Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Submission of Quotes and Orders, 53489-53496 [2019-21736]
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Federal Register / Vol. 84, No. 194 / Monday, October 7, 2019 / Notices
and makes only non-substantive
changes to the rules. Therefore, the
Commission hereby waives the
operative delay and designates the
proposal as operative upon filing.12
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 necessary or appropriate in the
public interest, for the protection of
investors, or 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
change should be approved or
disapproved.
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–CBOE–2019–072 and
should be submitted on or before
October 28, 2019.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Jill M. Peterson,
Assistant Secretary.
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2019–072 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–CBOE–2019–072. 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 (https://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
12 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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[FR Doc. 2019–21730 Filed 10–4–19; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–87181; File No. SR–ISE–
2019–23]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to the
Submission of Quotes and Orders
October 1, 2019.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
September 17, 2019, Nasdaq ISE, LLC
(‘‘ISE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘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
Options 3 at Section 4, ‘‘Acceptance of
Quotes and Orders,’’ adopt a new
Section 5, ‘‘Entry and Display of SingleLeg Orders,’’ Section 7, ‘‘Types of
Order,’’ at Supplementary Material .03
13 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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and Section 22 titled ‘‘Limitations on
Orders.’’ The Exchange proposes to
amend Options 3, Section 15, ‘‘Simple
Order Risk Protections’’ and
Supplementary Material of Options 5,
Section 2, ‘‘Order Protection
The text of the proposed rule change
is available on the Exchange’s website at
https://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
Options 3 at Section 4, ‘‘Acceptance of
Quotes and Orders,’’ adopt a new
Section 5, ‘‘Entry and Display of SingleLeg Orders,’’ Section 7, ‘‘Types of
Order,’’ at Supplementary Material .03
and Section 22 titled ‘‘Limitations on
Orders.’’ The Exchange proposes to
amend Options 3, Section 15, ‘‘Simple
Order Risk Protections’’ and
Supplementary Material of Options 5,
Section 2, ‘‘Order Protection.’’ Each rule
change will be discussed in greater
detail below.
Options 3, Section 4, Acceptance of
Orders and Quotes
Currently, Options 3, Section 4 is
titled ‘‘Acceptance of Quotes or
Orders.’’ The Exchange proposes to
retitle Options 3, Section 4 as ‘‘Entry
and Display of Quotes.’’ The Exchange
proposes to add a new section (b) to
Options 3, Section 4 to describe the
current requirements and conditions for
submitting quotes. These requirements
reflect the current System operation
today. The Exchange proposes to
memorialize the various requirements
for the submission of quotes into the
System for greater transparency. The
Exchange proposes to provide at new
Options 3, Section 4(b), ‘‘Quotes are
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subject to the following requirements
and conditions:’’. The Exchange
proposes to add at Options 3, Section
4(b)(1) that ‘‘Market Makers may
generate and submit option quotations.’’
Current Options 2, Section 5 makes
clear that Market Makers may submit
quotes.4 The Exchange proposes to
create a list of rules related to quote
submission within this rule for ease of
reference. The Exchange proposes to
provide at proposed new Options 3,
Section 4(b)(2) that ‘‘The System shall
time-stamp a quote which shall
determine the time ranking of the quote
for purposes of processing the quote.’’
The Exchange notes that all quotes
today are time-stamped for purposes of
processing quotes. Proposed Options 3,
Section 4(b)(3) states that ‘‘Market
Makers may enter bids and/or offers in
the form of a two-sided quote. Only one
quote may be submitted at a time for an
option series.’’ The Exchange believes
that this information will provide
Market Makers with information on
submitting a quote. The Exchange notes
that bid or offer may be a ‘‘0,’’ however
a price is required to be entered for both
the bid and offer to be entered into the
System. Further, the Exchange proposes
at Options 3, Section 4(b)(4) to provide
clarity for entering quotes and proposes
to specify, ‘‘The System accepts quotes
for the Opening Process as specified in
Options 3, Section 8.’’ 5 The Exchange
believes that this information will bring
greater transparency to the Rulebook
with respect to limitations for
submitting quotations into the System.
The Exchange proposes a provision
regarding firm quote within proposed
Options 3, Section 4(b)(5):
Firm Quote. Where quotes in options on
another market or markets are subject to
relief from the firm quote requirement set
forth in the Rule 602 of Regulation NMS
under the Exchange Act orders and quotes
will receive an automatic execution at or
better than the NBBO based on the best bid
or offer in markets whose quotes are not
subject to such relief. Such determination
may be made by way of notification from
another market that its quotes are not firm or
are unreliable; administrative message from
the Option Price Reporting Authority
(‘‘OPRA’’); quotes received from another
market designated as ‘‘not firm’’ using the
appropriate indicator; and/or telephonic or
4 Options 2, Section 5(a) provides, ‘‘Options
Classes. A quotation only may be entered by a
Market Maker, and only in the options classes to
which the market maker is appointed under
Options 2, Section 3.’’ Options 2, Section 5(d)
provides for Firm Quotes.
5 Options 3, Section 8(c) provides, ‘‘Market Maker
Valid Width Quotes and Opening Sweeps received
starting at 9:25 a.m. Eastern Time are included in
the Opening Process. Orders entered at any time
before an option series opens are included in the
Opening Process.’’
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electronic inquiry to, and verification from,
another market that its quotes are not firm.
The Exchange shall maintain a record of each
instance in which another exchange’s quotes
are excluded from the Exchange’s calculation
of NBBO, and shall notify such other
exchange that its quotes have been so
excluded. Where quotes in options on
another market or markets previously subject
to relief from the firm quote requirement set
forth in the Quote Rule are no longer subject
to such relief, such quotations will be
included in the calculation of NBBO for such
options. Such determination may be made by
way of notification from another market that
its quotes are firm; administrative message
from OPRA; and/or telephonic or electronic
inquiry to, and verification from, another
market that its quotes are firm.
ISE’s Options 2, Section 5(d)
describes Firm Quote for purposes of
Market Maker quote submission. The
Exchange proposes to memorialize
within its Rules the requirement for the
dissemination of quotations pursuant to
Reg NMS.6 The Exchange is proposing
to add the above rule text to provide
context as to this restriction for
submitting quotes. The Exchange
proposes to make clear the manner in
which quote relief will occur.
Specifically, this proposed rule text
indicates the manner in which a
determination for quote relief is made.
Further, the rule notes the Exchange
shall maintain a record of each instance
in which another exchange’s quotes are
excluded from the Exchange’s
calculation of NBBO, and shall notify
such other exchange that its quotes have
been so excluded. Also, when relief is
no longer available, such quotations will
be included in the calculation of NBBO
for such options. The Exchange notes
how the determination is made that
relief is no longer available. The
proposed rule text adds greater context
to the manner in which Firm Quote
relief is applied. This rule text
represents the current practice.
Similarly, the Exchange proposes to
provide the following at proposed new
Options 3, Section 4(b)(6):
Trade-Through Compliance and Locked or
Crossed Markets. A quote will not be
executed at a price that trades through
another market or displayed at a price that
would lock or cross another market. If, at the
time of entry, a quote would cause a locked
or crossed market violation or would cause
a trade-through violation, it will either repriced and displayed at one minimum price
variance above (for offers) or below (for bids)
the national best price or immediately
cancelled, as configured by the Member.
Today, quotations may not be
executed against at prices that tradethrough an away market as provided for
in the Options Order Protection and
6 17
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Locked/Crossed Market Plan which is
also described within Options 5. Also,
quotations may not lock or cross an
away market. By stating this limitation
in the rule, Market Makers will have
greater clarity as to this limitation.
Further, the Exchange is making clear
that a quote that would cause a locked
or crossed market violation or would
cause a trade-through violation will be
re-priced. The Exchange would display
the quote at one minimum price
variation (‘‘MPV’’) above (for offers) or
below (for bids) the national best price
or the quote would be immediately
cancelled if requested by the Member.
Repricing quotes is consistent with the
Act because the Exchange is not
permitted to lock or cross an away
market’s quote or order. The Exchange
reprices the quotes one MPV inferior to
cause the displayed price to reflect the
available market on the Exchange.
Finally, the Exchange proposes at
Options 3, Section 4(b)(7) to provide,
‘‘Quotes submitted to the System are
subject to the following: Minimum
increments provided for in Options 3,
Section 3 and risk protections provided
for in Options 3, Section 15.’’ If the
Market Maker does not submit a
quotation compliant with Options 3,
Section 3, the quote will not be accepted
by the System. The Exchange is noting
herein the manner in which a quote may
be rejected by the System to provide
market participants with expectations as
to the interplay among the various
Exchange Rules. Specifically, if the
Market Maker does not submit a
quotation compliant with Options 3,
Section 3, the quote will not be accepted
by the System because market
participants are required to abide by
Options 3, Section 3 which describes
the increments with which options
series are to be quoted. Options 3,
Section 15 provides a list of all
protections applicable to quotes that
may be rejected. The Exchange believes
that this rule will provide Members
with requirements and conditions for
submitting quotations and provide
transparency as to limitations that cause
a quote to be rejected.
The Exchange proposes to provide at
Options 3, Section 4(c), ‘‘Quotes will be
displayed in the System as described in
Options 3, Section 23.’’ Options 3,
Section 23, titled ‘‘Data Fees and Trade
Information’’ provides for the available
feeds that Members may access on the
Exchange. This list represents the
available data feeds and the content of
those data feeds which are offered today
by the Exchange.
As discussed in more detail below,
the Exchange proposes to relocate
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current Options 3, Section 4(b) 7 to new
Options 3, Section 5(a)(5) as described
below in greater detail.
The amendment to Options 3, Section
4 to create a list of all the requirements
and conditions for submitting quotes on
the Exchange within one rule is
consistent with the Act because it will
provide greater transparency to market
participants of the applicable
requirements. Further, this proposal
will make the current rule clear and
understandable for market participants
thereby protecting investors and the
general public. The Exchange notes that
while some of these requirements
appear in other rules, for ease of
reference the requirements are located
within a single rule with this proposal.
The proposal reflects the Exchange’s
current practice with respect to quoting
requirements. This proposal will
conform this Rule to other Nasdaq
affiliated markets filing similar rules.8
The Exchange’s proposal is intended to
provide greater information with respect
to Firm Quote within new Options 3,
Section 4(b)(5) and regarding tradethrough and locked and crossed markets
Options 3, Section 4(b)(6). The addition
rule text is consistent with the Act
because the Exchange is adding detail
regarding the method in which orders
which are firm or locked and crossed
will be handled in the System. The
notifications for Firm Quote are made
clear with the proposed rule text. The
Exchange believes that it is consistent
with the Act to specify when quotes are
firm and the handling of such quotes by
the System for the protection of
investors and the general public. The
clarity is designed to promote just and
equitable principles of trade by
notifying all participants engaged in
market making of potential outcomes.
Today, quotations may not be executed
against at prices that trade-through an
away market. Also, quotations may not
7 Current Options 3, Section 4(b) provides, ‘‘A
trade may be nullified if all parties participating in
the trade agree to the nullification. In such case, one
party must notify the Exchange and the Exchange
promptly will disseminate the nullification to
OPRA.’’
8 See Phlx Rule 1019. Nasdaq BX, Inc. and
Nasdaq Stock Market LLC intend to file similar
rules. Phlx Rule 1019 is similar to ISE Options 3,
Section 4 except that Phlx displays and reprices
quotes differently than ISE for purposes of tradethrough. Phlx re-prices to the current national best
offer (for bids) or the current national best bid (for
offers) but displays at one minimum price variance
above (for offers) or below (for bids) the national
best price. ISE re-prices and displays quotes at one
minimum price variance above (for offers) or below
(for bids) the national best price, or, in the
alternative if elected by the Member, the quote is
otherwise immediately cancelled if it would cause
a locked or crossed market. Further, while Phlx has
a Quote Exhaust feature as described in Phlx Rule
1082, ISE has no similar feature.
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lock or cross an away market. The
repricing of quotations is consistent
with the Act because repricing prevents
the Exchange from disseminating a price
which locks or crosses another market.
The Exchange is required avoiding
displaying a quotation that would lock
or cross a quotation of another market
center at the time it is displayed.
Preventing inferior prices from
displaying perfects the mechanism of a
free and open market and a national
market system, and, in general to protect
investors and the public interest.
Options 3, Section 5, Entry and Display
of Single-Leg Orders
Similar to Options 3, Section 4, which
describes requirements for quotes, the
Exchange proposes to adopt a new
Options 3, Section 5, ‘‘Entry and
Display of Single-Leg Orders’’ and
describe the current requirements and
conditions for entering orders. The
Exchange notes that the requirements
provided for within this rule represent
the current practice. The purpose of
Options 3, Section 5 is to memorialize
this information within a single rule.
The Exchange proposes to state
within new Options 3, Section 5(a),
‘‘Members can enter orders into the
System, subject to the following
requirements and conditions:’’. The
Exchange proposes within new Options
3, Section 5(a)(1), ‘‘Members shall be
permitted to transmit to the System
multiple orders at a single as well as
multiple price levels.’’ The Exchange’s
new rule text at Options 3, Section 5(a)
proposes to make clear that multiple
orders may be transmitted to the System
as single or multiple price levels. This
is the case today. The Exchange
proposes to memorialize the manner in
which orders may be submitted to the
System to add more detail to its rules.
The Exchange proposes at new Options
3, Section 5(a)(2), ‘‘The System accepts
orders beginning at a time specified by
the Exchange and communicated on the
Exchange’s website.’’ The System
accepts orders beginning at a time
specified by the Exchange and
communicated on the Exchange’s
website.9
The Exchange proposes at new
Options 3, Section 5(a)(3), ‘‘The System
shall time-stamp an order which shall
determine the time ranking of the order
for purposes of processing the order.’’
Further, all orders are time-stamped to
determine the time ranking of the order
for purposes of processing the order
9 The Exchange’s website makes the timeframes
in which orders may be submitted to the System:
https://business.nasdaq.com/media/
ISESystemSettings_tcm5044-44183.pdf.
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within the System. This is also the case
today and the Exchange is adding this
detail to its rules to describe the timestamp.
The Exchange proposes to add at new
Options 3, Section 5(a)(4), ‘‘Orders
submitted to the System are subject to
the following: Minimum increments
provided for in Options 3, Section 3,
risk protections provided for in Options
3, Section 15, and the restrictions of any
order type as provided for in Options 3,
Section 7. Orders may execute at
multiple prices.’’ All orders must adhere
to other rule requirements such as
minimum increments, risk protection
rules and order types. Similar to the rule
text for quotes, order are currently
subject the minimum increment
requirements in Options 3, Section 3
and also the risk protections for orders
which are listed within current Options
3, Section 15. This rule provides a list
of other requirements which may
impact the execution of an order.
Finally, orders may execute at multiple
prices.
The Exchange proposes to add to new
Options 3, Section 5(a)(5) the following,
‘‘Nullification by Mutual Agreement.
Trades may be nullified if all parties
participating in the trade agree to the
nullification. In such case, one party
must notify the Exchange and the
Exchange promptly will disseminate the
nullification to OPRA. It is considered
conduct inconsistent with just and
equitable principles of trade for a party
to use the mutual adjustment process to
circumvent any applicable Exchange
rule, the Act or any of the rules and
regulations thereunder.’’ The rule text of
new Options 3, Section 5(a)(5) is
relocated from Options 3, Section 4(b)
because it related to orders. The
Exchange proposes to caption proposed
Options 3, Section 5(a)(5) as
‘‘Nullification by Mutual Agreement’’
and add the following sentence to this
provision, ‘‘It is considered conduct
inconsistent with just and equitable
principles of trade for a party to use the
mutual adjustment process to
circumvent any applicable Exchange
rule, the Act or any of the rules and
regulations thereunder.’’ The Exchange
believes that it is consistent with the
Act to permit parties to agree to a
nullification provided the nullification
does not violate other exchange rules.
The Exchange notes that parties may not
agree to a mutual agreement for
purposes that would cause another rule
to be violated. The Exchange believes
that it is consistent with the Act and
protection of investors and general
public to make clear the expected
behavior with respect to nullifications.
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The rule text at proposed Options 3,
Section 5(b) is relocated from Options 3,
Section 15(a). The Exchange notes that
this NBBO Protection applies to orders
and therefore is being discussed within
proposed Options 3, Section 5, which
applies to all market participants. In
contrast, Options 3, Section 4, which
applies to quotes entered by Market
Makers, describes the Firm Quote
protections and the interplay of NBBO
with respect to quotes. Trade-Through is
described in both Options 3, Sections 4
and 5. The Exchange proposes to change
the word ‘‘rejected’’ to ‘‘cancelled’’
within new Options 3, Section 5(b)
because an order may be accepted by
the System and then immediately
cancelled. New Options 3, Section 5(c)
seeks to define the Exchange’s best bid
and offer as the ‘‘BBO.’’ The Exchange
provides, ‘‘The System automatically
executes eligible orders using the
Exchange’s displayed best bid and offer
(‘‘BBO’’).’’
Similar to Options 3, Section 4(b)(6),
the Exchange proposes to note at new
Options 3, Section 5(d),
Trade-Through Compliance and Locked or
Crossed Markets. An order will not be
executed at a price that trades through
another market or displayed at a price that
would lock or cross another market. An order
that is designated by the Member as routable
will be routed in compliance with applicable
Trade-Through and Locked and Crossed
Markets restrictions. Orders that are not
automatically executed will be handled as
provided in Supplementary Material .02 to
Options 5, Section 2; provided that Members
may specify that a Non-Customer order
should instead be cancelled automatically by
the System at the time of receipt.
Today, orders may not be executed at
a price that trades through an away
market. Also, orders may not lock or
cross an away market. Routable orders
must comply with Trade-Through and
Locked and Crossed Markets
restrictions. Finally, the Exchange
proposes to cross-reference
Supplementary Material .02 to Options
5, Section 2 to describe the manner in
which orders that are not automatically
executed are handled. Today, Members
may specify that a Non-Customer order
should instead be cancelled
automatically by the System at the time
of receipt. By including this information
within this rule, the Exchange proposes
to provide Members with information
related to trade-through in one location
with cross-references to provide
transparency. This rule text is similar to
rule text within BX Chapter VI, Section
7(b)(3)(C). Noting these limitations
within the rule is consistent with the
Act because Members will have greater
clarity as to limitations.
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Finally, the Exchange proposes to add
rule text at new Options 3, Section 5(e),
similar to Options 3, Section 4(c) which
states, ‘‘Orders will be displayed in the
System as described in Options 3,
Section 23.’’
The Exchange’s proposal to adopt a
new Options 3, Section 5, ‘‘Entry and
Display of Orders’’ and describe the
current requirements and conditions for
entering orders, similar to proposed
changes to Options 3, Section 4 for
quotes is consistent with the Act
because it will provide transparency as
to manner in which orders may be
submitted to the System. The
Exchange’s new rule reflects the current
requirements for submitting orders into
the System. Similar to proposed Options
3, Section 4, the Exchange proposes to
memorialize requirements and
limitations within one rule for ease of
reference.10
Options 3, Section 7, Types of Orders
The Exchange proposes to amend
Supplementary Material .03(c) to
Options 3, Section 7 to add the
following sentence to Specialized Quote
Feed (‘‘SQF’’), ‘‘Market Makers may
only enter interest into SQF in their
assigned options series.’’ The Exchange
notes that today Market Makers may
utilize SQF to quote only in their
assigned options series as provided for
in Options 2, Section 3, Appointment of
Market Makers. Adding this information
to the SQF protocol is consistent with
the Act because the Exchange desires to
make clear the manner in which Market
Makers may submit quotes through the
protocol. Market Makers are obligated to
provide liquidity on ISE in the options
series to which they are assigned, which
liquidity benefits all market
participants. This amendment is similar
to language currently within Phlx Rule
1080(a)(i)(B).
10 Phlx Rule 1096 is similar to ISE Options 3,
Section 5. With respect to NBBO Protection, unlike
Phlx, ISE Orders that are not automatically
executed will be handled as provided in
Supplementary Material .02 to Options 5, Section
2; provided that Members may specify that a NonCustomer order should instead be accepted and
immediately cancelled automatically by the System
at the time of receipt. Phlx does not have a similar
exposure mechanism. Also, with respect to tradethrough, Phlx re-prices an order that would cause
a locked or crossed market violation or would cause
a trade-through violation to the current national
best offer (for bids) or the current national best bid
(for offers) and displayed at one minimum price
variance above (for offers) or below (for bids) the
national best price. While ISE will not execute an
order at a price that trades through another market
or display an order at a price that would lock or
cross another market, ISE does not re-price orders.
ISE Members may specify that a Non-Customer
order should instead be cancelled automatically by
the System at the time of receipt.
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Options 3, Section 15 Simple Order Risk
Protections
The Exchange proposes to delete the
first sentence introductory sentence of
Options 3, Section 15 which provides,
‘‘Incoming orders that are executable
against orders and quotes in the System
will be executed automatically by the
System subject to the following:’’ and
relocate the rule text to Options 3,
Section 5 as described herein as well as
Section 15(a)(1) and (a)(2), into
proposed new Options 3, Section 5(b)
and renumber Options 3, Section 15(b)
as new ‘‘a.’’ The Exchange proposes to
relocate current Options 3, Section
15(b)(1)(C) to Options 3, Section
15(b)(2)(B). Current Options 3, Section
15(b)(1)(D) will be re-lettered as ‘‘C’’.
Options 3, Section 15(b)(1) provides for
single-leg order risk protections. The
Exchange proposes to relocate the Size
Limitation protection to Options 3,
Section 15(b)(2) because this section
applies to order and quote risk
protections. Size Limitation protection
applies to both orders and quotes and is
therefore properly placed within this
section. The Exchange proposes to add
the words ‘‘or quote’’ to the description
to make clear that this protection
applies to both orders and quotes.
The Exchange believes that relocating
this rule and adding ‘‘or quotes’’ is
consistent with the Act because the
Exchange will make clear that the Size
Limitation risk protection would apply
to all interest on the Exchange.
Options 3, Section 22, Limitation on
Orders
The Exchange proposes to amend
Options 3, Section 22 to retitle the
Section from ‘‘Limitations on Orders’’ to
‘‘Limitations on Order Entry.’’ The
Exchange believes that this title is more
appropriate for these rules.
The Exchange proposes to amend
Options 3, Section 22(b) to amend the
title of the section from ‘‘Principal
Transactions’’ to ‘‘Limitations on
Principal Transactions.’’ This rule
provides for the exposure of orders
entered on the Exchange. Specifically,
with respect to orders entered when a
Member is acting as agent and principal
on an order, the order must be exposed
for one second prior to execution to
allow an opportunity for price
improvement. The Exchange has filed
for certain functionalities which are
exceptions to the general standard of
one second exposure. These
functionalities have provisions which
describe the manner in which orders
can be entered into the Facilitation
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Mechanism,11 Price Improvement
Mechanism,12 Qualified Contingent
Cross Orders,13 Customer Cross
Orders 14 and Complex Order
Exposure.15 The Exchange proposes to
separately note that with respect to the
Solicitation Mechanism,16 that an
Options Member may electronically
submit for execution an order it
represents as agent against solicited
order(s). Options 3, Section 11(d) and
(e) provide that an Agency Order must
be for at least the minimum size
designated by the Exchange, which may
not be less than 500 standard option
contracts, and the order be entered into
the Solicited Order Mechanism shall be
designated as all-or-none. Because a
Member may not execute as principal
on the order, there must be an Agency
Order which executes against the
solicited order; therefore, the
Solicitation Mechanism is explicitly
carved out from proposed Options 3,
Section 22(b), whereas the other
auctions noted are exceptions to the
general one second rule. The Exchange
believes it is consistent with the Act and
the protection of investors and the
general public to describe the
functionalities available on the
Exchange into which a Member may
enter principal orders they represent as
agent. Options 3, Section 22 is intended
to encourage price discovery and price
improvement of all orders entered on
the Exchange.
The Exchange proposes to relocate
Supplementary Material .01 to Options
3, Section 22 to new Section 22(b)(i) and
state ‘‘This Rule’’ instead of ‘‘Options 3,
Section 22(d).’’ The Exchange notes that
the references to ‘‘d’’ should refer to ‘‘b’’
and those cross-references are being
updated.
The Exchange proposes to amend the
title of Options 3, Section 22(c), from
‘‘Solicitation Orders’’ to ‘‘Limitation on
Solicitation Orders.’’ The Exchange
proposes to add exceptions for Qualified
Contingent Cross Orders pursuant to
Options 3, Section 12(c) and (d),
Customer Cross Order pursuant to
Options 3, Sections 12(a) or (b) and a
Complex Order Exposure pursuant to
Supplementary Material .01 to Options
3, Section 14 similar to proposed
Options 3, Section 22(b).
The Exchange proposes to re-letter
current ‘‘d’’ as ‘‘e’’ as the Exchange
proposes new rule text at proposed
11 See
Options 3, Section 11(b) and (c).
Options 3, Section 13.
13 See Options 3, Section 12(c) and (d).
14 See Options 3, Section 12(a) and (b).
15 See Supplementary Material .01 to Options 3,
Section 14.
16 See Options 3, Section 11(d) and (e).
12 See
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Options 3, Section 22(d) which
provides, ‘‘Prior to or after submitting
an order to ISE, a Member cannot
inform another Member or any other
third party of any of the terms of the
order for purposes of violating this
Rule.’’ Similar rule text is contained in
The Nasdaq Options Market LLC
(‘‘NOM’’) Rules.17 The Exchange
believes that adding this language will
better information participants that
Options 3, Section 22 prohibits such
behavior. The Exchange desires to
conform the language in this rule to that
of affiliated Nasdaq markets. The
Exchange notes that similar language is
currently contained within
Supplementary Material .02 to Options
3, Section 22 which provides,
It will be a violation of Options 3, Section
22(e) for an Electronic Access Member to
cause the execution of an order it represents
as agent on the Exchange by orders it
solicited from Members and non-Member
broker-dealers to transact with such orders,
whether such solicited orders are entered
into the System directly by the Electronic
Access Member or by the solicited party
(either directly or through another Member),
if the Member fails to expose orders on the
Exchange as required by Options 3, Section
22(e).
53493
Exchange’s proposal to amend Options
3, Section 22 will conform this Rule to
other Nasdaq affiliated markets filing
similar rules.18 The Exchange’s proposal
to add rule text to describe potential
violations of this Rule will bring greater
clarity to current limitations that exist
when entering orders. The amendments
to Options 3, Section 22 are consistent
with the Act because the Rule provides
a list of limitations when entering order
on the Exchange. The Exchange believes
the proposed rule will promote just and
equitable principles of trade and remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because it
will continue to make clear the
requirement to expose orders as well as
present more specific limitations on
order entry which would violate
Exchange Rules. Providing Members
with more information as to the type of
behavior that is violative with respect to
order exposure will prevent inadvertent
violations of Exchange rules and ensure
that orders are subject to appropriate
price discovery.
This rule text is repetitive of the
provisions within current Options 3,
Section 22(c). The Exchange is clearly
providing within Options 3, Section
22(c) that a Member must expose an
order for one second. Further, the
Member cannot inform another Member
or third party of the terms of the order,
which would be a violation of the rule
pursuant to proposed Options 3, Section
22(c). The Exchange does not believe
that the rule text within Supplementary
Material .02 to Options 3, Section 22
provides additional information, but
rather is repetitive of the prohibitions
within the rule, as proposed.
The Exchange proposes to update the
rule citations in Supplementary
Material .01 to Options 3, Section 22 to
refer to paragraph ‘‘b’’ instead of ‘‘d’’.
The Exchange proposes to update the
rule numbers for the remainder of the
Rule and also update the cross-reference
in Supplementary Material .04 to
Options 3, Section 22.
The Exchange proposes to make clear
with this Rule that Members may not
gain by failing to expose orders
submitted on an agency basis. The
Exchange is promoting transparency of
orders to prevent Members from seeking
price discovery and potentially
preventing price improvement, which
may result from exposing an order. The
Options 5, Section 2 Order Protection
The Exchange proposes to amend
Supplementary Material .02(f) within
Options 5, Section 2. This rule currently
states, ‘‘A pattern or practice of
submitting unrelated orders that cause
an exposure period to conclude early
will be deemed conduct inconsistent
with just and equitable principles of
trade and a violation of Options 9,
Section 1 and other Exchange Rules.’’
The Exchange proposes to crossreference Options 3, Section 22 to
provide further clarity on the manner in
which Members may be found to have
violated Supplementary Material .02 to
Options 5, Section 2. Specifically, the
Exchange proposes to remove the word
‘‘unrelated’’ and more specifically
indicate all submitting orders that cause
an exposure period to conclude early for
the purposes of violating Options 3,
Section 22 will also be deemed conduct
inconsistent with just and equitable
principles of trade and a violation of
Options 9, Section 1 and other Exchange
Rules. The Exchange believes that this
additional language referencing Options
3, Section 22 will provide context for
the violation as Options 3, Section 22
describes the exposure requirements for
orders. Further, the Exchange believes
all orders, not just ‘‘unrelated’’ orders
may cause a rule violation. The
Exchange believes that it is consistent
with the Act to make clear the manner
in which a Member may violate Options
17 See NOM Rules at Chapter VII, Section 12 at
Commentary .04.
18 Nasdaq BX, Inc. and Nasdaq Stock Market LLC
are also adopting similar rules to Phlx Rule 1097.
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3, Section 2 which respect to order
exposure.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,19 in general, and furthers the
objectives of Section 6(b)(5) of the Act,20
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest.
Options 3, Section 4, Acceptance of
Quote and Orders
The Exchange’s proposal to add a new
section (b) to Options 3, Section 4 to
describe the current requirements and
conditions for submitting quotes are
consistent with the Act. The Exchange
is memorializing its current practice by
reflecting the various requirements and
limitations for quote entry in one rule
for ease of reference and clarity. The
Exchange is also proposing to conform
this rule to similar rules across other
Nasdaq affiliated exchanges. Making
clear the manner in which Market
Makers may generate and submit option
quotations will provide these market
participants with clear guidance within
the rules. The Exchange notes that other
rules already limit the use of quotations
on the Exchange. Options 2, Section 5
makes clear that Market Makers may
submit quotes.21 Supplementary
Material .03(c) to Options 3, Section 7
describes the SQF interface.22 Options
2, Section 4(b)(4) provides the allowable
spread for entering bids and offers on
the Exchange. Further, the Exchange is
making clear that only one quote may be
submitted at a time for a series. The
Exchange believes that memorializing
these restrictions will bring greater
clarity to the Exchange’s rules. Also, the
Exchange believes that making clear that
quotes may be entered as specified by
the Exchange makes clear that all
Market Makers are subject to uniform
requirements for quoting.
19 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
21 Options 2, Section 5(a) provides, ‘‘Options
Classes. A quotation only may be entered by a
market maker, and only in the options classes to
which the market maker is appointed under
Options 2, Section 3.’’ Options 2, Section 5(d)
provides for Firm Quote.
22 Supplementary Material .03(c) to Options 3,
Section 7 provides ‘‘Specialized Quote Feed’’ or
‘‘SQF’’ is an interface that allows market makers to
connect, send, and receive messages related to
quotes, Immediate-or-Cancel Orders, and auction
responses to the Exchange. Market Makers on ISE
can only submit quotes and orders through SQF in
their assigned options series.
20 15
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The Exchange’s proposal to add a
provision regarding Firm Quote within
new Options 3, Section 4(b)(5) will
bring greater transparency to the
limitations that Market Makers have
today with respect to firm quote. ISE’s
Options 2, Section 5(d) describes firm
quote for purposes of Market Maker
quote submission. The Exchange is
proposing to add rule text to provide
context as to this restriction for
submitting quotes. The proposed rule
text makes clear the manner in which
Firm Quote relief is applied. The
Exchange believes it is consistent with
the Act to provide greater detail as to
the current obligations for Market
Makers with respect to firm quote. The
addition rule text is consistent with the
Act because the Exchange is adding
detail regarding the method in which
orders which are firm or locked and
crossed will be handled in the System.
The notifications for Firm Quote are
made clear with the proposed rule text.
The Exchange believes that it is
consistent with the Act to specify when
quotes are firm and the handling of such
quotes by the System for the protection
of investors and the general public. The
clarity is designed to promote just and
equitable principles of trade by
notifying all participants engaged in
market making of potential outcomes.
Further, the Exchange’s proposal to add
more detail at proposed new Options 3,
Section 4(b)(6) regarding trade-through
and locked and crossed markets is
consistent with the Act. Today,
quotations may not be executed against
at prices that trade-through an away
market. Also, quotations may not lock or
cross an away market. Also, quotations
may not lock or cross an away market.
By stating this limitation in the rule,
Members will have greater clarity as to
this limitation. The repricing of
quotations is consistent with the Act
because repricing prevents the Exchange
from disseminating a price which locks
or crosses another market. The
Exchange’s proposal to note that quotes
are subject to minimum increments
provided for in Options 3, Section 3 and
risk protections provided for in Options
3, Section 15 is consistent with the Act
because this rule brings greater
transparency to these requirements
which are already noted in the
aforementioned rules. Options 2,
Section 5(b)(1) similarly requires a
Market Maker to quote in the minimum
increments specified in Options 3,
Section 3. Options 3, Section 15, titled
‘‘Simple Order Risk Protections’’
provides a list of all protections
applicable to quotes that may cause an
order to be rejected. The Exchange
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believes that this rule will provide
Market Makers with requirements and
conditions for submitting quotations
and provide transparency as to
limitations that cause a quote to be
rejected.
The Exchange’s proposal to make
clear that quotes will be displayed in
the System as described in Options 3,
Section 23 is intended to bring greater
transparency as to the data available on
the Exchange. Options 3, Section 23,
titled ‘‘Data Fees and Trade
Information’’ provides for the available
feeds that Members may access on the
Exchange.
Options 3, Section 5, Entry and Display
of Single-Leg Orders
The Exchange proposes to retitle
Options 3, Section 5 as ‘‘Entry and
Display of Single-Leg Orders’’ to
describe the current requirements and
conditions for entering orders, similar to
proposed changes to Options 3, Section
5 for quotes is consistent with the Act
because it will provide transparency as
to manner in which orders may be
submitted to the System. The
Exchange’s new rule text memorializes
the current requirements for submitting
orders into the System. Similar to
proposed Options 3, Section 4, the
Exchange proposes to memorialize
requirements and limitations within one
rule for ease of reference.
The Exchange’s new rule text at
Options 3, Section 5(a) proposes to
make clear that multiple orders may be
transmitted to the System as single or
multiple price levels to add greater
transparency to the Exchange’s rules.
The Exchange proposes to memorialize
the manner in which orders may be
submitted to the System to add more
detail to its rules. For example, the time
the System begins accepting orders,
information concerning the time-stamp,
which determines the time ranking of
the order, as well as restrictions to order
entry. Orders submitted to the System
are subject to minimum increments
specified in Options 3, Section 3 risk
protections provided for in Options 3,
Section 15, and the restrictions of any
order type as provided for in Options 3,
Section 7. The Exchange believes that
listing the requirements and limitations
is consistent with the Act because it will
provide Members with the information
necessary to process orders on ISE. In
addition, noting that parties may not
agree to a mutual agreement for
purposes that would cause another rule
to be violated is consistent with the Act
because it provides transparency to
Members that certain behavior would
cause a rule violation. The Exchange
believes that this provision protects
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investors and the public interest
because it specifically prohibits market
manipulation within propose new rule.
The Exchange’s proposal to define both
the Exchange’s best bid and offer as the
‘‘BBO’’ is consistent with the Act
because it provides context to the usage
of these terms in the Rulebook. The
Exchange notes, within Options 3,
Section 7, the orders are displayed and
non-displayed.
Further, the Exchange’s proposal to
add more detail at proposed new
Options 3, Section 5(d) regarding tradethrough and locked and crossed markets
is consistent with the Act. Today, orders
may not be executed against at prices
that trade-through an away market.
Also, orders may not lock or cross an
away market. Routable orders must
comply with Trade-Through and Locked
and Crossed Markets restrictions. By
stating this limitation in the rule,
Members will have greater clarity as to
this limitation. The rule also seeks to
aggregate information relating to
trading-through so as to provide
Members with clear guidelines for
submitting orders.
The Exchange’s proposal to make
clear that orders will be displayed in the
System as described in Options 3,
Section 23 is intended to bring greater
transparency as to the data available on
the Exchange. Options 3, Section 23
titled ‘‘Data Fees and Trade
Information’’ provides for the available
feeds that Members may access on the
Exchange.
Options 3, Section 7, Types of Orders
The Exchange’s proposal to amend
Supplementary Material .03(c) to
Options 3, Section 7 to make clear that
Market Makers may only enter interest
into SQF in their assigned options series
is consistent with the Act. Options 2,
Section 3, Appointment of Market
Makers, describes the manner in which
Market Makers are appointed in options
series. This sentence simply provides
that SQF may only be utilized for
quoting in assigned options series.
Options 3, Section 15, Simple Order
Risk Protections
The Exchange’s proposal to relocate
Options 3, Section 15(a) 23 into
23 Options 5, Section 15(a) provides, ‘‘NBBO Price
Protection. Orders, other than Intermarket Sweep
Orders (as defined in Options 5, Section 1(h)), will
not be automatically executed by the System at
prices inferior to the NBBO (as defined in Options
5, Section 1(j)). (1) Orders that are not automatically
executed will be handled as provided in
Supplementary Material .02 to Options 5, Section
3; provided that Members may specify that a NonCustomer order should instead be rejected
automatically by the System at the time of receipt.
(2) There is no NBBO price protection with respect
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proposed new Options 3, Section 5(b) is
consistent with the Act because this rule
text relates to orders, which topic is
described within new Options 3,
Section 5. The proposal to relocate Size
Limitation to make clear that this risk
protection impacts orders and quotes
will bring greater transparency to this
risk protection.
Options 3, Section 22, Limitation on
Orders
The Exchange’s proposal to amend
Options 3, Section 22 to list all the
exceptions to the exposure requirement
is consistent with the Act because this
rule change will bring greater clarity to
the Rulebook. The Exchange is adding
rule text currently contained in a NOM
rule to describe the required period that
orders are to be exposed.24 The
Exchange believes the additional
language provided context and further
explains the exceptions. The Exchange
believes that this rule is consistent with
the Act because with the addition of this
language the rule more specifically
describes the limitations to behavior on
the Exchange with respect to order
exposure and the necessity to conduct
price discovery. The rule also describes
behavior that would violate Options 3,
Section 22 depending on the
relationship of the parties and exchange
of information. Listing all of the relevant
mechanisms available on the Exchange
will make clear the manner in which a
Member may execute as principal orders
they represent as agent. Further,
explicitly excluding the Solicitation
Mechanism will make clear that the
particular auction is not an exception to
the one second rule. The Exchange’s
proposal to relocate rule text to create
topic headings and discuss each topic
discretely will bring greater clarity to
this rule text. The Exchange’s proposal
to add a new Options 3, Section 22(c)
will make clear that a Member cannot
inform another Member or any other
third party of any of the terms of the
order in violation of this rule. Options
9, Section 9, titled ‘‘Prevention of the
Misuse of Material Nonpublic
Information,’’ prohibits such activity
today. This rule text is contained in
NOM Rules.25 The Exchange desires to
conform the language in this rule to that
of affiliated Nasdaq markets. Finally,
updating the cross-references will make
clear the manner in which a Member
may enter orders on the Exchange.
to any other market whose quotations are Non-Firm
(as defined in Options 5, Section 1(k)).’’
24 See Chapter VII, Section 12.
25 See Chapter VII, Section 12 at Commentary .04.
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53495
Options 5, Section 2, Order Protection
The Exchange’s proposal to amend
Supplementary Material .02(f) within
Rule Options 5, Section 2 to make clear
behavior that would violate this rule is
consistent with the Act because the
Exchange seeks to provide Members
with specific information as to the type
of behavior the rule seeks to limit. This
rule currently states, ‘‘A pattern or
practice of submitting unrelated orders
that cause an exposure period to
conclude early will be deemed conduct
inconsistent with just and equitable
principles of trade and a violation of
Options 9, Section 1 and other Exchange
Rules.’’ The Exchange proposes to crossreference Options 3, Section 22 to
provide further clarity on the manner in
which Members may be found to have
violated Options 5, Section 2.
Specifically, the Exchange proposes to
remove the word ‘‘unrelated’’ and more
specifically indicate all submitting
orders that cause an exposure period to
conclude early for the purposes of
violating Options 3, Section 22 will also
be deemed conduct inconsistent with
just and equitable principles of trade
and a violation of Options 9, Section 1
and other Exchange Rules. The
Exchange believes that this additional
language referencing Options 3, Section
22 will provide context for the violation
as Options 3, Section 22 describes the
exposure requirements for orders.
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 that is not
necessary or appropriate in furtherance
of the purposes of the Act.
Options 3, Section 4, Acceptance of
Quote and Orders
The Exchange’s proposal to add a new
section (b) to Options 3, Section 4 to
describe the current requirements and
conditions for submitting quotes does
not impose an undue burden on
competition because the Exchange is
memorializing its current practice by
reflecting the various requirements and
limitations in one rule for ease of
reference and clarity and all Market
Makers are subject to the these
requirements today. The Exchange is
memorializing its current practice by
reflecting the various requirements and
limitations for quote entry in one rule
for ease of reference and clarity. The
Exchange is also proposing to conform
this rule to similar rules across other
Nasdaq affiliated exchanges.
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Options 3, Section 5, Entry and Display
of Orders
The Exchange’s proposed new
Options 3, Section 5 describes the
requirements and conditions pursuant
to which Members can enter orders into
the System. The Exchange’s proposal
does not impose an undue burden on
competition because it applies
uniformly to all Members. This rule
memorializes the manner in which
orders may be submitted to the System
and provides transparency as to manner
in which orders may be submitted to the
System. The Exchange is also proposing
to conform this rule to similar rules
across other Nasdaq affiliated
exchanges.
Options 3, Section 7, Types of Order
The Exchange’s proposal to amend
Supplementary Material .03(c) to
Options 3, Section 7 to make clear that
Market Makers may only enter interest
into SQF in their assigned options series
does not impose an undue burden on
competition, rather it makes clear that
SQF may only be utilized for quoting in
assigned options series. This rule is
applicable to all Market Makers.
Options 3, Section 15, Simple Order
Risk Protections
The Exchange’s proposal to relocate
Options 3, Section 15(a) into proposed
new Options 3, Section 5(b) does not
impose an undue burden on
competition because this rule text
relates to orders, which topic is
described within new Options 3,
Section 5. Relocating the Size
Limitation protection to another section
of the rule to make clear it applies to
quotes and orders will bring greater
transparency to this rule.
Options 3, Section 22, Limitation on
Orders
The Exchange’s proposal to amend
Options 3, Section 22 to list all the
exceptions to the exposure requirement
does not impose an undue burden on
competition because this rule change
will bring greater clarity to the
Rulebook. The Exchange’s proposal to
relocate rule text to create topic
headings and discuss each topic
discretely will bring greater clarity to
this rule text. The Exchange’s proposal
to add a new Options 3, Section (c) will
make clear the type of behavior that
would cause a Member to violate
Options 3, Section 22 when disclosing
information to another Member or any
other third party with respect to the
terms of the order.
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Options 5, Section 2, Order Protection
The Exchange’s proposal to amend
Supplementary Material .02(f) within
Rule Options 5, Section 2 to make clear
behavior that would violate this rule
does not impose an undue burden on
competition because it seeks to provide
Members with specific information as to
the type of behavior the rule seeks to
limit. This rule would apply uniformly
to all Members.
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
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 26 and
subparagraph (f)(6) of Rule 19b–4
thereunder.27
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 necessary or appropriate in the
public interest, for the protection of
investors, or 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 (https://www.sec.gov/
rules/sro.shtml); or
U.S.C. 78s(b)(3)(A)(iii).
27 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ISE–2019–23 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–2019–23. 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 (https://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 such
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–2019–23, and should
be submitted on or before October 28,
2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–21736 Filed 10–4–19; 8:45 am]
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]]>Agencies
[Federal Register Volume 84, Number 194 (Monday, October 7, 2019)]
[Notices]
[Pages 53489-53496]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21736]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87181; File No. SR-ISE-2019-23]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Relating to the
Submission of Quotes and Orders
October 1, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on September 17, 2019, Nasdaq ISE, LLC (``ISE'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 3 at Section 4, ``Acceptance
of Quotes and Orders,'' adopt a new Section 5, ``Entry and Display of
Single-Leg Orders,'' Section 7, ``Types of Order,'' at Supplementary
Material .03 and Section 22 titled ``Limitations on Orders.'' The
Exchange proposes to amend Options 3, Section 15, ``Simple Order Risk
Protections'' and Supplementary Material of Options 5, Section 2,
``Order Protection
The text of the proposed rule change is available on the Exchange's
website at https://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 Options 3 at Section 4, ``Acceptance
of Quotes and Orders,'' adopt a new Section 5, ``Entry and Display of
Single-Leg Orders,'' Section 7, ``Types of Order,'' at Supplementary
Material .03 and Section 22 titled ``Limitations on Orders.'' The
Exchange proposes to amend Options 3, Section 15, ``Simple Order Risk
Protections'' and Supplementary Material of Options 5, Section 2,
``Order Protection.'' Each rule change will be discussed in greater
detail below.
Options 3, Section 4, Acceptance of Orders and Quotes
Currently, Options 3, Section 4 is titled ``Acceptance of Quotes or
Orders.'' The Exchange proposes to retitle Options 3, Section 4 as
``Entry and Display of Quotes.'' The Exchange proposes to add a new
section (b) to Options 3, Section 4 to describe the current
requirements and conditions for submitting quotes. These requirements
reflect the current System operation today. The Exchange proposes to
memorialize the various requirements for the submission of quotes into
the System for greater transparency. The Exchange proposes to provide
at new Options 3, Section 4(b), ``Quotes are
[[Page 53490]]
subject to the following requirements and conditions:''. The Exchange
proposes to add at Options 3, Section 4(b)(1) that ``Market Makers may
generate and submit option quotations.'' Current Options 2, Section 5
makes clear that Market Makers may submit quotes.\4\ The Exchange
proposes to create a list of rules related to quote submission within
this rule for ease of reference. The Exchange proposes to provide at
proposed new Options 3, Section 4(b)(2) that ``The System shall time-
stamp a quote which shall determine the time ranking of the quote for
purposes of processing the quote.'' The Exchange notes that all quotes
today are time-stamped for purposes of processing quotes. Proposed
Options 3, Section 4(b)(3) states that ``Market Makers may enter bids
and/or offers in the form of a two-sided quote. Only one quote may be
submitted at a time for an option series.'' The Exchange believes that
this information will provide Market Makers with information on
submitting a quote. The Exchange notes that bid or offer may be a
``0,'' however a price is required to be entered for both the bid and
offer to be entered into the System. Further, the Exchange proposes at
Options 3, Section 4(b)(4) to provide clarity for entering quotes and
proposes to specify, ``The System accepts quotes for the Opening
Process as specified in Options 3, Section 8.'' \5\ The Exchange
believes that this information will bring greater transparency to the
Rulebook with respect to limitations for submitting quotations into the
System.
---------------------------------------------------------------------------
\4\ Options 2, Section 5(a) provides, ``Options Classes. A
quotation only may be entered by a Market Maker, and only in the
options classes to which the market maker is appointed under Options
2, Section 3.'' Options 2, Section 5(d) provides for Firm Quotes.
\5\ Options 3, Section 8(c) provides, ``Market Maker Valid Width
Quotes and Opening Sweeps received starting at 9:25 a.m. Eastern
Time are included in the Opening Process. Orders entered at any time
before an option series opens are included in the Opening Process.''
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The Exchange proposes a provision regarding firm quote within
proposed Options 3, Section 4(b)(5):
Firm Quote. Where quotes in options on another market or markets
are subject to relief from the firm quote requirement set forth in
the Rule 602 of Regulation NMS under the Exchange Act orders and
quotes will receive an automatic execution at or better than the
NBBO based on the best bid or offer in markets whose quotes are not
subject to such relief. Such determination may be made by way of
notification from another market that its quotes are not firm or are
unreliable; administrative message from the Option Price Reporting
Authority (``OPRA''); quotes received from another market designated
as ``not firm'' using the appropriate indicator; and/or telephonic
or electronic inquiry to, and verification from, another market that
its quotes are not firm. The Exchange shall maintain a record of
each instance in which another exchange's quotes are excluded from
the Exchange's calculation of NBBO, and shall notify such other
exchange that its quotes have been so excluded. Where quotes in
options on another market or markets previously subject to relief
from the firm quote requirement set forth in the Quote Rule are no
longer subject to such relief, such quotations will be included in
the calculation of NBBO for such options. Such determination may be
made by way of notification from another market that its quotes are
firm; administrative message from OPRA; and/or telephonic or
electronic inquiry to, and verification from, another market that
its quotes are firm.
ISE's Options 2, Section 5(d) describes Firm Quote for purposes of
Market Maker quote submission. The Exchange proposes to memorialize
within its Rules the requirement for the dissemination of quotations
pursuant to Reg NMS.\6\ The Exchange is proposing to add the above rule
text to provide context as to this restriction for submitting quotes.
The Exchange proposes to make clear the manner in which quote relief
will occur. Specifically, this proposed rule text indicates the manner
in which a determination for quote relief is made. Further, the rule
notes the Exchange shall maintain a record of each instance in which
another exchange's quotes are excluded from the Exchange's calculation
of NBBO, and shall notify such other exchange that its quotes have been
so excluded. Also, when relief is no longer available, such quotations
will be included in the calculation of NBBO for such options. The
Exchange notes how the determination is made that relief is no longer
available. The proposed rule text adds greater context to the manner in
which Firm Quote relief is applied. This rule text represents the
current practice.
---------------------------------------------------------------------------
\6\ 17 CFR 242.602.
---------------------------------------------------------------------------
Similarly, the Exchange proposes to provide the following at
proposed new Options 3, Section 4(b)(6):
Trade-Through Compliance and Locked or Crossed Markets. A quote
will not be executed at a price that trades through another market
or displayed at a price that would lock or cross another market. If,
at the time of entry, a quote would cause a locked or crossed market
violation or would cause a trade-through violation, it will either
re-priced and displayed at one minimum price variance above (for
offers) or below (for bids) the national best price or immediately
cancelled, as configured by the Member.
Today, quotations may not be executed against at prices that trade-
through an away market as provided for in the Options Order Protection
and Locked/Crossed Market Plan which is also described within Options
5. Also, quotations may not lock or cross an away market. By stating
this limitation in the rule, Market Makers will have greater clarity as
to this limitation. Further, the Exchange is making clear that a quote
that would cause a locked or crossed market violation or would cause a
trade-through violation will be re-priced. The Exchange would display
the quote at one minimum price variation (``MPV'') above (for offers)
or below (for bids) the national best price or the quote would be
immediately cancelled if requested by the Member. Repricing quotes is
consistent with the Act because the Exchange is not permitted to lock
or cross an away market's quote or order. The Exchange reprices the
quotes one MPV inferior to cause the displayed price to reflect the
available market on the Exchange.
Finally, the Exchange proposes at Options 3, Section 4(b)(7) to
provide, ``Quotes submitted to the System are subject to the following:
Minimum increments provided for in Options 3, Section 3 and risk
protections provided for in Options 3, Section 15.'' If the Market
Maker does not submit a quotation compliant with Options 3, Section 3,
the quote will not be accepted by the System. The Exchange is noting
herein the manner in which a quote may be rejected by the System to
provide market participants with expectations as to the interplay among
the various Exchange Rules. Specifically, if the Market Maker does not
submit a quotation compliant with Options 3, Section 3, the quote will
not be accepted by the System because market participants are required
to abide by Options 3, Section 3 which describes the increments with
which options series are to be quoted. Options 3, Section 15 provides a
list of all protections applicable to quotes that may be rejected. The
Exchange believes that this rule will provide Members with requirements
and conditions for submitting quotations and provide transparency as to
limitations that cause a quote to be rejected.
The Exchange proposes to provide at Options 3, Section 4(c),
``Quotes will be displayed in the System as described in Options 3,
Section 23.'' Options 3, Section 23, titled ``Data Fees and Trade
Information'' provides for the available feeds that Members may access
on the Exchange. This list represents the available data feeds and the
content of those data feeds which are offered today by the Exchange.
As discussed in more detail below, the Exchange proposes to
relocate
[[Page 53491]]
current Options 3, Section 4(b) \7\ to new Options 3, Section 5(a)(5)
as described below in greater detail.
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\7\ Current Options 3, Section 4(b) provides, ``A trade may be
nullified if all parties participating in the trade agree to the
nullification. In such case, one party must notify the Exchange and
the Exchange promptly will disseminate the nullification to OPRA.''
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The amendment to Options 3, Section 4 to create a list of all the
requirements and conditions for submitting quotes on the Exchange
within one rule is consistent with the Act because it will provide
greater transparency to market participants of the applicable
requirements. Further, this proposal will make the current rule clear
and understandable for market participants thereby protecting investors
and the general public. The Exchange notes that while some of these
requirements appear in other rules, for ease of reference the
requirements are located within a single rule with this proposal. The
proposal reflects the Exchange's current practice with respect to
quoting requirements. This proposal will conform this Rule to other
Nasdaq affiliated markets filing similar rules.\8\ The Exchange's
proposal is intended to provide greater information with respect to
Firm Quote within new Options 3, Section 4(b)(5) and regarding trade-
through and locked and crossed markets Options 3, Section 4(b)(6). The
addition rule text is consistent with the Act because the Exchange is
adding detail regarding the method in which orders which are firm or
locked and crossed will be handled in the System. The notifications for
Firm Quote are made clear with the proposed rule text. The Exchange
believes that it is consistent with the Act to specify when quotes are
firm and the handling of such quotes by the System for the protection
of investors and the general public. The clarity is designed to promote
just and equitable principles of trade by notifying all participants
engaged in market making of potential outcomes. Today, quotations may
not be executed against at prices that trade-through an away market.
Also, quotations may not lock or cross an away market. The repricing of
quotations is consistent with the Act because repricing prevents the
Exchange from disseminating a price which locks or crosses another
market. The Exchange is required avoiding displaying a quotation that
would lock or cross a quotation of another market center at the time it
is displayed. Preventing inferior prices from displaying perfects the
mechanism of a free and open market and a national market system, and,
in general to protect investors and the public interest.
---------------------------------------------------------------------------
\8\ See Phlx Rule 1019. Nasdaq BX, Inc. and Nasdaq Stock Market
LLC intend to file similar rules. Phlx Rule 1019 is similar to ISE
Options 3, Section 4 except that Phlx displays and reprices quotes
differently than ISE for purposes of trade-through. Phlx re-prices
to the current national best offer (for bids) or the current
national best bid (for offers) but displays at one minimum price
variance above (for offers) or below (for bids) the national best
price. ISE re-prices and displays quotes at one minimum price
variance above (for offers) or below (for bids) the national best
price, or, in the alternative if elected by the Member, the quote is
otherwise immediately cancelled if it would cause a locked or
crossed market. Further, while Phlx has a Quote Exhaust feature as
described in Phlx Rule 1082, ISE has no similar feature.
---------------------------------------------------------------------------
Options 3, Section 5, Entry and Display of Single-Leg Orders
Similar to Options 3, Section 4, which describes requirements for
quotes, the Exchange proposes to adopt a new Options 3, Section 5,
``Entry and Display of Single-Leg Orders'' and describe the current
requirements and conditions for entering orders. The Exchange notes
that the requirements provided for within this rule represent the
current practice. The purpose of Options 3, Section 5 is to memorialize
this information within a single rule.
The Exchange proposes to state within new Options 3, Section 5(a),
``Members can enter orders into the System, subject to the following
requirements and conditions:''. The Exchange proposes within new
Options 3, Section 5(a)(1), ``Members shall be permitted to transmit to
the System multiple orders at a single as well as multiple price
levels.'' The Exchange's new rule text at Options 3, Section 5(a)
proposes to make clear that multiple orders may be transmitted to the
System as single or multiple price levels. This is the case today. The
Exchange proposes to memorialize the manner in which orders may be
submitted to the System to add more detail to its rules. The Exchange
proposes at new Options 3, Section 5(a)(2), ``The System accepts orders
beginning at a time specified by the Exchange and communicated on the
Exchange's website.'' The System accepts orders beginning at a time
specified by the Exchange and communicated on the Exchange's
website.\9\
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\9\ The Exchange's website makes the timeframes in which orders
may be submitted to the System: https://business.nasdaq.com/media/ISESystemSettings_tcm5044-44183.pdf.
---------------------------------------------------------------------------
The Exchange proposes at new Options 3, Section 5(a)(3), ``The
System shall time-stamp an order which shall determine the time ranking
of the order for purposes of processing the order.'' Further, all
orders are time-stamped to determine the time ranking of the order for
purposes of processing the order within the System. This is also the
case today and the Exchange is adding this detail to its rules to
describe the time-stamp.
The Exchange proposes to add at new Options 3, Section 5(a)(4),
``Orders submitted to the System are subject to the following: Minimum
increments provided for in Options 3, Section 3, risk protections
provided for in Options 3, Section 15, and the restrictions of any
order type as provided for in Options 3, Section 7. Orders may execute
at multiple prices.'' All orders must adhere to other rule requirements
such as minimum increments, risk protection rules and order types.
Similar to the rule text for quotes, order are currently subject the
minimum increment requirements in Options 3, Section 3 and also the
risk protections for orders which are listed within current Options 3,
Section 15. This rule provides a list of other requirements which may
impact the execution of an order. Finally, orders may execute at
multiple prices.
The Exchange proposes to add to new Options 3, Section 5(a)(5) the
following, ``Nullification by Mutual Agreement. Trades may be nullified
if all parties participating in the trade agree to the nullification.
In such case, one party must notify the Exchange and the Exchange
promptly will disseminate the nullification to OPRA. It is considered
conduct inconsistent with just and equitable principles of trade for a
party to use the mutual adjustment process to circumvent any applicable
Exchange rule, the Act or any of the rules and regulations
thereunder.'' The rule text of new Options 3, Section 5(a)(5) is
relocated from Options 3, Section 4(b) because it related to orders.
The Exchange proposes to caption proposed Options 3, Section 5(a)(5) as
``Nullification by Mutual Agreement'' and add the following sentence to
this provision, ``It is considered conduct inconsistent with just and
equitable principles of trade for a party to use the mutual adjustment
process to circumvent any applicable Exchange rule, the Act or any of
the rules and regulations thereunder.'' The Exchange believes that it
is consistent with the Act to permit parties to agree to a
nullification provided the nullification does not violate other
exchange rules. The Exchange notes that parties may not agree to a
mutual agreement for purposes that would cause another rule to be
violated. The Exchange believes that it is consistent with the Act and
protection of investors and general public to make clear the expected
behavior with respect to nullifications.
[[Page 53492]]
The rule text at proposed Options 3, Section 5(b) is relocated from
Options 3, Section 15(a). The Exchange notes that this NBBO Protection
applies to orders and therefore is being discussed within proposed
Options 3, Section 5, which applies to all market participants. In
contrast, Options 3, Section 4, which applies to quotes entered by
Market Makers, describes the Firm Quote protections and the interplay
of NBBO with respect to quotes. Trade-Through is described in both
Options 3, Sections 4 and 5. The Exchange proposes to change the word
``rejected'' to ``cancelled'' within new Options 3, Section 5(b)
because an order may be accepted by the System and then immediately
cancelled. New Options 3, Section 5(c) seeks to define the Exchange's
best bid and offer as the ``BBO.'' The Exchange provides, ``The System
automatically executes eligible orders using the Exchange's displayed
best bid and offer (``BBO'').''
Similar to Options 3, Section 4(b)(6), the Exchange proposes to
note at new Options 3, Section 5(d),
Trade-Through Compliance and Locked or Crossed Markets. An order
will not be executed at a price that trades through another market
or displayed at a price that would lock or cross another market. An
order that is designated by the Member as routable will be routed in
compliance with applicable Trade-Through and Locked and Crossed
Markets restrictions. Orders that are not automatically executed
will be handled as provided in Supplementary Material .02 to Options
5, Section 2; provided that Members may specify that a Non-Customer
order should instead be cancelled automatically by the System at the
time of receipt.
Today, orders may not be executed at a price that trades through an
away market. Also, orders may not lock or cross an away market.
Routable orders must comply with Trade-Through and Locked and Crossed
Markets restrictions. Finally, the Exchange proposes to cross-reference
Supplementary Material .02 to Options 5, Section 2 to describe the
manner in which orders that are not automatically executed are handled.
Today, Members may specify that a Non-Customer order should instead be
cancelled automatically by the System at the time of receipt. By
including this information within this rule, the Exchange proposes to
provide Members with information related to trade-through in one
location with cross-references to provide transparency. This rule text
is similar to rule text within BX Chapter VI, Section 7(b)(3)(C).
Noting these limitations within the rule is consistent with the Act
because Members will have greater clarity as to limitations.
Finally, the Exchange proposes to add rule text at new Options 3,
Section 5(e), similar to Options 3, Section 4(c) which states, ``Orders
will be displayed in the System as described in Options 3, Section
23.''
The Exchange's proposal to adopt a new Options 3, Section 5,
``Entry and Display of Orders'' and describe the current requirements
and conditions for entering orders, similar to proposed changes to
Options 3, Section 4 for quotes is consistent with the Act because it
will provide transparency as to manner in which orders may be submitted
to the System. The Exchange's new rule reflects the current
requirements for submitting orders into the System. Similar to proposed
Options 3, Section 4, the Exchange proposes to memorialize requirements
and limitations within one rule for ease of reference.\10\
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\10\ Phlx Rule 1096 is similar to ISE Options 3, Section 5. With
respect to NBBO Protection, unlike Phlx, ISE Orders that are not
automatically executed will be handled as provided in Supplementary
Material .02 to Options 5, Section 2; provided that Members may
specify that a Non-Customer order should instead be accepted and
immediately cancelled automatically by the System at the time of
receipt. Phlx does not have a similar exposure mechanism. Also, with
respect to trade-through, Phlx re-prices an order that would cause a
locked or crossed market violation or would cause a trade-through
violation to the current national best offer (for bids) or the
current national best bid (for offers) and displayed at one minimum
price variance above (for offers) or below (for bids) the national
best price. While ISE will not execute an order at a price that
trades through another market or display an order at a price that
would lock or cross another market, ISE does not re-price orders.
ISE Members may specify that a Non-Customer order should instead be
cancelled automatically by the System at the time of receipt.
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Options 3, Section 7, Types of Orders
The Exchange proposes to amend Supplementary Material .03(c) to
Options 3, Section 7 to add the following sentence to Specialized Quote
Feed (``SQF''), ``Market Makers may only enter interest into SQF in
their assigned options series.'' The Exchange notes that today Market
Makers may utilize SQF to quote only in their assigned options series
as provided for in Options 2, Section 3, Appointment of Market Makers.
Adding this information to the SQF protocol is consistent with the Act
because the Exchange desires to make clear the manner in which Market
Makers may submit quotes through the protocol. Market Makers are
obligated to provide liquidity on ISE in the options series to which
they are assigned, which liquidity benefits all market participants.
This amendment is similar to language currently within Phlx Rule
1080(a)(i)(B).
Options 3, Section 15 Simple Order Risk Protections
The Exchange proposes to delete the first sentence introductory
sentence of Options 3, Section 15 which provides, ``Incoming orders
that are executable against orders and quotes in the System will be
executed automatically by the System subject to the following:'' and
relocate the rule text to Options 3, Section 5 as described herein as
well as Section 15(a)(1) and (a)(2), into proposed new Options 3,
Section 5(b) and renumber Options 3, Section 15(b) as new ``a.'' The
Exchange proposes to relocate current Options 3, Section 15(b)(1)(C) to
Options 3, Section 15(b)(2)(B). Current Options 3, Section 15(b)(1)(D)
will be re-lettered as ``C''. Options 3, Section 15(b)(1) provides for
single-leg order risk protections. The Exchange proposes to relocate
the Size Limitation protection to Options 3, Section 15(b)(2) because
this section applies to order and quote risk protections. Size
Limitation protection applies to both orders and quotes and is
therefore properly placed within this section. The Exchange proposes to
add the words ``or quote'' to the description to make clear that this
protection applies to both orders and quotes.
The Exchange believes that relocating this rule and adding ``or
quotes'' is consistent with the Act because the Exchange will make
clear that the Size Limitation risk protection would apply to all
interest on the Exchange.
Options 3, Section 22, Limitation on Orders
The Exchange proposes to amend Options 3, Section 22 to retitle the
Section from ``Limitations on Orders'' to ``Limitations on Order
Entry.'' The Exchange believes that this title is more appropriate for
these rules.
The Exchange proposes to amend Options 3, Section 22(b) to amend
the title of the section from ``Principal Transactions'' to
``Limitations on Principal Transactions.'' This rule provides for the
exposure of orders entered on the Exchange. Specifically, with respect
to orders entered when a Member is acting as agent and principal on an
order, the order must be exposed for one second prior to execution to
allow an opportunity for price improvement. The Exchange has filed for
certain functionalities which are exceptions to the general standard of
one second exposure. These functionalities have provisions which
describe the manner in which orders can be entered into the
Facilitation
[[Page 53493]]
Mechanism,\11\ Price Improvement Mechanism,\12\ Qualified Contingent
Cross Orders,\13\ Customer Cross Orders \14\ and Complex Order
Exposure.\15\ The Exchange proposes to separately note that with
respect to the Solicitation Mechanism,\16\ that an Options Member may
electronically submit for execution an order it represents as agent
against solicited order(s). Options 3, Section 11(d) and (e) provide
that an Agency Order must be for at least the minimum size designated
by the Exchange, which may not be less than 500 standard option
contracts, and the order be entered into the Solicited Order Mechanism
shall be designated as all-or-none. Because a Member may not execute as
principal on the order, there must be an Agency Order which executes
against the solicited order; therefore, the Solicitation Mechanism is
explicitly carved out from proposed Options 3, Section 22(b), whereas
the other auctions noted are exceptions to the general one second rule.
The Exchange believes it is consistent with the Act and the protection
of investors and the general public to describe the functionalities
available on the Exchange into which a Member may enter principal
orders they represent as agent. Options 3, Section 22 is intended to
encourage price discovery and price improvement of all orders entered
on the Exchange.
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\11\ See Options 3, Section 11(b) and (c).
\12\ See Options 3, Section 13.
\13\ See Options 3, Section 12(c) and (d).
\14\ See Options 3, Section 12(a) and (b).
\15\ See Supplementary Material .01 to Options 3, Section 14.
\16\ See Options 3, Section 11(d) and (e).
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The Exchange proposes to relocate Supplementary Material .01 to
Options 3, Section 22 to new Section 22(b)(i) and state ``This Rule''
instead of ``Options 3, Section 22(d).'' The Exchange notes that the
references to ``d'' should refer to ``b'' and those cross-references
are being updated.
The Exchange proposes to amend the title of Options 3, Section
22(c), from ``Solicitation Orders'' to ``Limitation on Solicitation
Orders.'' The Exchange proposes to add exceptions for Qualified
Contingent Cross Orders pursuant to Options 3, Section 12(c) and (d),
Customer Cross Order pursuant to Options 3, Sections 12(a) or (b) and a
Complex Order Exposure pursuant to Supplementary Material .01 to
Options 3, Section 14 similar to proposed Options 3, Section 22(b).
The Exchange proposes to re-letter current ``d'' as ``e'' as the
Exchange proposes new rule text at proposed Options 3, Section 22(d)
which provides, ``Prior to or after submitting an order to ISE, a
Member cannot inform another Member or any other third party of any of
the terms of the order for purposes of violating this Rule.'' Similar
rule text is contained in The Nasdaq Options Market LLC (``NOM'')
Rules.\17\ The Exchange believes that adding this language will better
information participants that Options 3, Section 22 prohibits such
behavior. The Exchange desires to conform the language in this rule to
that of affiliated Nasdaq markets. The Exchange notes that similar
language is currently contained within Supplementary Material .02 to
Options 3, Section 22 which provides,
It will be a violation of Options 3, Section 22(e) for an
Electronic Access Member to cause the execution of an order it
represents as agent on the Exchange by orders it solicited from
Members and non-Member broker-dealers to transact with such orders,
whether such solicited orders are entered into the System directly
by the Electronic Access Member or by the solicited party (either
directly or through another Member), if the Member fails to expose
orders on the Exchange as required by Options 3, Section 22(e).
---------------------------------------------------------------------------
\17\ See NOM Rules at Chapter VII, Section 12 at Commentary .04.
This rule text is repetitive of the provisions within current
Options 3, Section 22(c). The Exchange is clearly providing within
Options 3, Section 22(c) that a Member must expose an order for one
second. Further, the Member cannot inform another Member or third party
of the terms of the order, which would be a violation of the rule
pursuant to proposed Options 3, Section 22(c). The Exchange does not
believe that the rule text within Supplementary Material .02 to Options
3, Section 22 provides additional information, but rather is repetitive
of the prohibitions within the rule, as proposed.
The Exchange proposes to update the rule citations in Supplementary
Material .01 to Options 3, Section 22 to refer to paragraph ``b''
instead of ``d''. The Exchange proposes to update the rule numbers for
the remainder of the Rule and also update the cross-reference in
Supplementary Material .04 to Options 3, Section 22.
The Exchange proposes to make clear with this Rule that Members may
not gain by failing to expose orders submitted on an agency basis. The
Exchange is promoting transparency of orders to prevent Members from
seeking price discovery and potentially preventing price improvement,
which may result from exposing an order. The Exchange's proposal to
amend Options 3, Section 22 will conform this Rule to other Nasdaq
affiliated markets filing similar rules.\18\ The Exchange's proposal to
add rule text to describe potential violations of this Rule will bring
greater clarity to current limitations that exist when entering orders.
The amendments to Options 3, Section 22 are consistent with the Act
because the Rule provides a list of limitations when entering order on
the Exchange. The Exchange believes the proposed rule will promote just
and equitable principles of trade and remove impediments to and perfect
the mechanism of a free and open market and a national market system
because it will continue to make clear the requirement to expose orders
as well as present more specific limitations on order entry which would
violate Exchange Rules. Providing Members with more information as to
the type of behavior that is violative with respect to order exposure
will prevent inadvertent violations of Exchange rules and ensure that
orders are subject to appropriate price discovery.
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\18\ Nasdaq BX, Inc. and Nasdaq Stock Market LLC are also
adopting similar rules to Phlx Rule 1097.
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Options 5, Section 2 Order Protection
The Exchange proposes to amend Supplementary Material .02(f) within
Options 5, Section 2. This rule currently states, ``A pattern or
practice of submitting unrelated orders that cause an exposure period
to conclude early will be deemed conduct inconsistent with just and
equitable principles of trade and a violation of Options 9, Section 1
and other Exchange Rules.'' The Exchange proposes to cross-reference
Options 3, Section 22 to provide further clarity on the manner in which
Members may be found to have violated Supplementary Material .02 to
Options 5, Section 2. Specifically, the Exchange proposes to remove the
word ``unrelated'' and more specifically indicate all submitting orders
that cause an exposure period to conclude early for the purposes of
violating Options 3, Section 22 will also be deemed conduct
inconsistent with just and equitable principles of trade and a
violation of Options 9, Section 1 and other Exchange Rules. The
Exchange believes that this additional language referencing Options 3,
Section 22 will provide context for the violation as Options 3, Section
22 describes the exposure requirements for orders. Further, the
Exchange believes all orders, not just ``unrelated'' orders may cause a
rule violation. The Exchange believes that it is consistent with the
Act to make clear the manner in which a Member may violate Options
[[Page 53494]]
3, Section 2 which respect to order exposure.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\19\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\20\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest.
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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
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Options 3, Section 4, Acceptance of Quote and Orders
The Exchange's proposal to add a new section (b) to Options 3,
Section 4 to describe the current requirements and conditions for
submitting quotes are consistent with the Act. The Exchange is
memorializing its current practice by reflecting the various
requirements and limitations for quote entry in one rule for ease of
reference and clarity. The Exchange is also proposing to conform this
rule to similar rules across other Nasdaq affiliated exchanges. Making
clear the manner in which Market Makers may generate and submit option
quotations will provide these market participants with clear guidance
within the rules. The Exchange notes that other rules already limit the
use of quotations on the Exchange. Options 2, Section 5 makes clear
that Market Makers may submit quotes.\21\ Supplementary Material .03(c)
to Options 3, Section 7 describes the SQF interface.\22\ Options 2,
Section 4(b)(4) provides the allowable spread for entering bids and
offers on the Exchange. Further, the Exchange is making clear that only
one quote may be submitted at a time for a series. The Exchange
believes that memorializing these restrictions will bring greater
clarity to the Exchange's rules. Also, the Exchange believes that
making clear that quotes may be entered as specified by the Exchange
makes clear that all Market Makers are subject to uniform requirements
for quoting.
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\21\ Options 2, Section 5(a) provides, ``Options Classes. A
quotation only may be entered by a market maker, and only in the
options classes to which the market maker is appointed under Options
2, Section 3.'' Options 2, Section 5(d) provides for Firm Quote.
\22\ Supplementary Material .03(c) to Options 3, Section 7
provides ``Specialized Quote Feed'' or ``SQF'' is an interface that
allows market makers to connect, send, and receive messages related
to quotes, Immediate-or-Cancel Orders, and auction responses to the
Exchange. Market Makers on ISE can only submit quotes and orders
through SQF in their assigned options series.
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The Exchange's proposal to add a provision regarding Firm Quote
within new Options 3, Section 4(b)(5) will bring greater transparency
to the limitations that Market Makers have today with respect to firm
quote. ISE's Options 2, Section 5(d) describes firm quote for purposes
of Market Maker quote submission. The Exchange is proposing to add rule
text to provide context as to this restriction for submitting quotes.
The proposed rule text makes clear the manner in which Firm Quote
relief is applied. The Exchange believes it is consistent with the Act
to provide greater detail as to the current obligations for Market
Makers with respect to firm quote. The addition rule text is consistent
with the Act because the Exchange is adding detail regarding the method
in which orders which are firm or locked and crossed will be handled in
the System.
The notifications for Firm Quote are made clear with the proposed
rule text. The Exchange believes that it is consistent with the Act to
specify when quotes are firm and the handling of such quotes by the
System for the protection of investors and the general public. The
clarity is designed to promote just and equitable principles of trade
by notifying all participants engaged in market making of potential
outcomes. Further, the Exchange's proposal to add more detail at
proposed new Options 3, Section 4(b)(6) regarding trade-through and
locked and crossed markets is consistent with the Act. Today,
quotations may not be executed against at prices that trade-through an
away market. Also, quotations may not lock or cross an away market.
Also, quotations may not lock or cross an away market. By stating this
limitation in the rule, Members will have greater clarity as to this
limitation. The repricing of quotations is consistent with the Act
because repricing prevents the Exchange from disseminating a price
which locks or crosses another market. The Exchange's proposal to note
that quotes are subject to minimum increments provided for in Options
3, Section 3 and risk protections provided for in Options 3, Section 15
is consistent with the Act because this rule brings greater
transparency to these requirements which are already noted in the
aforementioned rules. Options 2, Section 5(b)(1) similarly requires a
Market Maker to quote in the minimum increments specified in Options 3,
Section 3. Options 3, Section 15, titled ``Simple Order Risk
Protections'' provides a list of all protections applicable to quotes
that may cause an order to be rejected. The Exchange believes that this
rule will provide Market Makers with requirements and conditions for
submitting quotations and provide transparency as to limitations that
cause a quote to be rejected.
The Exchange's proposal to make clear that quotes will be displayed
in the System as described in Options 3, Section 23 is intended to
bring greater transparency as to the data available on the Exchange.
Options 3, Section 23, titled ``Data Fees and Trade Information''
provides for the available feeds that Members may access on the
Exchange.
Options 3, Section 5, Entry and Display of Single-Leg Orders
The Exchange proposes to retitle Options 3, Section 5 as ``Entry
and Display of Single-Leg Orders'' to describe the current requirements
and conditions for entering orders, similar to proposed changes to
Options 3, Section 5 for quotes is consistent with the Act because it
will provide transparency as to manner in which orders may be submitted
to the System. The Exchange's new rule text memorializes the current
requirements for submitting orders into the System. Similar to proposed
Options 3, Section 4, the Exchange proposes to memorialize requirements
and limitations within one rule for ease of reference.
The Exchange's new rule text at Options 3, Section 5(a) proposes to
make clear that multiple orders may be transmitted to the System as
single or multiple price levels to add greater transparency to the
Exchange's rules. The Exchange proposes to memorialize the manner in
which orders may be submitted to the System to add more detail to its
rules. For example, the time the System begins accepting orders,
information concerning the time-stamp, which determines the time
ranking of the order, as well as restrictions to order entry. Orders
submitted to the System are subject to minimum increments specified in
Options 3, Section 3 risk protections provided for in Options 3,
Section 15, and the restrictions of any order type as provided for in
Options 3, Section 7. The Exchange believes that listing the
requirements and limitations is consistent with the Act because it will
provide Members with the information necessary to process orders on
ISE. In addition, noting that parties may not agree to a mutual
agreement for purposes that would cause another rule to be violated is
consistent with the Act because it provides transparency to Members
that certain behavior would cause a rule violation. The Exchange
believes that this provision protects
[[Page 53495]]
investors and the public interest because it specifically prohibits
market manipulation within propose new rule. The Exchange's proposal to
define both the Exchange's best bid and offer as the ``BBO'' is
consistent with the Act because it provides context to the usage of
these terms in the Rulebook. The Exchange notes, within Options 3,
Section 7, the orders are displayed and non-displayed.
Further, the Exchange's proposal to add more detail at proposed new
Options 3, Section 5(d) regarding trade-through and locked and crossed
markets is consistent with the Act. Today, orders may not be executed
against at prices that trade-through an away market. Also, orders may
not lock or cross an away market. Routable orders must comply with
Trade-Through and Locked and Crossed Markets restrictions. By stating
this limitation in the rule, Members will have greater clarity as to
this limitation. The rule also seeks to aggregate information relating
to trading-through so as to provide Members with clear guidelines for
submitting orders.
The Exchange's proposal to make clear that orders will be displayed
in the System as described in Options 3, Section 23 is intended to
bring greater transparency as to the data available on the Exchange.
Options 3, Section 23 titled ``Data Fees and Trade Information''
provides for the available feeds that Members may access on the
Exchange.
Options 3, Section 7, Types of Orders
The Exchange's proposal to amend Supplementary Material .03(c) to
Options 3, Section 7 to make clear that Market Makers may only enter
interest into SQF in their assigned options series is consistent with
the Act. Options 2, Section 3, Appointment of Market Makers, describes
the manner in which Market Makers are appointed in options series. This
sentence simply provides that SQF may only be utilized for quoting in
assigned options series.
Options 3, Section 15, Simple Order Risk Protections
The Exchange's proposal to relocate Options 3, Section 15(a) \23\
into proposed new Options 3, Section 5(b) is consistent with the Act
because this rule text relates to orders, which topic is described
within new Options 3, Section 5. The proposal to relocate Size
Limitation to make clear that this risk protection impacts orders and
quotes will bring greater transparency to this risk protection.
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\23\ Options 5, Section 15(a) provides, ``NBBO Price Protection.
Orders, other than Intermarket Sweep Orders (as defined in Options
5, Section 1(h)), will not be automatically executed by the System
at prices inferior to the NBBO (as defined in Options 5, Section
1(j)). (1) Orders that are not automatically executed will be
handled as provided in Supplementary Material .02 to Options 5,
Section 3; provided that Members may specify that a Non-Customer
order should instead be rejected automatically by the System at the
time of receipt. (2) There is no NBBO price protection with respect
to any other market whose quotations are Non-Firm (as defined in
Options 5, Section 1(k)).''
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Options 3, Section 22, Limitation on Orders
The Exchange's proposal to amend Options 3, Section 22 to list all
the exceptions to the exposure requirement is consistent with the Act
because this rule change will bring greater clarity to the Rulebook.
The Exchange is adding rule text currently contained in a NOM rule to
describe the required period that orders are to be exposed.\24\ The
Exchange believes the additional language provided context and further
explains the exceptions. The Exchange believes that this rule is
consistent with the Act because with the addition of this language the
rule more specifically describes the limitations to behavior on the
Exchange with respect to order exposure and the necessity to conduct
price discovery. The rule also describes behavior that would violate
Options 3, Section 22 depending on the relationship of the parties and
exchange of information. Listing all of the relevant mechanisms
available on the Exchange will make clear the manner in which a Member
may execute as principal orders they represent as agent. Further,
explicitly excluding the Solicitation Mechanism will make clear that
the particular auction is not an exception to the one second rule. The
Exchange's proposal to relocate rule text to create topic headings and
discuss each topic discretely will bring greater clarity to this rule
text. The Exchange's proposal to add a new Options 3, Section 22(c)
will make clear that a Member cannot inform another Member or any other
third party of any of the terms of the order in violation of this rule.
Options 9, Section 9, titled ``Prevention of the Misuse of Material
Nonpublic Information,'' prohibits such activity today. This rule text
is contained in NOM Rules.\25\ The Exchange desires to conform the
language in this rule to that of affiliated Nasdaq markets. Finally,
updating the cross-references will make clear the manner in which a
Member may enter orders on the Exchange.
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\24\ See Chapter VII, Section 12.
\25\ See Chapter VII, Section 12 at Commentary .04.
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Options 5, Section 2, Order Protection
The Exchange's proposal to amend Supplementary Material .02(f)
within Rule Options 5, Section 2 to make clear behavior that would
violate this rule is consistent with the Act because the Exchange seeks
to provide Members with specific information as to the type of behavior
the rule seeks to limit. This rule currently states, ``A pattern or
practice of submitting unrelated orders that cause an exposure period
to conclude early will be deemed conduct inconsistent with just and
equitable principles of trade and a violation of Options 9, Section 1
and other Exchange Rules.'' The Exchange proposes to cross-reference
Options 3, Section 22 to provide further clarity on the manner in which
Members may be found to have violated Options 5, Section 2.
Specifically, the Exchange proposes to remove the word ``unrelated''
and more specifically indicate all submitting orders that cause an
exposure period to conclude early for the purposes of violating Options
3, Section 22 will also be deemed conduct inconsistent with just and
equitable principles of trade and a violation of Options 9, Section 1
and other Exchange Rules. The Exchange believes that this additional
language referencing Options 3, Section 22 will provide context for the
violation as Options 3, Section 22 describes the exposure requirements
for orders.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act.
Options 3, Section 4, Acceptance of Quote and Orders
The Exchange's proposal to add a new section (b) to Options 3,
Section 4 to describe the current requirements and conditions for
submitting quotes does not impose an undue burden on competition
because the Exchange is memorializing its current practice by
reflecting the various requirements and limitations in one rule for
ease of reference and clarity and all Market Makers are subject to the
these requirements today. The Exchange is memorializing its current
practice by reflecting the various requirements and limitations for
quote entry in one rule for ease of reference and clarity. The Exchange
is also proposing to conform this rule to similar rules across other
Nasdaq affiliated exchanges.
[[Page 53496]]
Options 3, Section 5, Entry and Display of Orders
The Exchange's proposed new Options 3, Section 5 describes the
requirements and conditions pursuant to which Members can enter orders
into the System. The Exchange's proposal does not impose an undue
burden on competition because it applies uniformly to all Members. This
rule memorializes the manner in which orders may be submitted to the
System and provides transparency as to manner in which orders may be
submitted to the System. The Exchange is also proposing to conform this
rule to similar rules across other Nasdaq affiliated exchanges.
Options 3, Section 7, Types of Order
The Exchange's proposal to amend Supplementary Material .03(c) to
Options 3, Section 7 to make clear that Market Makers may only enter
interest into SQF in their assigned options series does not impose an
undue burden on competition, rather it makes clear that SQF may only be
utilized for quoting in assigned options series. This rule is
applicable to all Market Makers.
Options 3, Section 15, Simple Order Risk Protections
The Exchange's proposal to relocate Options 3, Section 15(a) into
proposed new Options 3, Section 5(b) does not impose an undue burden on
competition because this rule text relates to orders, which topic is
described within new Options 3, Section 5. Relocating the Size
Limitation protection to another section of the rule to make clear it
applies to quotes and orders will bring greater transparency to this
rule.
Options 3, Section 22, Limitation on Orders
The Exchange's proposal to amend Options 3, Section 22 to list all
the exceptions to the exposure requirement does not impose an undue
burden on competition because this rule change will bring greater
clarity to the Rulebook. The Exchange's proposal to relocate rule text
to create topic headings and discuss each topic discretely will bring
greater clarity to this rule text. The Exchange's proposal to add a new
Options 3, Section (c) will make clear the type of behavior that would
cause a Member to violate Options 3, Section 22 when disclosing
information to another Member or any other third party with respect to
the terms of the order.
Options 5, Section 2, Order Protection
The Exchange's proposal to amend Supplementary Material .02(f)
within Rule Options 5, Section 2 to make clear behavior that would
violate this rule does not impose an undue burden on competition
because it seeks to provide Members with specific information as to the
type of behavior the rule seeks to limit. This rule would apply
uniformly to all Members.
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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \26\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\27\
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\26\ 15 U.S.C. 78s(b)(3)(A)(iii).
\27\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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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 necessary or
appropriate in the public interest, for the protection of investors, or
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-ISE-2019-23 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-2019-23. 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 (https://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 such 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-2019-23, and should be submitted on
or before October 28, 2019.
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\28\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21736 Filed 10-4-19; 8:45 am]
BILLING CODE 8011-01-P
