2018-09114. Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Regular Order Fees and Rebates

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.

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

The Exchange proposes to amend ISE's Schedule of Fees at Section I, entitled “Regular Order Fees and Rebates.”

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.” This proposed rule change is intended to make changes to: (i) Increase Taker Fees for Market Makers,^[3] Non-Nasdaq ISE Market Makers ^[4] (FarMM) and Professional Customers; ^[5] (ii) increase Fees for Responses to ISE's Price Improvement Mechanism ^[6] (“PIM”) Orders for Market Makers, Non-Nasdaq ISE Market Makers (FarMM), Firm Proprietary ^[7] /Broker Dealers,^[8] Professional Customers, and Priority Customers; ^[9] and (iii) increase the amount assessed to a Member, other than for a Priority Customer, that executes an average daily volume (“ADV”) of 12,500 or more contracts in the PIM.

Taker Fees

The Exchange proposes to increase Regular Order Taker Fees for Market Makers, Non-Nasdaq ISE Market Makers (FarMM) and Professional Customers. Today, a Market Maker is assessed a $0.44 per contract Taker Fee for Regular Orders. The Exchange proposes to increase the Market Maker Taker Fee to $0.45 per contract. Today, Non-Nasdaq ISE Market Makers (FarMM) and Professional Customer are assessed a $0.45 per contract Taker Fees for Regular Orders. The Exchange proposes to increase the Non-Nasdaq ISE Market Makers (FarMM) and Professional Customer Taker Fees to $0.46 per contract. The Exchange will continue to assess a Firm Proprietary/Broker Dealer a Taker Fee of $0.46 per contract and assess a Priority Customer a $0.44 per contract Taker Fee.

Fees for Reponses to PIM Orders

The Exchange proposes to increase Fees for Reponses to PIM Orders for all market participants. Today, a Market Maker, Non-Nasdaq ISE Market Maker (FarMM), Firm Proprietary/Broker Dealer, Professional Customer, and Priority Customer are assessed a Regular Order Fee for Responses to PIM Orders of $0.20 per contact. The Exchange proposes to assess all market participants a Regular Order Fee for Responses to PIM Orders of $0.25 per contact.

Fees for PIM Orders

The Exchange proposes to increase the amount assessed to a Member, other than for a Priority Customer, that executes an ADV of 12,500 or more contracts in the PIM. Today, other than a Priority Customer order, the Exchange assesses non-Priority Customer market participants a fee of $0.05 per contract for orders executed by Members that execute an ADV of 7,500 or more contracts in the PIM in a given month. Today, Members that execute an ADV of 12,500 or more contracts in the PIM will not be assessed a fee. The Exchange proposes to amend the amount assessed to a Member that executed an ADV of 12,500 or more contracts in the PIM a fee of $0.02 per contract. This $0.02 per contract fee represents an increase as the Member that executed an ADV of 12,500 or more contracts in the PIM is not charged a fee today.

2. Statutory Basis

The Exchange believes that its proposal is consistent with Section 6(b) of the Act,^[10] in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,^[11] 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.

Taker Fees

The Exchange's proposal to increase Regular Order Taker Fees for Market Makers from $0.44 to $0.45 per contract and increase Taker Fees for Non-Nasdaq ISE Market Makers (FarMM) and Professional Customers from $0.45 to $0.46 per contract is reasonable because despite the increase to these Regular Order Taker Fees the fees remain competitive.

The Exchange's proposal to increase Regular Order Taker Fees for Market Makers from $0.44 to $0.45 per contract and increase Taker Fees for Non-Nasdaq ISE Market Makers (FarMM) and Professional Customers from $0.45 to $0.46 per contract is equitable and not unfairly discriminatory because all market participants will be assessed a similar Taker Fee, except that Market Makers and Priority Customers will continue to be assessed a lower fee. The Exchange believes that assessing a lower Taker Fee for Priority Customers is reasonable because Priority Customer order flow enhances liquidity on the Exchange for the benefit of all market participants and benefits all market participants by providing more trading opportunities, which attracts Market Makers. Further, assessing a lower Taker Fee for Market Makers is reasonable because Market Makers add value through quoting obligations ^[12] and the commitment of capital. Encouraging Market Makers to add greater liquidity benefits all market participants in the quality of order interaction.

Fees for Reponses to PIM Orders

The Exchange's proposal to increase Regular Order Fees for Reponses to PIM Orders for all market participants from $0.20 to $0.25 per contract is reasonable because despite the increase to these Regular Order Taker Fees the fees remain competitive and all market participants, other than Priority Customers, have an opportunity to decrease there PIM Fees by executing a greater amount of order flow.

The Exchange's proposal to increase Regular Fees for Reponses to PIM Orders for all market participants from $0.20 to $0.25 per contract is equitable and not unfairly discriminatory because the Exchange is assessing all market participants the same Fee for Reponses to PIM Orders.

Fees for PIM Orders

The Exchange's proposal to increase the amount assessed to a Member, other than for a Priority Customer, that executes an ADV of 12,500 or more contracts in the PIM from $0.00 to $0.02 per contract is reasonable because despite the increase to PIM Order fees, the Exchange continues to offer market participants, other than Priority Customers, the ability to reduce fees by executing a certain amount of eligible contracts, in this case ADV of 12,500 or more contracts.

The Exchange's proposal to increase the amount assessed to a Member, other than for a Priority Customer, that executes an ADV of 12,500 or more contracts in the PIM from $0.00 to $0.02 per contract is equitable and not unfairly discriminatory because today all market participants, except Priority Customers, are assessed a $0.10 per contract fee for executing PIM orders. Priority Customers are not assessed a Fee for PIM Orders. Non-Priority Customer market participants have the opportunity today to decrease their PIM Orders Fee from $0.10 to $0.05 per contract provided a Member executes an ADV of 7,500 or more contracts in the PIM in a given month. With this proposal, all non-Priority Customer market participants have the opportunity today to decrease their PIM Orders Fee from $0.10 to $0.02 per contract provided Members execute an ADV of 12,500 or more contracts in the PIM in a given month.

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. In terms of inter-market competition, 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 and with alternative trading systems 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. While this proposal increases various fees, the Exchange believes that its pricing remains competitive. Below the Exchange addresses, for each proposed, change the reasons why it believes this proposal does not impose a burden on intra-market competition.

Taker Fees

The Exchange's proposal to increase Regular Order Taker Fees for Market Makers from $0.44 to $0.45 per contract and increase Taker Fees for Non-Nasdaq ISE Market Makers (FarMM) and Professional Customers from $0.45 to $0.46 per contract does not impose an undue burden on competition because all market participants will be assessed a similar Taker Fee, except that Market Makers and Priority Customers will continue to be assessed a lower fee. The Exchange believes that assessing a lower Taker Fee for Priority Customers is reasonable because Priority Customer order flow enhances liquidity on the Exchange for the benefit of all market participants and benefits all market participants by providing more trading opportunities, which attracts market makers. Further, assessing a lower Taker Fee for Market Makers is reasonable because Market Makers add value through quoting obligations ^[13] and the commitment of capital. Encouraging Market Makers to add greater liquidity benefits all market participants in the quality of order interaction.

Fees for Reponses to PIM Orders

The Exchange's proposal to increase Regular Order Fees for Reponses to PIM Orders for all market participants from $0.20 to $0.25 per contract does not impose an undue burden on competition because the Exchange is assessing all market participants the same Fee for Reponses to PIM Orders.

Fees for PIM Orders

The Exchange's proposal to increase the amount assessed to a Member, other than for a Priority Customer, that executes an ADV of 12,500 or more contracts in the PIM from $0.00 to $0.02 per contract does not impose an undue burden on competition because today all market participants, except Priority Customers, are assessed a $0.10 per contract fee for executing PIM orders. Priority Customers are not assessed a Fee for PIM Orders. Non-Priority Customer market participants have the opportunity today to decrease their PIM Order Fee from $0.10 to $0.05 per contract provided a Member executes an ADV of 7,500 or more contracts in the PIM in a given month. With this proposal, all non-Priority Customer market participants have the opportunity today to decrease their PIM Order Fee from $0.10 to $0.02 per contract provided Members execute an ADV of 12,500 or more contracts in the PIM in a given month.

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,^[14] and Rule 19b-4(f)(2) ^[15] 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-2018-37 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-2018-37. 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-2018-37 and should be submitted on or before May 22, 2018.

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.^[16]

Eduardo A. Aleman,

Assistant Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  “Market makers” refers to “Competitive Market Makers” and “Primary Market Makers” collectively. See ISE Rule 100(a)(28).

4.  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.

5.  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.

6.  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 ISE Rule 723.

7.  A “Firm Proprietary” order is an order submitted by a Member for its own proprietary account. See Preface to ISE Schedule of Fees.

8.  “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.

9.  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.

10.  15 U.S.C. 78f(b).

11.  15 U.S.C. 78f(b)(4) and (5).

12.  See ISE Rule 804.

13.  See ISE Rule 804.

14.  15 U.S.C. 78s(b)(3)(A)(ii).

15.  17 CFR 240.19b-4(f)(2).

16.  17 CFR 200.30-3(a)(12).