66106 Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / Notices 

(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. 49For purposes of comparison, the Exchange 

paired SPXW options and SPY options with the 

same moneyness and same days to expiration. 50See Notice, 88 FR at 4269. 51See id. at 4270. 52See id. 

53 15 U.S.C. 78f(b)(5). 

54 15 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. 

3An 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). 

4An 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. 

5See Securities Exchange Act Release No. 96821 

(February 6, 2023), 88 FR 8950 (February 10, 2023) 

(‘‘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 

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 

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


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Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / Notices 66107 

(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’’). 

6 ISE’s System will round up to the nearest whole 

number during the allocation in the Facilitation 

Mechanism. 7See Phlx Options 3, Section 13(b)(1)(D). 

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 

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. 

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 


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66108 Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / Notices 

8For 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. 

9See 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’’). 

10 15 U.S.C. 78f(b). 

11 15 U.S.C. 78f(b)(5). 

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. 

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. 

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 


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12See 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).’’ 13See Phlx Options 3, Section 13(b)(1)(D). 

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 

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 

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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66110 Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / Notices 

14See BX Options 3, Section 13(ii)(A)(1). 15See Phlx Options 3, Section 13(b)(1)(D). 

16See Phlx Options 3, Section 13(b)(5)(B)(vi). 

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. 

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 

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 

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. 


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Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / Notices 66111 

19 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 96979 

(February 24, 2023), 88 FR 13182 (‘‘Notice’’). 

4 15 U.S.C. 78s(b)(2). 

5See 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. 

7See Securities Exchange Act Release No. 97626, 

88 FR 37110 (June 6, 2023). 

8See 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. 

9The 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. 

10See 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’’). 

11See id. 

12See id. 

13See 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)). 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. 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 (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 10 

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

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 

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 


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