders and 
Exposure Only Complex Orders pursuant to Options 3, Section 14(b)(13) 
and (14) to the note 8 surcharge is reasonable because there is no 
separate pricing for these order types that are entered into Complex 
Exposure within Supplementary .01 to Options 3, Section 14. These order 
types are exposed upon entry and may not be entered on the Complex 
Order Book. The Exchange believes it is reasonable to subject Exposure 
Complex Orders and Exposure Only Complex Orders to the same pricing as 
other orders entered into the Complex Order Book which would include 
the Non-Priority Customer Complex Order surcharge. With this amendment, 
the Exchange seeks to fortify Member participation in the Complex Order 
Priority Customer rebate program and incentivize increased Complex 
Order volume on the Exchange. Finally, applying note 8 to Taker Fees 
for Select Symbols as well as Non-Select Symbols is reasonable because 
the Exchange offers Complex Order Priority Customer Rebates for both 
Select Symbols and Non-Select Symbols. The surcharge is designed to 
offset the costs of providing the

[[Page 392]]

Complex Order Priority Customer Rebates.
    The Exchange's proposal to amend note 8 within Options 7, Section 4 
related to Complex Orders to increase the surcharge from $0.05 to $0.12 
per contract is equitable and not unfairly discriminatory because the 
surcharge would be uniformly applied to all Members who transact Non-
Priority Customer Complex Orders that take liquidity from the Complex 
Order Book, including Exposure Complex Orders and Exposure Only Complex 
Orders, when executed against Priority Customer Complex Orders, 
excluding Complex Orders executed in the Facilitation Mechanism, 
Solicited Order Mechanism, and Price Improvement Mechanism. 
Additionally, the criteria for assessing the surcharge would be 
uniformly applied to all Members for Taker Fees in both Select and Non-
Select Symbols. Continuing to exclude Complex Orders executed in the 
Facilitation Mechanism, Solicited Order Mechanism, and Price 
Improvement Mechanism from the proposed Non-Priority Customer Complex 
Order surcharge is equitable and not unfairly discriminatory because 
those auction mechanisms are subject to separate pricing. The Exchange 
desires to continue to encourage participation within those auction 
mechanisms. Subjecting Exposure Complex Orders and Exposure Only 
Complex Orders pursuant to Options 3, Section 14(b)(13) and (14) to the 
note 8 surcharge is equitable and not unfairly discriminatory because 
there is no separate pricing for these order types that are entered 
into Complex Exposure within Supplementary .01 to Options 3, Section 
14. These order types are exposed upon entry and may not be entered on 
the Complex Order Book. The Exchange believes it is equitable and not 
unfairly discriminatory to subject Exposure Complex Orders and Exposure 
Only Complex Orders to the same pricing as other orders entered into 
the Complex Order Book which would include the Non-Priority Customer 
Complex Order surcharge. Any Member may utilize the Facilitation 
Mechanism, the Solicited Order Mechanism, and the Price Improvement 
Mechanism \31\ as well as Exposure Complex Orders and Exposure Only 
Complex Orders.
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    \31\ The Exchange notes that with respect to the Price 
Improvement Mechanism, an Initiating Order may not be a solicited 
order for the account of any Exchange Lead Market Maker, SQT, RSQT 
or non-streaming Market Maker assigned in the affected series. See 
Options 3, Section 13(a)(8).
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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.
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 pricing changes in this market may impose any burden on 
competition is extremely limited because other options exchanges offer 
similar rebate programs as well as maker/taker pricing.\32\
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    \32\ See MIAX Emerald's Fee Schedule.
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    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 Exchange's proposal to amend Complex Order Tiers 6 through 10 
of the Priority Customer Rebates for Select Symbols and Non-Select does 
not impose an undue burden on competition. Today, Complex Order Rebates 
are only offered to Priority Customer Complex Orders. Priority Customer 
liquidity is the most sought after liquidity. 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 in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants. Paying Complex Order Priority 
Customer Rebates is consistent with the treatment of Priority Customers 
on MIAX Emerald, LLC where orders from Priority Customers are also paid 
the highest rebates.\33\
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    \33\ See MIAX Emerald's Fee Schedule.
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    The Exchange's proposal to increase the Complex Order Taker Fees 
for Non-Select Symbols does not impose an undue burden on competition 
because all Non-Priority Customers would uniformly be assessed a $0.98 
per contract Complex Order Taker Fee for Non-Select Symbols. Priority 
Customers would continue to be assessed no Complex Order Taker Fee for 
Non-Select Symbols. Priority Customer liquidity is the most sought 
after liquidity. 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 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
    The Exchange's proposal to amend note 3 within Options 7, Section 4 
with respect to Complex Order Taker Fees for Select Symbols does not 
impose an undue burden on competition because all Non-Priority 
Customers would be assessed a lower Complex Order Taker Fee in Select 
Symbols when executing against Priority Customer Complex Orders in 
Select Symbols entered by an Affiliated Member or Affiliated Entity. 
Priority Customers pay no Complex Order Taker Fees in Select Symbols 
and, therefore, are not offered the lower fee. Additionally, offering 
Members the opportunity to lower their Non-Priority Customer Complex 
Order Taker Fee in Select Symbols provided they execute against 
Priority Customer Complex Orders in Select Symbols that was entered by 
an Affiliated Member or Affiliated Entity does not impose an undue 
burden on competition as it relates to Members who are not Affiliated 
Members or Affiliated Entities because any Member may enter into such a 
relationship for the purpose of aggregating volume executed on the 
Exchange to qualify to reduce their Complex Order Non-Priority Customer 
Taker Fee in Select Symbols. Finally, the criteria for assessing the 
lower Non-Priority Customer Complex Orders Taker Fee would be uniformly 
applied all Members.
    The Exchange's proposal to amend note 8 within Options 7, Section 4 
related to Complex Orders to increase the surcharge from $0.05 to $0.12 
per contract does not impose an undue burden on competition because the 
surcharge would be uniformly applied

[[Page 393]]

to all Members who transact Non-Priority Customer Complex Orders that 
take liquidity from the Complex Order Book, including Exposure Complex 
Orders and Exposure Only Complex Orders, when executed against Priority 
Customer Complex Orders, excluding Complex Orders executed in the 
Facilitation Mechanism, Solicited Order Mechanism, and Price 
Improvement Mechanism. Additionally, the criteria for assessing the 
surcharge would be uniformly applied to all Members for Taker Fees in 
both Select and Non-Select Symbols. Continuing to exclude Complex 
Orders executed in the Facilitation Mechanism, Solicited Order 
Mechanism, and Price Improvement Mechanism from the proposed Non-
Priority Customer Complex Order surcharge is equitable and not unfairly 
discriminatory because those auction mechanisms are subject to separate 
pricing. The Exchange desires to continue to encourage participation 
within those auction mechanisms. Subjecting Exposure Complex Orders and 
Exposure Only Complex Orders pursuant to Options 3, Section 14(b)(13) 
and (14) to the note 8 surcharge is equitable and not unfairly 
discriminatory because there is no separate pricing for these order 
types that are entered into Complex Exposure within Supplementary .01 
to Options 3, Section 14. These order types are exposed upon entry and 
may not be entered on the Complex Order Book. The Exchange believes it 
is equitable and not unfairly discriminatory to subject Exposure 
Complex Orders and Exposure Only Complex Orders to the same pricing as 
other orders entered into the Complex Order Book which would include 
the Non-Priority Customer Complex Order surcharge. Any Member may 
utilize the Facilitation Mechanism, the Solicited Order Mechanism, and 
the Price Improvement Mechanism \34\ as well as Exposure Complex Orders 
and Exposure Only Complex Orders.
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    \34\ The Exchange notes that with respect to the Price 
Improvement Mechanism, an Initiating Order may not be a solicited 
order for the account of any Exchange Lead Market Maker, SQT, RSQT 
or non-streaming Market Maker assigned in the affected series. See 
Options 3, Section 13(a)(8).
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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 \35\ and Rule 19b-4(f)(2) \36\ 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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    \35\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \36\ 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-2022-29 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-2022-29. 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-2022-29 and should be submitted on 
or before January 25, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-28544 Filed 1-3-23; 8:45 am]
BILLING CODE 8011-01-P