Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange proposes to amend the Exchange's provisions for excluding a day from its pricing tier calculations.
The text of the proposed rule change is available on the Exchange's website at
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.
The purpose of the proposed rule change is to amend the Exchange's provisions for excluding a day from its pricing tier calculations. First, the Exchange is standardizing its practice for removing a day from volume calculations in its Pricing Schedule with its affiliated options market, Nasdaq PHLX LLC (“Phlx”).
To avoid penalizing members when aberrant low volume days result from systems or other issues at the Exchange, or where the Exchange closes early for holiday observance, the Exchange currently has language in its Pricing Schedule allowing it to exclude certain days from its average daily volume
In addition, the Exchange operates a Market Maker Plus program that provides tiered rebates to Market Makers in Select Symbols based on time spent quoting at the National Best Bid or National Best Offer (“NBBO”). Market Maker Plus is designed to reward Market Makers that make quality markets. As provided in Section 3, note 5, Market Makers are evaluated each trading day for the percentage of time spent on the NBBO for qualifying series that expire in two successive thirty calendar day periods beginning on that trading day.
In Options 7, Section 1, the Exchange proposes to renumber the first paragraph as subsection (a) with the title “Removal of Days for Purposes of Pricing Tiers,” and renumber the second paragraph in Section 1 (relating to fee disputes) as subsection (b). The Exchange also proposes to adopt language in subsection (a) to replace current rule text for excluding days with language that is substantially similar to language currently in place on Phlx,
(1)(A) Any day that the Exchange announces in advance that it will not be open for trading will be excluded from the options tier calculations set forth in its Pricing Schedule; and (B) any day with a scheduled early market close (“Scheduled Early Close”) may be excluded from the options volume tier calculations only pursuant to paragraph (3) below.
(2) The Exchange may exclude the following days (“Unanticipated Events”) from the options volume tier calculations only pursuant to paragraph (3) below, specifically any day that: (A) The market is not open for the entire trading day, (B) the Exchange instructs members in writing to route their orders to other markets, (C) the Exchange is inaccessible to members during the 30-minute period before the opening of trade due to an Exchange system disruption, or (D) the Exchange's system experiences a disruption that lasts for more than 60 minutes during regular trading hours.
(3) If a day is to be excluded as a result of paragraph (1)(B) or (2) above, the Exchange will exclude the day from any member's monthly options volume tier calculations as follows:
(A) The Exchange may exclude from the ADV calculation any Scheduled Early Close or Unanticipated Event; or
(B) the Exchange may exclude from any other applicable options volume tier calculation provided for in its Pricing Schedule (together with (3)(A), “Volume Tier Calculations”) any Scheduled Early Close or Unanticipated Event.
The proposed language would: (i) Expand upon the existing scenarios where the Exchange may remove a day to adopt two additional situations related to Exchange systems disruptions, (ii) categorize the potential excluded days into days that are known in advance (
In connection with the changes to Section 1(a), the Exchange proposes in Section 3, note 5 to similarly expand the scope of the current rule for excluding days from the Market Maker Plus tier calculation such that the Exchange would be allowed to exclude the two additional Exchange systems disruption-related scenarios described above. Specifically, the current language would be replaced with the following: “The Exchange may exclude from any member's monthly Market Maker Plus tier calculation any Unanticipated Event; provided that the Exchange will only remove the day for members that would have a lower time at the NBBO for the specified series with the day included.” The proposed language for Market Maker Plus would continue to not exclude days where the Exchange closes early for holiday observance, which would now be categorized as a Scheduled Early Close under this proposal.
As it relates to Unanticipated Events, the Exchange will inform all members if any such day will be excluded from its Volume Tier Calculations and Market Maker Plus tier calculations through a
The Exchange proposes to adopt two additional scenarios as “Unanticipated Events” that the Exchange may determine to exclude from its Volume Tier Calculations. First, the Exchange proposes to exclude days where the Exchange is inaccessible to members during the 30-minute period before the opening of trade (
Second, the Exchange proposes to exclude days where there is an Exchange system disruption that lasts for more than 60 minutes during regular trading hours (
The Exchange believes that the two scenarios proposed above are reasonable and equitable because the intent of the current rule has always been to avoid penalizing members that might otherwise qualify for certain tiered pricing but that because of aberrant low volume days resulting, for instance, from Exchange systems disruptions, did not participate on the Exchange to the extent they might have otherwise participated.
In addition, to avoid penalizing members that step up and trade on a day with artificially low volume, the Exchange currently only removes days for members that would have a lower ADV calculation with the day included (
Similar to Phlx, the Exchange seeks to restructure the existing rule by separating out the different scenarios between days that are known in paragraph (1) and days that are not in paragraph (2), and define the latter as Unanticipated Events.
For planned days, the Exchange proposes to further distinguish between days that the Exchange announces in advance that it will not be open for trading in paragraph (1)(A) (
The Exchange proposes to further amend the existing rule to align with the Phlx rule by specifying how the days in paragraphs (1) and (2) will be excluded from its Volume Tier Calculations. As it relates to days where the Exchange announces in advance that it will not be open for trading, the Exchange notes that it will exclude those days from all options tier calculations set forth in its
As discussed above, the Exchange currently removes Scheduled Early Closes as provided in paragraph (1)(B), and the Unanticipated Events in paragraphs (2)(A) and (2)(B), from its calculations of ADV only for members that would have a lower ADV with the day included. The Exchange is not changing how it currently excludes these days from the ADV calculations. And as further discussed above, the Exchange is proposing to adopt the same principle-based approach for excluding the two Unanticipated Events related to Exchange system disruptions as provided in paragraphs (2)(C) and (2)(D). Accordingly, the proposed language in paragraph (3)(A) will clarify for the ADV calculation that the Exchange may exclude any Scheduled Early Close or Unanticipated Event, subject to the better of rule.
Similar to Phlx, the proposal also adds a “catch-all” provision in paragraph (3)(B) that would apply to other applicable Volume Tier Calculations that are set forth in its Pricing Schedule, but are not specified within paragraph (3)(A) (
The Exchange proposes to add further details similar to Phlx's rule to bring greater transparency as to how the Exchange will apply the better of rule when removing days from its Volume Tier Calculations. In particular, the Exchange proposes to make clear that it will only remove days pursuant to the better of rule by specifying in paragraphs (1)(B) and (2) that such days may be excluded from the Volume Tier Calculations only pursuant to paragraph (3).
In light of the foregoing proposal in Section 1(a), the Exchange proposes in Section 3, note 5 to make corresponding changes to the current rule for excluding days from the Market Maker Plus tier calculation. Specifically, the proposed rule text will expand upon the existing scenarios to encompass the two systems-related disruptions proposed above such that the Exchange would be permitted to exclude these Unanticipated Events from its calculations of Market Maker Plus tiers. As is the case today, the Exchange would only be permitted to remove such days in situations where the member benefits. Similar to the treatment described above for the Volume Tier Calculations, the Exchange likewise believes that it is appropriate to remove the two proposed systems-related disruptions from the Market Maker Plus calculation to avoid penalizing Market Makers on days that the Exchange is experiencing an unforeseen issue. Unlike the proposed rule for Volume Tier Calculations, however, the proposed rule for Market Maker Plus tier calculations will continue to include known events, such as days where the Exchange closes early for holiday observance, in the Market Maker Plus calculation to continue incentivizing Market Makers to make quality markets on such days. As is true of the existing scenarios that may be excluded today, the Exchange believes that permitting the exclusion for the two Exchange systems disruption-related scenarios will provide flexibility to Market Makers in anticipating where to send order flow. The Exchange desires to incentivize Market Makers to send order flow to ISE to meet their tier requirements in this manner, and further believes that it is appropriate to incentivize Market Makers to continue making quality markets where the Exchange is not experiencing an unforeseen issue and merely closes early for a known event for which they can plan in advance.
Finally, the proposed language will specify that Unanticipated Events may be excluded from any member's monthly Market Maker Plus tier calculation for the same reasons discussed above for Volume Tier Calculations. The Exchange similarly seeks to make clear that it will apply the better of rule in a uniform manner for all members who qualify for Market Maker Plus, and that there is no arbitrary selection of “winners” or “losers” when days are excluded from a member's calculation of Market Maker Plus tiers.
The Exchange believes that its proposal is consistent with Section 6(b) of the Act,
The Exchange believes that the proposed rule change is reasonable and equitable as it provides a new
The Exchange believes it is reasonable and equitable to exclude a day from its Volume Tier Calculations when the Exchange's system experiences a disruption during the 30-minute period prior to the opening of trade that renders the Exchange inaccessible to members as this preserves the Exchange's intent behind adopting tiered pricing. Without this change, members that are precluded from submitting eligible interest during the 30-minute window before the opening of trade may be negatively impacted, even if the Exchange resolves the issue before the market opens and as a result, does not instruct members to route away. The proposed change to exclude such days will diminish the likelihood of a cost increase occurring because a member is not able to reach a pricing tier on that date that it would reach on other trading days during the month.
Similarly, excluding a day where the Exchange's system experiences a disruption that lasts for more than 60 minutes intra-day is reasonable and equitable because the proposal seeks to avoid penalizing members that might otherwise qualify for certain tiered pricing but that, because of an Exchange systems disruption, did not participate on the Exchange to the extent they might have otherwise participated. The Exchange believes that certain systems disruptions could preclude some members from sending order flow to the Exchange even if such issue is not actually a complete systems outage.
In addition, the Exchange believes that it is reasonable and equitable to apply the better of rule to both systems disruption-related scenarios. Without these changes, members that step up and trade significant volume on excluded trading days may be negatively impacted, resulting in an effective cost increase for those members. The proposal would align the Exchange's approach to how it applies this rule today for days where the market is not open for the entire trading day or where the Exchange instructs members to route away.
Furthermore, the Exchange believes that categorizing the potential excluded days is reasonable and equitable because it will bring greater transparency to the application of its rule. Specifically, the Exchange is distinguishing between planned and unplanned days in paragraphs (1) and (2), defining the latter as Unanticipated Events, and stipulating how the Exchange will exclude such days pursuant to this rule. Categorizing days in this manner will clarify the application of its rule in light of the Exchange's proposal to expand the rule to adopt additional days that may be excluded from its tier calculations. Providing in paragraph (1)(A) that the Exchange will always exclude from its tier calculations days that it announces in advance it will not be open for trading will clarify current practice. Furthermore, the Exchange believes that the proposed changes to specify how days in paragraphs (1) and (2) may be excluded from its tier calculations will bring greater transparency by delineating the various circumstances in which the better of rule will apply. Providing in paragraph (3) that the Exchange may exclude any Scheduled Early Close or Unanticipated Event from the ADV and other Volume Tier Calculations, subject to the better of rule, will make clear that the Exchange will take a consistent approach when excluding days for purposes of its volume based pricing tiers. In addition, having a catch-all in paragraph (3)(B) so that the better of rule applies to other options volume calculations than ADV to allow the Exchange to apply the rule going forward to all pricing programs based on volume calculations will further protect members. The Exchange notes that aberrant low volume days resulting from, for instance, an Unanticipated Event, impacts all volume calculations, and allowing the Exchange to exclude such days from any Volume Tier Calculation if the member would have a lower calculation with the day included will further protect members from being inadvertently penalized.
Furthermore, the proposed changes specifying that the days in paragraphs (1)(B) and (2) may be excluded only pursuant to paragraph (3), and requiring the Exchange to exclude such days pursuant to the specifications in paragraph (3) will likewise make clear that the Exchange will take a consistent approach with respect to excluding days from its Volume Tier Calculations. As discussed above, these modifications will clarify that the Exchange will apply the better of rule in a uniform manner to all members, and that there is no arbitrary selection of “winners” or “losers.” The Exchange also believes that the two technical changes proposed in the better of rule to reflect the changes proposed herein will likewise bring greater clarity to its rule. Furthermore, the Exchange believes that the proposed language for Volume Tier Calculations is not unfairly discriminatory because it applies equally to all members and volume calculations.
The Exchange also believes that the proposed language for Market Maker Plus is reasonable and equitable since it would allow the Exchange to remove a day from its Market Maker Plus tier calculations in similar circumstances as the Exchange proposes for its Volume Tier Calculations, and only when beneficial for the Market Maker. The Exchange believes that the proposed language is appropriate as it avoids penalizing Market Makers on days where the Exchange is experiencing a systems disruption. Without this change, Market Makers that are wary of participation on the Exchange following such issues could fall into a lower Market Maker Plus tier, resulting in an effective cost increase for those members. As discussed above, the proposed language will continue to include known events, such as days where the Exchange closes early for holiday observance, in the Market Maker Plus calculation. The Exchange desires to incentivize Market Makers to send order flow to ISE to meet their tier requirements, and further believes that it is appropriate to incentivize Market Makers to continue making quality markets where the Exchange is not experiencing an issue and merely closes early for a known event. While Market Makers can plan for known events, they are unable to plan for events such as the proposed Exchange systems disruption-related scenarios, which may preclude Market Maker participation for that day. The Exchange therefore believes that permitting the exclusion for these Unanticipated Events will provide flexibility to Market Makers in anticipating where to send order flow. The Exchange further believes that the proposed changes to specify that Unanticipated Events may be excluded from any member's monthly Market Maker Plus tier calculation will bring greater transparency to the Exchange's rules by making clear that the Exchange will apply the better of rule in a uniform manner for all Market Makers, and that there is no arbitrary selection of “winners” or “losers” when days are
Finally, the Exchange believes that the proposed language for Market Maker Plus tier calculations is not unfairly discriminatory as all Market Makers have the ability to qualify for Market Maker Plus by making quality markets on the Exchange, and can therefore benefit from the proposed changes.
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. The proposed rule change is designed to protect members from the possibility of a cost increase by excluding days when overall member participation might be significantly lower than a typical trading day. The Exchange believes that the proposed modifications to its tier calculations are pro-competitive and will result in lower total costs to end users, a positive outcome of competitive markets. Furthermore, other options exchanges have adopted rules that are substantially similar to the Exchange's proposal.
The Exchange operates in a highly competitive market in which market participants can readily direct their order flow to competing venues. In such an environment, the Exchange must continually review, and consider adjusting, its fees and rebates to remain competitive with other exchanges. For the reasons described above, the Exchange believes that the proposed fee changes reflect this competitive environment.
No written comments were either solicited or received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.
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:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.