Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, Section 13 Related to PIM, 66106-66111 [2023-20802]
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Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / Notices
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(‘‘SPXW’’) options both before and after
the introduction of Tuesday expirations
and Thursday expirations for SPXW
options on April 18 and May 11, 2022,
respectively.49 The Exchange states that
analyzing whether the introduction of
new SPXW p.m.-settled expirations (i.e.,
SPXW options with Tuesday and
Thursday expirations) impacted the
market quality of then-existing SPXW
p.m.-settled expirations (i.e., SPXW
options with Monday, Wednesday, and
Friday expirations) provides a
reasonable substitute to evaluate
whether the introduction of p.m.-settled
index options impacted the market
quality of the SPX market when the
Program began.50 Therefore, the
Exchange believes analyzing the impact
of new SPXW options on then-existing
SPXW options permit the Exchange to
extrapolate that it is unlikely the
introduction of p.m.-settled SPXW
options significantly impacted the
market quality of a.m.-settled SPX
options when the Program began.51 The
Exchange concludes from this analysis
that the introduction of SPX options
with Tuesday and Thursday options had
no significant impact on the market
quality of SPXW options with Monday,
Wednesday, and Friday expirations. For
a majority of the series analyzed, the
Exchange observed no statistically
significant difference in bid-ask spread
or effective spread.52
The Commission believes that the
evidence contained in the Exchange’s
filing, the Exchange’s pilot data and
reports, and the Pilot Memo analysis
demonstrate that the Program has
benefitted investors and other market
participants by providing more flexible
trading and hedging opportunities while
also having no disruptive impact on the
market. The market for SPXPM options
has grown significantly in size over the
course of the Program, and analysis of
the pilot data did not identify any
significant economic impact on the
underlying component securities of the
S&P 500 surrounding the close as a
result of expiring p.m.-settled SPX
options nor did it indicate a
deterioration in market quality (as
measured by bid-ask and effective
spreads) for an existing product when a
new p.m.-settled expiration was
(with Monday, Wednesday, and Friday expirations)
as twice the amount of the absolute value of the
difference between an order execution price and the
midpoint of the national best bid and offer at the
time of execution, adjusted for the difference in size
between SPXW options and SPY options.
49 For purposes of comparison, the Exchange
paired SPXW options and SPY options with the
same moneyness and same days to expiration.
50 See Notice, 88 FR at 4269.
51 See id. at 4270.
52 See id.
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introduced. Further, significant changes
in closing procedures in the decades
since index options moved to a.m.
settlement may also serve to mitigate the
potential impact of p.m.-settled index
options on the underlying cash markets.
Accordingly, the Commission finds
that the proposed rule change, as
modified by Amendment No. 1, is
consistent with section 6(b)(5) of the
Act 53 and the rules and regulations
thereunder applicable to a national
securities exchange.
V. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,54 that the
proposed rule change (SR–CBOE–2023–
005), as modified by Amendment No. 1,
be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.55
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–20810 Filed 9–25–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98443; File No. SR–ISE–
2023–19]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 3,
Section 13 Related to PIM
September 20, 2023.
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
September 8, 2023, Nasdaq ISE, LLC
(‘‘ISE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘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.
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 11, Auction Mechanisms; and
53 15
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
55 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
54 15
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Options 3, Section 13, Price
Improvement Mechanism for Crossing
Transactions.
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
The Exchange proposes to amend
Options 3, Section 7, Types of Orders
and Order and Quote Protocols; Options
3, Section 11, Auction Mechanisms; and
Options 3, Section 13, Price
Improvement Mechanism for Crossing
Transactions. Each change is described
below.
Options 3, Section 7
Opening Only
The Exchange proposes to amend
Options 3, Section 7(u), Opening
Sweep 3 and Supplementary Material
.02(e) to Options 3, Section 7 related to
Opening Only 4 or ‘‘OPG’’ orders. The
proposed rule text was adopted as part
of a planned System migration.5
3 An Opening Sweep is a one-sided order entered
by a Market Maker through SQF for execution
against eligible interest in the System during the
Opening Process. This order type is not subject to
any protections listed in Options 3, Section 15,
except for Automated Quotation Adjustments. The
Opening Sweep will only participate in the
Opening Process pursuant to Options 3, Section
8(b)(1) and will be cancelled upon the open if not
executed. See Options 3, Section 7(u).
4 An Opening Only (‘‘OPG’’) order is entered with
a TIF of ‘‘OPG.’’ This order can only be executed
in the Opening Process pursuant to Options 3,
Section 8. This order type is not subject to any
protections listed in Options 3, Section 15, except
Size Limitation. Any portion of the order that is not
executed during the Opening Process is cancelled.
OPG orders may not route. See Supplementary
Material .02(e) to Options 3, Section 7.
5 See Securities Exchange Act Release No. 96821
(February 6, 2023), 88 FR 8950 (February 10, 2023)
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Options 3, Section 7(t) currently
provides that an Opening Sweep would
not be subject to any protections listed
in Options 3, Section 15, except
Automated Quotation Adjustments in
Options 3, Section 15. Supplementary
Material .02(e) to Options 3, Section 7
currently provides that an OPG Order
would not be subject to any protections
listed in Options 3, Section 15, except
Size Limitation. At this time, the
Exchange proposes to amend the rule
text to specify that an Opening Sweep
and an OPG Order would be subject to
the Market Wide Risk Protection in
Options 3, Section 15.
The Market Wide Risk Protection in
Options 3, Section 15(a)(1)(C)
automatically removes Member orders
when certain firm-set thresholds are
met. Specifically, the Market Wide Risk
Protection requires all Members to
provide parameters for the order entry
and execution rate protections. The
Market Wide Risk Protection would
apply to an Opening Sweep and an OPG
Order because it captures the order
entry and execution rate for both
Opening Sweeps and OPG Orders that
are entered in the Opening Process as
described in Options 3, Section 8. The
Exchange believes the availability of the
Market Wide Risk Protection during the
Opening Process would assist Members
in managing their pre-open risk by
allowing Members to adhere to their
firm thresholds. The Exchange notes
that other risk protections within
Options 3, Section 15 do not apply to
wither an Opening Sweep or an
Opening Only Order because the risk
protection either relies on the BBO,
which available after the Opening
Process, or the risk protection is
optional. Finally, the Exchange also
proposes a technical amendment to
capitalize the word ‘‘orders’’ in
Supplementary Material .02(e) to
Options 3, Section 7.
Options 3, Sections 11 and 13
The Exchange proposes to amend
Options 3, Section 11(b)(4)(A) related to
the Facilitation Mechanism. Currently,
the last sentence in Options 3, Section
11(b)(4)(A) provides that a facilitation
order will be cancelled at the end of an
exposure period if an execution would
take place at a price that is inferior to
the best bid (offer) on ISE. The Exchange
proposes to amend this sentence to
state, the ‘‘Exchange best bid (offer)’’
and remove the phrase ‘‘on Nasdaq
ISE.’’ Additionally, the Exchange
(SR–ISE–2023–06) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend
Its Rules in Connection With a Technology
Migration to Enhanced Nasdaq, Inc. (‘‘Nasdaq’’)
Functionality) (‘‘SR–ISE–2023–06’’).
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proposes to add the following rule text
to the end of the sentence, ‘‘or if there
is a Priority Customer order on the same
side Exchange best bid (offer) at the
same price as the facilitation price
unless the Facilitation Order can
execute at a price that is better than the
same side Priority Customer Order.’’
Today, a facilitation order must execute
at a price that is better than the same
side BBO if there is a Priority Customer
order on the same side. The proposed
rule text is being amended to align to
current System functionality which
prevents a Facilitation Order from
trading ahead of a Priority Customer
Order. As such, a Priority Customer
order on the same side of the offer must
be considered when executing a
Facilitation Order. The Exchange
proposes to add similar language to the
last sentence of Options 3, Section
11(d)(3)(A) related to the Solicited
Order Mechanism. The Exchange notes
that these amendments do not amend
the current System functionality.
The Exchange proposes to add a new
Options 3, Section 11(b)(4)(iv) to
describe the allocation percentage that
an Electronic Access Member is able to
obtain in the Facilitation Mechanism.
Today, under the current System
operation, the facilitating Electronic
Access Member may not receive an
allocation percentage, at the final price
point, of more than 40% of the original
size of the Facilitation Order with one
or multiple competing quote(s), order(s),
or Response(s), except for rounding,6
when competing quotes, orders, or
Responses have contracts available for
execution. Options 3, Section
11(b)(4)(ii) makes clear that the
facilitating Electronic Access Member
will be allocated up to forty percent
(40%) (or such lower percentage
requested by the Member) of the original
size of the facilitation order, but only
after better-priced Responses, orders
and quotes, as well as Priority Customer
Orders and Priority Customer Responses
at the facilitation price, are executed in
full at such price point. The proposed
rule text expressly notes that the
allocation percentage will not be
exceeded except for rounding purposes.
This language represents current System
functionality. The Exchange proposes to
add similar language to Options 3,
Section 11(c)(7)(E) related to the
Complex Facilitation Mechanism,
Options 3, Section 13(d)(7) related to
the Price Improvement Mechanism for
Crossing Transactions, and Options 3,
Section 13(e)(5)(vi) related to the
6 ISE’s System will round up to the nearest whole
number during the allocation in the Facilitation
Mechanism.
PO 00000
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66107
Complex Price Improvement
Mechanism to note the limitations with
respect to allocations.
The Exchange proposes to amend
Supplementary Material .04 to Options
3, Section 11 to replace the word
‘‘quotes’’ with ‘‘Responses’’ in the Split
Price description. Orders and responses
in the market that receive the benefit of
the facilitation price may receive
executions at Split Prices. This change
to the rule text is intended to utilize the
defined term ‘‘Response’’ pursuant to
Options 3, Section 11(b)(3) may be
priced at the price of the order to be
facilitated or at a better price and will
only be considered up to the size of the
order to be facilitated.
The Exchange proposes to add a new
Supplementary Material .09 to Options
3, Section 11 and a new Supplementary
Material .09 to Options 3, Section 11 to
provide that, today, if an allocation
would result in less than one contract,
then one contract will be allocated. The
Exchange does not allocate fractional
contracts. This language represents the
current System functionality. The
Exchange proposes to add the same
sentence within new Supplementary
Material .10 to Options 3, Section 13
regarding a PIM. Phlx has similar
language.7
The Exchange proposes to amend
Options 3, Section 13(b)(1) through (3)
to harmonize the language within the
PIM entry checks with language within
Nasdaq GEMX, LLC’s (‘‘GEMX’’) PIM,
Nasdaq MRX, LLC’s (‘‘MRX’’) PIM,
Nasdaq Phlx LLC’s (‘‘Phlx’’) PIXL and
BX’s PRISM, without changing the
substantive operations of these price
improvement auctions. The Exchange
believes that by utilizing similar
language, Members will be able to
compare ISE’s PIM entry checks with
similar mechanisms on Nasdaq
affiliated markets.
ISE proposes to add ‘‘a price that is’’
to the end of Options 3, Section 13(b)(1)
and add new subparagraphs (A) and (B)
to distinguish opposite and same side
checks. The opposite side check is
currently spelled out in the current rule
text, however the same side check does
not specify the NBBO check. Today, if
the Agency Order is for less than 50
option contracts, and if the difference
between the NBBO or the difference
between the internal best bid and the
internal best offer is $0.01, the Crossing
Transaction must be entered at a price
that is, on the same side of the Agency
Order equal or better than the NBBO
and better than any Limit Order or quote
on ISE’s order book. The Exchange
believes that the addition of the NBBO
7 See
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Phlx Options 3, Section 13(b)(1)(D).
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check will add clarity to the rule text
because the NBBO check is always
relevant in the same side check to avoid
a trade-through. The Exchange also
proposes to capitalize ‘‘Limit Order,’’
remove the word ‘‘Nasdaq’’ before ‘‘ISE’’
and remove other extraneous words as
the sentence has been rearranged.
Next, the Exchange proposes to
bifurcate the entry check for Agency
Orders of 50 options contracts or more
for the account of a Priority Customer
from the entry checks for the account of
a broker dealer or any other person or
entity that is not a Priority Customer
similar to other Nasdaq affiliated
markets to provide consistent
formatting. While the entry checks for
new Options 3, Section 13(b)(2) and
(b)(3) will not differ, the Exchange
believes that retaining the same rule text
format across its Nasdaq affiliated
markets will allow for an easier
comparison. To that end, the Exchange
proposes to amend Options 3, Section
13(b)(2) to format it similar to Options
3, Section 13(b)(1). The Exchange
proposes to add ‘‘for the account of a
Priority Customer’’ to (b)(2) to
distinguish it from (b)(3) which
addresses the account of a broker dealer
or any other person or entity that is not
a Priority Customer. Options 3, Section
13(b)(2)(A) will also add rule text to
address the opposite side of the market,
which is not explicitly noted. Proposed
Options 3, Section 13(b)(2)(A) will
provide that if the Agency Order is for
the account of a Priority Customer, and
such order is for 50 option contracts or
more, or if the difference between the
NBBO or the difference between the
internal BBO is greater than $0.01, a
Crossing Transaction must be entered
only at a price that is equal to or better
than the internal BBO and NBBO on the
opposite side of the market from the
Agency Order. Further, Options 3,
Section 13(b)(2)(B) will explicitly note
the entry check on the same side of the
market and similar to Options 3, Section
13(b)(1) will include the NBBO check.
Proposed Options 3, Section 13(b)(2)(B)
will provide that if the Agency Order is
for the account of a Priority Customer,
and such order is for 50 option contracts
or more, or if the difference between the
NBBO or the difference between the
internal BBO is greater than $0.01, a
Crossing Transaction must be entered
only on the same side of the market as
the Agency Order, at a price that is at
least $0.01 better than any Limit Order
or quote on the ISE order book and
equal to or better than the NBBO.8 The
8 For example, if the market is 0.98 bid and 0.99
offer, a Priority Customer PIM Order to buy for less
than 50 contracts must be stopped at 0.98 cents in
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Exchange believes that the addition of
the NBBO check will add clarity to the
rule text because the NBBO check is
always relevant in the same side check
to avoid a trade-through. The Exchange
also proposes to capitalize ‘‘Limit
Order,’’ remove the word ‘‘Nasdaq’’
before ‘‘ISE’’ and remove other
extraneous words as the sentence has
been rearranged.
As noted herein, proposed Options 3,
Section 13(b)(3) will mirror Options 3,
Section 13(b)(2) except that it will refer
to the account of a broker dealer or any
other person or entity that is not a
Priority Customer. The Exchange also
proposes to renumber the remainder of
the paragraphs within Options 3,
Section 13(b).
Finally, the Exchange proposes to add
a new Options 3, Section 13(e)(5)(vii),
similar to rule text in Phlx at Options 3,
Section 13(b)(8) for Complex Orders.
The current ISE Complex Price
Improvement Mechanism rule text is
silent as to same side execution price
validations. The Exchange proposes to
state,
[i]f the Complex PIM execution price
would be the same or better than a Complex
Order on the Complex Order Book on the
same side of the market as the Agency
Complex Order, for options classes assigned
to allocate in time priority or pro-rata
pursuant to Options 3, Section 14(d)(2), the
Agency Complex Order may be executed at
a price that is equal to the resting Complex
Order’s limit price.
Today, if the Complex PIM execution
is the same or better than the Complex
Order resting on the Complex Order
Book on the same side of the market as
the Agency Complex Order, for options
assigned to allocate in time priority or
pro-rata pursuant to Options 3, Section
14(d)(2), the Agency Complex Order
may execute at a price that is equal to
the resting Complex Order’s limit price.
This proposed rule text would make
clear the manner in which the System
validates prices for Complex PIMs on
the same side of the market.
Implementation
The Exchange proposes to amend the
Opening Sweep and Opening Only rule
text only, within Options 3, Section 7,
with its planned migration to enhanced
Nasdaq functionality. Similar to SR–
ISE–2023–10,9 the Exchange intends to
this scenario to be accepted into a PIM Auction,
provided there is no resting order or quote on the
Exchange order book at 0.98 in which case the PIM
Order would be rejected.
9 See Securities Exchange Act Release No. 97605
(May 26, 2023), 88 FR 36350 (June 2, 2023) (SR–
ISE–2023–10) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Delay the
Implementation of Certain Trading Functionality)
(‘‘SR–ISE–2023–10’’).
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begin implementation of the
amendments to the Opening Sweep and
Opening Only rule text within Options
3, Section 7 prior to December 20, 2024.
The Exchange would commence its
implementation 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. The other rule
amendments would be operative 30
days from the effective date.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,10 in general, and furthers the
objectives of Section 6(b)(5) of the Act,11
in particular, in that it is designed to
promote just and equitable principles of
trade and to protect investors and the
public interest.
Options 3, Section 7
Opening Only
The Exchange’s proposal to amend
Options 3, Section 7(u), Opening
Sweeps and Supplementary Material
.02(e) to Options 3, Section 7 related to
OPG Orders is consistent with the Act
and the protection of investors and the
general public because the Market Wide
Risk Protection would capture the order
entry and execution rate for those
Opening Sweeps and OPG Orders
entered in the Opening Process, which
is described in Options 3, Section 8, and
would assist Members in managing their
pre-open risk by allowing Members to
adhere to their firm thresholds. The
Exchange is providing both order and
quote risk protections in the Opening
Process to allow Members to manage
their risk. The Exchange notes that other
risk protections within Options 3,
Section 15 do not apply to either an
Opening Sweep or an Opening Only
Order because the risk protection either
relies on the BBO, which is available
after the Opening Process or the risk
protection is optional.
Options 3, Sections 11 and 13
The Exchange’s proposal to amend
Options 3, Section 11(b)(4)(A) related to
the Facilitation Mechanism is consistent
with the Act and the protection of
investors and the general public because
the System ensures that the facilitation
order is at a price that is not inferior to
the Exchange best bid (offer) or if there
is a Priority Customer on the same side
Exchange best bid (offer) at the same
price as the facilitation price, otherwise
10 15
11 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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the order would be cancelled. This price
check ensures that the auction order
may not trade at or through the Priority
Customer order on the same side. This
language represents the current System
functionality. Similar changes are
proposed to Options 3, Section
11(d)(3)(A) related to the Solicited
Order Mechanism, and Options 3,
Section 11(e)(4)(A) related to the
Complex Solicited Order Mechanism
with respect to the contra-side. These
amendments represent current System
functionality and similarly ensure that
the auction order may not trade at or
through the Priority Customer order on
the contra side. This is consistent with
the treatment of Priority Customer in
ISE’s order book allocation, described in
Options 3, Section 10, wherein Priority
Customer interest is executed within
PIM ahead of any other interest of
Members.12
The Exchange’s proposal to amend
new Options 3, Section 11(b)(4)(iv)
related to the Facilitation Mechanism,
Options 3, Section 11(c)(7)(E) related to
the Complex Facilitation Mechanism,
Options 3, Section 13(d)(7) related to
the Price Improvement Mechanism for
Crossing Transactions, and Options 3,
Section 13(e)(5)(vi) related to the
Complex Price Improvement
Mechanism is consistent with the Act
and the protection of investors and the
general public by permitting rounding
to occur as specified in the Exchange’s
rules. The proposal states how rounding
interacts with the allocation
percentages. The Exchange proposes to
state that it will not permit an allocation
percentage greater than the stated
amounts in the auction rules, unless
rounding is necessary. The proposed
language represents the current System
functionality.
The Exchange’s proposal to amend
Supplementary Material .04 to Options
3, Section 11 to replace the word
‘‘quotes’’ with ‘‘Responses’’ in the Split
Price description is consistent with the
Act and the protection of investors and
the general public because orders and
Responses in the market that receive the
benefit of the facilitation price may
receive executions at Split Prices. This
change to the rule text is intended to
utilize the defined term Response which
pursuant to Options 3, Section 11(b)(3)
may be priced at the price of the order
to be facilitated or at a better price and
12 See also ISE Options 3, Section 13(d)(1), ‘‘At
a given price, ‘Priority Customer Interest’ (Priority
Customer Orders and Improvement Orders from
Priority Customers) is executed in full before ‘nonPriority Customer Interest’ (non-Priority Customer
Orders, Improvement Orders from non-Priority
Customers and Market Maker quotes).’’
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will only be considered up to the size
of the order to be facilitated.
The Exchange’s proposal to add a new
Supplementary Material .09 to Options
3, Section 11 and a new Supplementary
Material .10 to Options 3, Section 13 to
provide that if an allocation would
result in less than one contract, then one
contract would be allocated is
consistent with the Act and the
protection of investors and the general
public because one contract is the
minimum unit in which an option may
trade on ISE. This language represents
the current System functionality. Phlx
has similar language.13
The Exchange’s proposal to amend
Options 3, Section 13(b)(1) through (3)
to harmonize the language within the
PIM entry checks with language within
GEMX’s PIM, MRX’s PIM, Phlx’s PIXL
and BX’s PRISM, without changing the
substantive operations of these price
improvement auctions, is consistent
with the Act and the protection of
investors and the general public because
by utilizing similar language, Members
will be able to compare ISE’s PIM entry
checks with similar mechanisms on
Nasdaq affiliated markets.
Amending Options 3, Section 13(b)(1)
to add new subparagraphs (A) and (B)
to distinguish opposite and same side
checks and add within the same side
check a reference to the NBBO check, is
consistent with the Act and the
protection of investors and the general
public because the NBBO check is
always relevant in the same side check
to avoid a trade-through. The Exchange
believes that the addition of the NBBO
check will add clarity to the rule text
because the NBBO check is always
relevant in the same side check to avoid
a trade-through. The remainder of the
changes are non-substantive.
The Exchange’s proposal to bifurcate
the entry check for Agency Orders of 50
options contracts or more for the
account of a Priority Customer from the
entry checks for the account of a broker
dealer or any other person or entity that
is not a Priority Customer into two new
paragraphs, a (b)(2) and a (b)(3), is
consistent with the Act and the
protection of investors and the general
public because retaining the same rule
text format across its Nasdaq affiliated
markets will allow for an easier
comparison.
The Exchange’s proposal to add ‘‘for
the account of a Priority Customer’’ to
new subparagraph (b)(2) to explicitly
address the opposite side of the market
and also note the NBBO entry check on
the same side of the market is consistent
with the Act and the protection of
13 See
PO 00000
Phlx Options 3, Section 13(b)(1)(D).
Frm 00164
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Sfmt 4703
66109
investors and the general public because
the new format will provide the
parameters for each check. Further, the
NBBO check is always relevant in the
same side check to avoid a tradethrough. The remainder of the changes
are non-substantive. Mirroring the same
language within Options 3, Section
13(b)(2)(B), except to note that it is for
the account of a broker dealer or any
other person or entity that is not a
Priority Customer will allow Members
to compare ISE’s PIM entry checks with
similar mechanisms on Nasdaq
affiliated markets.
The Exchange’s proposal to add a new
Options 3, Section 13(e)(5)(vii) for
Complex PIM Orders is consistent with
the Act and the protection of investors
and the general public because it
ensures the Complex PIM would not
execute at a price that trades at or
through the Complex Order’s limit
price. Today, the rule text does not
specify the price at which an Agency
Complex Order may execute. The
Exchange notes that there are no Priority
Customer overlays in Options 3, Section
14(d)(2) and therefore, the Agency
Complex Order may be executed at a
price that is equal to the resting
Complex Order’s limit price. Phlx has
substantially similar rule text at Options
3, Section 13(b)(8).
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.
Options 3, Section 7
Opening Only
The Exchange’s proposal to amend
Options 3, Section 7(u), Opening
Sweeps and Supplementary Material
.02(e) to Options 3, Section 7 related to
OPG Orders does not impose an intramarket burden on competition because
the Market Wide Risk Protection is
available to all Members in the Opening
Process. The Exchange’s proposal to
amend Opening Sweeps and OPG
Orders does not impose an inter-market
burden on competition because other
options exchanges may similarly offer
such risk protections on their opening
order types.
Options 3, Sections 11 and 13
The Exchange’s proposal to amend
Options 3, Section 11(b)(4)(A) related to
the Facilitation Mechanism, Options 3,
Section 11(d)(3)(A) related to the
Solicited Order Mechanism, and
Options 3, Section 11(e)(4)(A) related to
the Complex Solicited Order
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Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / Notices
Mechanism to state that that the order
must execute at a price that is better
than the same side BBO if these is a
Priority Customer on the same side does
not impose an intra-market burden on
competition because all auction orders
in these aforementioned auction
mechanisms would be handled in a
uniform manner by the System such
that those orders would not be
permitted to trade at or through the
Priority Customer order on the same
side. The Exchange’s proposal to amend
Options 3, Section 11(b)(4)(A) related to
the Facilitation Mechanism, Options 3,
Section 11(d)(3)(A) related to the
Solicited Order Mechanism, and
Options 3, Section 11(e)(4)(A) related to
the Complex Solicited Order
Mechanism to make clear that that the
order must execute at a price that is
better than the same side BBO if these
is a Priority Customer on the same side
does not impose an inter-market burden
on competition because other options
markets similarly have customer overlay
priorities.
The Exchange’s proposal to amend
new Options 3, Section 11(b)(4)(iv)
related to the Facilitation Mechanism,
Options 3, Section 11(c)(7)(E) related to
the Complex Facilitation Mechanism,
Options 3, Section 13(d)(7) related to
the Price Improvement Mechanism for
Crossing Transactions, and Options 3,
Section 13(e)(5)(vi) related to the
Complex Price Improvement
Mechanism does not impose an intramarket burden on competition because
the Exchange’s rules regarding rounding
are applied in a uniform manner to all
Members submitting an order into an
auction mechanism. The Exchange’s
proposal to amend new Options 3,
Section 11(b)(4)(iv) related to the
Facilitation Mechanism, Options 3,
Section 11(c)(7)(E) related to the
Complex Facilitation Mechanism,
Options 3, Section 13(d)(7) related to
the Price Improvement Mechanism for
Crossing Transactions, and Options 3,
Section 13(e)(5)(vi) related to the
Complex Price Improvement
Mechanism does not impose an intermarket burden on competition because
other options exchanges similarly round
in excess of allocation percentages such
as BX.14
The Exchange’s proposal to amend
Supplementary Material .04 to Options
3, Section 11 to replace the word
‘‘quotes’’ with ‘‘Responses’’ in the Split
Price description does not impose an
intra-market burden on competition
because orders and responses in the
market that receive the benefit of the
facilitation price may receive executions
14 See
BX Options 3, Section 13(ii)(A)(1).
VerDate Sep<11>2014
18:18 Sep 25, 2023
Jkt 259001
at Split Prices. This clarification to the
rule text is intended to correct the
current language. The Exchange’s
proposal to amend Supplementary
Material .04 to Options 3, Section 11 to
replace the word ‘‘quotes’’ with
‘‘Responses’’ in the Split Price
description does not impose an intermarket burden on competition because
this rule text change is specific to ISE’s
rule language.
The Exchange’s proposal to add a new
Supplementary Material .09 to Options
3, Section 11 and a new Supplementary
Material .10 to Options 3, Section 13 to
provide that, today, if an allocation
would result in less than one contract,
then one contract will be allocated does
not impose an intra-market burden on
competition because the System would
uniformly allocate contracts with a
minimum unit of one contract. The
Exchange’s proposal to add a new
Supplementary Material .09 to Options
3, Section 11 and a new Supplementary
Material .10 to Options 3, Section 13 to
provide that, today, if an allocation
would result in less than one contract,
then one contract will be allocated does
not impose an inter-market burden on
competition because other options
markets similarly specify a minimum
unit of rounding such as Phlx.15
The Exchange’s proposal to amend
Options 3, Section 13(b)(1) through (3)
to harmonize the language within the
PIM entry checks within GEMX’s PIM,
MRX’s PIM, Phlx’s PIXL and BX’s
PRISM, without changing the
substantive operations of these price
improvement auctions, distinguishing
opposite and same side checks, and
adding the NBBO check reference
within the same side check do not
impose an intra-market undue burden
on competition because harmonizing
the language will enable Members to
compare ISE’s PIM entry checks with
similar mechanisms on Nasdaq
affiliated markets. Further, the NBBO
check is always relevant in the same
side check to avoid a trade-through. The
Exchange’s proposal to amend Options
3, Section 13(b)(1) through (3) to
harmonize the language within the PIM
entry checks within GEMX’s PIM,
MRX’s PIM, Phlx’s PIXL and BX’s
PRISM, without changing the
substantive operations of these price
improvement auctions, distinguishing
opposite and same side checks, and
adding the NBBO check reference
within the same side check do not
impose an inter-market undue burden
on competition because other options
markets have their own price
improvement auctions and are free to
15 See
PO 00000
Phlx Options 3, Section 13(b)(1)(D).
Frm 00165
Fmt 4703
Sfmt 4703
denote their entry checks in a similar
fashion and have both same and
opposite side entry checks which may
differ from ISE’s rule.
The Exchange’s proposal to add a new
Options 3, Section 13(e)(5)(vii) for
Complex Orders does not impose an
intra-market undue burden on
competition because the Exchange
would uniformly apply the price check
for the Agency Complex Orders such
that the Agency Complex Order may be
executed at a price that is equal to the
resting Complex Order’s limit price. The
Exchange’s proposal to add a new
Options 3, Section 13(e)(5)(vii) for
Complex Orders does not impose an
inter-market undue burden on
competition because the price check is
similar to price checks on other options
markets such as Phlx.16
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 17 and
subparagraph (f)(6) of Rule 19b–4
thereunder.18
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.
16 See
Phlx Options 3, Section 13(b)(5)(B)(vi).
U.S.C. 78s(b)(3)(A)(iii).
18 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.
17 15
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Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / Notices
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–2023–19 on the subject line.
lotter on DSK11XQN23PROD with NOTICES1
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–2023–19. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–ISE–2023–19 and should be
submitted on or before October 17,
2023.
VerDate Sep<11>2014
18:18 Sep 25, 2023
Jkt 259001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–20802 Filed 9–25–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98450; File No. SR–ISE–
2023–08]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Order Granting Approval of
a Proposed Rule Change, as Modified
by Amendment No. 1, To Make
Permanent Certain P.M.-Settled Pilots
September 20, 2023.
I. Introduction
On February 23, 2023, Nasdaq ISE
LLC (‘‘ISE’’ or ‘‘Exchange’’) 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 make permanent the pilot
program to permit the listing and
trading of options based on 1⁄5 the value
of the Nasdaq-100 Index (‘‘Nasdaq-100’’)
and the Exchange’s nonstandard
expirations pilot program (collectively,
the ‘‘Programs’’). The proposed rule
change was published for comment in
the Federal Register on March 2, 2023.3
On April 7, 2023, 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 May 11, 2023, the
Exchange filed Amendment No. 1 to the
proposed rule change (‘‘Amendment No.
1’’).6 On May 31, 2023, the Commission
instituted proceedings to determine
whether to approve or disapprove the
proposed rule change and published
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 96979
(February 24, 2023), 88 FR 13182 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 97261,
88 FR 22509 (April 13, 2023). The Commission
designated May 31, 2023, as the date by which the
Commission shall approve or disapprove, or
institute proceedings to determine whether to
approve or disapprove, the proposed rule change.
6 In Amendment No. 1, the Exchange inserts two
footnotes and amends a sentence in order to further
clarify parts of the empirical analysis performed by
the Exchange. Amendment No. 1 is available at:
https://www.sec.gov/comments/sr-ise-2023-08/
srise202308.htm.
1 15
PO 00000
Frm 00166
Fmt 4703
Sfmt 4703
66111
Amendment No. 1 for notice and
comment.7 On August 28, 2023, the
Commission designated a longer period
for Commission action on proceedings
to determine whether to approve or
disapprove the proposed rule change, as
modified by Amendment No. 1.8 The
Commission did not receive any
comment letters and is approving the
proposed rule change, as modified by
Amendment No. 1.
II. Background
When cash-settled 9 index options
were first introduced in the 1980s, they
generally utilized closing-price
settlement procedures (i.e., p.m.
settlement).10 The Commission became
concerned with the impact of p.m.settled, cash-settled index options on
the underlying cash equities markets,
and in particular, added market
volatility and sharp price movements
near the close on expiration days.11
These concerns were heightened during
the ‘‘triple-witching’’ hour on the third
Friday of March, June, September, and
December when index options, index
futures, and options on index futures
expired concurrently.12 Academic
research at the time provided at least
some evidence suggesting that futures
and options expirations contributed to
excess volatility and reversals around
the close on those days.13
In light of the concerns with p.m.
settlement and to help ameliorate the
price effects associated with expirations
7 See Securities Exchange Act Release No. 97626,
88 FR 37110 (June 6, 2023).
8 See Securities Exchange Act Release No. 98233,
88 FR 60516 (September 1, 2023). The Commission
designated October 28, 2023, as the date by which
the Commission shall either approve or disapprove
the proposed rule change.
9 The seller of a ‘‘cash-settled’’ index option pays
out the cash value of the applicable index on
expiration or exercise. A ‘‘physical delivery’’
option, like equity and ETF options, involves the
transfer of the underlying asset rather than cash.
See Characteristics and Risks of Standardized
Options, available at: https://www.theocc.com/
Company-Information/Documents-and-Archives/
Options-Disclosure-Document.
10 See Securities Exchange Act Release No. 65256
(September 2, 2011), 76 FR 55969, at 55972
(September 9, 2011) (SR–C2–2011–008) (Order
approving proposed rule change to establish a pilot
program to list and trade SPXPM options on the C2
Options Exchange, Incorporated) (‘‘C2 SPXPM
Approval’’).
11 See id.
12 See id.
13 See Securities and Exchange Commission,
Division of Economic Risk and Analysis,
Memorandum dated February 2, 2021 on
Cornerstone Analysis of PM Cash-Settled Index
Option Pilots (September 16, 2020) (‘‘Pilot Memo’’)
at 5, available at: https://www.sec.gov/files/
Analysis_of_PM_Cash_Settled_Index_Option_
Pilots.pdf (citing, among other papers, Stoll, Hans
R., and Robert E. Whaley, ‘‘Expiration day effects
of index options and futures,’’ Monograph Series in
Finance and Economics, no. 3 (1986)).
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]]>Agencies
[Federal Register Volume 88, Number 185 (Tuesday, September 26, 2023)]
[Notices]
[Pages 66106-66111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20802]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98443; File No. SR-ISE-2023-19]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 3,
Section 13 Related to PIM
September 20, 2023.
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 September 8, 2023, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (the ``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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 3, Section 7, Types of
Orders and Order and Quote Protocols; Options 3, Section 11, Auction
Mechanisms; and Options 3, Section 13, Price Improvement Mechanism for
Crossing Transactions.
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
The Exchange proposes to amend Options 3, Section 7, Types of
Orders and Order and Quote Protocols; Options 3, Section 11, Auction
Mechanisms; and Options 3, Section 13, Price Improvement Mechanism for
Crossing Transactions. Each change is described below.
Options 3, Section 7
Opening Only
The Exchange proposes to amend Options 3, Section 7(u), Opening
Sweep \3\ and Supplementary Material .02(e) to Options 3, Section 7
related to Opening Only \4\ or ``OPG'' orders. The proposed rule text
was adopted as part of a planned System migration.\5\
[[Page 66107]]
Options 3, Section 7(t) currently provides that an Opening Sweep would
not be subject to any protections listed in Options 3, Section 15,
except Automated Quotation Adjustments in Options 3, Section 15.
Supplementary Material .02(e) to Options 3, Section 7 currently
provides that an OPG Order would not be subject to any protections
listed in Options 3, Section 15, except Size Limitation. At this time,
the Exchange proposes to amend the rule text to specify that an Opening
Sweep and an OPG Order would be subject to the Market Wide Risk
Protection in Options 3, Section 15.
---------------------------------------------------------------------------
\3\ An Opening Sweep is a one-sided order entered by a Market
Maker through SQF for execution against eligible interest in the
System during the Opening Process. This order type is not subject to
any protections listed in Options 3, Section 15, except for
Automated Quotation Adjustments. The Opening Sweep will only
participate in the Opening Process pursuant to Options 3, Section
8(b)(1) and will be cancelled upon the open if not executed. See
Options 3, Section 7(u).
\4\ An Opening Only (``OPG'') order is entered with a TIF of
``OPG.'' This order can only be executed in the Opening Process
pursuant to Options 3, Section 8. This order type is not subject to
any protections listed in Options 3, Section 15, except Size
Limitation. Any portion of the order that is not executed during the
Opening Process is cancelled. OPG orders may not route. See
Supplementary Material .02(e) to Options 3, Section 7.
\5\ See Securities Exchange Act Release No. 96821 (February 6,
2023), 88 FR 8950 (February 10, 2023) (SR-ISE-2023-06) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Its Rules in Connection With a Technology Migration to Enhanced
Nasdaq, Inc. (``Nasdaq'') Functionality) (``SR-ISE-2023-06'').
---------------------------------------------------------------------------
The Market Wide Risk Protection in Options 3, Section 15(a)(1)(C)
automatically removes Member orders when certain firm-set thresholds
are met. Specifically, the Market Wide Risk Protection requires all
Members to provide parameters for the order entry and execution rate
protections. The Market Wide Risk Protection would apply to an Opening
Sweep and an OPG Order because it captures the order entry and
execution rate for both Opening Sweeps and OPG Orders that are entered
in the Opening Process as described in Options 3, Section 8. The
Exchange believes the availability of the Market Wide Risk Protection
during the Opening Process would assist Members in managing their pre-
open risk by allowing Members to adhere to their firm thresholds. The
Exchange notes that other risk protections within Options 3, Section 15
do not apply to wither an Opening Sweep or an Opening Only Order
because the risk protection either relies on the BBO, which available
after the Opening Process, or the risk protection is optional. Finally,
the Exchange also proposes a technical amendment to capitalize the word
``orders'' in Supplementary Material .02(e) to Options 3, Section 7.
Options 3, Sections 11 and 13
The Exchange proposes to amend Options 3, Section 11(b)(4)(A)
related to the Facilitation Mechanism. Currently, the last sentence in
Options 3, Section 11(b)(4)(A) provides that a facilitation order will
be cancelled at the end of an exposure period if an execution would
take place at a price that is inferior to the best bid (offer) on ISE.
The Exchange proposes to amend this sentence to state, the ``Exchange
best bid (offer)'' and remove the phrase ``on Nasdaq ISE.''
Additionally, the Exchange proposes to add the following rule text to
the end of the sentence, ``or if there is a Priority Customer order on
the same side Exchange best bid (offer) at the same price as the
facilitation price unless the Facilitation Order can execute at a price
that is better than the same side Priority Customer Order.'' Today, a
facilitation order must execute at a price that is better than the same
side BBO if there is a Priority Customer order on the same side. The
proposed rule text is being amended to align to current System
functionality which prevents a Facilitation Order from trading ahead of
a Priority Customer Order. As such, a Priority Customer order on the
same side of the offer must be considered when executing a Facilitation
Order. The Exchange proposes to add similar language to the last
sentence of Options 3, Section 11(d)(3)(A) related to the Solicited
Order Mechanism. The Exchange notes that these amendments do not amend
the current System functionality.
The Exchange proposes to add a new Options 3, Section 11(b)(4)(iv)
to describe the allocation percentage that an Electronic Access Member
is able to obtain in the Facilitation Mechanism. Today, under the
current System operation, the facilitating Electronic Access Member may
not receive an allocation percentage, at the final price point, of more
than 40% of the original size of the Facilitation Order with one or
multiple competing quote(s), order(s), or Response(s), except for
rounding,\6\ when competing quotes, orders, or Responses have contracts
available for execution. Options 3, Section 11(b)(4)(ii) makes clear
that the facilitating Electronic Access Member will be allocated up to
forty percent (40%) (or such lower percentage requested by the Member)
of the original size of the facilitation order, but only after better-
priced Responses, orders and quotes, as well as Priority Customer
Orders and Priority Customer Responses at the facilitation price, are
executed in full at such price point. The proposed rule text expressly
notes that the allocation percentage will not be exceeded except for
rounding purposes. This language represents current System
functionality. The Exchange proposes to add similar language to Options
3, Section 11(c)(7)(E) related to the Complex Facilitation Mechanism,
Options 3, Section 13(d)(7) related to the Price Improvement Mechanism
for Crossing Transactions, and Options 3, Section 13(e)(5)(vi) related
to the Complex Price Improvement Mechanism to note the limitations with
respect to allocations.
---------------------------------------------------------------------------
\6\ ISE's System will round up to the nearest whole number
during the allocation in the Facilitation Mechanism.
---------------------------------------------------------------------------
The Exchange proposes to amend Supplementary Material .04 to
Options 3, Section 11 to replace the word ``quotes'' with ``Responses''
in the Split Price description. Orders and responses in the market that
receive the benefit of the facilitation price may receive executions at
Split Prices. This change to the rule text is intended to utilize the
defined term ``Response'' pursuant to Options 3, Section 11(b)(3) may
be priced at the price of the order to be facilitated or at a better
price and will only be considered up to the size of the order to be
facilitated.
The Exchange proposes to add a new Supplementary Material .09 to
Options 3, Section 11 and a new Supplementary Material .09 to Options
3, Section 11 to provide that, today, if an allocation would result in
less than one contract, then one contract will be allocated. The
Exchange does not allocate fractional contracts. This language
represents the current System functionality. The Exchange proposes to
add the same sentence within new Supplementary Material .10 to Options
3, Section 13 regarding a PIM. Phlx has similar language.\7\
---------------------------------------------------------------------------
\7\ See Phlx Options 3, Section 13(b)(1)(D).
---------------------------------------------------------------------------
The Exchange proposes to amend Options 3, Section 13(b)(1) through
(3) to harmonize the language within the PIM entry checks with language
within Nasdaq GEMX, LLC's (``GEMX'') PIM, Nasdaq MRX, LLC's (``MRX'')
PIM, Nasdaq Phlx LLC's (``Phlx'') PIXL and BX's PRISM, without changing
the substantive operations of these price improvement auctions. The
Exchange believes that by utilizing similar language, Members will be
able to compare ISE's PIM entry checks with similar mechanisms on
Nasdaq affiliated markets.
ISE proposes to add ``a price that is'' to the end of Options 3,
Section 13(b)(1) and add new subparagraphs (A) and (B) to distinguish
opposite and same side checks. The opposite side check is currently
spelled out in the current rule text, however the same side check does
not specify the NBBO check. Today, if the Agency Order is for less than
50 option contracts, and if the difference between the NBBO or the
difference between the internal best bid and the internal best offer is
$0.01, the Crossing Transaction must be entered at a price that is, on
the same side of the Agency Order equal or better than the NBBO and
better than any Limit Order or quote on ISE's order book. The Exchange
believes that the addition of the NBBO
[[Page 66108]]
check will add clarity to the rule text because the NBBO check is
always relevant in the same side check to avoid a trade-through. The
Exchange also proposes to capitalize ``Limit Order,'' remove the word
``Nasdaq'' before ``ISE'' and remove other extraneous words as the
sentence has been rearranged.
Next, the Exchange proposes to bifurcate the entry check for Agency
Orders of 50 options contracts or more for the account of a Priority
Customer from the entry checks for the account of a broker dealer or
any other person or entity that is not a Priority Customer similar to
other Nasdaq affiliated markets to provide consistent formatting. While
the entry checks for new Options 3, Section 13(b)(2) and (b)(3) will
not differ, the Exchange believes that retaining the same rule text
format across its Nasdaq affiliated markets will allow for an easier
comparison. To that end, the Exchange proposes to amend Options 3,
Section 13(b)(2) to format it similar to Options 3, Section 13(b)(1).
The Exchange proposes to add ``for the account of a Priority Customer''
to (b)(2) to distinguish it from (b)(3) which addresses the account of
a broker dealer or any other person or entity that is not a Priority
Customer. Options 3, Section 13(b)(2)(A) will also add rule text to
address the opposite side of the market, which is not explicitly noted.
Proposed Options 3, Section 13(b)(2)(A) will provide that if the Agency
Order is for the account of a Priority Customer, and such order is for
50 option contracts or more, or if the difference between the NBBO or
the difference between the internal BBO is greater than $0.01, a
Crossing Transaction must be entered only at a price that is equal to
or better than the internal BBO and NBBO on the opposite side of the
market from the Agency Order. Further, Options 3, Section 13(b)(2)(B)
will explicitly note the entry check on the same side of the market and
similar to Options 3, Section 13(b)(1) will include the NBBO check.
Proposed Options 3, Section 13(b)(2)(B) will provide that if the Agency
Order is for the account of a Priority Customer, and such order is for
50 option contracts or more, or if the difference between the NBBO or
the difference between the internal BBO is greater than $0.01, a
Crossing Transaction must be entered only on the same side of the
market as the Agency Order, at a price that is at least $0.01 better
than any Limit Order or quote on the ISE order book and equal to or
better than the NBBO.\8\ The Exchange believes that the addition of the
NBBO check will add clarity to the rule text because the NBBO check is
always relevant in the same side check to avoid a trade-through. The
Exchange also proposes to capitalize ``Limit Order,'' remove the word
``Nasdaq'' before ``ISE'' and remove other extraneous words as the
sentence has been rearranged.
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\8\ For example, if the market is 0.98 bid and 0.99 offer, a
Priority Customer PIM Order to buy for less than 50 contracts must
be stopped at 0.98 cents in this scenario to be accepted into a PIM
Auction, provided there is no resting order or quote on the Exchange
order book at 0.98 in which case the PIM Order would be rejected.
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As noted herein, proposed Options 3, Section 13(b)(3) will mirror
Options 3, Section 13(b)(2) except that it will refer to the account of
a broker dealer or any other person or entity that is not a Priority
Customer. The Exchange also proposes to renumber the remainder of the
paragraphs within Options 3, Section 13(b).
Finally, the Exchange proposes to add a new Options 3, Section
13(e)(5)(vii), similar to rule text in Phlx at Options 3, Section
13(b)(8) for Complex Orders. The current ISE Complex Price Improvement
Mechanism rule text is silent as to same side execution price
validations. The Exchange proposes to state,
[i]f the Complex PIM execution price would be the same or better
than a Complex Order on the Complex Order Book on the same side of
the market as the Agency Complex Order, for options classes assigned
to allocate in time priority or pro-rata pursuant to Options 3,
Section 14(d)(2), the Agency Complex Order may be executed at a
price that is equal to the resting Complex Order's limit price.
Today, if the Complex PIM execution is the same or better than the
Complex Order resting on the Complex Order Book on the same side of the
market as the Agency Complex Order, for options assigned to allocate in
time priority or pro-rata pursuant to Options 3, Section 14(d)(2), the
Agency Complex Order may execute at a price that is equal to the
resting Complex Order's limit price. This proposed rule text would make
clear the manner in which the System validates prices for Complex PIMs
on the same side of the market.
Implementation
The Exchange proposes to amend the Opening Sweep and Opening Only
rule text only, within Options 3, Section 7, with its planned migration
to enhanced Nasdaq functionality. Similar to SR-ISE-2023-10,\9\ the
Exchange intends to begin implementation of the amendments to the
Opening Sweep and Opening Only rule text within Options 3, Section 7
prior to December 20, 2024. The Exchange would commence its
implementation 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. The other rule amendments would be
operative 30 days from the effective date.
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\9\ See Securities Exchange Act Release No. 97605 (May 26,
2023), 88 FR 36350 (June 2, 2023) (SR-ISE-2023-10) (Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Delay the
Implementation of Certain Trading Functionality) (``SR-ISE-2023-
10'').
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\11\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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Options 3, Section 7
Opening Only
The Exchange's proposal to amend Options 3, Section 7(u), Opening
Sweeps and Supplementary Material .02(e) to Options 3, Section 7
related to OPG Orders is consistent with the Act and the protection of
investors and the general public because the Market Wide Risk
Protection would capture the order entry and execution rate for those
Opening Sweeps and OPG Orders entered in the Opening Process, which is
described in Options 3, Section 8, and would assist Members in managing
their pre-open risk by allowing Members to adhere to their firm
thresholds. The Exchange is providing both order and quote risk
protections in the Opening Process to allow Members to manage their
risk. The Exchange notes that other risk protections within Options 3,
Section 15 do not apply to either an Opening Sweep or an Opening Only
Order because the risk protection either relies on the BBO, which is
available after the Opening Process or the risk protection is optional.
Options 3, Sections 11 and 13
The Exchange's proposal to amend Options 3, Section 11(b)(4)(A)
related to the Facilitation Mechanism is consistent with the Act and
the protection of investors and the general public because the System
ensures that the facilitation order is at a price that is not inferior
to the Exchange best bid (offer) or if there is a Priority Customer on
the same side Exchange best bid (offer) at the same price as the
facilitation price, otherwise
[[Page 66109]]
the order would be cancelled. This price check ensures that the auction
order may not trade at or through the Priority Customer order on the
same side. This language represents the current System functionality.
Similar changes are proposed to Options 3, Section 11(d)(3)(A) related
to the Solicited Order Mechanism, and Options 3, Section 11(e)(4)(A)
related to the Complex Solicited Order Mechanism with respect to the
contra-side. These amendments represent current System functionality
and similarly ensure that the auction order may not trade at or through
the Priority Customer order on the contra side. This is consistent with
the treatment of Priority Customer in ISE's order book allocation,
described in Options 3, Section 10, wherein Priority Customer interest
is executed within PIM ahead of any other interest of Members.\12\
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\12\ See also ISE Options 3, Section 13(d)(1), ``At a given
price, `Priority Customer Interest' (Priority Customer Orders and
Improvement Orders from Priority Customers) is executed in full
before `non-Priority Customer Interest' (non-Priority Customer
Orders, Improvement Orders from non-Priority Customers and Market
Maker quotes).''
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The Exchange's proposal to amend new Options 3, Section
11(b)(4)(iv) related to the Facilitation Mechanism, Options 3, Section
11(c)(7)(E) related to the Complex Facilitation Mechanism, Options 3,
Section 13(d)(7) related to the Price Improvement Mechanism for
Crossing Transactions, and Options 3, Section 13(e)(5)(vi) related to
the Complex Price Improvement Mechanism is consistent with the Act and
the protection of investors and the general public by permitting
rounding to occur as specified in the Exchange's rules. The proposal
states how rounding interacts with the allocation percentages. The
Exchange proposes to state that it will not permit an allocation
percentage greater than the stated amounts in the auction rules, unless
rounding is necessary. The proposed language represents the current
System functionality.
The Exchange's proposal to amend Supplementary Material .04 to
Options 3, Section 11 to replace the word ``quotes'' with ``Responses''
in the Split Price description is consistent with the Act and the
protection of investors and the general public because orders and
Responses in the market that receive the benefit of the facilitation
price may receive executions at Split Prices. This change to the rule
text is intended to utilize the defined term Response which pursuant to
Options 3, Section 11(b)(3) may be priced at the price of the order to
be facilitated or at a better price and will only be considered up to
the size of the order to be facilitated.
The Exchange's proposal to add a new Supplementary Material .09 to
Options 3, Section 11 and a new Supplementary Material .10 to Options
3, Section 13 to provide that if an allocation would result in less
than one contract, then one contract would be allocated is consistent
with the Act and the protection of investors and the general public
because one contract is the minimum unit in which an option may trade
on ISE. This language represents the current System functionality. Phlx
has similar language.\13\
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\13\ See Phlx Options 3, Section 13(b)(1)(D).
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The Exchange's proposal to amend Options 3, Section 13(b)(1)
through (3) to harmonize the language within the PIM entry checks with
language within GEMX's PIM, MRX's PIM, Phlx's PIXL and BX's PRISM,
without changing the substantive operations of these price improvement
auctions, is consistent with the Act and the protection of investors
and the general public because by utilizing similar language, Members
will be able to compare ISE's PIM entry checks with similar mechanisms
on Nasdaq affiliated markets.
Amending Options 3, Section 13(b)(1) to add new subparagraphs (A)
and (B) to distinguish opposite and same side checks and add within the
same side check a reference to the NBBO check, is consistent with the
Act and the protection of investors and the general public because the
NBBO check is always relevant in the same side check to avoid a trade-
through. The Exchange believes that the addition of the NBBO check will
add clarity to the rule text because the NBBO check is always relevant
in the same side check to avoid a trade-through. The remainder of the
changes are non-substantive.
The Exchange's proposal to bifurcate the entry check for Agency
Orders of 50 options contracts or more for the account of a Priority
Customer from the entry checks for the account of a broker dealer or
any other person or entity that is not a Priority Customer into two new
paragraphs, a (b)(2) and a (b)(3), is consistent with the Act and the
protection of investors and the general public because retaining the
same rule text format across its Nasdaq affiliated markets will allow
for an easier comparison.
The Exchange's proposal to add ``for the account of a Priority
Customer'' to new subparagraph (b)(2) to explicitly address the
opposite side of the market and also note the NBBO entry check on the
same side of the market is consistent with the Act and the protection
of investors and the general public because the new format will provide
the parameters for each check. Further, the NBBO check is always
relevant in the same side check to avoid a trade-through. The remainder
of the changes are non-substantive. Mirroring the same language within
Options 3, Section 13(b)(2)(B), except to note that it is for the
account of a broker dealer or any other person or entity that is not a
Priority Customer will allow Members to compare ISE's PIM entry checks
with similar mechanisms on Nasdaq affiliated markets.
The Exchange's proposal to add a new Options 3, Section
13(e)(5)(vii) for Complex PIM Orders is consistent with the Act and the
protection of investors and the general public because it ensures the
Complex PIM would not execute at a price that trades at or through the
Complex Order's limit price. Today, the rule text does not specify the
price at which an Agency Complex Order may execute. The Exchange notes
that there are no Priority Customer overlays in Options 3, Section
14(d)(2) and therefore, the Agency Complex Order may be executed at a
price that is equal to the resting Complex Order's limit price. Phlx
has substantially similar rule text at Options 3, Section 13(b)(8).
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.
Options 3, Section 7
Opening Only
The Exchange's proposal to amend Options 3, Section 7(u), Opening
Sweeps and Supplementary Material .02(e) to Options 3, Section 7
related to OPG Orders does not impose an intra-market burden on
competition because the Market Wide Risk Protection is available to all
Members in the Opening Process. The Exchange's proposal to amend
Opening Sweeps and OPG Orders does not impose an inter-market burden on
competition because other options exchanges may similarly offer such
risk protections on their opening order types.
Options 3, Sections 11 and 13
The Exchange's proposal to amend Options 3, Section 11(b)(4)(A)
related to the Facilitation Mechanism, Options 3, Section 11(d)(3)(A)
related to the Solicited Order Mechanism, and Options 3, Section
11(e)(4)(A) related to the Complex Solicited Order
[[Page 66110]]
Mechanism to state that that the order must execute at a price that is
better than the same side BBO if these is a Priority Customer on the
same side does not impose an intra-market burden on competition because
all auction orders in these aforementioned auction mechanisms would be
handled in a uniform manner by the System such that those orders would
not be permitted to trade at or through the Priority Customer order on
the same side. The Exchange's proposal to amend Options 3, Section
11(b)(4)(A) related to the Facilitation Mechanism, Options 3, Section
11(d)(3)(A) related to the Solicited Order Mechanism, and Options 3,
Section 11(e)(4)(A) related to the Complex Solicited Order Mechanism to
make clear that that the order must execute at a price that is better
than the same side BBO if these is a Priority Customer on the same side
does not impose an inter-market burden on competition because other
options markets similarly have customer overlay priorities.
The Exchange's proposal to amend new Options 3, Section
11(b)(4)(iv) related to the Facilitation Mechanism, Options 3, Section
11(c)(7)(E) related to the Complex Facilitation Mechanism, Options 3,
Section 13(d)(7) related to the Price Improvement Mechanism for
Crossing Transactions, and Options 3, Section 13(e)(5)(vi) related to
the Complex Price Improvement Mechanism does not impose an intra-market
burden on competition because the Exchange's rules regarding rounding
are applied in a uniform manner to all Members submitting an order into
an auction mechanism. The Exchange's proposal to amend new Options 3,
Section 11(b)(4)(iv) related to the Facilitation Mechanism, Options 3,
Section 11(c)(7)(E) related to the Complex Facilitation Mechanism,
Options 3, Section 13(d)(7) related to the Price Improvement Mechanism
for Crossing Transactions, and Options 3, Section 13(e)(5)(vi) related
to the Complex Price Improvement Mechanism does not impose an inter-
market burden on competition because other options exchanges similarly
round in excess of allocation percentages such as BX.\14\
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\14\ See BX Options 3, Section 13(ii)(A)(1).
---------------------------------------------------------------------------
The Exchange's proposal to amend Supplementary Material .04 to
Options 3, Section 11 to replace the word ``quotes'' with ``Responses''
in the Split Price description does not impose an intra-market burden
on competition because orders and responses in the market that receive
the benefit of the facilitation price may receive executions at Split
Prices. This clarification to the rule text is intended to correct the
current language. The Exchange's proposal to amend Supplementary
Material .04 to Options 3, Section 11 to replace the word ``quotes''
with ``Responses'' in the Split Price description does not impose an
inter-market burden on competition because this rule text change is
specific to ISE's rule language.
The Exchange's proposal to add a new Supplementary Material .09 to
Options 3, Section 11 and a new Supplementary Material .10 to Options
3, Section 13 to provide that, today, if an allocation would result in
less than one contract, then one contract will be allocated does not
impose an intra-market burden on competition because the System would
uniformly allocate contracts with a minimum unit of one contract. The
Exchange's proposal to add a new Supplementary Material .09 to Options
3, Section 11 and a new Supplementary Material .10 to Options 3,
Section 13 to provide that, today, if an allocation would result in
less than one contract, then one contract will be allocated does not
impose an inter-market burden on competition because other options
markets similarly specify a minimum unit of rounding such as Phlx.\15\
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\15\ See Phlx Options 3, Section 13(b)(1)(D).
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The Exchange's proposal to amend Options 3, Section 13(b)(1)
through (3) to harmonize the language within the PIM entry checks
within GEMX's PIM, MRX's PIM, Phlx's PIXL and BX's PRISM, without
changing the substantive operations of these price improvement
auctions, distinguishing opposite and same side checks, and adding the
NBBO check reference within the same side check do not impose an intra-
market undue burden on competition because harmonizing the language
will enable Members to compare ISE's PIM entry checks with similar
mechanisms on Nasdaq affiliated markets. Further, the NBBO check is
always relevant in the same side check to avoid a trade-through. The
Exchange's proposal to amend Options 3, Section 13(b)(1) through (3) to
harmonize the language within the PIM entry checks within GEMX's PIM,
MRX's PIM, Phlx's PIXL and BX's PRISM, without changing the substantive
operations of these price improvement auctions, distinguishing opposite
and same side checks, and adding the NBBO check reference within the
same side check do not impose an inter-market undue burden on
competition because other options markets have their own price
improvement auctions and are free to denote their entry checks in a
similar fashion and have both same and opposite side entry checks which
may differ from ISE's rule.
The Exchange's proposal to add a new Options 3, Section
13(e)(5)(vii) for Complex Orders does not impose an intra-market undue
burden on competition because the Exchange would uniformly apply the
price check for the Agency Complex Orders such that the Agency Complex
Order may be executed at a price that is equal to the resting Complex
Order's limit price. The Exchange's proposal to add a new Options 3,
Section 13(e)(5)(vii) for Complex Orders does not impose an inter-
market undue burden on competition because the price check is similar
to price checks on other options markets such as Phlx.\16\
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\16\ See Phlx Options 3, Section 13(b)(5)(B)(vi).
---------------------------------------------------------------------------
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 \17\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A)(iii).
\18\ 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.
[[Page 66111]]
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-2023-19 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-2023-19. 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 a.m. and 3 p.m.
Copies of the filing also will be available for inspection and copying
at the principal office of the Exchange. Do not include personal
identifiable information in submissions; you should submit only
information that you wish to make available publicly. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection. All submissions should
refer to file number SR-ISE-2023-19 and should be submitted on or
before October 17, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20802 Filed 9-25-23; 8:45 am]
BILLING CODE 8011-01-P
