94986 Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 99825, 

89 FR 22294 (March 29, 2024) (‘‘Notice’’). 

Comments on the proposed rule change can be 

found at: https://www.sec.gov/comments/sr-ise2024-12/srise202412.htm. 

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

5See Securities Exchange Act Release No. 

100086, 89 FR 42528 (May 15, 2024). The 

Commission designated June 27, 2024, 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 15 U.S.C. 78s(b)(2)(B). 

7See Securities Exchange Act Release No. 

100438, 89 FR 54886 (July 2, 2024) (Notice of Order 

Instituting Proceedings) (‘‘OIP’’). 

8See Securities Exchange Act Release No. 101116 

(September 20, 2024), 89 FR 78928 (September 26, 

2024) (Extension No. 2). The Commission 

designated November 24, 2024, as the date by 

which the Commission shall approve or disapprove 

the proposed rule change. 

9On November 20, 2024, the Exchange submitted 

Amendment No. 1 to the proposed rule change. 

Amendment No. 1 is available on the Commission’s 

website at: https://www.sec.gov/comments/sr-ise2024-12/srise202412-541455-1551502.pdf 

(‘‘Amendment No. 1’’). 

10This Section I and II reproduces Amendment 

No. 1, as filed by the Exchange. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101720; File No. SR–ISE– 

2024–12] 

Self-Regulatory Organizations; Nasdaq 

ISE, LLC; Notice of Filing of 

Amendment No. 1 and Order Granting 

Accelerated Approval of a Proposed 

Rule Change, as Modified by 

Amendment No. 1, To Adopt Rules To 

List and Trade FLEX Options 

November 22, 2024. 

On March 11, 2024, 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 (‘‘Exchange Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to adopt new Options 3A that 

will govern the listing and trading of 

Flexible Exchange Options (‘‘FLEX 

Options’’) on the Exchange’s electronic 

market. The proposed rule change was 

published for comment in the Federal 

Register on March 29, 2024.3

On May 9, 2024, pursuant to Section 

19(b)(2) of the Exchange 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 June 26, 

2024, the Commission instituted 

proceedings pursuant to Section 

19(b)(2)(B) of the Exchange Act 6 to 

determine whether to approve or 

disapprove the proposed rule change.7

On September 20, 2024, the 

Commission designated a longer period 

for Commission action on the proposed 

rule change.8 On November 20, 2024, 

the Exchange submitted Amendment 

No. 1 to the proposed rule change, 

which replaced and superseded the 

proposed rule change as originally 

filed.9 The Commission is publishing 

this notice to solicit comments on 

Amendment No. 1 from interested 

persons, and is approving the proposed 

rule change, as modified by Amendment 

No. 1, on an accelerated basis. 

I. Self-Regulatory Organization’s 

Description of the Proposed Rule 

Change, as Modified by Amendment 

No. 1 10

The Exchange proposes to adopt rules 

that will govern the listing and trading 

of flexible exchange options (‘‘FLEX 

Options’’). This Amendment No. 1 

supersedes the original filing in its 

entirety. 

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 adopt rules 

in new Options 3A that will govern the 

listing and trading of FLEX Options on 

the Exchange’s electronic market. This 

Amendment No. 1 supersedes the 

original filing in its entirety, and is 

being filed to better align the proposed 

rule change with the rules of other 

exchanges and provide more clarity to 

the proposed rule text as well as the 

description of and statutory basis for the 

proposed rule change. As discussed in 

further detail later in this filing, 

Amendment No. 1 makes a number of 

clarifying changes to the proposed rule 

text as well as the following more 

substantive rule text changes from the 

original filing: (i) excluding the iShares 

Bitcoin Trust ETF from FLEX trading in 

proposed Options 3A, Section 3(a); (ii) 

clarifying in proposed Options 3A, 

Section 3(b)(2) that on the expiration 

date, a FLEX Order for the expiring 

FLEX Option series may only be 

submitted to close out a position in such 

expiring FLEX Option series; (iii) 

aligning the Exchange’s closing only 

provisions in proposed Options 3A, 

Section 3(d)(2) to already effective rules 

of other options exchanges; (iv) 

clarifying in proposed Options 3A, 

Section 5 which provisions will govern 

how the minimum increments for 

complex FLEX Orders (including 

complex FLEX Orders with a stock 

component) will be handled; (v) 

clarifying in proposed Options 3A, 

Sections 6(a) and 6(b) that only the 

specified order types, times-in-force, 

and order and quote protocols are 

available for FLEX trading; (vi) 

removing in proposed Options 3A, 

Section 7(b) the Exchange’s discretion to 

determine on a class-by-class basis 

which complex FLEX Orders would not 

have to adhere to the ratio requirements 

for the standard complex market; (vii) 

adding language in proposed Options 

3A, Section 11(a)(2)(A) to describe what 

would happen if there is a complex 

FLEX Order and subsequently, a nonFLEX Option series is introduced for the 

component leg(s), which would align to 

already effective rules of another 

options exchange; (viii) adding language 

in proposed Options 3A, Sections 

12(a)(2) and 13(a)(2) that each leg of a 

complex FLEX Order must be in a 

permissible FLEX option series that 

complies with proposed Options 3; (ix) 

specifying in proposed Options 3A, 

Section 13(a)(4) that the minimum size 

requirement will apply to each leg of a 

complex FLEX Order; (x) adding in 

proposed Options 3A, Section 14(b) that 

the Price Limit for Complex Order 

protections as applicable to the stock 

component, the Stock-Tied NBBO 

protections, and the Stock-Tied Reg 

SHO protections will also be available 

to FLEX Options as complex order risk 

protections; and (xi) aligning the 

proposed position limits for FLEX Index 

Options in proposed Options 3A, 

Section 18(a) with the position limits for 

index options in the Exchange’s 

standard index options market. 

The Exchange notes that Amendment 

No. 1 is solely intended to further 

clarify the proposed rule text and 

conform the rule text with the already 


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Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices 94987 

11The Exchange separately proposed a number of 

rule filings in connection with this technology 

migration. See Securities Exchange Act Release 

Nos. 94897 (May 12, 2022), 87 FR 30294 (May 18, 

2022) (SR–ISE–2022–11); 96362 (November 18, 

2022), 87 FR 72539 (November 25, 2022) (SR–ISE– 

2022–25); 96518 (December 16, 2022), 87 FR 78740 

(December 22, 2022) (SR–ISE–2022–28); 96818 

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

(SR–ISE–2023–06); 97605 (May 26, 2023), 88 FR 

36350 (June 2, 2023) (SR–ISE–2023–10); 98066 

(August 7, 2023), 88 FR 54672 (August 11, 2023) 

(SR–ISE–2023–13); 98443 (September 20, 2023), 88 

FR 66106 (September 26, 2023) (SR–ISE–2023–19); 

and 98702 (October 6, 2023), 88 FR 71046 (October 

13, 2023) (SR–ISE–2023–22). As per the previously 

announced technology migration, ISE completed its 

symbol migration on September 23, 2024. See 

https://www.nasdaqtrader.com/ 

MicroNews.aspx?id=OTA2024-1. As a result and 

prior to any FLEX trading on ISE, the foregoing rule 

changes are currently all effective and operative. 

12See proposed Options 3A, Section 8(a). Rather, 

Members may begin submitting orders in FLEX 

Options into one of the proposed auction 

mechanisms (i.e., electronic FLEX Auction, FLEX 

Price Improvement Mechanism, and FLEX Solicited 

Order Mechanism) once the underlying security is 

open for trading. See proposed Options 3A, Section 

8(b). 

13See proposed Options 3A, Section 11(a). 

14See proposed Options 3A, Section 10(a). 

15As discussed later in this filing, proposed 

Options 3A, Section 3(c) will govern FLEX Options 

terms. 

16At least one of the following terms must differ 

between FLEX Options and non-FLEX Options on 

the same underlying security: exercise date, 

exercise price, or exercise style. See proposed 

Options 3A, Section 3(c). 

17The term ‘‘System’’ means the electronic 

system operated by the Exchange that receives and 

disseminates quotes, executes orders and reports 

transactions. See Options 1, Section 1(a)(50). 

18See Securities Exchange Act Release No. 31920 

(February 24, 1993), 58 FR 12280 (March 3, 1993) 

(SR–CBOE–92–17) (Order Approving and Notice of 

Filing and Order Granting Accelerated Approval to 

Amendment Nos. 1, 2, 3, and 4 to Proposed Rule 

Changes by the Chicago Board Options Exchange, 

Inc., Relating to FLEX Options). 

19 Id. 

20 Id. 

21See Securities Exchange Act Release No. 36841 

(February 14, 1996), 61 FR 6666 (February 21, 1996) 

(SR–CBOE–95–43) (SR–PSE–95–24) (Order 

Approving Proposed Rule Changes and Notice of 

Filing and Order Granting Accelerated Approval of 

Amendments by the Chicago Board Options 

Exchange, Inc. and the Pacific Stock Exchange, Inc., 

Relating to the Listing of Flexible Exchange Options 

on Specified Equity Securities). 

22 Id. The Exchange notes that the Commission 

found pursuant to Rule 9b–1 under the Act, that 

FLEX Options, including FLEX Equity Options, are 

standardized options for purposes of the options 

disclosure framework established under Rule 9b–1 

of the Act. Id. 

established rules of other exchanges, 

and to provide additional detail and 

specificity with respect to the proposed 

rule change and additional information 

in support of the purpose and statutory 

basis for the proposed rule change. 

Summary 

The Exchange is proposing this new 

functionality be implemented in 

connection with a technology migration 

to enhanced Nasdaq, Inc. (‘‘Nasdaq’’) 

functionality that will result in higher 

performance, scalability, and more 

robust architecture, which will be 

implemented as a day 2 change after the 

first phase of the system migration was 

implemented in September 2024.11 The 

Exchange intends to begin 

implementation of the proposed rule 

change by May 12, 2025. The delayed 

implementation of the proposed FLEX 

rules will ensure that the Exchange will 

have the necessary functionality in 

place to trade FLEX. The Exchange will 

issue a public notice to Exchange 

members (‘‘Members’’) to provide 

notification of the FLEX implementation 

date and highlight the features for FLEX 

proposed hereunder. 

As proposed, FLEX Options will be 

customized options contracts that will 

allow investors to tailor contract terms 

for exchange-listed equity and index 

options. FLEX Options will be designed 

to meet the needs of investors for greater 

flexibility in selecting the terms of 

options within the parameters of the 

Exchange’s proposed rules. FLEX 

Options will not be preestablished for 

trading and will not be listed 

individually for trading on the 

Exchange. Rather, investors will select 

FLEX Option terms and will be limited 

by the parameters detailed below in 

their selection of those terms. As a 

result, FLEX Options would allow 

investors to specify more specific, 

individualized investment objectives 

than may be available to them in the 

standardized options market. 

Some key features of the new 

electronic FLEX Options functionality 

are as follows: 

• System Availability: The Exchange 

will not conduct an Opening Process 

pursuant to Options 3, Section 8 in 

FLEX Options.12 Orders in FLEX 

Options may only be submitted through 

an electronic FLEX Auction, a FLEX 

Price Improvement Auction (‘‘FLEX 

PIM’’), or a FLEX Solicited Order 

Mechanism (‘‘FLEX SOM’’), each as 

discussed in detail below.13

Accordingly, the Exchange’s simple and 

complex order books will not be 

available for transactions in FLEX 

Options.14

• Terms: FLEX Options will be a type 

of put or call, and will allow investors 

the flexibility to choose an exercise style 

of American or European, an expiration 

date, a settlement type, and an exercise 

price, all within the parameters 

specified in the proposed rules.15 As 

discussed further below, FLEX Options 

will not be permitted with identical 

terms as an existing non-FLEX Option 

series listed on the Exchange.16

• Priority: As discussed in detail 

below within the respective sections for 

FLEX Auctions, FLEX PIM, and FLEX 

SOM, the Exchange will apply the same 

priority order for FLEX Options as it 

applies today in its standard non-FLEX 

market, particularly in its standard 

auction mechanisms such as its 

standard Solicited Order Mechanism 

and standard Price Improvement 

Mechanism. Specifically, the System 17

shall execute trading interest at the best 

price level within the System before 

executing at the next best price. Priority 

Customers shall have priority over nonPriority Customer interest at the same 

price with time priority meaning that 

priority shall be afforded to Priority 

Customer orders in the sequence in 

which they are received by the System. 

As set out in Options 1, Section 1(a)(37), 

the term ‘‘Priority Customer’’ means a 

person or entity that (i) is not a broker 

or dealer in securities, and (ii) does not 

place more than 390 orders in listed 

options per day on average during a 

calendar month for its own beneficial 

account(s). 

Because of their composition, the 

Exchange believes that FLEX Options 

may allow investors to more closely 

meet their individual investment and 

hedging objectives by customizing 

options contracts for the purpose of 

satisfying particular investment 

objectives that could not be met by the 

standardized markets. 

Background 

The Commission approved the trading 

of FLEX Options in 1993.18 At the time, 

the Chicago Board Options Exchange, 

Inc., now Cboe Exchange, Inc. (‘‘Cboe’’), 

proposed FLEX Options based on the 

Standard and Poor’s Corporation 500 

and 100 Stock Indexes.19 These FLEX 

Options were offered as an alternative to 

an over-the-counter (‘‘OTC’’) market in 

customized equity options.20 Several 

years after the initial approval, the 

Commission approved the trading of 

additional FLEX Options on specified 

equity securities.21 In its order, the 

Commission provided: ‘‘The benefits of 

the Exchanges’ options markets include, 

but are not limited to, a centralized 

market center, an auction market with 

posted transparent market quotations 

and transaction reporting, parameters 

and procedures for clearance and 

settlement, and the guarantee of the 

OCC [Options Clearing Corporation] for 

all contracts traded on the Exchange.’’ 22

The Exchange notes that FLEX 

Options are currently traded on Cboe, 

NYSE American LLC (‘‘NYSE 

American’’), NYSE Arca, Inc. (‘‘NYSE 


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23See Cboe Rules 4.20–4.22 and 5.70–5.75, NYSE 

American Rules 900G–910G, NYSE Arca Rules 

5.30–O–5.41–O, Phlx Options 8, Section 34, and 

BOX Rules 5055 and 7605. The Exchange also notes 

that BOX recently received approval from the 

Commission to allow for the trading of FLEX equity 

options on the BOX trading floor. See Securities 

Exchange Act Release No. 100156 (May 15, 2024), 

89 FR 44721 (May 21, 2024) (SR–BOX–2023–20). 

24See supra note 23. 

25The Exchange is not proposing to add open 

outcry FLEX Options trading as it does not have a 

trading floor. 

26Cboe Rule 5.75(b) sets forth the responsibilities 

of FLEX Officials, including the responsibility to 

nullify certain FLEX Option transactions that do not 

conform to Cboe’s FLEX rules, and to call upon a 

FLEX Market-Maker with an appointment in a 

FLEX Option class to respond to open outcry FLEX 

Auctions in that FLEX Option class when no other 

ICMPs respond. The Exchange will not adopt these 

provisions because a FLEX Official is a floor 

concept and Exchange does not have a trading floor 

(and therefore no open outcry auctions). 

27For example, Options 3, Section 1 (Hours of 

Business) will apply to FLEX and non-FLEX 

Options, except the Exchange may determine to 

narrow or otherwise restrict the trading hours for 

FLEX Options. See proposed Options 3A, Section 

2. As another example, Options 3, Section 9 

(Trading Halts) will apply to FLEX and non-FLEX 

Options. The Exchange notes that pursuant to 

proposed Options 3A, Section 9, it will always halt 

trading in a FLEX Option class when trading in a 

non-FLEX Option class with the same underlying 

equity security or index is halted on the Exchange. 

Furthermore, the System does not accept a FLEX 

Order for a FLEX Option series while trading in a 

FLEX Option class is halted. 

28For example, the Exchange’s simple and 

complex order books will not be available for 

transactions in FLEX Options. See proposed 

Options 3A, Section 10. In addition, FLEX Options 

may not trade via the Block Order Mechanism 

(Options 3, Section 11(a)), simple and complex 

Facilitation Mechanism (Options 3, Section 11(b) 

and (c)), or as simple and complex Customer Cross 

Orders (Options 3, Section 12(a) and (b)), simple 

and complex Qualified Contingent Cross (‘‘QCC’’) 

Orders (Options 3, Section 12(c) and (d)), and 

simple and complex QCC with Stock Orders 

(Options 3, Section 12(e) and (f))). If the Exchange 

intends to allow FLEX Options to trade via any of 

the foregoing auction mechanisms or as any of the 

foregoing crossing orders, the Exchange would be 

required to file a proposed rule change with the 

Commission to amend its FLEX rules to allow for 

the use of the foregoing trading functionality for 

FLEX Options. 

29See Cboe Rule 5.1(b)(3)(A) for materially 

identical provisions. 

30See Options 3, Section 1(c)–(e). These products 

are currently options on Exchange-Traded Fund 

Shares (as defined in Options 4, Section 3(h), 

options on Index-Linked Securities (as defined in 

Options 4, Section 3(k)(1)), and options on certain 

broad-based indexes, as designated by the 

Exchange. 

Arca’’), Nasdaq PHLX LLC (‘‘Phlx’’), and 

FLEX Equity Options on BOX Exchange 

LLC (‘‘BOX’’).23 The Exchange further 

notes that Cboe offers electronic and 

open outcry FLEX Options trading 

while NYSE American, NYSE Arca, 

Phlx and BOX offer only open outcry 

trading of FLEX Options on their 

respective trading floors.24 The 

Exchange now proposes to allow for the 

trading of FLEX Options on its 

electronic market 25 in a substantially 

similar manner as Cboe’s electronic 

FLEX Options, with certain intended 

differences primarily to align to current 

System behavior (and especially current 

auction behavior) to provide increased 

consistency for Members trading FLEX 

Options and non-FLEX Options on ISE, 

as discussed in detail below. Further, 

the Exchange has omitted certain Cboe 

rules from the proposed rules due to 

differences in scope and operation of 

FLEX trading at Cboe compared to the 

proposed scope and operation of FLEX 

trading on ISE, each as noted below. For 

example, the Exchange will not include 

Cboe rule provisions related to open 

outcry trading, Asian- or Cliquet-settled 

FLEX index options, or FLEX index 

options with an index multiplier of one 

(‘‘Micro FLEX Index Options’’) as it 

does not offer these capabilities today. 

For the same reason, the Exchange will 

not allow prices in FLEX trading to be 

expressed as percentages under this 

proposal. The Exchange also will not 

incorporate the concept of a ‘‘FLEX 

Official’’ as this is a floor concept and 

the Exchange does not have a trading 

floor. As such, instead of nullifying 

FLEX Option transactions that do not 

conform to the terms of the Exchange’s 

proposed FLEX rules,26 the Exchange 

will System enforce its proposed FLEX 

rules and reject at the outset a FLEX 

Option transaction that does not 

conform to the terms of the proposed 

FLEX rules. The very few instances 

where the Exchange will not Systemenforce the proposed FLEX rules and 

will instead apply its surveillance 

patterns will be specifically noted 

below. 

Proposal 

Transactions in FLEX Options traded 

on the Exchange will generally be 

subject to the same rules that apply to 

the trading of equity options and index 

options. In order, however, to provide 

investors with the flexibility to 

designate certain of the terms of the 

options, and to accommodate other 

special features of FLEX Options and 

the way in which they are traded, the 

Exchange proposes new rules applicable 

to FLEX Options in new Options 3A, 

Sections 1–19. 

A. General Provisions (Section 1) 

Proposed Section 1(a) will set forth 

the applicability of Exchange Rules, and 

will provide that Options 3A Rules will 

apply only to FLEX Options and that 

trading of FLEX Options will be subject 

to all other Rules applicable to the 

trading of options on the Exchange, 

unless otherwise provided in Options 

3A. The Exchange has conducted a 

thorough review of its existing trading 

rules to ensure that the proposed Rules 

in Options 3A accurately reflects the 

application of the Exchange’s non-FLEX 

Option trading rules to FLEX Options,27

as well as those non-FLEX Option 

trading rules that would not apply to 

FLEX Options.28

Proposed Section 1(b) will set forth 

the definitions used specifically in 

Options 3A, namely that the term 

‘‘FLEX Option’’ means a flexible 

exchange option. A FLEX Option on an 

equity security may be referred to as a 

‘‘FLEX Equity Option,’’ and a FLEX 

Option on an index may be referred to 

as a ‘‘FLEX Index Option.’’ Further, the 

term ‘‘FLEX Order’’ means an order 

submitted in a FLEX Option pursuant to 

Options 3A. 

The Exchange also proposes to add 

the definition of ‘‘FLEX Order’’ in 

Options 3, Section 7 (Order Types) in 

new paragraph (z). While FLEX Orders 

will also be defined in (and governed 

by) Options 3A, the Exchange believes 

that it will be useful to market 

participants to have the order types 

available on ISE centralized within one 

rule. Lastly, the Exchange proposes a 

non-substantive change to paragraph (y) 

in Options 3, Section 7 to fix a typo. 

B. Hours of Business (Section 2) 

Proposed Section 2(a) will provide 

that the trading hours for FLEX Options 

will be the same as the trading hours for 

corresponding non-FLEX Options as set 

forth in Options 3, Section 1, except the 

Exchange may determine to narrow or 

otherwise restrict the trading hours for 

FLEX Options.29 Therefore, the trading 

hours for FLEX Options will generally 

be 9:30 a.m. to 4:00 p.m. Eastern time, 

except for certain options products that 

trade until 4:15 p.m. Eastern time.30

This would align the proposed trading 

hours for FLEX Options with the current 

trading hours for corresponding nonFLEX Options. 

As it relates to the Exchange’s 

proposed discretion relating to the 

trading hours for FLEX Options, this is 

consistent with Cboe’s FLEX Options 

rules as noted above. The Exchange 

believes that given the unique nature of 

FLEX, in contrast to the non-FLEX 

market, it is reasonable to permit the 

Exchange, in its discretion, to narrow or 

otherwise restrict the trading hours for 

FLEX Options, so long as such trading 

hours occur within the normal options 

trading hours of the Exchange described 

above. The Exchange would provide 

adequate advance notification to its 

Members of such changes in FLEX 

trading hours. 


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31Options 4, Section 3 provides the criteria for 

the listing of options on several different underlying 

types of securities, including, for example, 

securities registered with the SEC under Regulation 

NMS of the Act (‘‘NMS stock’’) and exchange-traded 

funds (‘‘ETFs’’). Options 4A, Section provides the 

criteria for the listing of options on indexes. 

32See Cboe Rule 4.20 for materially identical 

provisions. 

33See Securities Exchange Act Release No. 

101128 (September 20, 2024), 89 FR 78942 

(September 26, 2024) (SR–ISE–2024–03). 

34See proposed Options 3A, Section 18(b)(1)(A). 

35Proposed Sections 11 through 13 of Options 3A 

will govern the electronic FLEX Auction, FLEX 

PIM, and FLEX SOM, respectively. As discussed 

later in this filing, FLEX Orders may only be 

submitted through an electronic FLEX Auction, 

FLEX PIM, or FLEX SOM. 

36See proposed Options 3A, Section 3(b), which 

is based on Cboe Rule 4.21(a). 

37See proposed Options 3A, Section 3(b)(1), 

which is based on Cboe Rule 4.21(a)(1). 

38See proposed Options 3A, Section 3(b)(2), 

which is based on Cboe Rule 4.21(a)(2). The 

Exchange notes that it will System enforce which 

options are eligible to be submitted as FLEX 

Options. As such, the System will reject at the 

outset a FLEX Option transaction that does not 

conform to the terms of the FLEX rules. 

39The Exchange will System enforce this 

provision such that it will reject an opening 

position in an expiring FLEX Option series on the 

day of expiration. 

40 ISE General 3 incorporates by reference Series 

1000 in General 3 of the Rules of The Nasdaq Stock 

Market, LLC (‘‘Nasdaq’’) (including Nasdaq Rule 

1030). 

41See proposed Options 3A, Section 3(b)(3), 

which is based on Cboe Rule 4.22(c). 

42See Cboe Rule 4.21(b) for similar provisions. 

The Exchange notes that unlike Cboe, it is not 

proposing FLEX Index Options with a multiplier of 

1 (i.e., Micro FLEX Index Options) or FLEX Index 

Options that are Asian- or Cliquet-settled as the 

Exchange does not have these capabilities today for 

index options. For the same reason, the Exchange 

is not proposing to allow exercise prices to be 

expressed as a percentage value. Therefore, the 

Exchange has not incorporated the applicable 

provisions in this Rule. 

43The Exchange will discuss cash-settled FLEX 

Equity Options overlying an ETF (‘‘cash-settled 

FLEX ETFs’’) later in this filing. As discussed 

below, the Commission previously approved a rule 

filing by NYSE American to permit the listing and 

trading of this product, and Cboe recently filed an 

immediately effective rule change based on NYSE 

American’s filing. See infra notes 243 and 244. 

44See proposed Options 3A, Section 3(c)(1), 

which is based on Cboe Rule 4.21(b)(1) except for 

the provisions relating to Micro FLEX Index 

Options. 

45See proposed Options 3A, Section 3(c)(2), 

which is based on Cboe Rule 4.21(b)(2) except the 

provisions related to Asian-settled or Cliquet-settled 

FLEX Index Options. 

46See proposed Options 3A, Section 3(c)(3), 

which is based on Cboe Rule 4.21(b)(3) except with 

respect to Asian-settled or Cliquet-settled FLEX 

Index Options. 

47See proposed Options 3A, Section 3(c)(4), 

which is based on Cboe Rule 4.21(b)(4) except with 

respect to Asian-settled or Cliquet-settled FLEX 

Index Options. 

48See proposed Options 3A, Section 3(c)(5), 

which is based on Cboe Rule 4.21(b)(5) except with 

Continued 

C. FLEX Option Classes and Permissible 

Series (Section 3(a) and (b)) 

Pursuant to proposed Section 3(a), the 

Exchange may authorize for trading a 

FLEX Option class on any equity 

security (except the iShares Bitcoin 

Trust ETF) or index if it may authorize 

for trading a non-FLEX Option class on 

that equity security or index pursuant to 

Options 4, Section 3 and Options 4A, 

Section 3,31 respectively, even if the 

Exchange does not list that non-FLEX 

Option class for trading.32 The 

Exchange proposes to exclude iShares 

Bitcoin Trust ETF (‘‘IBIT’’) from being 

eligible for trading as a FLEX Option on 

ISE to be consistent with the 

Commission’s approval of IBIT options, 

which required the position limit for 

IBIT options to be 25,000 contracts.33 As 

discussed in the position limits section 

below, there will generally be no 

position limits for FLEX Equity 

Options.34 The Exchange therefore 

proposes to exclude IBIT options from 

being eligible to trade as a FLEX Option 

(namely, a FLEX ETF option) to 

continue to limit the position limits for 

IBIT options. For clarity, this exclusion 

will apply to both physically-settled and 

cash-settled FLEX ETF options (as 

further described in this filing), such 

that IBIT options will be excluded from 

being eligible to trade as a physicallysettled or a cash-settled FLEX ETF 

option. If the Exchange determines to 

allow FLEX trading on IBIT options at 

a later date, it will do so by submitting 

a 19b–4 rule filing with the 

Commission. 

Proposed Section 3(b) will provide 

that the Exchange may approve a FLEX 

Option series for trading in any FLEX 

Option class it may authorize for trading 

pursuant to proposed Section 3(a). FLEX 

Option series are not pre-established. A 

FLEX Option series is eligible for 

trading on the Exchange upon 

submission to the System of a FLEX 

Order for that series pursuant to 

proposed Sections 11 through 13,35

subject to the following stipulations.36

First, the Exchange will only permit 

trading in a put or call FLEX Option 

series that does not have the same 

exercise style, same expiration date, and 

same exercise price as a non-FLEX 

Option series on the same underlying 

security or index that is already 

available for trading. This would 

include permitting trading in a FLEX 

Option series before a series with 

identical terms is listed for trading as a 

non-FLEX Option series. If the Exchange 

lists for trading a non-FLEX Option 

series with identical terms as a FLEX 

Option series, the FLEX Option series 

will become fungible with the nonFLEX Option series pursuant to 

proposed paragraph (d) of Section 3. 

The System would not accept a FLEX 

Order for a put or call FLEX Option 

series if a non-FLEX Option series on 

the same underlying security or index 

with the same expiration date, exercise 

price, and exercise style is already listed 

for trading.37 Second, a FLEX Order for 

a FLEX Option series may be submitted 

on any trading day prior to the 

expiration date.38 The Exchange also 

proposes to clarify in proposed Section 

3(b)(2) that on the expiration date, a 

FLEX Order for the expiring FLEX 

Option series may only be submitted to 

close out a position in such expiring 

FLEX Option series.39

Third, in the event the relevant 

expiration is a holiday pursuant to 

General 3 (which incorporates Nasdaq 

General 3, Rule 1030 by reference),40

proposed Section 3(d) will apply to 

options with an expiration date that is 

the business day immediately preceding 

the holiday, except for Monday-expiring 

Weekly Expirations (as defined in 

Options 4A, Section 3), in which case 

proposed Section 3(d) will apply to 

options with an expiration date that is 

a business day immediately following 

the holiday.41

D. FLEX Options Terms (Section 3(c)) 

Proposed Section 3(c) will specify the 

terms that must be included in a FLEX 

Order.42 Specifically, when submitting a 

FLEX Order for a FLEX Option series to 

the System, the submitting Member 

must include one of each of the terms 

detailed in proposed subparagraphs (1)– 

(6) of Section 3(c) in the FLEX Order (all 

other terms of a FLEX Option series are 

the same as those that apply to nonFLEX Options), provided that a FLEX 

Equity Option overlying an ETF (cashor physically-settled) may not be the 

same type (put or call) and may not 

have the same exercise style, expiration 

date, and exercise price as a non-FLEX 

Equity Option overlying the same 

ETF,43 which terms constitute the FLEX 

Option series. 

As proposed, the submitting Member 

must specify the following terms in the 

FLEX Order: (1) underlying equity 

security or index, as applicable (the 

index multiplier for FLEX Index 

Options is 100); 44 (2) type of option 

(i.e., put or call); 45 (3) exercise style, 

which may be American-style or 

European-style; 46 (4) expiration date, 

which may be any business day 

(specified to the day, month, and year) 

no more than 15 years from the date on 

which a Member submits a FLEX Order 

to the System; 47 (5) settlement type for 

the FLEX Equity Option or FLEX Index 

Option, as applicable; 48 and (6) exercise 


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respect to Asian-settled or Cliquet-settled FLEX 

Index Options. 

49See proposed Options 3A, Section 3(c)(6), 

which is based on Cboe Rule 4.21(b)(6) except the 

Exchange is not proposing Cliquet-settled Index 

Options or to allow exercise prices to be expressed 

as a percentage value. 

50See proposed Options 3A, Section 3(c), which 

is based on Cboe Rule 4.21(b) except for the 

provisions allowing the exercise price to be 

expressed as a percentage amount and with respect 

to Micro FLEX Index Options. As noted above, the 

Exchange does not offer these capabilities today for 

non-FLEX index options. The Exchange will also 

clarify that it would not go lower than $0.01 when 

determining the smallest increment for exercise 

prices of FLEX Options to make clear that it would 

stay within the stated confines of this Rule. 

51As discussed later in this filing, the Exchange 

is proposing to list and trade cash-settled FLEX 

ETFs in the same manner as NYSE American and 

Cboe. 

52See Securities Exchange Act Release No. 99222 

(December 21, 2023), 88 FR 89771 (December 28, 

2023) (SR–CBOE–2023–018) (‘‘FLEX Settlement 

Pilot Approval’’). In support of making the pilot a 

permanent program, Cboe cited to its own review 

of pilot data during the course of the pilot program 

and a study by the Commission’s Division of 

Economic and Risk Analysis (‘‘DERA’’) staff. See 

FLEX Settlement Pilot Approval, notes 18 and 35. 

53The only broad-based index option that would 

be able to list as a FLEX PM Third Friday Option 

is the Nasdaq-100 Index option (‘‘NDX’’ or ‘‘NDX 

options’’) because the Exchange only received 

approval to list a third-Friday-of-the-month p.m. 

expiration on NDX options its standardized market. 

See Securities Exchange Act Release No. 98935 

(November 14, 2023), 88 FR 80792 (November 20, 

2023) (SR–ISE–2023–20) (Order Approving a 

Proposed Rule Change To Permit the Listing and 

Trading of P.M.-Settled Nasdaq–100 Index Options 

With a Third-Friday-of-the-Month Expiration). 

54An open position resulting from a transaction 

on the Exchange becomes fungible post-trade and 

is separate from the execution occurring on the 

Exchange. For example, assume a Member buys one 

(1) American style AAPL call option expiring on 

October 9, 2024, with a strike price of 150, which 

is a FLEX series because there is no standard option 

listed with those same terms. Now assume, while 

holding this position, a standard option with the 

same terms is listed (American style AAPL call 

option expiring on October 9, 2024, with a strike 

price of 150). After this standard option is listed, 

the Member purchases one (1) contract in this nonFLEX option series. After this second transaction, 

the Participant will have an open position of two 

(2) contracts in the standard AAPL call expiring on 

October 9, 2024, with a 150 strike price. 

55This includes all priority and trade-through 

provisions on the Exchange. See, e.g., Options 3, 

Section 10 and Options 5, Section 2. 

56Cboe Rule 4.22(b)(1) currently indicates that 

Cboe’s closing-only provisions apply if a non-FLEX 

Option American-style series is added intraday. The 

Exchange, however, believes it is more 

straightforward to apply the closing-only provisions 

to all non-FLEX Option series (i.e., American-style 

and European-style FLEX Option series) instead of 

limiting these provisions to one type of exercise 

style. As such, the Exchange’s proposed language in 

Options 3A, Section 3(d)(2)(A) will instead provide 

that the Exchange’s closing-only provisions would 

apply ‘‘if a non-FLEX Option is added intraday.’’ 

See BOX Rule 7605(d)(3), which similarly does not 

limit BOX’s closing-only provisions to Americanstyle FLEX Options series. 

57See proposed Options 3A, Section 3(d)(2)(A), 

which is based on Cboe Rule 4.22(b)(1) except the 

Exchange is not incorporating Cboe’s provisions for 

open outcry trading as the Exchange does not offer 

open outcry trading today. The Exchange is also 

adding cross-cites to its electronic FLEX SOM and 

FLEX PIM auctions in proposed Options 3A, 

Sections 12 and 13 because the closing only 

provisions in proposed Options 3A, Section 3(d)(2) 

will also apply to those electronic FLEX auctions. 

Lastly, the Exchange notes that unlike Cboe, it is 

not proposing to add FLEX Index Options with a 

multiplier of 1 (i.e., Micro FLEX Index Options) and 

will therefore not incorporate Cboe’s closing only 

language with respect to Micro FLEX Index Options 

in Rule 4.22(b)(2). 

58See proposed Options 3A, Section 3(d)(2)(B), 

which is materially identical to BOX Rule 

5055(f)(3). The Exchange is adding this language to 

clarify how it would handle open FLEX positions 

if an identical non-FLEX Option series is added on 

the day after. 

59See proposed Options 3A, Section 3(d)(2), 

which is based on Cboe Rule 4.22(b), except the 

Exchange is replacing the concept of ‘‘FLEX 

Official’’ from Cboe’s rule to ‘‘the System’’ as a 

FLEX Official is a floor concept. As such, the 

Exchange will System enforce the rejection of FLEX 

Options that are fully fungible with a non-FLEX 

Option instead of following Cboe, which specifies 

that a FLEX Official could nullify such a transaction 

on Cboe. 

price, which may be in increments no 

smaller than $0.01.49 Further, the 

Exchange may determine the smallest 

increment for exercise prices of FLEX 

Options on a class-by-class basis 

without going lower than $0.01.50 The 

Exchange notes that the exercise price of 

the FLEX Option would generally be 

dependent on the price of the 

underlying security. 

As it relates to the settlement type for 

FLEX Equity Options, the Exchange 

proposes in subparagraph (c)(5)(A)(i) of 

Options 3A, Section 3 that FLEX Equity 

Options, other than as permitted in 

proposed subparagraphs (c)(5)(A)(ii) and 

(iii), are settled with physical delivery 

of the underlying security. Proposed 

subparagraph (c)(5)(A)(ii) will allow for 

the cash-settlement of certain qualifying 

FLEX Equity Options with an 

underlying security that is an ETF.51

Proposed subparagraph (c)(5)(A)(iii) will 

provide that FLEX Equity Options are 

subject to the exercise by exception 

provisions of OCC Rule 805. 

As it relates to the settlement type for 

FLEX Index Options, the Exchange 

proposes in subparagraphs (c)(5)(B)(i) 

and (ii) of Options 3A, Section 3 that 

FLEX Index Options are settled in U.S. 

dollars, and may be either a.m.-settled 

(with exercise settlement value 

determined by reference to the reported 

level of the index derived from the 

reported opening prices of the 

component securities) or p.m.-settled 

(with exercise settlement value 

determined by reference to the reported 

level of the index derived from the 

reported closing prices of the 

component securities). The Exchange 

notes that Cboe recently received 

approval of its pilot program that 

permitted it to list p.m.-settled FLEX 

Index Options whose exercise 

settlement value is derived from closing 

prices on the last trading day prior to 

expiration that expire on or within two 

business days of a third Friday-of-themonth expiration day for a non-FLEX 

Option (‘‘FLEX PM Third Friday 

Options’’).52 Consistent with the 

Commission’s approval of Cboe’s 

proposal, the Exchange is proposing to 

allow the listing of FLEX PM Third 

Friday Options on ISE as well, and will 

align proposed Section 3(c)(5)(B)(ii) 

with Cboe Rule 4.21(b)(5)(B)(ii).53

E. FLEX Fungibility (Section 3(d)) 

Proposed Section 3(d)(1)(A) will 

provide that if the Exchange lists for 

trading a non-FLEX Option series with 

identical terms as a FLEX Option series, 

all existing open positions established 

under the FLEX trading procedures will 

become fully fungible with transactions 

in the identical non-FLEX Option 

series.54 In addition, proposed Section 

3(d)(1)(B) will provide that any further 

trading in the series would be as nonFLEX Options subject to non-FLEX 

trading procedures and Rules.55 The 

foregoing provisions are materially 

identical to Cboe Rule 4.22(a)(1) and (2). 

Notwithstanding the above, if a nonFLEX Option series 56 is added intraday, 

for the balance of that trading day, a 

position established under the FLEX 

trading procedures may be closed using 

the FLEX trading procedures in this 

Options 3A against another closing only 

FLEX position. No FLEX Orders may be 

submitted into an electronic auction 

pursuant to Sections 11(b), 12, or 13 

below for a FLEX Option series with the 

same terms as the non-FLEX Option 

series, unless the FLEX Order is a 

closing order, and it is the day on which 

the non-FLEX Option series was added 

intraday. Members may only submit 

responses that close out existing FLEX 

positions.57 In the event the non-FLEX 

Option series is added on a trading day 

after the position is established, the 

holder or writer of a FLEX Option 

position established under the FLEX 

trading procedures would be permitted 

to close such position as a non-FLEX 

transaction consistent with the 

requirements of subsection (d)(1) of this 

rule.58 The Exchange will notify 

Members when a FLEX Option series is 

restricted to closing only transactions. 

The System will reject a transaction in 

such a restricted series that does not 

conform to the requirements specified 

in proposed Options 3A, Section 3(d).59

F. Units of Trading; Minimum Trading 

Increments (Sections 4 and 5) 

Proposed Section 4(a) of Options 3A 

will provide that bids and offers for 


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60See Cboe Rule 5.3(e)(3) for similar provisions, 

except the Exchange is not proposing to allow 

prices to be expressed as a percentage value, or to 

provide for Micro FLEX Index Options. 

61See Cboe Rule 5.4(c)(4) for similar provisions, 

except the Exchange is not proposing to allow 

prices to be expressed as a percentage value. The 

Exchange is also clarifying that this provision 

would apply to the options leg of a FLEX Option. 

62See Options 3, Sections 7(b) and 7(f) for a 

description of Limit Orders and Cancel and Replace 

Orders, respectively. All of the other order types 

listed in Options 3, Section 7 (such as Customer 

Cross Orders, Qualified Contingent Cross Orders, 

QCC with Stock Orders, Block Orders, and 

Facilitation Orders) do not apply to FLEX. 

63See Supplementary Material .02(d) to Options 

3, Section 7 for a description of Immediate-orCancel. All of the other TIFs in Supplementary 

Material .02 to Options 3, Section 7 will not apply 

to FLEX. 

64See Options 3, Section 7 for descriptions of 

these order types and times-in-force. 

65Notes 58–60 below describe what features are 

available on these protocols today for non-FLEX 

Options. The Exchange is proposing to specify that 

some of these features (i.e., sending/receiving FLEX 

Orders, FLEX notifications and FLEX responses) 

will be available for FLEX Options through the 

specified protocols as described above. While other 

basic features will be available for FLEX Options 

(for example, the options symbol directory will be 

available for FLEX Options), the Exchange is 

proposing to specify the particular features in 

proposed Options 3A, Section 6(b) to highlight the 

most important features that would be available 

through these protocols for FLEX trading. 

66 ‘‘Financial Information eXchange’’ or ‘‘FIX’’ is 

an interface that allows Members and their 

Sponsored Customers to connect, send, and receive 

messages related to orders and auction orders to the 

Exchange. Features include the following: (1) 

execution messages; (2) order messages; (3) risk 

protection triggers and cancel notifications; and (4) 

post trade allocation messages. See Supplementary 

Material .03(a) to Options 3, Section 7. 

67 ‘‘Ouch to Trade Options’’ or ‘‘OTTO’’ is an 

interface that allows Members and their Sponsored 

Customers to connect, send, and receive messages 

related to orders, auction orders, and auction 

responses to the Exchange. Features include the 

following: (1) options symbol directory messages 

(e.g., underlying and complex instruments); (2) 

System event messages (e.g., start of trading hours 

messages and start of opening); (3) trading action 

messages (e.g., halts and resumes); (4) execution 

messages; (5) order messages; (6) risk protection 

triggers and cancel notifications; (7) auction 

notifications; (8) auction responses; and (9) post 

trade allocation messages. See Supplementary 

Material .03(b) to Options 3, Section 7. 

68 ‘‘Specialized Quote Feed’’ or ‘‘SQF’’ is an 

interface that allows Market Makers to connect, 

send, and receive messages related to quotes, 

Immediate-or-Cancel Orders, and auction responses 

to the Exchange. Features include the following: (1) 

options symbol directory messages (e.g., underlying 

and complex instruments); (2) System event 

messages (e.g., start of trading hours messages and 

start of opening); (3) trading action messages (e.g., 

halts and resumes); (4) execution messages; (5) 

quote messages; (6) Immediate-or-Cancel Order 

messages; (7) risk protection triggers and purge 

notifications; (8) opening imbalance messages; (9) 

auction notifications; and (10) auction responses. 

The SQF Purge Interface only receives and notifies 

of purge requests from the Market Maker. Market 

Makers may only enter interest into SQF in their 

assigned options series. See Supplementary 

Material .03(c) to Options 3, Section 7. 

69A Complex Options Order is an order for a 

Complex Options Strategy, which is the 

simultaneous purchase and/or sale of two or more 

different options series in the same underlying 

security, for the same account, in a ratio that is 

equal to or greater than one-to-three (.333) and less 

than or equal to three-to-one (3.00) and for the 

purpose of executing a particular investment 

strategy. See Options 3, Section 14(a)(1). 

70A Stock-Option Order is an order for a StockOption Strategy, which is the purchase or sale of 

a stated number of units of an underlying stock or 

a security convertible into the underlying stock 

(‘‘convertible security’’) coupled with the purchase 

or sale of options contract(s) on the opposite side 

of the market representing either (A) the same 

number of units of the underlying stock or 

convertible security, or (B) the number of units of 

the underlying stock necessary to create a delta 

neutral position, but in no case in a ratio greater 

than eight-to-one (8.00), where the ratio represents 

the total number of units of the underlying stock 

or convertible security in the option leg to the total 

number of units of the underlying stock or 

convertible security in the stock leg. See Options 3, 

Section 14(a)(2). 

71A Stock-Complex Order is an order for a StockComplex Strategy, which is the purchase or sale of 

a stated number of units of an underlying stock or 

a security convertible into the underlying stock 

(‘‘convertible security’’) coupled with the purchase 

or sale of a Complex Options Strategy on the 

opposite side of the market representing either (A) 

the same number of units of the underlying stock 

or convertible security, or (B) the number of units 

of the underlying stock necessary to create a delta 

neutral position, but in no case in a ratio greater 

than eight-to-one (8.00), where the ratio represents 

the total number of units of the underlying stock 

or convertible security in the option legs to the total 

number of units of the underlying stock or 

convertible security in the stock leg. See Options 3, 

Section 14(a)(3). 

72The Exchange will initially permit a maximum 

of 10 legs. 

73See Cboe Rule 5.70(b) for similar provisions 

except the Exchange is not proposing Asian-settled 

or Cliquet-settled FLEX Index Options, as currently 

specified in Cboe Rule 5.70(b)(3). 

74See Securities Exchange Act Release No. 

98450(September 20, 2023), 88 FR 66111 

(September 26, 2023) (SR–ISE–2023–08) (Order 

Granting Approval of a Proposed Rule Change, as 

Modified by Amendment No. 1, To Make 

Permanent Certain P.M.-Settled Pilots). 

75See Supplementary Material .07(a) to Options 

4A, Section 12. 

FLEX Options must be expressed in U.S. 

dollars and decimals in the minimum 

increments as set forth in proposed 

Section 5.60 Proposed Section 5(a) will 

provide that the Exchange would 

determine the minimum increment for 

bids and offers on FLEX Options on a 

class-by-class basis, which may not be 

smaller than $0.01 for the options leg of 

a FLEX Option.61 Proposed Section 5(b) 

will provide that for the stock leg of a 

FLEX Option, the minimum increments 

are set forth in Options 3A, Section 

11(b)(1)(G), Section 12(a)(5), and 

Section 13(a)(5). As discussed later in 

this filing, the foregoing rules specify 

how minimum increments for complex 

FLEX Orders (including complex FLEX 

Orders with a stock component) would 

be handled. The Exchange is adding 

these cross cites in the minimum 

increments rule in proposed Options 

3A, Section 5(b) for transparency and 

clarity. 

G. Types of Orders; Order and Quote 

Protocols (Section 6) 

Pursuant to proposed Section 6(a), the 

Exchange may determine to make only 

the Limit Order and Cancel and Replace 

Order order types 62 and Immediate or 

Cancel times-in-force,63 respectively, in 

Options 3, Section 7 available on a class 

or System basis for FLEX Orders.64 The 

Exchange notes that it currently has the 

authority to make certain order types 

and TIFs available on a class or System 

basis for non-FLEX Options pursuant to 

Options 3, Section 7, and therefore 

proposes to have similar authority with 

respect to FLEX Options. 

Proposed Section 6(b) will provide 

that only the following order and quote 

protocols in Supplementary Material .03 

to Options 3, Section 7 will be available 

for FLEX Orders, FLEX auction 

notifications, and FLEX auction 

responses: 65

• FIX: 66 FLEX Orders and FLEX 

auction responses 

• OTTO: 67 FLEX Orders, FLEX 

auction notifications, and FLEX auction 

responses 

• SQF: 68 FLEX auction notifications 

and FLEX auction responses 

H. Complex Orders (Section 7) 

Pursuant to proposed Section 7(a), the 

Exchange may make complex orders, 

including a Complex Options Order,69

Stock-Options Order,70 and StockComplex Order 71 available for FLEX 

trading. Complex FLEX Orders may 

have up to the maximum number of legs 

determined by the Exchange.72 Each leg 

of a complex FLEX Order: (1) must be 

for a FLEX Option series authorized for 

FLEX trading with the same underlying 

equity security or index; (2) must have 

the same exercise style (American or 

European); and (3) for a FLEX Index 

Option, may have a different settlement 

type (a.m.-settled or p.m.-settled).73 The 

Exchange notes that a non-FLEX 

complex order can have both am-settled 

and p.m.-settled legs today. The 

Exchange received approval to permit 

the listing and trading of p.m.-settled 

NDX options pursuant to 

Supplementary Material .07 to Options 

4A, Section 12.74 Specifically, the 

Exchange is permitted to list p.m.- 

settled NDX options that expire (1) on 

any Monday, Tuesday, Wednesday, 

Thursday, or Friday (other than the 

third Friday-of-the-month or days that 

coincide with an end-of-month 

expiration) 75 or (2) on the last day of the 


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76See Supplementary Material .07(b) to Options 

4A, Section 12. 

77See Options 4A, Section 12(a)(5). 

78See supra note 73. 

79See supra notes 69–71. 

80For instance, the Exchange may permit 

Complex Options Strategies with a ratio on the 

options legs less than one-to-three (.333) or greater 

than three-to-one (3.00), and Stock-Option 

Strategies with a ratio greater than eight-to-one 

(8.00), where the ratio represents the total number 

of units of the underlying stock or convertible 

security in the option leg(s) to the total number of 

units of the underlying stock or convertible security 

in the stock leg. 

81See Cboe US Options Complex Book Process, 

Section 2.1 (Ratios) and Section 3 (Complex FLEX 

Order Functionality), available at https://

cdn.cboe.com/resources/membership/US-OptionsComplex-Book-Process.pdf. For its non-FLEX 

market, the Exchange will continue to require nonFLEX complex orders to adhere to the complex 

ratios in Options 3, Sections 14(a)(1)–(3), and 

therefore will not permit non-FLEX complex orders 

to be submitted in any ratio outside of those 

stipulated in Section 14. 

82As described in Options 3, Section 8(c)(i), ISE’s 

‘‘Opening Process’’ for an option series is 

conducted pursuant to Options 3, Section 8 

paragraphs (f)–(j), on or after 9:30 a.m. Eastern Time 

if the Away Best Bid or Offer, if any, is not crossed 

and the System has received, within two minutes 

of the opening trade or quote on the market for the 

underlying security, a Valid Width Quote. The 

System will accept a Primary Market Maker’s Valid 

Width Quote or the Valid Width Quote of at least 

one Competitive Market Maker. The term ‘‘Away 

Best Bid or Offer’’ or ‘‘ABBO’’ means the displayed 

National Best Bid or Offer not including the 

Exchange’s Best Bid or Offer. See Options 1, Section 

1(a)(4). 

83See proposed Options 3A, Section 8(a) and (b), 

which is based on Cboe Rule 5.71 except with 

respect to open outcry trading and trading sessions 

outside of regular trading hours. 

84Options 4A, Section 2(q) states that the term 

‘‘underlying security’’ or ‘‘underlying securities’’ 

with respect to an index options contract means any 

of the securities that are the basis for the calculation 

of the index. 

85See Options 3, Section 8(h) and (j). 

86See Options 3, Section 8(c). 

87See proposed Options 3A, Section 10(a). 

Instead, Members will be required to submit FLEX 

Orders into an electronic FLEX Auction, FLEX PIM, 

or FLEX SOM. See proposed Options 3A, Section 

11(a). 

88See Cboe Rule 4.21(a)(3) for materially identical 

provisions. 

89See e.g., NYSE Arca Rule 5.30–O(c). See also 

Securities Exchange Act Release No. 87235 (October 

4, 2019), 84 FR 54671 (October 10, 2019) (SR– 

CBOE–2019–084) (among other changes, 

eliminating the availability of an electronic book for 

FLEX Options). 

90See proposed Options 3A, Section 11(a), which 

is based on Cboe Rule 5.72(b) except the Exchange 

is not proposing an open outcry FLEX Auction. 

trading month.76 In addition, NDX 

options are also currently allowed to be 

listed as a.m.-settled with a standard 

expiration (i.e., the third-Friday-of-themonth).77 Therefore, ISE may currently 

list NDX options that are both a.m.- 

settled and p.m.-settled for its non-FLEX 

market. As such, the Exchange’s FLEX 

proposal for complex orders in this 

respect will not only align with Cboe’s 

current FLEX complex order 

functionality as noted above,78 but will 

also align with its own current nonFLEX complex order functionality. 

Pursuant to proposed Section 7(b), 

complex FLEX Orders will not have to 

adhere to the ratio requirements in 

Options 3, Sections 14(a)(1)–(3). 

Options 3, Sections 14(a)(1)–(3) 

currently includes the complex ratio 

requirements for Complex Options 

Strategies, Stock-Options Strategies, and 

Stock-Complex Strategies.79 The 

Exchange is not changing the complex 

ratio requirements for non-FLEX 

complex orders under this proposal. 

Instead, it is proposing to offer this 

feature only for complex FLEX Orders 

so that Members may submit complex 

FLEX Orders with any ratio.80 The 

Exchange notes that Cboe currently 

permits complex FLEX Orders to be 

submitted with any ratio.81

I. Opening of FLEX Trading (Section 8) 

Proposed Section 8(a) will specify 

that there will be no Opening Process 82

pursuant to Options 3, Section 8 in 

FLEX Options. Instead, as specified in 

proposed Section 8(b), Members may 

begin submitting FLEX Orders into an 

electronic FLEX Auction pursuant to 

proposed Section 11(b), a FLEX PIM 

pursuant to proposed Section 12, or a 

FLEX SOM pursuant to proposed 

Section 13 when the underlying security 

is open for trading.83 The Exchange will 

also make clear in proposed Section 8(b) 

that for FLEX Index Options, the term 

‘‘underlying security’’ will have the 

same meaning as defined in Options 4A, 

Section 2(q).84

Because market participants 

incorporate transaction prices of 

underlying securities or the values of 

underlying indexes when pricing 

options (including FLEX Options), the 

Exchange believes that it will benefit 

investors for FLEX Options trading to 

not be available until that information 

has begun to be disseminated in the 

market (i.e., when the security opens for 

trading). 

Additionally, the Exchange’s Opening 

Process is used to open or reopen a 

series of options on ISE at a single 

opening price.85 There is a period of 

time before an options series opens 

during which orders placed on the 

Exchange’s order book do not generate 

trade executions but may participate in 

the Opening Process.86 As noted above, 

FLEX Options will not be placed on the 

Exchange’s simple and complex order 

books and therefore will not have an 

Opening Process.87 FLEX Options are 

created with terms unique to individual 

investment objectives. As such, each 

investor may require FLEX Options with 

slightly different terms than those 

already created. These individually 

defined FLEX Options are customized 

for each investor, so the Opening 

Process may not be useful for investors 

who may create their own FLEX 

Options because the Opening Process is 

designed, in part, to determine a single 

opening, or reopening, price based on 

orders and quotes from multiple 

Members. With the bespoke nature of 

FLEX Options, there is not the 

opportunity, nor the need, to bring 

together multiple orders and quotes as 

part of an Opening Process. 

J. Trading Halts (Section 9) 

Proposed Section 9 will provide that 

the Exchange may halt trading in a 

FLEX Option class pursuant to Options 

3, Section 9, and always halts trading in 

a FLEX Option class when trading in a 

non-FLEX Options class with the same 

underlying equity security or index is 

halted on the Exchange. The System 

will not accept a FLEX Order for a FLEX 

Option series while trading in a FLEX 

Option class is halted.88

K. Exchange Order Books (Section 10) 

Proposed Section 10 will provide that 

the Exchange’s simple and complex 

order books will not be available for 

transactions in FLEX Options. 

Accordingly, FLEX Options may only be 

traded on the Exchange by submitting 

FLEX Orders into a FLEX Electronic 

Auction pursuant to proposed Options 

11(b), FLEX PIM pursuant to proposed 

Options 12, and FLEX SOM pursuant to 

proposed Options 13, each as discussed 

further below. The Exchange notes that 

its proposal is in line with other options 

exchanges’ FLEX rules that do not 

contemplate the interaction of their 

respective order books with FLEX 

transactions.89

L. FLEX Options Trading (Section 11) 

Proposed Section 11 will describe the 

procedures for FLEX trading on the 

Exchange. Specifically, a FLEX Option 

series will only be eligible for trading if 

a Member submits a FLEX Order for that 

series into an electronic FLEX Auction 

pursuant to proposed paragraph (b) of 

Options 11, or submits the FLEX Order 

to a FLEX PIM or FLEX SOM Auction 

pursuant to proposed Section 12 or 

Section 13, respectively.90

Proposed Section 11(a)(1) and (2) will 

specify the requirements for both simple 

and complex FLEX Orders. 

• For a simple FLEX Order, a FLEX 

Order for a FLEX Option series 

submitted to the System must include 

all terms for a FLEX Option series set 

forth in proposed Section 3 as described 


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91See Cboe Rule 5.72(b)(1) for similar provisions. 

The Exchange does not have an analogous rule as 

Cboe Rule 5.7, which specifies the different trading 

sessions during which the system is available to 

receive FLEX orders, and thus has not incorporated 

the applicable language. As noted above, the 

Exchange will accept FLEX Orders entered into an 

electronic FLEX Auction, FLEX PIM or FLEX SOM 

when the underlying security is open for trading. 

See proposed Options 3A, Section 8. 

92See Cboe Rule 5.72(b)(2) for similar provisions. 

As noted above for simple FLEX Orders, the 

Exchange does not have an analogous rule as Cboe 

Rule 5.7, and thus has not incorporated the 

applicable language. See supra note 91. 93See proposed Options 3A, Section 11(a)(2)(A). 

94See proposed Options 3A, Section 11(a)(2)(A)(i) 

and (ii), which is materially identical to BOX Rule 

7605(d). 

95See proposed Options 3A, Section 11(a)(2)(B), 

which is based on Cboe Rule 5.72(b)(2)(A) except 

the Exchange will also add references to FLEX PIM 

and FLEX SOM for accuracy and completeness. The 

Exchange will also clarify in its proposed rule that 

the leg prices when combined must equal the net 

price of the complex FLEX Order (additions 

emphasized). Cboe’s rule currently states that the 

leg prices ‘‘must add together to equal’’ the net 

price. However, the Exchange notes that sell legs of 

a complex order are subtracted, and therefore 

proposes the language in Options 3A, Section 

11(a)(2)(B) (instead of copying Cboe Rule 

5.72(b)(2)(A)) for greater accuracy. 

96See also Securities Exchange Act Release No. 

87235 (October 4, 2019), 84 FR 54671 (SR–CBOE– 

2019–084) (October 10, 2019) (adopting an 

electronic FLEX Auction on Cboe, among other 

changes). 

97Proposed paragraph (b) is based on Cboe Rule 

5.72(c). The proposed eligibility requirements for 

the FLEX Auction in subparagraph (b)(1) are similar 

to Cboe Rule 5.72(c)(1), except as noted below. 

98There will be no default setting to the FLEX 

Auction exposure interval. As such, Members will 

be required to specify the exposure interval; 

otherwise, their FLEX Order will be rejected by the 

System. 99Cboe Rule 5.72(c)(1)(F) does not specify 

whether an execution would occur (if permitted) 

when the designated time exceeds the market close, 

and only expressly prohibits the designated time 

from going beyond the market close. While the 

Exchange’s rules are silent in this regard, the 

Exchange notes that its proposal will follow current 

non-FLEX auction behavior, including current PIM 

and SOM behavior. In doing so, the Exchange’s 

proposal will promote executions in electronic 

FLEX Auctions (instead of cancelling the FLEX 

Order) and also prevent executions that occur after 

the market close. 

100See proposed subparagraph (G) of Section 

11(b)(1). While Cboe’s electronic FLEX Auction 

eligibility requirements in Rule 5.72(c)(1) are silent 

on minimum increments, the eligibility 

requirements for Cboe’s FLEX AIM and FLEX SAM 

in Cboe Rules 5.73(a)(5) and 5.74(a)(5), respectively, 

address minimum increments. The Exchange 

believes it will be helpful to add a similar 

requirement for electronic FLEX Auctions for 

greater consistency and clarity. The Exchange also 

notes that unlike Cboe, it is not proposing to allow 

exercise prices to be expressed as percentages, and 

will therefore not incorporate the applicable 

provisions. As discussed above, the Exchange is 

also incorporating within proposed subparagraph 

(G) the minimum increment provisions for nonFLEX complex orders that are stock-tied from 

Options 3, Section 14(c)(1). 

above, size, side of the market, and a bid 

or offer price.91 The Exchange also 

proposes that the System will not accept 

a FLEX Order with identical terms as a 

non-FLEX Option series that is already 

listed for trading to signify that this 

requirement is System-enforced. 

• For a complex FLEX Order, a FLEX 

Order for a FLEX Option complex 

strategy submitted to the System must 

satisfy the criteria for a complex FLEX 

Order set forth in proposed Section 7(a) 

as described above, and include size, 

side of the market, and a net debit or 

credit price. Additionally, each leg of 

the FLEX Option complex strategy must 

include all terms for a FLEX Option 

series set forth in proposed Section 3.92

Similar to simple FLEX Orders, the 

Exchange proposes to System enforce 

the stipulation that it will not accept a 

FLEX Option complex strategy if a leg 

in the order has identical terms as a 

non-FLEX Option series that is already 

listed for trading.93 The Exchange also 

proposes to add similar language as 

BOX to describe what would happen if 

there is a complex FLEX Order and 

subsequently, a non-FLEX Option series 

is introduced for the component leg(s). 

Specifically, proposed Section 

11(a)(2)(A)(i) and (ii) will provide that if 

a non-FLEX Option series is added 

intra-day for a component leg(s) of a 

complex FLEX Order, the holder or 

writer of a FLEX Option position in the 

component leg(s) resulting from such 

complex FLEX Order would be 

permitted to close its position(s) under 

the FLEX trading procedures against 

another closing only FLEX Option 

position for the balance of the trading 

day on which the non-FLEX Option 

series is added. If a non-FLEX Option 

series is added for a component leg(s) of 

a complex FLEX Order on a trading day 

after the complex FLEX Order position 

is established, the holder or writer of a 

FLEX Option position in the component 

leg(s) resulting from such complex 

FLEX Order would be required to 

execute separate FLEX Option and nonFLEX Option transactions to close its 

position(s), such that FLEX Option 

component leg(s) would trade under the 

FLEX trading procedures and non-FLEX 

Option component leg(s) would trade 

subject to the non-FLEX trading 

procedures and rules.94 Additionally, a 

complex FLEX Order submitted into the 

System for an electronic FLEX Auction 

pursuant to proposed Section 11(b), a 

FLEX PIM pursuant to Section 12, or a 

FLEX SOM pursuant to Section 13 must 

include a bid or offer price for each leg, 

which leg prices when combined must 

equal the net price of the complex FLEX 

Order.95

Proposed Section 11(b) will describe 

the electronic FLEX Auction. The 

proposed FLEX Auction will be 

substantially similar to Cboe’s electronic 

FLEX Auction set forth in Cboe Rule 

5.72(c), except for certain intended 

differences as further described below.96

Specifically, a Member may 

electronically submit a FLEX Order 

(simple or complex) into an electronic 

FLEX Auction for execution pursuant to 

this paragraph (b). Pursuant to proposed 

subparagraph (b)(1), a FLEX Auction 

may be initiated if all of the below 

conditions in proposed subparagraph 

(b)(1)(A)–(G) are met; otherwise, the 

System rejects or cancels a FLEX Order 

that does not meet the conditions in this 

subparagraph (b)(1).97

• Class: The FLEX Order is in a class 

of options the Exchange is authorized to 

list for trading on the Exchange. 

• Size: There is no minimum size for 

FLEX Orders. 

• Terms: A simple or complex FLEX 

Order must comply with proposed 

Section 11(a). 

• Price: The bid or offer price, or the 

net debit or credit price, as applicable, 

of the FLEX Order is the ‘‘auction 

price.’’ 

• Time: A FLEX Order may only be 

submitted for electronic execution in a 

FLEX Auction after FLEX trading has 

opened pursuant to proposed Section 8. 

• Exposure Interval: The submitting 

Member must designate the length of 

the ‘‘exposure interval,’’ which must be 

between three seconds and five 

minutes.98 If the designated time 

exceeds the market close, then the FLEX 

Auction will end at the market close 

with an execution, if an execution is 

permitted pursuant to proposed Section 

11(b).99

• Minimum Increment: The price of a 

simple FLEX Order must be in an 

increment the Exchange determines on 

a class basis (which may not be smaller 

than the amounts set forth in proposed 

Section 5 (i.e., $0.01)). If the FLEX Order 

is a complex order, the price must be a 

net price for the complex strategy.100

The foregoing rule proposal will be 

substantially similar to the minimum 

increment requirements in Cboe Rules 

5.73(a)(5) and 5.74(a)(5). While the 

Exchange will align to Cboe’s minimum 

increment requirements (i.e., $0.01) for 

the individual options legs of a complex 

FLEX Order entered into a FLEX 

Auction, the Exchange also proposes to 

align the minimum increment 

requirements for stock-tied FLEX 

complex strategies with the existing 

requirements for stock-tied non-FLEX 

complex strategies as set forth in 

Options 3, Section 14(c)(1). As such, 

proposed Options 3A, Section 

11(b)(1)(G) will further provide that the 

prices of Complex Options Strategies (as 

defined in Options 3, Section 14) may 


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101The minimum increment for individual 

options leg of a FLEX Order may not be smaller 

than $0.01, as required under proposed Options 3A, 

Section 5. However, when a stock leg is included 

in a complex strategy (i.e., Stock-Option Strategy or 

Stock-Complex Strategy) for the FLEX Option, then 

the price for FLEX Stock-Option Strategies and 

FLEX Stock-Complex Strategies can be expressed to 

four decimal places in order to trade at finer 

decimal increments permitted by the equity market. 

However, the options leg will not be permitted to 

execute in increments smaller than one cent ($0.01). 

This is identical to how a non-FLEX Stock-Option 

Strategy and a non-FLEX Stock-Complex Strategy 

can be priced today. See Options 3, Section 14(c)(1) 

for identical provisions. See also Securities 

Exchange Act Release No. 84373 (October 5, 2018), 

83 FR 51730 at 51732 (October 12, 2018) (SR–ISE– 

2018–56). 

102As discussed below, this information on the 

proposed auction message will permit responses to 

only execute at the conclusion of the auction into 

which the responses were submitted. 

103See Cboe Rule 5.72(c)(2)(A) for similar 

provisions, except with respect to the exposure 

interval and Attributable designation. The Exchange 

will simply disseminate the duration of the 

exposure interval, instead of calculating and 

disseminating what time the auction will conclude 

like Cboe. In addition, the Exchange is not 

proposing to offer an Attributable designation for 

FLEX Orders like Cboe does today. 

104See Cboe Rule 5.72(c)(2)(B) for materially 

identical provisions. 

105See Cboe Rule 5.72(c)(2)(C) for materially 

identical provisions. The Exchange notes that 

submitting Members may cancel but not modify a 

FLEX Auction prior to the end of the exposure 

interval. 

106See Cboe Rule 5.72(c)(2)(D) for materially 

identical provisions. 

107A ‘‘badge’’ shall mean an account number, 

which may contain letters and/or numbers, 

assigned to Market Makers. A Market Maker 

account may be associated with multiple badges. 

See Options 1, Section 1(a)(5). 

108A ‘‘mnemonic’’ shall mean an acronym 

comprised of letters and/or numbers assigned to 

Electronic Access Members. An Electronic Access 

Member account may be associated with multiple 

mnemonics. See Options 1, Section 1(a)(23). 

109A badge and mnemonic are essentially 

Member identifiers. Every order that comes into the 

System is tied to a badge or mnemonic. 

110 In other words, the Member does not have to 

cancel the previous FLEX response before 

submitting an additional one as the previous 

response is automatically replaced. See proposed 

Options 3A, Section 11(b)(2)(D)(i), which is based 

on Cboe Rule 5.72(c)(2)(D)(i) except the Exchange 

will not allow Members to submit multiple FLEX 

responses using the same badge/mnemonic, and 

will not aggregate all of the Member’s FLEX 

responses. While not specified in the Exchange’s 

current rules, this is consistent with current auction 

behavior, including current PIM and SOM behavior. 

111See proposed Options 3A, Section 

11(b)(2)(D)(ii), which is based on Cboe Rule 

be expressed in one cent ($0.01) 

increments, and the options leg of 

Complex Options Strategies may be 

executed in no smaller than one cent 

($0.01) increments, regardless of the 

minimum increments otherwise 

applicable to the individual options legs 

of the order. Prices of Stock-Option 

Strategies or Stock-Complex Strategies 

(each as defined in Options 3, Section 

14) may be expressed in any decimal 

price determined by the Exchange,101

and the stock leg of a Stock-Option 

Strategy or Stock-Complex Strategy may 

be executed in any decimal price 

permitted in the equity market. The 

options leg of a Stock-Option Strategy or 

Stock-Complex Strategy may be 

executed in no smaller than one cent 

($0.01) increments, regardless of the 

minimum increments otherwise 

applicable to the individual options legs 

of the order. Similar to stock-tied 

complex orders today, the Exchange 

believes that smaller minimum 

increments are appropriate for complex 

FLEX Orders that contain a stock 

component as the stock component can 

trade at finer decimal increments 

permitted by the equity market. 

Proposed subparagraph (b)(2) of 

Options 11 will describe the FLEX 

Auction process, and will provide that 

upon receipt of a FLEX Order that meets 

the conditions in subparagraph (a) as 

described above, the FLEX Auction 

commences. Proposed subparagraph 

(b)(2)(A) will describe the contents of 

the FLEX Auction message, and will 

provide that the System initiates a FLEX 

Auction by sending a FLEX Auction 

notification message to Members 

detailing the FLEX Option series or 

complex strategy (as applicable), side, 

size, auction ID,102 capacity, and 

exposure interval. Similar to all other 

auction notifications, FLEX Auction 

notification messages are not 

disseminated to OPRA.103 Like Cboe, 

the FLEX Auction message will not 

include the price of the auctioned FLEX 

Order. The Exchange believes not 

including the auction price in the 

notification message will encourage 

Members to respond with the best prices 

at which they are willing to trade 

against the auctioned FLEX Order. If the 

message included the price, Members 

may only respond to trade at that price; 

without the price, Members may 

respond at better prices, which may 

result in price improvement 

opportunities for the auctioned FLEX 

Order. 

Proposed subparagraph (b)(2)(B) will 

provide that one or more FLEX Auctions 

in the same FLEX Option series or 

complex strategy (as applicable) may 

occur at the same time. To the extent 

there is more than one FLEX Auction in 

a FLEX Option series or complex 

strategy (as applicable) underway at the 

same time, the FLEX Auctions conclude 

sequentially based on the times at 

which each FLEX Auction’s exposure 

interval concludes. At the time each 

FLEX Auction concludes, the System 

allocates the FLEX Order pursuant to 

proposed subparagraph (3) and takes 

into account all FLEX responses 

submitted during the exposure 

interval.104 Generally, if a Member 

attempts to initiate an electronic FLEX 

Auction in a FLEX Option series while 

another auction in that series is ongoing, 

the Exchange believes it will provide 

that second FLEX Order with an 

opportunity for execution in a timely 

manner by initiating another FLEX 

Auction, rather than having the Member 

wait for the first auction to conclude. 

The second Member may not be able to 

submit a response to trade in the 

ongoing FLEX Auction, because the 

terms may not be consistent with that 

Member’s order (for example, there may 

not be sufficient size, and the Member 

may only receive a share of the 

auctioned order depending on other 

responses). Therefore, the Exchange 

believes providing this proposed 

functionality may encourage Members 

to use electronic FLEX Auctions to 

execute their FLEX Orders. 

Proposed subparagraph (b)(2)(C) will 

provide that the submitting Member 

may cancel a FLEX Auction prior to the 

end of the exposure interval.105

Proposed subparagraph (b)(2)(D) will 

specify the conditions for submitting 

responses to a FLEX Auction. Any 

Member (including the submitting 

Member) may submit responses to a 

FLEX Auction that are properly marked 

specifying the FLEX Option series or 

complex strategy (as applicable), bid or 

offer price or net price (respectively), 

size, side of the market, and the auction 

ID for the FLEX Auction to which the 

Member is submitting the response. A 

FLEX response may only participate in 

the FLEX Auction with the auction ID 

specified in the response, which is why 

the auction notification message 

described above will include an auction 

ID and responses must identify the 

applicable auction ID.106 If there are 

concurrent FLEX Auctions occurring, a 

Member may submit responses to all 

ongoing auctions, and thus concurrent 

auctions will not hinder a Member’s 

ability to participate in any FLEX 

Auction. 

A Member using the same badge/ 107

mnemonic 108 may only submit a single 

FLEX response per auction ID to a FLEX 

Auction.109 If an additional FLEX 

response is submitted for the same 

auction ID from the same badge/ 

mnemonic, then that FLEX response 

will automatically replace the previous 

FLEX response.110 The System caps the 

size of a FLEX response for the same 

badge/mnemonic at the size of the FLEX 

Order (i.e., the System ignores the size 

in excess of the size of the FLEX Order 

when processing the FLEX Auction).111


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5.72(c)(2)(D)(ii) except the Exchange will not 

aggregate all of the Member’s FLEX responses. See 

supra note 110. 

112See proposed Options 3A, Section 

11(b)(2)(D)(iii), which is based on Cboe Rule 

5.72(c)(2)(D)(iii). 

113See proposed Options 3A, Section 

11(b)(2)(D)(iv), which is based on Cboe Rule 

5.72(c)(2)(D)(iv). 

114See Supplementary Material .02 to Options 3, 

Section 11; and Options 3, Section 13(c)(4). 

115For example, if during a FLEX Auction of a 

buy FLEX Order, a Member submitted a response 

to sell at $1.05, if another Member saw that 

response, it may merely respond to sell at $1.05, or 

maybe $1.04, even though it may ultimately be 

willing to sell at $1.03. Without seeing the other 

responses, the second Member may instead submit 

a response to sell at $1.03, which could result in 

price improvement for the auctioned order. 

116See proposed Options 3A, Section 

11(b)(2)(D)(v), which is based on Cboe Rule 

5.72(c)(2)(D)(v). 

117See proposed Options 3A, Section 

11(b)(2)(D)(vi). While Cboe’s electronic FLEX 

Auction response requirements in Rule 5.72(c)(2)(D) 

are silent on minimum increments, the response 

requirements for Cboe’s FLEX AIM and FLEX SAM 

in Cboe Rules 5.73(c)(5)(A) and 5.74(c)(5)(A), 

respectively, have similar provisions. The Exchange 

believes it will be helpful to add a similar 

requirement for electronic FLEX Auction responses 

for greater consistency and clarity. The Exchange 

also notes that unlike Cboe, it is not proposing to 

allow percentage formats for exercise prices of 

FLEX Options, and will therefore not incorporate 

the applicable provisions. 

118See Cboe Rule 5.72(c)(3) for similar 

provisions, except the Exchange is making minor 

modifications to replace ‘‘affected series’’ with 

‘‘affected underlying’’ and to specify that the 

submitting Member has to cancel the FLEX Auction 

before the end of the exposure period. The 

foregoing changes are merely clarifications to better 

articulate the functionality. 

119See Cboe Rule 5.72(c)(3)(A) for similar 

provisions, except the Exchange is not proposing to 

allow percentage values of the response bid or offer. 

120Size Pro-Rata Priority shall mean that if there 

are two or more resting orders or quotes at the same 

price, the System allocates contracts from an 

incoming order or quote to resting orders and 

quotes beginning with the resting order or quote 

displaying the largest size proportionally according 

to displayed size, based on the total number of 

contracts displayed at that price. See Options 3, 

Section 10(c). 

121The term ‘‘Priority Customer’’ means a person 

or entity that (i) is not a broker or dealer in 

securities, and (ii) does not place more than 390 

orders in listed options per day on average during 

a calendar month for its own beneficial account(s). 

See Options 1, Section 1(a)(37). 

122Priority Customer overlay mean that the 

highest bid and lowest offer shall have priority 

except that Priority Customer orders shall have 

priority over non-Priority Customer interest at the 

same price in the same options series. If there are 

two or more Priority Customer orders for the same 

options series at the same price, priority shall be 

afforded to such Priority Customer orders in the 

sequence in which they are received by the System. 

See Options 10, Section 10(c)(1)(A). 

123See, e.g., Options 3, Section 11(d)(3)(C) (SOM 

allocation methodology) and Options 3, Section 

13(d) (PIM allocation methodology). 

124See Options 3, Section 10(c), Supplementary 

Material .09 to Options 3, Section 11, and 

Supplementary Material .10 to Options 3, Section 

13. 

125See Cboe Rule 5.72(c)(3)(B) for materially 

identical provisions. 

126See Cboe Rule 5.72(c)(3)(C) for materially 

identical provisions. 

Given that the Exchange is proposing 

below to apply a pro-rata allocation 

methodology to executions at the 

conclusion of the FLEX Auction, this 

provision is intended to prevent a 

Member from submitting a response 

with an extremely large size into the 

electronic FLEX Auction in order to 

obtain a larger pro-rata share of the 

FLEX Order. 

Further, FLEX responses must be on 

the opposite side of the market as the 

FLEX Order. The System rejects a FLEX 

response on the same side of the market 

as the FLEX Order.112 FLEX responses 

are not visible to Members or 

disseminated to OPRA.113 This is 

consistent with how Cboe treats FLEX 

responses pursuant to Cboe Rule 

5.72(c)(2)(D)(iv). The proposed rule 

change is also consistent with the 

Exchange’s existing auctions, in which 

responses are not visible to the 

market.114 Responses to electronic 

auctions are not firm prior to the 

conclusion of the auction, at which time 

their price and size are firm. For the 

same reason as the Exchange is 

proposing not to disseminate the 

auction price on the auction notification 

message as discussed above, the 

Exchange believes it will encourage 

Members to submit responses at their 

best possible price if they do not know 

the prices at which other Members are 

willing to trade.115

A Member may modify or cancel it 

FLEX Responses during the exposure 

interval.116 The minimum price 

increment for FLEX responses is the 

same as the one the Exchange 

determines for a class pursuant to 

proposed subparagraph (b)(1)(G) above. 

A response to a FLEX Auction of a 

complex order must have a net price. 

The System rejects a FLEX response that 

is not in the applicable minimum 

increment.117

Pursuant to proposed subparagraph 

(b)(3) of Section 11, the FLEX Auction 

concludes at the end of the exposure 

interval, unless the Exchange halts 

trading in the affected underlying or the 

submitting Member cancels the FLEX 

Auction before the end of the exposure 

interval, in which case the FLEX 

Auction concludes without 

execution.118 At the conclusion of the 

FLEX Auction: 

• Pursuant to proposed subparagraph 

(b)(3)(A), the System executes the FLEX 

Order against the FLEX responses at the 

best price(s), to the price at which the 

balance of the FLEX Order or the FLEX 

responses can be fully executed (the 

‘‘final auction price’’). For purposes of 

ranking FLEX responses when 

determining how to allocate a FLEX 

Order, the term ‘‘price’’ refers to the 

dollar and decimal amount of the 

response bid or offer.119

• Pursuant to proposed subparagraph 

(b)(3)(A)(i), if there are multiple FLEX 

responses at the same price level, then 

the contracts in those FLEX responses 

are allocated proportionally according 

to Size Pro-Rata Priority 120 with Priority 

Customer 121 overlay 122 (as described in 

Options 3, Section 10(c)(1)(A)). The 

Exchange notes that this is similar to 

Cboe Rule 5.72(c)(3)(A)(i), except Cboe 

applies no overlays to its size pro-rata 

allocation methodology whereas the 

Exchange will apply an overlay for 

Priority Customers on top of its standard 

size pro-rata allocation methodology. 

This is consistent with the Exchange’s 

standard allocation methodology in its 

SOM and PIM for non-FLEX Options 

where the Priority Customer gets 

priority treatment over non-Priority 

Customers.123

• Pursuant to proposed subparagraph 

(b)(3)(A)(ii), the executable quantity is 

allocated to the nearest whole number, 

with fractions rounded up for the FLEX 

response with the higher quantity. 

Further, proposed subparagraph 

(b)(3)(A)(iii) will provide that if an 

allocation would result in less than one 

contract, then one contract will be 

allocated. The Exchange is not adopting 

the rounding and allocation language in 

Cboe Rule 5.72(c)(3)(A)(ii) and (iii), but 

is rather adopting language that is 

consistent with its current rounding and 

allocation methodology as the Exchange 

does not allocate fractional contracts 

and instead rounds up to the nearest 

whole number.124

Pursuant to proposed subparagraph 

(b)(3)(B), the System cancels an 

unexecuted FLEX Order (or unexecuted 

portion).125 Further, proposed 

subparagraph (b)(3)(C) will provide that 

the System cancels any unexecuted 

responses (or unexecuted portions).126

M. FLEX PIM (Section 12) 

The Exchange proposes to establish 

PIM auction functionality for FLEX 

Options in Options 3A, Section 12. The 

proposed FLEX PIM auction will be 

substantially similar to Cboe’s FLEX 

AIM in Cboe Rule 5.73, except for 

certain intended differences as further 

described below. Pursuant to proposed 

Section 12, a Member (the ‘‘Initiating 

Member’’) may electronically submit for 

execution an order (which may be a 

simple or complex order) it represents 

as agent (‘‘Agency Order’’) against 


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127See Cboe Rule 5.73 for similar provisions, 

except the Exchange will not incorporate the 

reference to FLEX SPX as this is a Cboe-specific 

product. 

128See Cboe Rule 5.73(a)(2) for similar 

provisions, except the Exchange will add a similar 

stipulation for each leg of a complex FLEX Order 

for clarity. 

129The Exchange notes that unlike Cboe, it will 

not allow prices to be entered as a percentage value, 

and therefore will not incorporate the applicable 

language from Cboe Rule 5.73(a)(5) into proposed 

Section 12(a)(5). As discussed above, the Exchange 

will also add existing complex order minimum 

increment requirements in Options 3, Section 

14(c)(1) to align the proposed FLEX functionality 

with non-FLEX functionality. 

130The prices of the FLEX Stock-Option 

Strategies and FLEX Stock-Complex Strategies can 

be expressed to four decimal places, which is 

identical to how the stock portion of a non-FLEX 

Stock-Option Strategy and a non-FLEX StockComplex Strategy can be priced today. However, 

the options leg will not be permitted to execute in 

increments smaller than one cent ($0.01). See supra 

note 101. 

131See Cboe Rule 5.73(b) for similar provisions, 

except the Exchange will not allow prices to be 

entered as a percentage value, and therefore will not 

incorporate the applicable language from Cboe’s 

rule into proposed Section 12(b). 

132The Exchange will allow the Initiating 

Member to customize their guaranteed allocation 

percentage of the Initiating Order anywhere from 

0% up to 50% of the Agency Order (if there is a 

response(s) from one other Member at the same 

price) or up to 40% of the Agency Order (if there 

are responses from two or more Members at the 

same price). For example, an Agency Order is 

entered into FLEX PIM for 100 contracts. If the 

Initiating Member only wants to have a guaranteed 

allocation of 10% on the Initiating Order that was 

entered with the Agency Order, the Initiating 

Member can stipulate 10% on the Initiating Order. 

If there are 4 FLEX PIM responses for a total of 200 

contracts at the end of the auction, then the 

Initiating Member will only get 10 contracts 

allocated on its Initiating Order (i.e., the guaranteed 

10% of 100 contracts). Cboe’s rule does not allow 

for the Initiating Member’s guaranteed allocation 

percentages to be customized. See infra note 158 for 

further discussion on the 50%/40% allocation 

percentages. 

133See infra note 158 for further discussion on 

the 50%/40% allocation percentages. 

principal interest or a solicited order(s) 

(except, if the Agency Order is a simple 

order, for an order for the account of any 

FLEX Market Maker with an 

appointment in the applicable FLEX 

Option class on the Exchange) (an 

‘‘Initiating Order’’), provided it submits 

the Agency Order for electronic 

execution into a FLEX PIM auction 

pursuant to this Rule.127

Proposed Section 12(a)(1)—(5) will set 

forth the FLEX PIM auction eligibility 

requirements. Specifically, the Initiating 

Member may initiate a FLEX PIM 

auction if all of the following conditions 

are met: 

• Class. An Agency Order must in a 

FLEX Option class the Exchange 

designates as eligible for FLEX PIM 

auctions. 

• FLEX Option Series. The Agency 

Order and Initiating Order must each be 

a FLEX Order that complies with 

proposed Section 11(a) in a permissible 

FLEX Option series that complies with 

proposed Section 3 above. For a 

complex FLEX Order, each leg must be 

in a permissible FLEX option series that 

complies with proposed Section 3 

above.128

• Marking. The Initiating Member 

must mark an Agency Order for FLEX 

PIM auction processing. 

• Size. There will be no minimum 

size for Agency Orders. The Initiating 

Order must be for the same size as the 

Agency Order. 

• Minimum Increment. The price of 

the Agency Order and Initiating Order 

for simple FLEX Orders must be in an 

increment the Exchange determines on 

a class basis (which may not be smaller 

than the amounts set forth in Section 5 

above). If the Agency Order and 

Initiating Order are complex orders, the 

price must be a net price for the 

complex strategy.129 While the 

Exchange will align to Cboe’s minimum 

increment requirements (i.e., $0.01) for 

the individual options legs of a complex 

FLEX Order entered into a FLEX PIM, 

the Exchange also proposes to align the 

minimum increment requirements for 

stock-tied FLEX complex strategies with 

the existing requirements for stock-tied 

non-FLEX complex strategies as set 

forth in Options 3, Section 14(c)(1). As 

such, proposed Options 3A, Section 

12(a)(5) will further provide that the 

prices of Complex Options Strategies (as 

defined in Options 3, Section 14) may 

be expressed in one cent ($0.01) 

increments, and the options leg of 

Complex Options Strategies may be 

executed in no smaller than one cent 

($0.01) increments, regardless of the 

minimum increments otherwise 

applicable to the individual options legs 

of the order. Prices of Stock-Option 

Strategies or Stock-Complex Strategies 

(each as defined in Options 3, Section 

14) may be expressed in any decimal 

price determined by the Exchange,130

and the stock leg of a Stock-Option 

Strategy or Stock-Complex Strategy may 

be executed in any decimal price 

permitted in the equity market. The 

options leg of a Stock-Option Strategy or 

Stock-Complex Strategy may be 

executed in no smaller than one cent 

($0.01) increments, regardless of the 

minimum increments otherwise 

applicable to the individual options legs 

of the order. Similar to stock-tied 

complex orders today, the Exchange 

believes that smaller minimum 

increments are appropriate for complex 

FLEX Orders that contain a stock 

component as the stock component can 

trade at finer decimal increments 

permitted by the equity market. 

• Time. An Initiating Member may 

only submit an Agency Order to a FLEX 

PIM auction after trading in FLEX 

Options is open pursuant to proposed 

Section 8. 

The System will reject or cancel both 

an Agency Order and Initiating Order 

submitted to a FLEX PIM auction that 

do not meet the conditions in proposed 

paragraph (a) as described above. The 

proposed FLEX PIM eligibility 

requirements in proposed Section 12(a) 

are substantially similar to Cboe’s FLEX 

AIM eligibility requirements in Cboe 

Rule 5.73(a), except with respect to the 

language related to the percentage value, 

as noted above. 

Pursuant to proposed Section 12(b), 

the Initiating Order must stop the entire 

Agency Order at a specified price. If the 

Agency Order and Initiating Order are 

Complex Orders, the price must be a net 

price for the complex strategy.131 In 

particular, the Initiating Member must 

specify either of the below; otherwise, 

the System will reject or cancel both an 

Agency Order and Initiating Order 

submitted to a FLEX PIM auction that 

do not meet the conditions in this 

proposed paragraph (b). 

• Pursuant to proposed subparagraph 

(b)(1), a single price at which it seeks to 

execute the Agency Order against the 

Initiating Order (a ‘‘single-price 

submission’’), including whether it 

elects to have less than its guaranteed 

allocation (as described in proposed 

Section 12(e)(4) below). This is similar 

to Cboe Rule 5.73(b)(1), except the 

Exchange is not proposing to allow 

Initiating Members to elect for the 

Initiating Order to have last priority to 

trade against the Agency Order, and will 

instead allow them to elect less than 

their guaranteed allocation.132 As 

further discussed below, the proposed 

guaranteed allocation process will be 

based on the guaranteed allocation 

process available in non-FLEX PIM 

auctions, and therefore the proposed 

rule change will provide further 

consistency across the Exchange’s 

auction mechanism processes.133

• Pursuant to subparagraph (b)(2), an 

initial stop price and instruction to 

automatically match the price and size 

of all FLEX PIM responses (‘‘automatch’’) at each price, up to a 

designated limit price, better than the 

price at which the balance of the 

Agency Order can be fully executed (the 

‘‘final auction price’’). This is materially 

identical to Cboe Rule 5.73(b)(2). 

Proposed Section 12(c) will govern 

the FLEX PIM auction process. 

Specifically, upon receipt of an Agency 


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134Further, for complex Agency Orders, PIM 

auctions in different complex strategies may be 

ongoing at any given time, even if the complex 

strategies have overlapping components. A FLEX 

PIM auction in a complex strategy may be ongoing 

at the same time as a FLEX PIM auction in any 

component of the complex strategy. See proposed 

subparagraph (c)(1)(B)(i) of Options 3A, Section 12. 

135See Cboe Rule 5.73(c)(2) for substantially 

similar provisions except the Exchange will not 

incorporate the reference to SPX as it does not list 

this symbol. 

136While this behavior is not explicitly stated in 

the current Rules, the Exchange’s proposal will be 

consistent with current non-FLEX auction behavior, 

including current PIM and SOM behavior. 

137Counter-Side Orders (i.e., contra-side to the 

Agency Order) for PIM are functionally equivalent 

to Initiating Orders (i.e., contra-side order to the 

Agency Order) for FLEX PIM. See Options 3, 

Section 13(b) for a description of Counter-Side 

Orders. 

138See Options 3, Section 13(b)(5) (providing that 

the Crossing Transaction may not be canceled or 

modified, but the price of the Counter-Side Order 

may be improved during the exposure period). 

139As proposed, the Initiating Member enters a 

paired FLEX Order into FLEX PIM consisting of an 

Agency Order and an Initiating Order (which is the 

contra-side of the Agency Order). This is identical 

to how standard non-FLEX PIM works today in that 

the Initiating Member enters a paired order into 

standard PIM consisting of an Agency Order and a 

Counter-Side Order (i.e., the PIM Agency Order’s 

contra-side, and the functional equivalent to an 

Initiating Order on FLEX PIM). 

140See proposed Options 3A, Section 12(c)(5), 

which is based on Cboe Rule 5.73(c)(5). 

141See proposed Options 3A, Section 12(c)(5)(A), 

which is based on Cboe Rule 5.73(c)(5)(A) except 

the Exchange will not allow prices to be expressed 

as a percentage value. Further, the Exchange will 

not incorporate the Cboe rule portions on Index 

Combo Orders as the Exchange does not offer this 

functionality. 

Order that meets the conditions in 

paragraphs (a) and (b) as described 

above, the FLEX PIM auction process 

commences. Proposed subparagraphs 

(c)(1)(A) and (B) will describe 

concurrent FLEX PIM auctions for 

simple Agency Orders and complex 

Agency Orders, respectively. One or 

more FLEX PIM auctions in the same 

FLEX Option series or same complex 

strategy (as applicable) may occur at the 

same time.134 To the extent there is 

more than one FLEX PIM auction in a 

FLEX Option series or complex strategy 

(as applicable) underway at the same 

time, the FLEX PIM auctions will 

conclude sequentially based on the 

times at which the FLEX PIM auction 

periods end. At the time each FLEX PIM 

auction concludes, the System allocates 

the Agency Order pursuant to proposed 

paragraph (e) as described below, and 

takes into account all FLEX PIM 

responses received during the FLEX 

PIM auction period. The concurrent 

FLEX PIM auction feature in proposed 

Section 12(c)(1)(A) and (B) is materially 

identical to Cboe Rule 5.73(c)(1)(A) and 

(B), and is also consistent with the 

concurrent auction feature proposed 

above for FLEX Auctions. Similar to 

FLEX Auctions as proposed above, if a 

Member attempts to initiate a FLEX PIM 

Auction in a FLEX Option series while 

another auction in that series in 

ongoing, the Exchange believes it will 

provide that second FLEX Order with an 

opportunity for execution in a timely 

manner by initiating another FLEX PIM 

Auction, rather than requiring the 

Member to wait for the first auction to 

conclude. The second Member may not 

be able to submit a response to trade in 

the ongoing FLEX PIM Auction because 

the terms may not be consistent with 

that Member’s order (for example, there 

may not be sufficient size, and the 

Member may only receive a share of the 

auctioned order depending on other 

responses). Therefore, the Exchange 

believes that providing this 

functionality for FLEX PIM may provide 

additional opportunities for execution 

of FLEX Orders by encouraging 

Members to use FLEX PIM. 

Pursuant to proposed Section 12(c)(2), 

the System initiates the FLEX PIM 

auction process by sending a FLEX PIM 

auction notification message detailing 

the side, size, auction ID, the length of 

the FLEX PIM auction period, and FLEX 

Option series or complex strategy, as 

applicable, of the Agency Order to all 

Members that elect to receive FLEX PIM 

auction notification messages. The 

Exchange may also determine to include 

the stop price in FLEX PIM auction 

notification messages, which will apply 

to all FLEX PIM auctions. Similar to all 

other auction notifications, FLEX PIM 

auction notification messages will not 

be disseminated to OPRA.135

Proposed Section 12(c)(3) will 

describe the ‘‘FLEX PIM Auction 

period,’’ and is based on Cboe Rule 

5.73(c)(3). The FLEX PIM Auction 

period will be defined as a period of 

time that must be designated by the 

Initiating Member, which may be no 

less than three seconds and no more 

than five minutes. Similar to the 

exposure interval for electronic FLEX 

Auctions in Section 11(b) discussed 

above, the Initiating Member will be 

required to identify a length of time 

within the specified parameters for 

FLEX PIM as there will be no default for 

the FLEX PIM Auction period. 

Otherwise, their FLEX Order will be 

rejected by the System. Further, if the 

designated length of the FLEX PIM 

Auction period exceeds the market 

close, then the auction will end at the 

market close with an execution, if an 

execution is permitted by this Section 

12. Cboe’s rule does not specify whether 

an execution (if permitted) would occur 

if the designated length exceeds the 

market close. However, the Exchange’s 

non-FLEX auctions currently allow 

executions (as permitted by their 

respective rules) to occur in such 

scenarios, so the Exchange proposes to 

be consistent with current System 

functionality in this regard.136 In doing 

so, the Exchange’s proposal will 

promote executions in FLEX PIM 

(instead of cancelling the FLEX Order) 

and also prevent executions from 

occurring after the market close. 

Proposed Section 12(c)(4) will 

provide that an Initiating Member may 

not modify or cancel an Agency Order 

or Initiating Order after submission to a 

FLEX PIM auction, except to improve 

the price of the Initiating Order. This 

will be similar to Cboe Rule 5.73(c)(4) 

except unlike Cboe, the Exchange will 

allow a limited exception by allowing 

Initiating Members to improve the price 

of their Initiating Orders. The Exchange 

notes that this will align to current nonFLEX PIM behavior, which allows 

entering Members to modify their 

Counter-Side Orders 137 upon entry into 

the PIM by improving upon the initial 

price of the Counter-Side Order.138

Similar to allowing the initiating 

Member of a non-FLEX PIM to improve 

the initial price of its Counter-Side 

Order, the Exchange believes that it is 

appropriate to allow the Initiating 

Member of the FLEX PIM to improve the 

price of its Initiating Order (i.e., contraside to the Agency Order) because it 

would also improve the stop price of the 

Agency Order that came in together 

with the Initiating Order.139

Proposed Section 12(c)(5) will govern 

the requirements for FLEX PIM 

responses. Specifically: 

• Any Member other than the 

Initiating Member (the System rejects a 

response with the same badge/ 

mnemonic as the Initiating Order) may 

submit responses to a FLEX PIM auction 

that are properly marked specifying 

price, size, side, and the auction ID for 

the FLEX PIM auction to which the 

Member is submitting the response. A 

FLEX PIM response may only 

participate in the FLEX PIM auction 

with the auction ID specified in the 

response.140

• The minimum price increment for 

FLEX PIM responses is the same as the 

one the Exchange determines for a class 

pursuant to proposed Section 12(a)(5) 

above. A response to a FLEX PIM 

auction of a complex Agency Order 

must have a net price. The System will 

reject a FLEX PIM response that is not 

in the applicable minimum 

increment.141

• A Member using the same badge/ 

mnemonic may only submit a single 


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142See proposed Options 3A, Section 12(c)(5)(B), 

which will be different from Cboe Rule 5.73(c)(5)(B) 

because the Exchange will not allow Members to 

submit multiple FLEX PIM responses using the 

same badge/mnemonic, and will not aggregate all of 

the Member’s FLEX PIM responses. While the rules 

are currently silent in this regard, this will align to 

current non-FLEX auction behavior, including PIM 

auction behavior. 

143See proposed Options 3A, Section 12(c)(5)(C), 

which is based on Cboe Rule 5.73(c)(5)(C) except 

the Exchange will not allow Members to submit 

multiple FLEX PIM responses using the same 

badge/mnemonic, and will not aggregate all of the 

Member’s FLEX PIM responses. As noted above, 

this will align to current non-FLEX auction 

functionality, including PIM auction functionality 

in Options 3, Section 13. 

144See proposed Options 3A, Section 12(c)(5)(D), 

which is materially identical to Cboe Rule 

5.73(c)(5)(D). 

145See proposed Options 3A, Section 12(c)(5)(E), 

which is materially identical to Cboe Rule 

5.73(c)(5)(E). 

146See proposed Options 3A, Section 12(c)(5)(F), 

which is materially identical to Cboe Rule 

5.73(c)(5)(F). 

147See Cboe Rule 5.73(d) for similar provisions, 

except the Exchange will make a minor clarification 

that this rule applies when the Exchange halts 

trading in the affected underlying (and not series, 

which is what Cboe currently has in its rule). 

148See Cboe Rule 5.73(e) for similar provisions 

except the Exchange will not allow prices to be 

expressed as a percentage value. 

149See proposed Section 12(e)(1)(A), which is 

materially identical to Cboe Rule 5.73(e)(1)(A). 

150See proposed Section 12(e)(1)(B)(ii), which is 

based on Cboe Rule 5.73(e)(1)(B)(ii) except the 

percentages will be based on the original size of the 

Agency Order, instead of the number of contracts 

remaining after execution against Priority Customer 

responses like Cboe. This will align to current PIM 

functionality. See Options 3, Section 13(d)(3). See 

infra note 158 for further discussion on the 50%/ 

40% allocation percentages. 

151See proposed Section 12(e)(1)(B), which is 

based on Cboe Rule 5.73(e)(1)(B) except with 

respect to the two limited scenarios discussed 

above. This behavior relating to the remaining 

contracts scenario and rounding up scenario will 

align to current PIM functionality. While the 

Exchange’s rules are silent on the first scenario, the 

rounding up scenario is specified in Options 3, 

Section 13(d)(7). 

152See proposed Section 12(e)(1)(C), which is 

materially identical to Cboe Rule 5.73(e)(1)(C). The 

Exchange notes that Size Pro-Rata (as defined in 

Options 3, Section 10(c)) is similar to pro-rata as 

referenced in the Cboe rule (and as defined in Cboe 

Rule 5.32(a)(1)(B)). 

153See proposed Section 12(e)(1)(D), which is 

materially identical to Cboe Rule 5.73(e)(1)(D). 

154See proposed Section 12(e)(2)(A), which is 

materially identical to Cboe Rule 5.73(e)(2)(A). 

155See proposed Section 12(e)(2)(B), which is 

based on Cboe Rule 5.73(e)(2)(B), except the 

Exchange will specify that other FLEX PIM 

responses at prices better than the final auction 

price will be allocated in time priority and all other 

FLEX PIM responses at the final auction price will 

be allocated on a Size Pro-Rata Basis. While the 

current rules are silent in this regard, this behavior 

follows current System behavior for its PIM 

functionality. 

FLEX PIM response per auction ID for 

a given auction. If an additional FLEX 

PIM response is submitted for the same 

auction ID from the same badge/ 

mnemonic, then that FLEX PIM 

response will automatically replace the 

previous FLEX PIM response.142

• The System will cap the size of a 

FLEX PIM response at the size of the 

Agency Order (i.e., the System will 

ignore size in excess of the size of the 

Agency Order when processing the 

FLEX PIM auction).143

• FLEX PIM responses must be on the 

opposite side of the market as the 

Agency Order. The System rejects a 

FLEX PIM response on the same side of 

the market as the Agency Order.144

• FLEX PIM responses will not be 

visible to PIM auction participants or 

disseminated to OPRA.145

• A Member may modify or cancel its 

FLEX PIM responses during the FLEX 

PIM auction.146

Pursuant to proposed Section 12(d), a 

FLEX PIM auction concludes at the 

earliest to occur of the following times: 

(1) the end of the FLEX PIM auction 

period; and (2) any time the Exchange 

halts trading in the affected underlying, 

provided, however, that in such 

instance the FLEX PIM auction 

concludes without execution.147

Proposed Section 12(e) will govern 

how executions will occur in FLEX PIM. 

In particular, at the end of the FLEX 

PIM auction, the System allocates the 

Initiating Order or FLEX PIM responses 

against the Agency Order at the best 

price(s), to the price at which the 

balance of the Agency Order can be 

fully executed (the ‘‘final auction 

price’’), as follows. For purposes of 

ranking the Initiating Order and FLEX 

PIM responses when determining how 

to allocate the Agency Order against the 

Initiating Order and those responses, the 

term ‘‘price’’ refers to the dollar and 

decimal amount of the order or response 

bid or offer.148 Proposed subparagraphs 

(e)(1)–(4) details the FLEX PIM 

allocation methodology for the 

following scenarios: 

• No Price Improvement: If the FLEX 

PIM auction results in no price 

improvement, the System executes the 

Agency Order at the stop price in the 

following order: 

• Priority Customer responses (in 

time priority); 149

• The Initiating Order for the greater 

of (1) one contract or (2) up to 50% of 

the Agency Order if there is a 

response(s) from one other Member at 

the same price or 40% of the Agency 

Order if there are responses from two or 

more other Members at the same price 

(which percentages are based on the 

original size of the Agency Order).150

Unless there are remaining contracts 

after including all PIM responses, under 

no circumstances does the Initiating 

Member receive an allocation 

percentage at the final auction price of 

more than 50% of the initial Agency 

Order in the event there is a response(s) 

from one other Member or 40% of the 

initial Agency Order in the event there 

are responses from two or more other 

Members, except when rounding up. 

The Exchange is specifying two limited 

scenarios in this Rule where the 

Initiating Member may receive an 

allocation percentage greater than its 

guaranteed allocation percentage, which 

is either when there are remaining 

contracts after including all PIM 

responses or when rounding up.151 As 

an example of the first scenario, assume 

an Initiating Member submitted a FLEX 

Order for 20 contracts into FLEX PIM 

and there are 2 PIM responses (one for 

3 contracts and one for 4 contracts). 

After the 7 PIM responses are allocated, 

the Initiating Member would then 

receive the remaining 13 contracts 

(which is more than their 40% 

allocation percentage) because there are 

remaining contracts after all PIM 

responses are included. 

• All other FLEX PIM responses, 

allocated on a Size Pro-Rata basis (as 

defined in Options 3, Section 10(c)); 152

and 

• The Initiating Order to the extent 

there are any remaining contracts.153

• Price Improvement With SinglePrice Submission: If the FLEX PIM 

auction results in price improvement for 

the Agency Order and the Initiating 

Member selected a single-price 

submission, at each price better than the 

final auction price, the System executes 

the Agency Order in the following 

order: 

• Priority Customer responses (in 

time priority); 154

• Other FLEX PIM responses (in time 

priority) at prices better than the final 

auction price; and 

• All other FLEX PIM responses at 

the final auction price, allocated on a 

Size Pro-Rata basis (as defined in 

Options 3, Section 10(c)).155

For example, assume a FLEX PIM 

Agency Order is sent for 100 contracts 

with a price of $1.00 and the Initiating 

Member selected a single-price 

submission. There are two PIM 

responses for 5 contracts each at $0.98, 

two PIM responses for 20 contracts each 

at $0.99, and two PIM responses for 40 

contracts each at $1.00. The PIM 

responses at $0.98 and $0.99 will be 

executed in their entirety. The PIM 

responses at $1.00 (final auction price) 

will be executed on a Size Pro-Rata 

basis. At the final auction price, the 

System executes any remaining 

contracts from the Agency Order at that 


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156See proposed Section 12(e)(2), which is 

materially identical to Cboe Rule 5.73(e)(2). 

157See proposed Section 12(e)(3), which is 

materially identical to Cboe Rule 5.73(e)(3). 

158See proposed Section 12(e)(4), which is based 

on Cboe Rule 5.73(e)(4) except the Exchange will 

replace Cboe’s last priority feature with a 

guaranteed allocation feature similar to current PIM 

functionality that allows Members to request a 

lower percentage than their guaranteed allocation. 

See Options 3, Section 13(d)(3). As such, the 

difference between Cboe’s rule and ISE’s rule will 

be that ISE Members will be able to customize their 

guaranteed allocation percentages for FLEX PIM 

(which will follow the non-FLEX PIM process) 

while Cboe’s rules do not seem to allow this for 

FLEX AIM. The Exchange notes that the proposed 

guaranteed allocation percentages of 50% (if there 

is a response(s) from one other Member) and 40% 

(if there are responses from two or more Members) 

for FLEX PIM will differ from the current 

guaranteed allocation percentage of 40% for 

standard PIM. As such, the Exchange is aligning to 

Cboe’s allocation percentages. The Exchange also 

notes that its affiliates, Nasdaq BX, Inc. (‘‘BX’’) and 

Nasdaq PHLX LLC (‘‘Phlx’’), have consistent 

guaranteed allocation percentages for their standard 

non-FLEX price improvement auctions, BX PRISM 

and Phlx PIXL. See BX Options 3, Section 

13(ii)(A)(1) and Phlx Options 3, Section 13(b)(5)(B). 

159See Cboe Rule 5.73(e)(5) for substantially 

similar provisions. 

160See Cboe Rule 5.73, Interpretations and 

Policies .01 for materially identical provisions. 

161Options 9, Section 1 provides that no Member 

shall engage in acts or practices inconsistent with 

just and equitable principles of trade. Persons 

associated with Members shall have the same duties 

and obligations as Members under the Rules of 

Options 9. 

162See Cboe Rule 5.73, Interpretations and 

Policies .02 for materially identical provisions. 

163The Exchange notes that it is not proposing to 

add the provision from Cboe Rule 5.73, 

Interpretations and Policies .03 that states: ‘‘A FLEX 

Official may nullify a transaction following a FLEX 

AIM Auction pursuant to Rule 5.75(b).’’ Because the 

FLEX Official is a floor concept and the Exchange 

does not operate a trading floor, the Exchange will 

not incorporate this concept into its proposed FLEX 

rules. Instead, the Exchange will System-enforce 

this provision by rejecting a FLEX PIM auction that 

does not comply with the provisions in proposed 

Options 3A, Section 12. 

164See Supplementary Material .10 to Options 3, 

Section 13. 

165See Cboe Rule 5.74 for similar provisions, 

except the Exchange will not add Cboe’s language 

that the Solicited Order cannot have a Capacity F 

(i.e., Firm capacity) for the same executing firm ID 

(‘‘EFID’’) as the Agency Order for the foregoing 

reasons. Facilitated orders cannot be entered into 

FLEX SOM (just like they cannot be entered into 

standard SOM today). Since an order with the 

capacity of Firm can be valid for a solicitation 

order, the Exchange will not System enforce the 

rejection of Firm capacity orders to avoid the 

rejection of contra-side orders that are entered with 

a Firm capacity and are, in fact, solicitations at the 

outset. Instead, it will monitor for compliance with 

the requirement that the contra-side order be a 

solicitation rather than a facilitation through 

surveillance, as it does today for non-FLEX SOM. 

The applicable rule for the foregoing requirement 

will be set forth in Supplementary Material .02 to 

Options 3A, Section 13. 

166See Cboe Rule 5.74(a)(2) for similar 

provisions, except the Exchange will add a similar 

stipulation for each leg of a complex FLEX Order 

for clarity. 

167See Cboe Rule 5.74(a)(4) for similar provisions 

except unlike Cboe, the Exchange will not allow the 

Solicited Order to be comprised of multiple 

solicited orders in FLEX SOM to be consistent with 

current non-FLEX SOM functionality in Options 3, 

Continued 

price in the order set forth in proposed 

Section 12(e)(1), as described above.156

• Price Improvement With AutoMatch: If the FLEX PIM auction results 

in price improvement for the Agency 

Order and the Initiating Member 

selected auto-match, at each price better 

than the final auction price up to the 

designated limit price, the System 

executes the Agency Order against the 

Initiating Order for the number of 

contracts equal to the aggregate size of 

all FLEX PIM responses and then 

executes the Agency Order against those 

responses in the order set forth in 

proposed subparagraph (e)(2) described 

above. At the final auction price, the 

System executes contracts at that price 

in the order set forth in proposed 

subparagraph (e)(1) described above.157

• Guaranteed Allocation: If the 

Initiating Member selects a single-price 

submission, it may elect for the 

Initiating Order to have less than their 

guaranteed allocation (50% if there is a 

response(s) from one other Member or 

40% if there are responses from two or 

more Members) to trade against the 

Agency Order. The Initiating Member 

may select a lesser percentage than their 

guaranteed allocation. If the Initiating 

Member elects 0%, then 

notwithstanding subparagraphs (e)(1) 

and (2), the System only executes the 

Initiating Order against any remaining 

Agency Order contracts at the stop price 

after the Agency Order is allocated to all 

FLEX PIM responses at all prices equal 

to or better than the stop price. 

Guaranteed allocation information is not 

available to other market participants 

and may not be modified after it is 

submitted.158

Pursuant to proposed Section 12(e)(5), 

the System cancels any unexecuted 

FLEX PIM responses (or unexecuted 

portions) at the conclusion of the FLEX 

PIM auction.159

Lastly, the Exchange proposes a 

number of policies applicable to FLEX 

PIM as Supplementary Materials to 

Options 3A, Section 12. Specifically, 

proposed Supplementary Material .01 

will provide that a Member may only 

use a FLEX PIM auction where there is 

a genuine intention to execute a bona 

fide transaction.160 Proposed 

Supplementary Material .02 will 

provide that it will be deemed conduct 

inconsistent with just and equitable 

principles of trade and a violation of 

Options 9, Section 1 161 to engage in a 

pattern of conduct where the Initiating 

Member breaks up an Agency Order into 

separate orders for the purpose of 

gaining a higher allocation percentage 

than the Initiating Member would have 

otherwise received in accordance with 

the allocation procedures contained in 

proposed paragraph (e) above.162 Lastly, 

proposed Supplementary Material .03 

will provide that if an allocation would 

result in less than one contract, then one 

contract will be allocated.163 This aligns 

to how the Exchange currently allocates 

contracts in PIM.164

N. FLEX SOM (Section 13) 

The Exchange proposes to establish 

SOM auction functionality for FLEX 

Options in Options 3A, Section 13. The 

proposed FLEX SOM auction will be 

substantially similar to Cboe’s FLEX 

SAM in Cboe Rule 5.74, except for 

certain intended differences to align 

with the Exchange’s current System 

functionality for non-FLEX Options, as 

further described below. Pursuant to 

proposed Section 13, a Member (the 

‘‘Initiating Member’’) may electronically 

submit for execution an order (which 

may be a simple or complex order) it 

represents as agent (‘‘Agency Order’’) 

against a solicited order (‘‘Solicited 

Order’’) if it submits the Agency Order 

for electronic execution into a FLEX 

SOM auction pursuant to this Rule.165

Proposed Section 13(a)(1)–(6) will set 

forth the FLEX SOM auction eligibility 

requirements, and will be substantially 

similar to Cboe Rule 5.74(a)(1)–(6) 

except as noted below. Specifically, the 

Initiating Member may initiate a FLEX 

SOM auction if all of the following 

conditions are met: 

• Class. An Agency Order must in a 

FLEX Option class the Exchange 

designates as eligible for FLEX SOM 

auctions. 

• FLEX Option Series. The Agency 

Order and Solicited Order must each be 

a FLEX Order that complies with 

proposed Section 11(a) in a permissible 

FLEX Option series that complies with 

proposed Section 3 above. For a 

complex FLEX Order, each leg must be 

in a permissible FLEX option series that 

complies with Section 3 above.166

• Marking. The Initiating Member 

must mark an Agency Order for FLEX 

SOM auction processing. 

• Size. The Agency Order must be for 

at least the minimum size designated by 

the Exchange (which may not be less 

than 500 standard option contracts). For 

complex FLEX Orders, this minimum 

size requirement will apply to each leg. 

The Solicited Order must be for the 

same size as the Agency Order. The 

System handles each of the Agency 

Order and the Solicited Order as all-ornone.167


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Section 11(d). In addition, the Exchange will not 

incorporate Cboe’s provisions relating to mini 

options or Micro FLEX Index Options into proposed 

Section 13(a)(4) as the Exchange does not list these 

products today. Further, the Exchange is adding a 

minor clarification that the minimum size 

requirement will apply to each leg of a complex 

FLEX Order. 

168The Exchange notes that unlike Cboe, it will 

not allow prices to be entered as a percentage value, 

and therefore will not incorporate the applicable 

language from Cboe Rule 5.74(a)(5) into proposed 

Section 13(a)(5). As discussed above, the Exchange 

will also incorporate existing minimum increment 

requirements for non-FLEX complex orders into 

proposed Section 13(a)(5) to align the proposed 

FLEX functionality with non-FLEX functionality. 

169The prices for FLEX Stock-Option Strategies 

and FLEX Stock-Complex Strategies can be 

expressed to four decimal places, which is identical 

to how the stock portion of a non-FLEX StockOption Strategy and a non-FLEX Stock-Complex 

Strategy can be priced today. See supra note 101. 

170See Cboe Rule 5.74(b) for similar provisions, 

except the Exchange will not allow prices to be 

entered as a percentage value, and therefore will not 

incorporate the applicable language from Cboe’s 

rule into proposed Section 13(b). 

171Further, for complex Agency Orders, SOM 

auctions in different complex strategies may be 

ongoing at any given time, even if the complex 

strategies have overlapping components. A FLEX 

SOM auction in a complex strategy may be ongoing 

at the same time as a FLEX SOM auction in any 

component of the complex strategy. See proposed 

subparagraph (c)(1)(B)(i) of Options 3A, Section 13. 

• Minimum Increment. The price of 

the Agency Order and Solicited Order 

for simple FLEX Orders must be in an 

increment the Exchange determines on 

a class basis (which may not be smaller 

than the amounts set forth in Section 5 

above). If the Agency Order and 

Solicited Order are complex orders, the 

price must be a net price for the 

complex strategy.168 While the 

Exchange will align to Cboe’s minimum 

increment requirements (i.e., $0.01) for 

the individual options legs of a complex 

FLEX Order entered into a FLEX SOM, 

the Exchange also proposes to align the 

minimum increment requirements for 

stock-tied FLEX complex strategies with 

the existing requirements for stock-tied 

non-FLEX complex strategies as set 

forth in Options 3, Section 14(c)(1). As 

such, proposed Options 3A, Section 

12(a)(5) will further provide that the 

prices of Complex Options Strategies (as 

defined in Options 3, Section 14) may 

be expressed in one cent ($0.01) 

increments, and the options leg of 

Complex Options Strategies may be 

executed in no smaller than one cent 

($0.01) increments, regardless of the 

minimum increments otherwise 

applicable to the individual options legs 

of the order. Prices of Stock-Option 

Strategies or Stock-Complex Strategies 

(each as defined in Options 3, Section 

14) may be expressed in any decimal 

price determined by the Exchange,169

and the stock leg of a Stock-Option 

Strategy or Stock-Complex Strategy may 

be executed in any decimal price 

permitted in the equity market. The 

options leg of a Stock-Option Strategy or 

Stock-Complex Strategy may be 

executed in no smaller than one cent 

($0.01) increments, regardless of the 

minimum increments otherwise 

applicable to the individual options legs 

of the order. Similar to stock-tied 

complex orders today, the Exchange 

believes that smaller minimum 

increments are appropriate for complex 

FLEX Orders that contain a stock 

component as the stock component can 

trade at finer decimal increments 

permitted by the equity market. 

• An Initiating Member may only 

submit an Agency Order to a FLEX SOM 

auction after trading in FLEX Options is 

open pursuant to proposed Section 8. 

The System will reject or cancel both 

an Agency Order and Solicited Order 

submitted to a FLEX SOM auction that 

do not meet the conditions in proposed 

paragraph (a) as described above. 

Pursuant to proposed Section 13(b), 

the Solicited Order must stop the entire 

Agency Order at a specified price. If the 

Agency Order and Solicited Order are 

complex orders, the price must be a net 

price for the complex strategy. The 

Initiating Member must specify a single 

price at which it seeks to execute the 

Agency Order against the Solicited 

Order. Otherwise, the System will reject 

or cancel both an Agency Order and 

Solicited Order submitted to a FLEX 

SOM auction that do not meet this 

condition.170

Proposed Section 13(c) will govern 

the FLEX SOM auction process. 

Specifically, upon receipt of an Agency 

Order that meets the conditions in 

paragraphs (a) and (b) as described 

above, the FLEX SOM auction process 

commences. Proposed subparagraphs 

(c)(1)(A) and (B) will describe 

concurrent FLEX SOM auctions for 

simple Agency Orders and complex 

Agency Orders, respectively, and will be 

materially identical to Cboe Rule 

5.74(c)(1)(A) and (B). 

One or more FLEX SOM auctions in 

the same FLEX Option series or same 

complex strategy (as applicable) may 

occur at the same time.171 To the extent 

there is more than one FLEX SOM 

auction in a FLEX Option series or 

complex strategy (as applicable) 

underway at the same time, the FLEX 

SOM auctions will conclude 

sequentially based on the times at 

which the FLEX SOM auction periods 

end. At the time each FLEX SOM 

auction concludes, the System allocates 

the Agency Order pursuant to proposed 

paragraph (e) as described below, and 

takes into account all FLEX SOM 

responses received during the FLEX 

SOM auction period. As noted above, 

the proposed concurrent FLEX SOM 

auction feature is consistent with Cboe’s 

concurrent FLEX SAM auctions feature 

in Cboe Rule 5.74(c)(1), and is also 

consistent with the concurrent auction 

feature proposed above for FLEX 

Auctions and FLEX PIM. For the same 

reasons stated above for FLEX Auctions 

and FLEX PIM, the Exchange believes 

that providing this concurrent auction 

functionality for FLEX SOM may 

provide additional opportunities for 

execution of FLEX Orders by 

encouraging Members to use FLEX 

SOM. 

Pursuant to proposed Section 13(c)(2), 

the System initiates the FLEX SOM 

auction process by sending a FLEX SOM 

auction notification message detailing 

the side, size, price, capacity, auction 

ID, the length of the FLEX SOM auction 

period, and FLEX Option series or 

complex strategy, as applicable, of the 

Agency Order to all Members that elect 

to receive FLEX SOM auction 

notification messages. Similar to all 

other auction notifications, FLEX SOM 

auction notification messages will not 

be disseminated to OPRA. These 

provisions are materially identical to 

Cboe Rule 5.74(c)(2). 

Proposed Section 13(c)(3) will 

describe the ‘‘FLEX SOM Auction 

period,’’ and is based on Cboe Rule 

5.74(c)(3). The FLEX SOM Auction 

period will be defined as a period of 

time that must be designated by the 

Initiating Member, which may be no 

less than three seconds and no more 

than five minutes. Similar to the 

exposure interval for electronic FLEX 

Auctions in Section 11(b) and the FLEX 

PIM Auction period in Section 12(c)(3) 

as discussed above, the Initiating 

Member will be required to identify a 

length of time within the specified 

parameters for FLEX SOM as there will 

be no default for the FLEX SOM 

Auction period. Otherwise, their FLEX 

Order will be rejected by the System. 

Further, if the designated length of the 

FLEX SOM Auction period exceeds the 

market close, then the auction will end 

at the market close with an execution, 

if an execution is permitted by this 

Section 13. Cboe’s rule does not specify 

whether an execution (if permitted) 

would occur if the designated length 

exceeds the market close. However, the 

Exchange’s non-FLEX auctions 

currently allow executions (as permitted 

by their respective rules) to occur in 

such scenarios, so the Exchange 

proposes to be consistent with current 


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172While this behavior is not explicitly stated in 

the current Rules, the Exchange’s proposal will be 

consistent with current non-FLEX auction behavior, 

including current PIM and SOM behavior. 

173This feature is not explicitly stated in the 

current SOM rules in Options 3, Section 11(d), but 

it is consistent with current SOM functionality. 

174See proposed Options 3A, Section 13(c)(5), 

which is based on Cboe Rule 5.74(c)(5). 

175See proposed Options 3A, Section 13(c)(5)(A), 

which is based on Cboe Rule 5.74(c)(5)(A) except 

the Exchange will not allow prices to be expressed 

as a percentage value. 

176See proposed Options 3A, Section 13(c)(5)(B), 

which will be different from Cboe Rule 5.74(c)(5)(B) 

because the Exchange will not allow Members to 

submit multiple FLEX SOM responses using the 

same badge/mnemonic, and will not aggregate all of 

the Member’s FLEX SOM responses. While the 

Exchange’s standard non-FLEX rules are currently 

silent in this regard, the Exchange is making these 

concepts clear in the proposed FLEX language. 

Ultimately the Exchange’s proposed FLEX SOM 

functionality in this regard will align to current 

non-FLEX auction functionality, including SOM 

auctions in Options 3, Section 11(d). 

177See proposed Options 3A, Section 13(c)(5)(C), 

which is based on Cboe Rule 5.74(c)(5)(C) except 

the Exchange will not allow Members to submit 

multiple FLEX SOM responses using the same 

badge/mnemonic, and will not aggregate all of the 

Member’s FLEX SOM responses. As noted above, 

this will align to current non-FLEX auction 

functionality, including SOM auctions in Options 3, 

Section 11(d). 

178See proposed Options 3A, Section 13(c)(5)(D), 

which is materially identical to Cboe Rule 

5.74(c)(5)(D). 

179See proposed Options 3A, Section 13(c)(5)(E), 

which is materially identical to Cboe Rule 

5.74(c)(5)(E). 

180See proposed Options 3A, Section 13(c)(5)(F), 

which is materially identical to Cboe Rule 

5.74(c)(5)(F). 

181See Cboe Rule 5.74(d) for similar provisions, 

except the Exchange will make a minor clarification 

that this rule applies when the Exchange halts 

trading in the affected underlying (and not series, 

which is what Cboe currently has in its rule). 

182See Cboe Rule 5.74(e) for similar provisions 

except the Exchange will not allow prices to be 

expressed as a percentage value. 

183See proposed Section 13(e)(1), which is 

materially identical to Cboe Rule 5.74(e)(1). 

184See proposed Section 13(e)(2)(A), which is 

materially identical to Cboe Rule 5.74(e)(2)(A). 

185See proposed Section 13(e)(2)(B), which is 

materially identical to Cboe Rule 5.74(e)(2)(B). The 

Exchange notes that Size Pro-Rata (as defined in 

Options 3, Section 10(c)) is similar to pro-rata as 

referenced in the Cboe rule (and as defined in Cboe 

Rule 5.32(a)(1)(B)). 

186See proposed Section 13(e)(3), which is 

materially identical to Cboe Rule 5.74(e)(3). 

187See Cboe Rule 5.74(e)(4) for substantially 

similar provisions. 

System functionality in this regard.172

In doing so, the Exchange’s proposal 

will promote executions in FLEX SOM 

(instead of cancelling the FLEX Order) 

while also preventing executions from 

occurring after the market close. 

Proposed Section 13(c)(4) will 

provide that an Initiating Member may 

not modify an Agency Order or 

Solicited Order after submission to a 

FLEX SOM auction. This will be similar 

to Cboe Rule 5.74(c)(4) except unlike 

Cboe, the Exchange will allow Initiating 

Members to cancel their Agency Orders 

and Solicited Orders upon submission 

into a FLEX SOM, which will align with 

current SOM functionality.173

Proposed Section 13(c)(5) will govern 

the requirements for FLEX SOM 

responses. Specifically: 

• Any Member other than the 

Initiating Member (the response cannot 

have the same badge/mnemonic as the 

Agency Order) may submit responses to 

a FLEX SOM auction that are properly 

marked specifying size, side, price, and 

the auction ID for the FLEX SOM 

auction to which the Member is 

submitting the response. A FLEX SOM 

response may only participate in the 

FLEX SOM auction with the auction ID 

specified in the response.174

• The minimum price increment for 

FLEX SOM responses is the same as the 

one the Exchange determines for a class 

pursuant to proposed Section 12(a)(5) 

above. A response to a FLEX SOM 

auction of a complex Agency Order 

must have a net price. The System will 

reject a FLEX SOM response that is not 

in the applicable minimum 

increment.175

• A Member using the same badge/ 

mnemonic may only submit a single 

FLEX SOM response per auction ID for 

a given auction. If an additional SOM 

response is submitted for the same 

auction ID from the same badge/ 

mnemonic, then that FLEX SOM 

response will automatically replace the 

previous FLEX SOM response.176

• The System will cap the size of a 

FLEX SOM response at the size of the 

Agency Order (i.e., the System will 

ignore size in excess of the size of the 

Agency Order when processing the 

FLEX SOM auction).177

• FLEX SOM responses must be on 

the opposite side of the market as the 

Agency Order. The System rejects a 

FLEX SOM response on the same side 

of the market as the Agency Order.178

• FLEX SOM responses will not be 

visible to FLEX SOM auction 

participants or disseminated to 

OPRA.179

• A Member may modify or cancel its 

FLEX SOM responses during a FLEX 

SOM auction.180

Pursuant to proposed Section 13(d), a 

FLEX SOM auction concludes at the 

earliest to occur of the following times: 

(1) the end of the FLEX SOM auction 

period; and (2) any time the Exchange 

halts trading in the affected underlying, 

provided, however, that in such 

instance the FLEX SOM auction 

concludes without execution.181

Proposed Section 13(e) will govern 

how executions will occur in FLEX 

SOM. In particular, at the end of the 

FLEX SOM auction, the System will 

execute the Agency Order against the 

Solicited Order or FLEX SOM responses 

at the best price(s) as follows. For 

purposes of ranking the Solicited Order 

and FLEX SOM responses when 

determining how to allocate the Agency 

Order against the Solicited Order and 

those responses, the term ‘‘price’’ refers 

to the dollar and decimal amount of the 

order or response bid or offer.182

Proposed subparagraphs (e)(1)–(3) detail 

the FLEX SOM allocation methodology 

for the following scenarios: 

• Execution Against Solicited Order: 

The System executes the Agency Order 

against the Solicited Order at the stop 

price if there are no Priority Customer 

FLEX SOM responses and the aggregate 

size of FLEX SOM responses at an 

improved price(s) is insufficient to 

satisfy the Agency Order.183

• Execution Against FLEX SOM 

Responses: The System executes the 

Agency Order against FLEX SOM 

responses if (1) there is a Priority 

Customer FLEX SOM response and the 

aggregate size of that response and all 

other FLEX SOM responses is sufficient 

to satisfy the Agency Order or (2) the 

aggregate size of FLEX SOM responses 

at an improved price(s) is sufficient to 

satisfy the Agency Order. The Agency 

Order executes against FLEX SOM 

responses at each price level. At the 

price at which the balance of the 

Agency Order can be fully executed, in 

the following order: 

• Priority Customer FLEX SOM 

responses (in time priority); 184 and 

• All other FLEX SOM responses, 

allocated on a Size Pro-Rata basis (as 

defined in Options 3, Section 10(c)).185

• No Execution: The System will 

cancel the Agency Order and Solicited 

Order with no execution if there is a 

Priority Customer FLEX SOM response 

and the aggregate size of that response 

and other FLEX SOM responses is 

insufficient to satisfy the Agency 

Order.186

Pursuant to proposed Section 12(e)(4), 

the System cancels any unexecuted 

FLEX SOM responses (or unexecuted 

portions) at the conclusion of a FLEX 

SOM auction.187

Lastly, the Exchange proposes a 

number of policies applicable to FLEX 

SOM as Supplementary Materials to 

Options 3A, Section 13. Specifically, 

proposed Supplementary Material .01 

will provide that prior to entering 

Agency Orders into a FLEX SOM 

auction on behalf of customers, 

Initiating Members must deliver to the 

customer a written notification 

informing the customer that its order 


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188See Cboe Rule 5.74, Interpretations and 

Policies .01 for materially identical provisions. 

189See Cboe Rule 5.74, Interpretations and 

Policies .02 for similar provisions. The Exchange is 

also adding a prohibition against solicited contraside orders being for the account of an Exchange 

Market Maker assigned to the options class to align 

with the current prohibition in Supplementary 

Material .03 to Options 3, Section 11. 

190The Exchange notes that it is not proposing to 

add the provision from Cboe Rule 5.74, 

Interpretations and Policies .03 that states: ‘‘A FLEX 

Official may nullify a transaction following a FLEX 

SAM Auction pursuant to Rule 5.75(b).’’ Because 

the FLEX Official is a floor concept and the 

Exchange does not operate a trading floor, the 

Exchange will not incorporate this concept into its 

proposed FLEX rules. Instead, the Exchange will 

System-enforce this provision by rejecting a FLEX 

SAM auction that does not comply with the 

provisions in proposed Options 3A, Section 13. 

191See Supplementary Material .09 to Options 3, 

Section 11. 

192Size Limitation for simple orders is a limit on 

the number of contracts an incoming order may 

specify. Orders that exceed the maximum number 

of contracts are rejected. The maximum number of 

contracts, which shall not be less than 10,000, is 

established by the Exchange from time-to-time. See 

Options 3, Section 15(a)(2)(B). 

193As set out in Options 3, Section 15(a)(1)(C), 

the Market Wide Risk Protection will have counting 

programs that will maintain separate counts, over 

rolling time periods specified by the Member for 

each count, of: (1) the total number of orders 

entered in the regular order book; (2) the total 

number of orders entered in the complex order book 

with only options legs; (3) the total number of 

Stock-Option and Stock-Complex Orders; (4) the 

total number of contracts traded in regular orders; 

(5) the total number of contracts traded in Complex 

Options Orders; and (6) the total number of 

contracts traded in Stock-Option and StockComplex Orders. As applied to FLEX, only items (4) 

through (6) of the foregoing will apply. Items (1) 

through (3) will not apply to FLEX because there 

is no order book for FLEX. The Exchange notes that 

Options 3, Section 15(a)(1)(C)(5) (i.e., item (5) of the 

foregoing) presently refers to Stock-Option and 

Stock Complex Orders, instead of Complex Options 

Orders. However, ISE will file a clean-up 

amendment so that subparagraph (5) will refer 

instead to Complex Options Orders. This clean-up 

will align ISE’s rule to MRX Options 3, Section 

15(a)(1)(C). 

194Size Limitation for complex orders is a limit 

on the number of contracts (and shares in the case 

of a Stock-Option Strategy or Stock-Complex 

Strategy) any single leg of an incoming Complex 

Order may specify. Orders that exceed the 

maximum number of contracts (or shares) are 

rejected. The maximum number of contracts (or 

shares), which shall not be less than 10,000 (or 

100,000 shares), is established by the Exchange 

from time-to-time. See Options 3, Section 16 (c)(2). 

195The Exchange amended the Price Limits for 

Complex Order protections in Options 3, Section 

16(a) for its standard non-FLEX complex market as 

part of the technology migration to enhanced 

Nasdaq functionality discussed above. See supra 

note 11. See also Securities Exchange Act Release 

No. 98066 (August 7, 2023), 88 FR 54672 (August 

11, 2023) (SR–ISE–2023–13). 

196The Exchange introduced the Stock-Tied 

NBBO protections in Options 3, Section 16(d) for 

its standard non-FLEX complex market as part of 

the technology migration to enhanced Nasdaq 

functionality discussed above. See supra note 11. 

See also Securities Exchange Act Release No. 98066 

(August 7, 2023), 88 FR 54672 (August 11, 2023) 

(SR–ISE–2023–13). 

197The Exchange introduced the Stock-Tied Reg 

SHO protections in Options 3, Section 16(e) for its 

standard non-FLEX complex market as part of the 

technology migration to enhanced Nasdaq 

functionality discussed above. See supra note 11. 

See also Securities Exchange Act Release No. 98066 

(August 7, 2023), 88 FR 54672 (August 11, 2023) 

(SR–ISE–2023–13). 

198The Vertical Spread Protection will apply to 

a vertical spread. A vertical spread is an order to 

buy a call (put) option and to sell another call (put) 

option in the same security with the same 

expiration but at a higher (lower) strike price. See 

Options 3, Section 16(b)(1). 

199The Calendar Spread Protection will apply to 

a Calendar Spread. A calendar spread is an order 

to buy a call (put) option with a longer expiration 

and to sell another call (put) option with a shorter 

expiration in the same security at the same strike 

price. See Options 3, Section 16(b)(2). 

200The Butterfly Spread Protection will apply to 

a butterfly spread. A butterfly spread is a three 

legged Complex Order with the following: (1) two 

legs to buy (sell) the same number of calls (puts); 

(2) one leg to sell (buy) twice the number of calls 

(puts) with a strike price at mid-point of the two 

legs to buy (sell); (3) all legs have the same 

expiration; and (4) each leg strike price is 

equidistant from the next sequential strike price. 

See Options 3, Section 16(b)(3). 

201The Box Spread Protection will apply to a box 

spread. A box spread is a four legged Complex 

Order with the following: (1) one pair of legs with 

the same strike price with one leg to buy a call (put) 

and one leg to sell a put (call); (2) a second pair 

of legs with a different strike price from the pair 

described in (1) with one leg to sell a call (put) and 

one leg to buy a put (call); (3) all legs have the same 

expiration; and (4) all legs have equal volume. See 

Options 3, Section 16(b)(4). 

may be executed using the FLEX SOM 

Auction. The written notification must 

disclose the terms and conditions 

contained in this Rule and be in a form 

approved by the Exchange.188 Proposed 

Supplementary Material .02 will 

provide that under this Rule, Initiating 

Members may enter contra-side orders 

that are solicited. FLEX SOM provides 

a facility for Members that locate 

liquidity for their customer orders. 

Members may not use the FLEX SOM 

auction to circumvent Options 3, 

Section 22(b) limiting principal 

transactions. This may include, but is 

not limited to, Members entering contraside orders that are solicited from (1) 

affiliated broker-dealers, or (2) brokerdealers with which the Member has an 

arrangement that allows the Member to 

realize similar economic benefits from 

the solicited transaction as it would 

achieve by executing the customer order 

in whole or in part as principal. 

Additionally, any solicited contra-side 

orders entered by Members to trade 

against Agency Orders may not be for 

the account of an Exchange Market 

Maker that is assigned to the options 

class.189 Lastly, proposed 

Supplementary Material .03 will 

provide that if an allocation would 

result in less than one contract, then one 

contract will be allocated.190 This aligns 

to how the Exchange currently allocates 

contracts in SOM.191

O. Risk Protections (Section 14) 

The Exchange proposes in Options 

3A, Section 14 to specify which of the 

Exchange’s risk protections apply to 

FLEX trading. Risk protections are 

protections in our System to help 

minimize risk. The risk protections 

specified in proposed Options 3A, 

Sections 14(a) and 14(b) are mandatory 

whereas the risk protections specified in 

proposed Options 3A, Section 14(c) are 

optional. Proposed Section 14(a) will 

provide that the following simple order 

risk protections (as described in Options 

3, Section 15) are available to FLEX 

Options: Market Wide Risk Protection 

and Size Limitation.192 As set forth in 

Options 3, Section 15(a)(1)(C), Market 

Wide Risk Protections are mandatory 

activity-based protections that allow 

Members to establish limits for order 

entry and execution rate during a 

specified period of time. The System 

maintains separate counts for each of 

the thresholds specified in the rule over 

rolling periods of time.193 Upon 

triggering the specified limits, the 

System will either delete all open orders 

and prevent entry of new orders for the 

Member, or prevent entry of new orders 

for the Member. Similar to how Market 

Wide Risk Protection assists Members in 

better managing their risk in the 

standard non-FLEX market on ISE 

today, the Exchange believes that 

applying Market Wide Risk Protection 

to its FLEX market will be beneficial for 

Members using FLEX trading. 

Proposed Section 14(b) will provide 

that the following complex order risk 

protections (as described in Options 3, 

Section 16) are available to FLEX 

Options: Strategy Protections (only to 

FLEX Auctions and FLEX responses in 

proposed Options 3A, Section 11(b)), 

Size Limitation,194 the Price Limit for 

Complex Order protections as appliable 

to the stock component (as described in 

Options 3, Section 16(a)),195 the StockTied NBBO protections (as described in 

Options 3, Section 16(d)),196 and the 

Stock-Tied Reg SHO protections (as 

described in Options 3, Section 

16(e)).197

The Strategy Protections listed in 

Options 3, Section 16(b) are the Vertical 

Spread Protection,198 Calendar Spread 

Protection,199 Butterfly Spread 

Protection,200 and Box Spread 

Protection.201 These Strategy 

Protections are all aimed at preventing 

the potential execution of the specified 

complex strategies (i.e., vertical spread, 

calendar spread, butterfly spread, and 

box spread) outside of specified price 

parameters in order to prevent 

executions at undesirable prices. Today, 

Strategy Protections do not apply to 


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202See Options 3, Section 16(b), which describes 

the non-applicability of the Strategy Protections to 

certain auction mechanisms. See also Securities 

Exchange Act Release No. 100743 (August 16, 

2024), 89 FR 68014 (August 22, 2024) (SR–ISE– 

2024–39) (effective but not yet operative). As 

amended by SR–ISE–2024–39, Options 3, Section 

16(b) would provide that the Strategy Protections 

will not apply when a standard non-FLEX complex 

order includes at least one p.m.-settled leg and at 

least one a.m.-settled leg. This would likewise be 

true for complex FLEX Orders (i.e., the Strategy 

Protections would not apply when a complex FLEX 

Order includes at least one p.m.-settled leg and at 

least one a.m.-settled leg). 

203Specifically, Options 3, Section 16(a) states 

that as provided in Options 3, Section 14(d)(2), the 

legs of a complex strategy may be executed at prices 

that are inferior to the prices available on other 

exchanges trading the same options series. 

Notwithstanding, the System will not permit any 

leg of a complex strategy to trade through the NBBO 

for the series or any stock component by a 

configurable amount calculated as the lesser of (i) 

an absolute amount not to exceed $0.10, and (ii) a 

percentage of the NBBO not to exceed 500%, as 

determined by the Exchange on a class, series or 

underlying basis. A Member can also include an 

instruction on a Complex Order that each leg of the 

Complex Order is to be executed only at a price that 

is equal to or better than the NBBO for the options 

series or any stock component, as applicable (‘‘DoNot-Trade-Through’’ or ‘‘DNTT’’). As discussed 

later in this filing, the NBBO price limit for the 

option series will not apply to complex FLEX 

orders; however, the NBBO price limit for the stock 

component will apply. 

204Specifically, Options 3, Section 16(d) provides 

that for Complex Orders in Stock-Option Strategies 

and Stock-Complex Strategies, the Exchange shall 

electronically communicate the underlying security 

component of a Complex Order to Nasdaq 

Execution Services, LLC (‘‘NES’’), its designated 

broker dealer, for immediate execution. Such 

execution and reporting will not occur on the 

Exchange and will be handled by NES pursuant to 

applicable rules regarding equity trading. NES will 

ensure that the execution price is within the highlow range for the day in that stock at the time the 

Complex Order is processed and within a certain 

price from the current market pursuant to Options 

3, Section 16(a). If the stock price is not within 

these parameters, the Complex Order is not 

executable and the Exchange will hold the Complex 

Order on the Order Book, if consistent with Member 

instructions. This risk protection will apply 

wholesale to complex FLEX Orders with a stock 

component. 

205Specifically, Options 3, Section 16(e) provides 

that when the short sale price test in Rule 201 of 

Regulation SHO is triggered for a covered security, 

NES will not execute a short sale order in the 

underlying covered security component of a 

Complex Order if the price is equal to or below the 

current national best bid. However, NES will 

execute a short sale order in the underlying covered 

security component of a Complex Order if such 

order is marked ‘‘short exempt,’’ regardless of 

whether it is at a price that is equal to or below the 

current national best bid. If NES cannot execute the 

underlying covered security component of a 

Complex Order in accordance with Rule 201 of 

Regulation SHO, the Exchange will hold the 

Complex Order on the Complex Order Book, if 

consistent with Member instructions. The order 

may execute at a price that is not equal to or below 

the current national best bid. For purposes of this 

paragraph, the term ‘‘covered security’’ shall have 

the same meaning as in Rule 201(a)(1) of Regulation 

SHO. This risk protection will apply wholesale to 

complex FLEX Orders with a stock component. 

206The Exchange introduced the optional risk 

protections in Options 3, Section 28 as part of the 

technology migration to enhanced Nasdaq 

functionality discussed above. See Securities 

Exchange Act Release No. 96818 (February 6, 2023), 

88 FR 8950 (February 10, 2023) (SR–ISE–2023–06). 

207The Nasdaq ISE Order Feed (‘‘Order Feed’’) 

provides information on new orders resting on the 

book (e.g. price, quantity and market participant 

capacity). In addition, the feed also announces all 

auctions. The data provided for each option series 

includes the symbols (series and underlying 

security), put or call indicator, expiration date, the 

strike price of the series, and whether the option 

series is available for trading on ISE and identifies 

if the series is available for closing transactions 

only. The feed also provides order imbalances on 

opening/reopening. 

orders and responses submitted into 

non-FLEX PIM and non-FLEX SOM.202

The Exchange will align this application 

to FLEX such that Strategy Protections 

would only apply to FLEX Auctions and 

FLEX responses in proposed Section 

11(b) as described above, and not to 

FLEX Orders and responses submitted 

into FLEX PIM and FLEX SOM. 

As noted above, the Exchange 

adopted the Price Limit for Complex 

Order protections in Options 3, Section 

16(a),203 the Stock-Tied NBBO 

protections in Options 3, Section 

16(d),204 and the Stock-Tied Reg SHO 

protections in Options 3, Section 

16(e) 205 (collectively, the ‘‘Stock-Tied 

Risk Protections’’) as part of SR–ISE– 

2023–13 for its standard non-FLEX 

complex market. The Exchange is now 

proposing to apply the Stock-Tied Risk 

Protections to complex FLEX Orders to 

the extent the complex FLEX Order has 

a stock component. The Price Limits for 

Complex Orders in Options 3, Section 

16(a) seek to prevent complex 

executions from occurring outside of 

certain price limits that are tied to the 

NBBO for the options series or for any 

stock component. Because there will be 

no book for FLEX trading (and therefore 

no NBBO for the FLEX Options series), 

the Exchange will not apply the price 

limit protection tied to the NBBO for the 

options series for FLEX trading. To the 

extent the complex FLEX Order has a 

stock component, the Exchange will 

only apply the price limit protection 

tied to the NBBO for the stock 

component. The below is an example of 

how the Exchange will apply the 

Options 3, Section 16(a) price protection 

to complex FLEX Orders. 

Scenario illustrating applicability of 

the stock buffer described in Options 3, 

Section 16(a) Price Limits for Complex 

Orders: 

IBM Underlying/Stock NBBO is 1.00 × 

2.00 

Stock buffer is configured to the lesser 

of $0.05 or 5% 

FLEX Option NBBO does not exist, but 

the minimum trading increment/ 

minimum price variation (MPV) for 

option leg executions is $0.01 

• FLEX Auction is entered in a StockComplex Strategy encompassing 2 IBM 

FLEX Put options: Buy 1 Put (FLEX 

option leg A) + Buy 1 Put (FLEX option 

leg B) + Buy 100 shares IBM stock: Buy 

110 units of the A + B + Stock strategy 

@net price of $1.02. 

• A firm responds to Sell 110 @net 

price of $0.89. 

FLEX Auction timer passes & auction 

concludes 

• The firm’s response trades with the 

FLEX Auction order 110 @net price of 

$0.97 because the stock component 

cannot trade at any price lower than 

$0.95 ($1.00¥$0.05 [price limit for 

stock component] = $0.95) and the 

FLEX option legs cannot trade at any 

price lower than $0.01 as this is the 

minimum trading increment for option 

legs; therefore, the minimum stock price 

of $0.95 plus the $0.01 minimum option 

leg price means that, despite the $0.89 

limit price on the response, the strategy 

cannot trade below $0.97 ($0.95 + 

[$0.01*2 legs]). 

As it relates to the other Stock-Tied 

Risk Protections (i.e., the Stock-Tied 

NBBO protections and the Stock-Tied 

Reg SHO protections), these will apply 

wholesale to complex FLEX Orders with 

a stock component as noted above. 

Proposed Section 14(c) will provide 

that the optional risk protections in 

Options 3, Section 28 are available to 

FLEX Options.206 In particular, the 

following are optional risk protections 

in Options 3, Section 28: (1) notional 

dollar value per order (which will be 

calculated as quantity multiplied by 

limit price multiplied by number of 

underlying shares), (2) daily aggregate 

notional dollar value, (3) quantity per 

order, and (4) daily aggregate quantity. 

In sum, Members may set thresholds for 

each of the foregoing protections in 

order to limit the quantity and notional 

value they can send per order and on 

aggregate for the day. 

P. Data Feeds (Section 15) 

The Exchange proposes to specify in 

Options 3A, Section 15 which data 

feeds it will disseminate auction 

notifications for simple and complex 

FLEX Orders. Proposed Section 15(a) 

will provide that auction notifications 

for simple FLEX Orders will be 

disseminated through the Order Feed, as 

described in Options 3, Section 

23(a)(2).207 Proposed Section 15(b) will 

provide that auction notifications for 

complex FLEX Orders will be 

disseminated through the Spread Feed, 

as described in Options 3, Section 


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208Nasdaq ISE Spread Feed (‘‘Spread Feed’’) is a 

feed that consists of: (1) options orders for all 

Complex Orders (i.e., spreads, buy-writes, delta 

neutral strategies, etc.); (2) data aggregated at the 

top five price levels (BBO) on both the bid and offer 

side of the market; (3) last trades information. The 

Spread Feed provides updates, including prices, 

side, size and capacity, for every Complex Order 

placed on the ISE Complex Order book. The Spread 

Feed shows: (1) aggregate bid/ask quote size; (2) 

aggregate bid/ask quote size for Professional 

Customer Orders; and (3) aggregate bid/ask quote 

size for Priority Customer Orders for ISE traded 

options. The feed also provides Complex Order 

auction notifications. The Exchange notes that as 

applied to FLEX, the majority of the data elements 

in the Spread Feed will not applicable to FLEX 

Options (e.g., data aggregated at the top five price 

levels (BBO) on both the bid and offer side of the 

market and aggregate bid/ask quote size). While 

other data elements (e.g., options orders for all 

Complex Orders and last trades information) also 

apply to FLEX, the Exchange is pointing out auction 

notifications in the proposed rule to be transparent 

about the most salient feature for complex FLEX 

Orders. 

209For example, at the commencement of a 

standard, non-FLEX PIM auction, the Exchange 

sends a broadcast message (i.e., auction 

notification) that includes the series, price and size 

of the Agency Order, and whether it is to buy or 

sell, through the Order Feed. See Options 3, Section 

13(c). 

210For example, at the commencement of a FLEX 

PIM Auction, the Exchange would send FLEX PIM 

Auction notification message detailing the side, 

size, auction ID, the length of the FLEX PIM 

Auction period, and FLEX Option series or complex 

strategy, as applicable, of the Agency Order to all 

Members that elect to receive FLEX PIM Auction 

notification messages. See proposed Options 3A, 

Section 12(c)(2). 

211See Cboe Rule 3.58(c) for materially identical 

provisions. 

212The Exchange notes that this requirement is 

based on Phlx Options 8, Section 34(d)(1), which 

currently states that only the Lead Market Maker in 

the non-FLEX option may be the assigned Specialist 

in that FLEX option. Primary Market Maker on ISE 

is analogous to a Lead Market Maker on Phlx. 

213See supra note 68 describing SQF features 

available in the Exchange’s non-FLEX market today 

(including the ability for Market Makers to 

currently send auction responses). As discussed 

above, the Exchange is proposing to also allow 

FLEX auction responses through SQF. 

214See Cboe Rule 5.57 for similar provisions 

related to FLEX Market Makers. The Exchange will 

not impose continuing quoting obligations on FLEX 

Market Makers (similar to Cboe) given that such 

obligations are relevant for book trading. As 

discussed above, there will be no book trading for 

FLEX Options. As discussed above, the Exchange 

will not incorporate provisions related to FLEX 

Officials like Cboe as this is generally a floor trading 

concept and the Exchange does not have a trading 

floor. 

215Options 6, Section 4 provides that no Market 

Maker shall make any transactions on the Exchange 

unless a Letter of Guarantee has been issued for 

such Member by a Clearing Member and filed with 

the Exchange, and unless such Letter of Guarantee 

has not been revoked pursuant to paragraph (c) of 

this Rule. A Letter of Guarantee shall provide that 

the issuing Clearing Member accepts financial 

responsibilities for all Exchange Transactions made 

by the guaranteed Member. 

216Options 4A, Sections 6 and 7 presently set 

forth the position limits for broad-based and 

industry index options, respectively. 

217This separate same side position limit for 

broad-based FLEX Index Options (except for the 

ones noted below) is based on the Exchange’s same 

side position limit for its standard market as set 

forth in Options 4A, Section 6(a). 

218As such the following broad-based index 

options listed in Options 4A, Section 6(a) will have 

no position limits for FLEX Index Options: options 

on the Nasdaq 100 Index, Mini Nasdaq 100 Index, 

Nations VolDex Index, Nasdaq 100 Reduced Value 

Index, and Nasdaq Micro Index Options. 

219See Options 4A, Section 9(a)(13) (setting forth 

the same reporting requirements for the Exchange’s 

standard non-FLEX index options market). See also 

Cboe Rule 8.35(b) for similar reporting 

requirements. 

23(a)(5).208 The Exchange notes that this 

aligns to current functionality where 

simple auction notifications are 

disseminated over the Order Feed and 

complex auction notifications are 

disseminated over the Spread Feed. 

Today, simple and complex auction 

notifications inform Members that an 

auction order has been accepted by the 

System and that an auction is 

commencing. Auction notifications also 

contain all of the relevant information 

Members need to respond to that 

particular auction.209 As proposed, the 

simple and complex FLEX auction 

notifications will likewise inform 

Members that a FLEX auction order has 

been accepted by the System, a FLEX 

auction is commencing, and will also 

contain all of the relevant information 

Members need to respond to that 

particular FLEX auction.210 The FLEX 

auction notifications will specify that a 

particular auction is FLEX versus nonFLEX. As is the case today for non-FLEX 

auctions, FLEX auction notifications 

disseminated over the Order Feed and 

the Spread Feed will be available to all 

Members that elect to receive such 

notification messages. 

Q. FLEX Market Makers (Section 16) 

Proposed Section 16 will govern 

FLEX Market Makers on the Exchange. 

Pursuant to proposed Section 16(a), a 

FLEX Market Maker will automatically 

receive an appointment in the same 

FLEX option class(es) as its non-FLEX 

class appointments selected pursuant to 

Options 2, Section 3.211 Only the 

Primary Market Maker in the non-FLEX 

Option may be the assigned Primary 

Market Maker in that FLEX Option.212

Today, in order for Market Makers to 

submit auction responses in option 

classes through SQF, they need to be 

appointed to that option class.213 As 

such, the Exchange is automatically 

carrying over the FLEX Market Maker’s 

non-FLEX options class appointment as 

its FLEX option class appointment in 

order to allow the FLEX Market Maker 

to respond to the electronic FLEX 

Auction, FLEX PIM, and FLEX SOM as 

described above. 

Proposed Section 16(b) will provide 

that each FLEX Market Maker must 

fulfill all the obligations of a Market 

Maker under Options 2 and must 

comply with the applicable provisions, 

except FLEX Market Makers do not need 

to provide continuous quotes in FLEX 

Options.214

R. Letters of Guarantee (Section 17) 

The Exchange proposes in Options 

3A, Section 17(a) to provide that no 

FLEX Market Maker shall effect any 

transaction in FLEX Options unless one 

or more effective Letter(s) of Guarantee 

has been issued by a Clearing Member 

and filed with the Exchange accepting 

financial responsibility for all FLEX 

transactions made by the FLEX Market 

Maker pursuant to Options 6, Section 

4.215

S. Position Limits (Section 18) 

The Exchange proposes to detail the 

position limits for FLEX Options in 

Options 3A, Section 18. As discussed 

below, proposed Section 18 will be 

based on the FLEX Options position 

limit rules on Cboe and its own market. 

Proposed Section 18(a) will govern 

the position limits for FLEX Index 

Options. Specifically, proposed Section 

18(a)(1) will provide that except as 

provided in proposed Section 18(a)(2)– 

(4) below, FLEX Index Options shall be 

subject to the same position limits 

governing index options as provided for 

in Options 4A, Sections 6 and 7.216

Proposed Section 18(a)(2) will provide 

that except as otherwise provided in 

subparagraph (a)(3) of this Rule, in no 

event shall the position limits for broadbased FLEX Index Options exceed 

25,000 contracts on the same side of the 

market.217 Proposed Section 18(a)(3) 

will provide that there shall be no 

position limits for broad-based index 

options listed in Options 4A, Section 

6(a).218 However, each Member (other 

than FLEX Market Makers) that 

maintains a FLEX broad-based index 

option position on the same side of the 

market in excess of 100,000 contracts in 

NDX or RUT for its own account or for 

the account of a customer, shall report 

information as to whether the positions 

are hedged and provide documentation 

as to how such contracts are hedged, in 

the manner and form required by the 

Exchange. In calculating the applicable 

contract-reporting amount, reducedvalue contracts will be aggregated with 

full-value contracts and counted by the 

amount by which they equal a full-value 

contract (e.g., 10 MNX options equal 1 

NDX full-value contract). The Exchange 

may impose other reporting 

requirements as well as the limit at 

which the reporting requirement may be 

triggered.219 Whenever the Exchange 


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220See Options 4A, Section 9(a)(14) (setting forth 

the same stipulation for the Exchange’s standard 

index options market). See also Cboe Rule 8.35(b) 

for similar stipulations. 

221The proposed position limits align to the 

Exchange’s non-FLEX position limits for industry 

index options in Options 4A, Section 7(a)(1). 

222See Cboe Rule 8.35(c)(1)(A) for materially 

identical provisions. Like Cboe, the Exchange’s rule 

will have exceptions for the aggregation of FLEX 

positions (proposed Section 18(c)) and for position 

limits for cash-settled FLEX Equity Options where 

the underlying security is an ETF (proposed Section 

18(b)(1)(B), which will be discussed later in this 

filing). 

223See Cboe Rule 8.35(c)(2) for materially 

identical provisions. 

224Options 6C, Section 5 provides that the 

amount of margin prescribed by these Rules is the 

minimum which must be required initially and 

subsequently maintained with respect to each 

account affected thereby; but nothing in these Rules 

shall be construed to prevent a Member from 

requiring margin in an amount greater than that 

specified. Further, the Exchange may at any time 

impose higher margin requirements with respect to 

such positions when it deems such higher margin 

requirements to be advisable. 

225See Cboe Rule 8.35(c)(3) for materially 

identical provisions. 

226Proposed Section 18(b)(1)(B) will set forth the 

position limits for cash-settled FLEX ETF options 

and will be discussed later in this filing. 

227See Cboe Rule 8.35(d) for materially identical 

provisions. 

228See Cboe Rule 8.35(d)(1) for materially 

identical provisions. 

229The Exchange notes that all FLEX Index 

Options will be cash settled. 

230This is based on Cboe Rule 8.35(d)(2), except 

the Exchange does not currently list Credit Default 

Options and will therefore not incorporate the 

applicable portion into its proposed rule. 

231See Cboe Rule 8.35(d)(3) for materially 

identical provisions. 

232Proposed Section 19(a) is based on Cboe Rule 

8.42(g) except the Exchange will not incorporate 

references to Cboe-specific products like Micro 

FLEX Index Options, FLEX Individual Stock or ETF 

Based Volatility Index Options. Similarly, the 

Exchange will replace the references to Cboespecific broad-based index options like SPX, VIX, 

etc. with the broad-based index options in Options 

4A, Section 6(a), which are similar index products 

on ISE. 

233As such the following broad-based index 

options listed in Options 4A, Section 6(a) will have 

no exercise limits for FLEX Index Options: options 

on the Nasdaq 100 Index, Mini Nasdaq 100 Index, 

Nations VolDex Index, Nasdaq 100 Reduced Value 

Index, and Nasdaq Micro Index Options. 

234See Cboe Rule 8.42(g)(1) for materially 

identical provisions. 

235See Cboe Rule 8.42(g)(2) for materially 

identical provisions. 

determines that additional margin is 

warranted in light of the risks associated 

with an under-hedged FLEX NDX or 

RUT options position, the Exchange 

may impose additional margin upon the 

account maintaining such under-hedged 

position pursuant to its authority under 

Options 6C, Section 5. The clearing firm 

carrying the account also will be subject 

to capital charges under Rule 15c3–1 

under the Exchange Act to the extent of 

any margin deficiency resulting from 

the higher margin requirements.220

Proposed Section 18(a)(4) will 

provide that industry-based FLEX Index 

Options shall be subject to separate 

position limits of 18,000, 24,000, or 

31,500 contracts, depending on the 

position limit tier determined pursuant 

to Options 4A, Section 7(a)(1).221

Proposed Section 18(b) will govern 

the position limits for FLEX Equity 

Options. Pursuant to proposed Section 

18(b)(1)(A), there will generally be no 

position limits for FLEX Equity Options 

with the exceptions noted below.222

Pursuant to proposed Section 18(b)(2), 

each Member (other than a Market 

Maker) that maintains a position on the 

same side of the market in excess of the 

standard limit under Options 9, Section 

13 for non-FLEX Equity Options of the 

same class on behalf of its own account 

or for the account of a customer shall 

report information on the FLEX Equity 

option position, positions in any related 

instrument, the purpose or strategy for 

the position, and the collateral used by 

the account. This report shall be in the 

form and manner prescribed by the 

Exchange.223 Pursuant to proposed 

Section 18(b)(3), whenever the 

Exchange determines that a higher 

margin requirement is necessary in light 

of the risks associated with a FLEX 

Equity option position in excess of the 

standard limit for non-FLEX Equity 

options of the same class, the Exchange 

may consider imposing additional 

margin upon the account maintaining 

such under-hedged position, pursuant 

to its authority under Options 6C, 

Section 5.224 Additionally, it should be 

noted that the clearing firm carrying the 

account will be subject to capital 

charges under Rule 15c3–1 under the 

Exchange Act to the extent of any 

margin deficiency resulting from the 

higher margin requirement.225

Proposed Section 18(c) will govern 

the aggregation of FLEX positions. 

Specifically, for purposes of the position 

limits and reporting requirements set 

forth in this Section 18, FLEX Option 

positions shall not be aggregated with 

positions in non-FLEX Options other 

than as provided in this Section 18(c) 

and in Section 18(b)(1)(B),226 and 

positions in FLEX Index Options on a 

given index shall not be aggregated with 

options on any stocks included in the 

index or with FLEX Index Option 

positions on another index.227 Pursuant 

to proposed Section 18(c)(1), 

commencing at the close of trading two 

business days prior to the last trading 

day of the calendar quarter, positions in 

P.M.-settled FLEX Index Options (i.e., 

FLEX Index Options having an exercise 

settlement value determined by the 

level of the index at the close of trading 

on the last trading day before 

expiration) shall be aggregated with 

positions in Quarterly Options Series on 

the same index with the same expiration 

and shall be subject to the position 

limits set forth in Options 4A, Section 

6 or Section 7, as applicable.228

Pursuant to proposed Section 18(c)(2), 

commencing at the close of trading two 

business days prior to the last trading 

day of the week, positions in FLEX 

Index Options that are cash settled 229

shall be aggregated with positions in 

Short Term Option Series on the same 

underlying (e.g., same underlying index 

as a FLEX Index Option) with the same 

means for determining exercise 

settlement value (e.g., opening or 

closing prices of the underlying index) 

and same expiration, and shall be 

subject to the position limits set forth in 

Options 4A, Section 6 (for broad-based 

index options) or Section 7 (for narrowbased index options), as applicable.230

Pursuant to proposed Section 18(c)(3), 

as long as the options positions remain 

open, positions in FLEX Options that 

expire on a third Friday-of-the-month 

expiration day shall be aggregated with 

positions in non-FLEX Options on the 

same underlying, and shall be subject to 

the position limits set forth in Options 

4A, Section 6, Options 4A, Section 7, or 

Options 9, Section 13, as applicable, 

and the exercise limits set forth in 

Options 9, Section 15, as applicable.231

T. Exercise Limits (Section 19) 

The Exchange proposes to detail the 

exercise limits for FLEX Options in 

Options 3A, Section 19. As discussed 

below, proposed Section 19 will be 

based on the FLEX Options exercise 

limit rules on Cboe and Phlx. 

Proposed Section 19(a) will provide 

that exercise limits for FLEX Options 

shall be equivalent to the FLEX position 

limits prescribed in proposed Section 

18.232 There shall be no exercise limits 

for broad-based FLEX Index Options 

(including reduced value option 

contracts) on broad-based index options 

listed in Options 4A, Section 6(a).233

Proposed Section 19(a)(1) will require 

that the minimum value size for FLEX 

Equity Option exercises be 25 contracts 

or the remaining size of the position, 

whichever is less.234 Proposed Section 

19(a)(2) will require that the minimum 

value size for FLEX Index Option 

exercises be $1 million Underlying 

Equivalent Value (as defined below) or 

the remaining Underlying Equivalent 

Value of the position, whichever is 

less.235 Proposed Section 19(a)(3) will 

stipulate that except as provided in 


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236As described above, proposed Section 18(c) 

will govern the aggregation of FLEX positions 

generally, while proposed Section 18(b)(1)(B) will 

govern the aggregation of cash-settled FLEX Equity 

Options specifically and that positions in such 

cash-settled FLEX Equity Options will be 

aggregated with positions in physically settled 

options on the same underlying ETF. Cash-settled 

FLEX Equity Options will be discussed later in this 

filing. 

237See Cboe Rule 8.42(g)(3) for materially 

identical provisions. 

238See Phlx Options 8, Section 34(b)(8)(D) for 

materially identical provisions. 

239The Exchange will report FLEX Option trades 

and, if necessary, trade cancellations to OPRA. 

240 ISG is an industry organization formed in 1983 

to coordinate intermarket surveillance among the 

SROs by cooperatively sharing regulatory 

information pursuant to a written agreement 

between the parties. The goal of the ISG’s 

information sharing is to coordinate regulatory 

efforts to address potential intermarket trading 

abuses and manipulations. 241See proposed Options 3A, Section 

3(c)(5)(A)(i). 242See proposed Options 3A, Section 3(c)(5)(B). 

As discussed below, cash settlement is also 

permitted in the OTC market. Trading in cashsettled FLEX ETF Options will not commence until 

the related reporting requirements are finalized. 243See Securities Exchange Act Release No. 

88131 (February 5, 2020), 85 FR 7806 (February 11, 

2020) (SR–NYSEAmer–2019–38) (Notice of Filing of 

Amendment No. 1 and Order Granting Accelerated 

Approval of a Proposed Rule Change, as Modified 

by Amendment No. 1, To Allow Certain Flexible 

Equity Options To Be Cash Settled). 244Cboe also filed an immediately effective rule 

change to allow certain FLEX Options to be cash 

settled. See Securities Exchange Act Release No. 

98044 (August 2, 2023), 88 FR 53548 (August 8, 

2023) (SR–Cboe–2023–036) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

To Allow Certain Flexible Exchange Equity Options 

To Be Cash Settled). 

245As noted below, the Exchange plans to 

conduct the bi-annual review on January 1 and July 

1 of each year. As such, the six-month periods will 

be from January to June, and from July to December 

each year. 

246See Cboe Rule 4.21(b)(5)(A)(ii) for materially 

identical provisions. 

247See introductory paragraph of Cboe Rule 

4.21(b) for materially identical provisions. All nonFLEX Equity Options (including on ETFs) are 

physically settled. Note all FLEX and non-FLEX 

Equity Options (including ETFs) are p.m.-settled. 

248See proposed Options 3A, Section 

3(c)(5)(A)(ii)(a), which is based on Cboe Rule 

4.21(b)(5)(A)(ii)(a). The Exchange plans to conduct 

the bi-annual review on January 1 and July 1 of 

each year. As such, the six-month periods will be 

from January to June, and from July to December 

each year. The results of the bi-annual review will 

be announced via an Options Trader Alert and any 

new securities that qualify would be permitted to 

have cash settlement as a contract term beginning 

on February 1 and August 1 of each year. If the 

Exchange initially begins listing cash-settled FLEX 

proposed Section 18(b)(1)(B) and 

Section 18(c) above,236 FLEX Options 

shall not be taken into account when 

calculating exercise limits for non-FLEX 

Option contracts.237 Lastly, proposed 

Section 19(a)(4) will set forth the 

definition of Underlying Equivalent 

Value as the aggregate value of a FLEX 

Index Option (index multiplier times 

the current index value) multiplied by 

the number of FLEX Index Options.238

U. Capacity and Surveillances 

The Exchange has analyzed its 

capacity and represents that it believes 

the Exchange and the Options Price 

Reporting Authority (‘‘OPRA’’) have the 

necessary systems capacity to handle 

the additional message traffic associated 

with the listing of new series that may 

result from the introduction of FLEX 

Options.239

Additionally, the Exchange believes it 

has an adequate surveillance program in 

place and intends to apply the same 

program procedures to FLEX Options 

that is applied to the Exchange’s other 

options products, as applicable. FLEX 

Option products and their respective 

symbols will be integrated into the 

Exchange’s existing surveillance system 

architecture and will be subject to the 

relevant surveillance processes. The 

Exchange believes that any potential 

risk of manipulative activity is mitigated 

by these existing surveillance 

technologies, procedures, and reporting 

requirements, which allow the 

Exchange to properly identify disruptive 

and/or manipulative trading activity. 

Additionally, taking into consideration 

that FLEX Options have unique 

characteristics, the Exchange has 

reviewed its catalog of patterns and 

updated a number of patterns to include 

FLEX Options transactions for when 

they begin trading. The Exchange will 

periodically review its surveillance 

procedures and make any changes that 

the Exchange believes are necessary for 

FLEX trading. 

As discussed in more detail in the 

‘‘Cash-Settled FLEX ETFs’’ section 

below, the Exchange is also a member 

of the Intermarket Surveillance Group 

(‘‘ISG’’),240 and works with other selfregulatory organizations and exchanges 

on intermarket surveillance related 

issues through its participation in the 

ISG. As discussed in the ‘‘Cash-Settled 

FLEX ETFs’’ section below, the 

Exchange and all other ISG members 

can and do share information for 

regulatory purposes. 

V. Cash-Settled FLEX ETFs 

The Exchange proposes to include 

rule text in proposed Options 3A, 

Section 3(c) and Section 18, each as 

discussed above, to allow for cash 

settlement of certain FLEX Equity 

Options. Generally, as discussed above, 

FLEX Equity Options will be settled by 

physical delivery of the underlying 

security,241 while all FLEX Index 

Options will be settled by delivery in 

cash.242 The Exchange proposes to 

allow FLEX Equity Options where the 

underlying security is an ETF to be 

settled by delivery in cash if the 

underlying security meets prescribed 

criteria. The Exchange notes that cashsettled FLEX ETF Options will be 

subject to the same trading rules and 

procedures described above that will 

govern the trading of other FLEX 

Options on the Exchange, with the 

exception of the rules to accommodate 

the cash-settlement feature proposed as 

follows. Today, NYSE American Rule 

903G 243 and Cboe Rule 4.21(b)(5)(A) 244

allow for cash-settled FLEX ETF 

Options as well. The Exchange’s 

proposed rule changes for cash-settled 

ETF Options will be based on NYSE 

American Rule 903G and Cboe Rule 

4.21(b)(5)(A). 

To permit cash settlement of certain 

FLEX ETF Options, the Exchange 

proposes rule text in Section 

3(c)(5)(A)(ii) to provide that the exercise 

settlement for a FLEX ETF Option may 

be by physical delivery of the 

underlying ETF or by delivery in cash 

if the underlying security, measured 

over a defined six-month period,245 has 

an average daily notional value of $500 

million or more and a national average 

daily volume (‘‘ADV’’) of at least 

4,680,000 shares.246

The Exchange also proposes in 

Section 3(c) that a FLEX Equity Option 

overlying an ETF (cash- or physicallysettled) may not be the same type (put 

or call) and may not have the same 

exercise style, expiration date, and 

exercise price as a non-FLEX Equity 

Option overlying the same ETF.247 In 

other words, regardless of whether a 

FLEX Equity Option overlying an ETF is 

cash or physically settled, at least one 

of the exercise style (i.e., American-style 

or European-style), expiration date, and 

exercise price of that FLEX Option must 

differ from those terms of a non-FLEX 

Option overlying the same ETF in order 

to list such a FLEX Equity Option. For 

example, suppose a non-FLEX SPY 

option (which is physically settled, 

p.m.-settled and American-style) with a 

specific September expiration and 

exercise price of 475 is listed for 

trading. A FLEX Trader could not 

submit an order to trade a FLEX SPY 

option that is cash-settled (or physically 

settled) and American-style with the 

same September expiration and exercise 

price of 475. 

In addition, the Exchange proposes 

new subparagraph (a) to Section 

3(c)(5)(A)(ii), which would provide that 

the Exchange will determine biannually the underlying ETFs that 

satisfy the notional value and trading 

volume requirements in Section 

3(c)(5)(A)(ii) by using trading statistics 

for the defined six-month period.248 The 


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Equity Options on a different date (e.g., September 

1), it would initially list securities that qualified as 

of the last bi-annual review (e.g., the one conducted 

on July 1). 

249See proposed Options 3A, Section 

3(c)(5)(A)(ii)(a), which is based on Cboe Rule 

4.21(b)(5)(A)(ii)(a). 

250See proposed Section 3(c)(5)(A)(ii)(b), which 

is based on Cboe Rule 4.21(b)(5)(A)(ii)(b). If a listing 

is closing only, pursuant to Options 4, Section 4(a), 

opening transactions by Market Makers executed to 

accommodate closing transactions of other market 

participants are permitted. 

251 ‘‘Authorized Participant’’ means a member or 

participant of a clearing agency registered with the 

Commission, which has a written agreement with 

the exchange-traded fund or one of its service 

providers that allows the authorized participant to 

place orders for the purchase and redemption of 

creation units. See SEC Rule 6c–11(a)(1). 

proposed rule would further provide 

that the Exchange will permit cash 

settlement as a contract term on no more 

than 50 underlying ETFs that meet the 

criteria in this subparagraph (ii) and that 

if more than 50 underlying ETFs satisfy 

the notional value and trading volume 

requirements, then the Exchange would 

select the top 50 ETFs that have the 

highest average daily volume.249

Proposed new subparagraph (b) to 

Section 3(c)(5)(A)(ii) would further 

provide that if the Exchange determines 

pursuant to the bi-annual review that an 

underlying ETF ceases to satisfy the 

requirements under proposed Section 

3(c)(5)(A)(ii), any new position 

overlying such ETF entered into will be 

required to have exercise settlement by 

physical delivery, and any open cashsettled FLEX ETF Option positions may 

be traded only to close the position.250

The Exchange believes it is 

appropriate to introduce cash settlement 

as an alternative contract term to the 

select group of ETFs because they are 

among the most highly liquid and 

actively traded ETF securities. As 

described more fully below, the 

Exchange believes that the deep 

liquidity and robust trading activity in 

the ETFs identified by the Exchange as 

meeting the criteria mitigate against 

historic concerns regarding 

susceptibility to manipulation. 

Characteristics of ETFs 

ETFs are funds that have their value 

derived from assets owned. The net 

asset value (‘‘NAV’’) of an ETF is a daily 

calculation that is based off the most 

recent closing prices of the assets in the 

fund and an actual accounting of the 

total cash in the fund at the time of 

calculation. The NAV of an ETF is 

calculated by taking the sum of the 

assets in the fund, including any 

securities and cash, subtracting out any 

liabilities, and dividing that by the 

number of shares outstanding. 

Additionally, each ETF is subject to a 

creation and redemption mechanism to 

ensure the price of the ETF does not 

fluctuate too far away from its NAV— 

which mechanisms the Exchange 

believes reduce the potential for 

manipulative activity. Each business 

day, ETFs are required to make publicly 

available a portfolio composition file 

that describes the makeup of their 

creation and redemption ‘‘baskets’’ (i.e., 

a specific list of names and quantities of 

securities or other assets designed to 

track the performance of the portfolio as 

a whole). ETF shares are created when 

an Authorized Participant,251 typically a 

market maker or other large institutional 

investor, deposits the daily creation 

basket or cash with the ETF issuer. In 

return for the creation basket or cash (or 

both), the ETF issues to the Authorized 

Participant a ‘‘creation unit’’ that 

consists of a specified number of ETF 

shares. For instance, IWM is designed to 

track the performance of the Russell 

2000 Index. An Authorized Participant 

will purchase all the Russell 2000 

constituent securities in the exact same 

weight as the index prescribes, then 

deliver those shares to the ETF issuer. 

In exchange, the ETF issuer gives the 

Authorized Participant a block of 

equally valued ETF shares, on a one-forone fair value basis. This process can 

also work in reverse. A redemption is 

achieved when the Authorized 

Participant accumulates a sufficient 

number of shares of the ETF to 

constitute a creation unit and then 

exchanges these ETF shares with the 

ETF issuer, thereby decreasing the 

supply of ETF shares in the market. 

The principal, and perhaps most 

important, feature of ETFs is their 

reliance on an ‘‘arbitrage function’’ 

performed by market participants that 

influences the supply and demand of 

ETF shares and, thus, trading prices 

relative to NAV. As noted above, new 

ETF shares can be created and existing 

shares redeemed based on investor 

demand; thus, ETF supply is openended. This arbitrage function helps to 

keep an ETF’s price in line with the 

value of its underlying portfolio, i.e., it 

minimizes deviation from NAV. 

Generally, in the Exchange’s view, the 

higher the liquidity and trading volume 

of an ETF, the more likely the price of 

the ETF will not deviate from the value 

of its underlying portfolio, making such 

ETFs less susceptible to price 

manipulation. 

Trading Data for the ETFs Proposed for 

Cash Settlement 

The Exchange believes that average 

daily notional value is an appropriate 

proxy for selecting underlying securities 

that are not readily susceptible to 

manipulation for purposes of 

establishing a settlement price. Average 

daily notional value considers both the 

trading activity and the price of an 

underlying security. As a general matter, 

the more expensive an underlying 

security’s price, the less cost-effective 

manipulation could become. Further, 

manipulation of the price of a security 

encounters greater difficulty the more 

volume that is traded. To calculate 

average daily notional value (provided 

in the table below), the Exchange 

summed the notional value of each 

trade for each symbol (i.e., the number 

of shares times the price for each 

execution in the security) and divided 

that total by the number of trading days 

in the six-month period (from January 1, 

2024 through June 30, 2024) reviewed 

by the Exchange. 

Further, the Exchange proposes that 

qualifying ETFs also meet an ADV 

standard. The purpose for this second 

criteria is to prevent unusually 

expensive underlying securities from 

qualifying under the average daily 

notional value standard while not being 

one of the most actively traded 

securities. The Exchange believes an 

ADV requirement of 4,680,000 shares a 

day is appropriate because it represents 

average trading in the underlying ETF of 

200 shares per second. While no 

security is immune from all 

manipulation, the Exchange believes 

that the combination of average daily 

notional value and ADV as prerequisite 

requirements would limit cash 

settlement of FLEX ETF Options to 

those underlying ETFs that would be 

less susceptible to manipulation in 

order to establish a settlement price. 


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252The Exchange notes that for the period 

covering January 1, 2024 through June 30, 2024, 

both the Grayscale Bitcoin Trust (GBTC) and 

iShares Bitcoin Trust ETF meet the requirements of 

$500 million or more average daily notional value 

and a minimum ADV of 4,680,000 shares. These 

two ETFs are not listed in the above table because 

as discussed above, the Exchange is prohibiting 

FLEX trading on IBIT options. As it relates to GBTC, 

the Exchange would need to file a 19b–4 rule filing 

with the Commission to list GBTC options on the 

Exchange’s standard non-FLEX market. In the 

event, however, that the Exchange files to list GBTC 

options on its standard non-FLEX market, it would 

still prohibit FLEX trading on GBTC options under 

this proposal. The Exchange will have system 

controls in place to ensure that it will only list 

FLEX Options on ETFs for which it has proper 

authority, even if those ETFs meet the numerical 

eligibility criteria. 

253See, e.g., PHLX FX Options traded on Nasdaq 

PHLX and S&P 500® Index Options traded on Cboe 

Options Exchange. The Commission approved, on 

a pilot basis, the listing and trading of RealDayTM

Options on the SPDR S&P 500 Trust on the BOX 

The Exchange believes that the 

proposed objective criteria would 

ensure that only the most robustly 

traded and deeply liquid ETFs would 

qualify to have cash settlement as a 

contract term. As provided in the below 

table, from January 1, 2024 to June 30, 

2024, the Exchange would be able to 

provide cash settlement as a contract 

term for FLEX ETF Options on 46 

underlying ETFs, as only this group of 

securities would currently meet the 

requirement of $500 million or more 

average daily notional value and a 

minimum ADV of 4,680,000 shares. The 

table below provides the list of the 46 

ETFs that, for the period covering 

January 1, 2024 through June 30, 2024, 

would be eligible to have cash 

settlement as a contract term.252

Symbol Security name 

Average daily 

notional value 

(in dollars) 

(1/1/24–6/30/24) 

Average daily 

volume 

(in shares) 

(1/1/24–6/30/24) 

AGG ............................................. iShares Core U.S. Aggregate Bond ETF .......................................... $ 806,096,032 8,295,918 

ARKK ........................................... ARK Innovation ETF ......................................................................... 588,267,283 12,516,087 

BIL ................................................ SPDR Bloomberg 1–3 Month T-Bill ETF .......................................... 618,700,170 6,753,925 

BND ............................................. Vanguard Total Bond Market Index Fund ETF ................................ 514,223,054 7,130,093 

EEM ............................................. iShares MSCI Emerging Markets ETF ............................................. 1,164,586,979 28,535,696 

EFA .............................................. iShares MSCI EAFE ETF ................................................................. 1,104,421,854 14,216,699 

EMB ............................................. iShares JPMorgan USD Emerging Markets Bond ETF .................... 542,748,575 6,149,042 

EWJ ............................................. iShares MSCI Japan ETF ................................................................. 509,554,399 7,481,823 

EWZ ............................................. iShares MSCI Brazil ETF .................................................................. 683,919,536 21,690,846 

FXI ............................................... iShares China Large-Cap ETF ......................................................... 1,027,752,868 42,009,611 

GDX ............................................. VanEck Gold Miners ETF ................................................................. 774,584,258 24,682,952 

GLD .............................................. SPDR Gold Shares ........................................................................... 1,511,241,142 7,344,884 

HYG ............................................. iShares iBoxx $ High Yield Corporate Bond ETF ............................ 2,850,542,598 37,011,783 

IEF ............................................... iShares 7–10 Year Treasury Bond ETF ........................................... 743,974,086 7,917,457 

IEFA ............................................. iShares Core MSCI EAFE ETF ........................................................ 577,266,076 7,997,376 

IEMG ............................................ iShares Core MSCI Emerging Markets ETF .................................... 519,063,454 10,129,994 

IVV ............................................... iShares Core S&P 500 ETF .............................................................. 2,774,452,994 5,417,239 

IWM .............................................. iShares Russell 2000 ETF ................................................................ 6,731,230,018 33,649,687 

IYR ............................................... iShares U.S. Real Estate ETF .......................................................... 537,339,035 6,177,644 

KRE .............................................. SPDR S&P Regional Banking ETF .................................................. 676,589,675 13,902,921 

KWEB .......................................... KraneShares CSI China Internet ETF .............................................. 555,987,739 20,766,407 

LQD .............................................. Shares iBoxx $ Investment Grade Corporate Bond ETF ................. 3,007,311,016 27,902,549 

NVDL ........................................... GraniteShares 2x Long NVDA Daily ETF ......................................... 682,096,758 11,387,201 

QQQ ............................................. Invesco QQQ Trust ........................................................................... 17,916,413,637 41,065,771 

RSP .............................................. Invesco S&P 500 Equal Weight ETF ................................................ 982,482,303 6,062,567 

SLV .............................................. iShares Silver Trust ........................................................................... 602,178,901 24,515,577 

SMH ............................................. VanEck Semiconductor ETF ............................................................. 1,783,514,710 8,199,564 

SOXL ........................................... Direxion Daily Semiconductor Bull 3x Shares .................................. 2,703,451,838 64,700,251 

SOXS ........................................... Direxion Daily Semiconductor Bear 3x Shares ................................ 695,294,352 92,188,004 

SPXL ............................................ Direxion Daily S&P 500 Bull 3X Shares ........................................... 737,685,244 6,096,062 

SPY .............................................. SPDR S&P 500 ETF Trust ............................................................... 33,559,628,313 66,151,690 

SQQQ .......................................... ProShares UltraPro Short QQQ ETF ................................................ 1,461,906,416 131,905,524 

TLT ............................................... iShares 20+ Year Treasury Bond ETF ............................................. 3,779,166,025 40,682,936 

TNA .............................................. Direxion Daily Small Cap Bull 3X Shares ......................................... 697,479,128 18,832,200 

TQQQ .......................................... ProShares UltraPro QQQ ................................................................. 3,796,209,774 64,941,840 

VCIT ............................................. Vanguard Intermediate-Term Corp Bond Idx Fund ETF .................. 597,752,071 7,484,828 

VEA .............................................. Vanguard Tax Managed Fund FTSE Developed Markets ETF ....... 517,396,977 10,583,858 

VOO ............................................. Vanguard S&P 500 ETF ................................................................... 2,425,398,743 5,177,005 

XBI ............................................... SPDR S&P Biotech ETF ................................................................... 979,943,806 10,728,380 

XLE .............................................. Energy Select Sector SPDR Fund .................................................... 1,411,567,713 15,798,449 

XLF .............................................. Financial Select Sector SPDR Fund ................................................. 1,736,012,363 43,157,138 

XLI ................................................ Industrial Select Sector SPDR Fund ................................................ 1,114,661,946 9,277,779 

XLK .............................................. Technology Select Sector SPDR Fund ............................................ 1,274,025,061 6,202,031 

XLP .............................................. Consumer Staples Select Sector SPDR Fund ................................. 907,491,273 12,108,426 

XLU .............................................. Utilities Select Sector SPDR Fund ................................................... 944,774,031 14,540,920 

XLV .............................................. Health Care Select Sector SPDR Fund ............................................ 1,127,277,467 7,876,680 

The Exchange believes that permitting 

cash settlement as a contract term for 

FLEX ETF Options for the ETFs in the 

above table would broaden the base of 

investors that use FLEX Equity Options 

to manage their trading and investment 

risk, including investors that currently 

trade in the OTC market for customized 

options, where settlement restrictions 

do not apply. 


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Options Exchange LLC (‘‘BOX’’). See Securities 

Exchange Act Release No. 79936 (February 2, 2017), 

82 FR 9886 (February 8, 2017) (‘‘RealDay Pilot 

Program’’). The RealDay Pilot Program was 

extended until February 2, 2019. See Securities 

Exchange Act Release No. 82414 (December 28, 

2017), 83 FR 577 (January 4, 2018) (SR–BOX–2017– 

38). The RealDay Pilot Program was never 

implemented by BOX. See also Securities Exchange 

Act Release Nos. 56251 (August 14, 2007), 72 FR 

46523 (August 20, 2007) (SR–Amex–2004–27) 

(Order approving listing of cash-settled Fixed 

Return Options (‘‘FROs’’)); and 71957 (April 16, 

2014), 79 FR 22563 (April 22, 2014) (SR– 

NYSEMKT–2014–06) (Order approving name 

change from FROs to ByRDs and re-launch of these 

products, with certain modifications. 

254See Securities Exchange Act Release Nos. 

88131 (February 5, 2020), 85 FR 7806 (February 11, 

2020) (SR–NYSEAMER–2019–38) (Order Approving 

a Proposed Rule Change, as Modified by 

Amendment No. 1, to Allow Certain Flexible Equity 

Options To Be Cash Settled); 97231 (March 31, 

2023), 88 FR 20587 (April 6, 2023) (SR– 

NYSEAMER–2023–22) (Notice of Filing and 

Immediate Effectiveness of Proposed Change to 

Make a Clarifying Change to the Term Settlement 

Style Applicable to Flexible Exchange Options); 

and 98044 (August 2, 2023), 88 FR 53548 (August 

8, 2023) (SR-Cboe-2023–036) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

To Allow Certain Flexible Exchange Equity Options 

To Be Cash Settled. 

255The Exchange proposes to add to proposed 

Options 3A, Section 18(b)(1)(A) a cross reference to 

proposed paragraph (c) of Section 18, as proposed 

Section 18(c) also contains provisions about 

position limits for FLEX Equity Options that would 

be exceptions to the statement in proposed Section 

18(b)(1)(A) that FLEX Equity Options have no 

position limits (in addition to the language in 

proposed Section 18(b)(1)(B). The Exchange also 

proposes to add to proposed Section 18(c) a crossreference to proposed subparagraph (b)(1)(B) of 

Section 18, as the proposed rule adds language 

regarding aggregation of positions for purposes of 

position limits, which will be covered in proposed 

Section 18(c). 

256See proposed Options 3A, Section 18(b)(1)(B), 

which is based on Cboe Rule 8.35(c)(1)(B). The 

aggregation of position and exercise limits would 

include all positions on physically settled FLEX 

and non-FLEX Options on the same underlying 

ETFs. 

257Options 9, Section 13(d)(5) provides that to be 

eligible for the 250,000 contract limit, either the 

most recent six (6) month trading volume of the 

underlying security must have totalled at least 100 

million shares or the most recent six-month trading 

volume of the underlying security must have 

totalled at least seventy-five (75) million shares and 

the underlying security must have at least 300 

million shares currently outstanding. Further as 

noted above, options on GBTC and IBIT will not be 

available for FLEX trading. 

258These were based on position limits as of 

September 13, 2024. Position limits are available on 

at https://www.theocc.com. Position limits for ETFs 

are always determined in accordance with the 

Exchange’s Rules regarding position limits. 

259As noted above, other options exchanges have 

received approval to list certain cash-settled FLEX 

ETF Options. See supra notes 243 and 244. 

The Exchange notes that the SEC has 

previously approved a rule filing of 

another exchange that allowed for the 

trading of cash-settled options 253 and, 

specifically, cash-settled FLEX ETF 

Options (which the Exchange proposes 

to list in the same manner as that 

exchange).254

Today, equity options are settled 

physically at The Options Clearing 

Corporation (‘‘OCC’’), i.e., upon 

exercise, shares of the underlying 

security must be assumed or delivered. 

Physical settlement may possess certain 

risks with respect to volatility and 

movement of the underlying security at 

expiration against which market 

participants may need to hedge. The 

Exchange believes cash settlement may 

be preferable to physical delivery in 

some circumstances as it does not 

present the same risk. If an issue with 

the delivery of the underlying security 

arises, it may become more expensive 

(and time consuming) to reverse the 

delivery because the price of the 

underlying security would almost 

certainly have changed. Reversing a 

cash payment, on the other hand, would 

not involve any such issue because 

reversing a cash delivery would simply 

involve the exchange of cash. 

Additionally, with physical settlement, 

market participants that have a need to 

generate cash would have to sell the 

underlying security while incurring the 

costs associated with liquidating their 

position as well as the risk of an adverse 

movement in the price of the underlying 

security. 

With respect to position and exercise 

limits, cash-settled FLEX ETF Options 

would be subject to the position limits 

set forth in proposed Options 3A, 

Section 18. Accordingly, the Exchange 

proposes to add subparagraph (b)(1)(B) 

of Options 3A, Section 18, which would 

provide that a position in FLEX Equity 

Options where the underlying security 

is an ETF that is settled in cash 

pursuant to Options 3A, Section 

3(c)(5)(A)(ii) shall be subject to the 

position limits set forth in Options 9, 

Section 13, and subject to the exercise 

limits set forth in Options 9, Section 

15.255 The proposed rule would further 

state that positions in such cash-settled 

FLEX Equity Options shall be 

aggregated with positions in physically 

settled options on the same underlying 

ETF for the purpose of calculating the 

position limits set forth in Options 9, 

Section 13 and the exercise limits set 

forth in Options 9, Section 15.256 The 

Exchange further proposes to add in 

subparagraph (b)(1)(A) of Section 18 a 

cross-reference to subparagraph (b)(1)(B) 

of Section 18, as subparagraph (b)(1)(B) 

would also contain provisions about 

position limits for FLEX Equity Options 

that would be exceptions to the 

statement in Options 3A, Section 

18(b)(1)(A) that FLEX Equity Options 

have no position limits. The Exchange 

also proposes to add in paragraph (c) of 

Section 18, a cross-reference to 

proposed subparagraph (b)(1)(B), as the 

proposed rule adds language regarding 

aggregation of positions for purposes of 

position limits, which will be covered 

by paragraph (c). Given that each of the 

underlying ETFs that would currently 

be eligible to have cash-settlement as a 

contract term have established position 

and exercise limits applicable to 

physically settled options, the Exchange 

believes it is appropriate for the same 

position and exercise limits to also 

apply to cash-settled options. 

Accordingly, of the 48 underlying 

securities that would currently be 

eligible to have cash settlement as a 

FLEX contract term, 33 would have a 

position limit of 250,000 contracts 

pursuant to Options 9, Section 

13(d)(5).257 Further, pursuant to 

Supplementary Material .01 to Options 

9, Section 13, seven would have a 

position limit of 500,000 contracts (EWJ, 

EWZ, TLT, HYG, XLF, LQD, and GDX); 

four (EEM, FXI, IWM, and EFA) would 

have a position limit of 1,000,000 

contracts; one (QQQ) would have a 

position limit of 1,800,000 contracts; 

and one (SPY) would have a position 

limit of 3,600,000.258

The Exchange understands that cashsettled ETF options are currently traded 

in the OTC market by a variety of 

market participants, e.g., hedge funds, 

proprietary trading firms, and pension 

funds.259 These options are not fungible 

with the exchange listed options. The 

Exchange believes some of these market 

participants would prefer to trade 

comparable instruments on an 

exchange, where they would be cleared 

and settled through a regulated clearing 

agency. The Exchange expects that users 

of these OTC products would be among 

the primary users of exchange-traded 

cash-settled FLEX ETF Options. The 

Exchange also believes that the trading 

of cash-settled FLEX ETF Options 

would allow these same market 

participants to better manage the risk 

associated with the volatility of 

underlying equity positions given the 

enhanced liquidity that an exchangetraded product would bring. 

In the Exchange’s view, cash-settled 

FLEX ETF Options traded on the 

Exchange would have three important 

advantages over the contracts that are 

traded in the OTC market. First, as a 

result of greater standardization of 

contract terms, exchange-traded 

contracts should develop more 

liquidity. Second, counter-party credit 

risk would be mitigated by the fact that 

the contracts are issued and guaranteed 

by OCC. Finally, the price discovery and 

dissemination provided by the 


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260See supra notes 243 and 244. 

261See Securities Exchange Act Release No. 34– 

94910 (May 13, 2022), 87 FR 30531 (May 19, 2022) 

(SR–OCC–2022–003). 

262For example, the regulatory program for the 

Exchange includes surveillance designed to identify 

manipulative and other improper options trading, 

including, spoofing, marking the close, front 

running, wash sales, etc. 

263 ISE maintains a regulatory services agreements 

with Financial Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) whereby FINRA provides certain 

regulatory services to the exchanges, including 

cross-market surveillance, investigation, and 

enforcement services. 

264As it relates to Reg SHO violations, the 

Exchange will enforce this through its Stock-Tied 

Reg SHO price protections in Options 3, Section 

16(e). See supra note 205 for Stock-Tied Reg SHO 

discussion. NES will only execute Stock-Option 

Strategies and Stock-Complex Strategies if the 

underlying covered security component is in 

accordance with Rule 201 of Regulation SHO. 

Additionally, FINRA’s regulatory program 

addresses Reg SHO compliance for its member 

firms (which includes Exchange Members). 

265Such surveillance procedures generally focus 

on detecting securities trading subject to opening 

price manipulation, closing price manipulation, 

layering, spoofing or other unlawful activity 

impacting an underlying security, the option, or 

both. The Exchange has price movement alerts, 

unusual market activity and order book alerts active 

for all trading symbols. 

Exchange and its members would lead 

to more transparent markets. The 

Exchange believes that its ability to offer 

cash-settled FLEX ETF Options would 

aid it in competing with the OTC market 

and at the same time expand the 

universe of products available to 

interested market participants. The 

Exchange believes that an exchangetraded alternative may provide a useful 

risk management and trading vehicle for 

market participants and their customers. 

Further, the Exchange believes listing 

cash-settled FLEX ETF Options would 

provide investors with competition on 

an exchange platform, as other options 

exchanges have received Commission 

approval to list the same options.260

The Exchange notes that OCC has 

received approval from the Commission 

for rule changes that will accommodate 

the clearance and settlement of cashsettled ETF options and is now clearing 

these products.261 The Exchange has 

also analyzed its capacity and 

represents that it and The Options Price 

Reporting Authority (‘‘OPRA’’) have the 

necessary systems capacity to handle 

the additional traffic associated with the 

listing of cash-settled FLEX ETF 

Options. The Exchange believes any 

additional traffic that would be 

generated from the introduction of cashsettled FLEX ETF Options would be 

manageable. The Exchange expects that 

members will not have a capacity issue 

as a result of this proposed rule change. 

The Exchange also does not believe this 

proposed rule change will cause 

fragmentation of liquidity. The 

Exchange will monitor the trading 

volume associated with the additional 

options series listed as a result of this 

proposed rule change and the effect (if 

any) of these additional series on market 

fragmentation and on the capacity of the 

Exchange’s automated systems. 

The Exchange does not believe that 

allowing cash settlement as a contract 

term would render the marketplace for 

equity options more susceptible to 

manipulative practices. The Exchange 

believes that manipulating the 

settlement price of cash-settled FLEX 

ETF Options would be difficult based 

on the size of the market for the 

underlying ETFs that are the subject of 

this proposed rule change. The 

Exchange notes that each underlying 

ETF in the table above is sufficiently 

active to alleviate concerns about 

potential manipulative activity. Further, 

in the Exchange’s view, the vast 

liquidity in the 46 underlying ETFs that 

would currently be eligible to be traded 

as cash-settled FLEX options under the 

proposal ensures a multitude of market 

participants at any given time. 

Moreover, given the high level of 

participation among market participants 

that enter quotes and/or orders in 

physically settled options on these 

ETFs, the Exchange believes it would be 

very difficult for a single participant to 

alter the price of the underlying ETF or 

options overlying such ETF in any 

significant way without exposing the 

would-be manipulator to regulatory 

scrutiny. The Exchange further believes 

any attempt to manipulate the price of 

the underlying ETF or options overlying 

such ETF would also be cost 

prohibitive. As a result, the Exchange 

believes there is significant 

participation among market participants 

to prevent manipulation of cash-settled 

FLEX ETF Options. 

Still, the Exchange believes it has an 

adequate surveillance program in place 

and intends to apply the same program 

procedures to cash-settled FLEX ETF 

Options that it applies to the Exchange’s 

other options products.262 The 

Exchange will periodically review its 

surveillance procedures and make any 

changes that the Exchange believes are 

necessary for FLEX trading. FLEX 

options products and their respective 

symbols will be integrated into the 

Exchange’s existing surveillance system 

architecture and will thus be subject to 

the relevant surveillance processes, as 

applicable. The Exchange believes that 

the existing surveillance procedures at 

the Exchange are capable of properly 

identifying unusual and/or illegal 

trading activity, which procedures the 

Exchange would utilize to surveil for 

aberrant trading in cash-settled FLEX 

ETF Options. 

With respect to regulatory scrutiny, 

the Exchange believes its existing 

surveillance technologies and 

procedures adequately address potential 

concerns regarding possible 

manipulation of the settlement value at 

or near the close of the market. The 

Exchange notes that the regulatory 

program operated by and overseen by 

ISE 263 includes cross-market 

surveillance designed to identify 

manipulative and other improper 

trading, including spoofing, algorithm 

gaming, marking the close and open, as 

well as more general, abusive behavior 

related to front running, wash sales, and 

quoting/routing, which may occur on 

the Exchange or other markets.264 These 

cross-market patterns incorporate 

relevant data from various markets 

beyond the Exchange and its affiliates 

and from markets not affiliated with the 

Exchange. The Exchange represents 

that, today, its existing trading 

surveillances are adequate to monitor 

trading in the underlying ETFs and 

subsequent trading of options on those 

securities listed on the Exchange. 

Further, with the introduction of cashsettled FLEX ETF Options, the Exchange 

would leverage its existing surveillances 

to monitor trading in the underlying 

ETFs and subsequent trading of options 

on those securities listed on the 

Exchange with respect to cash-settled 

FLEX ETF options.265

Additionally, for options, the 

Exchange utilizes an array of patterns 

that monitor manipulation of options, or 

manipulation of equity securities 

(regardless of venue) for the purpose of 

impacting options prices on the 

Exchange (i.e., mini-manipulation 

strategies). That surveillance coverage is 

initiated once options begin trading on 

the Exchange. Accordingly, the 

Exchange believes that the cross-market 

surveillance performed by the Exchange 

or FINRA, on behalf of the Exchange, 

coupled with ISE’s own monitoring for 

violative activity on the Exchange 

comprise a comprehensive surveillance 

program that is adequate to monitor for 

manipulation of the underlying ETF and 

overlying option. Furthermore, the 

Exchange believes that the existing 

surveillance procedures at the Exchange 

are capable of properly identifying 

unusual and/or illegal trading activity, 

which the Exchange would utilize to 

surveil for aberrant trading in cashsettled FLEX ETF Options. 

In addition to the surveillance 

procedures and processes described 

above, improvements in audit trails (i.e., 


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266See supra note 256. 

267 15 U.S.C. 78f(b) 

268 15 U.S.C. 78f(b)(5). 

269 15 U.S.C. 78f(b)(5). 

270See Securities Exchange Act Release No. 

36841 (February 14, 1996), 61 FR 6666 (February 

21, 1996) (SR–CBOE–95–43) (SR–PSE–95–24) 

(Order Approving the Trading of Flexibly 

Structured Equity Options by CBOE and PSE). 

the Consolidated Audit Trail), 

recordkeeping practices, and interexchange cooperation over the last two 

decades have greatly increased the 

Exchange’s ability to detect and punish 

attempted manipulative activities. In 

addition, the Exchange is a member of 

the ISG. The ISG members work 

together to coordinate surveillance and 

investigative information sharing in the 

stock and options markets. For 

surveillance purposes, the Exchange 

would therefore have access to 

information regarding trading activity in 

the pertinent underlying securities. 

The proposed rule change is designed 

to allow investors seeking to effect cashsettled FLEX ETF Options with the 

opportunity for a different method of 

settling option contracts at expiration if 

they choose to do so. As noted above, 

market participants may choose cash 

settlement because physical settlement 

possesses certain risks with respect to 

volatility and movement of the 

underlying security at expiration that 

market participants may need to hedge 

against. The Exchange believes that 

offering innovative products flows to 

the benefit of the investing public. A 

robust and competitive market requires 

that exchanges respond to members’ 

evolving needs by constantly improving 

their offerings. Such efforts would be 

stymied if exchanges were prohibited 

from offering innovative products for 

reasons that are generally debated in 

academic literature. The Exchange 

believes that introducing cash-settled 

FLEX ETF Options would further 

broaden the base of investors that use 

FLEX Equity Options to manage their 

trading and investment risk, including 

investors that currently trade in the OTC 

market for customized options, where 

settlement restrictions do not apply. The 

proposed rule change is also designed to 

encourage market makers to shift 

liquidity from the OTC market onto the 

Exchange, which, it believes, would 

enhance the process of price discovery 

conducted on the Exchange through 

increased order flow. The Exchange also 

believes that this may open up cashsettled FLEX ETF Options to more retail 

investors. The Exchange does not 

believe that this proposed rule change 

raises any unique regulatory concerns 

because existing safeguards—such as 

position limits (and the aggregation of 

cash-settled positions with physicallysettled positions), exercise limits (and 

the aggregation of cash-settled positions 

with physically-settled positions), and 

reporting requirements—would 

continue to apply. The Exchange 

believes the proposed position and 

exercise limits may further help mitigate 

the concerns that the limits are designed 

to address about the potential for 

manipulation and market disruption in 

the options and the underlying 

securities.266

Given the novel characteristics of 

cash-settled FLEX ETF Options, the 

Exchange will conduct a review of the 

trading in cash-settled FLEX ETF 

Options over an initial five-year period. 

The Exchange will furnish five reports 

to the Commission based on this review, 

the first of which would be provided 

within 60 days after the first anniversary 

of the initial listing date of the first 

cash-settled FLEX ETF Option under the 

proposed rule and each subsequent 

annual report to be provided within 60 

days after the second, third, fourth and 

fifth anniversary of such initial listing. 

At a minimum, each report will provide 

a comparison between the trading 

volume of all cash-settled FLEX ETF 

Options listed under the proposed rule 

and physically settled options on the 

same underlying security, the liquidity 

of the market for such options products 

and the underlying ETF, and any 

manipulation concerns arising in 

connection with the trading of cashsettled FLEX ETF Options under the 

proposed rule. The Exchange will also 

provide additional data as requested by 

the Commission during this five year 

period. The reports will also discuss any 

recommendations the Exchange may 

have for enhancements to the listing 

standards based on its review. The 

Exchange believes these reports will 

allow the Commission and the Exchange 

to evaluate, among other things, the 

impact such options have, and any 

potential adverse effects, on price 

volatility and the market for the 

underlying ETFs, the component 

securities underlying the ETFs, and the 

options on the same underlying ETFs 

and make appropriate 

recommendations, if any, in response to 

the reports. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,267 in general, and furthers 

the objectives of Section 6(b)(5) of the 

Act.268 Specifically, the Exchange 

believes the proposed rule change is 

consistent with the Section 6(b)(5) 269

requirements that the rules of an 

exchange be designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in securities 

to remove impediments to and perfect 

the mechanism of a free and open 

market and a national market system, 

and, in general, to protect investors and 

the public interest. 

The Exchange believes that the 

adoption of the proposed rules allowing 

FLEX Options to trade on ISE in the 

manner specified above is consistent 

with the goals of the Act to remove 

impediments to and perfect the 

mechanism of a free and open market 

because it will benefit market 

participants by providing an additional 

venue for market participants to provide 

and seek liquidity for FLEX Options. As 

the Commission noted in its order 

granting FLEX trading on Cboe and 

what was then the Pacific Stock 

Exchange (now NYSE Arca), trading 

FLEX Options on an exchange is an 

alternative to trading customized 

options in OTC markets and carries with 

it the advantages of exchange markets 

such as transparency, parameters and 

procedures for clearance and settlement, 

and a centralized counterparty clearing 

agency.270 Therefore, the Exchange 

believes the proposed rule change will 

promote these same benefits for the 

market as a whole by providing an 

additional venue for market participants 

to trade customized FLEX Options. The 

Exchange believes that providing an 

additional venue for FLEX Options will 

be beneficial by increasing competition 

for order flow and executions. 

In general, transactions in FLEX 

Options will be subject to many of the 

same rules that currently apply to nonFLEX Options traded on the Exchange. 

In order to provide investor with the 

flexibility to designate terms of the 

options and accommodate the special 

trading of FLEX Options, however, the 

Exchange is proposing to add new rules 

in proposed Options 3A that will apply 

solely to FLEX Options. As noted above, 

the proposed rules are largely consistent 

with Cboe’s rules pertaining to 

electronic FLEX Options, with certain 

intended differences primarily to align 

to current System behavior (and 

especially current auction behavior) to 

provide increased consistency for 

Members trading FLEX Options and 

non-FLEX Options on ISE, each as 

discussed above and below. Further, the 

Exchange has omitted certain Cboe rules 

from the proposed rules due to 


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271For example, the Exchange’s order books will 

be inapplicable to FLEX Orders and thus certain 

priority provisions in Options 3, Section 10 

applicable to non-FLEX Orders will not be 

applicable to FLEX Orders, such as the enhanced 

Primary Market Maker priority in Section 

10(c)(1)(B), Preferred Market Maker priority in 

Section 10(c)(1)(C), and entitlement for orders of 5 

contracts or fewer in Section 10(c)(1)(D). FLEX 

Options will instead be subject to the priority 

provisions in Options 3A, Section 11(b)(3)(A) 

(electronic FLEX Auctions), Section 12(e) (FLEX 

PIM), and Section 13(e) (FLEX SOM). 

272The Exchange will System enforce this 

provision such that it will reject an opening 

position in an expiring FLEX Option series on the 

day of expiration. 

differences in scope and operation of 

FLEX trading at Cboe compared to the 

proposed scope and operation of FLEX 

trading on ISE, each as noted above. For 

example, the Exchange will not include 

Cboe rule provisions related to floor 

trading, Asian- or Cliquet-settled FLEX 

Index Options, or Micro FLEX Index 

Options as it does not offer these 

capabilities today. For the same reason, 

the Exchange will not allow prices in 

FLEX trading to be expressed as 

percentages under this proposal. 

The Exchange further believes that its 

proposal is designed to prevent 

fraudulent and manipulative acts and 

practices as the Exchange believes that 

it has an adequate surveillance program 

in place and intends to apply the same 

program procedures to FLEX Options 

that is applied to the Exchange’s other 

options products, as applicable. As 

described above, FLEX Option products 

and their respective symbols will be 

integrated into the Exchange’s existing 

surveillance system architecture and 

will be subject to the relevant 

surveillance processes, thereby allowing 

the Exchange to properly identify 

disruptive and/or manipulative trading 

activity. 

A. General Provisions (Section 1) 

The Exchange believes that proposed 

Section 1(a) setting forth the 

applicability of Exchange Rules will 

make clear that unless otherwise 

provided in proposed Options 3A, the 

Exchange’s existing rules will continue 

to apply to FLEX Options, which will 

provide consistency for Members 

trading both FLEX Options and nonFLEX Options on ISE. 

The Exchange believes that the 

defined terms proposed in Section 1(b) 

will provide increased clarity to 

Members by specifying definitions like 

‘‘FLEX Option’’ and ‘‘FLEX Order’’ that 

are used throughout Options 3A. The 

Exchange further believes that adding 

the definition of ‘‘FLEX Order’’ in 

Options 3, Section 7(z) will add 

transparency as to which order types 

would be available on ISE. Lastly, the 

non-substantive change proposed in 

Options 3, Section 7(y) will bring clarity 

and avoid potential confusion for 

market participants. 

B. Hours of Business (Section 2) 

The Exchange believes that specifying 

the trading hours for FLEX Options in 

proposed Section 2(a) will provide 

increased clarity that the trading hours 

for FLEX Options will generally be the 

same as the trading hours for 

corresponding non-FLEX Options as set 

forth in Options 3, Section 1. As noted 

above, the proposed language is 

materially identical to Cboe Rule 

5.1(b)(3)(A). 

As it relates to the Exchange’s 

proposed discretion relating to the 

trading hours for FLEX Options, this is 

consistent with Cboe’s FLEX Options 

rules as noted above. The Exchange 

believes that because of the unique 

nature of FLEX, in contrast to the nonFLEX market, it is reasonable to permit 

the Exchange, in its discretion, to 

narrow or otherwise restrict the trading 

hours for FLEX Options, so long as such 

trading hours occur within the normal 

options trading hours of the Exchange 

described above. The Exchange would 

provide adequate advance notification 

to its Members of such changes in FLEX 

trading hours. 

C. FLEX Option Classes and Permissible 

Series (Section 3(a) and (b)) 

The Exchange believes that the 

proposed rule text in Sections 3(a) and 

3(b) will provide greater transparency 

around the Exchange’s listing standards 

for FLEX Option classes and FLEX 

Option series. As described above, the 

Exchange is proposing to exclude IBIT 

options from being eligible for trading as 

a FLEX Option on ISE. The Exchange 

believes this is consistent with the Act 

because it aligns to ISE’s approval order 

of IBIT options, which required the 

position limit for IBIT options to be 

25,000 contracts. As discussed in the 

position limits section above, there will 

generally be no position limits for FLEX 

Equity Options. The Exchange therefore 

proposes to exclude IBIT options from 

being eligible to trade as a FLEX Option 

to continue to limit the position limits 

for IBIT options. 

Proposed Section 3(b)(1), which will 

prevent FLEX Options and non-FLEX 

Options with the same terms from 

trading concurrently by System 

enforcing this restriction, is consistent 

with the Act because this restriction 

will address concerns that FLEX 

Options would act as a surrogate for the 

trading of non-FLEX Options. In 

particular, a non-FLEX Option trading 

pursuant to Options 3 has different 

priority rules than a FLEX Option 

trading pursuant to proposed Options 

3A.271 Allowing an option with the 

same terms to trade under both rules 

concurrently would result in 

inconsistent order handling and could 

allow the order priority of non-FLEX 

Orders to be circumvented. Therefore, 

the Exchange proposes to prevent this 

situation by permitting FLEX Options 

transactions only in options with a 

different term (exercise style, expiration 

date, or exercise price) than a non-FLEX 

Option on the same underlying security 

or index that is already listed for 

trading. As noted above, the proposed 

language in Section 3(a) and Section 

3(b) is substantially similar to Cboe Rule 

4.20, Rule 4.21(a), and Rule 4.22(c) 

respectively, except the Exchange is 

clarifying in proposed Section 3(b)(2) 

that on the expiration date, a FLEX 

Order for the expiring FLEX Option 

series may only be submitted to close 

out a position in such expiring FLEX 

Option series. 272

D. FLEX Options Terms (Section 3(c)) 

The Exchange believes that the terms 

of FLEX Options pursuant to proposed 

Options 3A, Section 3(c) serve to perfect 

the mechanism of a free and open 

market and a national market system 

because they will permit investors to 

customize some of the terms of their 

FLEX Options to implement more 

precise trading strategies, which may 

not be possible using non-FLEX 

Options. These investors may have 

improved capability to execute 

strategies to meet their specific 

investment objectives by using 

customized FLEX Options. However, 

only certain terms as specified in 

proposed Section 3(c) are subject to 

flexible structuring by the parties to the 

FLEX Option transactions, and most of 

such terms have a specified number of 

alternative configurations. The 

Exchange believes that these restrictions 

are reasonable and designed to further 

the objectives of the Act and to promote 

just and equitable principles of trade 

because limiting FLEX Option terms 

enables the efficient, centralized 

clearance and settlement and active 

secondary trading of opened FLEX 

Options. As noted above, these terms 

are consistent with Cboe Rule 4.21(b) 

except the Exchange will not 

incorporate applicable Cboe provisions 

relating to Asian- or Cliquet-settled 

FLEX Options, Micro FLEX Index 

Options, or relating to prices that are 

expressed as a percentage value because 

the Exchange does not offer these 

features today. 


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273See supra note 52. 

274See Securities Exchange Act Release Nos. 

98454 (September 20, 2023) (SR–CBOE–2023–005) 

(order approving proposed rule change to make 

permanent the operation of a program that allows 

the Exchange to list p.m.-settled third Friday-of-themonth SPX options series) (‘‘SPXPM Approval’’); 

98455 (September 20, 2023) (SR–CBOE–2023–019) 

(order approving proposed rule change to make 

permanent the operation of a program that allows 

the Exchange to list p.m.-settled third Friday-of-themonth XSP and MRUT options series) (‘‘XSP and 

MRUT Approval’’); and 98456 (September 20, 2023) 

(SR–CBOE–2023–020) (order approving proposed 

rule change to make the nonstandard expirations 

pilot program permanent) (‘‘Nonstandard 

Approval’’). See also Securities Exchange Act 

Release Nos. 98450 (September 20, 2023), 88 FR 

66111 (September 26, 2023) (SR–ISE–2023–08) 

(order approving proposed rule change to make 

permanent certain p.m.-settled pilots); and 98935 

(November 14, 2023), 88 FR 80792 (November 20, 

2023) (SR–ISE–2023–20) (order approving a 

proposed rule change to permit the listing and 

trading of p.m.-settled Nasdaq-100 Index® Options 

with a third-Friday-of-the-month expiration). 

275Notably, Cboe did not identify any significant 

economic impact (including on pricing or volatility 

or in connection with reversals) on related futures, 

the underlying indexes, or the underlying 

component securities of the underlying indexes 

surrounding the close as a result of the quantity of 

FLEX PM Third Friday Options or the amount of 

expiring open interest in FLEX PM Third Friday 

Options, nor any demonstrated capacity for options 

hedging activity to impact volatility in the 

underlying markets. See supra note 52. 

276See FLEX Settlement Pilot Approval, citing to 

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), available at: https://www.sec.gov/files/ 

Analysis_of_PM_Cash_Settled_Index_Option_

Pilots.pdf. 

277See supra note 52. Additionally, these studies 

measured any impact on related futures, the 

underlying indexes, or the underlying component 

securities of the underlying indexes surrounding 

the close. Despite FLEX SPX options (which 

represent approximately half of the year-to-date 

2023 volume of FLEX Index Options but only 

approximately 0.3% of total SPX volume) not being 

included in the DERA staff study and 

corresponding Cboe study, those studies concluded 

that during the time periods covered (which 

included the period of time in which the Pilot 

Program has been operating), there was no 

significant economic impact on the underlying 

index or related products. Therefore, Cboe 

concluded that any FLEX SPX Options that 

executed during the timeframes covered by the 

studies had no significant impact on the underlying 

index or related products, as neither DERA staff nor 

Cboe observed any significant economic impact on 

the underlying index or related product. 

278See supra note 52. 

279Specifically, Cboe evaluated each FLEX PM 

Third Friday Options trade for more than 500 

contracts that occurred on Cboe during a two-year 

timeframe and analyzed the market quality 

(specifically, the average time-weighted quote 

spread and size 30 minutes prior to the trade and 

the average time-weighted quote spread and size 30 

minutes after the trade) of series non-FLEX a.m.- 

settled options overlying the same index with 

similar terms as the FLEX PM Third Friday Option 

that traded (time to expiration, type (call or put), 

and strike price) as set forth in the Cboe’s data. See 

supra note 52. 280Cboe acknowledged that, while FLEX PM 

Third Friday Options has historically represented a 

very small percentage of overall volume, it is 

possible trading in these options may grow in the 

future. See supra note 52. 

281See Securities Exchange Act Release No. 

98450 (September 20, 2023), 88 FR 66111 

(September 26, 2023) (SR–ISE–2023–08) (Order 

Granting Approval of a Proposed Rule Change, as 

Modified by Amendment No. 1, To Make 

Permanent Certain P.M.-Settled Pilots) (‘‘P.M.- 

Settled Pilot Permanency Approval’’). 

282See Securities Exchange Act Release No. 

98935 (November 14, 2023), 88 FR 80792 

(November 20, 2023) (SR–ISE–2023–20) (Order 

Approving a Proposed Rule Change To Permit the 

Listing and Trading of P.M.-Settled Nasdasq-100 

Index® Options With a Third-Friday-of-the-Month 

Expiration) (‘‘P.M. Third Friday NDX Options 

Approval’’). 

283See P.M.-Settled Pilot Permanency Approval, 

citing to 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) (also referred to 

therein as the ‘‘Pilot Memo’’), available at: https:// 

www.sec.gov/files/Analysis_of_PM_Cash_Settled_

Index_Option_Pilots.pdf. 

As discussed above, the Exchange is 

proposing to allow the listing of FLEX 

PM Third Friday Options on ISE, 

consistent with the Commission’s recent 

approval of Cboe’s proposal to make its 

pilot a permanent program.273 The 

Exchange believes that aligning to Cboe 

will allow ISE to compete effectively 

with Cboe’s product offering. Like Cboe, 

the Exchange believes that FLEX PM 

Third Friday Options will provide 

investors with greater trading 

opportunities and flexibility. The 

Exchange notes that the Commission 

recently approved proposals to make 

other pilots permitting p.m.-settlement 

of index options permanent after finding 

those pilots were consistent with the 

Act and the options subject to those 

pilots had no significant impact on the 

market.274

The Exchange further believes that 

permitting ISE to list FLEX PM Third 

Friday Options, similar to Cboe, will 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system and 

protect investors, while maintaining a 

fair and orderly market. As described in 

the FLEX Settlement Pilot Approval, 

Cboe observed no significant adverse 

market impact or identified any 

meaningful regulatory concerns during 

the nearly 14-year operation of the FLEX 

PM Third Friday Program as a pilot nor 

during the 15 years since P.M.-settled 

index options (SPX) were reintroduced 

to the marketplace.275

As discussed in the FLEX Settlement 

Pilot Approval, the DERA staff study 276

and corresponding Cboe study 

concluded that a significantly larger 

amount of non-FLEX p.m.-settled index 

options had no significant adverse 

market impact and caused no 

meaningful regulatory concerns. 

Therefore, Cboe concluded that the 

relatively small amount of FLEX Index 

Option volume would similarly have no 

significant adverse market impact or 

cause no meaningful regulatory 

concerns.277

Cboe also concluded that the 

introduction of FLEX PM options had 

no significant impact on the market 

quality of corresponding a.m.-settled 

options or other options. As discussed 

in the FLEX Settlement Pilot Approval, 

Cboe’s analysis conducted after the 

introduction of SPXW options with 

Tuesday and Thursday expirations 

demonstrated no statistically significant 

impact on the bid-ask or effective 

spreads of SPXW options with Monday, 

Wednesday, and Friday expirations after 

trading in the SPXW options with 

Tuesday and Thursday expirations 

began.278 Further, Cboe concluded that 

large FLEX PM Third Friday Options 

trades had no material negative impact 

(and likely no impact) on quote quality 

of non-FLEX a.m.-settled options 

overlying the same index with similar 

terms as the FLEX PM Third Friday 

Option upon evaluating data that 

showed that the spreads were relatively 

stable before and after large trades.279

Therefore, Cboe concluded that it is 

likely that FLEX PM Third Friday 

Options have had no significant 

negative impact on the market quality of 

non-FLEX Options with a.m.- 

settlement.280

Additionally, Cboe noted that the 

significant changes in the closing 

procedures of the primary markets in 

recent decades, including considerable 

advances in trading systems and 

technology, has significantly minimized 

risks of any potential impact of FLEX 

PM Third Friday Options on the 

underlying cash markets. As such, Cboe 

concluded that listing FLEX PM Third 

Friday Options did not raise any unique 

or prohibitive regulatory concerns and 

that such trading has not, and will not, 

adversely impact fair and orderly 

markets on expiration Fridays for the 

underlying indexes or their component 

securities. 

The Exchange notes that p.m.-settled 

options were previously approved on 

ISE’s standard market,281 including 

p.m.-settled third-Friday-of-the-month 

expirations for NDX options.282 In the 

P.M.-Settled Pilot Permanency 

Approval, the Commission stated it 

believed that the evidence contained in 

the Exchange’s filing, the Exchange’s 

pilot data and reports, and the DERA 

staff study 283 analysis demonstrate that 

the Exchange’s pilot programs have 

benefitted investors and other market 

participants by providing more flexible 

trading and hedging opportunities while 


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284See P.M.-Settled Pilot Permanency Approval. 

285See id. 

286See id. 

287See P.M.-Settled Pilot Permanency Approval 

and P.M. Third Friday NDX Options Approval in 

notes 272 and 273, respectively. 

288See P.M. Third Friday NDX Options Approval. 

289See id. 

290While the Exchange has received approval to 

list p.m.-settled third Friday-of-the-month 

expirations for NDX options on its standard market 

pursuant to the Third Friday NDX Options 

Approval, the Exchange has not listed them to date. 

The Exchange will launch p.m.-settled third-Fridayof-the-month expirations on NDX options on or 

before the launch of electronic FLEX on ISE. 

291As noted above, Cboe Rule 4.22(b)(1) currently 

indicates that Cboe’s closing-only provisions apply 

if a non-FLEX Option American-style series is 

added intraday. The Exchange, however, believes it 

is more straightforward to apply the closing-only 

provisions to all non-FLEX Option series (i.e., 

American-style and European-style FLEX Option 

series) instead of limiting these provisions to one 

type of exercise style. As such, the Exchange’s 

proposed language in Options 3A, Section 

3(d)(2)(A) will instead provide that the Exchange’s 

closing-only provisions would apply ‘‘if a nonFLEX Option is added intraday.’’ See BOX Rule 

7605(d)(3), which similarly does not limit BOX’s 

closing-only provisions to American-style FLEX 

Options series. 

292 In particular, proposed Options 3A, Sections 

3(d)(2)(A) and (B) are based on Cboe Rule 4.22(b) 

and BOX Rule 5055(f)(3), respectively. See supra 

notes 57 and 58. 

also having no disruptive impact on the 

market.284 The Commission also stated 

that the market for p.m.-settled options 

has grown in size over the course of the 

Exchange’s pilot programs, and analysis 

of the pilot data did not identify any 

significant economic impact on the 

underlying component securities 

surrounding the close as a result of 

expiring p.m.-settled options nor did it 

indicate a deterioration in market 

quality (as measured by relative quoted 

spreads) for an existing product when a 

new p.m.-settled expiration was 

introduced.285 Further, the Commission 

stated that 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.286

In support of its proposal to list p.m.- 

settled third-Friday-of-the-month 

expirations for NDX options on its 

standard market, the Exchange pointed 

to, among other things, the data it 

provided underlying the P.M.-Settled 

Pilot Permanency Approval.287 In 

reviewing this data from the Exchange 

(and other options exchanges in support 

of similar proposals to list and trade 

certain p.m.-settled broad-based index 

options) as well as the DERA staff study 

analysis, the Commission concluded 

that analysis of the pilot data did not 

identify any significant economic 

impact on the underlying component 

securities surrounding the close as a 

result of expiring p.m.-settled options 

nor did it indicate a deterioration in 

market quality for an existing product 

when a new p.m.-settled expiration was 

introduced.288 Further, the Commission 

made similar findings as those in the 

P.M.-Settled Pilot Permanency Approval 

that 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.289 The 

Exchange has observed no significant 

adverse market impact or identified any 

meaningful regulatory concerns since 

the introduction of p.m.-settled index 

options on its standard market.290 Given 

that the Exchange anticipates FLEX PM 

Third Friday Options to have a 

relatively smaller amount of volume 

compared to its standard non-FLEX 

p.m.-settled index options market, the 

Exchange believes that introducing 

FLEX PM Third Friday coupled with the 

other findings in Cboe’s FLEX 

Settlement Pilot Approval would likely 

have no significant adverse market 

impact or cause any meaningful 

regulatory concerns as well. 

E. FLEX Fungibility (Section 3(d)) 

The Exchange believes that the FLEX 

fungibility provisions in proposed 

Options 3A, Section 3(d) are consistent 

with the Act by preventing new FLEX 

Option positions from being opened 

when a non-FLEX Option with the same 

terms is listed for trading. Pursuant to 

proposed Section 3(d)(1), a FLEX 

Option with the same terms as a 

subsequently added non-FLEX Option 

would become fungible with the nonFLEX Option. Accordingly, once a nonFLEX Option is added with the same 

terms as an outstanding FLEX Option, 

the FLEX Option would effectively 

become a standardized, non-FLEX 

Option and trade under the same rules 

and procedures that apply to any other 

standard non-FLEX Option. The 

Exchange believes that enforcing 

consistent order handling for identical 

and fungible options prevents 

fraudulent and manipulative acts and 

practices, and promotes just and 

equitable principles of trade to protect 

investors and the public interest by 

ensuring consistent treatment of these 

options. As noted above, proposed 

Section 3(d)(1) is materially identical to 

Cboe Rule 4.22(a). 

Additionally, pursuant to proposed 

Section 3(d)(2)(A), if a non-FLEX Option 

series 291 is added intraday, for the 

balance of that trading day, a position 

established under the FLEX trading 

procedures may be closed using the 

FLEX trading procedures in this Options 

3A against another closing only FLEX 

position. No FLEX Orders may be 

submitted into an electronic auction 

pursuant to Options 3A, Sections 11(b), 

12, or 13 for a FLEX Option series with 

the same terms as the non-FLEX Option 

series, unless the FLEX Order is a 

closing order, and it is the day on which 

the non-FLEX Option series was added 

intraday; Members may only submit 

responses that close out existing FLEX 

positions. The Exchange notifies 

Members when a FLEX Option series is 

restricted to closing only transactions. 

The System will reject a transaction in 

such a restricted series that does not 

conform to these requirements. 

This proposed rule will prevent an 

option with the same terms from trading 

both a FLEX Option series and a nonFLEX Option series concurrently, while 

providing a narrow exception for 

closing positions. The Exchange 

believes that providing a narrow 

exception to permit such closing only 

transactions will help investors close 

out their outstanding FLEX Option 

positions the same day as the identical 

non-FLEX Option is added. As noted 

above, proposed Section 3(d)(2) is 

substantially similar to other options 

exchanges.292

F. Units of Trading; Minimum Trading 

Increments (Sections 4 and 5) 

The Exchange believes that the 

proposed rule text in Section 4(a) 

provides clear, transparent language 

regarding how bids and offers for FLEX 

Options must be expressed. As noted 

above, proposed Section 4(a) is 

consistent with Cboe Rule 5.3(e)(3) 

except the Exchange is not proposing to 

provide for Micro FLEX Index Options 

or to allow prices to be expressed as a 

percentage value because the Exchange 

does not offer these features today and 

does not intend to introduce such 

features under this proposal. 

The Exchange similarly believes that 

proposed Section 5(a) provides clarity to 

market participants that the Exchange 

will determine the minimum 

increments for bids and offers on FLEX 

Options on a class-by-class basis, which 

may be no smaller than $0.01 for the 

options leg of a FLEX Option. Allowing 

FLEX Options to trade in increments as 

small as $0.01 is consistent with the Act 

because it provides investors with 

increased ability to meet their specific 

investment objectives and allows for 

increased opportunities for price 

improvement through a finer trading 

increment. As noted above, proposed 

Section 5(a) is consistent with Cboe 


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293See introductory paragraph to Options 3, 

Section 7. 

294See Supplementary Material .02(d)(3) to 

Options 3, Section 7. 

295See supra note 81. 296See Cboe Rule 5.71. See supra note 83. 

Rule 5.4(c)(4) except the Exchange is not 

proposing to allow prices to be 

expressed as a percentage value and the 

Exchange is also clarifying that 

proposed Section 5(a) would apply to 

the options leg of a FLEX Option. The 

Exchange is also proposing to clarify in 

proposed Section 5(b) that the stock leg 

of a FLEX Option will be subject to the 

minimum increment rules in proposed 

Options 3A, Section 11(b)(1)(G), Section 

12(a)(5), and Section 13(a)(5) for greater 

transparency around how minimum 

increments for complex FLEX Orders 

(including complex FLEX Orders with a 

stock component) would be handled. 

G. Types of Orders; Order and Quote 

Protocols (Section 6) 

The Exchange believes that specifying 

in proposed Section 6(a) that it may 

make the order types and TIFs specified 

in Options 3, Section 7 available on a 

class or System basis for FLEX Orders 

is consistent with the Exchange’s 

existing authority to designate the 

availability of order types and times-inforce for non-FLEX Orders.293 As noted 

above, only the following order types in 

Options 3, Section 7 would apply to 

FLEX at this time: Limit Orders and 

Cancel and Replace Orders. Also as 

noted above, only the Immediate-orCancel TIF described in Supplementary 

Material .02(d) would apply to FLEX. 

Given that FLEX Orders will only be 

eligible to submitted into an electronic 

FLEX Auction, FLEX PIM, or FLEX 

SOM, and not rest on the order book or 

route away (for which most of the order 

types and TIFs set forth in Options 3, 

Section 7 are relevant), the Exchange 

believes that these are appropriate 

designations for FLEX Orders. Because 

there is no existing market for FLEX 

Options on the Exchange, the Exchange 

believes that permitting FLEX Options 

to be submitted as limit orders is 

appropriate to ensure execution of FLEX 

Orders at reasonable prices (i.e., at the 

Member’s specified price or better). The 

Exchange also believes that it is 

appropriate to allow FLEX Orders to be 

submitted as Cancel and Replace orders 

so that Members can cancel and replace 

their FLEX Order in a single message. 

The Exchange further believes that it is 

appropriate to allow FLEX Orders to 

have a TIF of Immediate-or-Cancel 

because that is how the Exchange 

currently treats all auction orders in its 

standard non-FLEX market today. 

Specifically, the Exchange considers all 

orders that are entered into one of its 

non-FLEX auction mechanisms (e.g., 

SOM Orders and PIM Orders) to have a 

TIF of Immediate-or-Cancel. By their 

terms, these orders will be: (1) executed 

either on entry or after an exposure 

period, or (2) cancelled.294 Because 

FLEX Orders may only be submitted 

into one of the proposed auctions 

described above (FLEX Auction, FLEX 

PIM, FLEX SOM), the Exchange will 

likewise consider FLEX Orders like its 

non-FLEX auction orders today. 

The Exchange further believes 

proposed Section 6(b) will provide 

greater transparency as to which 

existing order and quote protocols 

would be available for FLEX Orders, 

FLEX auction notifications, and FLEX 

auction responses. 

H. Complex Orders (Section 7) 

The Exchange believes the proposed 

Section 7 will provide investors with 

additional transparency regarding order 

entry requirements for complex FLEX 

Options. As noted above, the proposed 

complex FLEX Order entry 

requirements will be consistent with 

Cboe Rule 5.70(b), except the Exchange 

will not offer Asian-settled or Cliquetsettled FLEX Index Options. 

The Exchange also believes that 

allowing the submission of complex 

FLEX Orders with any ratio will remove 

impediments to and perfect the 

mechanism of a free and open market 

and benefit investors, because it will 

provide Members with additional 

flexibility and precision in their 

investment strategies. As noted above, 

Cboe already offers this feature for 

complex FLEX Orders, so the Exchange 

believes that the proposed changes will 

promote a free and open market and a 

national market system by providing an 

additional venue for market participants 

to execute complex FLEX Orders with 

any ratio.295

I. Opening of FLEX Trading (Section 8) 

The Exchange believes that proposed 

Section 8, which will specify that there 

will be no Opening Process in FLEX 

Options and that Members may begin 

submitting FLEX Orders into an 

electronic FLEX Auction, a FLEX PIM, 

or a FLEX SOM when the underlying 

security is open for trading, will provide 

clarity to market participants regarding 

the mechanisms available for FLEX 

trading. The Exchange will not conduct 

an Opening Process in FLEX Options 

due to the customized nature of these 

products and the fact that there will be 

no requirement for specific FLEX 

Option series to be quoted or traded 

each day. The Exchange notes that Cboe 

likewise does not hold an opening 

trading rotation in FLEX Options.296

The Exchange also believes that 

allowing Member to begin submitting 

FLEX Orders once the underlying 

security is open is appropriate. Because 

market participants incorporate 

transaction prices of underlying 

securities or the values of underlying 

indexes when pricing options (which 

will include FLEX Options), the 

Exchange believes it will benefit 

investors for FLEX Options trading to 

not be available until that information 

has begun to be disseminated in the 

market. Because the Exchange will have 

no electronic book of resting orders for 

FLEX Options (and no Opening 

Process), being ‘‘open’’ for FLEX trading 

merely means that Members may submit 

FLEX Orders into one of the specified 

FLEX auction mechanisms once the 

underlying is open, at the conclusion of 

which executions in those auction 

mechanisms may occur (which are all 

discussed in the respective FLEX 

Auction, FLEX PIM, and FLEX SOM 

sections above). 

J. Trading Halts (Section 9) 

The Exchange believes that proposed 

Section 9 will provide clarity as to when 

the Exchange would halt trading in 

FLEX Options. The reasons why the 

Exchange would halt trading in a nonFLEX Option class (e.g., trading in the 

underlying security is halted) would 

generally be reasons why the Exchange 

would halt a FLEX Option class, and 

therefore the Exchange will always halt 

trading in a FLEX Option class when 

trading in a non-FLEX Option class with 

the same underlying equity security or 

index is halted on the Exchange. 

Proposed Section 9 also provides the 

Exchange with authority to halt trading 

in a FLEX Option, even if trading in a 

non-FLEX Option with the same 

underlying is not halted. While such 

situation would be rare, there may be 

unusual circumstances that would cause 

the Exchange to halt trading in the FLEX 

Option. As noted above, the proposed 

halt provisions are consistent with Cboe 

Rule 4.21(a)(3). 

K. Exchange Order Books (Section 10) 

The Exchange believes that specifying 

in proposed Section 10 that the 

Exchange’s simple and complex order 

books will not be available for 

transactions in FLEX Options will make 

clear what mechanisms would be 

available for FLEX trading (or not). 

FLEX Orders may only be submitted 

into a FLEX Auction, FLEX PIM, or 

FLEX SOM. As noted above, proposed 


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297See supra note 89. 

298 In particular, proposed Options 3A, Section 

11(a) is based on Cboe Rule 5.72(b) and BOX Rule 

7605(d). See supra notes 90–92 and note 94. 

299See proposed Options 3A, Section 11(b)(1)(F). 

While the current rules are silent in this regard, the 

Exchange notes that its proposal will follow current 

SOM and PIM behavior. See generally Options 3, 

Sections 11(d) and 13. 

300While this behavior is not specified in the 

Exchange’s current rules, auction responses are 

currently handled in the same manner for SOM and 

PIM. See generally Options 3, Sections 11(d)(2) and 

13(c). 

301See proposed Options 3A, Sections 

11(b)(3)(A)(i) and (iii). 

302See proposed Options 3A, Sections 

11(b)(3)(A)(ii). 

303See, e.g., Options 3, Section 11(d)(3)(C) (SOM 

allocation methodology); Options 3, Section 13(d) 

(PIM allocation methodology); Supplementary 

Material .09 to Options 3, Section 11; and 

Supplementary Material .10 to Options 3, Section 

13. 

Section 10 is consistent with the FLEX 

rules of other options exchanges that 

similarly do not contemplate the 

interaction of their respective order 

books with FLEX transactions.297

L. FLEX Options Trading (Section 11) 

The Exchange believes that proposed 

Section 11(a), which specifies the 

requirements for submitting FLEX 

Orders for trading, is consistent with the 

Act. Proposed Section 11(a) will set 

forth which mechanisms would be 

available for FLEX Orders (i.e., 

electronic FLEX Auction, FLEX PIM, or 

FLEX SOM) and the order entry 

requirements for simple and complex 

FLEX Orders. As noted above, these 

provisions will be substantially similar 

to the FLEX rules of other options 

exchanges.298 The Exchange believes 

that System-enforcing the stipulation 

that it will not accept simple or complex 

FLEX Orders if the order or leg, as 

applicable, has identical terms as a nonFLEX Option series that is already listed 

for trading will prevent options with the 

same terms to trade as both a FLEX 

Options and non-FLEX Option, thereby 

eliminating any potential concerns 

around inconsistent order handling. 

The Exchange believes that the 

electronic FLEX Auction as described in 

proposed Section 11(b) will remove 

impediments to and perfect the 

mechanism of a free and open market, 

and protect investors and the public 

interest. The proposed FLEX Auction 

will offer market participants with an 

auction mechanism for the execution of 

FLEX Options at potentially improved 

prices that is substantially similar in all 

respects to Cboe Rule 5.72(c), except for 

certain intended differences to align to 

current auction functionality in order to 

allow the proposed FLEX Auction to fit 

more seamlessly into the Exchange’s 

market. For instance, the Exchange will 

not allow prices to be expressed as 

percentages in the electronic FLEX 

Auction as it does not have this 

capability today. The Exchange will also 

follow current non-FLEX auction 

behavior by allowing the FLEX Auction 

to end at the market close with an 

execution (if an execution is permitted 

pursuant to proposed Section 11(b)) in 

the event the designated exposure 

interval exceeds the market close.299 In 

doing so, the Exchange’s proposal will 

promote executions in electronic FLEX 

Auctions (instead of cancelling the 

FLEX Order) while also preventing 

executions after the market close. The 

Exchange will also align the minimum 

increment requirements in proposed 

Section 11(b)(1)(G) for stock-tied FLEX 

complex strategies with its existing 

requirements for stock-tied non-FLEX 

complex strategies in Options 3, Section 

14(c)(1). Furthermore, pursuant to 

proposed Section 11(b)(2)(D), the 

Exchange would not allow Members to 

submit multiple FLEX responses using 

the same badge/mnemonic and would 

also not aggregate all of those responses 

at the same price in order to align to 

current auction functionality for nonFLEX Orders. Additionally, the 

Exchange will also specify in proposed 

Section 11(b)(2)(D) that an additional 

FLEX response from the same badge/ 

mnemonic for the same auction ID will 

automatically replace the previous 

FLEX response. 300 The Exchange will 

also align the proposed FLEX Auction 

allocation methodology (i.e., Priority 

Customer Size Pro-Rata and one 

contract allocation) 301 and related 

rounding (i.e., rounding up for the 

higher response quantity) 302 with 

current auction functionality in those 

respects.303 The Exchange believes that 

the proposed priority and allocation 

rules for the FLEX Auction will ensure 

a fair and orderly market by maintaining 

the priority of orders and protecting 

Priority Customer orders, while still 

affording the opportunity for price 

improvement during each FLEX 

Auction commenced on the Exchange. 

As noted above, all of the foregoing 

features are harmonized with the 

Exchange’s current auction functionality 

for non-FLEX Orders, including PIM 

and SOM, so the Exchange believes that 

this will promote consistency for 

Members participating across different 

auctions on ISE. 

Furthermore, unlike Cboe, the 

Exchange will not include certain 

details in the proposed FLEX Auction 

notification message in proposed 

Section 11(b)(2)(A) like what time the 

auction will conclude or whether the 

FLEX Order is Attributable. For 

simplicity, the Exchange will instead 

disseminate the duration of the 

exposure interval, instead of calculating 

and disseminating what time the 

auction will conclude, and will not offer 

an Attributable designation for FLEX 

Orders. 

Otherwise, the general framework of 

the proposed electronic FLEX Auction 

in Section 11(b) (such as the eligibility 

requirements, the auction process and 

conclusion, and execution provisions) is 

consistent with the framework for 

Cboe’s electronic FLEX Auctions in 

Cboe Rule 5.72(c). The clarity in how 

the proposed FLEX Auction will 

function and its consistency with 

similar auctions at another exchange 

will help promote a fair and orderly 

national options market system. 

Like Cboe, the Exchange believes that 

the proposed auction exposure interval 

periods strike an appropriate balance 

between allowing executions of FLEX 

Orders to be completed in a timely 

fashion and providing Members 

sufficient time to price the unique terms 

of FLEX Options. As noted above, the 

submitting Member must designate the 

length of the exposure interval (which 

will be included in the auction 

notification message) to be between 

three seconds and five minutes, which 

is identical to Cboe’s range of exposure 

intervals for their electronic FLEX 

Auctions in Cboe Rule 5.72(c)(1)(F). The 

Exchange believes it is appropriate to 

require the submitting Member to 

establish the length of the auction 

period (which will be included in the 

auction notification message), as the 

Member is in the best position to 

determine a reasonable period of time to 

provide other Members to respond 

based on the complexity of the FLEX 

Option series that is the subject of the 

auction, as well as based on market 

conditions (for example, in a volatile 

market, the Member may believe it is in 

the best interests of a customer to have 

a shorter auction period given quickly 

changing prices). 

The Exchange believes that the 

proposed rule change to allow multiple 

electronic FLEX Auctions overlap will 

benefit investors, as it may lead to an 

increase in Exchange volume and 

permit the Exchange to compete with 

the OTC market, while providing for 

additional opportunities for price 

discovery and execution. Although 

electronic FLEX Auctions will be 

allowed to overlap, the Exchange does 

not believe that this raises any issues 

that are not addressed through the 

proposal as described above. For 

example, although overlapping, each 

auction will be started in a sequence 


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304See proposed Options 3A, Sections 12(c)(3) 

and 13(c)(3). While the current rules are silent in 

this regard, the Exchange notes that its proposal 

will follow current SOM and PIM behavior. See 

generally Options 3, Sections 11(d) and 13. 

305While this behavior is not specified in the 

Exchange’s current rules, auction responses are 

currently handled in the same manner for SOM and 

PIM. See generally Options 3, Sections 11(d)(2) and 

13(c). 

306See supra note 138 and accompanying text. 

307As noted above, while this feature is not 

explicitly stated in the current SOM rules in 

Options 3, Section 13(d), it is consistent with 

current SOM functionality. 

308See supra note 151. 

309See supra note 155. 

310See supra note 158. 

311See proposed Supplementary Material .03 to 

Options 3A, Section 11 and Supplementary 

Material .03 to Options 3A, Section 12. 

312See Supplementary Material .09 to Options 3, 

Section 11 and Supplementary Material .10 to 

Options 3, Section 13). 

313See supra note 158. 

and with a time that will determine its 

processing. Thus, even if there are two 

auctions that commence and conclude, 

at nearly the same time, each auction 

will have a distinct conclusion at which 

time the auction will be allocated. 

Additionally, FLEX Orders submitted 

into an electronic FLEX Auction will be 

able to execute only against FLEX 

responses submitted to that auction. If 

market participants desire to have 

interest execute against both FLEX 

Orders subject to concurrent FLEX 

Auctions, market participants may 

submit responses to both auctions. 

Additionally, the proposed concurrent 

auction feature is materially identical to 

Cboe’s electronic FLEX Auction feature 

in Cboe Rule 5.72(c)(2)(B). 

M. FLEX PIM and FLEX SOM (Sections 

12 and 13) 

The Exchange believes that the FLEX 

PIM and FLEX SOM Auctions as 

described in proposed Sections 12 and 

13, respectively, will remove 

impediments to and perfect the 

mechanism of a free and open market, 

and protect investors and the public 

interest. The proposed FLEX PIM and 

FLEX SOM Auctions will offer market 

participants with auction mechanisms 

for the execution of FLEX Options at 

potentially improved prices that are 

substantially similar to Cboe’s FLEX 

AIM and FLEX SAM set forth in Cboe 

Rule 5.73 and 5.74, respectively, except 

for certain intended differences to align 

to the Exchange’s current PIM and SOM 

auction functionality to allow the 

proposed FLEX PIM and SOM Auctions 

to fit more seamlessly into the 

Exchange’s market. For instance, the 

Exchange will not allow prices to be 

expressed as percentages in FLEX PIM 

or FLEX SOM as it does not have this 

capability today. For FLEX SOM, the 

Exchange will not allow the Solicited 

Order to be comprised of multiple 

solicited orders in FLEX SOM to be 

consistent with current non-FLEX SOM 

functionality in Options 3, Section 

11(d). The Exchange will also align the 

minimum increment requirements for 

stock-tied FLEX complex strategies 

submitted into FLEX PIM or FLEX SOM 

with its existing requirements for stocktied non-FLEX complex strategies in 

Options 3, Section 14(c)(1). The 

Exchange will also follow current nonFLEX PIM and SOM behavior by 

allowing the FLEX PIM or FLEX SOM 

Auction to end at the market close with 

an execution (if an execution is 

permitted pursuant to proposed Section 

12 or Section 13, as applicable) in the 

event the designated length of the 

auction period exceeds the market 

close.304 In doing so, the Exchange’s 

proposal will promote executions in 

FLEX PIM and FLEX SOM (instead of 

cancelling the FLEX Order) while also 

preventing executions after the market 

close. Furthermore, pursuant to Sections 

12(c)(5)(B) and 13(c)(5)(B) (as 

applicable), the Exchange would not 

allow Members to submit multiple 

FLEX PIM or FLEX SOM responses 

using the same badge/mnemonic and 

would also not aggregate all of those 

responses at the same price in order to 

align to current PIM and SOM 

functionality for non-FLEX Orders. 

Additionally, the Exchange will also 

specify that an additional FLEX PIM or 

SOM response from the same badge/ 

mnemonic for the same auction ID will 

automatically replace the previous 

FLEX PIM or SOM response.305 The 

Exchange will also align to current PIM 

functionality by allowing a limited 

exception to the restriction in proposed 

Section 12(c)(4) against modifying or 

canceling a FLEX PIM Agency Order or 

Initiating Order by allowing Initiating 

Members to improve the price of their 

Initiating Orders.306 The Exchange will 

also align to current SOM functionality 

by allowing Initiating Members to 

cancel (but not modify) their FLEX SOM 

Agency Orders and Solicited Orders 

pursuant to proposed Section 

13(c)(4).307

The Exchange will also align certain 

aspects of the proposed FLEX PIM 

allocation methodology with its current 

non-FLEX PIM allocation methodology. 

First, the Exchange will base the 

allocation percentages set forth in 

proposed Section 12(e)(1)(B)(ii) on the 

original size of the Agency Order, 

instead of the number of contract 

remaining after execution against 

Priority Customer responses like Cboe 

Rule 5.73(e)(1)(B)(ii). As noted above, 

this will align to current PIM behavior 

in Options 3, Section 13(d)(3). Second, 

the Exchange will specify two limited 

scenarios in proposed Section 

12(e)(1)(B) where the Initiating Member 

could receive an allocation percentage 

that is greater than the Initiating 

Member’s guaranteed allocation (i.e., 

when there are remaining contracts after 

including all PIM responses or when 

rounding up). As noted above, while 

Cboe does not have these exceptions 

noted in Cboe Rule 5.73(e)(1)(B), this 

will be consistent with current PIM 

behavior.308 Third, the Exchange will 

specify in proposed Section 12(e)(2)(B) 

that other FLEX PIM responses at prices 

better than the final auction price will 

be allocated in time priority and all 

other FLEX PIM responses at the final 

auction price will be allocated on a Size 

Pro-Rata Basis.309 Fourth, the Exchange 

will replace Cboe’s last priority 

allocation in Cboe Rule 5.73(e)(4) with 

a guaranteed allocation feature in 

proposed Section 12(e)(4), which will be 

similar to a current PIM feature 

currently in Options 3, Section 13(d)(3) 

that allows Members to request a lower 

percentage than their guaranteed 

allocation.310 For both FLEX PIM and 

FLEX SOM, the Exchange will also 

specify that if an allocation would result 

in less than one contract, then one 

contract will be allocated.311 This 

would align to current SOM and PIM 

allocation.312 As noted above, all of the 

foregoing features are consistent with 

the Exchange’s current PIM and SOM 

auction functionality for non-FLEX 

Orders, so the Exchange believes that 

this will promote consistency for 

Members participating across different 

auctions on ISE. 

As it relates to FLEX PIM’s proposed 

guaranteed allocation percentages of 

50% (if there is a response(s) from one 

other Member) or 40% (if there are 

responses from two or more Members), 

these percentages will align to other 

options exchanges as noted above.313

While the foregoing percentages for 

FLEX PIM differ from the current 

guaranteed allocation percentage of 40% 

for the Exchange’s non-FLEX PIM, the 

Exchange does not believe that this 

percentage difference will put market 

participants using one type of PIM 

auction (i.e., FLEX versus non-FLEX 

PIM) on ISE at a competitive 

disadvantage against market 

participants using the other PIM auction 

type. FLEX PIM is a separate auction 

functionality and can only be used for 

FLEX Options. Once a FLEX Option 

series becomes fully fungible with an 

identical non-FLEX Option series, that 


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314See proposed Options 3A, Sections 12(e) and 

13(e). As noted above, this is also consistent with 

the Exchange’s current priority and allocation 

methodology for non-FLEX auctions, including 

SOM and PIM. See Options 3, Section 11(d)(3)(C) 

and Section 13(d). 

315See supra notes 211–214. 

316Today, all ISE Market Makers are required to 

enter into a Letter of Guarantee pursuant to Options 

6, Section 4. Cboe Rule 3.61(e) separately requires 

FLEX Market Makers to provide a Letter of 

non-FLEX Option series can no longer 

be submitted into a FLEX PIM auction 

and must instead be entered into one of 

the Exchange’s other auction 

mechanisms (such as standard PIM) if 

the market participant desires to utilize 

an auction mechanism. Furthermore, 

the FLEX market is unique in that there 

is no order book, no opening, and no 

quoting versus its standard non-FLEX 

market which has all of those features 

and therefore has a myriad of other 

ways in which market participants may 

access liquidity. The Exchange therefore 

does not believe offering a different 

guaranteed allocation percentage for its 

FLEX PIM would place market 

participants using non-FLEX PIM at a 

competitive disadvantage given the 

reasons set out above. 

Otherwise, the general frameworks of 

the proposed FLEX PIM and FLEX SOM 

Auctions in Sections 12 and 13 (such as 

the eligibility requirements, stop price 

requirements, auction process and 

conclusion, and execution provisions) 

are consistent with the frameworks for 

Cboe’s FLEX AIM and FLEX SAM in 

Cboe Rules 5.73 and 5.74, respectively. 

The clarity in how FLEX PIM and FLEX 

SOM will function and their 

consistency with similar auctions at 

another exchange will help promote a 

fair and orderly national options market 

system. For example, the proposed 

range for the length of each of the FLEX 

PIM and FLEX SOM Auction periods is 

consistent with the range for the auction 

periods of the Cboe’s FLEX AIM and 

FLEX SAM Auctions in Cboe Rules 

5.73(c)(3) and 5.74(c)(3), respectively. 

Like Cboe, the Exchange believes it is 

appropriate to provide a reasonable and 

sufficient amount of time in which 

market participants may submit 

responses because of the unique terms 

of FLEX Options. Therefore, the 

Exchange is proposing that the 

minimum length of a FLEX PIM or 

FLEX SOM Auction be three seconds. 

The Exchange also proposes a maximum 

length of an auction period to be five 

minutes, as the Exchange also believes 

it is appropriate to provide for efficient 

and timely executions so that customers 

do not potentially miss a market. The 

proposed rule change also requires the 

Initiating Member to establish the length 

of the auction period (which will be 

included in the auction notification 

message), as the Member is in the best 

position to determine a reasonable 

period of time to provide other Members 

to respond based on the complexity of 

the FLEX Option series that is the 

subject of the auction, as well as based 

on market conditions (for example, in a 

volatile market, the Member may 

believe it is in the best interests of a 

customer to have a shorter auction 

period given quickly changing prices). 

The proposal will also allow FLEX 

PIM and FLEX SOM Auctions to occur 

concurrently with other FLEX PIM and 

FLEX SOM Auctions. As discussed 

above, the Exchange is aligning with 

current Cboe FLEX AIM and FLEX SAM 

behavior in Cboe Rules 5.73(c)(1) and 

5.74(c)(1), respectively. Like Cboe, the 

Exchange does not believe that allowing 

FLEX PIM and FLEX SOM Auctions to 

overlap would raise any issues that are 

not addressed by proposal. For example, 

although overlapping, each FLEX PIM 

or FLEX SOM Auction will be started in 

a sequence and with a duration that 

determines its processing. Thus, even if 

there are two FLEX PIM or FLEX SOM 

Auctions that commence and conclude, 

at nearly the same time, each Auction 

will have a distinct conclusion at which 

time the Auction will be allocated, and 

only against responses submitted into 

that Auction. As discussed above, each 

FLEX PIM or FLEX SOM response is 

required to specifically identify the 

FLEX PIM or FLEX SOM Auction, 

respectively, for which it is targeted and 

if not fully executed, will be cancelled 

back at the conclusion of the Auction. 

Thus, responses will be specifically 

considered and executed only in the 

specified Auction. As a general matter, 

issues with concurrent auctions can 

relate to the interaction of auctioned 

orders with contra-side interest resting 

on the book at the end of various 

auctions. As noted above, there will be 

no order book available for FLEX 

trading, so there can be no conflict 

among contra-side interest resting on 

the book and FLEX PIM or FLEX SOM 

responses with respect to executions. 

Further, because there is no book for 

FLEX Options, there are no events that 

cause a FLEX PIM or FLEX SOM to 

conclude prior to the end of auction 

exposure period that would result in an 

execution, and therefore, the same event 

could not cause multiple auctions to 

conclude early. 

Like Cboe, the Exchange will apply a 

Size Pro-Rata execution algorithm with 

a Priority Customer overlay for FLEX 

PIM and FLEX SOM.314 The Exchange 

believes that the proposed priority and 

allocation rules for FLEX PIM and FLEX 

SOM will ensure a fair and orderly 

market by maintaining the priority of 

orders and protecting Priority Customer 

orders, while still affording the 

opportunity for price improvement 

during each FLEX PIM and FLEX SOM 

Auction commenced on the Exchange. 

N. Risk Protections (Section 14) 

The Exchange believes that specifying 

the risk protections in proposed Options 

3A, Section 14 will benefit investors 

with additional transparency regarding 

which of the Exchange’s risk protections 

in Options 3, Sections 15 (simple order 

risk protections, 16 (complex order risk 

protections), and 28 (optional risk 

protections) would apply to FLEX 

trading. The Exchange also believes that 

applying the foregoing risk protections 

to FLEX Options will protect investors 

and the public interest, and maintain 

fair and orderly markets, by providing 

market participants with more tools to 

manage their risk. In addition, providing 

Members with more tools for managing 

risk facilitates transactions in FLEX 

Options because Members will have 

more confidence that risk protections 

are in place. As a result, apply the 

foregoing risk protections has the 

potential to promote just and equitable 

principles of trade. 

O. Data Feeds (Section 15) 

The Exchange believes that specifying 

the data feeds in proposed Options 3A, 

Section 15 will benefit investors with 

additional transparency regarding 

which data feeds it will disseminate 

auction notifications for simple and 

complex FLEX Orders. As discussed 

above, the Exchange proposes to 

disseminate auction notifications for 

simple FLEX Orders through the Order 

Feed and auction notifications for 

complex FLEX Orders through the 

Spread Feed, which will be consistent 

with how non-FLEX simple and 

complex auction notifications are 

disseminated today. 

P. FLEX Market Makers and Letters of 

Guarantee (Sections 16 and 17) 

The Exchange believes that the 

proposed FLEX Market Maker 

provisions in Section 16 will provide 

clarity and transparency as to how FLEX 

Market Makers are appointed and their 

related obligations. As noted above, 

these provisions are substantially 

similar to other options exchanges, 

notably Cboe and Phlx.315

Pursuant to proposed Section 17, the 

Exchange will ensure that all FLEX 

transactions effected by FLEX Market 

Makers will be covered by an effective 

Letter of Guarantee.316 The Exchange 


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Guarantee issued by a clearing member and filed 

with the Exchange accepting responsibility for all 

FLEX transactions made by the FLEX Market 

Maker. 

317See Cboe Rules 8.35(a), (b), (d), and 8.42(g) 

and ISE Options 4A, Sections 6(a), 7(a)(1), 9(a)(13), 

and 9(a)(14). 

318See proposed Options 3A, Section 18(c)(3) and 

Section 19(a)(3). See also Cboe Rules 8.35(d)(3) and 

8.42(g)(3); NYSE Arca Rules 5.35–O(a)(iii), (b) and 

5.36–O; NYSE American Rules 906G and 907G; and 

Phlx Options 8, Section 34(e) and (f). 

319See Securities Exchange Act Release No. 

42223 (December 10, 1999), 64 FR 71158, 71159 

(December 20, 1999) (SR–Amex–99–40) (SR–PCX– 

99–41) (SR–CBOE–99–59) (Order Granting 

Accelerated Approval to Proposed Rule Change 

Relating to the Permanent Approval of the 

Elimination of Position and Exercise Limits for 

FLEX Equity Options). 

320See id. 

believes that the Letter of Guarantee will 

protect investors and the public interest 

because it signifies that the clearing 

member has accepted financial 

responsibility for transactions in all 

options entered into by the Market 

Maker, which will protect the 

counterparties of those trades and such 

protections will flow to other clearing 

members and ultimately to the OCC as 

the central counterparty and guarantor 

of both FLEX and non-FLEX Option 

transactions. The Exchange will notify 

all clearing members of the new FLEX 

rules to confirm that all clearing 

members’ Letters of Guarantee will 

cover all financial responsibilities for all 

FLEX transactions by FLEX Market 

Makers, and will require additions to 

their effective Letters of Guarantee to 

provide full coverage, where necessary. 

The Exchange believes this will ensure 

that all FLEX Market Makers will be 

covered by effective Letters of Guarantee 

for their FLEX transactions. 

Q. Position and Exercise Limits 

(Sections 18 and 19) 

Position and exercise limits are 

designed to address potential 

manipulative schemes and adverse 

market impacts surrounding the use of 

options, such as disrupting the market 

in the security underlying the options. 

While position and exercise limits 

should address and discourage the 

potential for manipulative schemes and 

adverse market impact, if such limits are 

set too low, participation in the options 

market may be discouraged. The 

Exchange believes that any decision 

regarding imposing position and 

exercise limits for FLEX Options must 

therefore be balanced between 

mitigating concerns of any potential 

manipulation and the cost of inhibiting 

potential hedging activity that could be 

used for legitimate economic purposes. 

As it relates to FLEX Index Options, 

the Exchange believes that the proposed 

position and exercise limits in Sections 

18(a), 18(c), and 19(a) are reasonably 

designed to prevent a Member from 

using FLEX Index Options to evade the 

position limits applicable to comparable 

non-FLEX Index Options. Further, by 

establishing the proposed position and 

exercise limits for FLEX Index Options 

and, importantly, aggregating such 

positions in the manner described in 

proposed Sections 18(c)(1), (c)(2), and 

19(a)(3), the Exchange believes that the 

position and exercise limit requirements 

for FLEX Index Options should help to 

ensure that the trading of FLEX Index 

Options would not increase the 

potential for manipulation or market 

disruption and could help to minimize 

such incentives. The Exchange also 

notes that proposed position and 

exercise limits are consistent with the 

rules of another options exchanges that 

offer FLEX Index Options, as well as the 

rules of its own standard non-FLEX 

index options market, and therefore 

raise no novel issues for the 

Commission.317

As it relates to FLEX Equity Options, 

while no position limits are proposed 

for FLEX Equity Options, there are 

several mitigating factors, which 

include aggregation of FLEX Equity 

Option and non-FLEX Equity Option 

positions that expire on a third Fridayof-the-month and subjecting those 

positions to position and exercise limits, 

and daily monitoring of market activity. 

Similar to the other exchanges that trade 

FLEX Equity Options, the Exchange 

believes that eliminating position and 

exercise limits for FLEX Equity Options, 

while requiring positions in FLEX 

Equity Options that expire on a third 

Friday-of-the-month to be aggregated 

with positions in non-FLEX Equity 

Options on the same underlying 

security,318 removes impediments to 

and perfects the mechanism of a free 

and open market and a national market 

system because it allow the Exchange to 

create a product and market that is an 

improved but comparable alternative to 

the OTC market in customized options. 

OTC transactions occur through 

bilateral agreements, the terms of which 

are not publicly disclosed to the 

marketplace. As such, OTC transactions 

do not contribute to the price discovery 

process that exists on a public exchange. 

The Exchange believes that the 

proposed elimination of position and 

exercise limits for FLEX Equity Options 

may encourage market participants to 

transfer their liquidity demands from 

OTC markets to exchanges and enable 

liquidity providers to provide additional 

liquidity to ISE through transactions in 

FLEX Equity Options. The Exchange 

notes that the Commission previously 

approved the elimination of position 

and exercise limits for FLEX Equity 

Options, finding that such elimination 

would allow exchanges ‘‘to better 

compete with the growing OTC market 

in customized equity options, thereby 

encouraging fair competition among 

brokers and dealers and exchange 

markets.’’ 319 The Commission has also 

stated that the elimination of position 

and exercise limits for FLEX Equity 

Options ‘‘could potentially expand the 

depth and liquidity of the FLEX equity 

market without significantly increasing 

concerns regarding intermarket 

manipulations or disruptions of the 

options or the underlying securities.’’ 320

Additionally, the Exchange believes 

that requiring positions in FLEX Equity 

Options that expire on a third Friday-ofthe-month to be aggregated with 

positions in non-FLEX Equity Options 

on the same underlying security 

subjects FLEX Equity Options and nonFLEX Equity Options to the same 

position and exercise limits on third 

Friday-of-the-month expirations. These 

limitations are intended to serve as a 

safeguard against potential adverse 

effects of large FLEX Equity Option 

positions expiring on the same day as 

non-FLEX Equity Option positions. As 

noted above, Cboe Rules 8.35(d)(3) and 

8.42(g)(3) have the same requirements. 


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321The Exchange notes that it is responsible for 

FINRA’s performance under this regulatory services 

agreement. 

322See Cboe Rules 8.35(d) and 8.42(g); and Phlx 

Options 8, Section 34(e) and (f). 

323See supra notes 243 and 244. 324See supra notes 243 and 244. 

The Exchange believes that any 

potential risk of manipulative activity is 

mitigated by existing surveillance 

technologies, procedures, and reporting 

requirements at the Exchange, which 

allows the Exchange to properly identify 

disruptive and/or manipulative trading 

activity. In addition to its own 

surveillance programs, the Exchange 

also works with other SROs and 

exchanges on intermarket surveillance 

related issues. Through its participation 

in ISG, the Exchange shares information 

and coordinates inquiries and 

investigations with other exchanges 

designed to address potential 

intermarket manipulation and trading 

abuses. The Exchange also notes that 

FINRA conducts cross-market 

surveillances on behalf of the Exchange 

pursuant to a regulatory services 

agreement.321 The Exchange also 

represents that it is reviewing its 

procedures to detect potential 

manipulation in light of any changes 

required for FLEX Options to confirm 

appropriate surveillance coverage and 

would make any changes that the 

Exchange believes are necessary for 

FLEX trading. These procedures utilize 

daily monitoring of market activity via 

automated surveillance techniques to 

identify unusual activity in both options 

and their underlying securities and are 

designed to protect investors and the 

public interest by ensuring that the 

Exchange has an adequate surveillance 

program in place. 

The Exchange believes that proposed 

Section 18(b)(2) and (3) further mitigates 

concerns for potential market 

manipulation and/or disruption in the 

underlying markets and thus protects 

investors and the public interest 

because position reporting will be 

required (other than for a Market Maker) 

and the Exchange may determine that a 

higher margin requirement is necessary 

in light of the risks associated with a 

FLEX Equity Option position in excess 

of the standard limit for non-FLEX 

Equity Options of the same class. The 

Exchange may, pursuant to its authority 

under Options 6C, Section 5, impose 

additional margin upon the account 

maintaining such under-hedged 

position as a safeguard against potential 

adverse effects of large FLEX Equity 

Option positions. The Exchange notes 

that the clearing firm carrying the 

account will be subject to capital 

charges under SEC Rule 15c3–1 to the 

extent of any margin deficiency 

resulting from a higher margin 

requirement imposed by the Exchange. 

Lastly, the Exchange notes that other 

exchanges currently trading FLEX 

options have similar position and 

exercise limits described above.322

R. Cash-Settled FLEX ETF Options 

Introducing cash-settled FLEX ETF 

Options will increase order flow to the 

Exchange, increase the variety of 

options products available for trading, 

and provide a valuable tool for investors 

to manage risk. 

The Exchange believes that the 

proposal to permit cash settlement as a 

contract term for options on the 

specified group of equity securities 

would remove impediments to and 

perfect the mechanism of a free and 

open market as cash-settled FLEX ETF 

Options would enable market 

participants to receive cash in lieu of 

shares of the underlying security, which 

would, in turn provide greater 

opportunities for market participants to 

manage risk through the use of a cashsettled product to the benefit of 

investors and the public interest. The 

Exchange does not believe that allowing 

cash settlement as a contract term for 

options on the specified group of equity 

securities would render the marketplace 

for equity options more susceptible to 

manipulative practices. As illustrated in 

the table above, each of the qualifying 

underlying securities is actively traded 

and highly liquid and thus would not be 

susceptible to manipulation because, 

over a six-month period, each security 

had an average daily notional value of 

at least $500 million and an ADV of at 

least 4,680,000 shares, which indicates 

that there is substantial liquidity present 

in the trading of these securities, and 

that there is significant depth and 

breadth of market participants providing 

liquidity and of investor interest. The 

Exchange believes the proposed biannual review to determine eligibility 

for an underlying ETF to have cash 

settlement as a contract term would 

remove impediments to and perfect the 

mechanism of a free and open market as 

it would permit the Exchange to select 

only those underlying ETFs that are 

actively traded and have robust 

liquidity as each qualifying ETF would 

be required to meet the average daily 

notional value and average daily volume 

requirements, as well as to select the 

same underlying ETFs on which other 

exchanges may list cash-settled FLEX 

ETF Options.323

The Exchange believes the proposed 

change that, for FLEX ETF Options, at 

least one of exercise style, expiration 

date, and exercise price must differ from 

options in the non-FLEX market will 

provide clarity and eliminate confusion 

regarding permissible terms of FLEX 

ETF Options, including the proposed 

cash-settled FLEX ETF Options. 

The Exchange believes that the data 

provided by the Exchange supports the 

supposition that permitting cash 

settlement as a FLEX term for the 46 

underlying ETFs that would currently 

qualify to have cash settlement as a 

contract term would broaden the base of 

investors that use FLEX Equity Options 

to manage their trading and investment 

risk, including investors that currently 

trade in the OTC market for customized 

options, where settlement restrictions 

do not apply. 

The Exchange believes that the 

proposal to permit cash settlement for 

certain FLEX ETF options would 

remove impediments to and perfect the 

mechanism of a free and open market 

because the proposed rule change 

would provide members and member 

organizations with enhanced methods to 

manage risk by receiving cash if they 

choose to do so instead of the 

underlying security. In addition, this 

proposal would promote just and 

equitable principles of trade and protect 

investors and the general public because 

cash settlement would provide investors 

with an additional tool to manage their 

risk. Further, the Exchange notes that 

another exchange has previously 

received approval that allows for the 

trading of cash-settled options, and, 

specifically, cash-settled FLEX ETF 

Options in an identical manner as the 

Exchange proposes to list them pursuant 

to this rule filing.324 The proposed rule 

change therefore should not raise issues 

for the Commission that it has not 

previously addressed. 

The proposed rule change to permit 

cash settlement as a contract term for 

options on up to 50 ETFs is designed to 

promote just and equitable principles of 

trade in that the availability of cash 

settlement as a contract term would give 

market participants an alternative to 

trading similar products in the OTC 

market. By trading a product in an 

exchange-traded environment (that is 

currently traded in the OTC market), the 

Exchange would be able to compete 

more effectively with the OTC market. 

The Exchange believes the proposed 

rule change is designed to prevent 

fraudulent and manipulative acts and 

practices in that it would lead to the 

migration of options currently trading in 

the OTC market to trading on the 

Exchange. Also, any migration to the 

Exchange from the OTC market would 


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325Among other things, ISE’s regulatory program 

include cross-market surveillance designed to 

identify manipulative and other improper trading, 

including spoofing, algorithm gaming, marking the 

close and open, as well as more general abusive 

behavior related to front running, wash sales, and 

quoting/routing, which may occur on the Exchange 

and other markets. Furthermore, the Exchange 

stated that it has access to information regarding 

trading activity in the pertinent underlying 

securities as a member of ISG. As it relates to Reg 

SHO violations, the Exchange will enforce this 

through its Stock-Tied Reg SHO price protections 

in Options 3, Section 16(e). See supra note 205 for 

Stock-Tied Reg SHO discussion. NES will only 

execute Stock-Option Strategies and Stock-Complex 

Strategies if the underlying covered security 

component is in accordance with Rule 201 of 

Regulation SHO. 

326 15 U.S.C. 78s(g). 

327 15 U.S.C. 78k(a). Section 11(a)(1) prohibits a 

member of a national securities exchange from 

effecting transactions on that exchange for its own 

account, the account of an associated person, or an 

account over which it or its associated person 

exercises investment discretion unless an exception 

applies. 

328 15 U.S.C. 78k(a)(1)(A). 

329 15 U.S.C. 78k(a)(1)(G) and 17 CFR 240.11a1– 

1(T). 

330 17 CFR 240.11a2–2(T). 

result in increased market transparency. 

Additionally, the Exchange believes the 

proposed rule change is designed to 

remove impediments to and to perfect 

the mechanism for a free and open 

market and a national market system, 

and, in general, to protect investors and 

the public interest in that it should 

create greater trading and hedging 

opportunities and flexibility. The 

proposed rule change should also result 

in enhanced efficiency in initiating and 

closing out positions and heightened 

contra-party creditworthiness due to the 

role of OCC as issuer and guarantor of 

the proposed cash-settled options. 

Further, the proposed rule change 

would result in increased competition 

by permitting the Exchange to offer 

products that are currently available for 

trading only in the OTC market and are 

approved to trade on another options 

exchange. 

The Exchange believes that 

establishing position limits for cashsettled FLEX ETF Options to be the 

same as physically settled options on 

the same underlying security, and 

aggregating positions in cash-settled 

FLEX ETF Options with physically 

settled options on the same underlying 

security for purposes of calculating 

position limits is reasonable and 

consistent with the Act. By establishing 

the same position limits for cash-settled 

FLEX ETF Options as for physically 

settled options on the same underlying 

security and, importantly, aggregating 

such positions, the Exchange believes 

that the position limit requirements for 

cash-settled FLEX ETF Options should 

help to ensure that the trading of cashsettled FLEX ETF Options would not 

increase the potential for manipulation 

or market disruption and could help to 

minimize such incentives. For the same 

reasons, the Exchange believes the 

proposed exercise limits are reasonable 

and consistent with the Act. 

Finally, the Exchange represents that 

it has an adequate surveillance program 

in place to detect manipulative trading 

in cash-settled FLEX ETF Options and 

the underlying ETFs. Regarding the 

proposed cash settlement, the Exchange 

would use the same surveillance 

procedures currently utilized for the 

Exchange’s other FLEX Options. For 

surveillance purposes, the Exchange 

would have access to information 

regarding trading activity in the 

pertinent underlying ETFs. The 

Exchange believes that limiting cash 

settlement to no more than 50 

underlying ETFs (currently, 46 ETFs 

would be eligible to have cashsettlement as a contract term) would 

minimize the possibility of 

manipulation due to the robust liquidity 

in both the equities and options 

markets. 

As a self-regulatory organization, the 

Exchange recognizes the importance of 

surveillance, among other things, to 

detect and deter fraudulent and 

manipulative trading activity as well as 

other violations of Exchange rules and 

the federal securities laws. As discussed 

above, ISE has adequate surveillance 

procedures in place to monitor trading 

in cash-settled FLEX ETF Options and 

the underlying securities, including to 

detect manipulative trading activity in 

both the options and the underlying 

ETF.325 The Exchange further notes the 

liquidity and active markets in the 

underlying ETFs, and the high number 

of market participants in both the 

underlying ETFs and existing options 

on the ETFs, helps to minimize the 

possibility of manipulation. The 

Exchange further notes that under 

Section 19(g) of the Act, the Exchange, 

as a self-regulatory organization, is 

required to enforce compliance by its 

members and persons associated with 

its members with the Act, the rules and 

regulations thereunder, and the rules of 

the Exchange.326 The Exchange believes 

its surveillance, along with the liquidity 

criteria and position and exercise limits 

requirements, are reasonably designed 

to mitigate manipulation and market 

disruption concerns and will permit it 

to enforce compliance with the 

proposed rules and other Exchange 

rules in accordance with Section 19(g) 

of the Act. The Exchange performs 

ongoing evaluations of its surveillance 

program to ensure its continued 

effectiveness and will continue to 

review its surveillance procedures on an 

ongoing basis and make any necessary 

enhancements and/or modifications that 

may be needed for the cash settlement 

of FLEX ETF Options. 

Additionally, the Exchange will 

monitor any effect additional options 

series listed under the proposed rule 

change will have on market 

fragmentation and the capacity of the 

Exchange’s automated systems. The 

Exchange will take prompt action, 

including timely communication with 

the Commission and with other selfregulatory organizations responsible for 

oversight of trading in options, the 

underlying ETFs, and the ETFs’ 

component securities, should any 

unanticipated adverse market effects 

develop. 

S. Section 11(a) Analysis 

The Exchange believes that the 

proposed FLEX rules in Options 3A, 

including the proposed electronic FLEX 

Auction in Options 3A, Section 11(b), 

proposed FLEX PIM in Options 3A, 

Section 12, and proposed FLEX SOM in 

Options 3A, Section 13, are consistent 

with Section 11(a)(1) of the Act 327 and 

the rules promulgated thereunder. 

Generally, Section 11(a)(1) of the Act 

restricts any member of a national 

securities exchange from effecting any 

transaction on such exchange for (i) the 

member’s own account, (ii) the account 

of a person associated with the member, 

or (iii) an account over which the 

member or a person associated with the 

member exercises investment discretion 

(collectively referred to as ‘‘covered 

accounts’’), unless a specific exemption 

is available. Examples of common 

exemptions include the exemption for 

transactions by broker dealers acting in 

the capacity of a market maker under 

Section 11(a)(1)(A),328 the ‘‘G’’ 

exemption for yielding priority to nonmembers under Section 11(a)(1)(G) of 

the Act and Rule 11a1–1(T) 

thereunder,329 and the ‘‘Effect vs. 

Execute’’ exemption under Rule 11a2– 

2(T) under the Act.330 The ‘‘Effect vs. 

Execute’’ exemption permits an 

exchange member, subject to certain 

conditions, to effect transactions for 

covered accounts by arranging for an 

unaffiliated member to execute 

transactions on the exchange. To 

comply with Rule 11a2–2(T)’s 

conditions, a member: (i) must transmit 

the order from off the exchange floor; 

(ii) may not participate in the execution 

of the transaction once it has been 

transmitted to the member performing 


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331The member may, however, participate in 

clearing and settling the transaction. 

332See, e.g., Securities Exchange Act Release Nos. 

95445 (August 8, 2022), 87 FR 49894 (August 12, 

2022) (SR–MEMX–2022–10) (approving options 

trading on MEMX Options); 61419 (January 26, 

2010), 75 FR 5157 (February 1, 2010) (SR–BATS– 

2009–031) (approving BATS options trading); 59154 

(December 23, 2008), 73 FR 80468 (December 31, 

2008) (SR–BSE–2008–48) (approving equity 

securities listing and trading on BSE); 57478 (March 

12, 2008), 73 FR 14521 (March 18, 2008) (SR– 

NASDAQ–2007–004 and SR–NASDAQ–2007–080) 

(approving NOM options trading); 53128 (January 

13, 2006), 71 FR 3550 (January 23, 2006) (File No. 

10–131) (approving The Nasdaq Stock Market LLC); 

44983 (October 25, 2001), 66 FR 55225 (November 

1, 2001) (SR–PCX–00–25) (approving Archipelago 

Exchange); 29237 (May 24, 1991), 56 FR 24853 

(May 31, 1991) (SR–NYSE–90–52 and SR–NYSE– 

90–53) (approving NYSE’s Off-Hours Trading 

Facility); and 15533 (January 29, 1979), 44 FR 6084 

(January 31, 1979) (‘‘1979 Release’’). 

333The submitting Member may cancel a FLEX 

Auction prior to the end of the exposure interval. 

See proposed Options 3A, Section 11(b)(2)(C). 

Members may modify or cancel FLEX responses 

during the exposure interval. See Options 3A, 

Section 11(b)(2)(D)(v). An Initiating Member may 

not cancel or modify an Agency Order or Initiating 

Order after it has been submitted into FLEX PIM, 

except to improve the price of the Initiating Order. 

See proposed Options 3A, Section 12(c)(4). 

Members may modify or cancel their responses after 

being submitted to into a FLEX PIM. See proposed 

Options 3A, Section 12(c)(5)(F). An Initiating 

Member may not modify an Agency Order or 

Solicited Order after it has been submitted into 

FLEX SOM. See proposed Options 3A, Section 

13(c)(4). Members may modify or cancel their 

responses after being submitted to into a FLEX 

SOM. See proposed Options 3A, Section 12(c)(5)(F). 

The Commission has stated that the 

nonparticipation requirement does not preclude 

members from cancelling or modifying orders, or 

from modifying instructions for executing orders, 

after they have been transmitted so long as the 

modifications or cancellations are also transmitted 

from off the floor. See Securities Exchange Act 

Release No. 14563 (March 14, 1978), 43 FR 11542, 

11547 (the ‘‘1978 Release’’). 

334See id. 

335 In considering the operation of automated 

execution systems operated by an exchange, the 

Commission noted that, while there is not an 

independent executing exchange member, the 

execution of an order is automatic once it has been 

transmitted into the system. Because the design of 

these systems ensures that members do not possess 

any special or unique trading advantages in 

handling their orders after transmitting them to the 

exchange, the Commission has stated that 

executions obtained through these systems satisfy 

the independent execution requirement of Rule 

11a2–2(T). See 1979 Release. 

336See 17 CFR 240.11a2–2(T)(a)(2)(iv). In 

addition, Rule 11a2–2(T)(d) requires a member or 

associated person authorized by written contract to 

retain compensation, in connection with effecting 

transactions for covered accounts over which such 

member or associated persons thereof exercises 

investment discretion, to furnish at least annually 

to the person authorized to transact business for the 

account a statement setting forth the total amount 

of compensation retained by the member in 

connection with effecting transactions for the 

account during the period covered by the statement 

which amount must be exclusive of all amounts 

paid to others during that period for services 

rendered to effect such transactions. See also 1978 

Release, at 11548 (stating ‘‘[t]he contractual and 

disclosure requirements are designed to assure that 

accounts electing to permit transaction-related 

compensation do so only after deciding that such 

arrangements are suitable to their interests’’). 

the execution; 331 (iii) may not be 

affiliated with the executing member; 

and (iv) with respect to an account over 

which the member has investment 

discretion, neither the member nor its 

associated person may retain any 

compensation in connection with 

effecting the transaction except as 

provided in the Rule. For the reasons set 

forth below, the Exchange believes that 

Members entering orders and responses 

into the electronic FLEX Auction 

pursuant to proposed Options 3A, 

Section 11(b), FLEX PIM pursuant to 

proposed Options 3A, Section 12, and 

FLEX SOM pursuant to proposed 

Options 3A, Section 13 would satisfy 

the requirements of Rule 11a2–2(T). 

Rule 11a2–2(T)’s first requirement is 

that orders for covered accounts be 

transmitted from off the exchange floor. 

The Exchange does not operate a 

physical trading floor. In the context of 

automated trading systems, the 

Commission has found that the off-floor 

transmission requirement is met if a 

covered account order is transmitted 

from a remote location directly to an 

exchange’s floor by electronic means.332

The Exchange represents that the 

System and the proposed FLEX auction 

mechanisms described above will 

receive all FLEX Orders and FLEX 

responses electronically through remote 

terminals or computer-to-computer 

interfaces. The Exchange represents that 

FLEX Orders and FLEX responses for 

covered accounts from Members will be 

transmitted from a remote location 

directly to the proposed FLEX auction 

mechanisms described above by 

electronic means. 

The second condition of Rule 11a2– 

2(T) requires that neither a member nor 

an associated person participate in the 

execution of its order once the order is 

transmitted to the floor for execution. 

The Exchange represents that, upon 

submission to the FLEX Auction, FLEX 

PIM, or FLEX SOM, a FLEX Order or 

FLEX response will be executed 

automatically pursuant to the rules set 

forth in proposed Options 3A, Section 

11(b) (for FLEX Auctions), Section 12 

(for FLEX PIM), and Section 13(for 

FLEX SOM). In particular, execution of 

a FLEX Order (including the Agency 

and the Initiating or Solicited Order, as 

applicable) or a FLEX response sent to 

the applicable auction mechanism 

depends not on the Member entering the 

FLEX Order or FLEX response, but 

rather on what other FLEX responses are 

present and the priority of those FLEX 

responses. Thus, at no time following 

the submission of a FLEX Order or 

FLEX response is a Member or any 

associated person of such Member able 

to acquire control or influence over the 

result or timing of the FLEX Order or 

FLEX response execution.333 Once the 

FLEX Order (including the Agency 

Order and Initiating or Solicited Order 

(as applicable)) has been transmitted, 

the Member that transmitted such order 

into the FLEX Auction, FLEX PIM, or 

FLEX SOM (as applicable) will not 

participate in the execution of the FLEX 

Order. Members submitting the FLEX 

Orders (including the Agency Orders 

and Initiating or Solicited Orders (as 

applicable)) into the applicable FLEX 

auction mechanisms will relinquish 

control to cancel their FLEX Orders 

entered into the FLEX Auction, or 

modify or cancel their Agency Orders 

and Initiating or Solicited Orders (as 

applicable) entered into FLEX PIM and 

FLEX SOM.334 Further, no Member, 

including the Member submitting the 

FLEX Order into the applicable FLEX 

auction mechanisms described above, 

will see FLEX responses submitted into 

any of the FLEX auction mechanisms 

and therefore will not be able to 

influence or guide the execution of their 

FLEX Orders or FLEX responses, as 

applicable. 

Rule 11a2–2(T)’s third condition 

requires that the order be executed by 

an exchange member who is unaffiliated 

with the member initiating the order. 

The Commission has stated that the 

requirement is satisfied when 

automated exchange facilities, such as 

the FLEX Auction, FLEX PIM, and FLEX 

SOM are used, as long as the design of 

these systems ensures that members do 

not possess any special or unique 

trading advantages in handling their 

orders after transmitting them to the 

exchange.335 The Exchange represents 

that the FLEX Auction, FLEX PIM, and 

FLEX SOM are designed so that no 

Member has any special or unique 

trading advantage in the handling of its 

FLEX Orders after transmitting its FLEX 

Orders to the applicable FLEX auction 

mechanism. 

Rule 11a2–2(T)’s fourth condition 

requires that, in the case of a transaction 

effected for an account with respect to 

which the initiating member or an 

associated person thereof exercises 

investment discretion, neither the 

initiating member nor any associated 

person thereof may retain any 

compensation in connection with 

effecting the transaction, unless the 

person authorized to transact business 

for the account has expressly provided 

otherwise by written contract referring 

to Section 11(a) of the Act and Rule 

11a2–2(T) thereunder.336 The Exchange 


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337 In approving the proposed rule change, the 

Commission has considered its impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

338 15 U.S.C. 78f(b)(1) and (5). 

339 15 U.S.C. 78f(b)(5). 

340 15 U.S.C. 78f(b)(1). 

341See proposed Options 3A, Section 1(b) which 

defines a FLEX Option as a ‘‘flexible exchange 

option’’ and includes FLEX Options on an equity 

security (a ‘‘FLEX Equity Option’’) and on an index 

(a ‘‘FLEX Index Option’’), 

342See supra note 23. All of the exchanges trade 

FLEX Options in open outcry on their respective 

trading floors, while Cboe also offers electronic 

FLEX Options trading. 

343See Amendment No. 1, at 145. 

344The term ‘‘System’’ means the electronic 

system operated by the Exchange that receives and 

disseminates quotes, executes orders and reports 

transactions. See Options 1, Section 1(a)(50). 

345For example, the Exchange states it is not 

proposing to add open outcry FLEX Options trading 

as it does not have a trading floor. See Notice, 89 

FR 22295 n. 15. 

346For example, proposed Options 3A, Section 10 

states that the Exchange simple and complex order 

books will not be available for FLEX Options. 

347 In its proposal, ISE described the FLEX rules 

of Cboe upon which its proposed FLEX rules are 

based and, where there were differences, described 

those and the reasons for those differences. For 

example, the Exchange stated it primarily based its 

rules on Cboe but omitted certain rules that are 

floor based because it doesn’t have a trading floor, 

such as Cboe Rule 5.75(b) which sets for the 

responsibilities of FLEX Officials, including the 

responsibility to nullify certain FLEX Option 

transactions that do not conform to Cboe’s FLEX 

rules, and to call upon a FLEX Market-Maker with 

Continued 

recognizes that Members relying on 

Rule 11a2–2(T) for transactions effected 

pursuant to the proposed FLEX rules, 

and in particular through the applicable 

FLEX auction mechanisms described 

above, must comply with this condition 

of the Rule and the Exchange will 

enforce this requirement pursuant to its 

obligations under Section 6(b)(1) of the 

Act to enforce compliance with federal 

securities laws. 

The Exchange therefore believes that 

the proposed rules in Options 3A 

governing FLEX trading, including the 

proposed FLEX Auction, FLEX PIM, and 

FLEX SOM, are consistent with Rule 

11a2–2(T). 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on intra-market competition 

that is not necessary or appropriate in 

furtherance of the purposes of the Act, 

as all Members who wish to trade FLEX 

Options will be able to trade such 

options in the same manner. 

Additionally, positions in FLEX Options 

of all Members will be subject to the 

same position limits, and such positions 

will be aggregated in the same manner 

as described in proposed Section 18(c). 

The Exchange also does not believe 

that the proposed rule change will 

impose any burden on inter-market 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. As discussed 

above, other options exchanges 

currently offer electronic FLEX trading 

and cash-settled FLEX ETF Options on 

their respective markets. The Exchange 

believes that its proposal will allow ISE 

to compete with these other exchanges 

and provide an additional execution 

venue for these transactions for market 

participants. Thus, the Exchange 

believes that its proposal will promote 

inter-market competition by increasing 

the number of exchanges where 

electronic FLEX trading and cash-settled 

FLEX ETF Options will be available. 

The proposal also promotes inter-market 

competition by providing another 

alternative (i.e., exchange markets) to 

bilateral OTC trading of options with 

flexible terms. Exchange markets, in 

contrast with bilateral OTC trading, are 

centralized, transparent, and have the 

guarantee of OCC for options traded. 

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. Discussion and Commission 

Findings 

After careful review, the Commission 

finds that the proposed rule change, as 

modified by Amendment No. 1, is 

consistent with the requirements of the 

Exchange Act and the rules and 

regulations thereunder applicable to a 

national securities exchange.337 In 

particular, the Commission finds that 

the proposed rule change, as amended, 

is consistent with Section 6(b)(1) and 

6(b)(5) 338 of the Exchange Act. Section 

6(b)(5) of the Exchange Act 339 requires, 

among other things, that the rules of a 

national securities exchange be 

designed to prevent fraudulent and 

manipulative acts and practices; to 

promote just and equitable principles of 

trade; to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, and 

processing information with respect to, 

and facilitating transactions in 

securities; to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system; and, in general, to protect 

investors and the public interest. 

Section 6(b)(5) also requires that the 

rules of a national securities exchange 

not be designed to permit unfair 

discrimination among customers, 

issuers, brokers, or dealers. Further, the 

Commission finds that the proposed 

rule change, as amended, is consistent 

with Section 6(b)(1) of the Exchange 

Act,340 which requires, among other 

things, that a national securities 

exchange be so organized and have the 

capacity to carry out the purposes of the 

Exchange Act, and to comply and 

enforce compliance by its members and 

persons associated with its members, 

with the provisions of the Exchange Act, 

the rules and regulations thereunder. 

Specifically, the Exchange is 

proposing to list and trade FLEX 

Options 341 on the Exchange’s electronic 

market. FLEX Options allow market 

participants to customize certain 

specified terms (i.e., expiration date, 

exercise price and exercise style) of 

equity and index options. The Exchange 

states that FLEX Options are currently 

traded on the Chicago Exchange, Inc. 

(‘‘Cboe’’), NYSE American LLC (‘‘NYSE 

American’’), NYSE Arca, Inc. (‘‘NYSE 

Arca’’), Nasdaq PHLX LLC (‘‘Phlx’’), and 

FLEX Equity Options are currently 

traded on BOX Exchange LLC 

(‘‘BOX’’).342 The Exchange further states 

that it believes its proposal will allow 

the Exchange to compete with these 

other exchanges and provide an 

additional execution venue in FLEX 

Options for market participants.343

The Exchange has proposed to allow 

for the trading of FLEX Options on its 

electronic market in a substantially 

similar manner as Cboe’s electronic 

FLEX Options, with certain differences 

primarily intended to align its rules to 

current System 344 and auction behavior 

in order to provide increased 

consistency for Members trading FLEX 

Options and non-FLEX Options on 

ISE.345 While the trading procedures 

applicable to FLEX Options will be 

similar to those for trading non-FLEX 

Options under the Exchange’s electronic 

System, as discussed in more detail 

below, proposed Options 3A will 

specifically address the trading of FLEX 

Options including rules to address their 

customized nature as well as those nonFLEX options rules that are not 

applicable to FLEX Options.346 The 

Exchange’s proposal is also consistent 

with the FLEX rules of other national 

securities exchanges that trade FLEX 

Options, and according to the Exchange 

are primarily based on, with certain 

exceptions, CBOE FLEX rules.347 The 


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an appointment in a FLEX Option class to respond 

to open outcry FLEX Auctions in that FLEX Option 

class when no other ICMP’s respond. See, e.g., 

Amendment No. 1, at note 18. See also Amendment 

No. 1, at pages 146–153 for a list of the similar rules 

and differences between Cboe rules and new 

Exchange Rule Options 3A. 

348See proposed Options 3A, Section 1(a) that 

sets forth the applicability of Exchange Rules and 

provides that Options 3A Rules apply only to FLEX 

Options and that trading of FLEX Options will be 

subject to all other Rules applicable to the trading 

of options on the Exchange, unless otherwise 

provided in Options 3A. 

349See supra note 83. Because of the customized 

nature of FLEX Options and that there are no preestablished outstanding series in FLEX Options 

such options are not continuously quoted and there 

is no national best bid and offer in FLEX Options. 

350See supra note 347. 

351Proposed Section 3(b) would allow the 

Exchange to approve a FLEX Option series for 

trading in any FLEX Option class it may authorize 

for trading pursuant to proposed Section 3(a). 

352See Securities Exchange Act Release No. 

101128 (September 20, 2024), 89 FR 78942 

(September 26, 2024) (SR–ISE–2024–03). See also 

Amendment No. 1, at 14. 

353See proposed Options 3A, Section 18(b)(1)(A). 

354See Proposed Options 3A Section 3(b)(2). The 

Exchange represented that the Exchange’s System 

will enforce this provision such that it will reject 

an opening position in an expiring FLEX Option 

series on the day of expiration. See Amendment No. 

1, at 15, note 3. See also Proposed Options 3A 

Section 3(d) when expiration falls on a holiday. 

355This is because in the event a Non-FLEX 

Equity Option with identical terms to a FLEX 

Equity Option is listed intraday, OCC could not net 

the positions in the contracts until the next day 

potentially leading to assignment risk. See 

Securities Exchange Act Release No. 62321 (June 

17, 2010), 75 FR at 36131 (June 24, 2010). 

356See Securities Exchange Act Release No. 

59417 (February 18, 2009), 74 FR 8591 (February 

25, 2009) (Order providing for fungibility of FLEX 

and non-FLEX option series with same terms upon 

listing of non-FLEX option series). 

Commission believes that the 

Exchange’s proposal is designed to 

provide investors with a tailored or 

customized product for equity and 

index options that can be traded on the 

Exchange that may be more suitable to 

their investment needs. For the reasons 

described in more detail below, the 

Commission believes the proposal is 

consistent with the Exchange Act. 

A. FLEX Equity and Index Options 

Requirements 

1. General Provisions (Section 1) 

FLEX Options traded on the Exchange 

will generally be subject to the same 

rules that apply to the trading of equity 

options and index options on the 

Exchange, unless otherwise provided in 

proposed Options 3A Rules.348 Among 

other things, proposed Options 3A 

Rules will provide the framework under 

which FLEX Options would be eligible 

for trading on the Exchange, including, 

but not limited to, the terms under 

which FLEX Options would be available 

(detailing the underlying security, type, 

exercise price and style, and expiration 

date), the form of settlement, fungibility 

provisions, minimum quoting and 

trading increments, exercise by 

exception requirements, position and 

exercise limits, trading halts and letters 

of guarantee. In addition, there will be 

no simple or complex order books 

available for FLEX Options which is 

consistent with the rules of other 

national securities exchanges that trade 

FLEX Options.349 FLEX Options, as 

discussed in more detail below, will be 

traded by orders being inputted into the 

Exchange’s electronic FLEX Auction, 

FLEX Price Improvement Auction 

(FLEX PIM), or FLEX Solicited Order 

Mechanism (‘‘SOM’’). As the Exchange 

states these auction functionalities are 

similar to the Systems for executing 

non-FLEX options with differences to 

accommodate the customized nature of 

FLEX Options and that there is no order 

book available or continuous quotes in 

FLEX Options. As stated by the 

Exchange FLEX Options in its electronic 

market will trade in a substantially 

similar manner to Cboe’s electronic 

FLEX Options. Further, the Exchange 

has represented that it has conducted a 

thorough review of its existing trading 

rules to ensure that the proposed Rules 

in Options 3A accurately reflect the 

application of the Exchange’s non-FLEX 

Option trading rules to FLEX Options, 

as well as those non-FLEX Options 

trading rules that would not apply to 

FLEX Options. The ISE proposal, as 

stated above, is also consistent with the 

FLEX rules of other national securities 

exchanges that trade FLEX Options.350

2. FLEX Option Classes, Permissible 

Series and Fungibility (Section 3) 

Proposed Section 3(a) allows the 

Exchange to authorize for trading a 

FLEX Option class on any equity 

security, with the exception of the 

iShares Bitcoin Trust ETF (‘‘IBIT’’), or 

index if it may authorize for trading a 

non-FLEX Option class on that equity 

security or index, even if the Exchange 

does not list that non-FLEX Option class 

for trading.351 The Exchange proposes to 

exclude IBIT from being eligible for 

trading as a FLEX Option on ISE to be 

consistent with the Commission’s 

approval of IBIT options, which 

required the position limit for IBIT 

options to be 25,000 contracts.352 As 

discussed in the position limits section 

below, there will generally be no 

position limits for FLEX Equity 

Options.353 For clarity, this exclusion 

will apply to both physically-settled and 

cash-settled FLEX ETF options, such 

that IBIT options will be excluded from 

being eligible to trade as a physicallysettled or a cash-settled FLEX ETF 

option. If the Exchange determines to 

allow FLEX trading on IBIT options at 

a later date, it will do so by submitting 

a 19b–4 rule filing with the 

Commission. 

FLEX Options will only be permitted 

in puts and calls that do not have the 

same exercise style (American or 

European), same expiration date and 

same exercise price as Non-FLEX 

Options that are already available for 

trading on the same underlying security, 

provided the option is otherwise eligible 

for trading. The Exchange states that its 

System enforces these requirements and 

that its System will not accept a FLEX 

Order for a put or call FLEX Option 

series if a non-FLEX Option series on 

the same underlying security or index 

with the same expiration date, exercise 

price, and exercise style is already listed 

for trading. Under the proposal a FLEX 

Order for a FLEX Option may be 

submitted on any trading day prior to 

the expiration date although on the 

expiration date, a FLEX Order for the 

expiring FLEX Option series may only 

be submitted to close out a position in 

such expiring FLEX Option series.354

FLEX Options can also be listed 

before an option with identical terms is 

listed for trading as a non-FLEX Option. 

Proposed Section 3(d)(1) provides that if 

the Exchange lists for trading a nonFLEX Option series with identical terms 

as a FLEX Option series, (A) all existing 

open positions established under the 

FLEX trading procedures will become 

fully fungible with transactions in the 

identical non-FLEX Option series and 

(B) any further trading in the series 

would be as non-FLEX Options subject 

to non-FLEX trading procedures and 

rules. If a non-FLEX Option Series is 

added intraday, for the balance of that 

trading day, a position established 

under the FLEX trading procedures may 

be closed using the FLEX trading 

procedures only against another closing 

only FLEX position.355 The Exchange 

will notify Members when a FLEX 

Option series is restricted to closing 

only transactions and the System will 

reject a transaction in such a restricted 

series that does not conform to the 

requirements specified in proposed 

Section 3(d). 

As the Commission has previously 

stated, it has been concerned about 

FLEX Options acting as a surrogate for 

trading in standardized non-FLEX 

Options given the protections for 

investors in the non-FLEX Options 

market, and the fungibility provisions 

could help to mitigate some of these 

concerns.356 The Commission continues 

to believe that requiring FLEX Options 


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357The expiration date may be any business day 

(specified to the day, month, and year) no more 

than 15 years from the date on which a member 

submits a FLEX Order to the system. See proposed 

Options 3A, Section 3(c)(4). 

358 Id. As noted above, for Third-Friday 

expirations ISE currently only has authority to trade 

non-FLEX on the NDX and therefore would only be 

allowed to trade P.M.-settled Third-Friday-of-theMonth index options on the NDX. See Securities 

Exchange Act Release No. 98935 (November 14, 

2023), 88 FR 80792 (November 20, 2023) (SR–ISE– 

2023–20). 

359See Securities Exchange Act Release Nos. 

99222 (December 21, 2023) (SR–CBOE–2023–018) 

(order making permanent the operation of Cboe’s 

FLEX Options pilot program regarding permissible 

exercise settlement values for FLEX Index Options); 

98454 (September 20, 2023) (SR–CBOE–2023–005) 

(order approving proposed rule change to make 

permanent the operation of a program that allows 

the Exchange to list p.m.-settled third Friday-of-themonth SPX options series) (‘‘SPXPM Approval’’); 

98455 (September 20, 2023) (SR–CBOE–2023–019) 

(order approving proposed rule change to make 

permanent the operation of a program that allows 

the Exchange to list p.m.-settled third Friday-of-themonth XSP and MRUT options series) (‘‘XSP and 

MRUT Approval’’); and 98456 (September 20, 2023) 

(SR–CBOE–2023–020) (order approving proposed 

rule change to make the nonstandard expirations 

pilot program permanent) (‘‘Nonstandard 

Approval’’). See also Securities Exchange Act 

Release Nos. 98450 (September 20, 2023), 88 FR 

66111 (September 26, 2023) (SR–ISE–2023–08) 

(order approving proposed rule change to make 

permanent certain p.m.-settled pilots); and 98935 

(November 14, 2023), 88 FR 80792 (November 20, 

2023) (SR–ISE–2023–20) (order approving a 

proposed rule change to permit the listing and 

trading of p.m.-settled Nasdaq-100 Index® Options 

with a third-Friday-of-the-month expiration). 360See Amendment No. 1, at note 75. 

to be fungible with their non-FLEX 

counterparts could help to address the 

surrogacy concerns and ensure that 

market participants can avail 

themselves of the protections provided 

in the standardized market. 

The proposed rule text should 

provide greater transparency around the 

Exchange’s listing standards and ensure 

that the listing and trading of FLEX 

Options is consistent with ISE’s 

approval order of IBIT options. 

3. FLEX Options Terms (Section 3(c)) 

Proposed Section 3(c) specifies the 

terms that must be included in a FLEX 

Order. Such terms include: (1) the 

underlying equity security or index; (2) 

the type of option (i.e., put or call); (3) 

the exercise style (American or 

European); (4) the expiration date with 

terms no longer than 15 years; 357 (5) the 

settlement type; and (6) the exercise 

price, in increments no smaller than 

$0.01. The Exchange may determine the 

smallest increment for exercise prices of 

FLEX Options on a class-by-class basis, 

without going lower than $0.01. 

The Exchange has noted that the 

terms applicable to FLEX Options are 

consistent with rules previously 

approved by the Commission for other 

exchanges in that they will permit 

investors to customize some of the terms 

of their FLEX Options to implement 

more precise trading strategies. 

Under the proposal, settlement for 

index options can be either a.m. 

(settlement value determined by 

reported opening prices of component 

securities) or p.m. (settlement value 

determined by reported closing prices of 

component securities). The Exchange 

has proposed to permit p.m. settlement 

in FLEX Index Options, including on 

the third Friday of the month (known as 

‘‘Expiration Fridays’’) similar to that 

approved for another national securities 

exchange. In the context of approving 

CBOE’s Flex PM Pilot on a permanent 

basis the Commission stated that the 

CBOE’s pilot data and reports, 

demonstrated that its pm pilot has 

benefited investors and other market 

participants by providing more flexible 

trading and hedging opportunities while 

also having shown no evidence of an 

adverse impact on the market. The 

Commission further stated, among other 

things, that the market for FLEX PM 

Third Friday Options had remained 

relatively small compared to non-FLEX 

p.m.-settled index options and the 

studies and analysis of the pilot data did 

not identify any adverse market impact 

on the underlying indexes, components 

of those indexes or related products or 

any significant impact on market quality 

of a.m.-settled index options.358 The 

Commission has made similar 

conclusions in approving rules on p.m. 

settlement for non-FLEX Options 

including on the P.M.-settled Nasdaq100 Index (‘‘NDX’’) Options with a 

Third-Friday-of-the-Month 

expiration.359 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. 

4. Types of Orders; Order and Quote 

Protocols (Sections 6 and 7) 

Proposed Section 6(a) provides that 

the Exchange may determine to make 

only the Limit Order and Cancel and 

Replace Order order types available on 

a class or System basis for FLEX Orders. 

The Exchange may also determine to 

make only the Immediate-or-Cancel 

time-in-force available on a class or 

System basis for FLEX Orders. Proposed 

Section 6(b) provides that the only order 

and quote protocols that will be 

available for FLEX Orders, FLEX 

auction notifications, and FLEX auction 

responses are: FIX (‘‘Financial 

Information eXchange’’); OTTO (‘‘Ouch 

to Trade Options’’); and SQF 

(‘‘Specialized Quote Feed’’). 

Proposed Section 6 could aid in FLEX 

Order executions and should provide 

greater transparency as to which order 

and quote protocols will be available for 

FLEX Orders, FLEX auction 

notifications, and FLEX auction 

responses. 

Proposed Section 7(a) covers the 

operation of complex orders, include a 

Complex Options Order, Stock-Options 

Order, and Stock-Complex Order. Each 

leg of a complex FLEX Order: (1) must 

be for a FLEX Option series authorized 

for FLEX trading with the same 

underlying equity security or index; (2) 

must have the same exercise style; and 

(3) for a FLEX Index Option, may have 

a different settlement type (a.m.-settled 

or p.m.-settled). Also, each options leg 

of a complex order cannot go below the 

$0.01 minimum increment. 

Proposed Section 7 will provide 

investors with additional transparency 

regarding order entry of complex FLEX 

Options and will remove impediments 

to and perfect the mechanism of a free 

and open market, benefiting investors. 

5. Opening of FLEX Trading and 

Trading Halts (Sections 8 and 9) 

Proposed Section 8(a) provides that 

there will be no Opening Process. 

Members may begin submitting FLEX 

Orders into an electronic FLEX Auction 

pursuant to proposed Section 11(b), a 

FLEX PIM pursuant to proposed Section 

12, or a FLEX SOM pursuant to 

proposed Section 13 when the 

underlying security is open for trading. 

Proposed Options 3A, Section 8(a) and 

(b) are based on Cboe Rule 5.71, except 

with respect to open outcry trading and 

trading sessions outside of regular 

trading hours.360 The Exchange stated 

its belief that because market 

participants incorporate transaction 

prices of underlying securities or the 

value of underlying indexes when 

pricing options (including FLEX 

Options), the Exchange believes that it 

will benefit investors for FLEX Options 

trading to not be available until that 

information has begun to be 

disseminated in the market. 

In addition, proposed Section 9 

provides that the Exchange may halt 

trading in a FLEX Option and will 

always halt trading in a FLEX Options 

class when trading in a non-FLEX 

Options class with the same underlying 

equity security or index is halted on the 

Exchange. 

Proposed Section 9 adds clarity and 

transparency as to when FLEX Orders 

can be submitted since there is no 

opening process, as in the non-FLEX 


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361See proposed Options 3A, Section 11(b)(1)(F). 362See proposed Options 3A, Section 12(c)(3). 

363See Amendment No. 1, at 50–54. 

364See Amendment No. 1, at note 150. 

Options market, and when the Exchange 

would halt trading in FLEX Options. 

6. FLEX Options Auction Trading 

(Sections 11, 12 and 13) 

Proposed Section 11 details the 

procedures for FLEX trading on the 

Exchange. A FLEX Options series will 

only be eligible for trading if a Member 

submits a FLEX Order for that series 

into an electronic FLEX Auction 

pursuant to paragraph (b) of Options 11, 

or submits the FLEX Order to a FLEX 

PIM or FLEX SOM Auction pursuant to 

proposed Section 12 or proposed 

Section 13, respectively. Proposed 

Section 11(a) specifies the requirements 

for simple and complex FLEX Orders 

while proposed Section 11(b) describes 

how the electronic FLEX Auction will 

work. 

The Exchange has represented that it 

will System enforce the stipulation that 

it will not accept simple or complex 

FLEX Orders if the FLEX Order or any 

leg of a complex FLEX Order, as 

applicable, has identical terms as a nonFLEX Option series that is already listed 

for trading. The proposed FLEX Auction 

will offer market participants with an 

auction mechanism that offers 

potentially improved prices. The 

initiating Member must designate the 

length of the exposure interval for the 

order which must be between three 

seconds and five minutes, which is the 

same exposure time frame under Cboe’ 

electronic auction rules. Each auction 

will remain open for the designated 

time between three seconds and five 

minutes and if the designated time 

exceeds the market close, the auction 

will end at the market close with an 

execution, if permitted.361 The proposed 

FLEX Auction will promote executions 

in electronic FLEX Auctions while also 

preventing executions after the market 

close. In addition, the Exchange will not 

allow Members to submit multiple 

FLEX responses using the same badge/ 

mnemonic and will not aggregate all 

responses at the same price. Proposed 

Section 11(b)(2)(D) specifies that an 

additional FLEX response from the same 

badge/mnemonic for the same auction 

ID will automatically replace the 

previous FLEX response. 

The Exchange believes that having 

these features harmonized with the 

Exchange’s current auction functionality 

for non-FLEX Orders will promote 

consistency for Members participating 

across different auctions on ISE. 

Importantly, the Exchange has stated 

that its System will prohibit a FLEX 

Order from being accepted if it has the 

same terms (i.e., expiration date, 

exercise price, and exercise style) of a 

non-FLEX Option. 

Use of the electronic FLEX Auction, 

that is similar in function to existing 

functionality with differences to 

accommodate FLEX and the 

accompanying clarity this will provide 

to Members and market participants, 

should be beneficial to market 

participants and should be beneficial to 

market participants. 

Proposed Section 12 establishes the 

FLEX price improvement mechanism 

(‘‘PIM’’). The FLEX PIM is a price 

improvement mechanism auction that 

allows Members to provide price 

improvement opportunities for 

transactions. A Member may 

electronically submit for execution an 

order it represents as agent against 

principal interest or a solicited order(s), 

provided it submits the Agency Order 

for electronic execution into a FLEX 

PIM auction. The proposed FLEX PIM is 

substantially similar to Cboe’s FLEX 

AIM except that the FLEX PIM will not 

allow prices to be entered as a 

percentage value. Proposed Section 13 

establishes the FLEX solicited order 

mechanism (‘‘SOM’’) auction 

functionality for FLEX Options. The 

FLEX SOM is an auction that allows 

Members to submit complex orders for 

a single-price all-or-none execution. A 

Member may electronically submit for 

execution an order it represents as agent 

against a solicited order if it submits the 

Agency Order for electronic execution 

into a FLEX SOM auction. 

As with the FLEX Auction, the 

initiating Member must designate the 

length of the exposure interval for the 

order which must be between three 

seconds and five minutes. Both the 

FLEX PIM and FLEX SOM auctions will 

remain open for the designated time 

between three seconds and five minutes 

and if the designated time exceeds the 

market close, the auction will end at the 

market close with an execution, if 

permitted.362 The Exchange’s FLEX PIM 

and FLEX SOM, unlike Cboe’s FLEX 

PIM and FLEX SAM, respectively, 

specifies that if the designated length of 

the FLEX PIM or SOM auction period 

exceeds the market close, then the 

auction will end at the market close 

with an execution, if an execution is 

permitted. 

The FLEX Auctions, FLEX PIM and 

FLEX SOM rules also provide 

provisions on order execution priority 

and allocations. Generally, FLEX 

Auctions, FLEX PIM and FLEX SOM 

will apply the same priorities as it 

applies under its current rules for nonFLEX options. The System will execute 

trading interest at the best price with 

Priority Customers 363 having priority 

over non-Priority Customers at the same 

price with time priority (i.e., meaning 

that priority shall be afforded to Priority 

Customer orders in the sequence 

received by the System). Allocations 

generally follow the exiting rules for the 

exchange non-FLEX auctions but the 

Exchange is aligning its rule with 

CBOE’s rules instead of providing the 

standard 40% for standard PIM.364 The 

clarity in how FLEX PIM and FLEX 

SOM Auctions will function, as well as 

the explanations for the differences 

between the FLEX PIM and SOM and 

Cboe’s FLEX AIM and SAM, should be 

beneficial to market participants. 

7. Risk Protections (Section 14) 

Proposed Section 14 specifies which 

of the Exchange’s risk protections apply 

to FLEX trading. Specifically, the 

Market Wide Risk Protection and Size 

Limitation will be available to FLEX 

Options. Market Wide Risk Protections 

are mandatory activity-based 

protections that allow Members to 

establish limits for order entry and 

execution rate during a specified period 

of time. The Size Limitation is a limit 

on the number of contracts an incoming 

order may specify. Orders that exceed 

the maximum number of contracts are 

rejected. This maximum is established 

by the Exchange from time-to-time. 

Proposed Section 14(b) provides that 

the following complex order risk 

protections are available to FLEX 

Options: Strategy Protections (only to 

FLEX Auctions and FLEX responses in 

proposed Section 11(b)), Size 

Limitation, the Price Limit for Complex 

Order protection as applicable to the 

stock component, the Stock-Tied NBBO 

protections, and the Stock-Tied Reg 

SHO protections. The Exchange notes 

that the risk protections specified in 

proposed Sections 14(a) and 14(b) are 

mandatory. 

Proposed Section 14(c) provides that 

the following optional risk protections 

(from Options 3, Section 28) are 

available: (1) notional dollar value per 

order; (2) daily aggregate notional dollar 

value; (3) quantity per order; and (4) 

daily aggregate quantity. 

Applying these risk protections to 

FLEX Options will protect investors and 

the public interest, and may help with 

maintaining fair and orderly markets, by 

providing market participants with 

more tool with which to manage their 

risk. 


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Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices 95027 

365See Amendment No. 1, at 129. 

366The broad-based index options listing in 

Options 4A, Section 6(a) currently are options on 

Nasdaq 100 Index, Mini Nasdaq 100 Index; Nations 

VolDex Index, Nasdaq 100 Reduced Value Index; 

and Nasdaq Micro Index Options. 

367See proposed Options 3A, Section 18(a)(4). 

The Commission notes that these position limits are 

identical to those in place for Cboe. See Cboe Rules 

8.32 and 8.35. 

368See Amendment No. 1, at 76–77 and Proposed 

3A, Section 18(b)((1)(B). 

369The clearing firm carrying the account will be 

subject to capital charges under SEC Rule 15c3–1 

to the extent of any margin deficiency resulting 

from a higher margin requirement. 

370Proposed Options 3A, Section 19(a)(1) 

indicates that the minimum value size for FLEX 

Equity Option exercises shall be 25 contracts or the 

remaining size of the position, whichever is less. 

Proposed Options 3A, Section 19(a)(2) indicates 

that the minimum value size for FLEX Index Option 

exercises shall be $1 million in Underlying 

Equivalent Value (as defined in Section 19) or the 

remaining Underlying Value of the position, 

whichever is less. 

371See Amendment No. 1, at 80. 

8. FLEX Market Makers and Letters of 

Guarantee (Sections 16 and 17) 

Proposed Section 16 governs FLEX 

Market Makers. Proposed Section 16(a) 

provides that a FLEX Market Maker will 

automatically receive an appointment in 

the same FLEX option class(es) as its 

non-FLEX class appointments, but only 

the Primary Market Maker in the nonFLEX Option may be assigned Primary 

Market Maker in that FLEX Option. 

Proposed Section 16(b) provides that 

FLEX Market Makers do not need to 

provide continuous quotes in FLEX 

Options, but a FLEX Market Maker must 

fulfill all of the obligations of a Market 

Maker under Options 2 and must 

comply with the applicable provisions. 

Proposed Section 17(a) provides that 

no FLEX Market Maker shall effect any 

transactions in FLEX Options unless 

one or more effective Letter(s) of 

Guarantee has been issued by a Clearing 

Member and filed with the Exchange 

accepting financial responsibility for all 

FLEX transactions made by the FLEX 

Market Maker pursuant to Options 6, 

Section 4. The Letters of Guarantee for 

FLEX transactions of FLEX market 

makers should, as the Exchange states, 

help to protect investors and the public 

interest because they signify that the 

clearing member has accepted financial 

responsibility for such FLEX 

transactions thus protecting the 

counterparties to those trades.365

The provisions contained in proposed 

Sections 16 and 17 will provide 

additional clarity and transparency as to 

how FLEX Market Makers are appointed 

and their responsibilities and will 

ensure that the appropriate guarantees 

are available to market participants for 

FLEX transactions. 

9. Position Limits and Exercise Limits 

(Sections 18 and 19) 

Proposed Section 18 details the 

position limits for FLEX Options. 

Specifically, proposed Section 18(a) 

governs the position limits for FLEX 

Index Options and provides that FLEX 

Index Options will be subject to the 

same position limits governing nonFLEX index options in Options 4A, 

Sections 6 and 7. However, except as 

provided in Options 4A, Section 6(a) as 

set forth below, in no event shall the 

positions limits for broad-based FLEX 

Index Options exceed 25,000 contracts 

on the same side of the market. In 

addition, there shall be no position 

limits for those broad-based index 

options listed in Options 4A, Section 

6(a).366

Each Member (other than FLEX 

Market Makers) that maintains a FLEX 

broad-based index position on the same 

side of the market in excess of 100,000 

contracts in NDX or RUT for its own 

account, or for the account of a 

customer, shall report information as to 

whether the positions are hedged and 

provide documentation as to how such 

contracts are hedged, in the manner and 

form required by the Exchange. In 

addition, industry-based FLEX Index 

Options shall be subject to separate 

position limits of 18,000, 24,000, or 

31,500 contracts, depending on the 

position limit tier determined pursuant 

to Options 4A, Section 7(a)(1).367

Proposed Section 18(b) governs the 

position limits for FLEX Equity Options. 

Proposed Section 18(b)(1)(A) provides 

that there will generally be no position 

limits for FLEX Equity Options except 

for FLEX cash-settled ETFs, as 

discussed in detail below.368 Each 

Member (other than a Market Maker) 

that maintains a position on the same 

side of the market in excess of the 

standard limit under Options 9, Section 

13 for non-FLEX Equity Options of the 

same class on behalf of its own account 

or for the account of a customer shall 

report information on the FLEX Equity 

option position, positions in any related 

instrument, the purpose or strategy for 

the position and the collateral used by 

the account, in the form and manner 

prescribed by the Exchange. Whenever 

the Exchange determines that a higher 

margin requirement is necessary in light 

of the risks associated with a FLEX 

Equity Options position in excess of the 

standard position limit for Non-FLEX 

Equity Options of the same class, the 

Exchange may consider imposing 

additional margin upon the account 

maintaining such under-hedged 

position.369

Proposed Section 18(c) governs the 

aggregation of FLEX positions and states 

that for purposes of the position limits 

and reporting requirements, FLEX 

Option positions shall not be aggregated 

with positions in non-FLEX Options 

except in certain situations provided for 

in proposed Section 18(c) and in 

proposed Section 18(b)(1)(B) (setting 

forth position limits for cash-settled 

FLEX ETF options discussed below. 

Proposed Section 18(c)(1) states that 

commencing at the close of trading two 

business days prior to the last trading 

day of the calendar quarter, positions in 

P.M.-settled FLEX Index Options shall 

be aggregated with position in Quarterly 

Options Series on the same index with 

the same expiration and shall be subject 

to the position limits set forth in 

Options 4A, Section 6 or Section 7, as 

applicable. In addition, proposed 

Section 18(c)(2) states that commencing 

at the close of trading two business day 

prior to the last trading day of the week, 

positions in FLEX Index Options that 

are cash settled shall be aggregated with 

positions in Short Term Option Series 

on the same underlying with the same 

means for determining exercise 

settlement value and same expiration, 

and shall be subject to the position 

limits set forth in Options 4A, Section 

6 or Section 7, as applicable. Finally, 

proposed Section 18(c)(3) states that for 

as long as the options positions remain 

open, positions in FLEX Options that 

expire on the third Friday-of-the-month 

shall be aggregated with positions in 

non-FLEX Options on the same 

underlying security and shall be subject 

to the position limits set forth in 

Options 4A, Section 6 or Section 7, or 

Options 9, Section 13, as applicable, 

and the exercise limits set forth in 

Options 9, Section 15. 

Proposed Section 19(a) provides that 

exercise limits for FLEX Options shall 

be equivalent to the FLEX position 

limits prescribed in proposed Section 

18.370 In addition, there shall be no 

exercise limits for those broad-based 

index options listed in Options 4A, 

Section 6(a).371

The enhanced reporting requirements 

and margin provisions as well as the 

requirement that FLEX Options that 

expire on an Expiration Friday be 

subject to, and aggregated with, 

standard non-FLEX Options position 

and exercise limits are the same 

position and exercise limit requirements 

that apply under the rules of the other 

exchanges that currently trade FLEX 

Options. It is therefore appropriate for 

ISE to have the same position and 

exercise limit rules for FLEX Options as 

these other exchange markets. As the 

Commission has previously stated, 


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372The Commission, for example stated, in 

approving FLEX Equity Options with no position 

limits, that the monitoring of accounts should 

provide the Exchanges with information necessary 

to determine whether to impose additional margin 

and/or assess capital charges and also determine 

whether a large position could have an undue effect 

on the underlying market and to take the 

appropriate action. See Securities Exchange Act 

Release No. 42223 (December 10, 1999), 64 FR 

71158 (December 20, 1999) (Order approving the 

elimination of position and exercise limits for FLEX 

Equity Options). See also Securities Exchange Act 

Release No. 42346 (January 18. 2000), 65 FR 4010 

(January 25, 2000) (Order approving the elimination 

of position and exercise limits for FLEX Equity 

Options). 

373 Id. 

374See Securities Exchange Act Release No. 

99222 (December 21, 2023), 88 FR 89771 (December 

28, 2023) (SR–CBOE–2023–018). 

375 15 U.S.C. 78f(b)(5). 

376See Amendment No. 1, at 82–83. These are the 

same requirements that both Cboe and NYSE 

American have to trade FLEX-cash settled ETFs. 

See Securities Exchange Act Release No. 98044 

(August 2, 2023), 88 FR 53548 (August 8, 2023) 

(SR–Cboe–2023–036) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

To Allow Certain Flexible Exchange Equity Options 

To Be Cash Settled) and Securities Exchange Act 

Release No. 88131 (February 5, 2020), 85 FR 7806 

(February 11, 2020) (SR–NYSEAmer–2019–38) 

(Notice of Filing of Amendment No. 1 and Order 

Granting Accelerated Approval of a Proposed Rule 

Change, as Modified by Amendment No. 1, To 

Allow Certain Flexible Equity Options To Be Cash 

Settled). 

377See Amendment No. 1, at 14 and 87. 

378See Amendment No. 1, at note 248 and 

accompanying text. 

379See Securities Exchange Act Release No. 

82770 (February 23, 2018), 83 FR 8907, 8910 

(March 1, 2018) (SR–CBOE–2017–057). 

380The aggregation of position and exercise limits 

would include all positions on physically-settled 

FLEX and non-FLEX options on the same 

underlying ETFs. 

381See Amendment No. 1, at note 237 and 

accompanying text. 

382See Amendment No. 1, at 84. At the same 

time, the overall limit of 50 ETFs that can underlie 

cash settled FLEX ETF Options should also provide 

the Exchange with flexibility to add additional 

ETFs that meet the Exchange’s requirements given 

that the current eligible list of ETFs as of June 30, 

2024 contains 46 ETFs. 

while it cannot entirely rule out the 

potential for future adverse effects on 

the securities markets for the FLEX 

Options or component securities 

underlying FLEX Options, the 

continued enhanced market 

surveillance of positions should help 

the Exchange to take the appropriate 

action in order to avoid any 

manipulation or market risk 

concerns.372 The Commission expects 

ISE, as it has the other exchanges 

trading FLEX Options, to take prompt 

action including timely communication 

with the Commission and other 

marketplace self-regulatory 

organizations responsible for oversight 

of trading in FLEX Options and the 

underlying stocks, should any 

unanticipated adverse market effects 

develop. 

10. Summary 

The Commission notes that the listing 

and trading rules are modeled on FLEX 

rules previously approved by the 

Commission. Furthermore, the 

Commission believes that the Exchanges 

rules governing its hours of business, 

minimum increments, the trading 

auctions, position and exercise limits, 

letters of guarantee, and trading halts, 

among other things, are consistent with 

the Exchange Act, and Section 

6(b)(5) 373 therein. Finally, the 

Commission notes that the proposed 

rules are substantially similar to those 

already approved for other Exchanges, 

in particular, those of Cboe.374

B. Cash-Settled FLEX ETFs 

The Commission also believes, for the 

reasons discussed below, that the 

portion of the proposed rules to trade 

cash settled FLEX ETFs that meet 

certain specified criteria are consistent 

with the requirements of Section 6(b)(5) 

of the Act,375 which requires, among 

other things, that the rules of a national 

securities exchange be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. 

The Exchange’s proposal would allow 

cash settlement for FLEX Equity 

Options only on ETFs, and only where 

the underlying ETF, as measured over 

the prior six-month period, has (1) an 

average daily notional value of at least 

$500 Million; and (2) a national ADV of 

at least 4,680,000 shares.376 The 

Commission notes, and the Exchange 

has represented, that the 46 ETFs 377

currently eligible using the proposed 

criteria appear to be among some of the 

most liquid and actively-traded ETFs 

based on their average daily volume and 

average notional value. The Commission 

believes that, by limiting the trading of 

options permitted to have cash 

settlement to those with underlying 

ETFs and only where these ETFs are 

liquid and actively traded, along with 

the other proposed requirements, 

appears to be reasonably designed to 

mitigate concerns about the 

susceptibility to manipulation of such 

cash-settled FLEX ETF Options and 

their underlying ETFs and the potential 

for market disruption. Additionally, the 

proposed aggregated position and 

exercise limits and surveillance 

procedures discussed below, taken 

together with the liquid and active 

markets in the underlying eligible ETFs, 

also appears reasonably designed to 

address and mitigate concerns about the 

potential for manipulation and market 

disruption in markets for the options 

and the underlying securities. 

The Commission also notes that the 

Exchange has proposed to use the same 

position limits and exercise limits for 

cash-settled FLEX ETF Options that are 

applicable to the non-FLEX 

standardized options market, and to 

aggregate the positions in cash-settled 

FLEX ETF Options with all positions on 

physically-settled options on the same 

underlying ETF for purposes of 

calculating the position and exercise 

limits.378 This is structured the same as 

on other exchanges that currently trade 

cash-settled FLEX ETFs under the same 

criteria described above. The 

Commission has previously recognized 

that position and exercise limits serve as 

a regulatory tool designed to address 

manipulative schemes and adverse 

market impact surrounding the use of 

options and that the limits can be useful 

to prevent investors from disrupting the 

market in securities underlying the 

options as well as the options market 

itself.379 The Commission believes 

therefore that establishing position and 

exercise limits at the same levels as 

those in the non-FLEX standardized 

options market and aggregating those 

positions with all physically-settled 

options on the same underlying ETFs 380

can further help mitigate the concerns 

that the limits are designed to address 

about the potential for manipulation 

and market disruption in the options 

and the underlying securities. 

The Commission notes that the 

Exchange will conduct a biannual 

review of the underlying ETFs to 

determine whether they no longer meet 

the requirements for cash-settled FLEX 

ETF Options on those ETFs.381 The 

Commission believes that this 

requirement is a reasonable means to 

limit cash settlement to those FLEX ETF 

Options that only overlie ETFs that 

continue to meet the specified liquidity 

and trading volume standards. The 

Commission also believes that while, as 

part of the biannual review, the 

Exchange can identify new underlying 

ETFs that meet the requirements and are 

thus eligible for cash-settled FLEX ETF 

Options, limiting the number of 

qualifying underlying ETFs to 50 will 

prevent the scope of cash settlement on 

FLEX ETF Options from growing 

considerably without an evaluation 

about whether the level of the 

requirements remains reasonable.382

The Commission further believes that 

selecting the top 50 securities based on 

ETFs with the highest ADV, if more 

than 50 ETFs otherwise meet the 


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383See Amendment No. 1, at 84. 384See Amendment No. 1, at 99. The Exchange 

has represented that trading in cash-settled FLEX 

ETF Options will not commence until the related 

reporting requirements are finalized. See 

Amendment No. 1, at note 234. 

385See Amendment No. 1, at 97–98. Among other 

things, the Exchange noted that its regulatory 

program included cross-market surveillance 

designed to identify manipulative and other 

improper trading, including spoofing, algorithm 

gaming, marking the close and open, as well as 

more general abusive behavior related to front 

running, wash sales, quoting/routing, and Reg SHO 

violations, that may occur on the Exchange and 

other markets. Furthermore, the Exchange stated 

that it has access to information regarding trading 

activity in the pertinent underlying securities as a 

member of ISG. See Amendment No. 1, at note 317. 

386See Amendment No. 1, at 95. 

387 15 U.S.C. 78k(a)(1). 

388 17 CFR 240.11a2–2(T). 

389This prohibition also applies to associated 

persons. The member may, however, participate in 

clearing and settling the transaction. 

390See, e.g., Securities Exchange Act Release Nos. 

61419 (January 26, 2010), 75 FR 5157 (February 1, 

2010) (SR–BATS–2009–031) (approving BATS 

options trading); 59154 (December 23, 2008), 73 FR 

80468 (December 31, 2008) (SR–BSE–2008–48) 

(approving equity securities listing and trading on 

BSE); 57478 (March 12, 2008), 73 FR 14521 (March 

18, 2008) (SR–NASDAQ–2007–004 and SR– 

NASDAQ–2007–080) (approving NOM options 

trading); 53128 (January 13, 2006), 71 FR 3550 

(January 23, 2006) (File No. 10–131) (approving The 

Nasdaq Stock Market LLC); 44983 (October 25, 

Continued 

requirements in Section 3(c), appears to 

be a reasonable tiebreaker. In addition, 

the Commission notes that, should the 

Exchange determine, pursuant to the biannual review that an underlying ETF 

ceases to satisfy the requirements under 

Section 3(c), any new options position 

overlying such ETF would be required 

to have exercise settlement by physical 

delivery and any open cash-settled 

FLEX ETF Option positions may be 

traded only to close the position.383 The 

Commission believes that this provision 

is a reasonable means to address how to 

wind down an outstanding cash-settled 

FLEX ETF Option where the underlying 

ETF no longer qualifies under the 

liquidity and volume criteria, thereby 

addressing manipulation concerns, 

while still allowing market participants 

to close out positions. 

While two exchanges commenced 

trading FLEX cash settled ETFs in 

August, 2023 under similar rules as 

those proposed by ISE, the proposal is 

significant in that the large majority of 

exchange traded equity options are still 

physically settled and the proposal 

would allow options on ETFs that 

currently are only available to be traded 

on ISE with physical settlement to now 

have a cash-settlement alternative as a 

FLEX Option on the specified ETFs. The 

Exchange, acknowledging the ‘‘novel 

characteristics’’ of its proposal has 

committed to perform periodic data 

analyses with written assessments and 

to make such analyses and assessments 

available to the Commission on an 

annual basis for the first five years of 

trading in the subject options.384 As 

noted above, the Exchange has also 

stated that the reports will discuss any 

recommendations it has on 

enhancements to its proposed listing 

standards based on these reviews. The 

Commission notes that the annual 

reports will allow the Commission and 

the Exchange to evaluate, among other 

things, the impact such options have, 

and any potential adverse effects, on 

price volatility and the market for the 

underlying ETFs, the component 

securities underlying the ETFs, and the 

options on the same underlying ETFs 

and make appropriate 

recommendations, if any, in response to 

the reports. 

The Commission notes that 

surveillance is important, among other 

things, to detect and deter fraudulent 

and manipulative trading activity as 

well as other violations of Exchange 

rules and the federal securities laws. 

The Exchange has represented that it 

has adequate surveillance procedures in 

place to monitor trading in these 

options and the underlying securities, 

including to detect manipulative trading 

activity in both the options and the 

underlying ETF and to identify unusual 

and/or illegal trading activity.385 The 

Commission notes that the proposed 

surveillance, along with the liquidity 

criteria and position and exercise limits 

requirements, appear to be reasonably 

designed to mitigate manipulation 

concerns. The Exchange has represented 

that it will periodically review its 

surveillance procedures and make any 

enhancements and/or modifications that 

might be needed for cash settlement of 

FLEX ETF Options. 

The Commission notes that cashsettled FLEX ETF Options will be 

subject to the same trading rules and 

procedures that will govern the trading 

of FLEX Options on the Exchange, with 

the exception of the rules to 

accommodate the cash settlement 

feature being approved herein. The 

Commission also notes that the 

Exchange has represented that it will 

monitor any effect additional options 

series listed under the proposal have on 

market fragmentation and the capacity 

of the Exchange’s automated systems.386

Finally, the Commission expects that 

the Exchange will take prompt action, 

including timely communication with 

the Commission and with other selfregulatory organizations responsible for 

oversight of trading in options, the 

underlying ETFs, and the ETFs’ 

component securities, should any 

unanticipated adverse market effects 

develop. 

Based on the Exchange’s 

representations with respect to the 

proposed cash-settlement of FLEX 

Equity Options, whose underlying 

security is an ETF, and that the 

proposed rules are substantially similar 

to other exchanges trading similar FLEX 

Options as well as the on-going 

reporting requirement, the Commission 

believes this part of the Exchange’s 

proposal is consistent with the Act. 

C. Section 11(a) of the Exchange Act 

Section 11(a)(1) of the Act 387

prohibits a member of a national 

securities exchange from effecting 

transactions on that exchange for its 

own account, the account of an 

associated person, or an account over 

which it or its associated person 

exercises investment discretion 

(collectively, ‘‘covered accounts’’) 

unless an exception applies. Rule 11a2– 

2(T) under the Act,388 known as the 

‘‘effect versus execute’’ rule, provides 

exchange members with an exemption 

from the Section 11(a)(1) prohibition. 

Rule 11a2–2(T) permits an exchange 

member, subject to certain conditions, 

to effect transactions for covered 

accounts by arranging for an unaffiliated 

member to execute transactions on the 

exchange. To comply with Rule 11a2– 

2(T)’s conditions, a member: (i) must 

transmit the order from off the exchange 

floor; (ii) may not participate in the 

execution of the transaction once it has 

been transmitted to the member 

performing the execution; 389 (iii) may 

not be affiliated with the executing 

member; and (iv) with respect to an 

account over which the member or an 

associated person has investment 

discretion, neither the member nor its 

associated person may retain any 

compensation in connection with 

effecting the transaction except as 

provided in the Rule. For the reasons set 

forth below, the Commission believes 

that Members entering orders and 

responses into the electronic FLEX 

Auction, FLEX PIM and FLEX SOM 

could satisfy the requirements of Rule 

11a2–2(T). 

The Rule’s first condition is that 

orders for covered accounts be 

transmitted from off the exchange floor. 

In the context of automated trading 

systems, the Commission has found that 

the off-floor transmission requirement is 

met if a covered account order is 

transmitted from a remote location 

directly to an exchange’s floor by 

electronic means.390 ISE represents that 


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2001), 66 FR 55225 (November 1, 2001) (SR–PCX– 

00–25) (approving Archipelago Exchange); 29237 

(May 24, 1991), 56 FR 24853 (May 31, 1991) (SR– 

NYSE–90–52 and SR–NYSE–90–53) (approving 

NYSE’s Off-Hours Trading Facility); and 15533 

(January 29, 1979), 44 FR 6084 (January 31, 1979) 

(‘‘1979 Release’’). 

391See Amendment No. 1, at 141. 

392See Amendment No. 1, at 142–3 (also 

representing, among other things, that no Member, 

including the Member submitting the FLEX Order 

into the applicable FLEX auction mechanisms, will 

see FLEX responses submitted into any of the FLEX 

auction mechanisms and therefore will not be able 

to influence or guide the execution of their FLEX 

Orders or FLEX responses, as applicable). 

393See Amendment No. 1, at 142. The Exchange 

also states that the submitting Member may cancel 

a FLEX Auction prior to the end of the exposure 

interval. See proposed Options 3A, Section 

11(b)(2)(C). Members may modify or cancel FLEX 

responses during the exposure interval. See Options 

3A, Section 11(b)(2)(D)(v). An Initiating Member 

may not cancel or modify an Agency Order or 

Initiating Order after it has been submitted into 

FLEX PIM, except to improve the price of the 

Initiating Order. See proposed Options 3A, Section 

12(c)(4). Members may modify or cancel their 

responses after being submitted to into a FLEX PIM. 

See proposed Options 3A, Section 12(c)(5)(F). An 

Initiating Member may not modify an Agency Order 

or Solicited Order after it has been submitted into 

FLEX SOM. See proposed Options 3A, Section 

13(c)(4). Members may modify or cancel their 

responses after being submitted to into a FLEX 

SOM. See proposed Options 3A, Section 12(c)(5)(F). 

The Commission has stated that the nonparticipation condition is satisfied under such 

circumstances so long as such modifications or 

cancellations are also transmitted from off the floor. 

See Securities Exchange Act Release No. 14563 

(March 14, 1978), 43 FR 11542 (March 17, 1978) 

(‘‘1978 Release’’) (stating that the ‘‘nonparticipation requirement does not prevent 

initiating members from canceling or modifying 

orders (or the instructions pursuant to which the 

initiating member wishes orders to be executed) 

after the orders have been transmitted to the 

executing member, provided that any such 

instructions are also transmitted from off the 

floor’’). 

394 In considering the operation of automated 

execution systems operated by an exchange, the 

Commission noted that, while there is not an 

independent executing exchange member, the 

execution of an order is automatic once it has been 

transmitted into the system. Because the design of 

these systems ensures that members do not possess 

any special or unique trading advantages in 

handling their orders after transmitting them to the 

exchange, the Commission has stated that 

executions obtained through these systems satisfy 

the independent execution requirement of Rule 

11a2–2(T). See 1979 Release. 

395See Amendment No. 1, at 143. 

396 In addition, Rule 11a2–2(T)(d) requires a 

member or associated person authorized by written 

contract to retain compensation, in connection with 

effecting transactions for covered accounts over 

which such member or associated persons thereof 

exercises investment discretion, to furnish at least 

annually to the person authorized to transact 

business for the account a statement setting forth 

the total amount of compensation retained by the 

member or any associated person thereof in 

connection with effecting transactions for the 

account during the period covered by the statement. 

See 17 CFR 240.11a2–2(T)(d). See also 1978 

Release, at 11548 (stating ‘‘[t]he contractual and 

disclosure requirements are designed to assure that 

accounts electing to permit transaction-related 

compensation do so only after deciding that such 

arrangements are suitable to their interests’’). 

397See Amendment No. 1, at 144. 

398See Amendment No. 1, at 80. The Exchange 

noted that it will report FLEX Equity Options trades 

and, if necessary, trade cancels to OPRA. See 

Amendment No. 1, note 231. 

it does not operate a physical trading 

floor and that the System and the 

proposed FLEX auction mechanisms 

will receive all FLEX Orders and FLEX 

responses electronically through remote 

terminals or computer-to-computer 

interfaces.391 The Exchange also 

represents that FLEX Orders and FLEX 

Responses for covered accounts from 

Members will be transmitted from a 

remote location directly to the proposed 

auction mechanisms by electronic 

means. Therefore, the Commission 

believes that the proposed FLEX auction 

mechanisms satisfy the off-floor 

transmission requirement. 

Second, the Rule requires that the 

member and any associated person not 

participate in the execution of its order 

after the order has been transmitted. The 

Exchange represents that at no time 

following the submission of an order is 

a Member or any associated person of 

such Member able to acquire control or 

influence over the result or timing of the 

order’s execution.392 According to the 

Exchange, execution of a FLEX Order 

(including the Agency and Initiating or 

Solicited Order, as applicable) or a 

FLEX response sent to the applicable 

auction mechanism depends not on the 

Member entering the FLEX Order or 

FLEX response, but rather on what other 

FLEX responses are present and the 

priority of those FLEX responses.393

Accordingly, the Commission believes 

that a member does not participate in 

the execution of an order submitted to 

the proposed FLEX auction 

mechanisms. 

Third, Rule 11a2–2(T) requires that 

the order be executed by an exchange 

member who is unaffiliated with the 

member initiating the order. The 

Commission has stated that this 

requirement is satisfied when 

automated exchange facilities, such as 

the FLEX Auction, FLEX PIM, and FLEX 

SOM, are used, as long as the design of 

these systems ensures that members do 

not possess any special or unique 

trading advantages in handling their 

orders after transmitting them to the 

exchange.394 ISE represents that the 

auctions are designed so that no 

Member has any special or unique 

trading advantage in the handling of its 

orders after transmitting its orders to the 

mechanism.395 Based on the Exchange’s 

representation, the Commission believes 

that the proposed FLEX auction 

mechanisms satisfy this requirement. 

Fourth, in the case of a transaction 

effected for an account with respect to 

which the initiating member or an 

associated person thereof exercises 

investment discretion, neither the 

initiating member nor any associated 

person thereof may retain any 

compensation in connection with 

effecting the transaction, unless the 

person authorized to transact business 

for the account has expressly provided 

otherwise by written contract referring 

to Section 11(a) of the Act and Rule 

11a2–2(T) thereunder.396 ISE represents 

that Members relying on Rule 11a2–2(T) 

for transactions effected through the 

proposed FLEX auction mechanisms 

must comply with this condition of the 

Rule and that the Exchange will enforce 

this requirement pursuant to its 

obligations under Section 6(b)(1) of the 

Act to enforce compliance with federal 

securities laws.397

D. Surveillance and Regulation 

The Commission believes that 

surveillance is important, among other 

things, to detect and deter fraudulent 

and manipulative trading activity as 

well as other violations of Exchange 

rules and the federal securities laws. 

The Exchange has stated that it has an 

adequate surveillance program and will 

be integrating FLEX Options and their 

symbols into the existing surveillance 

system and processes. The Exchange 

believes this will allow the Exchange to 

properly identify disruptive and/or 

manipulative activity. The Exchange has 

also represented that it has taken into 

consideration that FLEX Options have 

unique characteristics and has reviewed 

its catalog of patterns and updated a 

number of patterns to include FLEX 

Options transactions when they begin 

trading. In addition, the Exchange has 

represented that it will periodically 

review its surveillance procedures and 

make any changes that the Exchange 

believes are necessary for FLEX trading. 

Furthermore, the Exchange represents 

that it believes it and the Options Price 

Reporting Authority (‘‘OPRA’’) have the 

necessary systems capacity to handle 

the additional message traffic associated 

with the listing of new series that may 

result from the introduction of FLEX 

Options.398

The Exchange’s proposed regulatory 

structure raises no new regulatory 

issues. As discussed above, the 

Exchange states that the FLEX 

provisions will be Systems enforced 

such that the system will reject an order 

if it does not conform to the FLEX rules. 

The Exchange has also incorporated 

FLEX Options into its surveillance 

program to cover it says the few 

instances where it will not Systems 


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399See 15 U.S.C. 78f(b)(5). 

400 15 U.S.C. 78f(b)(1). 401See Notice, supra note 3; OIP, supra note 11. 402 15 U.S.C. 78f(b)(2). 

enforce and to detect manipulative and 

illegal activity and will periodically 

review its surveillance to see if changes 

will be needed for FLEX. Accordingly, 

the Commission finds that the 

Exchange’s proposed regulatory 

structure, including the Exchange’s 

proposed application of its existing 

rules along with the proposed rule 

changes and the updates to its 

surveillance program to monitor issues 

unique to FLEX trading are consistent 

with the Exchange Act and, in 

particular, the Section 6(b)(5) 

requirement that a national securities 

exchange’s rules be designed to prevent 

fraudulent and manipulative acts and 

practices; promote just and equitable 

principles of trade, and protect investors 

and the public interest.399 The 

Commission also finds that the 

Exchange’s proposed regulatory 

structure is consistent with the 

requirements of Section 6(b)(1) of the 

Exchange Act, which requires a national 

securities exchange to be so organized 

and have the capacity to be able to carry 

out the purposes of the Exchange Act 

and to comply, and to enforce 

compliance by its members and persons 

associated with its members, with the 

Exchange Act and the rules and 

regulations thereunder, and the rules of 

the Exchange.400

IV. Solicitation of Comments on 

Amendment No. 1 to the Proposed Rule 

Change 

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposed rule change, as modified by 

Amendment No. 1, is consistent with 

the Exchange 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–2024–12 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–2024–12. 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–2024–12 and should be 

submitted on or before December 20, 

2024. 

V. Accelerated Approval of Proposed 

Rule Change, as Modified by 

Amendment No. 1 

The Commission finds good cause to 

approve the proposed rule change, as 

modified by Amendment No. 1 prior to 

the thirtieth day after the date of 

publication of notice of the filing of 

Amendment No. 1 in the Federal 

Register. The Commission notes that the 

original proposal was published for 

comment in the Federal Register.401

In Amendment No. 1, the Exchange 

amended the proposal to make a 

number of clarifying changes to the 

proposal and the proposed rule text as 

well as the following more substantive 

rule text changes from the original 

filing: (i) excluding the iShares Bitcoin 

Trust ETF from FLEX trading in 

proposed Options 3A, Section 3(a); (ii) 

clarifying in proposed Options 3A, 

Section 3(b)(2) that on the expiration 

date, a FLEX Order for the expiring 

FLEX Option series may only be 

submitted to close out a position in such 

expiring FLEX Option series; (iii) 

aligning the Exchange’s closing only 

provisions in proposed Options 3A, 

Section 3(d)(2) to already effective rules 

of other options exchanges; (iv) 

clarifying in proposed Options 3A, 

Section 5 which provisions will govern 

how the minimum increments for 

complex FLEX Orders (including 

complex FLEX Orders with a stock 

component) will be handled; (v) 

clarifying in proposed Options 3A, 

Sections 6(a) and 6(b) that only the 

specified order types, times-in-force, 

and order and quote protocols are 

available for FLEX trading; (vi) 

removing in proposed Options 3A, 

Section 7(b) the Exchange’s discretion to 

determine on a class-by-class basis 

which complex FLEX Orders would not 

have to adhere to the ratio requirements 

for the standard complex market; (vii) 

adding language in proposed Options 

3A, Section 11(a)(2)(A) to describe what 

would happen if there is a complex 

FLEX Order and subsequently, a nonFLEX Option series is introduced for the 

component leg(s), which would align to 

already effective rules of another 

options exchange; (viii) adding language 

in proposed Options 3A, Sections 

12(a)(2) and 13(a)(2) that each leg of a 

complex FLEX Order must be in a 

permissible FLEX option series that 

complies with proposed Options 3; (ix) 

specifying in proposed Options 3A, 

Section 13(a)(4) that the minimum size 

requirement will apply to each leg of a 

complex FLEX Order; (x) adding in 

proposed Options 3A, Section 14(b) that 

the Price Limit for Complex Order 

protections as applicable to the stock 

component, the Stock-Tied NBBO 

protections, and the Stock-Tied Reg 

SHO protections will also be available 

to FLEX Options as complex order risk 

protections; and (xi) aligning the 

proposed position limits for FLEX Index 

Options in proposed Options 3A, 

Section 18(a) with the position limits for 

index options in the Exchange’s 

standard index options market. These 

changes help to clarify the proposal by 

providing additional specificity and 

justification about the proposal as well 

as making the proposed rule 

substantially similar to the existing 

rules of other national securities 

exchanges. 

For these reasons, the changes and 

additional information in Amendment 

No. 1 assist the Commission in 

evaluating the Exchange’s proposal and 

in determining that it is consistent with 

the Exchange Act. Accordingly, the 

Commission finds good cause, pursuant 

to Section 19(b)(2) of the Exchange 

Act,402 to approve the proposed rule 

change, as modified by Amendment No. 

1, on an accelerated basis. 


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95032 Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices 

403 17 CFR 240.9b–1(a)(4). As part of the original 

approval process of the FLEX Options framework, 

the Commission delegated to the Director of the 

Division of Market Regulation the authority to 

authorize the issuance of orders designating 

securities as ‘‘standardized options’’ pursuant to 

Rule 9b–1(a)(4) under the Act. See Securities 

Exchange Act Release No. 31911 (February 23, 

1993), 58 FR 11792 (March 1, 1993). 

404 15 U.S.C. 78s(b)(2). 405 17 CFR 200.30–3(a)(12). 

VI. Conclusion 

For the foregoing reasons, the 

Commission finds that the proposed 

rule change, as modified by Amendment 

No. 1, is consistent with the Exchange 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange. In addition, the 

Commission finds, pursuant to Rule 9b– 

1 under the Exchange Act, that FLEX 

Options are standardized options for 

purposes of the options disclosure 

framework established under Rule 9b–1 

of the Exchange Act.403

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,404

that the proposed rule change SR–ISE– 

2024–12, as modified by Amendment 

No. 1, be, and it hereby is, approved on 

an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.405

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–27992 Filed 11–27–24; 8:45 am] 

BILLING CODE 8011–01–P 


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