[Federal Register Volume 83, Number 156 (Monday, August 13, 2018)]
[Notices]
[Pages 40096-40099]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17255]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83790; File No. SR-ISE-2018-69]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Relating to the
Regular Order Take Fee and the QCC and Solicitation Order Rebate
August 7, 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 July 25, 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 ISE Schedule of Fees to: (i)
Increase the Regular Order Take Fee in SPY, QQQ, IWM, and VXX for
Priority Customers; \3\ and; (2) not pay the ``Customer to Customer''
Orders rebate for QCC and solicited orders between two Priority
Customers.
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\3\ A ``Priority Customer'' is a person or entity that is not a
broker/dealer in securities, and does not place more than 390 orders
in listed options per day on average during a calendar month for its
own beneficial account(s), as defined in Nasdaq ISE Rule
100(a)(37A). Unless otherwise noted, when used in the Schedule of
Fees the term ``Priority Customer'' includes ``Retail'' as defined
in the Schedule of Fees. See Preface to ISE Schedule of Fees.
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The text of the proposed rule change is available on the Exchange's
website at http://ise.cchwallstreet.com/, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the ISE
Schedule of Fees at Section I, entitled ``Regular Order Fees and
Rebates'' as well as the Section IV, entitled ``Other Options Fees
[[Page 40097]]
and Rebates'' within Section A, ``QCC and Solicitation Rebate.'' Each
proposed change is described in more detail below. The Exchange
believes that each of the proposed rule changes will permit the
Exchange to remain competitive in options trading.
Taker Fees
Currently, the Exchange charges a Regular Order Taker Fee for
Select Symbols, other than Priority Customer orders in SPY, QQQ, IWM,
and VXX, of: $0.45 per contract for Market Maker orders,\4\ $0.44 per
contract for Priority Customer orders and $0.46 per contract for Non-
Nasdaq ISE Market Makers \5\ (FarMM), Firm Proprietary \6\/Broker
Dealer,\7\ and Professional Customers \8\ orders. The Regular Order
Taker Fee for Priority Customer orders in SPY, QQQ, IWM, and VXX is
$0.37 per contract. The Exchange proposes to increase this Regular
Order Taker Fee in SPY, QQQ, IWM, and VXX to $0.40 per contract for
Priority Customer orders. While the Exchange is increasing this fee,
the Exchange believes that the fee remains competitive. Also, this fee
continues to be lower than other Regular Order Taker Fees for SPY, QQQ,
IWM, and VXX assessed to non-Priority Customers.
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\4\ ``Market makers'' refers to ``Competitive Market Makers''
and ``Primary Market Makers'' collectively. See ISE Rule 100(a)(28).
\5\ 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 Preface to ISE Schedule of Fees.
\6\ A ``Firm Proprietary'' order is an order submitted by a
Member for its own proprietary account. See Preface to ISE Schedule
of Fees.
\7\ ``Broker-Dealer'' order is an order submitted by a Member
for a broker-dealer account that is not its own proprietary account.
See Preface to ISE Schedule of Fees.
\8\ A ``Professional Customer'' is a person or entity that is
not a broker/dealer and is not a Priority Customer. See Preface to
ISE Schedule of Fees.
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QCC and Solicitation Rebate
Currently, ISE Members using Qualified Contingent Cross (``QCC'')
orders \9\ and/or other solicited crossing orders, including solicited
orders executed in the Solicitation,\10\ Facilitation \11\ or Price
Improvement Mechanism (``PIM'') \12\, receive rebates for each
originating contract side in all symbols traded on the Exchange. Once a
Member reaches a certain volume threshold in QCC orders and/or
solicited crossing orders during a month, the Exchange provides rebates
to that Member for all of its QCC and solicited crossing order traded
contracts for that month.\13\ The applicable rebates are applied on QCC
and solicited crossing order traded contracts once the volume threshold
is met. Today, Members receive the Non-``Customer to Customer'' rebate
for all QCC and/or other solicited crossing orders except for QCC and
solicited orders between two Priority Customers. QCC and solicited
orders between two Priority Customers receive the ``Customer to
Customer'' Orders \14\ rebate. Non-``Customer to Customer'' and
``Customer to Customer'' volume is aggregated in determining the
applicable volume tier. The current volume threshold and corresponding
rebates are as follows:
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\9\ A QCC Order is comprised of an originating order to buy or
sell at least 1000 contracts that is identified as being part of a
qualified contingent trade, as that term is defined in Supplementary
Material .01 below, coupled with a contra-side order or orders
totaling an equal number of contracts. See ISE Rule 715(j).
\10\ The Solicited Order Mechanism is a process by which an EAM
can attempt to execute orders of 500 or more contracts it represents
as agent against contra orders that it solicited. Each order entered
into the Solicited Order Mechanism shall be designated as all-or-
none. See ISE Rule 716(e).
\11\ The Facilitation Mechanism is a process by which an EAM can
execute a transaction wherein the EAM seeks to facilitate a block-
size order it represents as agent, and/or a transaction wherein the
EAM solicited interest to execute against a block-size order it
represents as agent. See Rule 716(d).
\12\ PIM 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'').
\13\ All eligible volume from affiliated members will be
aggregated in determining QCC and Solicitation volume totals,
provided there is at least 75% common ownership between the members
as reflected on each member's Form BD, Schedule A.
\14\ A ``Customer to Customer'' order is a QCC or other
solicited order between two Priority Customers.
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Non-``Customer to ``Customer to
Originating contract sides customer'' rebate customer'' rebate
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0 to 99,999....................... $0.00 $0.00
100,000 to 199,999................ (0.05) (0.01)
200,000 to 499,999................ (0.07) (0.01)
500,000 to 749,999................ (0.09) (0.03)
750,000 to 999,999................ (0.10) (0.03)
1,000,000+........................ (0.11) (0.03)
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At this time, the Exchange proposes to not pay the ``Customer to
Customer'' Orders rebate for QCC and solicited orders between two
Priority Customers. The Exchange proposes to amend its Schedule of Fees
to make clear that such a rebate will not be paid. ``Customer-to-
Customer'' Rebates are being removed from the table within the Schedule
of Fees. The Exchange notes that this rebate did not attract volume as
anticipated when the rebate was implemented. The Exchange is also
amending the sentence that provides, ``Non-``Customer to Customer'' and
``Customer to Customer'' volume will be aggregated in determining the
applicable volume tier'' with language which removes the term
``Customer to Customer'' and instead descriptively defines that volume.
The proposed sentence states, ``Volume resulting from all QCC and
solicited orders will be aggregated in determining the applicable
volume tier.'' In addition the Exchange is removing references to
``Non-``Customer to Customer'' rebate'' and simply noting the term
``rebate.'' The Exchange believes that the term Non-``Customer to
Customer'' is no longer necessary. The language makes clear that
Members will receive the rebate for all QCC and/or other solicited
crossing orders except for QCC and solicited orders between two
Priority Customers. No other changes are being made to the manner in
which rebates are calculated or paid.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\15\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees, and
other charges among members and issuers and other persons using any
facility, and is not designed to permit unfair
[[Page 40098]]
discrimination between customers, issuers, brokers, or dealers.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4) and (5).
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Taker Fees
The Exchange believes that the proposed change to increase Regular
Order Priority Customer Taker Fees in SPY, QQQ, IWM, and VXX from $0.37
to $0.40 per contract is reasonable because the increased Taker Fee
remains competitive and will continue to be attractive to market
participants. Priority Customers will continue to receive reduced
Regular Order Taker Fees in SPY, QQQ, IWM, and VXX, which represent
some of the most heavily traded symbols on ISE. In particular, the
proposed Taker Fees are lower than Taker Fees assessed to Priority
Customer orders in other Select Symbols \17\ as well as Taker Fees
assessed to other market participants.\18\ As such, the Exchange
believes that the proposed Regular Order Taker Fees will continue to
attract order flow to the benefit of all market participants that trade
on the Exchange.
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\17\ Currently, ISE charges a Regular Order Taker Fee for Select
Symbols, other than SPY, QQQ, IWM, and VXX, of $0.44 per contract
for Priority Customer orders.
\18\ Currently, the Exchange charges a Regular Order Taker Fee
for Select Symbols of $0.45 per contract for Market Maker orders and
$0.46 per contract for FarMM, Firm Proprietary/Broker Dealer, and
Professional Customers orders.
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The Exchange believes that the proposed change to increase Regular
Order Priority Customer Taker Fees in SPY, QQQ, IWM, and VXX from $0.37
to $0.40 per contract is equitable and not unfairly discriminatory
because despite the increase to the fee, Priority Customer interest
will continue to be assessed the lowest Regular Order Taker Fees in
these symbols. Priority Customer interest brings valuable liquidity to
the market, which liquidity benefits other market participants.
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.
QCC and Solicitation Rebate
The Exchange believes that the proposed change to not pay the
``Customer to Customer'' Rebate for QCC and solicited orders between
two Priority Customers is reasonable. Despite the removal of the
rebate, the Exchange believes that the proposal will continue to
encourage Members to transact QCC and/or other solicited crossing
orders on ISE. The Exchange notes that Customer-to-Customer Orders will
continue to be aggregated with all other volume to determine the
applicable volume tier for rebates.
The Exchange believes that the proposed change to not pay the
``Customer to Customer'' Orders rebate for QCC and solicited orders
between two Priority Customers is equitable and not unfairly
discriminatory because the Exchange would uniformly not pay any Member
a rebate for Customer-to-Customer Orders. The Customer-to-Customer
Orders will continue to be counted toward the rebates for all market
participants that qualify for such rebates.
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. With respect to the increase to
the Regular Order Taker Fees for Priority Customers in SPY, QQQ, IWM,
and VXX, the Exchange does not believe this proposal imposes an undue
burden on competition because despite the increase to the fee, Priority
Customer interest will continue to be assessed the lowest Regular Order
Taker Fees in these symbols. Priority Customer interest brings valuable
liquidity to the market, which liquidity benefits other market
participants. 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.
With respect to the proposed change to not pay the ``Customer to
Customer'' Orders rebate for QCC and solicited orders between two
Priority Customers, the Exchange does not believe this proposal imposes
an undue burden on competition because the Exchange would uniformly not
pay any Member a rebate for Customer-to-Customer Orders. The Customer-
to-Customer Orders will continue to be counted toward the rebates for
all market participants that qualify for such rebates.
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,\19\ and Rule 19b-4(f)(2) \20\ 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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\19\ 15 U.S.C. 78s(b)(3)(A)(ii).
\20\ 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-2018-69 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-2018-69. 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
[[Page 40099]]
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-
2018-69 and should be submitted on or before September 4, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17255 Filed 8-10-18; 8:45 am]
BILLING CODE 8011-01-P