Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Certain ISE Complex Order Functionalities in Connection With a Technology Migration, 78740-78757 [2022-27785]
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78740
Federal Register / Vol. 87, No. 245 / Thursday, December 22, 2022 / Notices
All submissions should refer to File
Number SR–FINRA–2022–021. 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 FINRA. 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–FINRA–2022–021 and
should be submitted on or before
January 12, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022–27787 Filed 12–21–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96517; File No. SR–
CboeBZX–2022–035]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of
Designation of a Longer Period for
Commission Action on Proceedings To
Determine Whether To Approve or
Disapprove a Proposed Rule Change
To List and Trade Shares of the
VanEck Bitcoin Trust Under BZX Rule
14.11(e)(4), Commodity-Based Trust
Shares
December 16, 2022.
On June 24, 2022, Cboe BZX
Exchange, Inc. (‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade shares of the VanEck
Bitcoin Trust under BZX Rule
14.11(e)(4), Commodity-Based Trust
Shares. The proposed rule change was
published for comment in the Federal
Register on July 13, 2022.3
On August 24, 2022, pursuant to
Section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 On October 4,
2022, the Commission instituted
proceedings under Section 19(b)(2)(B) of
the Act 6 to determine whether to
approve or disapprove the proposed
rule change.7 The Commission has
received no comments on the proposed
rule change.
Section 19(b)(2) of the Act 8 provides
that, after initiating proceedings, the
Commission shall issue an order
approving or disapproving the proposed
rule change not later than 180 days after
the date of publication of notice of filing
of the proposed rule change. The
Commission may extend the period for
issuing an order approving or
disapproving the proposed rule change,
however, by not more than 60 days if
the Commission determines that a
longer period is appropriate and
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 95218
(July 7, 2022), 87 FR 41755.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 95596,
87 FR 53038 (Aug. 30, 2022).
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No. 95978,
87 FR 61418 (Oct. 11, 2022).
8 15 U.S.C. 78s(b)(2).
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2 17
11 17
CFR 200.30–3(a)(12).
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publishes the reasons for such
determination. The proposed rule
change was published for comment in
the Federal Register on July 13, 2022.9
The 180th day after publication of the
proposed rule change is January 9, 2023.
The Commission is extending the time
period for approving or disapproving
the proposed rule change for an
additional 60 days.
The Commission finds that it is
appropriate to designate a longer period
within which to issue an order
approving or disapproving the proposed
rule change so that it has sufficient time
to consider the proposed rule change
and the issues raised therein.
Accordingly, the Commission, pursuant
to Section 19(b)(2) of the Act,10
designates March 10, 2023, as the date
by which the Commission shall either
approve or disapprove the proposed
rule change (File No. SR–CboeBZX–
2022–035).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022–27784 Filed 12–21–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96518; File No. SR–ISE–
2022–28]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Certain ISE
Complex Order Functionalities in
Connection With a Technology
Migration
December 16, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
9, 2022, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III 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.
9 See
supra note 3 and accompanying text.
U.S.C. 78s(b)(2).
11 17 CFR 200.30–3(a)(57).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
10 15
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Federal Register / Vol. 87, No. 245 / Thursday, December 22, 2022 / Notices
1. Purpose
In connection with a technology
migration to an enhanced Nasdaq, Inc.
(‘‘Nasdaq’’) functionality which will
result in higher performance, scalability,
and more robust architecture, the
Exchange intends to adopt certain
trading functionality currently utilized
at Nasdaq affiliate exchanges. Also, the
Exchange intends to remove certain
functionality. Specifically, the following
The Exchange proposes to amend
Options 3, Section 7(k)(1) to add a
provision which states that a Legging
Order 4 will not be generated during a
Posting Period, as described in detail
below, in progress on the same side in
the series pursuant to Options 3, Section
15 regarding Acceptable Trade Range
(‘‘ATR’’). A Legging Order would not be
generated because it would no longer be
at the Exchange’s displayed best bid or
offer, therefore, generating a Legging
Order during a Posting Period in
progress, on the same side in the series,
would lead to its immediate removal,
making it superfluous to have been
generated.
ATR is a risk protection, that sets
dynamic boundaries within which
quotes and orders may trade.5 It is
designed to guard the System 6 from
experiencing dramatic price swings by
preventing the immediate execution of
quotes and orders beyond the thresholds
set by this risk protection. The Exchange
recently amended ATR to adopt an
iterative process wherein an order/quote
that reaches its ATR boundary is paused
for a brief period of time to allow more
liquidity to be collected, before the
order/quote is automatically re-priced
and a new ATR is calculated.7
Specifically, SR–ISE–2022–25
amended current Options 3, Section
15(a)(2)(A)(iii) to adopt an iterative
process wherein an order or quote that
reaches the outer limits of the ATR
(‘‘Threshold Price’’) without being fully
executed, will be posted at the
Threshold Price for a brief period, not
to exceed one second (‘‘Posting
Period’’), to allow the market to refresh
and determine whether or not more
liquidity will become available (on the
Exchange or any other exchange if the
order is designated as routable) within
the posted price of the order or quote
before moving on to a new Threshold
Price. With this change, upon posting,
either the current Threshold Price of the
order/quote or an updated NBB for buy
orders/quotes or the NBO for sell
orders/quotes (whichever is higher for a
buy order/quote or lower for a sell
order/quote) would become the
reference price for calculating a new
ATR. If the order/quote remains
unexecuted after the Posting Period, a
new ATR will be calculated and the
order/quote will execute, route, or post
up to the new Threshold Price. This
process will repeat until either (1) the
order/quote is executed, cancelled, or
posted at its limit price or (2) the order/
quote has been subject to a configurable
number of instances of the ATR as
determined by the Exchange (in which
case it will be returned).
With this change, during the proposed
Posting Period, an order would be in
flux and would potentially increase
(decrease) past the price of any Legging
Order generated on the bid (offer) as the
order works its way through the order
book. Legging Orders are removed from
the order book when they are no longer
at the Exchange’s displayed best bid or
offer and, therefore, generating a
Legging Order during a Posting Period
in progress on the same side in the
series would lead to its immediate
removal. Accordingly, in the current
proposal, the Exchange proposes to
amend Options 3, Section 7(k)(1) to
provide that a Legging Order would not
be created during the Posting Period in
progress on the same side in the series.
By way of example, assume that the
ATR is set for $0.05, the MPV is $0.01
and the following quotations are posted
on ISE and away markets:
Away Exchange Quotes:
3 See Securities Exchange Act Release No. 95854
(September 21, 2022), 87 FR 58571 (September 27,
2022) (Order Approving SR–MRX–2022–10).
4 A Legging Order is a limit order on the regular
limit order book that represents one side of a
Complex Options Order that is to buy or sell an
equal quantity of two options series resting on the
Exchange’s Complex Order Book. See Options 3,
Section 7(k).
5 See ISE Options 3, Section 15(a)(2)(A).
6 The term ‘‘System’’ means the electronic system
operated by the Exchange that receives and
disseminates quotes, executes orders and reports
transactions. See ISE Options 1, Section 1(a)(50).
7 See Securities Exchange Act Release No. 96362
(November 18, 2022), 87 FR 72539 (November 25,
2022) (SR–ISE–2022–25). SR–ISE–2022–25
proposed an iterative process for ATR wherein the
Exchange will attempt to execute interest that
exceeds the outer limit of the ATR for a brief period
of time while that interest is automatically re-priced
as described herein. The Exchange also updated the
reference price definition to provide that upon
receipt of a new order or quote, the reference price
will now be the better of the NBB or internal best
bid for sell orders/quotes and the better of the NBO
or internal best offer for buy orders/quotes or the
last price at which the order/quote is posted,
whichever is higher for a buy order/quote or lower
for a sell order/quote. The additions of ‘‘internal
BBO’’ were consistent with the re-pricing of orders.
SR–ISE–2022–25 is effective, but not yet operative.
SR–ISE–2022–25 would be implemented as part of
the same technology migration as the changes
proposed herein.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Options 3, Section 7, Types of Orders
and Order and Quote Protocols; Options
3, Section 10, Priority of Quotes and
Orders; Options 3, Section 12, Crossing
Orders; Options 3, Section 13, Price
Improvement Mechanisms for Crossing
Transactions; Options 3, Section 14,
Complex Orders; and Options 3, Section
16, Complex Risk Protections.
The Exchange also proposes some
technical amendments within Options
3, Section 6, Collection and
Dissemination of Quotations, and
Section 8, Options Opening Process.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/ise/rules, 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
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sections would be amended: Options 3,
Section 7, Types of Orders and Order
and Quote Protocols; Options 3, Section
10, Priority of Quotes and Orders;
Options 3, Section 12, Crossing Orders;
Options 3, Section 13, Price
Improvement Mechanisms for Crossing
Transactions; Options 3, Section 14,
Complex Orders; and Options 3, Section
16, Complex Risk Protections. The
changes proposed herein are identical to
changes that were recently proposed for
MRX.3 The Exchange also proposes
some technical amendments specific to
ISE within Options 3, Section 6,
Collection and Dissemination of
Quotations, and Section 8, Options
Opening Process. Each change will be
described below.
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78742
Federal Register / Vol. 87, No. 245 / Thursday, December 22, 2022 / Notices
Exchange
Bid size
ISE ...................................................................................................................
AMEX ...............................................................................................................
PHLX ................................................................................................................
Bid price
10
10
10
$0.75
0.75
0.75
Offer price
Offer size
$0.90
0.92
0.94
10
10
10
ISE Price Levels:
Exchange
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ISE
ISE
ISE
ISE
Bid size
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
ISE receives a routable order to buy 70
contracts at $1.10. The ATR is $0.05 and
the reference price is the National Best
Offer—$0.90. The ATR threshold is then
$0.90 + $0.05 = $0.95 which is the
Threshold Price. The order is allowed to
execute up to and including $0.95.
• 10 contracts will be executed at
$0.90 against ISE.
• 10 contracts will be executed at
$0.90 against ISE.
• 10 contracts will be executed at
$0.92 against AMEX.
• 10 contracts will be executed at
$0.94 against PHLX.
• 10 contracts will be executed at
$0.95 against ISE.
• Then, after executing at multiple
price levels, the order is posted at $0.95
for a brief period not to exceed one
second (Posting Period) to determine
whether additional liquidity will
become available.
• During this pause, the ISE BBO for
this option is 0.95 × 1.00.
• Assume the leg above with the
Posting Period in progress is Leg A of an
A–B complex strategy.
• Leg B has a BBO of 0.85 × 0.88
• Therefore, the cBBO 8 of this A–B
complex strategy is 0.07 × 0.15
Æ (Leg A Bid 0.95 ¥ Leg B Offer 0.88
= 0.07)
Æ (Leg A Offer 1.00 ¥ Leg B Bid 0.85
= 0.15)
• Also during the pause, a Complex
Options Order to buy A–B arrives for
net price of $0.11.
• The Complex Options Order could
generate a Legging Order at $0.96 on the
bid of Leg A, relying on the $0.85 bid
to sell Leg B and achieve a net price
$0.11, however the Legging Order is not
generated because Leg A has an order on
the bid side in an ATR Posting Period
which will continue to move through
the order book, and would ultimately
lead to the immediate removal of the
8 The ‘‘cBBO’’ represents the net price of a
complex strategy comprised of the best bids and
offers of the individual legs.
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Bid price
10
10
10
10
Legging Order once it is no longer at the
Exchange’s displayed best bid.
• During the Posting Period, a new
ATR Price of $1.00 is determined (new
reference price $0.95 + $0.05 = $1.00).
• If, during the Posting Period (brief
pause not to exceed 1 second), no
liquidity becomes available within the
order’s posted price of $0.95, then at the
conclusion of the Posting Period, the
System will execute 10 contracts at
$1.00.
• Then, after executing at multiple
price levels, the order is posted at $1.00
for a brief period not to exceed one
second to determine whether additional
liquidity will become available.
• A new ATR Threshold Price of
$1.05 is determined (new reference
price of $1.00 + $0.05 = $1.05).
• During this time the ISE BBO would
be $1.00 × $1.05.
• If, during the brief pause not to
exceed 1 second, no liquidity becomes
available within the order’s posted price
of $1.00, the System will then execute
10 contracts at $1.05.
The Exchange believes from a System
processing and user acceptance
standpoint, the best practice is to wait
for the ATR Posting Period to complete
before attempting to generate a Legging
Order on the same side in the series, as
the time required to complete the ATR
Posting Period is minimal. This
amendment is identical to a change
recently adopted for MRX.9
Additionally, Nasdaq Phlx LLC’s
(‘‘Phlx’’) legging order rule in Options 3,
Section 14(f)(iii)(C)(2) has the same
restriction on generating legging orders
during the ATR Posting Period as
proposed to be added to ISE’s Legging
Order rule.10
9 See note 3 above. MRX amended Options 3,
Section 15(a)(2)(A)(iii).
10 Phlx Options 3, Section 14(f)(iii)(C)(2) provides
that a Legging Order will not be created, ‘‘. . .(ii)
if there is . . . a Posting Period under Options 3,
Section 15 regarding Acceptable Trade Range on the
same side in progress in the series. . .’’.
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$0.75
0.75
0.75
0.75
Offer price
$0.90
0.95
1.00
1.05
Offer size
10
10
10
10
Changes to the Single-Leg Price
Improvement Mechanism for Crossing
Transactions
The Price Improvement Mechanism
(‘‘PIM’’) is a process by which an
Electronic Access Member can provide
price improvement opportunities for a
transaction wherein the Electronic
Access Member seeks to facilitate an
order it represents as agent, and/or a
transaction wherein the Electronic
Access Member solicited interest to
execute against an order it represents as
agent (a ‘‘Crossing Transaction’’). The
Exchange provides a PIM for singleleg 11 orders and for Complex Orders 12
and proposes to amend both single-leg
and Complex PIM rules. The Exchange
proposes to amend the single-leg PIM in
Options 3, Section 13(d)(4) which
currently provides,
When a market order or marketable limit
order on the opposite side of the market from
the Agency Order ends the exposure period,
it will participate in the execution of the
Agency Order at the price that is mid-way
between the best counter-side interest and
the NBBO, so that both the market or
marketable limit order and the Agency Order
receive price improvement. Transactions will
be rounded, when necessary, to the $.01
increment that favors the Agency Order.
Today, unrelated interest in the form of
a market order or marketable limit
order, on the opposite side of the market
from an Agency Order,13 may end an
exposure period 14 within a single-leg
11 See
ISE Options 3, Section 13(a)–(d).
ISE Options 3, Section 13(e).
13 An Agency Order is the part of a Crossing
Transaction that an Electronic Access Member
represents as agent. See ISE Options 3, Section
13(b).
14 Upon entry of a Crossing Transaction into the
PIM, a broadcast message that includes the series,
price and size of the Agency Order, and whether it
is to buy or sell, will be sent to all Members. The
Exchange designates a time of no less than 100
milliseconds and no more than 1 second for
Members to indicate the size and price at which
they want to participate in the execution of the
Agency Order (‘‘Improvement Orders’’).
Improvement Orders may be entered by all
Members in one-cent increments at the same price
12 See
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Federal Register / Vol. 87, No. 245 / Thursday, December 22, 2022 / Notices
PIM and participate in the execution of
the Agency Order. The unrelated order
would participate at the price that is
mid-way between the best counter-side
interest and the NBBO, so that both the
market order or marketable limit order
and the Agency Order receive price
improvement.
First, the Exchange proposes to not
permit unrelated marketable interest on
the opposite side of the market from the
Agency Order, which is received during
a single-leg PIM, to early terminate a
PIM. The Exchange proposes to amend
ISE Options 3, Section 13(d)(4) to
instead provide,
Unrelated market or marketable interest
(against the ISE BBO) on the opposite side of
the market from the Agency Order received
during the exposure period will not cause the
exposure period to end early and will
execute against interest outside of the
Crossing Transaction. If contracts remain
from such unrelated order at the time the
auction exposure period ends, they will be
considered for participation in the order
allocation process described in subparagraph (3).15
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This amendment is identical to a change
recently adopted for MRX.16
Additionally, Phlx 17 and Nasdaq BX,
as the Crossing Transaction or at an improved price
for the Agency Order, and will only be considered
up to the size of the Agency Order. During the
exposure period, Improvement Orders may not be
canceled, but may be modified to (i) increase the
size at the same price, or (ii) improve the price of
the Improvement Order for any size up to the size
of the Agency Order. During the exposure period,
responses (including the Counter-Side Order,
Improvement Orders, and any changes to either)
submitted by Members shall not be visible to other
auction participants. The exposure period will
automatically terminate (i) at the end of the time
period designated by the Exchange pursuant to
Options 3, Section 13(c)(1) above, (ii) upon the
receipt of a market or marketable limit order on the
Exchange in the same series, or (iii) upon the
receipt of a non-marketable limit order in the same
series on the same side of the market as the Agency
Order that would cause the price of the Crossing
Transaction to be outside of the best bid or offer on
the Exchange. See ISE Options 3, Section 13(c).
15 Subparagraph (3) of Options 3, Section 13(d)
describes the manner in which a Counter-Side
Order would be allocated. The Counter Side Order
is one part of a Crossing Transaction and represents
the full size of the Agency Order. The Counter-Side
Order may represent interest for the Member’s own
account, or interest the Member has solicited from
one or more other parties, or a combination of both.
See ISE Options 3, Section 13(b).
16 See note 3 above. MRX amended Options 3,
Section 13(d)(4).
17 Phlx Options 3, Section 13(b)(4) provides that
an unrelated market or marketable Limit Order
(against the PBBO) on the opposite side of the
market from the PIXL Order received during the
Auction will not cause the Auction to end early and
will execute against interest outside of the Auction.
See Securities Exchange Act Releases No. 79835
(January 18, 2017), 82 FR 8445 (January 25, 2017)
(SR–Phlx–2016–119) (Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified
by Amendment No. 1 Thereto, To Amend the PIXL
Price Improvement Auction in Phlx Rule 1080(n)
and To Make Pilot Program Permanent) and 63027
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Inc. (‘‘BX’’) 18 similarly do not permit
unrelated interest on the opposite side
of the market from the Agency Order to
early terminate their price improvement
auctions. With this proposed change,
the single-leg PIM exposure period
would continue for the full period
despite the receipt of unrelated
marketable interest on the opposite side
of the market from the Agency Order.
Allowing the single-leg PIM to run its
full course would provide an
opportunity for additional price
improvement to the Crossing
Transaction. Further, the unrelated
interest would participate in the singleleg PIM allocation with any residual
contracts remaining after interacting
with the order book pursuant to ISE
Options 3, Section 13(d). The
aforementioned residual contracts are
contracts that remain available for
execution after the unrelated order on
the opposite side of market as the
Agency Order, which was marketable
with bids and offers on the same side of
the market as the Agency Order,
executed against bids and offers on the
Exchange’s order book.
Second, the Exchange also proposes
to amend current ISE Options 3, Section
13(c)(5) which states,
The exposure period will automatically
terminate (i) at the end of the time period
designated by the Exchange pursuant to
Options 3, Section 13(c)(1) above, (ii) upon
the receipt of a market or marketable limit
order on the Exchange in the same series, or
(iii) upon the receipt of a non-marketable
limit order in the same series on the same
side of the market as the Agency Order that
would cause the price of the Crossing
Transaction to be outside of the best bid or
offer on the Exchange.
Specifically, the Exchange proposes to
remove ‘‘(ii),’’ which provides the
exposure period will automatically
terminate ‘‘. . . (ii) upon the receipt of
(October 1, 2010), 75 FR 62160 (October 7, 2010)
(SR–Phlx–2010–108) (‘‘PIXL Approval Order’’). The
Commission noted in SR–Phlx–2016–119 that, ‘‘In
approving this feature on a pilot basis, the
Commission found that ‘allowing the PIXL auction
to continue for the full auction period despite
receipt of unrelated orders outside the Auction
would allow the auction to run its full course and,
in so doing, will provide a full opportunity for price
improvement to the PIXL Order. Further, the
unrelated order would be available to participate in
the PIXL order allocation.’ The Exchange does not
believe that this provision has had a significant
impact on either the unrelated order or the PIXL
Auction process, either for simple or Complex PIXL
Orders. The Exchange therefore has requested that
the Commission approve this aspect of the Pilot on
a permanent basis for both simple and Complex
PIXL Orders.’’
18 BX Options 3, Section 13(ii)(D) provides that
unrelated market or marketable interest (against the
BX BBO) on the opposite side of the market from
the PRISM Order received during the Auction will
not cause the Auction to end early and will execute
against interest outside of the Auction.
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a market or marketable limit order on
the Exchange in the same series . . .’’.
The Exchange notes that this sentence
applies to the receipt of marketable
orders both on the same side and
opposite side of the Agency order. As
described above, the Exchange proposes
to not permit unrelated marketable
interest on the opposite side of the
market from the Agency Order, which is
received during a single-leg PIM, to
early terminate a PIM. Therefore, with
respect to the opposite side of the
Agency Order, the termination of the
auction will no longer be possible with
the proposed change to ISE Options 3,
Section 13(d)(4). With respect to the
same side of the Agency Order, today,
an unrelated market or marketable limit
order in the same series on the same
side of the Agency Order would cause
the PIM to early terminate as well. At
this time the Exchange proposes to not
permit an unrelated market or
marketable limit order in the same
series on the same side of the Agency
Order to cause the PIM to early
terminate. This proposed change will
align the functionality of ISE’s PIM to
that of MRX’s PIM,19 BX’s PRISM and
Phlx’s PIXL,20 which do not permit an
unrelated market or marketable limit
order in the same series on the same
side of the Agency Order to cause the
PRISM or PIXL to early terminate,
unless the BBO improves beyond the
price of the Crossing Transaction on the
same side. The Exchange notes that a
market or marketable limit order in the
same series on the same side of the
Agency Order cannot interact with a
PIM auction. The market or marketable
limit order may interact with the singleleg order book, and if there are residual
contracts that remain from the market or
marketable limit order in the same
series on the same side of the Agency
Order, they could rest on the order book
and improve the BBO beyond the price
of the Crossing Transaction which
would cause early termination pursuant
to proposed Options 3, Section
13(c)(5)(ii) as discussed below. In this
instance, residual contracts are contracts
that remain available for execution after
the unrelated order on the same side of
market as the Agency Order, which was
marketable with bids and offers on the
opposite side of the market as the
Agency Order, executed against bids
and offers on the Exchange’s order book.
The Exchange believes that this
outcome would allow for the single-leg
PIM exposure period to continue for the
full period despite the receipt of
19 See
MRX Options 3, Section 13(d)(4).
BX Options 3, Section 13(ii)(D) and Phlx
Options 3, Section 13(b)(4).
20 See
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unrelated marketable interest on the
same side of the market from the
Agency Order, provided residual
interest does not go on to rest on the
order book, improving the BBO beyond
the price of the Crossing Transaction.
Allowing the single-leg PIM to run its
full course (unless the BBO improves
beyond the price of the Crossing
Transaction on the same side), rather
than early terminate, would provide an
opportunity for price improvement to
the Agency Order.
Third, the Exchange proposes to
amend current ISE Options 3, Section
13(c)(5)(iii) to align the rule text to a
recent change adopted on MRX.21
Additionally, BX Options 3, Section
13(ii)(B)(2) has similar language.22
Specifically, the Exchange proposes to
amend Options 3, Section 13(c)(5) to
delete current ‘‘iii’’ and renumber as
‘‘ii’’. Proposed new Options 3, Section
13(c)(5)(ii) would state, ‘‘The exposure
period will automatically terminate . . .
(ii) any time the Exchange best bid or
offer improves beyond the price of the
Crossing Transaction on the same side
of the market as the Agency Order . . .’’
The proposed rule is designed to align
to MRX’s and BX’s rule text to remove
any ambiguity that a market or
marketable limit order priced more
aggressively than the Agency Order
could ultimately rest on the order book,
improving the BBO beyond the price of
the Crossing Transaction and, therefore,
cause the early termination of a PIM
auction.
By way of example, assume: ISE 1.00
× 2.00 (10) and a second ISE Market
Maker’s quote is 1.00 × 2.10 (10). If a
PIM auction starts with a buy at 1.50,
and subsequently an order to buy for 20
@2.00 arrives, the incoming order would
trade with the quote, and the remaining
10 contracts would rest on the order
book. Thereafter, the ISE BBO would
update to 2.00 × 2.10 and trigger the
early termination of the single-leg PIM
pursuant to Options 3, Section
13(c)(5)(iii), which is being renumbered
to Options 3, Section 13(c)(5)(ii). Early
terminating the single-leg PIM in this
example is necessary because the price
of the single-leg PIM is no longer at the
top of book (best price) and would not
21 See note 3 above. MRX amended Options 3,
Section 13(c)(5)(iii).
22 BX Options 3, Section 13(ii)(B) provides
‘‘Conclusion of Auction. The PRISM Auction shall
conclude at the earlier to occur of (1) through (3)
below, with the PRISM Order executing pursuant to
paragraph (C)(1) or (C)(2) below if it concludes
pursuant to (2) or (3) of this paragraph. (1) The end
of the Auction period; (2) For a PRISM Auction any
time the BX BBO crosses the PRISM Order stop
price on the same side of the market as the PRISM
Order; (3) Any time there is a trading halt on the
Exchange in the affected series.’’
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have execution priority with respect to
responses or unrelated interest that
arrive. By early terminating the singleleg PIM, ISE allows responses to the
single-leg PIM, which arrived prior to
the time the Exchange’s best bid and
offer improved beyond the Crossing
Transaction, to execute.
The Exchange believes the proposed
rule text will provide greater clarity to
the manner in which the System
operates today with respect to early
termination of single-leg PIMs when the
BBO on the same side improves beyond
the price of the Crossing Transaction.
The proposed amendment to the rule
text is not intended to amend the
current System functionality, rather it is
intended to make clear that a market or
marketable limit order could ultimately
rest on the order book with residual
interest and improve the BBO on the
same side as the Agency Order beyond
the price of the Crossing Transaction
and cause the single-leg PIM to early
terminate.
Fourth, the Exchange proposes to add
a new ISE Options 3, Section
13(c)(5)(iii) which states, ‘‘. . . (iii) any
time there is a trading halt on the
Exchange in the affected series . . .’’.
This proposed rule text is not modifying
how the System currently operates.23
Today, a trading halt would cause a
single-leg PIM to early terminate.
Current ISE Options 3, Section 13(d)(5)
notes such an early termination as a
result of the aforementioned trading
halt. Adding this circumstance to the
list of events that would terminate the
exposure period would make the list
complete and add clarity to the rule.
Furthermore, the Exchange notes that in
a separate rule change, SR–ISE–2022–
15P,24 the Exchange is proposing to
amend Options 3, Section 13(d)(5) to
change the System behavior such that if
a trading halt is initiated after an order
is entered into the PIM, such auction
23 ISE Options 3, Section 13(d)(5) currently states
that, ‘‘If a trading halt is initiated after an order is
entered into the Price Improvement Mechanism,
such auction will be automatically terminated
without execution.’’ Of note, the Exchange is
proposing to amend ISE’s PIM within a separate
rule change, SR–ISE–2022–15P. Among other
things, the Exchange proposes to amend the PIM
functionality so that if a trading halt is initiated
after an order is entered into the PIM, the auction
will be automatically terminated with an execution.
Specifically, SR–ISE–2022–15 proposes to
renumber current ISE Options 3, Section 13(d) to
Options 3, Section 13(d)(6) and proposes to state,
‘‘If a trading halt is initiated after an order is entered
into the Price Improvement Mechanism, such
auction will be automatically terminated with
execution solely with the Counter-Side Order.’’
24 ISE has separately filed to amend Options 3,
Section 13(d)(5) within SR–ISE–2022–15P. SR–ISE–
2022–15P proposes to amend, among other things,
the rule text in Options 3, Section 13, except that
it does not amend Options 3, Section 13(c)(5).
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will be automatically terminated with
execution solely with the Counter-Side
Order. Today, if a trading halt is
initiated after an order is entered into
the PIM, such auction will be
automatically terminated without
execution.25 This amendment is
identical to a change recently adopted
for MRX.26
Changes to the Complex PIM
In accordance with the proposed rule
change regarding the early termination
provisions of a single-leg PIM auction
explained above, the Exchange also
proposes to remove a paragraph related
to Complex PIM in current ISE Options
3, Section 13(e)(4)(vi) which provides,
A Complex Price Improvement Mechanism
in a complex strategy may be ongoing at the
same time as a Price Improvement Auction
pursuant to this Rule or during an exposure
period pursuant to Supplementary Material
.02 to Options 5, Section 2 in a component
leg(s) of such Complex Order. If a Complex
Price Improvement Mechanism is early
terminated pursuant to paragraph (iv) above,
and the incoming Complex Order that causes
the early termination in the complex strategy
is also marketable against a component leg(s)
of the complex strategy that is the subject of
a concurrent ongoing Price Improvement
Auction pursuant to this Rule or an exposure
period pursuant to Supplementary Material
.02 to Options 5, Section 2, then the
concurrent Complex Price Improvement
Mechanism and component leg auction(s) are
processed in the following sequence: (1) the
Complex Price Improvement Mechanism is
early terminated; (2) the component leg
auction(s) are early terminated and
processed; and (3) legging of residual
incoming Complex Order interest occurs,
except with respect to Stock Option Orders
and Stock Complex Orders.
Today, unrelated marketable interest
may cause the early termination of a
single-leg PIM, if a component leg of a
Complex Order is marketable against the
order book in the same series as the
single-leg PIM. An example is provided
below.
Example #1 (Complex PIM early
termination elimination—opposite
side) 27
Complex Order Strategy A–B
MM Quote Leg A 4.20 (100) × 4.50 (100)
MM Quote Leg B 4.00 (100) × 4.10 (100)
cBBO 0.10 × 0.50
(Leg A Bid 4.20¥Leg B Offer 4.10 =
0.10)
(Leg A Offer 4.50¥Leg B Bid 4.00 =
0.50)
25 See
current ISE Options 3, Section 13(d)(5).
note 3 above. MRX amended Options 3,
Section 13(c)(5)(iii).
27 Example 1 addresses an order on the opposite
side of the Agency Order, although the same early
termination would apply to an order on the same
side of an Agency Order pursuant to ISE Options
3, Section 13(e)(4)(vi).
26 See
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Complex PIM to Buy A–B 10 @0.20,
with an election to automatically
match to a net price of 0.10
Complex PIM Begins
Single-leg PIM Auction on Leg A to Buy
100 @4.25
Single-Leg PIM Begins
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During both auction timers, an
unrelated marketable Complex Order A–
B to sell 50 @a net price of 0.10 arrives
(the individual legs of the marketable
Complex Order would be selling A @
4.20 and buying B @4.10).
Complex Order PIM is early
terminated and trades 4 with the
Counter-Side Order @a net price of 0.10
and 6 with the unrelated Complex Order
@a net price of 0.15.
Today, the unrelated Complex Order
would have legged-in after trading with
the Complex PIM and caused the singleleg PIM to early terminate because one
leg of the Complex Order was
marketable against the Leg A bid of 4.20.
With the proposed amendment, the
unrelated Complex Order will not cause
the single-leg PIM to early terminate as
a result of trading with an unrelated
order on the opposite side in the same
series. The unrelated marketable
Complex Order will trade with the
Complex PIM as well as the best bids
and offers from the single-leg order
book. In this case, the remaining
quantity of the unrelated Complex
Order would leg-in and trade with the
single-leg quotes without impacting the
single-leg PIM; the single-leg PIM
auction timer would conclude after
running its full course. Thereafter, if
there are no responses to the single-leg
PIM, the Agency Order would trade 100
@4.25 with the Counter-Side Order.
Today, if a Complex PIM is early
terminated pursuant to ISE Options 3,
Section 14(e)(4)(iv) 28 and the incoming
Complex Order that causes the early
termination in the complex strategy is
also marketable against a component
leg(s) of the complex strategy that is the
subject of a concurrent ongoing singleleg PIM, or an exposure period pursuant
to flash functionality as provided for in
Supplementary Material .02 to Options
28 ISE Options 3, Section 14(e)(4)(iv) provides,
‘‘The exposure period will automatically terminate
(A) at the end of the time period designated by the
Exchange pursuant to subparagraph (4)(i) above, (B)
upon the receipt of a Complex Order in the same
complex strategy on either side of the market that
is marketable against the Complex Order Book or
bids and offers for the individual legs, or (C) upon
the receipt of a non-marketable Complex Order in
the same complex strategy on the same side of the
market as the Agency Complex Order that would
cause the execution of the Agency Complex Order
to be outside of the best bid or offer on the Complex
Order Book.’’
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5, Section 2,29 then the concurrent
Complex PIM and component leg
auction(s) are processed in accordance
with ISE Options 3, Section 14(e)(4)(vi).
With this proposed change, a singleleg PIM will no longer early terminate
as a result of the arrival of unrelated
marketable interest on either the same
or the opposite side of the market from
the Agency Order. Because a single-leg
PIM will no longer early terminate from
the arrival of unrelated marketable
interest on either the same or the
opposite side of the market from the
Agency Order, and because the flash
functionality will no longer exist,30 the
Exchange proposes to delete ISE
Options 3, Section 13(e)(4)(vi) in its
entirety. This amendment is identical to
a change recently adopted for MRX.31
Additionally, the Exchange proposes
to remove a related paragraph in current
Supplementary Material .01(b)(iii) of
ISE Options 3, Section 14 describing
Complex Order Exposure, which states,
A Complex Order Exposure in a complex
strategy may be ongoing in a complex
strategy at the same time as a Price
Improvement Auction pursuant to Options 3,
Section 13 or during an exposure period
pursuant to Supplementary Material .02 to
Options 5, Section 2 in a component leg(s)
of such complex strategy. If a Complex Order
Exposure is early terminated pursuant to
paragraph (ii) above, and the incoming
Complex Order that causes the early
termination in the complex strategy is also
marketable against a component leg(s) of the
complex strategy that is the subject of a
concurrent ongoing Price Improvement
Auction pursuant to Options 3, Section 13 or
an exposure period pursuant to
Supplementary Material .02 to Options 5,
Section 2, then the concurrent Complex
Order and component leg auction(s) are
processed in the following sequence: (1) the
Complex Order exposure is early terminated;
(2) the component leg auction(s), which are
early terminated and processed; and (3)
legging of residual incoming Complex Order
interest occurs.
29 Pursuant to Supplementary Material .02 to ISE
Options 5, Section 2, ISE permits certain orders to
first be exposed at the NBBO to all Members for
execution at the National Best Bid or Offer
(‘‘NBBO’’) before the order would be routed to
another market for execution (‘‘flash
functionality’’).
30 ISE filed a rule change to eliminate its flash
functionality. See Securities Exchange Act Release
No. 94897 (May 12, 2022), 87 FR 30294 (May 18,
2022) (SR–ISE–2022–11) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
To Amend Routing Functionality in Connection
With a Technology Migration). Therefore,
eliminating the flash functionality from ISE Options
5 rules also eliminates the flash functionality from
ISE’s Options 5 rules. SR–ISE–2022–11 is effective
but not yet operative. SR–ISE–2022–11 would be
implemented as part of the same technology
migration as the changes proposed herein.
31 See note 3 above. MRX recently deleted
Options 3, Section 13(e)(4)(vi) in its entirety.
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Today, unrelated marketable interest
may cause the early termination of a
single-leg PIM, therefore, when a
Complex Order legs into the single-leg
order book, it may cause the early
termination of a single-leg PIM if that
leg was on either the same or the
opposite side of the market from the
single-leg PIM. An example is provided
below.
Example #2 (Complex Exposure early
termination elimination—opposite
side) 32
Complex Order Strategy A–B
MM Quote Leg A 4.20 (100) × 4.50 (100)
MM Quote Leg B 4.00 (100) × 4.10 (100)
cBBO 0.10 × 0.50
(Leg A Bid 4.20¥Leg B Offer 4.10 =
0.10)
(Leg A Offer 4.50¥Leg B Bid 4.00 =
0.50)
Complex Order in A–B Strategy marked
for Complex Order Exposure to buy
10 @0.20
Complex Order Exposure Auction
Begins
Single-leg PIM Auction on Leg A to Buy
100 @4.25
Single-Leg PIM Begins
During both auction timers, unrelated
marketable Complex Order A–B Sell 50
@0.10 arrives Complex Order Exposure
is early terminated and the exposed
order to buy A–B 10 @0.20 and trades
with the unrelated Complex Order 10 @
net price of 0.10.
Today, the unrelated marketable
Complex Order would have legged-in
after trading with the Complex Order
Exposure and caused the single-leg PIM
to early terminate because one leg of the
marketable Complex Order on the
opposite side was marketable against
the Leg A bid of 4.20.
With the proposed amendment, the
unrelated marketable Complex Order
will not cause the single-leg PIM on the
opposite side in the same series to early
terminate as a result of the component
leg of the Complex Order being
marketable against the bid in the same
series as the single-leg PIM. The
unrelated marketable Complex Order
will trade with the Complex Order
Exposure order as well as the best bids
and offers from the single-leg order
book. In this case, the remaining
quantity would leg-in and trade with the
single-leg quotes without impacting the
single-leg PIM; the auction timer would
conclude after running its full course.
32 Example 2 addresses an order on the opposite
side of the Agency Order, although the same early
termination would apply to an order on the same
side of the Agency Order pursuant to
Supplementary Material .01(b)(iii) of ISE Options 3,
Section 14.
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Thereafter, the Crossing Transaction
would trade 100 @4.25 Agency Order
with the Counter-Side Order.
Today, when a Complex Order
Exposure early terminates, as a result of
the arrival of unrelated marketable
Complex Order interest that trades
against the exposed Complex Order and
the best bids and offers on the single-leg
order book (as described in
Supplementary Material .01(b)(ii) of ISE
Options 3, Section 14), the component
legs of the unrelated marketable
Complex Order on either the same or
the opposite side of the single-leg PIM
may leg-in and cause early termination
of the single-leg PIM. Thereafter, the
component leg auction(s) would be
processed pursuant to Supplementary
Material .01(b)(iii) of ISE Options 3,
Section 14. With this proposed change
to ISE Options 3, Section 13(d)(4), a
single-leg PIM will no longer early
terminate from the arrival of unrelated
marketable interest on either the same
or opposite side of the market from the
Agency Order. Therefore, because a
single-leg PIM will no longer early
terminate from the arrival of unrelated
marketable interest on either the same
or opposite side of the market from the
Agency Order, and because the flash
functionality will no longer exist,33 the
early termination circumstances
addressed in Supplementary Material
.01(b)(iii) of ISE Options 3, Section 14
will no longer arise, accordingly, the
Exchange proposes to delete
Supplementary Material .01(b)(iii) of
ISE Options 3, Section 14 in its entirety.
This amendment is identical to a change
recently adopted for MRX.34
Re-Pricing
In connection with the technology
migration, the Exchange recently
adopted re-pricing functionality for
certain quotes and orders that lock or
cross an away market’s price.35 As a
result of the effectiveness of SR–ISE–
2022–25, the Exchange proposes a
number of corresponding amendments
in Options 2, Section 12, as well as the
proposed definition of Complex
Preferenced Orders, which is discussed
below, in connection with adopting the
re-pricing mechanism. This amendment
33 Id.
[sic].
note 3 above. MRX recently deleted
Supplementary Material .01(b)(iii) of ISE Options 3,
Section 14 in its entirety.
35 See Securities Exchange Act Release No. 96362
(November 18, 2022), 87 FR 72539 (November 25,
2022) (SR–ISE–2022–25). This rule change is
effective, but not yet operative. SR–ISE–2022–25
would be implemented as part of the same
technology migration as the changes proposed
herein.
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34 See
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is identical to a change recently adopted
for MRX.36
With the recent change within SR–
ISE–2022–25, the System will re-price
certain quotes and orders that lock or
cross an away market’s price.
Specifically, quotes and orders which
lock or cross an away market price will
be automatically re-priced to the current
national best offer (for bids) or the
current national best bid (for offers) and
displayed one minimum price variance
(‘‘MPV’’) above (for offers) or below (for
bids) the national best price. The repriced quotes and orders will be
displayed on OPRA at its displayed
price and placed on the Exchange’s
order book at its re-priced, nondisplayed price, which may be priced
better than the NBBO. The quotes and
orders will remain on the Exchange’s
order book and will be accessible at
their non-displayed price. With this
change, a non-displayed limit order or
quote may be available on the Exchange
at a price that is better than the NBBO.
The following example illustrates how
the proposed re-pricing mechanism
would work:
Symbol ABCD in a Non-Penny name
CBOE BBO at 1.00 × 1.20
DNR order to buy ABCD for 1.30 arrives
DNR buy order books at 1.20 (current
national best offer) and displays at
1.15 (one MPV below national best
offer) *
CBOE BBO adjusts to 1.00 × 1.25
DNR buy order adjusts to book at 1.25
(current national best offer) and
displays at 1.20 (one MPV below
national best offer) *
* OPRA will show the displayed price,
not the booked price
Recently amended Options 3, Section
5(c) provides that the System
automatically executes eligible orders
using the Exchange’s displayed best bid
and offer (i.e., BBO) or the Exchange’s
non-displayed order book (‘‘internal
BBO’’) if the best bid and/or offer on the
Exchange has been re-priced pursuant to
Options 3, Section 5(d).37 The definition
of an ‘‘internal BBO’’ covers re-priced
quotes and orders that remain on the
order book and are available at non36 See note 3 above. MRX amended Options 2,
Section 12(c) and (d) as well as Options 3, Section
14(b)(19).
37 A similar change was made for quotes within
Options 3, Section 4(b)(7). The Exchange added the
following new rule text to Options 3, Section
4(b)(7), ‘‘The System automatically executes eligible
quotes using the Exchange’s displayed best bid and
offer (‘‘BBO’’) or the Exchange’s non-displayed
order book (‘‘internal BBO’’) if the best bid and/or
offer on the Exchange has been repriced pursuant
to Options 3, Section 5(d) below and subsection (6)
above.’’
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displayed prices while resting on the
order book.38
In connection with the foregoing
changes, the Exchange proposes to add
references to ‘‘internal BBO’’ within
Options 3, Section 12(c) and (d) which
describe the Qualified Contingent Cross
Orders and Complex Qualified
Contingent Cross Orders, respectively,
to conform with the concept of repricing at an internal BBO as provided
in Options 3, Sections 4(b)(6) and
4(b)(7) and Options 3, Section 5(c) and
(d) within SR–ISE–2022–25. This
amendment is identical to a change
recently adopted for MRX.39
As noted above, the internal BBO
could be better than the NBBO. The
Exchange believes that adding
references to the internal BBO to
Options 3, Section 12(c) and (d) would
continue to require Members to be at or
between the best price, that is not at the
same price as a Priority Customer Order
on the Exchange’s limit order book, to
execute a Qualified Contingent Cross
Order. Further, with respect to Complex
Qualified Contingent Cross Orders, the
Exchange would continue to require a
Member to be at or between the best
price for the individual series and
comply with other relevant provisions
noted within Options 3, Section 12(d) to
execute a Complex Qualified Contingent
Cross Order. The Exchange believes that
the addition of ‘‘internal BBO’’ is
consistent with the intent of these order
types, which is to require Members
submit these orders at the best price and
not execute ahead of better-priced
quotes or orders.
38 The Exchange amended the rule text within
Options 3, Section 4 and Options 3, Section 5,
within SR–ISE–2022–25, to describe the manner in
which a non-routable quotes and orders would be
re-priced, respectively. The Exchange added rule
text within Options 3, Section 4(b)(6) to state, ‘‘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 be re-priced 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, or immediately cancelled, as
configured by the Member.’’ The Exchange
amended the rule text within Options 3, Section
5(d) to state, ‘‘An order that is designated by a
Member as non-routable will be re-priced in order
to comply with applicable Trade-Through and
Locked and Crossed Markets restrictions. If, at the
time of entry, an order that the entering party has
elected not to make eligible for routing would cause
a locked or crossed market violation or would cause
a trade-through violation, it will be re-priced 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.’’
39 See note 3 above. MRX amended Options 3,
Section 12(c) and (d).
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The Exchange proposes to amend
Options 3, Section 12(c), which
describes the conditions under which a
Qualified Contingent Cross Order may
be entered into the System for
execution, to state that a Qualified
Contingent Cross Order may be
executed upon entry provided the
execution is at or between the better of
the internal BBO or the NBBO.40
Similarly, the Exchange proposes to
amend Options 3, Section 12(d), which
describes the conditions under which a
Complex Qualified Contingent Cross
Order may be entered into the System
for execution, to state that Complex
Options Orders may be entered as
Qualified Contingent Cross Orders to be
automatically executed upon entry so
long as the options legs can be executed
at prices that are at or between the better
of the internal BBO or the NBBO for the
individual series.41 This amendment is
identical to a change recently adopted
for MRX.42
The Exchange also proposes to add
the ‘‘internal BBO’’ rule text in its
description of Complex Preferenced
Orders within new Options 3, Section
14(b)(19). This change is described
below.
Other Complex Order Amendments
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Opening Only Complex Order
Currently, ISE Options 3, Section
14(b)(10) states, ‘‘An Opening Only
Complex Order is a Limit Order that
may be entered for execution during the
Complex Opening Process described in
Supplementary Material .04 to Options
3, Section 14. Any portion of the order
that is not executed during the Complex
Opening Process is cancelled.’’ The
40 The Qualified Contingent Cross Order must
also not be at the same price as a Priority Customer
Order on the Exchange’s limit order book. See ISE
Options 3, Section 12(c).
41 Currently, Options 3, Section 12(d) provides in
its entirety that Complex Options Orders may be
entered as Qualified Contingent Cross Orders, as
defined in Options 3, Section 7(j). Such orders will
be automatically executed upon entry so long as: (i)
the price of the transaction is at or within the best
bid and offer for the same complex options strategy
on the Complex Order Book; (ii) there are no
Priority Customer Complex Options Orders for the
same strategy at the same price on the Complex
Order Book; and (iii) the options legs can be
executed at prices that (A) are at or between the
NBBO for the individual series, and (B) comply
with the provisions of Options 3, Section 14(c)(2)(i),
provided that no legs of the Complex Options Order
can be executed at the same price as a Priority
Customer Order on the Exchange in the individual
options series. Complex Qualified Contingent Cross
Orders will be rejected if they cannot be executed.
Complex Qualified Contingent Cross Orders may be
entered in one cent increments. Each leg of a
Complex Options Order must meet the 1,000
contract minimum size requirement for Qualified
Contingent Cross Orders.
42 See note 3 above. MRX amended Options 3,
Section 12(c) and (d).
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Exchange proposes to amend ISE
Options 3, Section 14(b)(10) to remove
the word ‘‘Limit’’ within the description
of the Opening Only Complex Order to
allow Opening Only Complex Orders to
be submitted as Market Orders or Limit
Orders. This amendment is consistent
with current System operations. The
Exchange believes that both Market and
Limit Orders should be permitted in the
Complex Opening Process.43 Market
Orders are typically the most
aggressively priced orders, while Limit
Orders have a limit price contingency
that Market Orders do not have.
Allowing both of these order types to
participate in the Complex Opening
Process allows greater liquidity to be
present to determine the Opening
Price.44 All Members may enter both
Market Orders and Limit Orders during
the Complex Opening Process, as well
as intra-day. This amendment is
identical to a change recently adopted
for MRX.45
Complex QCC With Stock Orders
The Exchange proposes to correct a
non-substantive citation with ISE
Options 3, Section 14(b)(15) related to
Complex QCC with Stock Orders. The
current citation to ISE Options 3,
Section 12(e) within the description of
this order type is incorrect. The citation
should be to ISE Options 3, Section
12(f). Correcting this cross reference will
clarify the description of the order type.
Complex Preferenced Orders
The Exchange proposes to add
‘‘Complex Preferenced Orders’’ to the
list of Complex Order Types in Options
3, Section 14(b). This proposal describes
how Complex Preferenced Orders will
work. ISE Options 2, Section 10
currently describes Preferenced Orders
which may be Complex Preferenced
Orders.46 To complete the list of
43 The Complex Opening Process is described in
Supplementary Material .04 of ISE Options 3,
Section 14.
44 The Opening Price is described in ISE Options
3, Section 14(a)(2).
45 See note 3 above. MRX amended Options 3,
Section 14(b)(10).
46 ISE Options 2, Section 10 provides,
‘‘Preferenced Orders. An Electronic Access Member
may designate a ‘‘Preferred Market Maker’’ on
orders it enters into the System (‘‘Preferenced
Orders’’). (1) A Preferred Market Maker may be the
Primary Market Maker appointed to the options
class or any Competitive Market Maker appointed
to the options class. (2) If the Preferred Market
Maker is not quoting at a price equal to the NBBO
at the time the Preferenced Order is received, the
allocation procedure described in Options 3,
Section 10(c)(1)(C) shall not be applied to the
execution of the Preferenced Order. (3) If the
Preferred Market Maker is quoting at the NBBO at
the time the Preferenced Order is received, the
allocation procedure described in Options 3,
Section 10(c)(1)(C) shall be applied to the execution
of the Preferenced Order.’’
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Complex Order types, the Exchange
proposes to state in ISE Options 3,
Section 14(b)(19) that,
[a] Complex Preferenced Order is a
Complex Order for which an Electronic
Access Member has designated a Preferred
Market Maker as described in Options 2,
Section 10. The component leg(s) of a
Complex Order with a Preferenced Order
instruction may allocate pursuant to Options
3, Section 10(c)(1)(C) when the Complex
Preferenced Order legs into the single-leg
market provided that the Preferred Market
Maker is quoting at the better of the internal
BBO or the NBBO for a component leg(s) of
the Complex Preferenced Order at the time
the Complex Preferenced Order is received.
A Preferred Market Maker will not receive an
allocation pursuant to Options 3, Section
10(c)(1)(C) for a component leg(s) of a
Complex Preferenced Order if the Preferred
Market Maker is not quoting at the better of
the internal BBO or the NBBO for that leg at
the time the Complex Preferenced Order is
received.
Allocation of a leg(s) of a Complex
Preferenced Order, pursuant to ISE
Options 3, Section 10, would occur
when a leg(s) of a Complex Order trades
synthetically with the Preferred Market
Maker’s 47 quote that was at the better of
the internal BBO or the NBBO on the
single-leg order book in accordance with
ISE Options 3, Section 10. A Preferred
Market Maker must be quoting at the
NBBO for a component leg(s) of the
Complex Preferenced Order at the time
the Complex Preferenced Order is
received. As is the case for single-leg
orders, a Preferred Market Maker will
not receive an allocation pursuant to
Options 3, Section 10(c)(1)(C) for a
component leg(s) of a Complex
Preferenced Order if the Preferred
Market Maker is not quoting at the
better of the internal BBO or NBBO for
that leg at the time the Complex
Preferenced Order is received.
The referenced internal BBO is being
utilized within the description of the
Complex Preferenced Order because the
internal BBO for a leg component of
Complex Order on the single-leg order
book may be priced better than the
NBBO. The Exchange notes that similar
changes were recently made to the
Preferenced Order type for single-leg
orders within Options 7, Section 3.48
The Exchange described re-pricing
earlier in [sic] Purpose section.
With respect to orders which leg into
the single-leg order book, ISE Options 3,
Section 14(c) states that, ‘‘Except as
47 Preferred Market Maker may be the Primary
Market Maker appointed to the options class or any
Competitive Market Maker appointed to the options
class. See ISE Options 2, Section 10(a)(1).
48 See Securities Exchange Act Release No. 96362
(November 18, 2022), 87 FR 72539 (November 25,
2022) (SR–ISE–2022–25).
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otherwise provided in this Rule,
complex strategies shall be subject to all
other Exchange Rules that pertain to
orders and quotes generally.’’
Additionally, the Exchange notes that
orders that execute against interest on
the single-leg order book, including the
options leg of Complex Options
Strategies are subject to the provisions
of ISE Options 3, Section 5 which,
among other things, describes the NBBO
Price Protection and Trade-Through
Compliance and Locked or Crossed
Markets.
Further, Supplementary Material .01
to Options 9, Section 1 provides,
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[i]t will be a violation of this Rule for a
Member to have a relationship with a third
party regarding the disclosure of agency
orders. Specifically, a Member may not
disclose to a third party information
regarding agency orders represented by the
Member prior to entering such orders into the
System to allow such third party to attempt
to execute against the Member’s agency
orders. A Member’s disclosing information
regarding agency orders prior to the
execution of such orders on the Exchange
would provide an inappropriate
informational advantage to the third party in
violation of this Rule. For purposes of this
paragraph .01, a third party includes any
other person or entity, including affiliates of
the Member. Nothing in this paragraph is
intended to prohibit a Member from
soliciting interest to execute against an order
it represents as agent (a ‘‘solicited order’’),
the execution of which is governed by
Options 3, Section 22(e) and paragraph .02 of
Supplementary Material to Options 3,
Section 22.
This rule prohibits a Member from
notifying a Preferred Market Maker of an
intention to submit a Complex
Preferenced Order so that the Preferred
Market Maker could change its
quotation to match the NBBO
immediately prior to submission of the
Complex Preferenced Order, and then
fade its quote. The Exchange represents
that it proactively conducts surveillance
for, and enforces against, violations of
Supplementary Material .01 to Options
9, Section 1.
The Exchange’s proposal to add
‘‘Complex Preferenced Orders’’ to the
list of Complex Order Types in ISE
Options 3, Section 14(b) will continue
to encourage Preferred Market Makers to
quote aggressively in an effort to execute
against the Complex Preferenced Order.
Preferred Marker Makers are not able to
ascertain if a particular order is a
Complex Preferenced Order. The
Exchange believes the proposal will
encourage Market Makers to quote
tighter and add a greater amount of
liquidity on ISE in an attempt to interact
with Complex Preferenced Orders that
are sent to the Exchange. This order
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flow will benefit all market participants
on the Exchange because any ISE
Member may interact with that order
flow.
The addition of Complex Preferenced
Orders to the list of order types in ISE
Options 3, Section 14(b) will make clear
to Members the availability of Complex
Preferenced Orders. This amendment is
identical to a change recently adopted
for MRX.49 Additionally. [sic] Phlx 50
and MIAX 51 have a similar order type.
Complex Opening Price Determination
The Exchange proposes to amend the
citation within Supplementary Material
.05(d)(2) to Options 3, Section 14 which
states, ‘‘Potential Opening Price. The
System will calculate the Potential
Opening Price by identifying the
price(s) at which the maximum number
of contracts can trade (‘‘maximum
quantity criterion’’) taking into
consideration all eligible interest
pursuant to Supplementary Material
.06(b) to this Rule.’’ The citation to
Supplementary Material .06(b), related
to Uncrossing is incorrect. The citation
should be to Supplementary Material
.05(b), related to Complex Opening
Price Determination. The citation is
referring is to eligible interest during the
Complex Opening Price Determination.
The Exchange proposes to amend the
Complex Opening Price Determination
in Supplementary Material .05(d)(3) to
Options 3, Section 14 to allow for
additional contracts to be included in
the Potential Opening Price calculation
leading to better price discovery and
more contracts executing as part of the
Complex Opening Price Determination
process. This amendment is identical to
a change recently adopted for MRX.52
49 See note 3 above. MRX amended Options 3,
Section 14(b).
50 See Phlx Options 3, Section 14(b)(v) which
specifies that a Directed Order may be submitted as
a Complex Order. See also Phlx Options 3, Section
7(b)(11) which describes a Directed Order. Phlx’s
Options 2, Section 10 Directed Order rule is similar
to ISE’s Options 2, Section 10 Preferenced Order
rule.
51 A ‘‘Directed Order’’ is an order entered into the
System by an Electronic Exchange Member with a
designation for a Lead Market Maker (referred to as
a ‘‘Directed Lead Market Maker’’). Only Priority
Customer Orders will be eligible to be entered into
the System as a Directed Order by an Electronic
Exchange Member. See MIAX Rule 100. See also
MIAX Rule 514(h) which describes allocation.
Today, MIAX permits Directed Orders to be
submitted as a New Order—Multileg. See https://
www.miaxoptions.com/sites/default/files/pagefiles/FIX%20Order%20Interface_FOI_v2.5a_re.pdf.
Pursuant to MIAX’s specifications, ‘‘AllocAccount
(Tag 79) is defined as MIAX assigned directed firm
code of the designated participant for directed order
flow.’’
52 See note 3 above. MRX amended
Supplementary Material .05(d)(3) to Options 3,
Section 14.
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With this proposal, when the interest
does not match the size and there is
more than one Potential Opening Price
at which the interest may execute, the
Exchange would calculate a Potential
Opening Price using the mid-point of
the highest (lowest) executable offer
(bid) price and the next available
executable offer (bid) price rounded, if
necessary, down (up) to the closest
minimum trading increment. As a
result, more options contracts are likely
to be executed at better prices than
under the current rule. Example number
3 below demonstrates this behavior.
This behavior differs from current rules
in that, today, the Exchange would
calculate the Potential Opening Price as
the highest (lowest) executable bid
(offer) when there would be contracts
left unexecuted on the bid (offer) side of
the complex market.
Further, the proposed amendment
will allow Market Complex Orders to
participate in the Opening Price
Determination process in a broader
capacity than the rule allows for today.
Today, if there are only Market Complex
Orders on both sides of the market, or
if there are Market Complex Orders on
the bid (offer) side of the market for
greater than the total size of Complex
Orders on the offer (bid) side of the
market, then ISE will not open pursuant
to the Complex Opening Price
Determination process and would
instead open pursuant to an Uncrossing
as provide for in Supplementary
Material .06(b) of ISE Options 3, Section
14. With the proposed amendment
Market Complex Orders will be
included in the Complex Opening Price
Determination process in both situations
described above, leading to more
contracts being able to trade in the
Complex Opening Price Determination
with better price discovery. Example 5
below illustrates this point.
Finally, the proposed amendment
considers the Boundary Price earlier in
the Complex Opening Process. Today,
the rule seeks to satisfy the maximum
quantity criterion first and then
consider Boundary Prices. With the
proposed change, the Exchange will
consider the Boundary Price while
determining the Potential Opening
Price, thereby enabling as many
contracts as possible to trade sooner,
which reduces risk for market
participants awaiting executions. With
this proposal, the Complex Opening
Process considers the Boundary Price
earlier in the process and the Boundary
Price becomes the limit price for Market
Complex Orders. This proposal should
maximize the number of contracts
executed, to the benefit of those
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Members participating in that complex
strategy.
Current Supplementary Material .05
of ISE Options 3, Section 14 describes
how Complex Orders arrive at an
Opening Price. Specifically,
Supplementary .05(b) of ISE Options 3,
Section 14 describes the interest that is
eligible within the Complex Opening
Price Determination. The rule text
provides that the System would
calculate Boundary Prices 53 at or within
which Complex Orders may be executed
during the Complex Opening Price
Determination.54 Current
Supplementary Material .05(d)(2) of ISE
Options 3, Section 14 provides, ‘‘The
System will calculate the Potential
Opening Price 55 by identifying the
price(s) at which the maximum number
of contracts can trade (‘‘maximum
quantity criterion’’) taking into
consideration all eligible interest
pursuant to Supplementary Material
.06(b) to this Rule.’’ 56 The System takes
into consideration all Complex Orders,
identifies the price at which the
maximum number of contracts can
trade, and calculates the Potential
Opening Price as described in
Supplementary Material .05(d)(2) of ISE
Options 3, Section 14. Supplementary
Material .05(d)(3) of ISE Options 3,
Section 14 further describes the way the
System handles more than one Potential
Opening Price. Current Supplementary
Material .05(d)(3) of ISE Options 3,
Section 14 states,
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When two or more Potential Opening
Prices would satisfy the maximum quantity
criterion: (A) without leaving unexecuted
contracts on the bid or offer side of the
market of Complex Orders to be traded at
those prices, the System takes the highest
and lowest of those prices and takes the midpoint; provided that (1) if the highest and/or
lowest price described above is through the
price of a bid or offer that is priced to not
allocate in the Complex Opening Price
Determination, the highest and/or lowest
price will be rounded to the price of such bid
or offer that is priced to not allocate before
taking the mid-point, and (2) if the midpoint
is not expressed as a permitted minimum
trading increment, it will be rounded down
53 The Boundary Price is described in
Supplementary Material .05(d)(1) of ISE Options 3,
Section 14(a)(1).
54 See Supplementary Material .05(d)(1) of ISE
Options 3, Section 14.
55 The Potential Opening Price is described in
Supplementary Material .05(d)(2) of ISE Options 3,
Section 14.
56 The Exchange proposes to amend the citation
within Supplementary Material .05(d)(2) to Options
3, Section 14 within this proposal. The citation to
Supplementary Material .06(b), related to
Uncrossing, should be to Supplementary Material
.05(b), related to Complex Opening Price
Determination. Specifically, the reference is to
Eligible Interest during the Complex Opening Price
Determination.
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to the nearest permissible minimum trading
increment; or (B) leaving unexecuted
contracts on the bid (offer) side of the market
of Complex Orders to be traded at those
prices, the Potential Opening Price is the
highest (lowest) executable bid (offer) price.
Notwithstanding the foregoing: (C) if there
are Market Complex Orders on the bid (offer)
side of the market that would equal the full
quantity of Complex Orders on offer (bid)
side of the market, the limit price of the
highest (lowest) priced Limit Complex Order
is the Potential Opening Price; and (D) if
there are only Market Complex Orders on
both sides of the market, or if there are
Market Complex Orders on the bid (offer)
side of the market for greater than the total
size of Complex Orders on the offer (bid) side
of the market, there will be no trade in the
Complex Opening Price Determination and
the complex strategy will open pursuant to
the Complex Uncrossing Process described in
Supplementary Material .06(b) to this Rule.
At this time, the Exchange proposes to
amend the System handling within the
Complex Opening Process by replacing
Supplementary Material .05(d)(3) of ISE
Options 3, Section 14 with the following
proposed rule text,
Opening Price Determination. When
interest crosses and does not match in size,
the System will calculate the Potential
Opening Price based on the highest (lowest)
executable offer (bid) price when the larger
sized interest is offering (bidding), provided,
however, that if there is more than one price
at which the interest may execute, the
Potential Opening Price when the larger
sized interest is offering (bidding) shall be
the mid-point of the highest (lowest)
executable offer (bid) price and the next
available executable offer (bid) price
rounded, if necessary, down (up) to the
closest minimum trading increment; or
When interest crosses and is equal in size,
the System will calculate the Potential
Opening Price based on the mid-point of
lowest executable bid price and the highest
executable offer price, rounded, if necessary,
up to the closest minimum trading
increment.
(A) Executable bids/offers include any
interest which could be executed at the
Potential Opening Price without trading
through residual interest or the Boundary
Price or without trading at the Boundary
Price where there is Priority Customer
interest at the best bid or offer for any leg,
consistent with paragraph Options 3, Section
14(c)(2).
(B) Executable bids/offers will be bounded
by the Boundary Price on the contra-side of
the interest, for determination of the
Potential Opening Price described above.
This proposed new Complex Opening
Process seeks to maximize the interest
which is traded during the Complex
Opening Price Determination process
and deliver a rational price for the
available interest at the opening. The
Complex Opening Price Determination
process maximizes the number of
contracts executed during the Complex
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78749
Opening Process and ensures that
residual contracts of partially executed
orders or quotes are at a price equal to
or inferior to the Opening Price. In other
words, the logic ensures there is no
remaining unexecuted interest available
at a price which crosses the Opening
Price. If multiple prices exist that ensure
that there is no remaining unexecuted
interest available through such price(s),
the opening logic selects the mid-point
of such price points. Below are some
examples.
Example # 3 (More Than One Potential
Opening Price—Mid-Point of LargerSized Interest)
‘‘if there is more than one price at which
the interest may execute, the Potential
Opening Price when the larger sized
interest is offering (bidding) is the midpoint of the highest (lowest) executable
offer (bid) price and the next available
executable offer (bid) price rounded, if
necessary, down (up) to the closest
minimum trading increment’’
Assume
Complex Order Strategy: A+B strategy
Quote for Leg A @1.75 × 1.95
Quote for Leg B @1.75 × 1.95
Boundary Price = 3.50 (10)¥3.90 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 1.95 + Leg B Offer 1.95 =
3.90)
Complex Order #1: Buy 20 for $3.79
Complex Order #2: Buy 20 at $3.73
Complex Order #3: Sell 20 at $3.60
With the proposed amendment,
Opening Price would be for 20 strategies
at a price of $3.76. The execution price
of $3.76 is derived from the mid-point
of the lowest executable bid price of
$3.73 and the next available executable
bid price of $3.79. In this example, 20
strategies can be opened at multiple
price points ranging from $3.73 up to
$3.79. None of these Potential Opening
Prices would cause the unexecuted
$3.73 buy order to be available at a price
which crosses the Opening Price,
therefore, the System opens at the midpoint of such prices, $3.76.
Today, with this same example, the
Opening Price would be 3.79, the
highest executable bid price, which
provides the offer side with all price
improvement. With the proposed
amendment, the Opening Price seeks to
distribute to the extent possible price
improvement to both the bid and offer
side of the transaction.
Example # 4 (Mid-Point When Interest
Is Equal in Size)
‘‘Provided such crossing interest is
equal in size, the System will calculate
the Potential Opening Price based on
the mid-point of lowest executable bid
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price and the highest executable offer
price, rounded, if necessary, up to the
closest minimum trading increment’’
Complex Order Strategy: A+B strategy
Quote for Leg A @1.75 × 1.95 each
Quote for Leg B @1.75 × 1.95 each
Boundary Price= 3.50 (10)¥3.90 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 1.95 + Leg B Offer 1.95 =
3.90)
Complex Order #1: Buy 10 for $3.78
Complex Order #2: Buy 20 for $3.74
Complex Order #3: Buy 10 at $3.71
Complex Order #4: Sell 20 at $3.64
Complex Order #5: Sell 20 at $3.66
With the proposed amendment, the
Opening Price will be for 40 strategies
at a price of $3.69. The execution price
of $3.69 is derived from the mid-point
of the lowest executable bid price of
$3.71 and the highest executable offer
price of $3.66, rounded up to the closest
minimum trading increment. Today,
rounding would be down and with this
proposal the rounding would be up.
If the example were changed slightly
such that Complex Order #4 and
Complex Order #5 were Market
Complex Orders rather than Limit
Orders, the Opening Price for the 40
strategies would be $3.61, which is
derived from the mid-point of the
lowest executable bid price of $3.71 and
the highest executable offer of $3.50
(which is the Boundary Price of the sell
Market Complex Orders), rounded up to
the closest minimum trading increment.
The Exchange notes that executable
bids/offers include any interest that
could be executed at the net price
without trading through residual
interest or the Boundary Price, or
without trading at the Boundary Price
where there is Priority Customer interest
at the best bid or offer for any leg,
consistent with current ISE Options 3,
Section 14(c)(2).57 Further, executable
57 ISE Options 3, Section 14(c)(2) provides,
‘‘Complex strategies will not be executed at prices
inferior to the best net price achievable from the
best ISE bids and offers for the individual legs.
Notwithstanding the provisions of Options 3,
Section 10: (i) a Complex Options Strategies may be
executed at a total credit or debit price with one
other Member without giving priority to bids or
offers established on the Exchange that are no better
than the bids or offers in the individual options
series comprising such total credit or debit;
provided, however, that if any of the bids or offers
established on the Exchange consist of a Priority
Customer Order, the price of at least one leg of the
complex strategy must trade at a price that is better
than the corresponding bid or offer on the Exchange
by at least one minimum trading increment for the
series as defined in Options 3, Section 3; (ii) the
option leg of a Stock-Option Strategy has priority
over bids and offers for the individual options
series established on the Exchange by Professional
Orders and market maker quotes that are no better
than the price of the options leg, but not over such
bids and offers established by Priority Customer
Orders; and (iii) the options legs of a Stock-
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bids/offers would be bounded to the
Boundary Price on the contra-side of the
interest, for determination of the
Opening Price described above when
crossing interest is different in size and
when crossing interest is equal in size.
The amendment will benefit Members
by smoothing the way for the complex
strategy to open with Market Complex
Orders. Today, Market Complex Orders
participate in the Complex Opening
Process in a limited capacity as
explained above. By permitting Market
Complex Orders to participate in the
Complex Opening Price Determination
process in more situations, the
Exchange can provide more opportunity
for Complex Orders to trade in the
Opening Process without having to go to
the Uncrossing process. Market
conditions can change between the
Complex Opening Price Determination
process and the Uncrossing process,
which can lead to missed opportunities
for execution. The proposed rule would
have the Boundary Price assign limits to
the Opening Price and therefore permit
Market Complex Orders to participate in
the Complex Opening Process to the
extent that they are within the Boundary
Prices. With this change, ISE would
permit a complex strategy to calculate
an Opening Price utilizing a greater
number of Market Complex Orders,
which benefits the Opening Process by
taking into account these more
aggressively priced orders 58 while also
bringing more liquidity into the
Opening Price calculation.
Example # 5 (Market Complex Orders
Trading in Opening Price
Determination)
‘‘Provided interest crosses and does not
match in size, the System will calculate
the Potential Opening Price based on
the highest (lowest) executable offer
(bid) price when the larger sized interest
is offering (bidding)’’
As referenced above,
Assume
Complex Order Strategy: A+B strategy
Quote for Leg A @1.75 × 2.00
Quote for Leg B @1.75 × 2.00
Boundary Price = 3.50 (10)¥4.00 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 2.00 + Leg B Offer 2.00 =
4.00)
Complex Strategy are executed in accordance with
subparagraph (c)(2)(i).
58 The allowance of a greater number of Market
Complex Orders within the Opening Process
provides a greater depth of price discovery for an
options series. As noted above, the Boundary Price
would assign limits to the Opening Price, therefore
preventing Market Complex Orders which are
aggressively priced from negatively impacting the
Opening Price.
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Market Complex Order #1: Buy 30
Complex Order #2: Sell 20 at $3.95
After Complex Opening Price
Determination process, but before
Uncrossing
ABBO for Leg A updates: 1.85 × 1.90
ABBO for Leg B updates 1.85 × 1.90
cNBBO: 3.70 × 3.80
(ABBO Leg A Bid 1.85 + Leg B Bid 1.85
= 3.70)(ABBO Leg A Offer 1.90 + Leg
B Offer 1.90 = 3.80)
With the proposed amendment the
Market Complex Order can be
considered in the Complex Opening
Price Determination process and
therefore is able to trade at the Opening
Price of $4.00 for 20 strategies with
Complex Order #2 and also able to trade
10 strategies at a net price $4.00 with
the individual legs at the best bids and
offers before the ABBO updates, leaving
no place for this complex strategy to
trade. The Opening Price in this
example is determined as the lowest
executable bid because the bid side is
the larger sized interest, which is
limited by the Boundary Price on the
offer side at 4.00.
Today, Market Complex Orders with
a larger quantity than the quantity of
interest on the contra side of the market
do not participate in the Complex
Opening Price Determination and can
only execute during the Uncrossing
pursuant to Supplementary Material
.05(d)(6) of ISE Options 3, Section 14. In
the example above, the ABBO of each
leg updates after the Complex Opening
Price Determination process and
restricts the Market Complex Order and
Complex Limit Order from trading in
the Uncrossing because they cannot
match at a price that would be within
the Price Limits for Complex Orders
pursuant to ISE Options 3, Section
16(a).
Finally, with this proposal and as
demonstrated in Example 5 above, a
complex strategy would open pursuant
to Supplementary Material .05(d)(5) of
ISE Options 3, Section 14, with less
contracts becoming subject to the
Uncrossing pursuant to Supplementary
Material .06(b) of ISE Options 3, Section
14. As a result of this change, more
interest would be able to trade within
the Opening Process, ensuring a greater
number of contracts are executed on ISE
at the Complex Opening and lessening
the likelihood that contracts which
remain unmatched during the Complex
Opening Price Determination process
receive no execution in the Uncrossing
due to changing market conditions.59
As noted above, this amendment is
identical to a change recently adopted
59 Unmatched orders would rest on the Order
Book with the potential to execute intra-day.
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for MRX.60 Additionally, Phlx has a
similar methodology to arrive at a
complex opening price at Phlx Options
3, Section 14(d)(ii)(C)(2) 61 as compared
to proposed Supplementary Material
.05(d)(3) of ISE Options 3, Section 14.
Phlx’s COOP Evaluation and ISE’s
proposed Opening Price Determination
both seek the price at which the
maximum number of contracts can
trade. Phlx’s COOP Evaluation is an
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60 See
note 3 above. MRX amended
Supplementary Material .05(d)(3) of ISE Options 3,
Section 14.
61 COOP Evaluation. Upon expiration of the
COOP Timer, the System will conduct a COOP
Evaluation to determine, for a Complex Order
Strategy, the price at which the maximum number
of contracts can trade, taking into account Complex
Orders marked All-or-None (which will be executed
if possible) unless the maximum number of
contracts can only trade without including All-orNone Orders. The Exchange will open the Complex
Order Strategy at that price, executing marketable
trading interest, in the following order: first, to
Public Customers in time priority; next to Phlx
electronic market makers on a pro rata basis; and
then to all other participants on a pro rata basis.
The imbalance of Complex Orders that are
unexecutable at that price are placed on the
CBOOK. (1) No trade possible. If at the end of the
COOP Timer the System determines that no market
or marketable limit Complex Orders or COOP
Sweeps, Complex Orders or COOP Sweeps that are
equal to or improve the cPBBO, and/or Complex
Orders or COOP Sweeps that cross within the
cPBBO exist in the System, all Complex Orders
received during the COOP Timer will be placed on
the CBOOK, as described in paragraph (f) below. (2)
Trade is possible. If at the end of the COOP Timer
the System determines that there are market or
marketable limit Complex Orders or COOP Sweeps,
Complex Orders or COOP Sweeps that are equal to
or improve the cPBBO, and/or Complex Orders or
COOP Sweeps that cross within the cPBBO in the
System, the System will do the following: if such
interest crosses and does not match in size, the
execution price is based on the highest (lowest)
executable offer (bid) price when the larger sized
interest is offering (bidding), provided, however,
that if there is more than one price at which the
interest may execute, the execution price when the
larger sized interest is offering (bidding) is the
midpoint of the highest (lowest) executable offer
(bid) price and the next available executable offer
(bid) price rounded, if necessary, down (up) to the
closest minimum trading increment. If the crossing
interest is equal in size, the execution price is the
midpoint of lowest executable bid price and the
highest executable offer price, rounded, if
necessary, up to the closest minimum trading
increment. Executable bids/offers include any
interest which could be executed at the net price
without trading through residual interest or the
cPBBO or without trading at the cPBBO where there
is Public Customer interest at the best bid or offer
for any leg, consistent with paragraph (c)(iii). If
there is any remaining interest and there is no
component that consists of the underlying security
and provided that the order is not marked all-ornone, such interest may ‘‘leg’’ whereby each options
component may trade at the PBBO with existing
quotes and/or Limit Orders on the Limit Order book
for the individual components of the Complex
Order; provided that remaining interest may
execute against any eligible Complex Orders
received before legging occurs. If the remaining
interest has a component that consists of the
underlying security, such Complex Order will be
placed on the CBOOK (as defined below). (3) The
Complex Order Strategy will be open after the
COOP even if no executions occur.
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auction with a timer, unlike ISE’s
Opening Price Determination.62
Proposed Supplementary Material
.05(d)(3)(A) and (B) of ISE Options 3,
Section 14 differs from Phlx Options 3,
Section 14(d)(ii)(C)(2). ISE will open a
complex strategy with the Complex
Order Book crossed if an Opening Price
cannot be found within the Boundary
Prices and remain crossed while
attempting to uncross the Complex
Order Book on a best effort basis,
pursuant to Supplementary Material .06
of ISE Options 3, Section 14, until all
interest can be executed. Today, Phlx
will open a complex strategy crossed
when a price cannot be found within
Phlx’s cPBBO during the COOP
Evaluation period and there are more
aggressive away market prices that are
limiting the ability to leg into the singleleg book, but will not remain crossed as
complex orders that are through Phlx’s
cPBBO would be cancelled pursuant to
Phlx Options 3, Section 14(f)(i)(A).63
The Exchange also proposes to amend
the Opening Price in Supplementary
Material .05(d)(4) of ISE Options 3,
Section 14 that currently provides,
Opening Price. If the Potential Opening
Price is at or within the Boundary Prices, the
Potential Opening Price becomes the
Opening Price. If the Potential Opening Price
is not at or within the Boundary Prices, the
Opening Price will be the price closest to the
Potential Opening Price that satisfies the
maximum quantity criteria without leaving
62 Phlx’s All-or-None order type differs from ISE’s
All-or-None order in that only Public Customers
may utilize the Phlx All-or-None order type and
Phlx’s All-or-None order may rest on the order
book. See Phlx Option 3, Section 7(b)(5). ISE’s Allor-None order is a limit or market order that is to
be executed in its entirety or not at all. See ISE
Options 3, Section 7(c).
63 By way of example, assume Phlx cPBBO is 1.00
× 2.00 and cNBBO is 1.45 × 1.50. Also, assume Phlx
complex Day Order to buy the strategy @$0.50
which begins a COOP timer. Next, a complex day
order to sell the strategy @$0.50 arrives during the
COOP timer. These orders are crossed, but are not
within Phlx’s cPBBO, and, therefore, both orders
cannot trade as part of the COOP Evaluation.
Additionally, the sell order cannot leg into Phlx’s
simple order book because of the more aggressive
cNBBO which would limit legging as part of the
ACE price protection described within Phlx
Options 3, Section 16(b)(i), and, therefore, the sell
order that is crossed with Phlx’s cPBBO cannot
remain on the Complex Order Book and is
ultimately cancelled. In contrast, on ISE, this sell
order would remain crossed on the Complex Order
Book while continuously looking for an opportunity
to uncross and trade these Complex Orders as new
orders arrive or the market moves. Options 3,
Section 14(f)(i)(A) provides that Complex Orders
must be entered onto the CBOOK in increments of
$0.01. The individual components of a Complex
Order may be executed in minimum increments of
$0.01, regardless of the minimum increments
applicable to such components. Such orders will be
placed on the CBOOK by the System when the
following conditions exist: (A) When the Complex
Order does not price-improve upon the cPBBO
upon receipt . . .’’.
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78751
unexecuted contracts on the bid or offer side
of the market at that price and is at or within
the Boundary Prices. If the bid Boundary
Price is higher than the offer Boundary Price,
or if no valid Opening Price can be found at
or within the Boundary Prices, there will be
no trade in the Complex Opening Price
Determination and the complex strategy will
open pursuant to the Complex Uncrossing
Process described in Supplementary Material
.06(b) to this Rule.
The Exchange proposes to amend this
rule to instead provide,
If the Potential Opening Price is at or
within the Boundary Prices, the Potential
Opening Price becomes the Opening Price
and the complex strategy will open pursuant
to Supplementary Material .05(d)(5) to this
Rule. If the bid Boundary Price is higher than
the offer Boundary Price, or if no valid
Potential Opening Price can be found at or
within the Boundary Prices, there will be no
trade in the Complex Opening Price
Determination and the complex strategy will
open pursuant to the Complex Uncrossing
Process described in Supplementary Material
.06(b) to this Rule.
With the proposed change, if the
Potential Opening Price is at or within
the Boundary Prices, the Potential
Opening Price becomes the Opening
Price and the complex strategy will
open pursuant to the Uncrossing
described in Supplementary Material
.05(d)(5) of ISE Options 3, Section 14, as
is the case today. However, as is the
case today, if the bid Boundary Price is
higher than the offer Boundary Price, or
if no valid Potential Opening Price can
be found at or within the Boundary
Prices, there will be no trade in the
Complex Opening Price Determination
and the complex strategy will open
pursuant to the Complex Uncrossing
process described in Supplementary
Material .06(b) of ISE Options 3, Section
14 pursuant to the proposed amendment
to the Complex Opening Price
Determination. As noted above, this
amendment is identical to a change
recently adopted for MRX.64
Complex Order Risk Protections
The Exchange proposes a nonsubstantive amendment to the title of a
Complex Order Risk Protection in ISE
Options 3, Section 16, Complex Order
Risk Protections. Specifically, the
Exchange proposes to amend ISE
Options 3, Section 16(c)(1) to change the
title from ‘‘Limit Order Price
Protection’’ to ‘‘Complex Order Price
Protection.’’ The Exchange believes the
proposed title more accurately describes
the risk protection.
64 See note 3 above. MRX amended
Supplementary Material .05(d)(4) of ISE Options 3,
Section 14.
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Implementation
The Exchange intends to begin
implementation of the proposed rule
change prior to December 23, 2023. The
implementation would commence with
a limited symbol migration and
continue to migrate symbols over
several weeks. The Exchange will issue
an Options Trader Alert to Members to
provide notification of the symbols that
will migrate and the relevant dates.
Technical Amendments
The Exchange proposes to amend an
incorrect citation within Options 3,
Section 6, Collection and Dissemination
of Quotations. Specifically, the
Exchange proposes to amend Options 3,
Section 6(c)(2) to correct a citation to
‘‘Options 5, Section 8’’. The citation
should be to ‘‘Options 3, Section 8’’.
The Exchange proposes to amend
‘‘Option’’ to ‘‘Options’’ within Options
3, Section 8(b)(2) related to the Opening
Process and Options 3, Section 9(d)(2)
related to Trading Halts.
The Exchange proposes to delete the
words ‘‘which is’’ within Options 3,
Section 8(j)(3)(B) because they are
duplicative.
lotter on DSK11XQN23PROD with NOTICES1
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,65 in general, and furthers the
objectives of Section 6(b)(5) of the Act,66
in particular, in that it is designed to
promote just and equitable principles of
trade and to protect investors and the
public interest for the reasons discussed
below.
Legging Order
Amending ISE Options 3, Section
7(k)(1) to add a provision which states
that a Legging Order will not be
generated during a Posting Period in
progress on the same side in the series
pursuant to Options 3, Section 15
regarding Acceptable Trade Range, is
consistent with the Act because from a
System processing and user acceptance
standpoint, the best practice is to wait
for the ATR Posting Period to complete
before attempting to generate a Legging
Order on the same side in the series, as
the time required to complete the ATR
Posting Period is minimal. The
proposed change is designed to protect
investors and the public interest as
automatically generated Legging Orders
would be removed from the single-leg
order book when they are no longer at
the Exchange’s displayed best bid or
offer. Generating a Legging Order during
a Posting Period in progress on the same
65 15
66 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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side in the series would lead to the
immediate removal of the Legging Order
from the single-leg order book, making
it superfluous to have been generated.
This amendment is identical to a change
recently adopted for MRX.67
Additionally, Phlx’s legging order rule
in Options 3, Section 14(f)(iii)(C)(2) 68
has the same restriction on generating
legging orders as proposed herein.
Re-Pricing
The Exchange believes that amending
Options 3, Section 12(c) and (d) and
Options 3, Section 14(b)(19) to account
for re-pricing of quotes and orders that
would otherwise lock or cross an away
market, as provided in Options 3,
Section 4(b)(6) and (7) and Options 3,
Section 5(c) and (d) of SR–ISE–2022–25,
is consistent with the Act.
As discussed above with the
implementation of re-pricing as
provided in Options 3, Section 4(b)(6)
and (7) and Options 3, Section 5(c) and
(d), interest could be available on the
Exchange at a price that is better than
the NBBO but is non-displayed (i.e., the
Exchange’s non-displayed order book or
internal BBO). The proposed addition of
‘‘internal BBO’’ to Options 3, Section
12(c) and (d) will ensure that Members
continue to submit Qualified Contingent
Cross Orders and Complex Qualified
Contingent Cross Orders at prices equal
to or better than the best prices available
in the market and ensure that these
orders are not executed ahead of betterpriced interest. This amendment is
identical to a change recently adopted
for MRX.69
Further, with respect to the
amendment to Options 3, Section
14(b)(19), regarding Complex
Preferenced Orders, the addition of
‘‘internal BBO’’ is designed to ensure
that Complex Preferenced Orders are
not allocated unless the Preferred
Market Maker is quoting at the better of
the internal BBO (which could be better
than the NBBO) or the NBBO for a
component leg(s) of the Complex
Preferenced Order at the time the
Complex Preferenced Order is received.
This amendment is identical to a change
recently adopted for MRX.70
Changes to the Single-Leg Price
Improvement Mechanism for Crossing
Transactions
The Exchange’s proposal to amend
ISE Options 3, Section 13(d)(4), related
67 See note 3 above. MRX amended Options 3,
Section 7(k)(1).
68 See note 10 above.
69 See note 3 above. MRX amended Options 3,
Section 12(c) and (d).
70 See note 3 above. MRX amended Options 3,
Section 14(b)(19).
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to single-leg PIM, to not permit
unrelated marketable interest, on the
opposite side of the market from the
Agency Order, which is received during
a single-leg PIM to early terminate a
single-leg PIM is consistent with the Act
and promotes just and equitable
principles because allowing the auction
to run its full course would provide a
full opportunity for price improvement
to the Crossing Transaction. The
unrelated interest would participate in
the single-leg PIM allocation pursuant to
ISE Options 3, Section 13(d), if residual
contracts remain after executing with
interest on the single-leg order book.
This amendment is identical to a change
recently adopted for MRX.71
Additionally, Phlx 72 and BX 73 do not
permit unrelated interest on the same or
opposite side of an Agency Order to
early terminate their simple price
improvement auctions.
The proposed amendment in ISE
Options 3, Section 13(c)(5)(ii), related to
single-leg PIM, applies to the receipt of
marketable orders both on the same side
and opposite side of the Agency order.
With respect to the same side of the
Agency Order, today, an unrelated
market or marketable limit order in the
same series on the same side of the
Agency Order would cause the singleleg PIM to early terminate as well. The
proposal promotes just and equitable
principles of trade because a market or
marketable limit order in the same
series on the same side of the Agency
Order cannot interact with a single-leg
PIM auction. The market or marketable
limit order may interact with the order
book, and if there are residual contracts
that remain from the market or
marketable order in the same series on
the same side of the Agency Order, they
will rest on the order book and improve
the BBO beyond the price of the
Crossing Transaction which will cause
early termination of the single-leg PIM
pursuant to proposed ISE Options 3,
Section 13(c)(5)(ii). The Exchange
believes that this outcome would allow
for the single-leg PIM exposure period
to continue for the full period despite
the receipt of unrelated marketable
interest on the same side of the market
from the Agency Order, provided
residual interest does not go on to rest
on the order book improving the BBO
beyond the price of the Crossing
Transaction of the PIM. Allowing the
single-leg PIM to run its full course
protects investors and the general public
because it would provide an
71 See note 3 above. MRX amended Options 3,
Section 13(d)(4).
72 See note 17 above.
73 See note 18 above.
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opportunity for price improvement to
the Agency Order. This amendment is
identical to a change recently adopted
for MRX.74
Amending current ISE Options 3,
Section 13(c)(5)(iii) to align the rule text
with MRX 75 and also more closely with
BX Options 3, Section 13(ii)(B)(2) 76 is
consistent with the Act because it
removes any ambiguity that a market or
marketable limit order priced more
aggressively than the Agency Order on
the same side could ultimately rest on
the order book, improving the BBO
beyond the price of the Crossing
Transaction of the PIM and, therefore,
cause the early termination of a singleleg PIM. Continuing to permit a singleleg PIM to early terminate any time the
Exchange best bid or offer improves
beyond the price of the Crossing
Transaction on the same side of the
market as the Agency Order protects
investors and the general public because
the Crossing Transaction Agency
Order’s price is inferior to the
Exchange’s best bid or offer on the same
side of the market as the Agency Order.
Upon early termination of the single-leg
PIM, the Crossing Transaction would
execute against responses that arrived
prior to the time the Exchange’s best bid
or offer improved beyond the Crossing
Transaction. The proposed amendment
to the rule text is not intended to amend
the current System functionality, rather
it is intended to make clear that a
market or marketable limit order could
ultimately rest on the order book and
improve the BBO beyond the price of
the Crossing Transaction.
Adding proposed new ISE Options 3,
Section 13(c)(5)(iii), which describes the
automatic termination of the exposure
period resulting from a trading halt on
the Exchange in the affected series, is
consistent with the Act because a
trading halt would cause an option
series to stop trading on ISE and thereby
impact the PIM auction. Today, if a
trading halt is initiated after an order is
entered into the single-leg PIM, such
auction will be automatically
terminated without execution. Of note,
the Exchange is separately proposing to
amend ISE Options 3, Section 13(d)(5) 77
to change System behavior such that if
a trading halt is initiated after an order
is entered into the single-leg PIM, such
auction will be automatically
terminated with execution solely with
the Counter-Side Order.78 The proposed
74 See note 3 above. MRX amended Options 3,
Section 13(c)(5)(ii).
75 See MRX Options 3, Section 13(c)(5)(iii).
76 See note 22 above.
77 See note 23 above.
78 SR–ISE–2022–15P proposes to renumber ISE
Options 3, Section 13(d)(5) as Options 3, Section
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amendment to ISE Options 3, Section
13(c)(5)(iii) protects investors and the
general public by making clear that a
trading halt would lead to early
termination of a single-leg PIM. This
amendment is not intended to amend
the current System functionality, rather
it is intended to make clear that a
trading halt will cause the single-leg
PIM to early terminate. This amendment
is identical to a change recently adopted
for MRX.79
Changes to the Complex PIM
Deleting ISE Options 3, Section
13(e)(4)(vi) within Complex PIM, as
well as a paragraph in Supplementary
Material .01(b)(ii) of ISE Options 3,
Section 14 discussing Complex Order
Exposure, related to the early
termination of single-leg PIM from the
arrival of unrelated marketable interest
on either the same or opposite side of
the market from the Agency Order, is
consistent with the Act because a singleleg PIM will no longer early terminate
from the arrival of unrelated marketable
interest on either the same or opposite
side of the market from the Agency
Order and because the flash
functionality will no longer exist.80 The
removal of the aforementioned rule text
will protect investors and the public by
avoiding confusion as the scenarios
contemplated by ISE Options 3, Section
13(e)(4)(vi) and Supplementary Material
.01(b)(ii) of ISE Options 3, Section 14
will no longer be able to occur. This
amendment is identical to a change
recently adopted for MRX.81
Other Complex Order Amendments
Opening Only Complex Order
The Exchange’s proposal to remove
the word ‘‘Limit’’ within the description
of the Opening Only Complex Order
Type in ISE Options 3, Section 14(b)(10)
is consistent with the Act because it
allows Opening Only Complex Orders
to be submitted as Market Orders or
Limit Orders. The Exchange believes
that allowing Market and Limit Orders
to be submitted within the Complex
Opening Process promotes just and
equitable principles of trade. Market
Orders are typically the most
aggressively priced orders while Limit
13(d)(6), and proposes to amend the rule text to
state, ‘‘If a trading halt is initiated after an order is
entered into the Price Improvement Mechanism,
such auction will be automatically terminated with
execution solely with the Counter-Side Order.’’
79 See note 3 above. MRX amended Options 3,
Section 13(c)(5)(iii).
80 See note 28 above.
81 See note 3 above. MRX deleted Options 3,
Section 13(e)(4)(vi) within Complex PIM, as well as
a paragraph in Supplementary Material .01(b)(ii) of
Options 3, Section 14.
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78753
Orders have a limit price contingency
that Market Orders do not have.
Allowing both of these order types to
participate in the Complex Opening
Process protects investors and the
general public because it allows greater
liquidity to be present to determine the
Opening Price. All Members may enter
both Market Orders and Limit Orders in
the Complex Opening Process as well as
intra-day. This proposal is consistent
with current System operations. This
amendment is identical to a change
recently adopted for MRX.82
Complex QCC With Stock Orders
The Exchange’s proposal to amend an
incorrect citation with ISE Options 3,
Section 14(b)(15), related to Complex
QCC with Stock Orders, is consistent
with the Act because the current
citation to ISE Options 3, Section 12(e)
in the description of this order type
should be to ISE Options 3, Section
12(f). This non-substantive amendment
will make clear what was meant by the
reference.
Complex Preferenced Orders
The Exchange’s proposal to add
‘‘Complex Preferenced Orders’’ to the
list of Complex Order Types in ISE
Options 3, Section 14(b) is consistent
with the Act because the Exchange
believes that this order type will
promote just and equitable principles of
trade because the order type will
continue to encourage Preferred Market
Makers to quote aggressively in an effort
to execute against the Complex
Preferenced Order. Preferred Marker
Makers are not able to ascertain if a
particular order is a Complex
Preferenced Order. The Exchange
believes the proposal will protect
investors and the general public by
encouraging greater order flow to be
sent to the Exchange through Complex
Preferenced Orders and that this
increased order flow will benefit all
market participants on the Exchange
because they may interact with that
order flow.
The proposal promotes just and
equitable principles of trade because it
continues to prioritize Priority
Customer 83 Orders on the single-leg
order book. Priority Customers have
priority over non-Priority Customer
interest at the same price in the same
options series on the single-leg order
82 See note 3 above. MRX amended Options 3,
Section 14(b)(10).
83 The term ‘‘Priority Customer’’ means a person
or entity that (i) is not a broker or dealer in
securities, and (ii) does not place more than 390
orders in listed options per day on average during
a calendar month for its own beneficial account(s).
See Options 1, Section 1(a)(36).
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book.84 Complex Preferenced Orders are
allocated based on the competitive
bidding of market participants. The
Exchange’s proposal promotes just and
equitable principles of trade as a
Preferred Marker Maker must be at the
NBBO for a component leg(s) of the
Complex Preferenced Order at the time
the Complex Preferenced Order is
received. Moreover, participation
entitlements for Preferred Market
Makers are designed to balance the
obligations 85 that the Preferred Market
Maker has to the market with
corresponding benefits. In its approval
of other options exchange preferenced
or directed order programs, the
Commission has, like proposals to
amend a specialist guarantee, focused
on whether the percentage of the
‘‘entitlement’’ would rise to a level that
could have a material adverse impact on
quote competition within a particular
exchange, and concluded that such
programs do not jeopardize market
integrity or the incentive for market
participants to post competitive
quotes.86
Further, adding this existing order
type, which is described in ISE Options
2, Section 10, would complete the list
of Complex Order types in ISE Options
3, Section 14(b). The addition of
Complex Preferenced Orders to the list
of order types in ISE Options 3, Section
14(b) will make clear to Members the
availability of Complex Preferenced
Orders. This amendment is identical to
a change recently adopted for MRX.87
Additionally, Phlx 88 and MIAX 89 have
a similar order type.
Complex Opening Price Determination
The Exchange’s proposal to amend
the citation within Supplementary
Material .05(d)(2) to Options 3, Section
14, related to the Potential Opening
Price, is consistent with the Act because
the current citation to Supplementary
Material .06(b) should be to
84 See
ISE Options 3, Section 10(c)(1)(A).
Market Makers are obligated to quote
in the Opening Process pursuant to ISE Options 3,
Section 8(c) as well as intra-day pursuant to
Options 2, Section 5(e), in addition to other
obligations noted within ISE Options 2, Sections 4–
8.
86 See Securities Exchange Act Release Nos.
74129 (January 23, 2015), 80 FR 4954 at 4955
(January 29, 2015) (SR–BX–2014–049) (Order
Approving Proposed Rule Change Relating to
Directed Market Makers); and 51759 (May 27,
2005), 70 FR 32860 at 32861(June 6, 2005) (SR–
Phlx–2004–91) (Order Approving Proposed Rule
Change and Notice of Filing and Order Granting
Accelerated Approval to Amendment No. 1 Thereto
To Establish a Directed Order Process for Orders
Delivered to the Phlx Via AUTOM).
87 See note 3 above. MRX amended Options 3,
Section 14(b).
88 See note 50 above.
89 See note 51 above.
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Supplementary Material .05(b). This
non-substantive amendment will make
clear what was meant by the reference.
The Exchange’s proposal to amend
Supplementary Material .05(d)(3) of ISE
Options 3, Section 14, which describes
the Complex Opening Price
Determination, is consistent with the
Act because the proposed new Complex
Opening Process would allow for
additional contracts to be included in
the Potential Opening Price calculation.
This proposed methodology would
protect investors and the general public
by leading to better price discovery and
more contracts executing as part of the
Complex Opening Price Determination.
With this proposal, when the interest
does not match in size and there is more
than one Potential Opening Price at
which the interest may execute, then the
Exchange would calculate a Potential
Opening Price using the mid-point of
the highest (lowest) executable offer
(bid) price and the next available
executable offer (bid) price rounded, if
necessary, down (up) to the closest
minimum trading increment. As a
result, the proposal promotes just and
equitable principles of trade as more
options contracts are likely to be
executed at better prices than under
current rule. This behavior differs from
ISE’s current opening rule in that, today,
the Exchange would calculate the
Potential Opening Price as the highest
(lowest) executable bid (offer) when
there would be contracts left
unexecuted on the bid (offer) side of the
complex market. This amendment is
identical to a change recently adopted
for MRX.90 Also, the proposed
methodology is similar to Phlx.91
Further, the proposed amendment
promotes just and equitable principles
of trade by allowing Market Complex
Orders to participate in the Opening
Price Determination process in a
broader capacity than the ISE opening
rule allows for today. Today, if there are
only Market Complex Orders on both
sides of the market, or if there are
Market Complex Orders on the bid
(offer) side of the market for greater than
the total size of Complex Orders on the
offer (bid) side of the market, then ISE
will not open pursuant to the Complex
Opening Price Determination process
and would instead open pursuant to an
Uncrossing pursuant to Supplementary
Material .06(b) of ISE Options 3, Section
14. The proposed rule would have the
Boundary Price assign limits to the
Opening Price and, therefore, permit
90 See note 3 above. MRX amended
Supplementary Material .05(d)(3) of ISE Options 3,
Section 14.
91 See Phlx Options 3, Section 14(d)(ii)(C)(2).
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Market Complex Orders to participate in
the Complex Opening Process, without
limitation to the benefit of investors and
the public interest. With this change,
ISE would permit a complex strategy to
calculate an Opening Price utilizing a
greater number of Market Complex
Orders, which benefits the Opening
Process by taking into account these
more aggressively priced orders 92 while
also bringing more liquidity into the
Opening Price calculation. The
amendment is designed to promote just
and equitable principles of trade as it
will benefit Members by smoothing the
way for the complex strategy to open
with Market Complex Orders.
Finally, the proposed amendments to
the Complex Opening Process should
promote just and equitable principles by
allowing a complex strategy to open
pursuant to Supplementary Material
.05(d)(4) of ISE Options 3, Section 14,
with less contracts becoming subject to
the Uncrossing pursuant to
Supplementary Material .06(b) of ISE
Options 3, Section 14. As a result of this
change, more interest would be able to
trade within the Opening Process,
ensuring a greater number of contracts
are executed on ISE at the opening and
lessening the likelihood that contracts
which remain unmatched during the
Uncrossing receive no execution.93
Complex Order Risk Protections
The Exchange’s proposal to amend
the title of a Complex Order Risk
Protection in Options 3, Section 16,
Complex Order Risk Protections is a
non-substantive amendment. The
proposal to amend Options 3, Section
16 protects investors and the general
public by making clear the contents of
Options 3, Section 16.
Technical Amendments
The Exchange’s amendment to
Options 3, Section 6(c)(2) to correct a
citation is non-substantive. The
proposed amendments will protect
investors and the general public by
updating incorrect citations to make the
rules clear.
The Exchange’s amendments to
Options 3, Section 8(b)(2) and Options
3, Section 9(d)(2) related to Trading
Halts are non-substantive corrections.
The proposed amendments will protect
investors and the general public by
92 The allowance of a greater number of Market
Complex Orders within the Opening Process
provides a greater depth of price discovery for an
options series. As noted above, the Boundary Price
would assign limits to the Opening Price, therefore
preventing Market Complex Orders which are
aggressively priced from negatively impacting the
Opening Price.
93 Unmatched orders would rest on the order
book with the potential to execute intra-day.
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updating incorrect citations to make the
rules clear.
Finally, the Exchange’s amendment to
Options 3, Section 8(j)(3)(B) to remove
duplicative rule text is non-substantive.
The proposed amendments will protect
investors and the general public by
updating incorrect citations to make the
rules clear.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
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Legging Orders
Amending ISE Options 3, Section
7(k)(1) to add a provision which states
that a Legging Order will not be
generated during a Posting Period in
progress on the same side in the series
pursuant to Options 3, Section 15
regarding Acceptable Trade Range does
not impose an undue burden on intramarket competition because the
amendment will apply equally to all
Members as Legging Orders are
generated by the System.
Additionally, this proposal does not
impose an undue burden on intermarket competition as other options
exchanges may adopt Legging Orders
and similar rules for the generation of
such orders. In addition to mirroring
MRX Options 3, Section 7(k)(1), Phlx’s
legging order rule in Options 3, Section
14(f)(iii)(C)(2) has the same restriction
as proposed to be added to ISE’s Legging
Order rule in ISE Options 3, Section
7(k)(1).94
Re-Pricing
Adding language consistent with repricing within Options 3, Section 12(c)
and (d) and Options 3, Section 14(b)(19)
does not impose an undue burden on
competition on intra-market
competition as all orders and quotes on
ISE will be re-priced uniformly as
provided for within Options 3, Section
4(b)(6) and (7) and Options 5(c) and (d),
which recently became effective.95 With
this recent change, re-priced quotes and
orders are accessible on the Exchange’s
order book at the non-displayed price.
Amending Options 3, Section 12(c) and
(d) to utilize the ‘‘internal BBO’’
language would continue to require
Members to submit Qualified
Contingent Cross Orders and Complex
Qualified Contingent Cross Orders at the
best price to receive an execution.
94 See
note 10 above.
Securities Exchange Act Release No. 96362
(November 18, 2022), 87 FR 72539 (November 25,
2022) (SR–ISE–2022–25).
Furthermore, amending Options 3,
Section 14(b)(19) to utilize the ‘‘internal
BBO’’ language does not impose an
undue burden on competition on intramarket competition, rather it would
specify clearly that Members must quote
at the best price to receive allocation of
a Complex Preferenced Order. The
introduction of ‘‘internal BBO’’ will
ensure that Qualified Contingent Cross
Orders and Complex Qualified
Contingent Cross Orders do not execute
if better-priced interest is available and
that a Complex Preferenced Order
would not receive a Preferred Market
Maker allocation if better-priced interest
was available.
The re-pricing proposals within
Options 3, Section 12(c) and (d) and
Options 3, Section 14(b)(19) do not
impose an undue burden on intermarket competition because these rules
continue to support executions at the
best price.
Changes to the Single-Leg Price
Improvement Mechanism for Crossing
Transactions
The Exchange’s proposal to amend
ISE Options 3, Section 13(d)(4), ISE
Options 3, Section 13(c)(5)(ii) and (iii),
and add a proposed new ISE Options 3,
Section 13(c)(5)(iii), related to single-leg
PIM, does not impose an undue burden
on intra-market competition because the
amendment will apply equally to all
Members. All Members may utilize PIM.
The Exchange’s proposal to amend
ISE Options 3, Section 13(d)(4), ISE
Options 3, Section 13(c)(5)(ii) and (iii),
and add a proposed new ISE Options 3,
Section 13(c)(5)(iii), related to single-leg
PIM, does not impose an undue burden
on inter-market competition because
other options exchanges may adopt
similar rules. In addition to mirroring to
MRX Options 3, Section 13, Phlx 96 and
BX 97 do not permit unrelated
marketable interest on either the same
or opposite side of the market from an
Agency Order to early terminate their
simple price improvement auctions.
Changes to the Complex PIM
Deleting ISE Options 3, Section
13(e)(4)(vi) within Complex PIM, as
well as a related paragraph in
Supplementary Material .01(b)(ii) of ISE
Options 3, Section 14, which describes
Complex Order Exposure, related to the
early termination of single-leg PIM as a
result of the arrival of unrelated
marketable interest on either the same
or the opposite side of the market from
the Agency Order does not impose an
undue burden on intra-market
95 See
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96 See
97 See
PO 00000
note 17 above.
note 18 above.
Frm 00125
Fmt 4703
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78755
competition because the amendment
will apply equally to all Members. All
Members may utilize Complex PIM.
Deleting ISE Options 3, Section
13(e)(4)(vi) within Complex PIM, as
well as a related paragraph in
Supplementary Material .01(b)(ii) of ISE
Options 3, Section 14, which describes
Complex Order Exposure, related to the
early termination of single-leg PIM from
the arrival of unrelated marketable
interest on either the same or opposite
side of the market from the Agency
Order does not impose an undue burden
on inter-market competition as other
options exchanges may adopt similar
rules. In addition to mirroring to MRX
Options 3, Section 13, Phlx 98 and BX 99
do not permit unrelated marketable
interest on either the same or opposite
side of the market from an Agency
Order to early terminate their simple
price improvement auctions.
Other Complex Order Amendments
The Exchange does not believe that
the proposed amendments to the
Complex Orders rule will impose any
significant burden on inter-market
competition. Other exchanges today
offer complex order functionalities.
These options markets may amend their
rules to mirror those of ISE. Other
options exchanges offer orders similar to
Complex Preferenced Orders.100
Additionally, the proposed Complex
Opening Process is identical to MRX 101
and similar to Phlx.102 Finally, the
proposed Complex Opening Process
methodology would allow ISE to
compete with other options exchanges
that offer Complex Order functionality.
Opening Only Complex Order
The Exchange’s proposal to remove
the word ‘‘Limit’’ within the description
of the Opening Only Complex Order
Type in ISE Options 3, Section 14(b)(10)
does not impose an undue burden on
intra-market competition because this
proposed change will apply to all
Members. Additionally, the Exchange’s
proposal to remove the word ‘‘Limit’’
within the description of the Opening
Only Complex Order Type in ISE
Options 3, Section 14(b)(10) does not
impose an undue burden on intermarket competition because other
options exchanges could adopt a similar
order type.
98 See
note 17 above.
note 18 above.
100 See e.g. Phlx Options 2, Section 10 and MIAX
Rule 100.
101 See note 3 above. MRX amendment
Supplementary Material .05 to Options 3, Section
14.
102 See Phlx Options 3, Section 14(d)(ii)(C)(2).
99 See
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Complex QCC With Stock Orders
The Exchange’s proposal to amend an
incorrect citation with ISE Options 3,
Section 14(b)(15), related to Complex
QCC with Stock Orders, does not
impose an undue burden on intramarket or inter-market competition
because the amendment is nonsubstantive.
Complex Preferenced Orders
The Exchange’s proposal to add
‘‘Complex Preferenced Orders’’ to the
list of Complex Order Types in ISE
Options 3, Section 14(b) does not
impose an undue burden on intramarket competition. Preferred Market
Makers have obligations 103 unlike other
market participants. The allocation
entitlements for Preferred Market
Makers are designed to balance the
obligations that the Preferred Market
Makers has to the market with
corresponding benefits. In order to
receive the participation entitlement for
a Complex Preferenced Order, Preferred
Market Makers are required to quote
90% of the trading day as compared to
Market Makers who are required to
quote 60% of the trading day.104
Further, Priority Customers 105 have
priority over non-Priority Customer
interest at the same price in the same
options series on the single-leg order
book. 106
At the time of receipt of the Complex
Preferenced Order, a Preferred Market
Maker would have to be quoting at the
NBBO, which is intended to incentivize
the Preferred Market Maker to quote
aggressively in order to execute against
the Complex Preferenced Order.
Preferred Marker Makers are not able to
ascertain if a particular order is a
Complex Preferenced Order. The
Exchange believes the proposal will
encourage Market Makers to quote
tighter and add a greater amount of
liquidity on ISE in an attempt to interact
with Complex Preferenced Orders that
are sent to the Exchange. This order
flow will benefit all market participants
on the Exchange because any ISE
Member may interact with that order
flow. Finally, any ISE Member on the
single-leg or Complex Order Book may
trade with a Complex Preferenced
Order. Also, any ISE Market Maker may
elect to receive Preferenced Order.
The Exchange’s proposal to add
‘‘Complex Preferenced Orders’’ to the
list of Complex Order Types in ISE
Options 3, Section 14(b) does not
impose an undue burden on inter103 See
ISE Options 2, Section 5.
ISE Options 2, Section 5.
105 See note 83 above.
106 See ISE Options 3, Section 10(c)(1)(A).
104 See
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market competition as other options
exchanges could adopt a similar order
type.
Complex Opening Price Determination
The Exchange’s proposal to amend an
incorrect citation within Supplementary
Material .05(d)(2) to Options 3, Section
14, related to the Potential Opening
Price, does not impose an undue burden
on intra-market competition or intermarket burden on competition because
the amendment makes clear the correct
applicable text it was referring to within
the Rulebook.
The Exchange’s proposal to amend
Supplementary Material .05(d)(3) to ISE
Options 3, Section 14, which describes
the Complex Opening Price
Determination, does not impose an
undue burden on intra-market
competition because all Members may
submit interest into the Complex
Opening Process.
The Exchange’s proposal to amend
Supplementary Material .05(d)(3) to ISE
Options 3, Section 14, which describes
the Complex Opening Price
Determination, does not impose an
undue burden on inter-market
competition because other options
exchanges today offer complex order
functionalities. These options markets
may amend their rules to mirror those
of ISE.
Complex Order Risk Protections
The Exchange’s proposal to amend
the title of a Complex Order Risk
Protection in Options 3, Section 16,
Complex Order Risk Protections from
‘‘Limit’’ to ‘‘Complex’’ Order Price
Protection does not impose an undue
burden on intra-market or inter-market
competition because the change in the
title makes clear the contents of that
rule.
Technical Amendments
The Exchange’s amendment to
Options 3, Section 6(c)(2) to correct a
citation does not impose an undue
burden on intra-market or inter-market
competition because it makes clear the
proper ISE rule that was being
referenced.
The Exchange’s amendments to
Options 3, Section 8(b)(2) and Options
3, Section 9(d)(2) related to Trading
Halts does not impose an undue burden
on intra-market or inter-market
competition because the amendments
make the rule clear.
Finally, the Exchange’s amendment to
Options 3, Section 8(j)(3)(B) to remove
duplicative rule does not impose an
undue burden on intra-market or intermarket competition because it removes
confusion from the rule.
PO 00000
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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 107 and
subparagraph (f)(6) of Rule 19b–4
thereunder.108
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 rule-comments@
sec.gov. Please include File Number SR–
ISE–2022–28 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–2022–28. This file
107 15
U.S.C. 78s(b)(3)(A)(iii).
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.
108 17
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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 the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–ISE–2022–28, and should
be submitted on or before January 12,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.109
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022–27785 Filed 12–21–22; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96522; File No. SR–MIAX–
2022–45]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend Its Fee Schedule
Relating to FINRA Fees
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December 16, 2022.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX Options Fee Schedule
(the ‘‘Fee Schedule’’) to reflect
adjustments to the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
Registration Fees and Fingerprinting
Fees.
While the changes proposed herein
are effective upon filing, the Exchange
has designated the additional processing
of each initial or amended Form U4,
Form U5 or Form BD and electronic
Fingerprint Processing Fees to become
operative on January 2, 2023.
Additionally, the Exchange designates
that the FINRA Annual System
Processing Fee Assessed only during
Renewals become operative on January
2, 2024.3 The amendments to the paper
Fingerprint Fees are immediately
effective.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings, at MIAX’s principal office, 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
BILLING CODE 8011–01–P
109 17
on December 8, 2022, Miami
International Securities Exchange LLC
(‘‘MIAX’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III 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.
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.
3 See Securities Exchange Act Release No. 90176
(October 14, 2020), 85 FR 66592 (October 20, 2020)
(SR–FINRA–2020–032) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
to Adjust FINRA Fees to Provide Sustainable
Funding for FINRA’s Regulatory Mission).
PO 00000
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78757
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
Section 2)c) of the Fee Schedule, Web
CRD Fees, to reflect adjustments to the
FINRA Registration Fees and
Fingerprinting Fees.4 The FINRA fees
are collected and retained by FINRA via
Web CRD for the registration of
employees of MIAX Members 5
organizations that are not also FINRA
members (‘‘Non-FINRA members’’). The
Exchange merely lists these fees in its
Fee Schedule. The Exchange does not
collect or retain these fees.
The Exchange proposes to amend: (1)
the $110 fee for the additional
processing of each initial or amended
Form U4, Form U5 or Form BD that
includes the initial reporting,
amendment, or certification or one or
more disclosure events or proceedings
to $155; (2) the $45 FINRA Annual
System Processing Fee Assessed only
during Renewals to $70; and (3) the $15
Second Submission (Electronic)
Fingerprint Processing Fee to $20. Each
of these fees are listed within Section
2)c) of the Fee Schedule, Web CRD Fees.
These amendments are being made in
accordance with a FINRA rule change to
adjust to its fees.6
The Exchange also proposes to amend
the following Fingerprint Fees: (1) the
$29.50 Initial Submission (Electronic)
fee to $31.25; 7 (2) the $44.50 Initial
Submission (Paper) fee to $41.25; 8 (3)
the $29.50 Third Submission
(Electronic) fee to $31.25; 9 and (4) the
$44.50 Third Submission (Paper) fee to
$41.25.10 Specifically, today, the FBI
4 FINRA operates Web CRD, the central licensing
and registration system for the U.S. securities
industry. FINRA uses Web CRD to maintain the
qualification, employment and disciplinary
histories or registered associated persons of brokerdealers.
5 The term ‘‘Member’’ means an individual or
organization approved to exercise the trading rights
associated with a Trading Permit. Members are
deemed ‘‘members’’ under the Exchange Act. See
Exchange Rule 100.
6 See note 3. FINRA noted in its rule change that
it was adjusting its fees to provide sustainable
funding for FINRA’s regulatory mission.
7 This fee includes a $20.00 FINRA fee and $11.25
FBI fee. See https://www.finra.org/registrationexams-ce/classic-crd/fingerprints/fingerprint-fees.
8 This fee includes a $30.00 FINRA fee and a
$11.25 FBI fee. See https://www.finra.org/
registration-exams-ce/classic-crd/fingerprints/
fingerprint-fees.
9 This fee includes a $20.00 FINRA fee and $11.25
FBI fee. See https://www.finra.org/registrationexams-ce/classic-crd/fingerprints/fingerprint-fees.
10 This fee includes a $30.00 FINRA fee and a
$11.25 FBI fee. See https://www.finra.org/
E:\FR\FM\22DEN1.SGM
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]]>Agencies
[Federal Register Volume 87, Number 245 (Thursday, December 22, 2022)]
[Notices]
[Pages 78740-78757]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-27785]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96518; File No. SR-ISE-2022-28]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Certain
ISE Complex Order Functionalities in Connection With a Technology
Migration
December 16, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 9, 2022, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 78741]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 3, Section 7, Types of
Orders and Order and Quote Protocols; Options 3, Section 10, Priority
of Quotes and Orders; Options 3, Section 12, Crossing Orders; Options
3, Section 13, Price Improvement Mechanisms for Crossing Transactions;
Options 3, Section 14, Complex Orders; and Options 3, Section 16,
Complex Risk Protections.
The Exchange also proposes some technical amendments within Options
3, Section 6, Collection and Dissemination of Quotations, and Section
8, Options Opening Process.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, 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
In connection with a technology migration to an enhanced Nasdaq,
Inc. (``Nasdaq'') functionality which will result in higher
performance, scalability, and more robust architecture, the Exchange
intends to adopt certain trading functionality currently utilized at
Nasdaq affiliate exchanges. Also, the Exchange intends to remove
certain functionality. Specifically, the following sections would be
amended: Options 3, Section 7, Types of Orders and Order and Quote
Protocols; Options 3, Section 10, Priority of Quotes and Orders;
Options 3, Section 12, Crossing Orders; Options 3, Section 13, Price
Improvement Mechanisms for Crossing Transactions; Options 3, Section
14, Complex Orders; and Options 3, Section 16, Complex Risk
Protections. The changes proposed herein are identical to changes that
were recently proposed for MRX.\3\ The Exchange also proposes some
technical amendments specific to ISE within Options 3, Section 6,
Collection and Dissemination of Quotations, and Section 8, Options
Opening Process. Each change will be described below.
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\3\ See Securities Exchange Act Release No. 95854 (September 21,
2022), 87 FR 58571 (September 27, 2022) (Order Approving SR-MRX-
2022-10).
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Legging Order
The Exchange proposes to amend Options 3, Section 7(k)(1) to add a
provision which states that a Legging Order \4\ will not be generated
during a Posting Period, as described in detail below, in progress on
the same side in the series pursuant to Options 3, Section 15 regarding
Acceptable Trade Range (``ATR''). A Legging Order would not be
generated because it would no longer be at the Exchange's displayed
best bid or offer, therefore, generating a Legging Order during a
Posting Period in progress, on the same side in the series, would lead
to its immediate removal, making it superfluous to have been generated.
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\4\ A Legging Order is a limit order on the regular limit order
book that represents one side of a Complex Options Order that is to
buy or sell an equal quantity of two options series resting on the
Exchange's Complex Order Book. See Options 3, Section 7(k).
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ATR is a risk protection, that sets dynamic boundaries within which
quotes and orders may trade.\5\ It is designed to guard the System \6\
from experiencing dramatic price swings by preventing the immediate
execution of quotes and orders beyond the thresholds set by this risk
protection. The Exchange recently amended ATR to adopt an iterative
process wherein an order/quote that reaches its ATR boundary is paused
for a brief period of time to allow more liquidity to be collected,
before the order/quote is automatically re-priced and a new ATR is
calculated.\7\
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\5\ See ISE Options 3, Section 15(a)(2)(A).
\6\ The term ``System'' means the electronic system operated by
the Exchange that receives and disseminates quotes, executes orders
and reports transactions. See ISE Options 1, Section 1(a)(50).
\7\ See Securities Exchange Act Release No. 96362 (November 18,
2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25). SR-ISE-
2022-25 proposed an iterative process for ATR wherein the Exchange
will attempt to execute interest that exceeds the outer limit of the
ATR for a brief period of time while that interest is automatically
re-priced as described herein. The Exchange also updated the
reference price definition to provide that upon receipt of a new
order or quote, the reference price will now be the better of the
NBB or internal best bid for sell orders/quotes and the better of
the NBO or internal best offer for buy orders/quotes or the last
price at which the order/quote is posted, whichever is higher for a
buy order/quote or lower for a sell order/quote. The additions of
``internal BBO'' were consistent with the re-pricing of orders. SR-
ISE-2022-25 is effective, but not yet operative. SR-ISE-2022-25
would be implemented as part of the same technology migration as the
changes proposed herein.
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Specifically, SR-ISE-2022-25 amended current Options 3, Section
15(a)(2)(A)(iii) to adopt an iterative process wherein an order or
quote that reaches the outer limits of the ATR (``Threshold Price'')
without being fully executed, will be posted at the Threshold Price for
a brief period, not to exceed one second (``Posting Period''), to allow
the market to refresh and determine whether or not more liquidity will
become available (on the Exchange or any other exchange if the order is
designated as routable) within the posted price of the order or quote
before moving on to a new Threshold Price. With this change, upon
posting, either the current Threshold Price of the order/quote or an
updated NBB for buy orders/quotes or the NBO for sell orders/quotes
(whichever is higher for a buy order/quote or lower for a sell order/
quote) would become the reference price for calculating a new ATR. If
the order/quote remains unexecuted after the Posting Period, a new ATR
will be calculated and the order/quote will execute, route, or post up
to the new Threshold Price. This process will repeat until either (1)
the order/quote is executed, cancelled, or posted at its limit price or
(2) the order/quote has been subject to a configurable number of
instances of the ATR as determined by the Exchange (in which case it
will be returned).
With this change, during the proposed Posting Period, an order
would be in flux and would potentially increase (decrease) past the
price of any Legging Order generated on the bid (offer) as the order
works its way through the order book. Legging Orders are removed from
the order book when they are no longer at the Exchange's displayed best
bid or offer and, therefore, generating a Legging Order during a
Posting Period in progress on the same side in the series would lead to
its immediate removal. Accordingly, in the current proposal, the
Exchange proposes to amend Options 3, Section 7(k)(1) to provide that a
Legging Order would not be created during the Posting Period in
progress on the same side in the series. By way of example, assume that
the ATR is set for $0.05, the MPV is $0.01 and the following quotations
are posted on ISE and away markets:
Away Exchange Quotes:
[[Page 78742]]
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Exchange Bid size Bid price Offer price Offer size
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ISE............................................. 10 $0.75 $0.90 10
AMEX............................................ 10 0.75 0.92 10
PHLX............................................ 10 0.75 0.94 10
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ISE Price Levels:
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Exchange Bid size Bid price Offer price Offer size
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ISE............................................. 10 $0.75 $0.90 10
ISE............................................. 10 0.75 0.95 10
ISE............................................. 10 0.75 1.00 10
ISE............................................. 10 0.75 1.05 10
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ISE receives a routable order to buy 70 contracts at $1.10. The ATR is
$0.05 and the reference price is the National Best Offer--$0.90. The
ATR threshold is then $0.90 + $0.05 = $0.95 which is the Threshold
Price. The order is allowed to execute up to and including $0.95.
10 contracts will be executed at $0.90 against ISE.
10 contracts will be executed at $0.90 against ISE.
10 contracts will be executed at $0.92 against AMEX.
10 contracts will be executed at $0.94 against PHLX.
10 contracts will be executed at $0.95 against ISE.
Then, after executing at multiple price levels, the order
is posted at $0.95 for a brief period not to exceed one second (Posting
Period) to determine whether additional liquidity will become
available.
During this pause, the ISE BBO for this option is 0.95 x
1.00.
Assume the leg above with the Posting Period in progress
is Leg A of an A-B complex strategy.
Leg B has a BBO of 0.85 x 0.88
Therefore, the cBBO \8\ of this A-B complex strategy is
0.07 x 0.15
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\8\ The ``cBBO'' represents the net price of a complex strategy
comprised of the best bids and offers of the individual legs.
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[cir] (Leg A Bid 0.95 - Leg B Offer 0.88 = 0.07)
[cir] (Leg A Offer 1.00 - Leg B Bid 0.85 = 0.15)
Also during the pause, a Complex Options Order to buy A-B
arrives for net price of $0.11.
The Complex Options Order could generate a Legging Order
at $0.96 on the bid of Leg A, relying on the $0.85 bid to sell Leg B
and achieve a net price $0.11, however the Legging Order is not
generated because Leg A has an order on the bid side in an ATR Posting
Period which will continue to move through the order book, and would
ultimately lead to the immediate removal of the Legging Order once it
is no longer at the Exchange's displayed best bid.
During the Posting Period, a new ATR Price of $1.00 is
determined (new reference price $0.95 + $0.05 = $1.00).
If, during the Posting Period (brief pause not to exceed 1
second), no liquidity becomes available within the order's posted price
of $0.95, then at the conclusion of the Posting Period, the System will
execute 10 contracts at $1.00.
Then, after executing at multiple price levels, the order
is posted at $1.00 for a brief period not to exceed one second to
determine whether additional liquidity will become available.
A new ATR Threshold Price of $1.05 is determined (new
reference price of $1.00 + $0.05 = $1.05).
During this time the ISE BBO would be $1.00 x $1.05.
If, during the brief pause not to exceed 1 second, no
liquidity becomes available within the order's posted price of $1.00,
the System will then execute 10 contracts at $1.05.
The Exchange believes from a System processing and user acceptance
standpoint, the best practice is to wait for the ATR Posting Period to
complete before attempting to generate a Legging Order on the same side
in the series, as the time required to complete the ATR Posting Period
is minimal. This amendment is identical to a change recently adopted
for MRX.\9\ Additionally, Nasdaq Phlx LLC's (``Phlx'') legging order
rule in Options 3, Section 14(f)(iii)(C)(2) has the same restriction on
generating legging orders during the ATR Posting Period as proposed to
be added to ISE's Legging Order rule.\10\
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\9\ See note 3 above. MRX amended Options 3, Section
15(a)(2)(A)(iii).
\10\ Phlx Options 3, Section 14(f)(iii)(C)(2) provides that a
Legging Order will not be created, ``. . .(ii) if there is . . . a
Posting Period under Options 3, Section 15 regarding Acceptable
Trade Range on the same side in progress in the series. . .''.
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Changes to the Single-Leg Price Improvement Mechanism for Crossing
Transactions
The Price Improvement Mechanism (``PIM'') is a process by which an
Electronic Access Member can provide price improvement opportunities
for a transaction wherein the Electronic Access Member seeks to
facilitate an order it represents as agent, and/or a transaction
wherein the Electronic Access Member solicited interest to execute
against an order it represents as agent (a ``Crossing Transaction'').
The Exchange provides a PIM for single-leg \11\ orders and for Complex
Orders \12\ and proposes to amend both single-leg and Complex PIM
rules. The Exchange proposes to amend the single-leg PIM in Options 3,
Section 13(d)(4) which currently provides,
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\11\ See ISE Options 3, Section 13(a)-(d).
\12\ See ISE Options 3, Section 13(e).
When a market order or marketable limit order on the opposite
side of the market from the Agency Order ends the exposure period,
it will participate in the execution of the Agency Order at the
price that is mid-way between the best counter-side interest and the
NBBO, so that both the market or marketable limit order and the
Agency Order receive price improvement. Transactions will be
rounded, when necessary, to the $.01 increment that favors the
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Agency Order.
Today, unrelated interest in the form of a market order or marketable
limit order, on the opposite side of the market from an Agency
Order,\13\ may end an exposure period \14\ within a single-leg
[[Page 78743]]
PIM and participate in the execution of the Agency Order. The unrelated
order would participate at the price that is mid-way between the best
counter-side interest and the NBBO, so that both the market order or
marketable limit order and the Agency Order receive price improvement.
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\13\ An Agency Order is the part of a Crossing Transaction that
an Electronic Access Member represents as agent. See ISE Options 3,
Section 13(b).
\14\ Upon entry of a Crossing Transaction into the PIM, a
broadcast message that includes the series, price and size of the
Agency Order, and whether it is to buy or sell, will be sent to all
Members. The Exchange designates a time of no less than 100
milliseconds and no more than 1 second for Members to indicate the
size and price at which they want to participate in the execution of
the Agency Order (``Improvement Orders''). Improvement Orders may be
entered by all Members in one-cent increments at the same price as
the Crossing Transaction or at an improved price for the Agency
Order, and will only be considered up to the size of the Agency
Order. During the exposure period, Improvement Orders may not be
canceled, but may be modified to (i) increase the size at the same
price, or (ii) improve the price of the Improvement Order for any
size up to the size of the Agency Order. During the exposure period,
responses (including the Counter-Side Order, Improvement Orders, and
any changes to either) submitted by Members shall not be visible to
other auction participants. The exposure period will automatically
terminate (i) at the end of the time period designated by the
Exchange pursuant to Options 3, Section 13(c)(1) above, (ii) upon
the receipt of a market or marketable limit order on the Exchange in
the same series, or (iii) upon the receipt of a non-marketable limit
order in the same series on the same side of the market as the
Agency Order that would cause the price of the Crossing Transaction
to be outside of the best bid or offer on the Exchange. See ISE
Options 3, Section 13(c).
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First, the Exchange proposes to not permit unrelated marketable
interest on the opposite side of the market from the Agency Order,
which is received during a single-leg PIM, to early terminate a PIM.
The Exchange proposes to amend ISE Options 3, Section 13(d)(4) to
instead provide,
Unrelated market or marketable interest (against the ISE BBO) on
the opposite side of the market from the Agency Order received
during the exposure period will not cause the exposure period to end
early and will execute against interest outside of the Crossing
Transaction. If contracts remain from such unrelated order at the
time the auction exposure period ends, they will be considered for
participation in the order allocation process described in sub-
paragraph (3).\15\
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\15\ Subparagraph (3) of Options 3, Section 13(d) describes the
manner in which a Counter-Side Order would be allocated. The Counter
Side Order is one part of a Crossing Transaction and represents the
full size of the Agency Order. The Counter-Side Order may represent
interest for the Member's own account, or interest the Member has
solicited from one or more other parties, or a combination of both.
See ISE Options 3, Section 13(b).
This amendment is identical to a change recently adopted for MRX.\16\
Additionally, Phlx \17\ and Nasdaq BX, Inc. (``BX'') \18\ similarly do
not permit unrelated interest on the opposite side of the market from
the Agency Order to early terminate their price improvement auctions.
With this proposed change, the single-leg PIM exposure period would
continue for the full period despite the receipt of unrelated
marketable interest on the opposite side of the market from the Agency
Order. Allowing the single-leg PIM to run its full course would provide
an opportunity for additional price improvement to the Crossing
Transaction. Further, the unrelated interest would participate in the
single-leg PIM allocation with any residual contracts remaining after
interacting with the order book pursuant to ISE Options 3, Section
13(d). The aforementioned residual contracts are contracts that remain
available for execution after the unrelated order on the opposite side
of market as the Agency Order, which was marketable with bids and
offers on the same side of the market as the Agency Order, executed
against bids and offers on the Exchange's order book.
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\16\ See note 3 above. MRX amended Options 3, Section 13(d)(4).
\17\ Phlx Options 3, Section 13(b)(4) provides that an unrelated
market or marketable Limit Order (against the PBBO) on the opposite
side of the market from the PIXL Order received during the Auction
will not cause the Auction to end early and will execute against
interest outside of the Auction. See Securities Exchange Act
Releases No. 79835 (January 18, 2017), 82 FR 8445 (January 25, 2017)
(SR-Phlx-2016-119) (Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To
Amend the PIXL Price Improvement Auction in Phlx Rule 1080(n) and To
Make Pilot Program Permanent) and 63027 (October 1, 2010), 75 FR
62160 (October 7, 2010) (SR-Phlx-2010-108) (``PIXL Approval
Order''). The Commission noted in SR-Phlx-2016-119 that, ``In
approving this feature on a pilot basis, the Commission found that
`allowing the PIXL auction to continue for the full auction period
despite receipt of unrelated orders outside the Auction would allow
the auction to run its full course and, in so doing, will provide a
full opportunity for price improvement to the PIXL Order. Further,
the unrelated order would be available to participate in the PIXL
order allocation.' The Exchange does not believe that this provision
has had a significant impact on either the unrelated order or the
PIXL Auction process, either for simple or Complex PIXL Orders. The
Exchange therefore has requested that the Commission approve this
aspect of the Pilot on a permanent basis for both simple and Complex
PIXL Orders.''
\18\ BX Options 3, Section 13(ii)(D) provides that unrelated
market or marketable interest (against the BX BBO) on the opposite
side of the market from the PRISM Order received during the Auction
will not cause the Auction to end early and will execute against
interest outside of the Auction.
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Second, the Exchange also proposes to amend current ISE Options 3,
Section 13(c)(5) which states,
The exposure period will automatically terminate (i) at the end
of the time period designated by the Exchange pursuant to Options 3,
Section 13(c)(1) above, (ii) upon the receipt of a market or
marketable limit order on the Exchange in the same series, or (iii)
upon the receipt of a non-marketable limit order in the same series
on the same side of the market as the Agency Order that would cause
the price of the Crossing Transaction to be outside of the best bid
or offer on the Exchange.
Specifically, the Exchange proposes to remove ``(ii),'' which provides
the exposure period will automatically terminate ``. . . (ii) upon the
receipt of a market or marketable limit order on the Exchange in the
same series . . .''. The Exchange notes that this sentence applies to
the receipt of marketable orders both on the same side and opposite
side of the Agency order. As described above, the Exchange proposes to
not permit unrelated marketable interest on the opposite side of the
market from the Agency Order, which is received during a single-leg
PIM, to early terminate a PIM. Therefore, with respect to the opposite
side of the Agency Order, the termination of the auction will no longer
be possible with the proposed change to ISE Options 3, Section
13(d)(4). With respect to the same side of the Agency Order, today, an
unrelated market or marketable limit order in the same series on the
same side of the Agency Order would cause the PIM to early terminate as
well. At this time the Exchange proposes to not permit an unrelated
market or marketable limit order in the same series on the same side of
the Agency Order to cause the PIM to early terminate. This proposed
change will align the functionality of ISE's PIM to that of MRX's
PIM,\19\ BX's PRISM and Phlx's PIXL,\20\ which do not permit an
unrelated market or marketable limit order in the same series on the
same side of the Agency Order to cause the PRISM or PIXL to early
terminate, unless the BBO improves beyond the price of the Crossing
Transaction on the same side. The Exchange notes that a market or
marketable limit order in the same series on the same side of the
Agency Order cannot interact with a PIM auction. The market or
marketable limit order may interact with the single-leg order book, and
if there are residual contracts that remain from the market or
marketable limit order in the same series on the same side of the
Agency Order, they could rest on the order book and improve the BBO
beyond the price of the Crossing Transaction which would cause early
termination pursuant to proposed Options 3, Section 13(c)(5)(ii) as
discussed below. In this instance, residual contracts are contracts
that remain available for execution after the unrelated order on the
same side of market as the Agency Order, which was marketable with bids
and offers on the opposite side of the market as the Agency Order,
executed against bids and offers on the Exchange's order book. The
Exchange believes that this outcome would allow for the single-leg PIM
exposure period to continue for the full period despite the receipt of
[[Page 78744]]
unrelated marketable interest on the same side of the market from the
Agency Order, provided residual interest does not go on to rest on the
order book, improving the BBO beyond the price of the Crossing
Transaction. Allowing the single-leg PIM to run its full course (unless
the BBO improves beyond the price of the Crossing Transaction on the
same side), rather than early terminate, would provide an opportunity
for price improvement to the Agency Order.
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\19\ See MRX Options 3, Section 13(d)(4).
\20\ See BX Options 3, Section 13(ii)(D) and Phlx Options 3,
Section 13(b)(4).
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Third, the Exchange proposes to amend current ISE Options 3,
Section 13(c)(5)(iii) to align the rule text to a recent change adopted
on MRX.\21\ Additionally, BX Options 3, Section 13(ii)(B)(2) has
similar language.\22\ Specifically, the Exchange proposes to amend
Options 3, Section 13(c)(5) to delete current ``iii'' and renumber as
``ii''. Proposed new Options 3, Section 13(c)(5)(ii) would state, ``The
exposure period will automatically terminate . . . (ii) any time the
Exchange best bid or offer improves beyond the price of the Crossing
Transaction on the same side of the market as the Agency Order . . .''
The proposed rule is designed to align to MRX's and BX's rule text to
remove any ambiguity that a market or marketable limit order priced
more aggressively than the Agency Order could ultimately rest on the
order book, improving the BBO beyond the price of the Crossing
Transaction and, therefore, cause the early termination of a PIM
auction.
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\21\ See note 3 above. MRX amended Options 3, Section
13(c)(5)(iii).
\22\ BX Options 3, Section 13(ii)(B) provides ``Conclusion of
Auction. The PRISM Auction shall conclude at the earlier to occur of
(1) through (3) below, with the PRISM Order executing pursuant to
paragraph (C)(1) or (C)(2) below if it concludes pursuant to (2) or
(3) of this paragraph. (1) The end of the Auction period; (2) For a
PRISM Auction any time the BX BBO crosses the PRISM Order stop price
on the same side of the market as the PRISM Order; (3) Any time
there is a trading halt on the Exchange in the affected series.''
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By way of example, assume: ISE 1.00 x 2.00 (10) and a second ISE
Market Maker's quote is 1.00 x 2.10 (10). If a PIM auction starts with
a buy at 1.50, and subsequently an order to buy for 20 @2.00 arrives,
the incoming order would trade with the quote, and the remaining 10
contracts would rest on the order book. Thereafter, the ISE BBO would
update to 2.00 x 2.10 and trigger the early termination of the single-
leg PIM pursuant to Options 3, Section 13(c)(5)(iii), which is being
renumbered to Options 3, Section 13(c)(5)(ii). Early terminating the
single-leg PIM in this example is necessary because the price of the
single-leg PIM is no longer at the top of book (best price) and would
not have execution priority with respect to responses or unrelated
interest that arrive. By early terminating the single-leg PIM, ISE
allows responses to the single-leg PIM, which arrived prior to the time
the Exchange's best bid and offer improved beyond the Crossing
Transaction, to execute.
The Exchange believes the proposed rule text will provide greater
clarity to the manner in which the System operates today with respect
to early termination of single-leg PIMs when the BBO on the same side
improves beyond the price of the Crossing Transaction. The proposed
amendment to the rule text is not intended to amend the current System
functionality, rather it is intended to make clear that a market or
marketable limit order could ultimately rest on the order book with
residual interest and improve the BBO on the same side as the Agency
Order beyond the price of the Crossing Transaction and cause the
single-leg PIM to early terminate.
Fourth, the Exchange proposes to add a new ISE Options 3, Section
13(c)(5)(iii) which states, ``. . . (iii) any time there is a trading
halt on the Exchange in the affected series . . .''. This proposed rule
text is not modifying how the System currently operates.\23\ Today, a
trading halt would cause a single-leg PIM to early terminate. Current
ISE Options 3, Section 13(d)(5) notes such an early termination as a
result of the aforementioned trading halt. Adding this circumstance to
the list of events that would terminate the exposure period would make
the list complete and add clarity to the rule. Furthermore, the
Exchange notes that in a separate rule change, SR-ISE-2022-15P,\24\ the
Exchange is proposing to amend Options 3, Section 13(d)(5) to change
the System behavior such that if a trading halt is initiated after an
order is entered into the PIM, such auction will be automatically
terminated with execution solely with the Counter-Side Order. Today, if
a trading halt is initiated after an order is entered into the PIM,
such auction will be automatically terminated without execution.\25\
This amendment is identical to a change recently adopted for MRX.\26\
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\23\ ISE Options 3, Section 13(d)(5) currently states that, ``If
a trading halt is initiated after an order is entered into the Price
Improvement Mechanism, such auction will be automatically terminated
without execution.'' Of note, the Exchange is proposing to amend
ISE's PIM within a separate rule change, SR-ISE-2022-15P. Among
other things, the Exchange proposes to amend the PIM functionality
so that if a trading halt is initiated after an order is entered
into the PIM, the auction will be automatically terminated with an
execution. Specifically, SR-ISE-2022-15 proposes to renumber current
ISE Options 3, Section 13(d) to Options 3, Section 13(d)(6) and
proposes to state, ``If a trading halt is initiated after an order
is entered into the Price Improvement Mechanism, such auction will
be automatically terminated with execution solely with the Counter-
Side Order.''
\24\ ISE has separately filed to amend Options 3, Section
13(d)(5) within SR-ISE-2022-15P. SR-ISE-2022-15P proposes to amend,
among other things, the rule text in Options 3, Section 13, except
that it does not amend Options 3, Section 13(c)(5).
\25\ See current ISE Options 3, Section 13(d)(5).
\26\ See note 3 above. MRX amended Options 3, Section
13(c)(5)(iii).
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Changes to the Complex PIM
In accordance with the proposed rule change regarding the early
termination provisions of a single-leg PIM auction explained above, the
Exchange also proposes to remove a paragraph related to Complex PIM in
current ISE Options 3, Section 13(e)(4)(vi) which provides,
A Complex Price Improvement Mechanism in a complex strategy may
be ongoing at the same time as a Price Improvement Auction pursuant
to this Rule or during an exposure period pursuant to Supplementary
Material .02 to Options 5, Section 2 in a component leg(s) of such
Complex Order. If a Complex Price Improvement Mechanism is early
terminated pursuant to paragraph (iv) above, and the incoming
Complex Order that causes the early termination in the complex
strategy is also marketable against a component leg(s) of the
complex strategy that is the subject of a concurrent ongoing Price
Improvement Auction pursuant to this Rule or an exposure period
pursuant to Supplementary Material .02 to Options 5, Section 2, then
the concurrent Complex Price Improvement Mechanism and component leg
auction(s) are processed in the following sequence: (1) the Complex
Price Improvement Mechanism is early terminated; (2) the component
leg auction(s) are early terminated and processed; and (3) legging
of residual incoming Complex Order interest occurs, except with
respect to Stock Option Orders and Stock Complex Orders.
Today, unrelated marketable interest may cause the early termination of
a single-leg PIM, if a component leg of a Complex Order is marketable
against the order book in the same series as the single-leg PIM. An
example is provided below.
Example #1 (Complex PIM early termination elimination--opposite side)
\27\
---------------------------------------------------------------------------
\27\ Example 1 addresses an order on the opposite side of the
Agency Order, although the same early termination would apply to an
order on the same side of an Agency Order pursuant to ISE Options 3,
Section 13(e)(4)(vi).
---------------------------------------------------------------------------
Complex Order Strategy A-B
MM Quote Leg A 4.20 (100) x 4.50 (100)
MM Quote Leg B 4.00 (100) x 4.10 (100)
cBBO 0.10 x 0.50
(Leg A Bid 4.20-Leg B Offer 4.10 = 0.10)
(Leg A Offer 4.50-Leg B Bid 4.00 = 0.50)
[[Page 78745]]
Complex PIM to Buy A-B 10 @0.20, with an election to automatically
match to a net price of 0.10
Complex PIM Begins
Single-leg PIM Auction on Leg A to Buy 100 @4.25
Single-Leg PIM Begins
During both auction timers, an unrelated marketable Complex Order
A-B to sell 50 @a net price of 0.10 arrives (the individual legs of the
marketable Complex Order would be selling A @4.20 and buying B @4.10).
Complex Order PIM is early terminated and trades 4 with the
Counter-Side Order @a net price of 0.10 and 6 with the unrelated
Complex Order @a net price of 0.15.
Today, the unrelated Complex Order would have legged-in after
trading with the Complex PIM and caused the single-leg PIM to early
terminate because one leg of the Complex Order was marketable against
the Leg A bid of 4.20.
With the proposed amendment, the unrelated Complex Order will not
cause the single-leg PIM to early terminate as a result of trading with
an unrelated order on the opposite side in the same series. The
unrelated marketable Complex Order will trade with the Complex PIM as
well as the best bids and offers from the single-leg order book. In
this case, the remaining quantity of the unrelated Complex Order would
leg-in and trade with the single-leg quotes without impacting the
single-leg PIM; the single-leg PIM auction timer would conclude after
running its full course. Thereafter, if there are no responses to the
single-leg PIM, the Agency Order would trade 100 @4.25 with the
Counter-Side Order.
Today, if a Complex PIM is early terminated pursuant to ISE Options
3, Section 14(e)(4)(iv) \28\ and the incoming Complex Order that causes
the early termination in the complex strategy is also marketable
against a component leg(s) of the complex strategy that is the subject
of a concurrent ongoing single-leg PIM, or an exposure period pursuant
to flash functionality as provided for in Supplementary Material .02 to
Options 5, Section 2,\29\ then the concurrent Complex PIM and component
leg auction(s) are processed in accordance with ISE Options 3, Section
14(e)(4)(vi).
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\28\ ISE Options 3, Section 14(e)(4)(iv) provides, ``The
exposure period will automatically terminate (A) at the end of the
time period designated by the Exchange pursuant to subparagraph
(4)(i) above, (B) upon the receipt of a Complex Order in the same
complex strategy on either side of the market that is marketable
against the Complex Order Book or bids and offers for the individual
legs, or (C) upon the receipt of a non-marketable Complex Order in
the same complex strategy on the same side of the market as the
Agency Complex Order that would cause the execution of the Agency
Complex Order to be outside of the best bid or offer on the Complex
Order Book.''
\29\ Pursuant to Supplementary Material .02 to ISE Options 5,
Section 2, ISE permits certain orders to first be exposed at the
NBBO to all Members for execution at the National Best Bid or Offer
(``NBBO'') before the order would be routed to another market for
execution (``flash functionality'').
---------------------------------------------------------------------------
With this proposed change, a single-leg PIM will no longer early
terminate as a result of the arrival of unrelated marketable interest
on either the same or the opposite side of the market from the Agency
Order. Because a single-leg PIM will no longer early terminate from the
arrival of unrelated marketable interest on either the same or the
opposite side of the market from the Agency Order, and because the
flash functionality will no longer exist,\30\ the Exchange proposes to
delete ISE Options 3, Section 13(e)(4)(vi) in its entirety. This
amendment is identical to a change recently adopted for MRX.\31\
---------------------------------------------------------------------------
\30\ ISE filed a rule change to eliminate its flash
functionality. See Securities Exchange Act Release No. 94897 (May
12, 2022), 87 FR 30294 (May 18, 2022) (SR-ISE-2022-11) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Routing Functionality in Connection With a Technology Migration).
Therefore, eliminating the flash functionality from ISE Options 5
rules also eliminates the flash functionality from ISE's Options 5
rules. SR-ISE-2022-11 is effective but not yet operative. SR-ISE-
2022-11 would be implemented as part of the same technology
migration as the changes proposed herein.
\31\ See note 3 above. MRX recently deleted Options 3, Section
13(e)(4)(vi) in its entirety.
---------------------------------------------------------------------------
Additionally, the Exchange proposes to remove a related paragraph
in current Supplementary Material .01(b)(iii) of ISE Options 3, Section
14 describing Complex Order Exposure, which states,
A Complex Order Exposure in a complex strategy may be ongoing in
a complex strategy at the same time as a Price Improvement Auction
pursuant to Options 3, Section 13 or during an exposure period
pursuant to Supplementary Material .02 to Options 5, Section 2 in a
component leg(s) of such complex strategy. If a Complex Order
Exposure is early terminated pursuant to paragraph (ii) above, and
the incoming Complex Order that causes the early termination in the
complex strategy is also marketable against a component leg(s) of
the complex strategy that is the subject of a concurrent ongoing
Price Improvement Auction pursuant to Options 3, Section 13 or an
exposure period pursuant to Supplementary Material .02 to Options 5,
Section 2, then the concurrent Complex Order and component leg
auction(s) are processed in the following sequence: (1) the Complex
Order exposure is early terminated; (2) the component leg
auction(s), which are early terminated and processed; and (3)
legging of residual incoming Complex Order interest occurs.
Today, unrelated marketable interest may cause the early termination of
a single-leg PIM, therefore, when a Complex Order legs into the single-
leg order book, it may cause the early termination of a single-leg PIM
if that leg was on either the same or the opposite side of the market
from the single-leg PIM. An example is provided below.
Example #2 (Complex Exposure early termination elimination--opposite
side) \32\
---------------------------------------------------------------------------
\32\ Example 2 addresses an order on the opposite side of the
Agency Order, although the same early termination would apply to an
order on the same side of the Agency Order pursuant to Supplementary
Material .01(b)(iii) of ISE Options 3, Section 14.
---------------------------------------------------------------------------
Complex Order Strategy A-B
MM Quote Leg A 4.20 (100) x 4.50 (100)
MM Quote Leg B 4.00 (100) x 4.10 (100)
cBBO 0.10 x 0.50
(Leg A Bid 4.20-Leg B Offer 4.10 = 0.10)
(Leg A Offer 4.50-Leg B Bid 4.00 = 0.50)
Complex Order in A-B Strategy marked for Complex Order Exposure to buy
10 @0.20
Complex Order Exposure Auction Begins
Single-leg PIM Auction on Leg A to Buy 100 @4.25
Single-Leg PIM Begins
During both auction timers, unrelated marketable Complex Order A-B
Sell 50 @0.10 arrives Complex Order Exposure is early terminated and
the exposed order to buy A-B 10 @0.20 and trades with the unrelated
Complex Order 10 @net price of 0.10.
Today, the unrelated marketable Complex Order would have legged-in
after trading with the Complex Order Exposure and caused the single-leg
PIM to early terminate because one leg of the marketable Complex Order
on the opposite side was marketable against the Leg A bid of 4.20.
With the proposed amendment, the unrelated marketable Complex Order
will not cause the single-leg PIM on the opposite side in the same
series to early terminate as a result of the component leg of the
Complex Order being marketable against the bid in the same series as
the single-leg PIM. The unrelated marketable Complex Order will trade
with the Complex Order Exposure order as well as the best bids and
offers from the single-leg order book. In this case, the remaining
quantity would leg-in and trade with the single-leg quotes without
impacting the single-leg PIM; the auction timer would conclude after
running its full course.
[[Page 78746]]
Thereafter, the Crossing Transaction would trade 100 @4.25 Agency Order
with the Counter-Side Order.
Today, when a Complex Order Exposure early terminates, as a result
of the arrival of unrelated marketable Complex Order interest that
trades against the exposed Complex Order and the best bids and offers
on the single-leg order book (as described in Supplementary Material
.01(b)(ii) of ISE Options 3, Section 14), the component legs of the
unrelated marketable Complex Order on either the same or the opposite
side of the single-leg PIM may leg-in and cause early termination of
the single-leg PIM. Thereafter, the component leg auction(s) would be
processed pursuant to Supplementary Material .01(b)(iii) of ISE Options
3, Section 14. With this proposed change to ISE Options 3, Section
13(d)(4), a single-leg PIM will no longer early terminate from the
arrival of unrelated marketable interest on either the same or opposite
side of the market from the Agency Order. Therefore, because a single-
leg PIM will no longer early terminate from the arrival of unrelated
marketable interest on either the same or opposite side of the market
from the Agency Order, and because the flash functionality will no
longer exist,\33\ the early termination circumstances addressed in
Supplementary Material .01(b)(iii) of ISE Options 3, Section 14 will no
longer arise, accordingly, the Exchange proposes to delete
Supplementary Material .01(b)(iii) of ISE Options 3, Section 14 in its
entirety. This amendment is identical to a change recently adopted for
MRX.\34\
---------------------------------------------------------------------------
\33\ Id. [sic].
\34\ See note 3 above. MRX recently deleted Supplementary
Material .01(b)(iii) of ISE Options 3, Section 14 in its entirety.
---------------------------------------------------------------------------
Re-Pricing
In connection with the technology migration, the Exchange recently
adopted re-pricing functionality for certain quotes and orders that
lock or cross an away market's price.\35\ As a result of the
effectiveness of SR-ISE-2022-25, the Exchange proposes a number of
corresponding amendments in Options 2, Section 12, as well as the
proposed definition of Complex Preferenced Orders, which is discussed
below, in connection with adopting the re-pricing mechanism. This
amendment is identical to a change recently adopted for MRX.\36\
---------------------------------------------------------------------------
\35\ See Securities Exchange Act Release No. 96362 (November 18,
2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25). This rule
change is effective, but not yet operative. SR-ISE-2022-25 would be
implemented as part of the same technology migration as the changes
proposed herein.
\36\ See note 3 above. MRX amended Options 2, Section 12(c) and
(d) as well as Options 3, Section 14(b)(19).
---------------------------------------------------------------------------
With the recent change within SR-ISE-2022-25, the System will re-
price certain quotes and orders that lock or cross an away market's
price. Specifically, quotes and orders which lock or cross an away
market price will be automatically re-priced to the current national
best offer (for bids) or the current national best bid (for offers) and
displayed one minimum price variance (``MPV'') above (for offers) or
below (for bids) the national best price. The re-priced quotes and
orders will be displayed on OPRA at its displayed price and placed on
the Exchange's order book at its re-priced, non-displayed price, which
may be priced better than the NBBO. The quotes and orders will remain
on the Exchange's order book and will be accessible at their non-
displayed price. With this change, a non-displayed limit order or quote
may be available on the Exchange at a price that is better than the
NBBO. The following example illustrates how the proposed re-pricing
mechanism would work:
Symbol ABCD in a Non-Penny name
CBOE BBO at 1.00 x 1.20
DNR order to buy ABCD for 1.30 arrives
DNR buy order books at 1.20 (current national best offer) and displays
at 1.15 (one MPV below national best offer) *
CBOE BBO adjusts to 1.00 x 1.25
DNR buy order adjusts to book at 1.25 (current national best offer) and
displays at 1.20 (one MPV below national best offer) *
* OPRA will show the displayed price, not the booked price
Recently amended Options 3, Section 5(c) provides that the System
automatically executes eligible orders using the Exchange's displayed
best bid and offer (i.e., BBO) or the Exchange's non-displayed order
book (``internal BBO'') if the best bid and/or offer on the Exchange
has been re-priced pursuant to Options 3, Section 5(d).\37\ The
definition of an ``internal BBO'' covers re-priced quotes and orders
that remain on the order book and are available at non-displayed prices
while resting on the order book.\38\
---------------------------------------------------------------------------
\37\ A similar change was made for quotes within Options 3,
Section 4(b)(7). The Exchange added the following new rule text to
Options 3, Section 4(b)(7), ``The System automatically executes
eligible quotes using the Exchange's displayed best bid and offer
(``BBO'') or the Exchange's non-displayed order book (``internal
BBO'') if the best bid and/or offer on the Exchange has been
repriced pursuant to Options 3, Section 5(d) below and subsection
(6) above.''
\38\ The Exchange amended the rule text within Options 3,
Section 4 and Options 3, Section 5, within SR-ISE-2022-25, to
describe the manner in which a non-routable quotes and orders would
be re-priced, respectively. The Exchange added rule text within
Options 3, Section 4(b)(6) to state, ``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 be re-priced 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, or
immediately cancelled, as configured by the Member.'' The Exchange
amended the rule text within Options 3, Section 5(d) to state, ``An
order that is designated by a Member as non-routable will be re-
priced in order to comply with applicable Trade-Through and Locked
and Crossed Markets restrictions. If, at the time of entry, an order
that the entering party has elected not to make eligible for routing
would cause a locked or crossed market violation or would cause a
trade-through violation, it will be re-priced 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.''
---------------------------------------------------------------------------
In connection with the foregoing changes, the Exchange proposes to
add references to ``internal BBO'' within Options 3, Section 12(c) and
(d) which describe the Qualified Contingent Cross Orders and Complex
Qualified Contingent Cross Orders, respectively, to conform with the
concept of re-pricing at an internal BBO as provided in Options 3,
Sections 4(b)(6) and 4(b)(7) and Options 3, Section 5(c) and (d) within
SR-ISE-2022-25. This amendment is identical to a change recently
adopted for MRX.\39\
---------------------------------------------------------------------------
\39\ See note 3 above. MRX amended Options 3, Section 12(c) and
(d).
---------------------------------------------------------------------------
As noted above, the internal BBO could be better than the NBBO. The
Exchange believes that adding references to the internal BBO to Options
3, Section 12(c) and (d) would continue to require Members to be at or
between the best price, that is not at the same price as a Priority
Customer Order on the Exchange's limit order book, to execute a
Qualified Contingent Cross Order. Further, with respect to Complex
Qualified Contingent Cross Orders, the Exchange would continue to
require a Member to be at or between the best price for the individual
series and comply with other relevant provisions noted within Options
3, Section 12(d) to execute a Complex Qualified Contingent Cross Order.
The Exchange believes that the addition of ``internal BBO'' is
consistent with the intent of these order types, which is to require
Members submit these orders at the best price and not execute ahead of
better-priced quotes or orders.
[[Page 78747]]
The Exchange proposes to amend Options 3, Section 12(c), which
describes the conditions under which a Qualified Contingent Cross Order
may be entered into the System for execution, to state that a Qualified
Contingent Cross Order may be executed upon entry provided the
execution is at or between the better of the internal BBO or the
NBBO.\40\ Similarly, the Exchange proposes to amend Options 3, Section
12(d), which describes the conditions under which a Complex Qualified
Contingent Cross Order may be entered into the System for execution, to
state that Complex Options Orders may be entered as Qualified
Contingent Cross Orders to be automatically executed upon entry so long
as the options legs can be executed at prices that are at or between
the better of the internal BBO or the NBBO for the individual
series.\41\ This amendment is identical to a change recently adopted
for MRX.\42\
---------------------------------------------------------------------------
\40\ The Qualified Contingent Cross Order must also not be at
the same price as a Priority Customer Order on the Exchange's limit
order book. See ISE Options 3, Section 12(c).
\41\ Currently, Options 3, Section 12(d) provides in its
entirety that Complex Options Orders may be entered as Qualified
Contingent Cross Orders, as defined in Options 3, Section 7(j). Such
orders will be automatically executed upon entry so long as: (i) the
price of the transaction is at or within the best bid and offer for
the same complex options strategy on the Complex Order Book; (ii)
there are no Priority Customer Complex Options Orders for the same
strategy at the same price on the Complex Order Book; and (iii) the
options legs can be executed at prices that (A) are at or between
the NBBO for the individual series, and (B) comply with the
provisions of Options 3, Section 14(c)(2)(i), provided that no legs
of the Complex Options Order can be executed at the same price as a
Priority Customer Order on the Exchange in the individual options
series. Complex Qualified Contingent Cross Orders will be rejected
if they cannot be executed. Complex Qualified Contingent Cross
Orders may be entered in one cent increments. Each leg of a Complex
Options Order must meet the 1,000 contract minimum size requirement
for Qualified Contingent Cross Orders.
\42\ See note 3 above. MRX amended Options 3, Section 12(c) and
(d).
---------------------------------------------------------------------------
The Exchange also proposes to add the ``internal BBO'' rule text in
its description of Complex Preferenced Orders within new Options 3,
Section 14(b)(19). This change is described below.
Other Complex Order Amendments
Opening Only Complex Order
Currently, ISE Options 3, Section 14(b)(10) states, ``An Opening
Only Complex Order is a Limit Order that may be entered for execution
during the Complex Opening Process described in Supplementary Material
.04 to Options 3, Section 14. Any portion of the order that is not
executed during the Complex Opening Process is cancelled.'' The
Exchange proposes to amend ISE Options 3, Section 14(b)(10) to remove
the word ``Limit'' within the description of the Opening Only Complex
Order to allow Opening Only Complex Orders to be submitted as Market
Orders or Limit Orders. This amendment is consistent with current
System operations. The Exchange believes that both Market and Limit
Orders should be permitted in the Complex Opening Process.\43\ Market
Orders are typically the most aggressively priced orders, while Limit
Orders have a limit price contingency that Market Orders do not have.
Allowing both of these order types to participate in the Complex
Opening Process allows greater liquidity to be present to determine the
Opening Price.\44\ All Members may enter both Market Orders and Limit
Orders during the Complex Opening Process, as well as intra-day. This
amendment is identical to a change recently adopted for MRX.\45\
---------------------------------------------------------------------------
\43\ The Complex Opening Process is described in Supplementary
Material .04 of ISE Options 3, Section 14.
\44\ The Opening Price is described in ISE Options 3, Section
14(a)(2).
\45\ See note 3 above. MRX amended Options 3, Section 14(b)(10).
---------------------------------------------------------------------------
Complex QCC With Stock Orders
The Exchange proposes to correct a non-substantive citation with
ISE Options 3, Section 14(b)(15) related to Complex QCC with Stock
Orders. The current citation to ISE Options 3, Section 12(e) within the
description of this order type is incorrect. The citation should be to
ISE Options 3, Section 12(f). Correcting this cross reference will
clarify the description of the order type.
Complex Preferenced Orders
The Exchange proposes to add ``Complex Preferenced Orders'' to the
list of Complex Order Types in Options 3, Section 14(b). This proposal
describes how Complex Preferenced Orders will work. ISE Options 2,
Section 10 currently describes Preferenced Orders which may be Complex
Preferenced Orders.\46\ To complete the list of Complex Order types,
the Exchange proposes to state in ISE Options 3, Section 14(b)(19)
that,
---------------------------------------------------------------------------
\46\ ISE Options 2, Section 10 provides, ``Preferenced Orders.
An Electronic Access Member may designate a ``Preferred Market
Maker'' on orders it enters into the System (``Preferenced
Orders''). (1) A Preferred Market Maker may be the Primary Market
Maker appointed to the options class or any Competitive Market Maker
appointed to the options class. (2) If the Preferred Market Maker is
not quoting at a price equal to the NBBO at the time the Preferenced
Order is received, the allocation procedure described in Options 3,
Section 10(c)(1)(C) shall not be applied to the execution of the
Preferenced Order. (3) If the Preferred Market Maker is quoting at
the NBBO at the time the Preferenced Order is received, the
allocation procedure described in Options 3, Section 10(c)(1)(C)
shall be applied to the execution of the Preferenced Order.''
[a] Complex Preferenced Order is a Complex Order for which an
Electronic Access Member has designated a Preferred Market Maker as
described in Options 2, Section 10. The component leg(s) of a
Complex Order with a Preferenced Order instruction may allocate
pursuant to Options 3, Section 10(c)(1)(C) when the Complex
Preferenced Order legs into the single-leg market provided that the
Preferred Market Maker is quoting at the better of the internal BBO
or the NBBO for a component leg(s) of the Complex Preferenced Order
at the time the Complex Preferenced Order is received. A Preferred
Market Maker will not receive an allocation pursuant to Options 3,
Section 10(c)(1)(C) for a component leg(s) of a Complex Preferenced
Order if the Preferred Market Maker is not quoting at the better of
the internal BBO or the NBBO for that leg at the time the Complex
---------------------------------------------------------------------------
Preferenced Order is received.
Allocation of a leg(s) of a Complex Preferenced Order, pursuant to ISE
Options 3, Section 10, would occur when a leg(s) of a Complex Order
trades synthetically with the Preferred Market Maker's \47\ quote that
was at the better of the internal BBO or the NBBO on the single-leg
order book in accordance with ISE Options 3, Section 10. A Preferred
Market Maker must be quoting at the NBBO for a component leg(s) of the
Complex Preferenced Order at the time the Complex Preferenced Order is
received. As is the case for single-leg orders, a Preferred Market
Maker will not receive an allocation pursuant to Options 3, Section
10(c)(1)(C) for a component leg(s) of a Complex Preferenced Order if
the Preferred Market Maker is not quoting at the better of the internal
BBO or NBBO for that leg at the time the Complex Preferenced Order is
received.
---------------------------------------------------------------------------
\47\ Preferred Market Maker may be the Primary Market Maker
appointed to the options class or any Competitive Market Maker
appointed to the options class. See ISE Options 2, Section 10(a)(1).
---------------------------------------------------------------------------
The referenced internal BBO is being utilized within the
description of the Complex Preferenced Order because the internal BBO
for a leg component of Complex Order on the single-leg order book may
be priced better than the NBBO. The Exchange notes that similar changes
were recently made to the Preferenced Order type for single-leg orders
within Options 7, Section 3.\48\ The Exchange described re-pricing
earlier in [sic] Purpose section.
---------------------------------------------------------------------------
\48\ See Securities Exchange Act Release No. 96362 (November 18,
2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25).
---------------------------------------------------------------------------
With respect to orders which leg into the single-leg order book,
ISE Options 3, Section 14(c) states that, ``Except as
[[Page 78748]]
otherwise provided in this Rule, complex strategies shall be subject to
all other Exchange Rules that pertain to orders and quotes generally.''
Additionally, the Exchange notes that orders that execute against
interest on the single-leg order book, including the options leg of
Complex Options Strategies are subject to the provisions of ISE Options
3, Section 5 which, among other things, describes the NBBO Price
Protection and Trade-Through Compliance and Locked or Crossed Markets.
Further, Supplementary Material .01 to Options 9, Section 1
provides,
[i]t will be a violation of this Rule for a Member to have a
relationship with a third party regarding the disclosure of agency
orders. Specifically, a Member may not disclose to a third party
information regarding agency orders represented by the Member prior
to entering such orders into the System to allow such third party to
attempt to execute against the Member's agency orders. A Member's
disclosing information regarding agency orders prior to the
execution of such orders on the Exchange would provide an
inappropriate informational advantage to the third party in
violation of this Rule. For purposes of this paragraph .01, a third
party includes any other person or entity, including affiliates of
the Member. Nothing in this paragraph is intended to prohibit a
Member from soliciting interest to execute against an order it
represents as agent (a ``solicited order''), the execution of which
is governed by Options 3, Section 22(e) and paragraph .02 of
Supplementary Material to Options 3, Section 22.
This rule prohibits a Member from notifying a Preferred Market Maker of
an intention to submit a Complex Preferenced Order so that the
Preferred Market Maker could change its quotation to match the NBBO
immediately prior to submission of the Complex Preferenced Order, and
then fade its quote. The Exchange represents that it proactively
conducts surveillance for, and enforces against, violations of
Supplementary Material .01 to Options 9, Section 1.
The Exchange's proposal to add ``Complex Preferenced Orders'' to
the list of Complex Order Types in ISE Options 3, Section 14(b) will
continue to encourage Preferred Market Makers to quote aggressively in
an effort to execute against the Complex Preferenced Order. Preferred
Marker Makers are not able to ascertain if a particular order is a
Complex Preferenced Order. The Exchange believes the proposal will
encourage Market Makers to quote tighter and add a greater amount of
liquidity on ISE in an attempt to interact with Complex Preferenced
Orders that are sent to the Exchange. This order flow will benefit all
market participants on the Exchange because any ISE Member may interact
with that order flow.
The addition of Complex Preferenced Orders to the list of order
types in ISE Options 3, Section 14(b) will make clear to Members the
availability of Complex Preferenced Orders. This amendment is identical
to a change recently adopted for MRX.\49\ Additionally. [sic] Phlx \50\
and MIAX \51\ have a similar order type.
---------------------------------------------------------------------------
\49\ See note 3 above. MRX amended Options 3, Section 14(b).
\50\ See Phlx Options 3, Section 14(b)(v) which specifies that a
Directed Order may be submitted as a Complex Order. See also Phlx
Options 3, Section 7(b)(11) which describes a Directed Order. Phlx's
Options 2, Section 10 Directed Order rule is similar to ISE's
Options 2, Section 10 Preferenced Order rule.
\51\ A ``Directed Order'' is an order entered into the System by
an Electronic Exchange Member with a designation for a Lead Market
Maker (referred to as a ``Directed Lead Market Maker''). Only
Priority Customer Orders will be eligible to be entered into the
System as a Directed Order by an Electronic Exchange Member. See
MIAX Rule 100. See also MIAX Rule 514(h) which describes allocation.
Today, MIAX permits Directed Orders to be submitted as a New Order--
Multileg. See https://www.miaxoptions.com/sites/default/files/page-files/FIX%20Order%20Interface_FOI_v2.5a_re.pdf. Pursuant to MIAX's
specifications, ``AllocAccount (Tag 79) is defined as MIAX assigned
directed firm code of the designated participant for directed order
flow.''
---------------------------------------------------------------------------
Complex Opening Price Determination
The Exchange proposes to amend the citation within Supplementary
Material .05(d)(2) to Options 3, Section 14 which states, ``Potential
Opening Price. The System will calculate the Potential Opening Price by
identifying the price(s) at which the maximum number of contracts can
trade (``maximum quantity criterion'') taking into consideration all
eligible interest pursuant to Supplementary Material .06(b) to this
Rule.'' The citation to Supplementary Material .06(b), related to
Uncrossing is incorrect. The citation should be to Supplementary
Material .05(b), related to Complex Opening Price Determination. The
citation is referring is to eligible interest during the Complex
Opening Price Determination.
The Exchange proposes to amend the Complex Opening Price
Determination in Supplementary Material .05(d)(3) to Options 3, Section
14 to allow for additional contracts to be included in the Potential
Opening Price calculation leading to better price discovery and more
contracts executing as part of the Complex Opening Price Determination
process. This amendment is identical to a change recently adopted for
MRX.\52\
---------------------------------------------------------------------------
\52\ See note 3 above. MRX amended Supplementary Material
.05(d)(3) to Options 3, Section 14.
---------------------------------------------------------------------------
With this proposal, when the interest does not match the size and
there is more than one Potential Opening Price at which the interest
may execute, the Exchange would calculate a Potential Opening Price
using the mid-point of the highest (lowest) executable offer (bid)
price and the next available executable offer (bid) price rounded, if
necessary, down (up) to the closest minimum trading increment. As a
result, more options contracts are likely to be executed at better
prices than under the current rule. Example number 3 below demonstrates
this behavior. This behavior differs from current rules in that, today,
the Exchange would calculate the Potential Opening Price as the highest
(lowest) executable bid (offer) when there would be contracts left
unexecuted on the bid (offer) side of the complex market.
Further, the proposed amendment will allow Market Complex Orders to
participate in the Opening Price Determination process in a broader
capacity than the rule allows for today. Today, if there are only
Market Complex Orders on both sides of the market, or if there are
Market Complex Orders on the bid (offer) side of the market for greater
than the total size of Complex Orders on the offer (bid) side of the
market, then ISE will not open pursuant to the Complex Opening Price
Determination process and would instead open pursuant to an Uncrossing
as provide for in Supplementary Material .06(b) of ISE Options 3,
Section 14. With the proposed amendment Market Complex Orders will be
included in the Complex Opening Price Determination process in both
situations described above, leading to more contracts being able to
trade in the Complex Opening Price Determination with better price
discovery. Example 5 below illustrates this point.
Finally, the proposed amendment considers the Boundary Price
earlier in the Complex Opening Process. Today, the rule seeks to
satisfy the maximum quantity criterion first and then consider Boundary
Prices. With the proposed change, the Exchange will consider the
Boundary Price while determining the Potential Opening Price, thereby
enabling as many contracts as possible to trade sooner, which reduces
risk for market participants awaiting executions. With this proposal,
the Complex Opening Process considers the Boundary Price earlier in the
process and the Boundary Price becomes the limit price for Market
Complex Orders. This proposal should maximize the number of contracts
executed, to the benefit of those
[[Page 78749]]
Members participating in that complex strategy.
Current Supplementary Material .05 of ISE Options 3, Section 14
describes how Complex Orders arrive at an Opening Price. Specifically,
Supplementary .05(b) of ISE Options 3, Section 14 describes the
interest that is eligible within the Complex Opening Price
Determination. The rule text provides that the System would calculate
Boundary Prices \53\ at or within which Complex Orders may be executed
during the Complex Opening Price Determination.\54\ Current
Supplementary Material .05(d)(2) of ISE Options 3, Section 14 provides,
``The System will calculate the Potential Opening Price \55\ by
identifying the price(s) at which the maximum number of contracts can
trade (``maximum quantity criterion'') taking into consideration all
eligible interest pursuant to Supplementary Material .06(b) to this
Rule.'' \56\ The System takes into consideration all Complex Orders,
identifies the price at which the maximum number of contracts can
trade, and calculates the Potential Opening Price as described in
Supplementary Material .05(d)(2) of ISE Options 3, Section 14.
Supplementary Material .05(d)(3) of ISE Options 3, Section 14 further
describes the way the System handles more than one Potential Opening
Price. Current Supplementary Material .05(d)(3) of ISE Options 3,
Section 14 states,
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\53\ The Boundary Price is described in Supplementary Material
.05(d)(1) of ISE Options 3, Section 14(a)(1).
\54\ See Supplementary Material .05(d)(1) of ISE Options 3,
Section 14.
\55\ The Potential Opening Price is described in Supplementary
Material .05(d)(2) of ISE Options 3, Section 14.
\56\ The Exchange proposes to amend the citation within
Supplementary Material .05(d)(2) to Options 3, Section 14 within
this proposal. The citation to Supplementary Material .06(b),
related to Uncrossing, should be to Supplementary Material .05(b),
related to Complex Opening Price Determination. Specifically, the
reference is to Eligible Interest during the Complex Opening Price
Determination.
When two or more Potential Opening Prices would satisfy the
maximum quantity criterion: (A) without leaving unexecuted contracts
on the bid or offer side of the market of Complex Orders to be
traded at those prices, the System takes the highest and lowest of
those prices and takes the mid-point; provided that (1) if the
highest and/or lowest price described above is through the price of
a bid or offer that is priced to not allocate in the Complex Opening
Price Determination, the highest and/or lowest price will be rounded
to the price of such bid or offer that is priced to not allocate
before taking the mid-point, and (2) if the midpoint is not
expressed as a permitted minimum trading increment, it will be
rounded down to the nearest permissible minimum trading increment;
or (B) leaving unexecuted contracts on the bid (offer) side of the
market of Complex Orders to be traded at those prices, the Potential
Opening Price is the highest (lowest) executable bid (offer) price.
Notwithstanding the foregoing: (C) if there are Market Complex
Orders on the bid (offer) side of the market that would equal the
full quantity of Complex Orders on offer (bid) side of the market,
the limit price of the highest (lowest) priced Limit Complex Order
is the Potential Opening Price; and (D) if there are only Market
Complex Orders on both sides of the market, or if there are Market
Complex Orders on the bid (offer) side of the market for greater
than the total size of Complex Orders on the offer (bid) side of the
market, there will be no trade in the Complex Opening Price
Determination and the complex strategy will open pursuant to the
Complex Uncrossing Process described in Supplementary Material
---------------------------------------------------------------------------
.06(b) to this Rule.
At this time, the Exchange proposes to amend the System handling within
the Complex Opening Process by replacing Supplementary Material
.05(d)(3) of ISE Options 3, Section 14 with the following proposed rule
text,
Opening Price Determination. When interest crosses and does not
match in size, the System will calculate the Potential Opening Price
based on the highest (lowest) executable offer (bid) price when the
larger sized interest is offering (bidding), provided, however, that
if there is more than one price at which the interest may execute,
the Potential Opening Price when the larger sized interest is
offering (bidding) shall be the mid-point of the highest (lowest)
executable offer (bid) price and the next available executable offer
(bid) price rounded, if necessary, down (up) to the closest minimum
trading increment; or
When interest crosses and is equal in size, the System will
calculate the Potential Opening Price based on the mid-point of
lowest executable bid price and the highest executable offer price,
rounded, if necessary, up to the closest minimum trading increment.
(A) Executable bids/offers include any interest which could be
executed at the Potential Opening Price without trading through
residual interest or the Boundary Price or without trading at the
Boundary Price where there is Priority Customer interest at the best
bid or offer for any leg, consistent with paragraph Options 3,
Section 14(c)(2).
(B) Executable bids/offers will be bounded by the Boundary Price
on the contra-side of the interest, for determination of the
Potential Opening Price described above.
This proposed new Complex Opening Process seeks to maximize the
interest which is traded during the Complex Opening Price Determination
process and deliver a rational price for the available interest at the
opening. The Complex Opening Price Determination process maximizes the
number of contracts executed during the Complex Opening Process and
ensures that residual contracts of partially executed orders or quotes
are at a price equal to or inferior to the Opening Price. In other
words, the logic ensures there is no remaining unexecuted interest
available at a price which crosses the Opening Price. If multiple
prices exist that ensure that there is no remaining unexecuted interest
available through such price(s), the opening logic selects the mid-
point of such price points. Below are some examples.
Example # 3 (More Than One Potential Opening Price--Mid-Point of
Larger-Sized Interest)
``if there is more than one price at which the interest may execute,
the Potential Opening Price when the larger sized interest is offering
(bidding) is the mid-point of the highest (lowest) executable offer
(bid) price and the next available executable offer (bid) price
rounded, if necessary, down (up) to the closest minimum trading
increment''
Assume
Complex Order Strategy: A+B strategy
Quote for Leg A @1.75 x 1.95
Quote for Leg B @1.75 x 1.95
Boundary Price = 3.50 (10)-3.90 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 1.95 + Leg B Offer 1.95 = 3.90)
Complex Order #1: Buy 20 for $3.79
Complex Order #2: Buy 20 at $3.73
Complex Order #3: Sell 20 at $3.60
With the proposed amendment, Opening Price would be for 20
strategies at a price of $3.76. The execution price of $3.76 is derived
from the mid-point of the lowest executable bid price of $3.73 and the
next available executable bid price of $3.79. In this example, 20
strategies can be opened at multiple price points ranging from $3.73 up
to $3.79. None of these Potential Opening Prices would cause the
unexecuted $3.73 buy order to be available at a price which crosses the
Opening Price, therefore, the System opens at the mid-point of such
prices, $3.76.
Today, with this same example, the Opening Price would be 3.79, the
highest executable bid price, which provides the offer side with all
price improvement. With the proposed amendment, the Opening Price seeks
to distribute to the extent possible price improvement to both the bid
and offer side of the transaction.
Example # 4 (Mid-Point When Interest Is Equal in Size)
``Provided such crossing interest is equal in size, the System will
calculate the Potential Opening Price based on the mid-point of lowest
executable bid
[[Page 78750]]
price and the highest executable offer price, rounded, if necessary, up
to the closest minimum trading increment''
Complex Order Strategy: A+B strategy
Quote for Leg A @1.75 x 1.95 each
Quote for Leg B @1.75 x 1.95 each
Boundary Price= 3.50 (10)-3.90 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 1.95 + Leg B Offer 1.95 = 3.90)
Complex Order #1: Buy 10 for $3.78
Complex Order #2: Buy 20 for $3.74
Complex Order #3: Buy 10 at $3.71
Complex Order #4: Sell 20 at $3.64
Complex Order #5: Sell 20 at $3.66
With the proposed amendment, the Opening Price will be for 40
strategies at a price of $3.69. The execution price of $3.69 is derived
from the mid-point of the lowest executable bid price of $3.71 and the
highest executable offer price of $3.66, rounded up to the closest
minimum trading increment. Today, rounding would be down and with this
proposal the rounding would be up.
If the example were changed slightly such that Complex Order #4 and
Complex Order #5 were Market Complex Orders rather than Limit Orders,
the Opening Price for the 40 strategies would be $3.61, which is
derived from the mid-point of the lowest executable bid price of $3.71
and the highest executable offer of $3.50 (which is the Boundary Price
of the sell Market Complex Orders), rounded up to the closest minimum
trading increment.
The Exchange notes that executable bids/offers include any interest
that could be executed at the net price without trading through
residual interest or the Boundary Price, or without trading at the
Boundary Price where there is Priority Customer interest at the best
bid or offer for any leg, consistent with current ISE Options 3,
Section 14(c)(2).\57\ Further, executable bids/offers would be bounded
to the Boundary Price on the contra-side of the interest, for
determination of the Opening Price described above when crossing
interest is different in size and when crossing interest is equal in
size.
---------------------------------------------------------------------------
\57\ ISE Options 3, Section 14(c)(2) provides, ``Complex
strategies will not be executed at prices inferior to the best net
price achievable from the best ISE bids and offers for the
individual legs. Notwithstanding the provisions of Options 3,
Section 10: (i) a Complex Options Strategies may be executed at a
total credit or debit price with one other Member without giving
priority to bids or offers established on the Exchange that are no
better than the bids or offers in the individual options series
comprising such total credit or debit; provided, however, that if
any of the bids or offers established on the Exchange consist of a
Priority Customer Order, the price of at least one leg of the
complex strategy must trade at a price that is better than the
corresponding bid or offer on the Exchange by at least one minimum
trading increment for the series as defined in Options 3, Section 3;
(ii) the option leg of a Stock-Option Strategy has priority over
bids and offers for the individual options series established on the
Exchange by Professional Orders and market maker quotes that are no
better than the price of the options leg, but not over such bids and
offers established by Priority Customer Orders; and (iii) the
options legs of a Stock-Complex Strategy are executed in accordance
with subparagraph (c)(2)(i).
---------------------------------------------------------------------------
The amendment will benefit Members by smoothing the way for the
complex strategy to open with Market Complex Orders. Today, Market
Complex Orders participate in the Complex Opening Process in a limited
capacity as explained above. By permitting Market Complex Orders to
participate in the Complex Opening Price Determination process in more
situations, the Exchange can provide more opportunity for Complex
Orders to trade in the Opening Process without having to go to the
Uncrossing process. Market conditions can change between the Complex
Opening Price Determination process and the Uncrossing process, which
can lead to missed opportunities for execution. The proposed rule would
have the Boundary Price assign limits to the Opening Price and
therefore permit Market Complex Orders to participate in the Complex
Opening Process to the extent that they are within the Boundary Prices.
With this change, ISE would permit a complex strategy to calculate an
Opening Price utilizing a greater number of Market Complex Orders,
which benefits the Opening Process by taking into account these more
aggressively priced orders \58\ while also bringing more liquidity into
the Opening Price calculation.
---------------------------------------------------------------------------
\58\ The allowance of a greater number of Market Complex Orders
within the Opening Process provides a greater depth of price
discovery for an options series. As noted above, the Boundary Price
would assign limits to the Opening Price, therefore preventing
Market Complex Orders which are aggressively priced from negatively
impacting the Opening Price.
---------------------------------------------------------------------------
Example # 5 (Market Complex Orders Trading in Opening Price
Determination)
``Provided interest crosses and does not match in size, the System will
calculate the Potential Opening Price based on the highest (lowest)
executable offer (bid) price when the larger sized interest is offering
(bidding)''
As referenced above,
Assume
Complex Order Strategy: A+B strategy
Quote for Leg A @1.75 x 2.00
Quote for Leg B @1.75 x 2.00
Boundary Price = 3.50 (10)-4.00 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 2.00 + Leg B Offer 2.00 = 4.00)
Market Complex Order #1: Buy 30
Complex Order #2: Sell 20 at $3.95
After Complex Opening Price Determination process, but before
Uncrossing
ABBO for Leg A updates: 1.85 x 1.90
ABBO for Leg B updates 1.85 x 1.90
cNBBO: 3.70 x 3.80
(ABBO Leg A Bid 1.85 + Leg B Bid 1.85 = 3.70)(ABBO Leg A Offer 1.90 +
Leg B Offer 1.90 = 3.80)
With the proposed amendment the Market Complex Order can be
considered in the Complex Opening Price Determination process and
therefore is able to trade at the Opening Price of $4.00 for 20
strategies with Complex Order #2 and also able to trade 10 strategies
at a net price $4.00 with the individual legs at the best bids and
offers before the ABBO updates, leaving no place for this complex
strategy to trade. The Opening Price in this example is determined as
the lowest executable bid because the bid side is the larger sized
interest, which is limited by the Boundary Price on the offer side at
4.00.
Today, Market Complex Orders with a larger quantity than the
quantity of interest on the contra side of the market do not
participate in the Complex Opening Price Determination and can only
execute during the Uncrossing pursuant to Supplementary Material
.05(d)(6) of ISE Options 3, Section 14. In the example above, the ABBO
of each leg updates after the Complex Opening Price Determination
process and restricts the Market Complex Order and Complex Limit Order
from trading in the Uncrossing because they cannot match at a price
that would be within the Price Limits for Complex Orders pursuant to
ISE Options 3, Section 16(a).
Finally, with this proposal and as demonstrated in Example 5 above,
a complex strategy would open pursuant to Supplementary Material
.05(d)(5) of ISE Options 3, Section 14, with less contracts becoming
subject to the Uncrossing pursuant to Supplementary Material .06(b) of
ISE Options 3, Section 14. As a result of this change, more interest
would be able to trade within the Opening Process, ensuring a greater
number of contracts are executed on ISE at the Complex Opening and
lessening the likelihood that contracts which remain unmatched during
the Complex Opening Price Determination process receive no execution in
the Uncrossing due to changing market conditions.\59\
---------------------------------------------------------------------------
\59\ Unmatched orders would rest on the Order Book with the
potential to execute intra-day.
---------------------------------------------------------------------------
As noted above, this amendment is identical to a change recently
adopted
[[Page 78751]]
for MRX.\60\ Additionally, Phlx has a similar methodology to arrive at
a complex opening price at Phlx Options 3, Section 14(d)(ii)(C)(2) \61\
as compared to proposed Supplementary Material .05(d)(3) of ISE Options
3, Section 14. Phlx's COOP Evaluation and ISE's proposed Opening Price
Determination both seek the price at which the maximum number of
contracts can trade. Phlx's COOP Evaluation is an auction with a timer,
unlike ISE's Opening Price Determination.\62\ Proposed Supplementary
Material .05(d)(3)(A) and (B) of ISE Options 3, Section 14 differs from
Phlx Options 3, Section 14(d)(ii)(C)(2). ISE will open a complex
strategy with the Complex Order Book crossed if an Opening Price cannot
be found within the Boundary Prices and remain crossed while attempting
to uncross the Complex Order Book on a best effort basis, pursuant to
Supplementary Material .06 of ISE Options 3, Section 14, until all
interest can be executed. Today, Phlx will open a complex strategy
crossed when a price cannot be found within Phlx's cPBBO during the
COOP Evaluation period and there are more aggressive away market prices
that are limiting the ability to leg into the single-leg book, but will
not remain crossed as complex orders that are through Phlx's cPBBO
would be cancelled pursuant to Phlx Options 3, Section 14(f)(i)(A).\63\
---------------------------------------------------------------------------
\60\ See note 3 above. MRX amended Supplementary Material
.05(d)(3) of ISE Options 3, Section 14.
\61\ COOP Evaluation. Upon expiration of the COOP Timer, the
System will conduct a COOP Evaluation to determine, for a Complex
Order Strategy, the price at which the maximum number of contracts
can trade, taking into account Complex Orders marked All-or-None
(which will be executed if possible) unless the maximum number of
contracts can only trade without including All-or-None Orders. The
Exchange will open the Complex Order Strategy at that price,
executing marketable trading interest, in the following order:
first, to Public Customers in time priority; next to Phlx electronic
market makers on a pro rata basis; and then to all other
participants on a pro rata basis. The imbalance of Complex Orders
that are unexecutable at that price are placed on the CBOOK. (1) No
trade possible. If at the end of the COOP Timer the System
determines that no market or marketable limit Complex Orders or COOP
Sweeps, Complex Orders or COOP Sweeps that are equal to or improve
the cPBBO, and/or Complex Orders or COOP Sweeps that cross within
the cPBBO exist in the System, all Complex Orders received during
the COOP Timer will be placed on the CBOOK, as described in
paragraph (f) below. (2) Trade is possible. If at the end of the
COOP Timer the System determines that there are market or marketable
limit Complex Orders or COOP Sweeps, Complex Orders or COOP Sweeps
that are equal to or improve the cPBBO, and/or Complex Orders or
COOP Sweeps that cross within the cPBBO in the System, the System
will do the following: if such interest crosses and does not match
in size, the execution price is based on the highest (lowest)
executable offer (bid) price when the larger sized interest is
offering (bidding), provided, however, that if there is more than
one price at which the interest may execute, the execution price
when the larger sized interest is offering (bidding) is the midpoint
of the highest (lowest) executable offer (bid) price and the next
available executable offer (bid) price rounded, if necessary, down
(up) to the closest minimum trading increment. If the crossing
interest is equal in size, the execution price is the midpoint of
lowest executable bid price and the highest executable offer price,
rounded, if necessary, up to the closest minimum trading increment.
Executable bids/offers include any interest which could be executed
at the net price without trading through residual interest or the
cPBBO or without trading at the cPBBO where there is Public Customer
interest at the best bid or offer for any leg, consistent with
paragraph (c)(iii). If there is any remaining interest and there is
no component that consists of the underlying security and provided
that the order is not marked all-or-none, such interest may ``leg''
whereby each options component may trade at the PBBO with existing
quotes and/or Limit Orders on the Limit Order book for the
individual components of the Complex Order; provided that remaining
interest may execute against any eligible Complex Orders received
before legging occurs. If the remaining interest has a component
that consists of the underlying security, such Complex Order will be
placed on the CBOOK (as defined below). (3) The Complex Order
Strategy will be open after the COOP even if no executions occur.
\62\ Phlx's All-or-None order type differs from ISE's All-or-
None order in that only Public Customers may utilize the Phlx All-
or-None order type and Phlx's All-or-None order may rest on the
order book. See Phlx Option 3, Section 7(b)(5). ISE's All-or-None
order is a limit or market order that is to be executed in its
entirety or not at all. See ISE Options 3, Section 7(c).
\63\ By way of example, assume Phlx cPBBO is 1.00 x 2.00 and
cNBBO is 1.45 x 1.50. Also, assume Phlx complex Day Order to buy the
strategy @$0.50 which begins a COOP timer. Next, a complex day order
to sell the strategy @$0.50 arrives during the COOP timer. These
orders are crossed, but are not within Phlx's cPBBO, and, therefore,
both orders cannot trade as part of the COOP Evaluation.
Additionally, the sell order cannot leg into Phlx's simple order
book because of the more aggressive cNBBO which would limit legging
as part of the ACE price protection described within Phlx Options 3,
Section 16(b)(i), and, therefore, the sell order that is crossed
with Phlx's cPBBO cannot remain on the Complex Order Book and is
ultimately cancelled. In contrast, on ISE, this sell order would
remain crossed on the Complex Order Book while continuously looking
for an opportunity to uncross and trade these Complex Orders as new
orders arrive or the market moves. Options 3, Section 14(f)(i)(A)
provides that Complex Orders must be entered onto the CBOOK in
increments of $0.01. The individual components of a Complex Order
may be executed in minimum increments of $0.01, regardless of the
minimum increments applicable to such components. Such orders will
be placed on the CBOOK by the System when the following conditions
exist: (A) When the Complex Order does not price-improve upon the
cPBBO upon receipt . . .''.
---------------------------------------------------------------------------
The Exchange also proposes to amend the Opening Price in Supplementary
Material .05(d)(4) of ISE Options 3, Section 14 that currently
provides,
Opening Price. If the Potential Opening Price is at or within
the Boundary Prices, the Potential Opening Price becomes the Opening
Price. If the Potential Opening Price is not at or within the
Boundary Prices, the Opening Price will be the price closest to the
Potential Opening Price that satisfies the maximum quantity criteria
without leaving unexecuted contracts on the bid or offer side of the
market at that price and is at or within the Boundary Prices. If the
bid Boundary Price is higher than the offer Boundary Price, or if no
valid Opening Price can be found at or within the Boundary Prices,
there will be no trade in the Complex Opening Price Determination
and the complex strategy will open pursuant to the Complex
Uncrossing Process described in Supplementary Material .06(b) to
this Rule.
The Exchange proposes to amend this rule to instead provide,
If the Potential Opening Price is at or within the Boundary
Prices, the Potential Opening Price becomes the Opening Price and
the complex strategy will open pursuant to Supplementary Material
.05(d)(5) to this Rule. If the bid Boundary Price is higher than the
offer Boundary Price, or if no valid Potential Opening Price can be
found at or within the Boundary Prices, there will be no trade in
the Complex Opening Price Determination and the complex strategy
will open pursuant to the Complex Uncrossing Process described in
Supplementary Material .06(b) to this Rule.
With the proposed change, if the Potential Opening Price is at or
within the Boundary Prices, the Potential Opening Price becomes the
Opening Price and the complex strategy will open pursuant to the
Uncrossing described in Supplementary Material .05(d)(5) of ISE Options
3, Section 14, as is the case today. However, as is the case today, if
the bid Boundary Price is higher than the offer Boundary Price, or if
no valid Potential Opening Price can be found at or within the Boundary
Prices, there will be no trade in the Complex Opening Price
Determination and the complex strategy will open pursuant to the
Complex Uncrossing process described in Supplementary Material .06(b)
of ISE Options 3, Section 14 pursuant to the proposed amendment to the
Complex Opening Price Determination. As noted above, this amendment is
identical to a change recently adopted for MRX.\64\
---------------------------------------------------------------------------
\64\ See note 3 above. MRX amended Supplementary Material
.05(d)(4) of ISE Options 3, Section 14.
---------------------------------------------------------------------------
Complex Order Risk Protections
The Exchange proposes a non-substantive amendment to the title of a
Complex Order Risk Protection in ISE Options 3, Section 16, Complex
Order Risk Protections. Specifically, the Exchange proposes to amend
ISE Options 3, Section 16(c)(1) to change the title from ``Limit Order
Price Protection'' to ``Complex Order Price Protection.'' The Exchange
believes the proposed title more accurately describes the risk
protection.
[[Page 78752]]
Implementation
The Exchange intends to begin implementation of the proposed rule
change prior to December 23, 2023. The implementation would commence
with a limited symbol migration and continue to migrate symbols over
several weeks. The Exchange will issue an Options Trader Alert to
Members to provide notification of the symbols that will migrate and
the relevant dates.
Technical Amendments
The Exchange proposes to amend an incorrect citation within Options
3, Section 6, Collection and Dissemination of Quotations. Specifically,
the Exchange proposes to amend Options 3, Section 6(c)(2) to correct a
citation to ``Options 5, Section 8''. The citation should be to
``Options 3, Section 8''.
The Exchange proposes to amend ``Option'' to ``Options'' within
Options 3, Section 8(b)(2) related to the Opening Process and Options
3, Section 9(d)(2) related to Trading Halts.
The Exchange proposes to delete the words ``which is'' within
Options 3, Section 8(j)(3)(B) because they are duplicative.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\65\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\66\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest for the reasons discussed below.
---------------------------------------------------------------------------
\65\ 15 U.S.C. 78f(b).
\66\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Legging Order
Amending ISE Options 3, Section 7(k)(1) to add a provision which
states that a Legging Order will not be generated during a Posting
Period in progress on the same side in the series pursuant to Options
3, Section 15 regarding Acceptable Trade Range, is consistent with the
Act because from a System processing and user acceptance standpoint,
the best practice is to wait for the ATR Posting Period to complete
before attempting to generate a Legging Order on the same side in the
series, as the time required to complete the ATR Posting Period is
minimal. The proposed change is designed to protect investors and the
public interest as automatically generated Legging Orders would be
removed from the single-leg order book when they are no longer at the
Exchange's displayed best bid or offer. Generating a Legging Order
during a Posting Period in progress on the same side in the series
would lead to the immediate removal of the Legging Order from the
single-leg order book, making it superfluous to have been generated.
This amendment is identical to a change recently adopted for MRX.\67\
Additionally, Phlx's legging order rule in Options 3, Section
14(f)(iii)(C)(2) \68\ has the same restriction on generating legging
orders as proposed herein.
---------------------------------------------------------------------------
\67\ See note 3 above. MRX amended Options 3, Section 7(k)(1).
\68\ See note 10 above.
---------------------------------------------------------------------------
Re-Pricing
The Exchange believes that amending Options 3, Section 12(c) and
(d) and Options 3, Section 14(b)(19) to account for re-pricing of
quotes and orders that would otherwise lock or cross an away market, as
provided in Options 3, Section 4(b)(6) and (7) and Options 3, Section
5(c) and (d) of SR-ISE-2022-25, is consistent with the Act.
As discussed above with the implementation of re-pricing as
provided in Options 3, Section 4(b)(6) and (7) and Options 3, Section
5(c) and (d), interest could be available on the Exchange at a price
that is better than the NBBO but is non-displayed (i.e., the Exchange's
non-displayed order book or internal BBO). The proposed addition of
``internal BBO'' to Options 3, Section 12(c) and (d) will ensure that
Members continue to submit Qualified Contingent Cross Orders and
Complex Qualified Contingent Cross Orders at prices equal to or better
than the best prices available in the market and ensure that these
orders are not executed ahead of better-priced interest. This amendment
is identical to a change recently adopted for MRX.\69\
---------------------------------------------------------------------------
\69\ See note 3 above. MRX amended Options 3, Section 12(c) and
(d).
---------------------------------------------------------------------------
Further, with respect to the amendment to Options 3, Section
14(b)(19), regarding Complex Preferenced Orders, the addition of
``internal BBO'' is designed to ensure that Complex Preferenced Orders
are not allocated unless the Preferred Market Maker is quoting at the
better of the internal BBO (which could be better than the NBBO) or the
NBBO for a component leg(s) of the Complex Preferenced Order at the
time the Complex Preferenced Order is received. This amendment is
identical to a change recently adopted for MRX.\70\
---------------------------------------------------------------------------
\70\ See note 3 above. MRX amended Options 3, Section 14(b)(19).
---------------------------------------------------------------------------
Changes to the Single-Leg Price Improvement Mechanism for Crossing
Transactions
The Exchange's proposal to amend ISE Options 3, Section 13(d)(4),
related to single-leg PIM, to not permit unrelated marketable interest,
on the opposite side of the market from the Agency Order, which is
received during a single-leg PIM to early terminate a single-leg PIM is
consistent with the Act and promotes just and equitable principles
because allowing the auction to run its full course would provide a
full opportunity for price improvement to the Crossing Transaction. The
unrelated interest would participate in the single-leg PIM allocation
pursuant to ISE Options 3, Section 13(d), if residual contracts remain
after executing with interest on the single-leg order book. This
amendment is identical to a change recently adopted for MRX.\71\
Additionally, Phlx \72\ and BX \73\ do not permit unrelated interest on
the same or opposite side of an Agency Order to early terminate their
simple price improvement auctions.
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\71\ See note 3 above. MRX amended Options 3, Section 13(d)(4).
\72\ See note 17 above.
\73\ See note 18 above.
---------------------------------------------------------------------------
The proposed amendment in ISE Options 3, Section 13(c)(5)(ii),
related to single-leg PIM, applies to the receipt of marketable orders
both on the same side and opposite side of the Agency order. With
respect to the same side of the Agency Order, today, an unrelated
market or marketable limit order in the same series on the same side of
the Agency Order would cause the single-leg PIM to early terminate as
well. The proposal promotes just and equitable principles of trade
because a market or marketable limit order in the same series on the
same side of the Agency Order cannot interact with a single-leg PIM
auction. The market or marketable limit order may interact with the
order book, and if there are residual contracts that remain from the
market or marketable order in the same series on the same side of the
Agency Order, they will rest on the order book and improve the BBO
beyond the price of the Crossing Transaction which will cause early
termination of the single-leg PIM pursuant to proposed ISE Options 3,
Section 13(c)(5)(ii). The Exchange believes that this outcome would
allow for the single-leg PIM exposure period to continue for the full
period despite the receipt of unrelated marketable interest on the same
side of the market from the Agency Order, provided residual interest
does not go on to rest on the order book improving the BBO beyond the
price of the Crossing Transaction of the PIM. Allowing the single-leg
PIM to run its full course protects investors and the general public
because it would provide an
[[Page 78753]]
opportunity for price improvement to the Agency Order. This amendment
is identical to a change recently adopted for MRX.\74\
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\74\ See note 3 above. MRX amended Options 3, Section
13(c)(5)(ii).
---------------------------------------------------------------------------
Amending current ISE Options 3, Section 13(c)(5)(iii) to align the
rule text with MRX \75\ and also more closely with BX Options 3,
Section 13(ii)(B)(2) \76\ is consistent with the Act because it removes
any ambiguity that a market or marketable limit order priced more
aggressively than the Agency Order on the same side could ultimately
rest on the order book, improving the BBO beyond the price of the
Crossing Transaction of the PIM and, therefore, cause the early
termination of a single-leg PIM. Continuing to permit a single-leg PIM
to early terminate any time the Exchange best bid or offer improves
beyond the price of the Crossing Transaction on the same side of the
market as the Agency Order protects investors and the general public
because the Crossing Transaction Agency Order's price is inferior to
the Exchange's best bid or offer on the same side of the market as the
Agency Order. Upon early termination of the single-leg PIM, the
Crossing Transaction would execute against responses that arrived prior
to the time the Exchange's best bid or offer improved beyond the
Crossing Transaction. The proposed amendment to the rule text is not
intended to amend the current System functionality, rather it is
intended to make clear that a market or marketable limit order could
ultimately rest on the order book and improve the BBO beyond the price
of the Crossing Transaction.
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\75\ See MRX Options 3, Section 13(c)(5)(iii).
\76\ See note 22 above.
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Adding proposed new ISE Options 3, Section 13(c)(5)(iii), which
describes the automatic termination of the exposure period resulting
from a trading halt on the Exchange in the affected series, is
consistent with the Act because a trading halt would cause an option
series to stop trading on ISE and thereby impact the PIM auction.
Today, if a trading halt is initiated after an order is entered into
the single-leg PIM, such auction will be automatically terminated
without execution. Of note, the Exchange is separately proposing to
amend ISE Options 3, Section 13(d)(5) \77\ to change System behavior
such that if a trading halt is initiated after an order is entered into
the single-leg PIM, such auction will be automatically terminated with
execution solely with the Counter-Side Order.\78\ The proposed
amendment to ISE Options 3, Section 13(c)(5)(iii) protects investors
and the general public by making clear that a trading halt would lead
to early termination of a single-leg PIM. This amendment is not
intended to amend the current System functionality, rather it is
intended to make clear that a trading halt will cause the single-leg
PIM to early terminate. This amendment is identical to a change
recently adopted for MRX.\79\
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\77\ See note 23 above.
\78\ SR-ISE-2022-15P proposes to renumber ISE Options 3, Section
13(d)(5) as Options 3, Section 13(d)(6), and proposes to amend the
rule text to state, ``If a trading halt is initiated after an order
is entered into the Price Improvement Mechanism, such auction will
be automatically terminated with execution solely with the Counter-
Side Order.''
\79\ See note 3 above. MRX amended Options 3, Section
13(c)(5)(iii).
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Changes to the Complex PIM
Deleting ISE Options 3, Section 13(e)(4)(vi) within Complex PIM, as
well as a paragraph in Supplementary Material .01(b)(ii) of ISE Options
3, Section 14 discussing Complex Order Exposure, related to the early
termination of single-leg PIM from the arrival of unrelated marketable
interest on either the same or opposite side of the market from the
Agency Order, is consistent with the Act because a single-leg PIM will
no longer early terminate from the arrival of unrelated marketable
interest on either the same or opposite side of the market from the
Agency Order and because the flash functionality will no longer
exist.\80\ The removal of the aforementioned rule text will protect
investors and the public by avoiding confusion as the scenarios
contemplated by ISE Options 3, Section 13(e)(4)(vi) and Supplementary
Material .01(b)(ii) of ISE Options 3, Section 14 will no longer be able
to occur. This amendment is identical to a change recently adopted for
MRX.\81\
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\80\ See note 28 above.
\81\ See note 3 above. MRX deleted Options 3, Section
13(e)(4)(vi) within Complex PIM, as well as a paragraph in
Supplementary Material .01(b)(ii) of Options 3, Section 14.
---------------------------------------------------------------------------
Other Complex Order Amendments
Opening Only Complex Order
The Exchange's proposal to remove the word ``Limit'' within the
description of the Opening Only Complex Order Type in ISE Options 3,
Section 14(b)(10) is consistent with the Act because it allows Opening
Only Complex Orders to be submitted as Market Orders or Limit Orders.
The Exchange believes that allowing Market and Limit Orders to be
submitted within the Complex Opening Process promotes just and
equitable principles of trade. Market Orders are typically the most
aggressively priced orders while Limit Orders have a limit price
contingency that Market Orders do not have. Allowing both of these
order types to participate in the Complex Opening Process protects
investors and the general public because it allows greater liquidity to
be present to determine the Opening Price. All Members may enter both
Market Orders and Limit Orders in the Complex Opening Process as well
as intra-day. This proposal is consistent with current System
operations. This amendment is identical to a change recently adopted
for MRX.\82\
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\82\ See note 3 above. MRX amended Options 3, Section 14(b)(10).
---------------------------------------------------------------------------
Complex QCC With Stock Orders
The Exchange's proposal to amend an incorrect citation with ISE
Options 3, Section 14(b)(15), related to Complex QCC with Stock Orders,
is consistent with the Act because the current citation to ISE Options
3, Section 12(e) in the description of this order type should be to ISE
Options 3, Section 12(f). This non-substantive amendment will make
clear what was meant by the reference.
Complex Preferenced Orders
The Exchange's proposal to add ``Complex Preferenced Orders'' to
the list of Complex Order Types in ISE Options 3, Section 14(b) is
consistent with the Act because the Exchange believes that this order
type will promote just and equitable principles of trade because the
order type will continue to encourage Preferred Market Makers to quote
aggressively in an effort to execute against the Complex Preferenced
Order. Preferred Marker Makers are not able to ascertain if a
particular order is a Complex Preferenced Order. The Exchange believes
the proposal will protect investors and the general public by
encouraging greater order flow to be sent to the Exchange through
Complex Preferenced Orders and that this increased order flow will
benefit all market participants on the Exchange because they may
interact with that order flow.
The proposal promotes just and equitable principles of trade
because it continues to prioritize Priority Customer \83\ Orders on the
single-leg order book. Priority Customers have priority over non-
Priority Customer interest at the same price in the same options series
on the single-leg order
[[Page 78754]]
book.\84\ Complex Preferenced Orders are allocated based on the
competitive bidding of market participants. The Exchange's proposal
promotes just and equitable principles of trade as a Preferred Marker
Maker must be at the NBBO for a component leg(s) of the Complex
Preferenced Order at the time the Complex Preferenced Order is
received. Moreover, participation entitlements for Preferred Market
Makers are designed to balance the obligations \85\ that the Preferred
Market Maker has to the market with corresponding benefits. In its
approval of other options exchange preferenced or directed order
programs, the Commission has, like proposals to amend a specialist
guarantee, focused on whether the percentage of the ``entitlement''
would rise to a level that could have a material adverse impact on
quote competition within a particular exchange, and concluded that such
programs do not jeopardize market integrity or the incentive for market
participants to post competitive quotes.\86\
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\83\ The term ``Priority Customer'' means a person or entity
that (i) is not a broker or dealer in securities, and (ii) does not
place more than 390 orders in listed options per day on average
during a calendar month for its own beneficial account(s). See
Options 1, Section 1(a)(36).
\84\ See ISE Options 3, Section 10(c)(1)(A).
\85\ Primary Market Makers are obligated to quote in the Opening
Process pursuant to ISE Options 3, Section 8(c) as well as intra-day
pursuant to Options 2, Section 5(e), in addition to other
obligations noted within ISE Options 2, Sections 4-8.
\86\ See Securities Exchange Act Release Nos. 74129 (January 23,
2015), 80 FR 4954 at 4955 (January 29, 2015) (SR-BX-2014-049) (Order
Approving Proposed Rule Change Relating to Directed Market Makers);
and 51759 (May 27, 2005), 70 FR 32860 at 32861(June 6, 2005) (SR-
Phlx-2004-91) (Order Approving Proposed Rule Change and Notice of
Filing and Order Granting Accelerated Approval to Amendment No. 1
Thereto To Establish a Directed Order Process for Orders Delivered
to the Phlx Via AUTOM).
---------------------------------------------------------------------------
Further, adding this existing order type, which is described in ISE
Options 2, Section 10, would complete the list of Complex Order types
in ISE Options 3, Section 14(b). The addition of Complex Preferenced
Orders to the list of order types in ISE Options 3, Section 14(b) will
make clear to Members the availability of Complex Preferenced Orders.
This amendment is identical to a change recently adopted for MRX.\87\
Additionally, Phlx \88\ and MIAX \89\ have a similar order type.
---------------------------------------------------------------------------
\87\ See note 3 above. MRX amended Options 3, Section 14(b).
\88\ See note 50 above.
\89\ See note 51 above.
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Complex Opening Price Determination
The Exchange's proposal to amend the citation within Supplementary
Material .05(d)(2) to Options 3, Section 14, related to the Potential
Opening Price, is consistent with the Act because the current citation
to Supplementary Material .06(b) should be to Supplementary Material
.05(b). This non-substantive amendment will make clear what was meant
by the reference.
The Exchange's proposal to amend Supplementary Material .05(d)(3)
of ISE Options 3, Section 14, which describes the Complex Opening Price
Determination, is consistent with the Act because the proposed new
Complex Opening Process would allow for additional contracts to be
included in the Potential Opening Price calculation. This proposed
methodology would protect investors and the general public by leading
to better price discovery and more contracts executing as part of the
Complex Opening Price Determination. With this proposal, when the
interest does not match in size and there is more than one Potential
Opening Price at which the interest may execute, then the Exchange
would calculate a Potential Opening Price using the mid-point of the
highest (lowest) executable offer (bid) price and the next available
executable offer (bid) price rounded, if necessary, down (up) to the
closest minimum trading increment. As a result, the proposal promotes
just and equitable principles of trade as more options contracts are
likely to be executed at better prices than under current rule. This
behavior differs from ISE's current opening rule in that, today, the
Exchange would calculate the Potential Opening Price as the highest
(lowest) executable bid (offer) when there would be contracts left
unexecuted on the bid (offer) side of the complex market. This
amendment is identical to a change recently adopted for MRX.\90\ Also,
the proposed methodology is similar to Phlx.\91\
---------------------------------------------------------------------------
\90\ See note 3 above. MRX amended Supplementary Material
.05(d)(3) of ISE Options 3, Section 14.
\91\ See Phlx Options 3, Section 14(d)(ii)(C)(2).
---------------------------------------------------------------------------
Further, the proposed amendment promotes just and equitable
principles of trade by allowing Market Complex Orders to participate in
the Opening Price Determination process in a broader capacity than the
ISE opening rule allows for today. Today, if there are only Market
Complex Orders on both sides of the market, or if there are Market
Complex Orders on the bid (offer) side of the market for greater than
the total size of Complex Orders on the offer (bid) side of the market,
then ISE will not open pursuant to the Complex Opening Price
Determination process and would instead open pursuant to an Uncrossing
pursuant to Supplementary Material .06(b) of ISE Options 3, Section 14.
The proposed rule would have the Boundary Price assign limits to the
Opening Price and, therefore, permit Market Complex Orders to
participate in the Complex Opening Process, without limitation to the
benefit of investors and the public interest. With this change, ISE
would permit a complex strategy to calculate an Opening Price utilizing
a greater number of Market Complex Orders, which benefits the Opening
Process by taking into account these more aggressively priced orders
\92\ while also bringing more liquidity into the Opening Price
calculation. The amendment is designed to promote just and equitable
principles of trade as it will benefit Members by smoothing the way for
the complex strategy to open with Market Complex Orders.
---------------------------------------------------------------------------
\92\ The allowance of a greater number of Market Complex Orders
within the Opening Process provides a greater depth of price
discovery for an options series. As noted above, the Boundary Price
would assign limits to the Opening Price, therefore preventing
Market Complex Orders which are aggressively priced from negatively
impacting the Opening Price.
---------------------------------------------------------------------------
Finally, the proposed amendments to the Complex Opening Process
should promote just and equitable principles by allowing a complex
strategy to open pursuant to Supplementary Material .05(d)(4) of ISE
Options 3, Section 14, with less contracts becoming subject to the
Uncrossing pursuant to Supplementary Material .06(b) of ISE Options 3,
Section 14. As a result of this change, more interest would be able to
trade within the Opening Process, ensuring a greater number of
contracts are executed on ISE at the opening and lessening the
likelihood that contracts which remain unmatched during the Uncrossing
receive no execution.\93\
---------------------------------------------------------------------------
\93\ Unmatched orders would rest on the order book with the
potential to execute intra-day.
---------------------------------------------------------------------------
Complex Order Risk Protections
The Exchange's proposal to amend the title of a Complex Order Risk
Protection in Options 3, Section 16, Complex Order Risk Protections is
a non-substantive amendment. The proposal to amend Options 3, Section
16 protects investors and the general public by making clear the
contents of Options 3, Section 16.
Technical Amendments
The Exchange's amendment to Options 3, Section 6(c)(2) to correct a
citation is non-substantive. The proposed amendments will protect
investors and the general public by updating incorrect citations to
make the rules clear.
The Exchange's amendments to Options 3, Section 8(b)(2) and Options
3, Section 9(d)(2) related to Trading Halts are non-substantive
corrections. The proposed amendments will protect investors and the
general public by
[[Page 78755]]
updating incorrect citations to make the rules clear.
Finally, the Exchange's amendment to Options 3, Section 8(j)(3)(B)
to remove duplicative rule text is non-substantive. The proposed
amendments will protect investors and the general public by updating
incorrect citations to make the rules clear.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Legging Orders
Amending ISE Options 3, Section 7(k)(1) to add a provision which
states that a Legging Order will not be generated during a Posting
Period in progress on the same side in the series pursuant to Options
3, Section 15 regarding Acceptable Trade Range does not impose an undue
burden on intra-market competition because the amendment will apply
equally to all Members as Legging Orders are generated by the System.
Additionally, this proposal does not impose an undue burden on
inter-market competition as other options exchanges may adopt Legging
Orders and similar rules for the generation of such orders. In addition
to mirroring MRX Options 3, Section 7(k)(1), Phlx's legging order rule
in Options 3, Section 14(f)(iii)(C)(2) has the same restriction as
proposed to be added to ISE's Legging Order rule in ISE Options 3,
Section 7(k)(1).\94\
---------------------------------------------------------------------------
\94\ See note 10 above.
---------------------------------------------------------------------------
Re-Pricing
Adding language consistent with re-pricing within Options 3,
Section 12(c) and (d) and Options 3, Section 14(b)(19) does not impose
an undue burden on competition on intra-market competition as all
orders and quotes on ISE will be re-priced uniformly as provided for
within Options 3, Section 4(b)(6) and (7) and Options 5(c) and (d),
which recently became effective.\95\ With this recent change, re-priced
quotes and orders are accessible on the Exchange's order book at the
non-displayed price. Amending Options 3, Section 12(c) and (d) to
utilize the ``internal BBO'' language would continue to require Members
to submit Qualified Contingent Cross Orders and Complex Qualified
Contingent Cross Orders at the best price to receive an execution.
Furthermore, amending Options 3, Section 14(b)(19) to utilize the
``internal BBO'' language does not impose an undue burden on
competition on intra-market competition, rather it would specify
clearly that Members must quote at the best price to receive allocation
of a Complex Preferenced Order. The introduction of ``internal BBO''
will ensure that Qualified Contingent Cross Orders and Complex
Qualified Contingent Cross Orders do not execute if better-priced
interest is available and that a Complex Preferenced Order would not
receive a Preferred Market Maker allocation if better-priced interest
was available.
---------------------------------------------------------------------------
\95\ See Securities Exchange Act Release No. 96362 (November 18,
2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25).
---------------------------------------------------------------------------
The re-pricing proposals within Options 3, Section 12(c) and (d)
and Options 3, Section 14(b)(19) do not impose an undue burden on
inter-market competition because these rules continue to support
executions at the best price.
Changes to the Single-Leg Price Improvement Mechanism for Crossing
Transactions
The Exchange's proposal to amend ISE Options 3, Section 13(d)(4),
ISE Options 3, Section 13(c)(5)(ii) and (iii), and add a proposed new
ISE Options 3, Section 13(c)(5)(iii), related to single-leg PIM, does
not impose an undue burden on intra-market competition because the
amendment will apply equally to all Members. All Members may utilize
PIM.
The Exchange's proposal to amend ISE Options 3, Section 13(d)(4),
ISE Options 3, Section 13(c)(5)(ii) and (iii), and add a proposed new
ISE Options 3, Section 13(c)(5)(iii), related to single-leg PIM, does
not impose an undue burden on inter-market competition because other
options exchanges may adopt similar rules. In addition to mirroring to
MRX Options 3, Section 13, Phlx \96\ and BX \97\ do not permit
unrelated marketable interest on either the same or opposite side of
the market from an Agency Order to early terminate their simple price
improvement auctions.
---------------------------------------------------------------------------
\96\ See note 17 above.
\97\ See note 18 above.
---------------------------------------------------------------------------
Changes to the Complex PIM
Deleting ISE Options 3, Section 13(e)(4)(vi) within Complex PIM, as
well as a related paragraph in Supplementary Material .01(b)(ii) of ISE
Options 3, Section 14, which describes Complex Order Exposure, related
to the early termination of single-leg PIM as a result of the arrival
of unrelated marketable interest on either the same or the opposite
side of the market from the Agency Order does not impose an undue
burden on intra-market competition because the amendment will apply
equally to all Members. All Members may utilize Complex PIM.
Deleting ISE Options 3, Section 13(e)(4)(vi) within Complex PIM, as
well as a related paragraph in Supplementary Material .01(b)(ii) of ISE
Options 3, Section 14, which describes Complex Order Exposure, related
to the early termination of single-leg PIM from the arrival of
unrelated marketable interest on either the same or opposite side of
the market from the Agency Order does not impose an undue burden on
inter-market competition as other options exchanges may adopt similar
rules. In addition to mirroring to MRX Options 3, Section 13, Phlx \98\
and BX \99\ do not permit unrelated marketable interest on either the
same or opposite side of the market from an Agency Order to early
terminate their simple price improvement auctions.
---------------------------------------------------------------------------
\98\ See note 17 above.
\99\ See note 18 above.
---------------------------------------------------------------------------
Other Complex Order Amendments
The Exchange does not believe that the proposed amendments to the
Complex Orders rule will impose any significant burden on inter-market
competition. Other exchanges today offer complex order functionalities.
These options markets may amend their rules to mirror those of ISE.
Other options exchanges offer orders similar to Complex Preferenced
Orders.\100\ Additionally, the proposed Complex Opening Process is
identical to MRX \101\ and similar to Phlx.\102\ Finally, the proposed
Complex Opening Process methodology would allow ISE to compete with
other options exchanges that offer Complex Order functionality.
---------------------------------------------------------------------------
\100\ See e.g. Phlx Options 2, Section 10 and MIAX Rule 100.
\101\ See note 3 above. MRX amendment Supplementary Material .05
to Options 3, Section 14.
\102\ See Phlx Options 3, Section 14(d)(ii)(C)(2).
---------------------------------------------------------------------------
Opening Only Complex Order
The Exchange's proposal to remove the word ``Limit'' within the
description of the Opening Only Complex Order Type in ISE Options 3,
Section 14(b)(10) does not impose an undue burden on intra-market
competition because this proposed change will apply to all Members.
Additionally, the Exchange's proposal to remove the word ``Limit''
within the description of the Opening Only Complex Order Type in ISE
Options 3, Section 14(b)(10) does not impose an undue burden on inter-
market competition because other options exchanges could adopt a
similar order type.
[[Page 78756]]
Complex QCC With Stock Orders
The Exchange's proposal to amend an incorrect citation with ISE
Options 3, Section 14(b)(15), related to Complex QCC with Stock Orders,
does not impose an undue burden on intra-market or inter-market
competition because the amendment is non-substantive.
Complex Preferenced Orders
The Exchange's proposal to add ``Complex Preferenced Orders'' to
the list of Complex Order Types in ISE Options 3, Section 14(b) does
not impose an undue burden on intra-market competition. Preferred
Market Makers have obligations \103\ unlike other market participants.
The allocation entitlements for Preferred Market Makers are designed to
balance the obligations that the Preferred Market Makers has to the
market with corresponding benefits. In order to receive the
participation entitlement for a Complex Preferenced Order, Preferred
Market Makers are required to quote 90% of the trading day as compared
to Market Makers who are required to quote 60% of the trading day.\104\
Further, Priority Customers \105\ have priority over non-Priority
Customer interest at the same price in the same options series on the
single-leg order book. \106\
---------------------------------------------------------------------------
\103\ See ISE Options 2, Section 5.
\104\ See ISE Options 2, Section 5.
\105\ See note 83 above.
\106\ See ISE Options 3, Section 10(c)(1)(A).
---------------------------------------------------------------------------
At the time of receipt of the Complex Preferenced Order, a
Preferred Market Maker would have to be quoting at the NBBO, which is
intended to incentivize the Preferred Market Maker to quote
aggressively in order to execute against the Complex Preferenced Order.
Preferred Marker Makers are not able to ascertain if a particular order
is a Complex Preferenced Order. The Exchange believes the proposal will
encourage Market Makers to quote tighter and add a greater amount of
liquidity on ISE in an attempt to interact with Complex Preferenced
Orders that are sent to the Exchange. This order flow will benefit all
market participants on the Exchange because any ISE Member may interact
with that order flow. Finally, any ISE Member on the single-leg or
Complex Order Book may trade with a Complex Preferenced Order. Also,
any ISE Market Maker may elect to receive Preferenced Order.
The Exchange's proposal to add ``Complex Preferenced Orders'' to
the list of Complex Order Types in ISE Options 3, Section 14(b) does
not impose an undue burden on inter-market competition as other options
exchanges could adopt a similar order type.
Complex Opening Price Determination
The Exchange's proposal to amend an incorrect citation within
Supplementary Material .05(d)(2) to Options 3, Section 14, related to
the Potential Opening Price, does not impose an undue burden on intra-
market competition or inter-market burden on competition because the
amendment makes clear the correct applicable text it was referring to
within the Rulebook.
The Exchange's proposal to amend Supplementary Material .05(d)(3)
to ISE Options 3, Section 14, which describes the Complex Opening Price
Determination, does not impose an undue burden on intra-market
competition because all Members may submit interest into the Complex
Opening Process.
The Exchange's proposal to amend Supplementary Material .05(d)(3)
to ISE Options 3, Section 14, which describes the Complex Opening Price
Determination, does not impose an undue burden on inter-market
competition because other options exchanges today offer complex order
functionalities. These options markets may amend their rules to mirror
those of ISE.
Complex Order Risk Protections
The Exchange's proposal to amend the title of a Complex Order Risk
Protection in Options 3, Section 16, Complex Order Risk Protections
from ``Limit'' to ``Complex'' Order Price Protection does not impose an
undue burden on intra-market or inter-market competition because the
change in the title makes clear the contents of that rule.
Technical Amendments
The Exchange's amendment to Options 3, Section 6(c)(2) to correct a
citation does not impose an undue burden on intra-market or inter-
market competition because it makes clear the proper ISE rule that was
being referenced.
The Exchange's amendments to Options 3, Section 8(b)(2) and Options
3, Section 9(d)(2) related to Trading Halts does not impose an undue
burden on intra-market or inter-market competition because the
amendments make the rule clear.
Finally, the Exchange's amendment to Options 3, Section 8(j)(3)(B)
to remove duplicative rule does not impose an undue burden on intra-
market or inter-market competition because it removes confusion from
the rule.
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 \107\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\108\
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\107\ 15 U.S.C. 78s(b)(3)(A)(iii).
\108\ 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-2022-28 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-2022-28. This file
[[Page 78757]]
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 the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-ISE-2022-28, and should be submitted on
or before January 12, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\109\
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\109\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27785 Filed 12-21-22; 8:45 am]
BILLING CODE 8011-01-P
