2020-06287. Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchanges Pricing Schedule at Options 7, Section 4, Titled Complex Order Fees and Rebates

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),^[1] and Rule 19b-4 thereunder,^[2] notice is hereby given that on March 10, 2020, 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.

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, Section 4, titled “Complex Order Fees and Rebates.”

The Exchange originally filed the proposed pricing changes on March 2, 2020 (SR-ISE-2020-09). On March 10, 2020, the Exchange withdrew that filing and submitted this filing.

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 Exchange proposes to amend the Exchange's Pricing Schedule at Options 7, Section 4, titled “Complex Order Fees and Rebates” to decrease certain rebate tiers to attract Priority Customer Complex Order flow to ISE.

Today, ISE offers a nine tier Priority Customer Complex Order rebate structure as follows:

Priority customer complex tier (7) (13) (16)	Total affiliated member or affiliated entity complex order volume (excluding crossing orders and responses to crossing orders) calculated as a percentage of customer total consolidated volume	Rebate for select symbols (1)	Rebate for non-select symbols (1) (4)
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%-0.600%	(0.35)	(0.70)
Tier 4	Above 0.600%-0.750%	(0.40)	(0.75)
Tier 5	Above 0.750%-1.000%	(0.45)	(0.80)
Tier 6	Above 1.000%-1.500%	(0.46)	(0.80)
Tier 7	Above 1.500%-2.000%	(0.48)	(0.80)
Tier 8	Above 2.000%-2.75%	(0.50)	(0.85)
Tier 9	Above 2.75%	(0.52)	(0.85)

Specifically, with respect to the Tier 4 Priority Customer Complex Order rebate, a Member must execute a Complex Order volume percentage of above 0.600% to 0.750% to qualify for the $0.40 per contract rebate in Select Symbols and a $0.75 per contract rebate in Non-Select Symbols. Also, with respect to the Tier 3 Priority Customer Complex Order rebate, a Member must execute a Complex Order volume percentage ^[3] of above 0.400 to 0.600% to qualify for a $0.35 per contract rebate in Select Symbols and an $0.70 per contract rebate in Non-Select Symbols. The Exchange proposes to amend the Tier 4 rebate from above 0.600% to 0.750% to above 0.450% to 0.750%. Further, the Exchange proposes to make a corresponding change to the qualifications for the Tier 3 volume qualification to amend it from above 0.400 to 0.600% to above 0.400 to 0.450% to align the qualifications for Tier 3 to the qualifications proposed for Tier 4.

Specifically, with respect to the Tier 6 Priority Customer Complex Order rebate, a Member must execute a Complex Order volume percentage of above 1.000% to 1.500% to qualify for a $0.46 per contract rebate in Select Symbols and an $0.80 per contract rebate in Non-Select Symbols. Also, with respect to the Tier 7 Priority Customer Complex Order rebate, a Member must execute a Complex Order volume percentage of above 1.500% to 2.000% to qualify for the $0.48 per contract rebate in Select Symbols and an $0.80 per contract rebate in Non-Select Symbols. The Exchange proposes to amend the Tier 7 volume qualification from above 1.500% to 2.000% to above 1.350% to 2.000%. Further, the Exchange proposes to make a corresponding change to the qualifications for the Tier 6 rebate to amend it from above 1.000% to 1.500% to above 1.000% to 1.350% to align the qualifications for Tier 6 to the qualifications proposed for Tier 7.

Further, with respect to the Priority Customer Complex Tier 8 rebate, a Member must execute a Complex Order volume percentage of above 2.000% to 2.75% to qualify for the $0.50 per contract rebate in Select Symbols and an $0.85 per contract rebate in Non-Select Symbols. Also, with respect to the Priority Customer Complex Tier 9 rebate, a Member must execute a Complex Order volume percentage of above 2.75% to qualify for the $0.52 per contract rebate in Select Symbols and an $0.85 per contract rebate in Non-Select Symbols. The Exchange proposes to amend the Tier 9 volume qualification from above 2.75% to above 2.600%. Further, the Exchange proposes to make a corresponding change to the qualifications for the Tier 8 rebate to amend it from above 2.000% to 2.75% to above 2.000% to 2.600% to align the qualifications for Tier 8 to the qualifications proposed for Tier 9.

The Exchange notes that all Members may elect to qualify for the Priority Customer Complex Order rebates by submitting Complex Order flow to the Exchange and earning a rebate on their Priority Customer Complex Order volume. Accordingly, the proposed changes are designed to increase the amount of Complex Order flow that Members submit to ISE, particularly Priority Customer Complex Order volume, and further encourage Members to contribute to a deeper, more liquid market to the benefit of all market participants.

2. Statutory Basis

The Exchange believes that its proposal is consistent with Section 6(b) of the Act,^[4] in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,^[5] in particular, in that it provides for the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.

The 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, the D.C. Circuit stated as follows: “[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' . . . .” ^[6]

The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system “has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.” ^[7]

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 options venue to which market participants may direct their order flow. Competing options exchanges offer similar tiered pricing structures to that of the Exchange, including schedules of rebates and fees that apply based upon Members achieving certain volume thresholds.^[8]

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. As such, the proposal represents a reasonable attempt by the Exchange to increase its liquidity and market share relative to its competitors.

The Exchange's proposal to decrease the volume requirements for Priority Customer Complex Order rebate Tiers 4, 7 and 9, and also make conforming changes to Priority Customer Complex Order rebate Tiers 3, 6 and 8 to align those tier qualifications with the proposed qualification amendments to Tiers 4, 7 and 9, is reasonable. The Exchange believes that the proposed amendments to Tiers 4, 7 and 9 of the Priority Customer Complex Order rebate program, which lower the volume qualifications for those tiers, represents a reasonable attempt by the Exchange to fortify participation in the Priority Customer Complex Order rebate program. In particular, the Exchange's proposal is intended to encourage Members to submit additional amounts of Priority Customer Complex Order volume to obtain a higher rebate. The Exchange notes that the proposed amendments should not result in lower rebates for any Member submitting the same volume as the Member submitted in the prior month. The Exchange is lowering the qualification criteria for various tiers within Options 7, Section 4 to provide a more deterministic outcome for an array of Members to qualify for the same Customer Complex Order rebates as in prior months. The Exchange believes that lowering the volume requirements for Tiers 4, 7 and 9 of the Priority Customer Complex Order rebate program will further incentivize Members to transact additional Complex Order flow, including Priority Customer Complex Order flow, to achieve higher rebates. Lowering the volume requirements for Tiers 4, 7, and 9 of the Priority Customer Complex Order rebate program makes these tiers more achievable and attractive to existing and potential program participants. As noted above, the Priority Customer Complex Order rebate program is optional and available to all Members that choose to transact Complex Order flow on ISE in order to earn a rebate on their Priority Customer Complex Order volume. To the extent the program, as modified, continues to attract Complex Order 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.

The Exchange's proposal to decrease the volume requirements for Priority Customer Complex Order rebate Tiers 4, 7 and 9, and also make conforming changes to Priority Customer Complex Order rebate Tiers 3, 6 and 8 to align those tier qualifications with the proposed qualification amendments to Tiers 4, 7 and 9, is equitable and not unfairly discriminatory. Any Member may choose to qualify for the rebate program by transacting the requisite amount of Priority Customer Complex Order flow on ISE. By encouraging all Members to transact significant amounts of Priority Customer Complex Order flow (i.e., to qualify for the higher tiers) in order to earn a higher rebate on their Priority Customer Complex Orders, the Exchange seeks to provide more trading opportunities for all market participants, thereby promoting price discovery, and improving the overall market quality of the Exchange. Furthermore, the proposed changes to the Priority Customer Complex Order rebate program to lower the volume requirements for Tiers 4, 7 and 9 are equitable and not unfairly discriminatory because any Member who transacts Priority Customer Complex Order flow on ISE may qualify for the rebates. The Tier 1 Priority Customer Complex Order rebate does not require a minimum amount of volume to qualify for the rebate tier. Any volume up to .20% would earn a Tier 1 Priority Customer Complex Order rebate of $0.25 for Select Symbols and a $0.40 rebate in Non-Select Symbols. The Exchange believes that the proposed changes will further incentivize all Members to transact a significant amount of Priority Customer Complex Order volume on ISE in order to obtain the highest range of Priority Customer Complex Order rebate offered under this program. The Exchange anticipates all Members that currently qualify for these rebates will continue to do so under this proposal. To the extent the proposed changes encourage additional Members to strive for the modified tiers and thus attract more Priority Customer Complex Order volume to the Exchange, this increased order flow would improve the overall quality and attractiveness of the Exchange. The Exchange notes that all market participants stand to benefit from increased liquidity as such increase promotes market depth, facilitates tighter spreads and enhances price discovery. Accordingly, the Exchange believes that the proposed amendments are reasonably designed to provide further incentives for all Members interested in meeting the tier criteria to submit additional Priority Customer Complex Order volume to achieve the higher 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.

Inter-Market Competition

The proposal does not impose an undue burden on inter-market competition. The Exchange believes its proposal remains competitive with other options markets and will offer market participants with another choice of where to transact options. The Exchange notes that it 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 that have been exempted from compliance with the statutory standards applicable to 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.

Intra-Market Competition

The proposed pricing amendments do not impose an intra-market burden on competition. The Exchange's proposal to decrease the volume requirements for Priority Customer Complex Order rebate Tiers 4, 7 and 9 and also make conforming changes to the qualifications for Tiers 3, 6 and 8 to align those qualifications with the proposed qualifications to Tiers 4, 7 and 9, does not impose an intra-market burden on competition. Any Member may choose to qualify for the rebate program by transacting the requisite amount of Priority Customer Complex Order flow on ISE. By encouraging all Members to transact significant amounts of Priority Customer 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, thereby promoting price discovery, and improving the overall market quality of the Exchange. Furthermore, the proposed changes to the Priority Customer Complex Order rebate program to lower the volume requirements for Tiers 4, 7 and 9 are equitable and not unfairly discriminatory because any Member who transacts Complex Order flow on ISE may qualify for the rebates. The Tier 1 Priority Customer Complex Order rebate does not require a minimum amount of volume to qualify for the rebate tier. Any volume up to .20% would earn a Tier 1 Priority Customer Complex Order rebate of $0.25 for Select Symbols and a $0.40 rebate in Non-Select Symbols. The Exchange anticipates all Members that currently qualify for these rebates will continue to do so under this proposal. The Exchange notes that all market participants stand to benefit from increased liquidity as such increase promotes market depth, facilitates tighter spreads and enhances price discovery.

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,^[9] and Rule 19b-4(f)(2) ^[10] 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.

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 [e-mail]. Please include File Number SR-ISE-2020-12 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-2020-12. 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-2020-12 and should be submitted on or before April 16, 2020.

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.^[11]

J. Matthew DeLesDernier,

Assistant Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  Complex Order volume percentage is described as Total Affiliated Member or Affiliated Entity Complex Order Volume (Excluding Crossing Orders and Responses to Crossing Orders) calculated as a percentage of Customer Total Consolidated Volume.

4.  15 U.S.C. 78f(b).

5.  15 U.S.C. 78f(b)(4) and (5).

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

7.  Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (“Regulation NMS Adopting Release”).

8.  See, generally, Nasdaq Phlx LLC and The Nasdaq Options Market LLC as examples of options exchanges with tiered pricing structures.

9.  15 U.S.C. 78s(b)(3)(A)(ii).

10.  17 CFR 240.19b-4(f)(2).

11.  17 CFR 200.30-3(a)(12).