Federal Register / Vol. 90, No. 12 / Tuesday, January 21, 2025 / Notices 7205 

5Copies 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. 

6 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4 15 U.S.C. 78s(b)(1). 

5 17 CFR 240.19b–4. 

6 IEX will file a separate proposed rule change 

with the Commission pursuant to Section 19 of the 

Act to provide that IEX Options will be operated by 

IEX Options LLC, a Delaware limited liability 

company wholly owned by the Exchange, as a 

facility of the Exchange as that term is defined in 

Section 3(a)(2) of the Act. 

7The IEX Options proposed rules are largely 

based on the rules of other options exchanges, as 

described herein. When a particular proposed rule 

is described as ‘‘substantively identical’’ to a rule(s) 

of another exchanges that means that the substance 

of the proposed IEX Options rule is identical to the 

referenced rule of the other exchange, with 

differences only to reflect terminology and 

numbering. When a particular proposed rule is 

described as ‘‘substantially similar’’ to a rule(s) of 

another exchange this rule filing describes the 

relevant differences. 

change is consistent with the Act.5

Comments may be submitted 

electronically by using the 

Commission’s internet comment form 

(https://www.sec.gov/rules-regulations/ 

self-regulatory-organizationrulemaking/national-securitiesexchanges?file_number=SR-BX-2025- 

002) or by sending an email to rulecomments@sec.gov. Please include file 

number SR–BX–2025–002 on the 

subject line. Alternatively, paper 

comments may be sent to Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. All submissions should 

refer to file number SR–BX–2025–002. 

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-regulations/ 

self-regulatory-organizationrulemaking/national-securitiesexchanges?file_number=SR-BX-2025- 

002). 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–BX–2025–002 and should be 

submitted on or before February 11, 

2025. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.6

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2025–01293 Filed 1–17–25; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–102190; File No. SR–IEX– 

2025–02] 

Self-Regulatory Organizations; 

Investors Exchange LLC; Notice of 

Filing of a Proposed Rule Change to 

Adopt Rules to Govern the Trading of 

Options on the Exchange for a New 

Facility Called IEX Options 

January 14, 2025. 

Pursuant to Section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on January 

10, 2025, the Investors Exchange LLC 

(‘‘IEX’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the self-regulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Pursuant to the provisions of Section 

19(b)(1) under the Act,4 and Rule 19b– 

4 thereunder,5 the Exchange is filing 

with the Commission a rule change 

proposal to adopt rules to govern the 

trading of options on IEX Options LLC, 

a facility of the Exchange that will be 

established in a separate rule filing 

(referred to herein as ‘‘IEX Options’’). As 

proposed, the Exchange will operate IEX 

Options as a fully automated trading 

system built on the core functionality of 

the Exchange’s approved equities 

platform, and in a manner similar to 

that of other options exchanges. In 

addition, IEX Options will utilize a de 

minimis delay on incoming order and 

quote messages designed to enable IEX 

to update its view of the market prior to 

processing orders and quotes, and an 

optional Market Maker quote parameter 

designed to protect Market Makers from 

excessive risk due to execution of stale 

quotes, in addition to other risk 

protections substantially similar to 

those offered by other options 

exchanges. 

The text of the proposed rule change 

is available at the Exchange’s website at 

https://www.iexexchange.io/resources/ 

regulation/rule-filings, 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 the 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization 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 self-regulatory organization 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 

Overview 

The Exchange proposes to adopt a 

series of rules in connection with IEX 

Options, which will be a facility of the 

Exchange.6 As proposed, the Exchange 

will operate IEX Options as a fully 

automated trading system built on the 

core functionality of the Exchange’s 

approved equities platform, and in a 

manner similar to that of other options 

exchanges.7

As proposed, IEX Options will 

operate an electronic trading system to 

list and trade options issued by the 

Options Clearing Corporation (‘‘Clearing 

Corporation’’ or ‘‘OCC’’). Specifically, 

IEX proposes to operate a fully 

automated, pro-rata priority options 

market in a manner similar to that of 

other options exchanges. In addition, 

IEX Options will utilize a de minimis 

delay on incoming order and quote 

messages designed to enable IEX to 

update its view of the market prior to 

processing orders and quotes, and an 

optional Market Maker quote parameter 

designed to protect Market Makers from 


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8See rulebooks of MEMX LLC (‘‘MEMX’’), Cboe 

Exchange, Inc. (‘‘C1’’), Miami International 

Securities Exchange, LLC (‘‘MIAX’’), NYSE Arca, 

Inc. (‘‘NYSE Arca Options’’), and NYSE American 

LLC (‘‘NYSE Amex Options’’). However, IEX is not 

proposing to trade index options at this time and 

therefore is not proposing rules for the listing and 

trading of index options. 

9See IEX Rule 1.160(jj). 

10See proposed Rule 22.100(a). 

11See proposed Rule 17.100. 

12See proposed Rules 18.100, 18.110, 18.120, and 

18.130. 

13 Directed Market Makers are subject to 

enhanced quoting obligations (as compared to 

Registered Market Makers) as set forth in proposed 

Rule 23.150(e)(3), which is substantively identical 

to NYSE Amex Options Rule 964.1NYP. 

14See proposed Rule 18.140. 

15On C1, part of the process of applying to be a 

Trading Permit Holder is for a broker-dealer to 

qualify as a participant or member of the exchange. 

IEX’s proposed rule therefore differs from C1 Rule 

3.1 because it does not include the membership 

qualification-related provisions that are addressed 

elsewhere in IEX’s proposed Chapter 18. In 

particular, IEX is not proposing to incorporate C1 

Rule 3.1(a)(3)’s language regarding jurisdiction over 

Trading Permit Holders because it is covered by 

Rule 2.120 (requiring all IEX Members to consent 

to the Exchange’s jurisdiction) and proposed Rule 

18.140(e) (applying the Exchange’s jurisdictional 

authority to all Options Members). In addition, C1’s 

rule includes limitations on the number of trading 

permits the exchange may issue. IEX is not 

proposing such limitations. 

16See MIAX Rules 600–609 (regarding market 

maker qualifications and obligations) and MIAX 

Rules 514(d),(e), and (g) (regarding market maker 

quoting and priority). The primary differences 

between these MIAX rules and IEX’s proposed 

Market Maker rules are: (1) MIAX has three tiers of 

market makers, while IEX proposes to have two 

tiers; (2) MIAX puts Market Makers at a priority 

level above other non-Priority Customer interest, 

while IEX will not (IEX’s proposed rules are 

substantively identical to the priority rules in C1 

Rule 5.32 as it pertains to C1’s Preferred Market 

Makers); (3) IEX proposes to allocate participation 

entitlements for Specialists with a priority quote 

based on the amount of non-Priority customer 

interest (which is how C1 Rule 5.32(a)(2)(B) 

allocates priority overlays), while MIAX only looks 

at the amount of other market maker interest; and 

(4) MIAX offers a Market Turner priority overlay 

which IEX is not proposing to adopt. 

17See proposed Rules 23.100 and 18.140. 

18This provision is substantively identical to 

MEMX Rule 22.2(c) and MIAX Rule 600(d). 

19See proposed Rule 23.120(a)(1). 

20See proposed Rule 23.130(g)(1)(A), which is 

substantively identical to NYSE Amex Options Rule 

923NY(b). The language providing that the 

Exchange ‘‘may’’ appoint only one Specialist to 

each options class is based upon and substantively 

identical to NYSE Amex Options Rule 923NY(b). 

21 IEX based the proposed Specialist rule (23.130) 

on NYSE Amex Options Rules 927NY, 927.1NY, 

and 927.2NY because these rules provide clear 

instructions to prospective Specialist candidates 

excessive risk due to execution of stale 

quotes, in addition to other risk 

protections substantially similar to 

those offered by other options 

exchanges. 

The Exchange proposes to adopt rules 

applicable to IEX Options that are 

substantially similar to the approved 

rules of the MEMX, C1, MIAX, and 

NYSE Amex and Arca options 

exchanges, with the material proposed 

differences described herein.8

As provided in proposed Rule 17.110 

(Applicability), existing Exchange 

Rules 9 applicable to the IEX equities 

market contained in Chapters 1 through 

16 of the Exchange Rules will apply to 

Options Members unless a specific 

Exchange Rule applicable to the IEX 

Options market (in proposed Chapters 

17 through 29 of the Exchange Rules) 

governs or unless the context otherwise 

requires. 

The IEX Options Trading System 10

will provide for the electronic display 

and execution of orders on a pro-rata 

basis. All Exchange Members will be 

eligible to participate in IEX Options by 

qualifying as Options Members 11 and 

obtaining one or more trading permits 

for their activity on IEX Options, in 

accordance with applicable IEX Options 

rules. The IEX Options Trading System 

will provide an optional routing service 

for orders when trading interest is not 

present on IEX Options and will comply 

with all applicable securities laws and 

regulations and the obligations of the 

Options Order Protection and Locked/ 

Crossed Market Plan. 

IEX Options Members 

Pursuant to the proposed rules in 

Chapter 18 (Participation on IEX 

Options), the Exchange will authorize 

any Exchange Member that meets 

certain enumerated qualification 

requirements (any such Member, an 

‘‘Options Member’’) and any Options 

Member’s Sponsored Participants to 

obtain access to, and transact business 

on, IEX Options.12

There will be three types of Options 

Members—Options Order Entry Firms 

(‘‘OEFs’’), Options Market Makers, and 

Options Clearing Members. Options 

Members may act in one, two, or all 

such capacities. OEFs will be those 

Options Members representing 

Customer Orders as agent on IEX 

Options or trading as principal on IEX 

Options. Options Market Makers, in 

turn, will be eligible to participate as 

Registered Market Makers or Specialists, 

as set forth in Rule 23.100. Additionally, 

all Options Market Makers may 

participate as Directed Marker Makers.13

Clearing Members will be those Options 

Members that have been admitted to 

membership in the Clearing Corporation 

pursuant to the provisions of the Rules 

of the Clearing Corporation and are selfclearing or that clear IEX Options 

Transactions for other Options 

Members. 

IEX proposes to issue different types 

of Trading Permits to Options Members 

that allow the Trading Permit Holders 

to: (i) trade one or more products 

authorized for trading on the Exchange; 

(ii) act in one or more trading functions 

authorized by the Rules of IEX Options; 

and/or (iii) act as a Clearing Member.14

Trading Permits shall be for the types 

and terms as shall be determined by the 

Exchange from time to time, and subject 

to effectiveness of one or more rule 

filings pursuant to Section 19(b) of the 

Act. The proposed rule governing IEX’s 

Trading Permits, 18.140, is based on C1 

Rule 3.1.15

The rules governing Registered 

Market Makers and Specialists are 

substantially based on MIAX and C1 

rules.16 To become an Options Market 

Maker, an Options Member will be 

required to register by filing a written 

application and obtain any required 

trading permits.17 The Exchange will 

not place any limit on the number of 

entities that may become Options 

Market Makers, the number of 

appointments an Options Market Maker 

may have, or the number of Options 

Market Makers that may have 

appointments in a class unless the 

Exchange determines to impose any 

such limit based on system constraints, 

capacity restrictions, or other factors 

relevant to protecting the integrity of the 

Trading System. The Exchange will not 

impose any such limitations until it has 

submitted objective standards for 

imposing the limits to the Commission 

for its review and approval.18

As proposed, the Exchange shall 

appoint Registered Market Makers to 

one or more classes of options contracts 

traded on the Exchange. In making such 

appointments the Exchange shall 

consider the financial resources 

available to the Registered Market 

Maker, the Registered Market Maker’s 

experience and expertise in market 

making or options trading, the 

preferences of the Registered Market 

Maker to receive appointments in 

specific options classes, and the 

maintenance and enhancement of 

competition among Registered Market 

Makers in each class of options 

contracts to which they are appointed.19

While there may be several Registered 

Market Makers appointed to a particular 

class of options contracts, the Exchange 

may appoint only one Specialist to each 

options class traded on the Exchange.20

To be appointed as a Specialist, an 

Options Member must first satisfy the 

criteria for appointment as a Registered 

Market Maker set forth in Rule 

23.120(a)(1) and then must participate 

in the Specialist Qualification Process 

conducted by the Exchange and detailed 

in proposed Rule 23.130(b).21 Factors to 


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Federal Register / Vol. 90, No. 12 / Tuesday, January 21, 2025 / Notices 7207 

about the manner in which the Exchange selects 

and evaluates Specialists, and detailed rules about 

Specialist rights and obligations. 

22See proposed Rule 23.130(b)(1). This rule is 

substantively identical to NYSE Amex Options Rule 

927NY, with the exception that IEX is not 

proposing to obligate Specialists to make FLEX 

quotes, because those are not offered by the 

Exchange. 

23See proposed Rule 23.130(g). This rule is 

substantively identical to NYSE Amex Options Rule 

927.2NY 

24 Id. 

25See proposed Rule 23.130(b)(2), and (f). These 

rules are substantively identical to NYSE Amex 

Options Rules 927NY(b)(2) and 927.1NY, 

respectively. 

26See proposed Rule 23.150(a). 

27See proposed Rule 17.100 (defining ‘‘Quote’’ to 

include orders entered by a Market Maker in the 

option series to which such Market Maker is 

registered). 

28See proposed Rule 23.150(g). 

29See proposed Rule 23.140(a). 

30See MIAX rule 603(a). 

31See, e.g., NYSE Arca Options Rule 6.37–O. 

32 ‘‘Continuous quoting’’ is defined as 90% of the 

time. See proposed Rule 23.150(e). 

33See proposed Rule 23.150(e)(2) and (e)(1). 

Proposed Rule 23.150(e)(1) is based upon and 

substantively identical to NYSE Amex Options Rule 

925.1NYP(b) and proposed Rule 23.150(e)(2) is 

based upon and substantively identical to NYSE 

Amex Options Rule 925.1NYP(c). 

34See supra note 13. 

35See proposed Rule 23.150(b) and (d). 

36See Supplementary Material .01 to proposed 

Rule 23.150(h), which is substantively identical to 

MIAX Rule 530(f)(1). 

37See proposed Rule 23.180 ($200,000 net capital 

requirement for Registered Market Makers), which 

is substantively identical to MEMX Rule 22.9 and 

proposed Rule 23.130(c)(1)(H) ($1,000,000 net 

capital requirement for Specialists), which is 

substantively identical to Amex Options Rule 

927NY(c)(10). 38See proposed Rule 23.120(f). NYSE Amex 

Options Rule 927.1NY(1)(B) specifies that NYSE 

Amex Options provides its specialists information 

related to their market share in allocated issues on 

a monthly basis as part of the evaluation process. 

IEX is not proposing to include this provision 

because it understands that Specialist firms are 

well-equipped to monitor their market share and 

performance on IEX and other markets. 

39See proposed Rule 18.110(g). 

40 17 CFR 240.17d–2. 

41See Rule 27.100. 

be considered for selection as a 

Specialist include, but are not limited 

to, representations regarding capital 

operations, personnel or technical 

resources.22 After designating certain 

Market Makers as Specialists, the 

Exchange will conduct a process to 

determine which options classes to 

allocate to which Specialist, based upon 

which candidate appears best able to 

perform the functions of a Specialist in 

the designated options classes. Factors 

to be considered in the allocation of 

options classes to Specialists by the 

Exchange include, but are not limited to 

the following: experience with trading 

the options issue; adequacy of capital; 

willingness to promote the Exchange as 

a marketplace; operational capacity; 

support personnel; history of adherence 

to Exchange rules and securities laws; 

and evaluations made pursuant to Rule 

23.130(f).23 The Exchange will also 

consider the number and quality of 

issues that have been allocated, 

reallocated or transferred to a Specialist 

and the Specialist’s willingness to 

promote the Exchange as a 

marketplace.24

The Exchange will also evaluate the 

performance of Specialists, and upon a 

finding that a Specialist failed to meet 

minimum performance standards, may 

take adverse action against the 

Specialist; Specialists shall have the 

right to appeal any adverse actions 

against them pursuant to IEX Rule 

Series 9.500, which governs adverse 

actions.25

Quotations may only be entered by a 

Market Maker and only in classes of 

options contracts to which the Market 

Maker is appointed.26 Market Makers 

may also submit orders in classes of 

options contracts to which the Market 

Maker is appointed, which shall 

constitute a quote, and thus would help 

to satisfy the Market Maker’s quoting 

obligation.27 In addition, an Options 

Market Maker with an OEF trading 

permit may submit orders in classes of 

options in which the Market Maker has 

no appointment, provided that the total 

number of such orders executed by the 

Market Maker do not exceed 25% of all 

contracts the Market Maker executes on 

the Exchange in any calendar quarter.28

Options Market Makers will be 

required to electronically engage in a 

course of dealing reasonably calculated 

to contribute to the maintenance of fair 

and orderly markets.29 IEX does not 

propose to incorporate MIAX’s 

requirement that Market Makers refrain 

from purchasing an option at a price 

more than $0.25 below parity,30 because 

IEX does not believe the restriction is 

necessary to the maintenance of fair and 

orderly markets requirement, and notes 

that other exchanges do not include this 

restriction.31 Market Makers will be 

required to maintain a two-sided market 

on a continuous basis 32 in at least 60% 

of the non-adjusted options series to 

which they are appointed as Registered 

Market Makers and at least 90% of the 

non-adjusted options series to which 

they are appointed as Specialists, 

provided the options classes have a time 

to expiration of less than nine months.33

And, as noted above, Directed Market 

Makers are subject to enhanced quoting 

obligations compared to Registered 

Market Makers.34 Market Makers and 

Specialists may use quotes and orders to 

meet the applicable quoting 

requirements. These obligations will not 

apply to an intra-day add-on series on 

the day during which such series was 

added for trading. Market Maker quotes 

must be firm quotes that comply with 

enumerated price and size rules.35

These obligations also will not apply 

when an Options series is halted 

because the underlying security has 

entered a Limit or Straddle state.36

Registered Market Makers and 

Specialists also must maintain 

minimum net capital in accordance 

with Commission and Exchange rules.37

Substantial or continued failure by an 

Options Market Maker to meet any of its 

obligations and duties will subject the 

Options Market Maker to disciplinary 

action, suspension, or revocation of the 

Market Maker’s registration as such or 

its appointment in one or more of its 

appointed options classes.38

As on other exchanges, Options 

Market Makers receive certain benefits 

for carrying out their duties. For 

example, a lender may extend credit to 

a broker-dealer without regard to the 

restrictions in Regulation T of the Board 

of Governors of the Federal Reserve 

System if the credit is to be used to 

finance the broker-dealer’s activities as 

a specialist or market maker on a 

national securities exchange. Thus, an 

Options Market Maker has a 

corresponding obligation to hold itself 

out as willing to buy and sell options for 

its own account on a regular or 

continuous basis to justify this favorable 

treatment. 

Every Options Member shall at all 

times maintain membership in another 

registered options exchange that is not 

registered solely under Section 6(g) of 

the Exchange Act or in FINRA.39 OEFs 

and other Options Members that 

transact business with Public Customers 

must at all times be members of FINRA. 

Pursuant to proposed Rule 18.110(h), 

every Options Member will be required 

to have at least one registered Options 

Principal who satisfies the criteria of 

that rule, including the satisfaction of a 

proper qualification examination. An 

OEF may only transact business with 

Public Customers if such Options 

Member also is an Options Member of 

another registered national securities 

exchange or association with which the 

Exchange has entered into an agreement 

under Rule 17d–2 under the Exchange 

Act 40 pursuant to which such other 

exchange or association shall be the 

designated options examining authority 

for the OEF.41

The proposed rules relating to 

qualification and participation on IEX 

Options as an Options Member 

(including as an OEF, Options Market 


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42See MEMX Rulebook Chapters 17 and 22. 

43 IEX notes that this definition differs from the 

MEMX definition of ABBO by spelling out the 

phrase ‘‘Away Best Bid or Offer’’ that ABBO refers 

to for added clarity. 

44This definition is substantively identical to the 

definition in C1 Rule 1.1. IEX proposes to 

incorporate this definition, because the term is not 

specifically defined in the MEMX rulebook and IEX 

believes that term would provide helpful context to 

Options Members with respect to other rules that 

use the term, e.g., proposed IEX Rule 19.200. 

45This definition is based upon the definition in 

MIAX Options Exchange (‘‘MIAX’’) Rule 100, with 

the distinction that IEX proposes to make any 

Market Maker eligible to receive a Directed Order, 

while MIAX only allows their Lead Market Makers 

(akin to IEX’s proposed ‘‘Specialists’’) and Primary 

Lead Market Makers eligible; this aspect of IEX’s 

proposed rule change is based upon and 

substantially similar to C1 Rule 5.32. Additionally, 

IEX proposes to include language in the last 

sentence of this definition based on NYSE Amex 

Rule 900.3NYP(i)(4) to clarify that an order 

submitted on behalf of a non-Priority Customer 

would be treated as a non-Directed Order. 

Maker, or Clearing Member) are 

substantively identical to the relevant 

rules of MEMX Options.42

As provided in proposed Rule 17.110, 

existing Exchange Rules applicable to 

the IEX equities market contained in 

Chapters 1 through 16 of the Exchange 

Rules will apply to Options Members 

unless a specific Exchange Rule 

applicable to the IEX Options market 

(proposed Chapters 17 through 29 of the 

Exchange Rules) governs or unless the 

context otherwise requires. Options 

Members can therefore provide 

sponsored access to the IEX Options 

Exchange to a non-Member (i.e., a 

Sponsored Participant) pursuant to Rule 

11.130 of the Exchange Rules. 

Definitions 

The Exchange proposes to define a 

series of terms under proposed Rule 

17.100 (Definitions), which are to be 

used in proposed Chapters 17 to 29 

relating to the trading of options 

contracts on the Exchange. Unless 

otherwise indicated, all of the terms 

defined in proposed Rule 17.100 are 

either identical or substantially similar 

to definitions included in MEMX Rule 

16.1. Any modifications to the MEMX 

definitions, or definitions based upon 

the rules of other exchanges are 

specifically indicated below. 

The definitions under proposed Rule 

17.100 are as follows: 

• ABBO. The term ‘‘ABBO’’ or ‘‘Away 

Best Bid or Offer’’ means the best bid(s) 

or offer(s) disseminated by other Eligible 

Exchanges (as defined in Rule 28.100) 

and calculated by the Exchange based 

on market information the Exchange 

receives from OPRA.43

• Aggregate Exercise Price. The term 

‘‘Aggregate Exercise Price’’ means the 

exercise price of an options contract 

multiplied by the number of units of the 

underlying security covered by the 

options contract. 

• American-Style Option. The term 

‘‘American-Style’’ option means an 

options contract that, subject to the 

provisions of Rule 24.100 (relating to 

the cutoff time for exercise instructions) 

and to the Rules of the Clearing 

Corporation, may be exercised at any 

time from its commencement time until 

its expiration. 

• Associated Person and Person 

Associated with an Options Member. 

The terms ‘‘associated person’’ and 

‘‘person associated with an Options 

Member’’ mean any partner, officer, 

director, or branch manager of an 

Options Member (or any person 

occupying a similar status or performing 

similar functions), any person directly 

or indirectly controlling, controlled by, 

or under common control with an 

Options Member or any employee of an 

Options Member, except that any person 

associated with an Options Member 

whose functions are solely clerical or 

ministerial shall not be included in the 

meaning of such term for purposes of 

these Rules. 

• Bid. The term ‘‘bid’’ means a Limit 

order to buy one or more options 

contracts. 

• Board. The term ‘‘Board’’ means the 

Board of Directors of Investors’ 

Exchange LLC. 

• Call. The term ‘‘call’’ means an 

options contract under which the holder 

of the option has the right, in 

accordance with the terms of the option, 

to purchase from the Clearing 

Corporation the number of shares of the 

underlying security covered by the 

options contract. 

• Capacity. The term ‘‘capacity’’ 

means the capacity in which a User 

submits an order, which the User 

specifies by applying the corresponding 

code to the order. The capacity codes 

available on IEX Options will be listed 

in publicly available specifications and 

published in a Regulatory Circular. 

• Class of Options. The terms ‘‘class’’ 

or ‘‘class of options’’ mean all options 

contracts with the same unit of trading 

covering the same underlying security. 

• Clearing Corporation and OCC. The 

terms ‘‘Clearing Corporation’’ and 

‘‘OCC’’ mean The Options Clearing 

Corporation. 

• Clearing Member. The term 

‘‘Clearing Member’’ means an Options 

Member that is self-clearing or an 

Options Member that clears IEX Options 

Transactions for other Options 

Members. 

• Closing Purchase Transaction. The 

term ‘‘closing purchase transaction’’ 

means an IEX Options Transaction that 

reduces or eliminates a short position in 

an options contract. 

• Closing Writing Transaction. The 

term ‘‘closing writing transaction’’ 

means an IEX Options Transaction that 

reduces or eliminates a long position in 

an options contract. 

• Control. The term ‘‘control’’ means 

the power to exercise a controlling 

influence over the management or 

policies of a person, unless such power 

is solely the result of an official position 

with such person. Any person who 

owns beneficially, directly or indirectly, 

more than 20% of the voting power in 

the election of directors of a 

corporation, or more than 25% of the 

voting power in the election of directors 

of any other corporation which directly 

or through one or more affiliates owns 

beneficially more than 25% of the 

voting power in the election of directors 

of such corporation, shall be presumed 

to control such corporation.44

• Covered Short Position. The term 

‘‘covered short position’’ means (i) an 

options position where the obligation of 

the writer of a call option is secured by 

a ‘‘specific deposit’’ or an ‘‘escrow 

deposit’’ meeting the conditions of 

Rules 610(f) or 610(g), respectively, of 

the Rules of the Clearing Corporation, or 

the writer holds in the same account as 

the short position, on a share-for-share 

basis, a long position either in the 

underlying security or in an options 

contract of the same class of options 

where the exercise price of the options 

contract in such long position is equal 

to or less than the exercise price of the 

options contract in such short position; 

and (ii) an options position where the 

writer of a put option holds in the same 

account as the short position, on a 

share-for-share basis, a long position in 

an options contract of the same class of 

options where the exercise price of the 

options contract in such long position is 

equal to or greater than the exercise 

price of the options contract in such 

short position. 

• Customer. The term ‘‘Customer’’ 

means a Public Customer or a brokerdealer. 

• Customer Order. The term 

‘‘Customer order’’ means an agency 

order for the account of a Customer. 

• Directed Order. The term ‘‘Directed 

Order’’ is an order entered into the 

Trading System by an Options Member 

with a designation for a Market Maker 

in that class (referred to as a ‘‘Directed 

Market Maker’’ or ‘‘DMM’’). To qualify 

as a Directed Order, an order must be 

entered on behalf of a Priority 

Customer.45

• Discretion. The term ‘‘discretion’’ 

means the authority of a broker or dealer 

to determine for a Customer the type of 


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46This definition is substantively identical to the 

equivalent definition in the MEMX rulebook, except 

that it refers to IEX, not MEMX. 

47This definition is substantively identical to the 

equivalent definition in the MEMX rulebook, except 

that it refers to IEX, not MEMX. 

48This definition is substantively identical to the 

definition in the MIAX rulebook, except that MIAX 

has three classes of Market Makers (Registered 

Market Makers, Lead Market Makers, and Primary 

Lead Market Makers) while IEX proposes to have 

two classes of Market Makers: Registered Market 

Makers (equivalent to MIAX Registered Market 

Maker) and Specialists (which is based on MIAX’s 

Lead Market Maker and Primary Lead Market Maker 

rules). IEX proposes to incorporate this definition, 

because the Market Maker rules proposed herein are 

substantially based upon the rules of MIAX. 

49This definition is based on the definition in C1 

Rule 1.1, because IEX believed the definition was 

easier to understand than the equivalent definition 

in the MEMX rulebook. 

50See Proposed Supplementary Material .01 to 

Rule 17.100, which sets forth the methodology for 

calculation of Professional orders. 

option, the class or series of options, the 

number of contracts, or whether options 

are to be bought or sold. 

• European-Style Option. The term 

‘‘European-style option’’ means an 

options contract that, subject to the 

provisions of Rule 24.100 (relating to 

the cutoff time for exercise instructions) 

and to the Rules of the Clearing 

Corporation, can be exercised only on 

its expiration date. 

• Exchange Act. The term ‘‘Exchange 

Act’’ or ‘‘Act’’ means the Securities 

Exchange Act of 1934, as amended, or 

Rules thereunder. 

• Exercise Price. The term ‘‘exercise 

price’’ means the specified price per 

unit at which the underlying security 

may be purchased or sold upon the 

exercise of an options contract. 

• He, Him, and His. The terms ‘‘he,’’ 

‘‘him’’ and ‘‘his’’ are deemed to refer to 

persons of female as well as male 

gender, and to include organizations, as 

well as individuals, when the context so 

requires. 

• IEX Exchange and Exchange. The 

terms ‘‘IEX Exchange’’ and ‘‘Exchange’’ 

mean Investors’ Exchange LLC, a 

registered national securities exchange. 

• IEX Options. The term ‘‘IEX 

Options’’ means IEX Options LLC, a 

Delaware limited liability company 

wholly owned by the Exchange, which 

operates as an options trading facility of 

the Exchange under Section 3(a)(2) of 

the Exchange Act. 

• IEX Options Book. The term ‘‘IEX 

Options Book’’ means the electronic 

book of options orders maintained by 

the Trading System.46

• IEX Options Transaction. The term 

‘‘IEX Options Transaction’’ means a 

transaction involving an options 

contract that is effected on or through 

IEX Options or its facilities or systems.47

• Individual Equity Option. The term 

‘‘individual equity option’’ means an 

options contract which is an option on 

an equity security. 

• Long Position. The term ‘‘long 

position’’ means a person’s interest as 

the holder of one or more options 

contracts. 

• Market Makers (and Options Market 

Makers). The terms ‘‘Market Makers’’ or 

‘‘Options Market Makers’’ refer 

collectively to Options Members 

registered, pursuant to Rule 23.100, as 

either a ‘‘Registered Market Maker’’ or a 

‘‘Specialist’’.48

• MPID. The term ‘‘MPID’’ means 

unique market participant identifier 

assigned to an Options Member. 

• NBB, NBO, and NBBO. The term 

‘‘NBB’’ means the national best bid, the 

term ‘‘NBO’’ means the national best 

offer, and the term ‘‘NBBO’’ means the 

national best bid or offer as calculated 

by IEX Options based on market 

information received by IEX Options 

from OPRA. 

• Offer. The term ‘‘offer’’ means a 

Limit order to sell one or more options 

contracts. 

• OPRA. The term ‘‘OPRA’’ means 

the Options Price Reporting Authority. 

• Opening Purchase Transaction. The 

term ‘‘opening purchase transaction’’ 

means a IEX Options Transaction that 

creates or increases a long position in an 

options contract. 

• Opening Writing Transaction. The 

term ‘‘opening writing transaction’’ 

means a IEX Options Transaction that 

creates or increases a short position in 

an options contract. 

• Options Contracts. The term 

‘‘options contract’’ means a put or a call 

issued, or subject to issuance by the 

Clearing Corporation pursuant to the 

Rules of the Clearing Corporation. 

• Options Market Close and Market 

Close. The terms ‘‘options market close’’ 

and ‘‘market close’’ mean the time the 

Exchange specifies for the end of a 

trading session on the Exchange on that 

trading day. 

• Options Market Open and Market 

Open. The terms ‘‘options market open’’ 

and ‘‘market open’’ mean the time the 

Exchange specifies for the beginning of 

a trading session on the Exchange on 

that trading day. 

• Options Member. The term 

‘‘Options Member’’ means a firm, or 

organization that is registered with the 

Exchange pursuant to Chapter 18 of 

these Rules for purposes of participating 

in options trading on IEX Options as an 

‘‘Options Order Entry Firm’’, ‘‘Options 

Market Maker’’, or ‘‘Clearing Member.’’ 

• Options Member Agreement. The 

term ‘‘Options Member Agreement’’ 

means the agreement to be executed by 

Options Members to qualify to 

participate on IEX Options. 

• Options Order Entry Firm, Order 

Entry Firm, and OEF. The terms 

‘‘Options Order Entry Firm’’ and ‘‘Order 

Entry Firm’’ or ‘‘OEF’’ mean those 

Options Members representing as agent 

Customer Orders on IEX Options and 

those non-Market Maker Members 

conducting proprietary trading. 

• Options Principal. The term 

‘‘Options Principal’’ means a person 

engaged in the management and 

supervision of the Options Member’s 

business pertaining to options contracts 

that has responsibility for the overall 

oversight of the Options Member’s 

options related activities on the 

Exchange. 

• Order. The term ‘‘order’’ means a 

firm commitment to buy or sell options 

contracts as defined in Rule 22.100. 

• Outstanding. The term 

‘‘outstanding’’ means an options 

contract which has been issued by the 

Clearing Corporation and has neither 

been the subject of a closing writing 

transaction nor has reached its 

expiration date. 

• Primary Market. The term ‘‘primary 

market’’ means the primary exchange on 

which an underlying security is listed.49

• Priority Customer and Priority 

Customer Order. The term ‘‘Priority 

Customer’’ means any person or entity 

that is not: (A) a broker or dealer in 

securities; or (B) a Professional. The 

term ‘‘Priority Customer Order’’ means 

an order for the account of a Priority 

Customer. 

• Professional. The term 

‘‘Professional’’ means any person or 

entity that (A) is not a broker or dealer 

in securities; and (B) places more than 

390 orders in listed options per day on 

average during a calendar month for its 

own beneficial account(s). All 

Professional orders shall be 

appropriately marked by Options 

Members.50

• Protected Quotation. The term 

‘‘Protected Quotation’’ has the meaning 

provided in Rule 28.100. 

• Public Customer and Public 

Customer Order. The term ‘‘Public 

Customer’’ means a person that is not a 

broker or dealer in securities. The term 

‘‘Public Customer Order’’ means an 

order for the account of a Public 

Customer. 

• Put. The term ‘‘put’’ means an 

options contract under which the holder 

of the option has the right, in 

accordance with the terms and 

provisions of the option and the Rules 

of the OCC, to sell to the Clearing 

Corporation the number of units of the 

underlying security covered by the 


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51This definition is substantively identical to the 

definition in MIAX Rule 100. IEX proposes to 

incorporate this definition, because the Market 

Maker rules proposed herein are substantially based 

upon the rules of MIAX. 

52This definition is substantively identical to the 

definition of Lead Market Makers and Primary Lead 

Market Makers in MIAX Rule 100. As discussed 

above, IEX proposes to incorporate the MIAX 

definitions for both Lead Market Makers and 

Primary Lead Market Makers into its definition for 

Specialists, because the Market Maker rules 

proposed herein are substantially based upon the 

rules of MIAX. 

53This definition is substantively identical to the 

definition in C1 Rule 1.1. IEX proposes to 

incorporate this definition, because its proposed 

Trading Permit rule (Rule 18.140), is substantively 

similar to the equivalent C1 Rule (C1 Rule 3.1). 

54This definition is substantively identical to the 

definition in C1 Rule 1.1. IEX proposes to 

incorporate this definition, because its proposed 

Trading Permit rule (Rule 18.140), is substantively 

similar to the equivalent C1 Rule (C1 Rule 3.1). 

55See infra note 79. 

options contract, at a price per unit 

equal to the exercise price, upon the 

timely exercise of such option. 

• Quarterly Options Series. The term 

‘‘Quarterly Options Series’’ means a 

series in an options class that is 

approved for listing and trading on the 

Exchange in which the series is opened 

for trading on any business day and 

expires at the close of business on the 

last business day of a calendar quarter. 

• Quote or Quotation. The terms 

‘‘quote’’ or ‘‘quotation’’ means a bid or 

offer entered by a Market Maker as a 

firm order that updates the Market 

Maker’s previous bid or offer, if any. 

When the term order is used in these 

Rules and a bid or offer is entered by the 

Market Maker in the options series to 

which such Market Maker is registered, 

such order shall, as applicable, 

constitute a quote or quotation for 

purposes of these Rules. A quote or 

quotation may be canceled or repriced 

in accordance with Rules 22.250, 

22.260, or 23.150, if so designated by 

the Market Maker to assist in its risk 

management. 

• Registered Market Maker. The term 

‘‘Registered Market Maker’’ means an 

Options Member registered with the 

Exchange for the purpose of making 

markets in securities traded on the 

Exchange, who is vested with the rights 

and responsibilities specified in Chapter 

23 of these Rules with respect to 

Registered Market Makers.51

• Responsible Person. The term 

‘‘Responsible Person’’ means a U.S.- 

based officer, director, or managementlevel employee of an Options Member, 

who is registered with the Exchange as 

an Options Principal, responsible for the 

direct supervision and control of 

associated persons of that Options 

Member. 

• Rules of IEX Options. The term 

‘‘Rules of IEX Options’’ mean the rules 

contained in Chapters 17 to 29 of the 

Investors Exchange Rules governing the 

trading of options on the Exchange. 

• Rules of the Clearing Corporation 

and Rules of the OCC. The terms ‘‘Rules 

of the Clearing Corporation’’ and ‘‘Rules 

of the OCC’’ mean the Certificate of 

Incorporation, the By-Laws and the 

Rules of the Clearing Corporation, and 

all written interpretations thereof, as 

may be in effect from time to time. 

• SEC or Commission. The terms 

‘‘SEC’’ or ‘‘Commission’’ mean the 

United States Securities and Exchange 

Commission. 

• Series of Options. The terms 

‘‘series’’ or ‘‘series of options’’ mean all 

options contracts of the same class that 

are the same type of options and have 

the same exercise price and expiration 

date. 

• Short Position. The term ‘‘short 

position’’ means a person’s interest as 

the writer of one or more options 

contracts. 

• Short Term Options Series. The 

term ‘‘Short Term Options Series’’ 

means a series in an options class that 

is approved for listing and trading on 

the Exchange in which the series is 

opened for trading on any Monday, 

Tuesday, Wednesday, Thursday or 

Friday that is a business day and that 

expires on the Monday, Tuesday, 

Wednesday, Thursday or Friday of the 

next business week, or, in the case of a 

series that is listed on a Friday and 

expires on a Monday, is listed one 

business week and one business day 

prior to that expiration. If a Tuesday, 

Wednesday, Thursday or Friday is not 

a business day, the series may be 

opened (or shall expire) on the first 

business day immediately prior to that 

Tuesday, Wednesday, Thursday or 

Friday, respectively. For a series listed 

pursuant to this section for Monday 

expiration, if a Monday is not a business 

day, the series shall expire on the first 

business day immediately following that 

Monday. 

• Specialist. The term ‘‘Specialist’’ 

means a Market Maker appointed by the 

Exchange to act as the primary lead 

Market Maker for the purpose of making 

markets in securities traded on the 

Exchange. The Specialist is vested with 

the rights and responsibilities specified 

in Chapter 23 of these Rules with 

respect to Specialists.52

• SRO. The term ‘‘SRO’’ means a selfregulatory organization as defined in 

Section 3(a)(26) of the Exchange Act. 

• Timestamp. The term ‘‘timestamp’’ 

means the effective time sequence 

assigned to an order for purposes of 

determining its priority ranking. 

• Trading Permit. The term ‘‘Trading 

Permit’’ means a license issued by the 

Exchange to an Options Member that 

grants the Trading Permit Holder 

(‘‘TPH’’) the right to access one or more 

of the facilities of the Exchange for the 

purpose of effecting transactions in 

options traded on the Exchange without 

the services of another person acting as 

broker, and otherwise to access the 

facilities of the Exchange for purposes of 

trading or reporting transactions or 

transmitting orders or quotations in 

options traded on the Exchange, or to 

engage in other activities that, under the 

Rules of IEX Options, may only be 

engaged in by the TPH that satisfies any 

applicable qualification requirements to 

exercise those rights. A Trading Permit 

conveys no ownership interest in the 

Exchange, is only available through the 

Exchange, and is subject to the terms 

and conditions set forth in Rule 

18.140.53

• Trading Permit Holder. The term 

‘‘Trading Permit Holder’’ or ‘‘TPH’’ 

means the holder of a Trading Permit, 

as described in IEX Rule 18.140.54

• Trading System. The term ‘‘Trading 

System’’ means the automated trading 

system used by IEX Options for the 

trading of options contracts. 

• Type of Option. The term ‘‘type of 

option’’ means the classification of an 

options contract as either a put or a call. 

• Uncovered. The term ‘‘uncovered’’ 

means a short position in an options 

contract that is not covered. 

• Underlying Security. The term 

‘‘underlying security’’ means the 

security that the Clearing Corporation 

shall be obligated to sell (in the case of 

a call option) or purchase (in the case 

of a put option) upon the valid exercise 

of an options contract. 

• User. The term ‘‘User’’ means any 

Options Member or Sponsored 

Participant who is authorized to obtain 

access to the Trading System pursuant 

to Rule 11.130 (Access). 

Execution System 

IEX Options will utilize a pro-rata 

allocation model with execution priority 

dependent on the size and capacity of 

an order; specifically, Priority Customer 

or non-Priority Customer, as well as 

status as a Registered Market Maker or 

Specialist, as applicable. The proposed 

pro-rata allocation model is similar to 

the MIAX and NYSE Amex options 

exchanges.55

The Exchange will become an 

exchange member of the OCC. The 

Trading System will be linked to OCC 


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56Proposed Rule 22.220(a) notes that all Options 

transactions shall be submitted for clearance to the 

Clearing Corporation, and the Exchange shall 

assume no responsibility with respect to any 

unmatched trade or for any delays or errors in the 

reporting to it of trade information. This provision 

is based upon and substantively identical to MIAX 

Rule 524. 

57The Exchange shall also reveal a User’s 

identity: (i) when a registered clearing agency 

ceases to act for a participant, or the User’s clearing 

firm, and the registered clearing agency determines 

not to guarantee the settlement of the User’s trades; 

and (ii) for regulatory purposes or to comply with 

an order of an arbitrator or court. See proposed Rule 

22.190. The Exchange notes that proposed Rule 

22.190 is identical to MEMX Rule 21.10. 

58See proposed Rule 22.100(n). 

59As it does for with equities trading (which 

applies a constant inbound latency of 350 

microseconds), IEX will subject incoming order and 

quote messages to a de minimis delay using coiled 

optical fiber. See Rule 11.510(a). 

60See infra for more information about the 

Indicator. 

61 In determining the amount of latency, the 

Exchange will seek to achieve a healthy balance 

between liquidity providers and liquidity takers. 

Due to force majeure events and acts of third 

parties, the Exchange does not guarantee that the 

delay will always be consistent. The Exchange will 

periodically monitor such latency and will make 

adjustments to the latency as reasonably necessary 

to achieve consistency with the target latency (i.e., 

the latency that has been communicated) as soon 

as commercially practicable. 

62The latency mechanism will not apply to 

outbound communications from the Exchange to a 

User, inbound and outbound communications 

between the Exchange and an Away Market 

regarding a routed order, inbound communications 

from data feeds, order processing and order 

execution on the IEX Options Order Book, 

outbound communications to the Exchange’s 

proprietary data feeds or OPRA. 

63All times in this filing refer to the Eastern time 

zone. 

64See C1 Rule 5.7. 

65See Proposed IEX Rule 22.110(b). 

66See Proposed IEX Rule 22.110(c). 

for the Exchange to transmit locked-in 

trades for clearance and settlement.56

IEX Options will include a de 

minimis delay on incoming order and 

quote messages designed to enable IEX 

to update its view of the market prior to 

processing orders and quotes, and an 

optional Market Maker quote parameter 

designed to protect Market Makers from 

excessive risk due to execution of stale 

quotes, in addition to other risk 

protections substantially similar to 

those offered by other options 

exchanges. 

Anonymity 

As set forth in proposed Rule 22.190, 

aggregated and individual transaction 

reports produced by the Trading System 

will indicate the details of a User’s 

transactions, including the contra 

party’s unique market participant 

identifier (‘‘MPID’’), capacity, and 

clearing firm account number.57

Latency Mechanism 58

IEX’s proposal includes a de minimis 

hardware based latency mechanism (or 

speedbump) of up to 350 microseconds 

added to each incoming order and quote 

message 59 designed to enable IEX to 

update its view of the market prior to 

processing orders and quotes as well as 

to perform the Options Quote Indicator 

(‘‘Indicator’’) calculation with current 

market data.60 The specific amount of 

latency provided by the latency 

mechanism will be communicated by 

Trading Alert with at least 30 days prior 

notice; however, the amount of latency 

will not exceed 350 microseconds.61 If 

the Exchange determines to increase the 

duration of the maximum delay, it will 

do so only pursuant to an effective rule 

filing submitted to the Commission 

pursuant to Section 19 of the Exchange 

Act.62

Hours of Operation 

As provided in proposed Rule 

22.110(a), the IEX Options Trading 

System will begin accepting orders and 

quotes beginning at 8:00 a.m.63 pursuant 

to the market opening procedures 

described in proposed Rule 22.160. 

Orders and bids and offers shall be open 

and available until 4:00 p.m. except for 

options contracts on Fund Shares, as 

defined in proposed Rule 20.120(i), 

which may close as of 4:15 p.m. The 

Proposed Hours of Operation rule is 

based on MEMX Rule 21.2, except that 

MEMX does not allow for submission of 

quotes before the market opens for 

trading; IEX notes that other exchanges 

begin accepting orders and quotes 

before the market opens, for example C1 

begins accepting quotes at 7:30 a.m.64

Except as set forth above, IEX Options 

shall operate during the normal 

business days and hours set forth in the 

rules of the primary market trading the 

securities underlying options traded on 

IEX Options, absent unusual conditions 

as may be determined by the 

Exchange.65 IEX Options will not be 

open for business on any holiday 

observed by the Exchange.66

Units of Trading 

As stated in proposed Rule 22.120, 

the unit of trading in each series of 

options traded on IEX Options will be 

the unit of trading established for that 

series by the OCC pursuant to the rules 

of the OCC and the agreements of the 

Exchange with the OCC. The proposed 

determination of the unit of trading for 

a series of options traded on IEX 

Options is the same as on MEMX 

Options pursuant to MEMX Rule 21.3. 

Minimum Quotation and Trading 

Increments 

As stated in proposed Rule 22.140(a), 

the Exchange is proposing to apply the 

following quotation increments: (1) if 

the options series is trading at less than 

$3.00, five (5) cents; (2) if the options 

series is trading at $3.00 or higher, ten 

(10) cents; and (3) if the options series 

is trading pursuant to the Penny Interval 

Program one (1) cent if the options 

series is trading at less than $3.00, five 

(5) cents if the options series is trading 

at $3.00 or higher, except for QQQ, SPY, 

or IWM where the minimum quoting 

increment will be one (1) cent for all 

series. In addition, as stated in proposed 

Rule 22.140(b), the Exchange is 

proposing that the minimum trading 

increment for options contracts traded 

on IEX Options will be one (1) cent for 

all series. Such proposed minimum 

quotation and trading increments are 

the same as on MEMX Options pursuant 

to MEMX Rules 21.5(a) and (b). 

Penny Interval Program 

As set forth in proposed Rule 

22.140(c), the Exchange is proposing to 

adopt a Penny Interval Program that is 

substantially similar to the penny 

programs of other exchanges, including 

MEMX Options pursuant to MEMX Rule 

21.5(d), which includes minimum 

quoting requirements for options classes 

listed under the Penny Interval Program. 

However, eligibility for inclusion in the 

Penny Interval Program will be limited 

to those classes already operating under 

penny programs of other options 

exchanges at the time IEX Options is 

launched. The list of options classes 

included in the Penny Interval Program 

will be announced by the Exchange via 

circular distributed to Options Members 

and published by the Exchange on its 

website. 

Order Types and Handling Instructions 

The Trading System will make 

available to Users two Order Types (as 

defined in proposed Rule 22.100(d))— 

Limit orders and Market orders—as well 

as various order instructions and 

modifiers that can be appended to such 

orders. The characteristics and 

functionality of each Order Type is 

substantially similar to what is currently 

approved for use in the Exchange’s 

equities trading facility or on other 

options exchanges, including MEMX 

Options, except where described below. 

IEX Options will support bulk 

messages for Options Market Makers as 

specified in the description of each 

Order Type or other instruction. 

Proposed Rule 22.100(d) includes the 


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67The proposed definition is substantively 

identical to the definition in MIAX Rule 516(e). IEX 

proposes to incorporate this definition and 

functionality, because MEMX Options does not 

have Attributable Orders. 

68MEMX does not offer an AIQ Cancel Smallest 

modifier, but it is offered by other exchanges such 

as C1. See C1 Rule 5.6 (Match Trade Prevention 

Modifier—MTP Cancel Smallest). 

69MEMX calls them ‘‘Match Trade Prevention’’ 

modifiers. See MEMX Rule 21.1(h). 

following details with respect to Limit 

orders and Market orders: 

• Limit order. Limit orders are orders 

(including bulk messages) to buy or sell 

an option at a specified price or better. 

A Limit order is marketable when, for a 

Limit order to buy, at the time it is 

entered into the Trading System, the 

order is priced at the current inside offer 

or higher, or for a Limit order to sell, at 

the time it is entered into the Trading 

System, the order is priced at the 

current inside bid or lower. 

• Market order. Market orders are 

orders to buy or sell at the best price 

available at the time of execution. 

Market orders to buy or sell an option 

traded on IEX Options will be rejected 

if they are received when the underlying 

security is subject to a ‘‘Limit State’’ or 

‘‘Straddle State’’ as defined in the Plan 

to Address Extraordinary Market 

Volatility Pursuant to Rule 608 of 

Regulation NMS under the Act (the 

‘‘Limit Up-Limit Down Plan’’). Bulk 

messages may not be Market orders. 

Pursuant to Rule 22.100(d)(3), Users 

have the option to designate an order as 

‘‘attributable’’ to that User’s MPID. 

Attributable orders are Market or Limit 

orders which display the User’s MPID 

for purposes of trading on the Exchange. 

Use of attributable orders is voluntary. 

Attributable orders may not be available 

for all Exchange processes. The 

Exchange will distribute a circular to 

Options Members specifying the 

processes for which the attributable 

order-type shall be available.67

The Trading System will also make 

available to Users several additional 

instructions that can be designated on 

an order (‘‘Handling Instructions’’). A 

Handling Instruction applied to a bulk 

message applies to each bid and offer 

within that bulk message. The Handling 

Instructions available on IEX Options 

are described in proposed Rule 

22.100(e) and will include the 

following: 

• Book Only. Book Only is an 

instruction that an order is to be ranked 

and executed on the Exchange pursuant 

to proposed Rule 22.170 (Order Display 

and Book Processing) or to be repriced 

or cancelled, as appropriate, without 

routing away to another options 

exchange. 

• Post Only. Post Only is an 

instruction that an order is to be ranked 

and executed on the Exchange pursuant 

to proposed Rule 22.170 (Order Display 

and Book Processing) or cancelled, as 

appropriate, without routing away to 

another options exchange except that 

the order will not remove liquidity from 

the IEX Options Book. The Trading 

System reprices, cancels or rejects a bid 

(offer) designated as Post Only with a 

price that locks or crosses the 

Exchange’s best offer (bid). A Market 

order cannot be designated as Post Only. 

• Intermarket Sweep Order (‘‘ISO’’). 

ISOs are orders that shall have the 

meaning provided in proposed Rule 

28.100, which relates to intermarket 

trading. Such orders may be executed at 

one or multiple price levels in the 

Trading System without regard to 

Protected Quotations at other options 

exchanges (i.e., may trade through such 

quotations). The Exchange relies on the 

marking of an order as an ISO order 

when handling such order, and thus, it 

is the entering Options Member’s 

responsibility, not the Exchange’s 

responsibility, to comply with the 

requirements relating to ISOs. ISOs are 

not eligible for routing pursuant to 

proposed Rule 22.180. A Market order 

cannot be designated as an Intermarket 

Sweep Order. Users may not designate 

bulk messages as ISOs. 

The Exchange notes that each of the 

proposed Order Types and Handling 

Instructions available on IEX Options 

are based upon and substantially similar 

to those of MEMX, with the exception 

of the Attributable Orders not offered by 

MEMX. 

Time-in-Force (‘‘TIF’’) Designations 

Users entering orders into the Trading 

System may designate such orders to 

remain in force and available for display 

and/or potential execution for varying 

periods of time. Unless cancelled 

earlier, once these time periods expire, 

the order (or the unexecuted portion 

thereof) is returned to the entering 

party. A TIF applied to a bulk message 

applies to each bid and offer within that 

bulk message. Unless otherwise 

specified in the Exchange Rules or the 

context indicates otherwise, the 

Exchange determines which of the 

following TIFs are available on a class 

or system basis. The TIF designations 

available on IEX Options are described 

in proposed Rule 22.100(g) and will 

include the following: 

• Immediate Or Cancel (‘‘IOC’’). IOC 

means, for an order so designated, an 

order that is to be executed in whole or 

in part as soon as such order is received. 

The portion not so executed 

immediately on the Exchange or another 

options exchange is cancelled and is not 

posted to the IEX Options Book. IOC 

orders that are not designated as Book 

Only and that cannot be executed in 

accordance with proposed Rule 22.170 

on the Trading System when reaching 

the Exchange will be eligible for routing 

away pursuant to proposed Rule 22.180. 

• Day. Day means, for an order so 

designated, an order to buy or sell 

which, if not executed expires at market 

close. Market Makers may designate 

bulk messages as Day. 

The Exchange notes that each of the 

proposed TIF designations available on 

IEX Options is identical to the same TIF 

designations available on MEMX 

Options, except that they are applied 

differently in one respect. Specifically, 

MEMX Options allows bulk messages to 

have a TIF of IOC. IEX is proposing to 

only allow bulk messages to have a TIF 

of DAY so that Market Makers do not 

take liquidity with quotes submitted via 

bulk messages, and which are meant for 

liquidity provision by Market Makers, 

which by definition the Exchange 

believes constitutes orders resting on 

the Order Book. 

Anti-Internalization Qualifier (‘‘AIQ’’) 

Modifiers 

As with its equities market, the 

Exchange will allow Users to use certain 

AIQ modifiers, which are described in 

proposed Rule 22.100(h). Any incoming 

order designated with an AIQ modifier 

will be prevented from executing 

against a resting opposite side order also 

designated with an AIQ modifier and 

originating from the same MPID, 

Options Member identifier, trading 

group identifier, or Sponsored 

Participant identifier. The Exchange 

will offer the following AIQ modifiers: 

AIQ Cancel Newest, described in 

proposed Rule 22.100(h)(1); AIQ Cancel 

Oldest, described in proposed Rule 

22.100(h)(2); AIQ Cancel Both, 

described in proposed Rule 

22.100(h)(3); and AIQ Cancel Smallest, 

described in proposed Rule 

22.100(h)(4). The Exchange notes that 

each of the proposed AIQ modifiers 

available on IEX Options is substantially 

similar to the same modifiers available 

on MEMX Options 68, with the 

distinction that on MEMX a market 

maker may include the AIQ modifier on 

bulk messages, while IEX is proposing 

to not allow AIQ modifiers to be 

included on bulk messages because it 

would be meaningless on IEX where 

bulk messages will only be for liquidity 

adding quotes, and the AIQ modifier 

that dictates the AIQ interaction is 

determined by the liquidity removing 

order.69


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70See Securities Exchange Act Release No. 60405 

(July 30, 2009), 74 FR 39362 (Aug. 6, 2009) (File 

No. 4–546). 

71The Exchange notes that this behavior is 

substantially similar to the ‘‘single price adjust’’ 

behavior in C1 Rule 5.32(b)(2)(A). 

72See proposed IEX Rule 22.100. 

73See MEMX Rule 21.1(l). IEX notes that the 

ability of the Trading System to cancel or reject a 

post only order submitted on a bulk port with a 

price that locks or crosses the Exchange best offer 

(bid) or ABO (ABB) is substantively identical to 

MEMX Rule 21.1(l)(3); IEX will also allow the 

Trading System to reprice a post only order 

submitted on a bulk port with a price that locks or 

crosses the Exchange best offer (bid) or ABO (ABB), 

which is substantively identical to the functionality 

in C1 Rule 5.32(b)(1)(B). 

74See proposed Rule 22.160(a)(13). 

75See proposed Rule 22.160(a)(5) and (7). 

76See proposed Rule 22.160. IEX notes that 

pursuant to proposed Rule 22.160(b)(3), the priority 

overlays specified in proposed Rule 22.170(f)(2) and 

(3) will not be available during an Auction, but will 

resume once the Exchange has transitioned to 

continuous trading. 

77See proposed Rule 22.160(b). Other differences 

include: IEX will begin accepting orders for the 

opening auction at 8:00 a.m., while NYSE Arca 

begins accepting orders for their opening auction at 

6:00 a.m. See proposed Rule 22.160(a)(13)(A) versus 

NYSE Arca Options Rule 6.64P–O(a)(12)(A). 

Additionally, IEX will begin disseminating Auction 

Imbalance Information at 8:30 a.m., while NYSE 

Arca begins disseminating imbalance information at 

8:00 a.m. See proposed Rule 22.160(c)(1) versus 

NYSE Arca Options Rule 6.64P–O(c)(1). Further, 

Continued 

Re-Pricing Mechanism 

Like other options exchanges, the 

Exchange proposes to offer a re-pricing 

mechanism to Users to comply with the 

order protection and trade through 

restrictions of the Options Order 

Protection and Locked/Crossed Market 

Plan.70 This re-pricing mechanism, 

described in proposed Rule 22.100(i), is 

referred to by the Exchange as Price 

Adjust and is substantially similar to the 

Price Adjust mechanism offered by 

MEMX Options pursuant to MEMX Rule 

21.1(i), with the exception that IEX will 

only allow the ranked price and 

displayed price of an order that has 

been repriced to be adjusted to a more 

aggressive price one additional time 

(unlike MEMX, which allows multiple 

adjustments).71

MPIDs 

As proposed in Rule 22.100(j), the 

term ‘‘MPID’’ means the unique market 

participant identifier assigned to a User 

and shall refer to what the Trading 

System uses to identify the User and the 

clearing number for the execution of 

orders and quotes submitted to the 

Trading System with that MPID. Each 

MPID corresponds to a single User and 

a single clearing number of a Clearing 

Member with the Clearing Corporation. 

A User may obtain multiple MPIDs, 

which may be for the same or different 

clearing numbers. A User is able (in a 

form and manner determined by the 

Exchange) to designate which of its 

MPIDs may be used for each of its ports. 

If a User submits an order or quote 

through a port with an MPID not 

enabled for that port, the Trading 

System cancels or rejects the order or 

quote. The Exchange notes that its 

proposed Rule 22.100(j) is identical to 

MEMX Rule 21.1(j) except that MEMX 

uses the term EFID rather than MPID. 

Ports and Bulk Messages 

Proposed Rule 22.100(k) defines two 

types of ports: (1) a ‘‘physical port,’’ 

which provides a physical connection to 

the Trading System and may provide 

access to multiple logical ports; and (2) 

a ‘‘logical port’’ or ‘‘application 

session,’’ which provides Users with the 

ability within the Trading System to 

accomplish a specific function through 

a connection, such as order entry, data 

receipt, or access to information. The 

Exchange notes that each of the 

proposed types of ports available on IEX 

Options is identical to the same types of 

ports on MEMX Options. 

The term ‘‘bulk message’’ is proposed 

to mean a single electronic message a 

User submits with a Market Maker 

Capacity to the Exchange in which the 

User may enter, modify, or cancel up to 

an Exchange-specified number of bids 

and offers (which number the Exchange 

will announce via Exchange notice and 

publicly available technical 

specifications). The Trading System 

handles a bulk message in the same 

manner as it handles an order or quote, 

unless the Exchange Rules specify 

otherwise. 

Only Market Makers may submit bulk 

messages through a logical port in a 

class in which the Market Maker has an 

appointment. In addition, bulk messages 

have a default TIF of Day and a default 

designation of Post Only. As proposed, 

the Trading System will cancel, reject, 

or reprice a Post Only bulk message bid 

(offer) with a price that locks or crosses 

the Exchange best offer (bid) or ABO 

(ABB).72 These provisions are similar to 

the manner in which market maker bulk 

messages are handled by MEMX, which 

allows bulk messages to also have a TIF 

of IOC, a designation as book only, and 

post only bulk messages in unassigned 

classes.73

Cancel Back 

The term ‘‘Cancel Back’’ is proposed 

to mean an instruction a User designates 

on an order (including bulk messages) to 

not be subject to the Price Adjust 

process pursuant to proposed Rule 

22.100(i). The Trading System cancels 

or rejects an order with a Cancel Back 

instruction (immediately at the time the 

Trading System receives the order or 

upon return to the Trading System after 

being routed away) if displaying the 

order on the Book would create a 

violation of proposed Rule 28.120, or if 

the order cannot otherwise be executed 

or displayed in the Book at its limit 

price. The Trading System executes a 

Book Only—Cancel Back order against 

resting orders. The proposed definition 

of Cancel Back in proposed Rule 

22.100(m) is substantively identical to a 

Cancel Back Order defined in MEMX 

Rule 21.1(m). 

Market Opening Procedures 

As proposed, the Trading System will 

accept quotes, Limit orders with a TIF 

of DAY and Market orders for inclusion 

in the opening process (‘‘Opening 

Process’’) beginning at 8:00 a.m. or 

immediately upon trading being halted 

in an options series due to the primary 

listing market for the applicable 

underlying security declaring a 

regulatory trading halt, suspension, or 

pause with respect to such security (a 

‘‘Regulatory Halt’’), and will continue to 

accept Market and Limit orders and 

quotes until such time as the Opening 

Process is initiated in that options series 

(the ‘‘Pre-open state’’).74

After the first transaction on the 

primary listing market after 9:30 a.m. in 

the securities underlying the options as 

reported on the first print disseminated 

pursuant to an effective national market 

system plan or the Regulatory Halt has 

been lifted, the related options series 

will be opened automatically as 

described below. The Exchange will 

conduct its ‘‘Core Open Auction’’ for 

each series of options contracts upon 

receipt of an ‘‘Auction Trigger’’, i.e., the 

moment that the Primary Market for the 

underlying security first disseminates 

both a two-sided quote and a trade of 

any size that is at or within the quote 

(in the case of reopening after a 

Regulatory Halt, the Auction Trigger 

also includes notification that the 

underlying stock is no longer halted).75

The Exchange will disseminate a 

message to market participants 

indicating the initiation of the opening 

process, conduct the opening auction, 

and then transition to continuous 

trading for each series of options 

contracts.76 The proposed market 

opening procedures are substantially 

similar to the market opening 

procedures specified in NYSE Arca 

Options Rule 6.64P–O, subject to several 

differences, most notably that any 

imbalance would be allocated on a pro 

rata basis.77


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IEX does not define Far Clearing Price, because IEX 

does not propose to have Auction Only orders, to 

which the Far Clearing Price relates. 

78See proposed Rule 22.170. 

79See proposed Rule 22.170(b). This pro-rata 

allocation methodology is based upon the 

substantially similar methodology in MIAX Rule 

514(c)(2) and NYSE Amex Rule 964NYP(i)(2). 

80See proposed Rule 22.180(a). 

81As described infra, if the order is eligible for 

the Step-Up Mechanism (set forth in proposed Rule 

22.270), the Trading System will attempt to fill the 

order before routing it to an away market. 

82See supra note 70. 

83See proposed Rule 22.180(d). 

84 Id. 

85 Id. 

86 Id. 

87MEMX also offers the option of using its 

outbound router, MEMX Execution Services to 

route directly to other exchanges. See MEMX Rule 

21.9(d). IEX is not proposing to adopt this 

functionality, because it will only provide for 

routing through IEX Services to third party broker 

dealers. 

88See proposed Rule 22.180(b). 

89 17 CFR 240.15c3–5. 

90Proposed Rule 22.170(f) is based upon and 

substantially similar to C1 Rule 5.32(a)(2), except is 

Order Display/Matching System 

The Trading System will be based 

upon functionality currently approved 

for use in the Exchange’s equities 

trading system. Specifically, the Trading 

System will allow Users to enter Market 

orders and priced Limit orders to buy 

(bids) and sell (offers). All bids or offers 

made and accepted on IEX Options in 

accordance with the Exchange Rules 

shall constitute binding contracts, 

subject to applicable requirements of the 

Exchange Rules and the Rules of the 

Clearing Corporation. Such orders are 

executable against marketable contraside orders in the Trading System.78

Resting quotes and orders on the IEX 

Options Book will be prioritized 

according to price. If there are two or 

more quotes or orders at the best price, 

then the options contracts will be 

allocated proportionally according to 

size (in a pro-rata fashion), rounded 

down to the nearest contract. If there are 

residual options contracts to be filled, 

the quote or order with the largest 

remaining size (based on the pro rata 

calculation) will receive the first 

contract, and each successive contract 

(if any) will be allocated to each 

subsequent quote or order based on size 

(largest to smallest). If there are two or 

more quotes or orders with the same 

remaining size, then the quote or order 

with the first time priority will be 

allocated the next options contract. Each 

successive options contract (if any) will 

be allocated in the same manner.79

Routing 

IEX Options will offer a simple 

optional routing functionality to 

facilitate compliance with applicable 

regulations and will not offer other 

complex routing strategies. Options 

Members can designate orders that have 

not been executed in full by the Trading 

System pursuant to Rule 22.170 above 

as either available for routing or not 

available for routing.80 IEX Options will 

support orders that are designated to be 

routed to the NBBO as well as orders 

that will execute only within IEX 

Options. Orders that are designated to 

execute at the NBBO will be routed to 

other options markets to be executed 

when the Exchange is not at the 

NBBO 81 consistent with the Options 

Order Protection and Locked/Crossed 

Market Plan.82

Subject to the exceptions contained in 

proposed Rule 28.110(b), the Trading 

System will ensure that an order will 

not be executed at a price that trades 

through another options exchange. An 

order that is designated by an Options 

Member as routable will be routed in 

compliance with applicable tradethrough restrictions. Any order entered 

with a price that would lock or cross a 

Protected Quotation that is not eligible 

for either routing or the price adjust 

process as defined in proposed Rule 

22.100(i) will be cancelled. Bulk 

messages are not eligible for routing. 

IEX Options will route orders in 

options via IEX Services LLC (‘‘IEX 

Services’’), which serves as the 

Outbound Router of the Exchange, as 

defined in Rule 2.220 (IEX Services LLC 

as Outbound Router).83 The function of 

the Outbound Router will be to route 

orders in options listed and open for 

trading on IEX Options by transmitting 

such orders to one or more routing 

brokers that are not affiliated with the 

Exchange to other options exchanges 

(‘‘Routing Services’’) pursuant to the 

Exchange Rules on behalf of IEX 

Options.84 The Outbound Router is 

subject to regulation as a facility of the 

Exchange, including the requirement to 

file proposed rule changes under 

Section 19 of the Exchange Act.85

Parties that do not desire to use the 

Routing Services provided by the 

Exchange must designate orders as not 

available for routing.86 The Exchange 

notes that the proposed rules relating to 

the routing of orders on IEX Options to 

away options markets are substantively 

identical to the MEMX Back-Up Order 

Routing Services described in MEMX 

Rule 21.9(e).87

Priority of Routed Orders 

Orders that have been routed by the 

Trading System to other options 

exchanges are not ranked and 

maintained in the IEX Options Book 

pursuant to Rule 22.170, and therefore 

are not available to execute against 

incoming orders. Once routed by the 

Trading System, an order becomes 

subject to the rules and procedures of 

the destination options exchange 

including, but not limited to, order 

cancellation. If a routed order is 

subsequently returned, in whole or in 

part, that order, or its remainder, shall 

receive a new time stamp reflecting the 

time of its return to the Trading 

System.88

Market Access 

In connection with the proposed rules 

regarding routing to away options 

exchanges, proposed Rule 22.180(e) 

provides that IEX Services has, pursuant 

to Rule 15c3–5 under the Act,89

implemented certain tests designed to 

mitigate the financial and regulatory 

risks associated with providing the 

Exchange’s Users with access to such 

away options exchanges. Pursuant to the 

policies and procedures developed by 

IEX Services to comply with Rule 15c3– 

5, if an order or series of orders are 

deemed to be erroneous or duplicative, 

would cause the entering User’s credit 

exposure to exceed a preset credit 

threshold, or are non-compliant with 

applicable pre-trade regulatory 

requirements (as defined in Rule 15c3– 

5), IEX Services will reject such orders 

prior to routing and/or seek to cancel 

any orders that have been routed. This 

is consistent with the routing 

implementation of other options 

exchanges, and the Exchange notes that 

proposed Rule 22.180(e) is substantively 

identical to MEMX Rule 21.9(f). 

Order Priority 

After the opening, trades on the 

Exchange will occur when a buy order/ 

quote and a sell order/quote match on 

the Exchange’s order book. The Trading 

System shall execute trading interest 

within the Trading System in price 

priority, meaning it will execute all 

trading interest at the best price level 

within the Trading System before 

executing trading interest at the next 

best price. Pursuant to proposed Rule 

22.170, after considering price priority, 

all options contracts are allocated 

proportionally according to size (in a 

pro-rata fashion). If the executed 

quantity cannot be evenly allocated, the 

remaining options contracts will be 

distributed one at a time based upon 

price-size-time priority. 

In addition, the Exchange supports 

multiple priority overlays that apply 

ahead of the default pro-rata allocation 

at a given price level. Pursuant to 

proposed Rule 22.170(f),90 these priority 


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different in one respect. Unlike C1, in the event that 

a Small-Size order is directed to a Specialist, the 

IEX Options trading system will apply the SmallSize Order Entitlement to the order and not the 

Directed Order guarantee, meaning the Specialist 

will have priority to execute against the entire size 

of the order that does not execute against any 

Priority Customer orders at that price. 

91See proposed Rule 22.170(f)(1). 

92See proposed Rule 22.170(f)(2). This overlay 

may only be in effect if the Priority Customer 

overlay is also in effect. See proposed Rule 

22.170(f). 

93These allocation entitlements are based on 

MIAX Rule 514(h)(1), after accounting for the 

additional priorities afforded market makers on 

MIAX, as set forth in MIAX Rule 514(e). See supra 

note 79 and accompanying text. 

94See proposed Rule 22.170(f)(2). This overlay 

may only be in effect if the Priority Customer 

overlay is also in effect. See proposed Rule 

22.170(f). 

95These allocation entitlements are based on 

MIAX Rule 514(h)(1), after accounting for the 

additional priorities afforded market makers on 

MIAX, as set forth in MIAX Rule 514(e). See supra 

note 79 and accompanying text. 

96Prioritizing the DMM entitlement over the 

Specialist entitlement in these circumstances is the 

same functionality offered by several other 

exchanges. See, e.g., NYSE Amex Options Rule 

964NYP(h)(1). 

97See proposed Rule 22.170(f)(3). 

98See proposed Rule 22.170(f)(3)(A). 

99See proposed Rule 22.170(f)(3)(B). This is 

functionally identical to how NYSE Amex Options 

allocates small-size Directed Orders that are 

directed to a Specialist. See NYSE Amex Options 

Rule 965NYP(h)(2)(B). 

100See proposed Rule 22.270. IEX’s proposed 

Step-Up Mechanism is substantively identical to C1 

Rule 5.35. 

101See proposed Rule 22.270(a). 102See C1 Rule 5.35. 

overlays are made available at the 

Exchange’s discretion on a class-byclass basis: (1) the Priority Customer 

overlay,91 which provides resting 

interest from Priority Customers with 

priority over all non-Priority Customer 

interest at the same price, will always 

take priority over all other priority 

overlays; (2) the Specialist Participation 

Entitlement overlay,92 which provides 

the Specialist with priority over interest 

from other non-Priority Customers for a 

certain percentage of contracts allocated 

at the same price (entitling the 

Specialist to 60% of the allocation if 

there is another non-Priority Customer 

at the NBBO or 40% if there are two or 

more other non-Priority Customers at 

the NBBO 93) when quoting at the 

NBBO, inclusive of the case in which 

the order is directed to the Specialist; 

(3) the Directed Market Maker 

Participation Entitlement overlay,94

which provides a Directed Market 

Maker with priority over interest from 

other non-Priority Customers for a 

certain percentage of contracts allocated 

at the same price (entitling the DMM to 

60% of the allocation if there is another 

non-Priority Customer at the NBBO or 

40% if there are two or more other nonPriority Customers at the NBBO 95) 

when quoting at the NBBO and always 

applies in place of the Specialist 

Participation Entitlement overlay when 

both are in effect and the order is 

directed to a Directed Market Maker 

other than the Specialist; 96 and (4) the 

Small-Size Order Entitlement overlay,97

which provides a Specialist quoting at 

the NBBO the priority to execute against 

the entire size of an order or quote of 

five or fewer contracts that does not first 

execute against any Priority Customer 

orders at that price, provided that if an 

order subject to the Small-Size Order 

Entitlement is directed to a Directed 

Market Maker who is not the Specialist 

quoting at the NBBO, and the Directed 

Market Maker priority overlay is 

enabled in the series, then the Directed 

Market Maker Participation Entitlement 

priority overlay will apply instead of the 

Small-Size Order Entitlement priority 

overlay 98, and in the case that an order 

subject to the Small-Size Order 

Entitlement is directed to the Specialist, 

the Small-Size Order Entitlement 

priority overlay will apply while the 

Specialist Participation Entitlement and 

Directed Market Maker Entitlement 

overlays will not.99

After executions resulting from the 

Priority Overlays described above, 

orders and quotes within the Trading 

System for the accounts of non-Priority 

Customers, including Professional 

Customers, have next priority. If there is 

more than one highest bid or more than 

one lowest offer on the Options Order 

Book for the account of a non-Priority 

Customer, then such bids or offers will 

be afforded priority on a size pro-rata 

basis, as described above. 

Step Up Mechanism 

IEX proposes to offer Options 

Members an optional Step Up 

Mechanism (‘‘SUM’’), which is a feature 

within the Trading System that provides 

automated order handling in designated 

classes trading for qualifying orders that 

are not automatically executed by the 

Trading System.100 The Exchange will 

determine eligibility of an order for the 

SUM (including order size, type, 

capacity, handling instructions, as well 

as which classes of options contracts). 

The Exchange will not initiate the SUM 

process if the NBBO is crossed.101 SUM 

automatically processes upon receipt of 

an eligible order that is marketable 

against the BBO that is not the NBBO; 

or an eligible order that would improve 

the Exchange’s BBO and that is 

marketable against the ABBO. This 

proposed functionality is substantively 

identical to the Step-Up Mechanism 

offered by C1, with the exception that 

IEX is not proposing to offer All or None 

orders.102 IEX notes that the optional 

SUM mechanism is designed to benefit 

a routable order that is not immediately 

eligible for execution on the Exchange, 

but if routed to an away exchange might 

miss a potential execution on that 

exchange. And, because SUM is 

optional, a Member can choose not to 

have its order subject to the SUM 

mechanism if it determines that the 

functionality is not consistent with its 

objectives. Given the multitude of 

tradeable listed options securities 

(compared to listed equities) not all 

available liquidity is always reflected in 

an exchange’s order book, and the SUM 

mechanism provides an opportunity to 

source such additional liquidity to the 

benefit of the order in question. 

Moreover, IEX notes as well that other 

options exchanges offer similar 

mechanisms, and order flow might be 

directed to such exchanges if IEX did 

not offer such a mechanism. 

Upon receipt of a SUM eligible order, 

the Trading System will expose the 

order at the NBBO upon receipt for a 

period of time determined by the 

Exchange on a class-by-class basis, 

which period of time may not exceed 

one second. All Users may submit 

responses to the exposure message, 

which must be limited to the size of the 

order being exposed, may be modified, 

cancelled or replaced any time during 

the exposure period, and are cancelled 

back at the end of the exposure period 

if unexecuted. Responses priced at the 

prevailing NBBO or better will 

immediately trade against the order in 

time priority. If during the exposure 

period the Exchange receives an 

unrelated order (or quote) on the 

opposite side of the market from the 

exposed order that could trade against 

the exposed order at the prevailing 

NBBO price or better, then the orders 

will trade at the prevailing NBBO price. 

The exposure period will not terminate 

if a quantity remains on the exposed 

order after such trade. 

Responses that are not immediately 

executable based on the prevailing 

NBBO may become executable during 

the exposure period based on changes to 

the NBBO. In the event of a change to 

the NBBO and at the conclusion of the 

exposure period, the Exchange will 

evaluate remaining responses as well as 

the ABBO and execute any remaining 

portion of the exposed order to the 

fullest extent possible at the best 

price(s) by executing against responses 

and unrelated orders. 

Following the exposure period, the 

Exchange will route the remaining 


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103See proposed Rule 22.240(a). 

104See proposed Rule 22.240(b). 

105 Data products will be subject to fees as 

specified in an effective Commission rule filing. 

106Proposed Rule 22.250 is based upon and 

substantially similar to NYSE Arca Rule 6.40P–O. 

107See proposed Rule 22.250(b)(1). 

108MPID Groups, defined in proposed Rule 

22.250(a)(5), are based upon C1 Rule 5.34(c)(4)(A), 

which allows for the setting of risk control limits 

for EFID Groups, which are equivalent to MPID 

Groups. IEX notes that it proposes to retain the right 

to limit the number of MPID Groups an Options 

Member can configure based upon potential 

technical limitations. 

109See proposed Rule 22.250(b)(2). IEX notes that 

while it allows these risk controls to be set at MPID 

or MPID Group levels, NYSE Arca allows the 

equivalent controls to be set at either the MPID or 

the MPID Sub-ID level (a more granular level than 

the MPID). 

110See proposed Rule 22.250(b)(2). 

111See proposed Rule 22.250(a)(1), which is 

substantively identical to NYSE Arca Rule 6.40P– 

O(a)(2). 

112See proposed Rule 22.250(a)(2), which is 

substantively identical to NYSE Arca Rule 6.40P– 

O(a)(3). 

113See proposed Rule 22.250(c)(2)(A). 

114See proposed Rule 22.250(a)(3), which is 

substantively identical to NYSE Arca Options Rule 

6.40P–O(a)(4). 

115See proposed Rule 22.250(c), which is 

substantively identical to NYSE Arca Options Rule 

6.40P–O(c). 

116The time of receipt for an order or quote is the 

time such message is processed by the Exchange’s 

order book. 

117Pre-trade risk controls are implemented prior 

to an order or quote resting on the order book (or 

being placed on the book again following an 

auction) and therefore do not implicate firm quote 

obligations. 

portion of the exposed order to other 

exchanges, unless otherwise instructed 

by the User. Any portion of a routed 

order that returns unfilled shall trade 

against the Exchange’s best bid/offer 

unless another exchange is quoting at a 

better price in which case new orders 

shall be generated and routed to trade 

against such better prices. 

Data Dissemination 

The Exchange will disseminate to 

OPRA the highest bid and the lowest 

offer, and the aggregate quotation size 

associated therewith that is available, in 

accordance with the requirements of 

Rule 602 of Regulation NMS under the 

Act.103 The Exchange will also offer 

three data products: (1) IEX Options 

DEEP: an uncompressed data feed that 

offers depth of book quotations and 

execution information based on options 

orders entered into the Trading System; 

(2) IEX Options TOPS: an uncompressed 

data feed that offers top of book 

quotations and execution information 

based on options orders entered into the 

Trading System; and (3) DROP: an 

uncompressed data feed that offers 

information regarding the options 

trading activity of a specific User.104

DROP is only available to the User to 

whom the specific data relates and those 

recipients expressly authorized by the 

User.105

Risk Controls 

The Exchange also proposes to offer to 

all Users of IEX Options the ability to 

establish certain risk control parameters 

and limits that are intended to assist 

Users in managing their market risk. 

The proposed risk controls are based, in 

part, on those of the NYSE Arca and C1 

options exchanges, with certain 

additions and differences described 

below. The proposed risk controls are 

designed to offer Users protection from 

entering orders outside of certain size 

and price parameters, as well as certain 

standard or Exchange-established 

parameters based on order type and 

market conditions. 

The proposed risk controls include: (i) 

pre-trade risk controls; (ii) activitybased risk controls; and (iii) global risk 

controls, as set forth in proposed Rule 

22.250.106 Pre-trade, activity-based, and 

global risk controls may be set before 

the beginning of a trading day.107 Pretrade, activity-based, and global risk 

controls can be set at the MPID or MPID 

Group level,108 or both, depending on 

the risk control.109 Additionally, pretrade risk controls to restrict the options 

class(es) transacted must be set per 

options class.110 The following 

describes each category of risk 

protection mechanism: 

Pre-Trade Risk Controls 111

The pre-trade risk controls 

mechanism is a set of optional limits, 

each of which an Options Member may 

utilize with respect to its trading 

activity on the Exchange. These controls 

include controls related to the 

maximum dollar amount for a single 

order to be applied one time and the 

maximum number of contracts that may 

be included in a single order before it 

can be traded. Additionally, there are 

optional controls related to the price of 

an order or quote (including percentagebased and dollar-based controls), 

controls related to the order types or 

modifiers that can be utilized, controls 

to restrict the options classes transacted, 

and controls to prohibit duplicative 

orders. 

Activity-Based Risk Controls 112

The Exchange also proposes to offer 

activity-based risk limits that may be 

applied to orders and quotes in an 

options class (when acting as a Market 

Maker, an Options Member is required 

to select at least one of the following 

controls 113) based on specified 

thresholds measured over the course of 

a configurable time period (‘‘Interval’’). 

The Exchange will offer the following 

activity-based risk controls: (i) 

transaction-based risk limits, which are 

pre-established limits on the number of 

an Options Member’s orders and quotes 

executed in a specified class of options 

per Interval; (ii) volume-based risk limit, 

which are pre-established limits on the 

number of contracts of an Options 

Member’s orders and quotes that can be 

executed in a specified class of options 

per Interval; and (iii) percentage-based 

risk limits, which are pre-established 

limits on the percentage of contracts 

executed in a specified class of options 

as measured against the full size of an 

Options Member’s orders and quotes 

executed per Interval. To determine 

whether an Options Member has 

breached the specified percentage limit, 

the Exchange calculates the percent of 

each order or quote in a specified class 

of options that is executed during an 

Interval (each, a ‘‘percentage’’), and 

sums up those percentages. This risk 

limit will be breached if the sum of the 

percentages exceeds the pre-established 

limit. 

Global Risk Control114

The Exchange also proposes to offer a 

global risk control, which is a preestablished limit on the number of times 

an Options Member may breach its 

activity-based risk controls per Interval. 

Automated Breach Actions 115

Proposed Rule 22.250(c) details the 

‘‘automated breach actions’’ the 

Exchange will take if any of the three 

above-described risk controls are 

breached. Based on User preference, 

these actions can include blocking new 

orders and quotes, canceling orders and 

quotes on the Order Book, or notifying 

the Options Member of the breach. With 

respect to the activity-based and global 

risk controls (as well as Kill Switch 

Actions described below), in order to 

remain consistent with the firm quote 

obligations of a broker-dealer pursuant 

to Rule 602 of Regulation NMS, any 

marketable interest that is executable 

against an order or quote that is 

received 116 prior to the time the 

applicable threshold is triggered and 

processed by the Trading System will be 

automatically executed up to the size of 

the resting order or quote, regardless of 

whether the execution would cause the 

Member to exceed their pre-set risk 

threshold(s).117


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118See proposed Rule 22.250(e), which is 

substantively identical to NYSE Arca Options Rule 

6.40P–O(e). 

119See proposed Rule 22.260(a), which is 

substantively identical to NYSE Arca Options Rule 

6.62P–O(a)(3). 

120 IEX notes that these proposed risk control 

mechanisms are based on similar rules of other 

options exchanges, in particular: NYSE Arca 

Options Rules 6.62P–O(a)(3) and 6.41P–O and C1 

Rules 5.34(a)(1), (2) and (4). 

121See proposed Rule 22.260(b), which is 

substantively identical to C1 Rule 5.34(a)(1). 

122See proposed Rule 22.260(c), which is 

substantively identical to C1 Rule 5.34(a)(2). 

123See proposed Rule 22.260(d), which is 

substantively identical to NYSE Arca Options Rule 

6.41P–O. 

124See proposed Rule 22.260(d)(2), which is 

substantively identical to NYSE Arca Options Rule 

6.41P–O(b). 

125See proposed Rule 22.260(d)(3), which is 

substantively identical to NYSE Arca Options Rule 

6.41P–O(c). IEX notes that like NYSE Arca Options, 

the term ‘‘Automated Breach Action’’ is used in two 

of its risk controls with different meanings: first 

with respect to the intrinsic value risk checks for 

market makers, see NYSE Arca Options Rule 6.40P– 

O(d) and proposed Rule 22.260(d)(3)(E); and also 

with respect to activity based risk controls. See 

NYSE Arca Options Rule 6.41P–O(d) and proposed 

Rule 22.250(c). 

126See proposed Rule 22.260(e). 

127 IEX notes that other exchanges also have the 

ability to change any exchange-determined 

parameters with a trading alert. See, e.g., C1 Rule 

1.5. 

128See, e.g., Securities Exchange Act Release No. 

86923 (September 10, 2019), 84 FR 48664 

(September 16, 2019) (SR–CBOE–2019–057) with 

respect to C1 prior functionality. 

129See infra note 135. 

130See proposed IEX Rule 23.150(h). 

131See Revolutionary Black-Scholes Option 

Pricing Model is Published by Fischer Black, Later 

a Partner at Goldman Sachs, available at https://

www.goldmansachs.com/our-firm/history/ 

moments/1973-black-scholes. 

Kill Switch Actions 118

Additionally, Options Members may 

direct the Exchange to operate a ‘‘kill 

switch’’ to either cancel all unexecuted 

orders and quotes on the Order Book, 

block the entry of any new order and 

quote messages, or both. 

Limit Order Price Protection 119

The Exchange also proposes to offer 

price protection mechanisms, as set 

forth in proposed Rule 22.260.120 These 

protections include Limit Order Price 

Protection, in which the Trading System 

will reject an order or quote upon entry, 

or cancel at the conclusion of an 

auction, if its price exceeds a preestablished, Exchange-defined 

‘‘specified threshold’’ amount above or 

below the reference price. The 

Reference Price for calculating Limit 

Order Price Protection for an order or 

quote to buy (sell) will be the NBO 

(NBB), provided that, immediately 

following an auction, the reference price 

will be the price at which the auction 

match occurred, or, if none, the upper 

(lower) auction collar price, or, if none, 

the NBO (NBB). 

Market Orders in No-Bid (Offer) 

Series 121

If the Trading System receives a sell 

Market order in a series after it is open 

for trading with an NBB of zero and an 

NBO less than or equal to $0.50, then 

the Trading System converts the Market 

order to a Limit order with a limit price 

equal to the minimum trading 

increment applicable to the series and 

enters the order into the IEX Options. If 

the Trading System receives a sell 

Market order in a series after it is open 

for trading with an NBB of zero and an 

NBO greater than $0.50, then the 

Trading System cancels or rejects the 

Market order, except if the sell Market 

order would be subject to the drillthrough protection (as discussed below), 

in which case the order joins the 

ongoing drill-through process. If the 

Trading System receives a buy Market 

order in a series after it is open for 

trading with an NBO of zero, the 

Trading System cancels or rejects the 

Market order. 

Market Order NBBO Width 

Protection 122

If a User submits a Market order to the 

Trading System when the NBBO width 

is greater than x% of the midpoint of the 

NBBO, subject to a minimum and 

maximum dollar value (the Exchange 

determines ‘‘x’’ and the minimum and 

maximum dollar values on a class-byclass basis), the Trading System cancels 

or rejects the Market order. 

Price Reasonability Checks 123

Additionally, the Exchange will apply 

price reasonability checks to most Limit 

orders and quotes during continuous 

trading on each trading day. One price 

reasonability check, the ‘‘arbitrage 

check’’, will reject order or quote 

messages to buy put options if the price 

of the order is equal to or greater than 

the strike price of the option and will 

reject (or cancel, if resting) order or 

quote messages to buy call options if the 

price of the order is equal to or greater 

than the price of the last trade in the 

underlying security plus an Exchangedefined specified threshold.124 Another 

price reasonability check, the ‘‘intrinsic 

value check’’, will assess the intrinsic 

value of an option based on the last sale 

price of the underlying security (for 

calls) or the strike price of the option 

(for puts), and reject or cancel certain 

orders or quotes if the price of the order 

is dislocated from the intrinsic value of 

the option by a certain Exchangedefined specified threshold.125

Drill-Through Protection 

Another proposed price protection 

mechanism is drill-through protection, 

which will prevent an order from 

executing beyond a ‘‘buffer amount’’ 

determined based on a drill-through 

price.126 This rule is based upon and 

substantially similar to C1 Rule 

5.34(a)(4), with the distinction that 

IEX’s Drill-Through Protection will have 

a finite, Exchange-defined number of 

iterations, that are communicated by a 

Trading Alert with at least 30 days prior 

notice.127 IEX notes that other 

exchanges have also set a finite number 

of iterations for their Drill-Through 

Protection.128

Options Risk Parameter 

In order to provide additional 

protection to Market Makers to address 

structural challenges 129 they face in the 

listed options market, IEX proposes to 

offer an optional quote parameter that 

would augment the standard risk tools 

that will be available to Options Market 

Makers referred to as the Options Risk 

Parameter (‘‘ORP’’). As proposed, the 

ORP will be a parameter that can be 

applied to a quotation that rests on the 

Order Book at the price designated by 

the Market Maker that entered the 

quotation. When the ORP is triggered 

based on pre-defined criteria, the 

relevant quotation(s) will be adjusted in 

a manner specified transparently in 

IEX’s rules and related Trading Alerts, 

as described below.130

The ORP would leverage IEX’s 

proprietary mathematical formula—the 

Options Quote Indicator (the 

‘‘Indicator’’)—which is based on the 

preeminent Black-Scholes options 

pricing model. This Nobel-Prizewinning approach for evaluating the 

price of an options contract has been 

studied extensively, and is widely 

considered as a primary starting point 

for both academic and industrial 

options pricing applications.131

Proposed Rule 23.150(h) sets forth the 

application of the Indicator and optional 

ORP. As with the standard risk checks, 

the ORP is designed to enable Market 

Makers to provide tighter and deeper 

quotes on IEX by providing protection 

from execution against stale quotes by 

identifying when the best Protected Bid 

or best Protected Offer of the Away 

Markets (as defined in Proposed Rule 

22.160(a)(8)) in a particular options 

series is sufficiently dislocated from the 

price of the underlying security to 

indicate that the best Protected Bid or 

best Protected Offer of the Away 

Markets in the options series is likely in 

transition. 


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132See supra note 70 at 39370. 

133 Id. 

134See proposed IEX Rule 23.150(h). Two aspects 

of the formula—including the frequency of 

calculation of implied volatility and the quote 

instability threshold—will be periodically 

determined by the Exchange and communicated by 

Trading Alert with at least 30 days’ notice. The 

Exchange believes that providing at least 30 days’ 

notice of these discrete identified aspects will 

provide appropriate notice to market participants 

and give the Exchange the ability to adapt to 

changing market conditions and optimize the 

protections provided. The Exchange further notes 

that other options exchanges specify various rulebased values by similar publication approaches, 

see, e.g., NYSE Amex Rule 994NY (providing that 

the exposure period for its Broadcast Order 

Liquidity Delivery Mechanism is determined and 

released by the exchange); see also MIAX Rule 

515(c)(1) (providing price protections where certain 

minimum price variations are determined by MIAX 

within a specified range and announced through 

regulatory circulars); see also Nasdaq Stock Market 

LLC Dynamic M–ELO algorithm (providing updates 

that include determining the holding period for 

impacted orders that are announced by trading 

alerts). 

135See Staff Report on Equity and Options Market 

Structure Conditions in Early 2021, (Oct. 14, 2021) 

at 4 (explaining that options market structure is 

broadly similar to equities market structure and 

noting a key difference that displayed liquidity is 

primarily derived from market maker quotes), 

available at https://www.sec.gov/files/staff-reportequity-options-market-struction-conditions-early2021.pdf; see also Lehoczky, Sandor and Woods, 

Ellen and Russell, Matthew and Nguyen, Mina and 

Somers, James, Dead Man’s Switch: Making Options 

Markets Safer with Active Quote Protection (May 

2020) at 2 (explaining that options markets ‘‘depend 

especially on market makers—who account for 

99.9% of open orders—to connect buyers and 

sellers, due to a combinatorial explosion of 

expirations and strike prices’’), available at https:// 

papers.ssrn.com/sol3/papers.cfm?abstract_

id=3675849. 

136See, e.g., Protecting Liquidity in Options 

Markets, Market Structure, Optiver, July 12, 2023 

(concluding that ‘‘liquidity protection improves 

options markets’’ by safeguarding market makers 

against ‘‘excessive risk’’ that results from ‘‘liquidity 

providers maintain[ing] hundreds of quotes on a 

given underlying at any one time [and] a sudden 

market move can leave them vulnerable to showing 

stale, or outdated, quotes,’’ thereby ‘‘exposing them 

to potentially major losses’’ if unable to amend or 

cancel quotes before executed), available at https:// 

optiver.com/insights/protecting-liquidity-inoptions-markets/. 

As proposed, the Exchange will 

utilize the Indicator, which is a fixed 

formula specified transparently in IEX’s 

rules and related Trading Alerts, to 

assess the probability of an imminent 

change to the current best Protected 

Bid 132 of the Away Markets to a lower 

price or of an imminent change to the 

current best Protected Offer 133 of the 

Away Markets to a higher price for a 

particular listed options series (i.e., an 

imminent adverse price change).134 The 

Indicator utilizes real time relative 

quoting activity of protected quotations 

from Signal Exchanges (as defined in 

IEX Rule 11.190(g)) in securities 

underlying each listed options series 

and a proprietary mathematical 

calculation (the ‘‘quote instability 

calculation’’), as described in more 

detail below, to make such assessments. 

When the quote instability calculation 

identifies an imminent adverse price 

change to the best Protected Bid and/or 

best Protected Offer of the Away 

Markets in a particular listed options 

series, it will generate a quote instability 

determination. A quote instability 

determination may only be generated at 

least 200 microseconds after a prior 

quote instability determination for a 

particular options series on the same 

side of the market (i.e., affecting resting 

bids or offers). 

IEX believes that offering this optional 

risk protection for market makers is 

particularly important in the options 

markets where market makers are 

exposed to added risk given their 

continuous quoting obligations. 

Although equities and options 

exchanges share a number of 

similarities, a meaningful difference is 

that in the listed options market, 

liquidity is available only on-exchange 

and is primarily displayed and derived 

from market maker quotes, and options 

markets, when compared to equities 

markets, have a much higher quote to 

trade ratio.135 Exchange market makers 

in the listed options market play an 

essential role in providing liquidity. 

Moreover, given the sheer difference in 

magnitude of tradeable instruments in 

listed options as compared to equities 

(approximately 1.5 million listed 

options series compared to 

approximately 11,000 listed equity 

securities), the options exchanges often 

do not have the same sources of natural 

liquidity of buyers and sellers for each 

tradeable instrument as is generally the 

case for equities exchanges. Thus, 

options market makers are tasked with 

affirmative obligations to support the 

provision of liquidity to options 

exchanges through continuous twosided quotes in large numbers of listed 

options series. As a result, IEX 

understands that options market makers 

can be subject to excessive risk of one 

or more quotes being executed at stale 

prices compared to equities market 

makers or other liquidity providers.136

Because options market makers 

maintain hundreds (and sometimes 

thousands) of quotes on options for a 

given underlying security at any one 

time, a sudden market move in the 

underlying security can leave an options 

market maker vulnerable to being 

executed across multiple quotes that are 

stale and dislocated from the price of 

the underlying securities. Liquidity 

takers can target one or more of these 

stale quotes, with limited risk should 

they fail to execute (i.e., lost 

opportunity vs. trading at a stale price), 

before the Market Makers are able to 

move their quotes (often hundreds or 

more for a given underlying) to reflect 

the price change in the underlying 

securities, thereby exposing those 

Market Makers to potentially major 

losses. 

Without robust liquidity protection 

mechanisms to protect against these 

risks, Market Makers may be forced to 

widen their spreads, show less liquidity, 

or simply exit the market. Overall 

market quality could deteriorate as a 

result, and investors would suffer when 

it becomes too expensive to transact, or 

when there is insufficient liquidity to 

enable transacting altogether. 

Accordingly, liquidity protection 

mechanisms for market makers, which 

all options exchanges offer, and IEX 

proposes to offer, are vital for achieving 

a healthy balance between market 

makers and liquidity takers in the listed 

options market. These include, but are 

not limited to, activity-based risk 

controls, price reasonability checks, and 

functionality (such as bulk quoting and 

purge ports) to facilitate timely quoting, 

quote updates, and quote cancelation. 

For each options series, the Trading 

System will maintain a real-time 

estimate of the sensitivity of the series 

to changes in the midpoint of the best 

Protected Bid and best Protected Offer 

of the Signal Exchanges for the 

underlying security (based on a BlackScholes assessment). When there is a 

change in the best Protected Bid or best 

Protected Offer of the Signal Exchanges 

for the underlying security, the Trading 

System will use the quote instability 

calculation formula set forth in 

proposed IEX Rule 23.150(h) to 

calculate whether to generate a quote 

instability determination for each 

options series overlying the underlying 

security. The Trading System 

independently assesses whether to 

generate a quote instability 

determination affecting resting bids or 

offers for each options series. A quote 

instability determination is generated by 

the Trading System when, pursuant to 

the quote instability calculation, the 

quote instability factor is greater than 

the defined quote instability threshold. 

If a Market Maker has opted to utilize 

the ORP and its quote in an options 

series that was the subject of a quote 

instability determination is at or above 

(below) the price level of the quote 

instability determination for the options 

series, the Trading System will either 

cancel the Market Maker’s quote or 

reprice it to one MPV 137 below (above) 

the price level of the quote instability 

determination, pursuant to the Market 


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137See proposed IEX Rule 22.140(a). 

138See, e.g., MEMX Rule 22.11; C1 Rule 5.9; and 

MIAX Options Rule 520(b). 

139See supra note 70. 140See proposed Rule 28.120(b). 

141See MEMX Rule 27.1, 27.2, and 27.3. 

142See MEMX Rules, Chapter 19. IEX notes that 

the MEMX Rules include Chapter 29: Index Rules. 

IEX is not proposing to adopt similar rules at this 

time, and any references to index options in MEMX 

Chapter 19 are not in proposed IEX Chapter 20. 

143See MIAX Rule 404 Interpretation and Policy 

.01. 

144See Supplementary Material .01 to proposed 

Rule 20.130, which mirrors MIAX Rule 403 

Interpretation and Policy .01. 

145See MEMX Rules, Chapters 23, 24, 25, 26 and 

28. 

Maker’s instruction. Notwithstanding 

this functionality, a Market Maker will 

be able to adjust the price of its quote 

in the same manner as other Market 

Maker quotes that have not opted into 

the ORP. 

One Second Exposure Period 

Proposed Rule 23.200 would require 

Options Members to expose their 

customers’ orders on the Exchange for at 

least one second under certain 

circumstances before trading against 

such orders. During this one second 

exposure period, other Options 

Members will be able to enter orders to 

trade against the exposed order. In 

adopting a one second order exposure 

period, the Exchange is proposing a 

requirement that is consistent with the 

rules of other options exchanges.138

Thus, the exposure period will allow 

Options Members that are members of 

other options exchanges to comply with 

proposed Rule 23.200 without 

programming separate time parameters 

into their systems for order entry or 

compliance purposes. The Exchange 

believes that market participants are 

sufficiently automated that a one second 

exposure period allows an adequate 

time for market participants to 

electronically respond to an order. Also, 

it is possible that market participants 

might wait until the end of the exposure 

period, no matter how long, before 

responding. Thus, the Exchange 

believes that any longer than one second 

would not further the protection of 

investors or market participants, but 

rather, would potentially increase 

market risk to investors and other 

market participants by creating a longer 

period of time for the exposed order to 

be subject to market risk. 

Options Order Protection and Locked/ 

Crossed Market Plan Rules 

The Exchange will participate in the 

Options Order Protection and Locked/ 

Crossed Market Plan (the ‘‘Plan’’),139

and therefore will be required to comply 

with the obligations of Participants 

under the Plan. The Exchange proposes 

to adopt rules relating to the Plan that 

are substantially similar to the rules in 

place on all of the options exchanges 

that are Participants to the Plan. The 

Plan essentially applies the Regulation 

NMS price-protection provisions to the 

options markets. Similar to Regulation 

NMS, the Plan requires the Plan 

Participants to adopt rules ‘‘reasonably 

designed to prevent Trade-Throughs’’, 

while exempting ISOs from that 

prohibition. The Plan’s definition of an 

ISO is essentially the same as under 

Regulation NMS. The remaining 

exceptions to the trade-through 

prohibition, discussed more specifically 

below, either track those under 

Regulation NMS or correspond to 

unique aspects of the options market, or 

both. 

The proposed rules in Chapter 28 

(Options Order Protection and Locked 

and Crossed Markets Rules) conform to 

the requirements of the Plan. Proposed 

Rule 28.100 sets forth the defined terms 

for use under the Plan. Proposed Rule 

28.110 prohibits trade-throughs and 

exempts ISOs from that prohibition. 

Proposed Rule 28.110 also contains 

additional exceptions to the tradethrough prohibition that track the 

exceptions under Regulation NMS or 

correspond to unique aspects of the 

options market, or both. 

Proposed Rule 28.120 sets forth the 

general prohibition against locking/ 

crossing other eligible exchanges as well 

as certain enumerated exceptions that 

permit locked markets in limited 

circumstances; such exceptions have 

been approved by the Commission for 

inclusion in the rules of other options 

exchanges. Specifically, the exceptions 

to the general prohibition on locking 

and crossing occur when: (1) the locking 

or crossing quotation was displayed at 

a time when the Exchange was 

experiencing a failure, material delay, or 

malfunction of its systems or 

equipment; (2) the locking or crossing 

quotation was displayed at a time when 

there is a Crossed Market; (3) the 

Options Member simultaneously routed 

an ISO to execute against the full 

displayed size of any locked or crossed 

Protected Bid or Protected Offer; or (4) 

with respect to a locking quotation, the 

order entered on the Exchange that will 

lock a Protected Bid or Protected Offer, 

is: (i) not a Customer order, and the 

Exchange can determine via 

identification available pursuant to the 

OPRA Plan that such Protected Bid or 

Protected Offer does not represent, in 

whole or in part, a Customer order; or 

(ii) a Customer order, and the Exchange 

can determine via identification 

available pursuant to the OPRA Plan 

that such Protected Bid or Protected 

Offer does not represent, in whole or in 

part, a Customer order, and, on a caseby-case basis, the Customer specifically 

authorizes the Member to lock such 

Protected Bid or Protected Offer.140

The Exchange notes that the proposed 

rules in Chapter 28 (Options Order 

Protection and Locked and Crossed 

Markets Rules) are substantively 

identical to the rules of MEMX 

Options.141

Securities Traded on IEX Options 

General Listing Standards 

The Exchange proposes to adopt 

listing standards for options traded on 

IEX Options as described in Chapter 20 

(Securities Traded on IEX Options), 

which are substantively identical to the 

equivalent MEMX Options rules,142

with the exception of: (i) some language 

in Supplementary Material .02 to 

proposed Rule 20.140 concerning the $1 

strike price program which is not 

included in the equivalent MEMX rule, 

and therefore borrowed from the 

equivalent MIAX rule; 143 and (ii) the 

addition of language allowing the 

Exchange to list for closing transactions 

an Options series that is listed but 

restricted to closing transactions on 

another exchange.144 The Exchange will 

join the Options Listings Procedures 

Plan and will list and trade options 

already listed on other options 

exchanges. The Exchange will gradually 

phase-in its trading of options, 

beginning with a selection of actively 

traded options. 

Conduct and Operational Rules for 

Options Members 

The Exchange proposes to adopt rules 

in Chapter 19 for IEX Options that are 

substantively identical to the rules of 

MEMX Options regarding: exercises and 

deliveries as described in Chapter 24 

(Exercises and Deliveries); records, 

reports and audits as described in 

Chapter 25 (Records, Reports and 

Audits); minor rule violations as 

described in Chapter 26 (Discipline and 

Summary Suspensions); doing business 

with the public as described in Chapter 

27 (Doing Business With the Public); 

and margin as described in Chapter 29 

(Margin Requirements).145 The 

Exchange also proposes to adopt rules 

that are substantively similar to most of 

MEMX’s Chapter 18 (Business Conduct), 

with the exception of proposed Rules 

19.160 (Position Limits), 19.170 

(Exemptions from Position Limits), 

19.180 (Exercise Limits) that are 


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146 15 U.S.C. 78k–1. 

147 15 U.S.C. 78f. 

148 15 U.S.C. 78q(d). 

149 17 CFR 240.17d–1. 

150 If IEX were to be designated as the DEA for 

any of its members, FINRA would perform the DEA 

functions on behalf of IEX pursuant to the RSA. 

151 17 CFR 240.17d–2. 

152 IEX notes that like MEMX Rule 20.6, proposed 

Rule 21.150 authorizes the proposed Error Panel to 

review decisions made under this rule, which 

includes decisions to classify a transaction as a 

Catastrophic Error. 

substantively similar to MIAX Rules 

307, 308, and 309, respectively. IEX 

proposed to adopt MIAX’s versions of 

these rules because they provided 

specificity about the types of position 

limits the Exchange will apply to 

Options Members (as opposed to the 

MEMX rules, which rely on position 

limits set by other exchanges). 

National Market System 

IEX Options will operate as a full and 

equal participant in the national market 

system for options trading established 

under Section 11A of the Exchange 

Act.146 IEX Options will become a 

member of the Options Price Reporting 

Authority (‘‘OPRA’’), the Options 

Linkage Authority (‘‘OLA’’), the Options 

Regulatory Surveillance Authority 

(‘‘ORSA’’), and the Options Listing 

Procedures Plan (‘‘OLPP’’). The 

Exchange expects to participate in those 

plans on the same terms currently 

applicable to current members of those 

plans. The Exchange is in the process of 

contacting the leadership of each 

options-related national market system 

plan to begin the membership process. 

Regulation 

The Exchange will leverage many of 

the structures it established to operate a 

national securities exchange trading 

NMS equities securities, in compliance 

with Section 6 of the Exchange Act.147

As described in more detail below, there 

will be three elements of that regulation: 

(1) the Exchange will join the existing 

options industry agreements pursuant to 

Section 17(d) of the Exchange Act prior 

to commencing operations,148 as it did 

with respect to equities; (2) the 

Exchange’s Regulatory Services 

Agreement (‘‘RSA’’) with FINRA will be 

amended prior to commencing 

operations to provide that FINRA will 

perform regulatory surveillance, 

investigation, disciplinary and hearing 

services of options trading on IEX 

subject to oversight by IEX Regulation, 

just as it does for equities regulation; 

and (3) the Exchange will perform 

options listing regulation, as well as 

authorize Options Members to trade on 

IEX Options. Section 17(d) of the 

Exchange Act and the related Exchange 

Act rules permit SROs to allocate 

certain regulatory responsibilities to 

avoid duplicative oversight and 

regulation. Under Exchange Act Rule 

17d–1,149 the SEC designates one SRO 

to be the Designated Examining 

Authority, or DEA, for each brokerdealer that is a member of more than 

one SRO. The DEA is responsible for the 

financial aspects of that broker-dealer’s 

regulatory oversight. Because IEX 

Options Members also must be members 

of at least one other SRO, the Exchange 

would generally not expect to be 

designated as the DEA for any of its 

members.150

Exchange Act Rule 17d–2 151 permits 

SROs to file with the Commission plans 

under which the SROs allocate among 

each other the responsibility to receive 

regulatory reports from, and examine 

and enforce compliance with specified 

provisions of the Exchange Act and 

rules thereunder and SRO rules by, 

firms that are members of more than one 

SRO (‘‘common members’’). If such a 

plan is declared effective by the 

Commission, an SRO that is a party to 

the plan is relieved of regulatory 

responsibility as to any common 

member for whom responsibility is 

allocated under the plan to another 

SRO. 

All of the options exchanges, FINRA, 

and NYSE have entered into the Options 

Sales Practices Agreement, a Rule 17d– 

2 agreement, and the Exchange intends 

to join this agreement prior to the 

commencement of operations for IEX 

Options. Under this Agreement, the 

examining SROs will examine firms that 

are common members of the Exchange 

and the particular examining SRO for 

compliance with certain provisions of 

the Exchange Act, certain of the rules 

and regulations adopted thereunder, 

certain examining SRO rules, and 

certain proposed IEX Options rules. In 

addition, the proposed IEX Options 

rules contemplate participation in this 

Agreement by requiring that any 

Options Member also be a member of at 

least one of the examining SROs. The 

Exchange and FINRA are also party to 

a bilateral Rule 17d–2 agreement that 

requires minor modifications due to the 

proposed launch of IEX Options. The 

Exchange intends to modify and seek 

Commission approval of the modified 

bilateral Rule 17d–2 agreement prior to 

commencing of operations for IEX 

Options. Additionally, all of the options 

exchanges and FINRA have entered into 

the Options-Related Market 

Surveillance Agreement, a Rule 17d–2 

agreement, and the Exchange intends to 

join this agreement prior to the 

commencement of operations for IEX 

Options. 

For those regulatory responsibilities 

that fall outside the scope of any Rule 

17d–2 agreements, the Exchange will 

retain full regulatory responsibility 

under the Exchange Act. However, the 

Exchange has entered into an RSA with 

FINRA, as discussed above, pursuant to 

which FINRA personnel operate as 

agents for the Exchange in performing 

certain of these functions. The Exchange 

and FINRA will continue to operate 

under the RSA that is currently in place 

but with modifications as necessary to 

accommodate the expanded scope of the 

relationship. The necessary 

modifications will be implemented 

prior to the commencement of 

operations of IEX Options. As is the case 

with the Exchange’s equities market, the 

Exchange will oversee FINRA and 

continue to bear ultimate regulatory 

responsibility with respect to regulatory 

functions not subject to allocation to 

FINRA or another SRO pursuant to a 

Rule 17d–2 Agreement for the IEX 

Options Exchange. 

Consistent with the Exchange’s 

existing regulatory structure, the 

Exchange’s Chief Regulatory Officer, 

reporting to the Regulatory Oversight 

Committee of the Exchange’s board of 

directors, shall have general supervision 

of the regulatory operations of IEX 

Options, including responsibility for 

overseeing the surveillance, 

examination, and enforcement functions 

and for administering all regulatory 

services agreements applicable to IEX 

Options. Similarly, the Exchange’s 

existing Regulatory Oversight 

Committee will be responsible for 

overseeing the adequacy and 

effectiveness of Exchange’s regulatory 

and self-regulatory organization 

responsibilities, including those 

applicable to IEX Options. 

As it does with equities, the Exchange 

will monitor trading on IEX Options, 

both through internal reports and 

FINRA surveillances for the purpose of 

maintaining a fair and orderly market. 

As it does with its equities trading, the 

Exchange will monitor IEX Options to 

identify unusual trading patterns and 

determine whether particular trading 

activity requires further regulatory 

investigation by FINRA. 

Finally, the Exchange will oversee the 

process for determining and 

implementing trade halts, identifying 

and responding to unusual market 

conditions, and administering the 

Exchange’s process for identifying and 

remediating ‘‘obvious errors’’ by and 

among its Options Members.152 The 

proposed rules in Chapter 21 


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153Proposed Rule 21.120(b) states that during a 

trading halt, the Exchange shall process new and 

existing orders and quotes in a series in accordance 

with proposed Rule 22.160(g). Proposed Rule 

22.160(g), which is substantively identical to NYSE 

Arca Options Rule 6.64P–O(g), states that during a 

trading halt, the Exchange will cancel all resting 

Market Maker quotes. 

154See MEMX Rules, Chapter 20. 

155See Securities Exchange Act Release No. 

78474 (August 3, 2016), 81 FR 52717 (August 9, 

2016) (Order Declaring Effective a Minor Rule 

Violation Plan) (File No. 4–701). 

156 17 CFR 240.19d–1(c)(1). 

157The Commission adopted amendments to 

paragraph (c) of Rule 19d–1 to allow SROs to 

submit for Commission approval plans for the 

abbreviated reporting of minor disciplinary 

infractions. See Release No. 34–21013 (June 1, 

1984), 49 FR 23828 (June 8, 1984). Any disciplinary 

action taken by an SRO against any person for 

violation of a rule of the SRO which has been 

designated as a minor rule violation pursuant to 

such a plan filed with and declared effective by the 

Commission will not be considered ‘‘final’’ for 

purposes of Section 19(d)(1) of the Act if the 

sanction imposed consists of a fine not exceeding 

$2,500 and the sanctioned person has not sought an 

adjudication, including a hearing, or otherwise 

exhausted his administrative remedies. 

158 In its proposal to adopt the MRVP, the 

Exchange requested that, going forward, to the 

extent that there are any changes to the rules 

applicable to the Exchange’s MRVP, the Exchange 

requests that the Commission deem such changes 

to be modifications to the Exchange’s MRVP. 

159See, e.g., MEMX Rules, Chapter 25. 

160To date, the Exchange has not taken any minor 

rule violation actions. 

161 15 U.S.C. 78f(b)(1), 78f(b)(5) and 78f(b)(6). 

162 15 U.S.C. 78f(b)(7). Rule 9.216(b) does not 

preclude an Options Member or person associated 

with an Options Member from contesting an alleged 

violation and receiving a hearing on the matter with 

the same procedural rights through a litigated 

disciplinary proceeding. 

163 17 CFR 240.19d–1(c)(2). 

(Regulation of Trading on IEX Options) 

regarding halts,153 unusual market 

conditions, extraordinary market 

volatility, obvious errors, audit trail, and 

rules regarding prohibited and 

permissible transfers of options 

positions off the Exchange are 

substantively identical to the approved 

rules of MEMX Options.154

Minor Rule Violation Plan 

The Exchange’s disciplinary rules, 

including Exchange Rules applicable to 

‘‘minor rule violations,’’ are set forth in 

Chapter 9 of the Exchange’s current 

Rules. Such disciplinary rules will 

apply to Options Members and their 

associated persons. 

The Commission approved the 

Exchange’s Minor Rule Violation Plan 

(‘‘MRVP’’) in 2016.155 The Exchange’s 

MRVP specifies the uncontested minor 

rule violations that are included in the 

MRVP and have sanctions not exceeding 

$2,500. Any violations that are resolved 

under the MRVP would not be subject 

to the provisions of Rule 19d–1(c)(1) 

under the Act 156 requiring that an SRO 

promptly file notice with the 

Commission of any final disciplinary 

action taken with respect to any person 

or organization.157 The Exchange’s 

MRVP includes the policies and 

procedures included in Exchange Rule 

9.216(b) and the violations included in 

Rule 9.218. 

Under Rule 9.216(b), the Exchange 

may impose a fine (not to exceed 

$2,500) and/or a censure on any 

Member or associated person with 

respect to any rule listed in IEX Rule 

9.218. If the Financial Industry 

Regulatory Authority Department of 

Enforcement or the Department of 

Market Regulation, on behalf of the 

Exchange, has reason to believe a 

violation has occurred and if the 

Member or associated person does not 

dispute the violation, the Department of 

Enforcement or the Department of 

Market Regulation may prepare and 

request that the Member or associated 

person execute a minor rule violation 

plan letter accepting a finding of 

violation, consenting to the imposition 

of sanctions, and agreeing to waive the 

Member’s or associated person’s right to 

a hearing before a Hearing Panel or, if 

applicable, an Extended Hearing Panel, 

and any right of appeal to the IEX 

Appeals Committee, the Board, the 

Commission, and the courts, or to 

otherwise challenge the validity of the 

letter, if the letter is accepted. The letter 

must describe the act or practice 

engaged in or omitted, the rule, 

regulation, or statutory provision 

violated, and the sanction or sanctions 

to be imposed. Unless the letter states 

otherwise, the effective date of any 

sanction imposed will be a date to be 

determined by IEX Regulation staff. In 

the event the letter is not accepted by 

the Member or associated person, or is 

rejected by the Office of Disciplinary 

Affairs, the matter can proceed in 

accordance with the Exchange’s 

disciplinary rules, which include 

hearing rights for formal disciplinary 

proceedings. 

The Exchange proposes to amend its 

MRVP and Exchange Rule 9.218 to add 

certain rules relating to Options as set 

forth in proposed Rule 26.120 (Penalty 

for Minor Rule Violations) to the list of 

rules eligible for Minor Rule Violation 

Plan treatment.158 The rules included in 

proposed Rule 26.120, as appropriate for 

disposition under the Exchange’s 

MRVP, are: (a) position limit and 

exercise limit violations; (b) violations 

regarding the failure to accurately report 

position and account information; (c) 

Market Maker quoting obligations; (d) 

violations regarding expiring exercise 

declarations; (e) violations relating to 

the failure to respond to the Exchange’s 

requests for the submission of trade 

data; and (f) violations relating to 

noncompliance with the Consolidated 

Audit Trail Compliance Rule 

requirements. The rule violations 

included in proposed Rule 26.120 are 

the same as the rule violations included 

in the MRVPs of other options 

exchanges.159

Upon implementation of this 

proposal, the Exchange will include 

violations of the enumerated options 

trading rules, if any, in an applicable 

Exchange’s quarterly report of any 

actions taken on minor rule violations 

under the MRVP.160 A quarterly report 

would include: the Exchange’s internal 

file number for the case, the name of the 

individual and/or organization, the 

nature of the violation, the specific rule 

provision violated, the sanction 

imposed, the number of times the rule 

violation has occurred, and the date of 

disposition. The Exchange’s MRVP, as 

proposed to be amended herein, is 

consistent with Sections 6(b)(1), 6(b)(5) 

and 6(b)(6) of the Act, which require, in 

part, that an exchange have the capacity 

to enforce compliance with, and provide 

appropriate discipline for, violations of 

the rules of the Commission and of the 

exchange, 6(b)(6) provides that members 

and persons and associated members 

shall be appropriately disciplined for 

violation of the provisions of the rules 

of the exchange, by expulsion, 

suspension, limitation of activities, 

functions and operations, fine, censure, 

being suspended or barred from being 

associated with a member, or any other 

fitting sanction.161 Rule violations listed 

in proposed Rule 26.120 are minor in 

nature and will be more appropriately 

disciplined through the Exchange’s 

MRVP and therefore proposes to add 

them to the list of rules eligible for 

minor rule fine disposition. 

In addition, because Rule 9.216(b) 

offers procedural rights to a person 

sanctioned for a violation listed in 

proposed Rule 26.120, the Exchange 

will provide a fair procedure for the 

disciplining of members and associated 

persons, consistent with Section 6(b)(7) 

of the Act.162

This proposal to include the rules 

listed in proposed Rule 26.120 in the 

Exchange’s MRVP is consistent with the 

public interest, the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act, as required by 

Rule 19d–1(c)(2) under the Act,163

because it should strengthen the 

Exchange’s ability to carry out its 

oversight and enforcement 


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164See supra note 159. 

165See, e.g., Securities Exchange Act Release No. 

49260 (February 17, 2004), 69 FR 8500 (February 

24, 2004). See also Securities Exchange Act Release 

Nos. 57478 (March 12, 2008), 73 FR 14521, 14539– 

40 (March 18, 2008) (order approving SR– 

NASDAQ–2007–004 and SR–NASDAQ–2007–080) 

and 53128 (January 13, 2006), 71 FR 3550, 3565– 

66 (January 23, 2006) (File No. 10–131) (approving 

The NASDAQ Stock Market LLC’s exchange 

application). 

166 17 CFR 240.0–12. 

167The Exchange will provide such notice 

through a posting on the same website location 

where the Exchange will post its own rule filings 

pursuant to Rule 19b–4(l) under Act, within the 

time frame required by that rule. The website 

posting will include a link to the location on the 

CBOE, NYSE, or FINRA websites where the 

proposed rule change is posted. 

responsibilities as an SRO in cases 

where full disciplinary proceedings are 

unsuitable in view of the minor nature 

of the particular violation. In requesting 

the proposed change to the MRVP, the 

Exchange in no way minimizes the 

importance of compliance with 

Exchange Rules and all other rules 

subject to the imposition of fines under 

the MRVP. Minor rule fines provide a 

meaningful sanction for minor or 

technical violations of rules when the 

conduct at issue does not warrant 

stronger, immediately reportable 

disciplinary sanctions. The inclusion of 

a rule in the Exchange’s MRVP does not 

minimize the importance of compliance 

with the rule, nor does it preclude the 

Exchange from choosing to pursue 

violations of eligible rules through the 

Exchange’s disciplinary rules if the 

nature of the violation or prior 

disciplinary history warrants more 

significant sanctions. However, the 

MRVP provides a reasonable means of 

addressing rule violations that do not 

rise to the level of requiring formal 

disciplinary proceedings, while 

providing greater flexibility in handling 

certain violations.164 The Exchange will 

continue to conduct surveillance with 

due diligence and make a determination 

based on its findings, on a case-by-case 

basis, whether a fine of more or less 

than the recommended amount is 

appropriate for a violation under the 

MRVP or whether a violation requires a 

formal disciplinary action. 

Section 36 Exemption Request 

The Exchange proposes to incorporate 

by reference as IEX Options rules 

certain rules of the Cboe Exchange, Inc. 

(‘‘CBOE’’), the New York Stock 

Exchange (‘‘NYSE’’), and FINRA. 

Specifically, proposed Rule 27.250 

proposes to incorporate by reference the 

applicable rules of FINRA with respect 

to Communications with Public 

Customers, and proposed Rule 29.120 

proposes to incorporate by reference 

initial and maintenance margin 

requirements of either CBOE or NYSE. 

Thus, for certain IEX Options rules, 

Exchange members will comply with a 

IEX Options rule by complying with the 

CBOE, NYSE, or FINRA rule referenced. 

Using its authority under Section 36 of 

the Act, the Commission has previously 

exempted certain SROs from the 

requirement to file proposed rule 

changes under Section 19(b) of the Act 

when incorporating another SRO’s rules 

by reference.165 Each such exempt SRO 

has agreed to be governed by the 

incorporated rules, as amended from 

time to time, but, has not been required 

to file a separate proposed rule change 

with the Commission each time the SRO 

whose rules are incorporated by 

reference seeks to modify its rules. In 

addition, each SRO incorporated by 

reference only regulatory rules (e.g., 

margin, suitability, arbitration), not 

trading rules, and incorporated by 

reference whole categories of rules (i.e., 

did not ‘‘cherry-pick’’ certain individual 

rules within a category). Last, each 

exempt SRO had reasonable procedures 

in place to provide written notice to its 

members each time a change is 

proposed to the incorporated rules of 

another SRO in order to provide its 

members with notice of a proposed rule 

change that affects their interests, so 

that they would have an opportunity to 

comment on it. 

In connection with this proposal, the 

Exchange respectfully requests, 

pursuant to Rule 240.0–12 under the 

Act,166 an exemption under Section 36 

of the Act from the rule filing 

requirements of Section 19(b) of the Act 

for changes to those IEX Options rules 

that are effected solely by virtue of a 

change to a cross-referenced CBOE, 

NYSE, or FINRA rule. The Exchange 

proposes to incorporate by reference 

categories of rules (rather than 

individual rules within a category) that 

are not trading rules. The Exchange also 

agrees to provide written notice to 

Options Members prior to the launch of 

IEX Options of the specific CBOE, 

NYSE, and FINRA rules that it will 

incorporate by reference. In addition, 

the Exchange will notify Options 

Members whenever CBOE, NYSE, or 

FINRA proposes a change to a crossreferenced CBOE, NYSE, or FINRA 

rule.167 For the foregoing reasons, the 

Exchange believes that its request for 

exemptive relief is consistent with prior 

requests for, and provision of, similar 

exemptive relief. 

Amendments to Existing Exchange 

Rules 

In addition to the rules of IEX Options 

proposed above, the Exchange proposes 

to amend certain of its existing 

Exchange Rules that currently apply to 

the Exchange’s equities market in order 

to reflect the Exchange’s proposed 

operation of IEX Options. 

First, the Exchange proposes to 

amend Rule 2.160(i), which generally 

requires each Member to register at least 

two Principals with the Exchange 

subject to certain exceptions described 

therein, to provide that such paragraph 

(i) shall not apply to a Member that 

solely conducts business on the 

Exchange as an Options Member, 

however, Options Members must 

comply with the registration 

requirements set forth in proposed Rule 

18.110. The Exchange notes that 

proposed Rule 18.110(h), which 

provides that every Options Member 

shall have at least one Options Principal 

and sets forth the Exchange’s Options 

Principal registration requirements, is 

identical to MEMX Rule 17.2(g). In 

connection with this proposed change, 

the Exchange also proposes to amend 

Rule 2.160(n) to include Options 

Principal as a registration category and 

to set forth the Exchange’s qualification 

requirements for an Options Principal, 

which are the same as those for an 

Options Principal on MEMX Options. 

Additionally, the Exchange proposes to 

amend Rule 2.160(p)(a)(4) to set forth 

the appropriate regulatory element 

continuing education module for 

reregistration as an Options Principal. 

The Exchange also proposes to make 

three modifications to Rule 2.220 (IEX 

Services LLC as Outbound Router). 

First, IEX proposes to remove the word 

‘‘directly’’ from the first sentence of 

subparagraph (a), because IEX Services 

will continue to route orders to away 

markets, but as described above, with 

respect to options routing, it will not 

route those order ‘‘directly’’ to the away 

markets. Second, consistent with the 

first change, IEX proposes to insert a 

new second sentence in subparagraph 

(a) that reads: ‘‘When routing options 

orders, as set forth in Rule 22.180, IEX 

Services will transmit such orders to 

one or more routing brokers that are not 

affiliated with the Exchange; the routing 

brokers will in turn route the applicable 

options orders to other securities 

exchanges that trade options.’’ IEX 

proposes to make this change to reflect 

the different nature of how IEX Services 

will handle routing options orders from 

equities orders. And third, IEX proposes 

to modify subparagraph (a)(8) of this 

rule, which states that IEX Services 


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168 15 U.S.C. 78f(b). 

169 15 U.S.C. 78f(b)(5). 170See supra note 70. 

171See https://www.ice.com/publicdocs/ICE_

Global_Network_Factsheet.pdf for a description of 

latencies between various data centers. 

172Accounting for the latency mechanism or 

speedbump is no different than accounting for other 

geographical distances between exchanges. See 

Securities Exchange Act Release No. 78101 (June 

17, 2016), 81 FR 41142, 41161 (June 23, 2016) 

(‘‘2016 SEC Approval Order’’) (approving IEX’s 350 

microsecond speed bump in the registration of the 

IEX Exchange as ‘‘well within the range of 

geographic and technological latencies that market 

participants experience today’’ such that ‘‘latency to 

and from IEX will be comparable to—and even less 

than—delays attributable to other markets that 

currently are included in the NBBO,’’ and finding 

the delay to be de minimis, i.e., so short as to not 

frustrate the purposes of the Exchange Act by 

impairing fair and efficient access to IEX’s 

quotation); see also Securities and Exchange Act 

Release No. 34–89686 (August 26, 2020) (‘‘2020 SEC 

Approval Order’’) at 15 (determining that IEX’s de 

minimis speed bump when routing displayed 

equity orders is ‘‘just like accounting for any other 

technological or geographic latency’’ and doing so 

is consistent with applicable rules and regulations); 

see also Citadel Securities LLC v. Securities and 

Exchange Commission, 45 F.4th 27, 37 (D.C. Circuit 

2022) (July 29, 2022) (ruling in favor of the SEC’s 

approval of IEX’s displayed equity order that 

traverses a speedbump and holding that IEX’s 

displayed equity order’s delay are ‘‘similar to the 

delay that traders’ communications already 

experience when traveling between various other 

exchanges across the country.’’). 

shall maintain an error account for the 

purpose of addressing positions that are 

the result of an execution or executions 

that are not clearly erroneous under 

Rule 11.270 and result from a technical 

or systems issue at IEX Services, the 

Exchange, a routing destination, or a 

non-affiliate third-party routing broker 

that affects one or more orders (‘‘Error 

Positions’’). The proposed change to 

Rule 2.220(a)(8) would add a reference 

to the comparable provision to that 

which governs review and resolution of 

clearly erroneous equities transactions 

(i.e., Rule 11.270) but for options 

transactions, namely Rule 21.150, which 

governs review and resolution of 

options transactions that may qualify as 

obvious errors. 

The Exchange also proposes to adopt 

Rule 21.220 (Limitation of Liability), 

which is almost identical to the Rule 

11.260, the Limitation of Liability rule 

in IEX’s equities trading rules. The only 

difference is to reflect that proposed 

Rule 21.220 applies to IEX Options and 

options trading. 

Lastly, the Exchange proposes to 

amend Rule 9.218 (Violations 

Appropriate for Disposition Under Plan 

Pursuant to Exchange Act Rule 19d– 

1(c)(2)), which contains the list of 

Exchange Rule violations and 

recommended fine schedule, to include 

a new paragraph (k) referencing 

proposed Rule 26.120 for the 

recommended fines for minor rule 

violations of the Exchange Rules 

appliable to IEX Options, which the 

Exchange notes are the same as those of 

MEMX Options. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6(b) of the Act 168 in general, 

and furthers the objectives of Section 

6(b)(5) of the Act 169 in particular, in 

that it is 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; and is not designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

As described above, the Exchange 

proposes to operate its options market 

much as it operates its equities market 

today and in a manner similar to that of 

other options exchanges, while 

leveraging IEX’s experience and 

expertise in understanding the needs of 

market makers to offer them additional 

tools designed to better manage risk and 

drive performance. As discussed in the 

Purpose section, IEX believes that the 

proposed enhanced liquidity protection 

mechanisms will result in market 

makers providing more competitive 

quotes which will benefit all market 

participants and thereby support the 

protection of investors and the public 

interest. Also as discussed in the 

Purpose section, most of the proposed 

IEX Options rules are based on the rules 

of other options exchanges, primarily 

MEMX, C1, MIAX, NYSE Amex, and 

NYSE Arca. Therefore, the Exchange 

does not believe these aspects of the 

proposed rule change that are 

substantively identical to other 

exchanges’ rules raise any new or novel 

issues that have not been previously 

considered by the Commission. 

Moreover, the Exchange believes that 

the proposed functionality is consistent 

with Section 6(b)(5) of the Act because 

the Trading System is designed to be 

efficient and its operation transparent, 

thereby facilitating transactions in 

securities, removing impediments to 

and perfecting the mechanisms of a free 

and open national market system. As 

described above, the Exchange’s 

proposed rules, including the proposed 

Order Types and Handling Instructions, 

opening procedures, routing services, 

and order matching process are 

designed to provide a simplified suite of 

conventional features and to comply 

with all applicable regulatory 

requirements, including the obligations 

of the Options Order Protection and 

Locked/Crossed Market Plan.170

As discussed in the Purpose section, 

IEX’s proposal includes a de minimis 

latency mechanism (or speedbump) on 

incoming order and quote messages 

designed to enable IEX to update its 

view of the market prior to processing 

orders and quotes, and a robust suite of 

risk protections, including the ORP, 

which is designed to protect market 

makers from excessive risk due to 

execution of stale quotes. 

IEX believes that the proposed latency 

mechanism will protect investors and 

the public interest in several respects. 

First, by enabling IEX to update its view 

of market data prior to executing an 

order or quote, it thereby would support 

IEX’s ability to accurately account for 

contemporaneous market data. IEX 

notes that this aspect of its functionality 

is designed to facilitate market 

participants executing at current (i.e., 

not ‘‘stale’’) prices. Second, by enabling 

the Trading System to perform the 

Indicator calculation with current 

market data, it supports operation of the 

ORP (as discussed herein), which is 

designed to provide Market Makers with 

an optional tool to avoid excessive risk 

that can arise from execution of a stale 

quote. As discussed in detail above, IEX 

believes that this protection will 

encourage market makers to post 

aggressively priced and/or deeper 

quotes on the Exchange which will 

benefit all market participants. Thus, 

from a functional perspective, IEX 

believes that the operation of the latency 

mechanism is consistent with the Act. 

Further, and as explained below, the 

proposed latency mechanism of up to a 

maximum of 350 microseconds is well 

within the geographic delays that exist 

among and between the data centers 

that IEX Options Members and other 

options exchanges use 171 and is 

consistent with the naturally occurring 

time indeterminism that exists in order 

processing.172 And, as noted in the 

Purpose section, the Exchange will seek 

to achieve a healthy balance between 

the interests of liquidity providers and 

liquidity takers in determining the 

actual length of the latency, considering 


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173Markouts measure the direction and degree to 

which the market moved after an execution, and are 

often measured as the difference between the 

execution price and the midpoint of the NBBO at 

various time intervals after a trade. Markouts are 

typically used as a way to measure the ‘‘quality’’ 

of a trade. In particular, short-term markouts of 

several milliseconds after the time of execution, are 

often used to assess whether an order was subject 

to ‘‘adverse selection’’ that can occur when a 

liquidity providing order is executed at a price that 

was about to become stale as a result of certain 

speed-based trading strategies. 

174Fill rate data measures the degree to which 

incoming orders are able to execute against a resting 

order on a venue, and are a measure of the percent 

of shares of an order that are filled (or executed) by 

such venue, adjusting for factors such as the size 

of the order compared to the size of a venue’s 

displayed quote. The maximum fill rate for an order 

is 100%. 

175See Commission Interpretation Regarding 

Automated Quotations Under Regulation NMS, 

Exchange Act Release No. 34–78102, 81 FR 40785, 

40792 (June 23, 2016). 

176 Id. 

177 Id. 

178 IEX notes that the D.C. Circuit Court also 

agreed with the Commission’s interpretation. The 

Court ruled entirely in favor of the SEC’s approval 

of IEX’s system that includes applying a speedbump 

and quote indicator to displayed equity orders. See 

Citadel Securities, 45 F.4th at 36 (concluding the 

SEC’s approval of a 350 microseconds intentional 

access delay for displayed orders to be ‘‘de 

minimis—i.e., a delay so short as to not frustrate the 

purposes of Rule 611 by impairing fair and efficient 

access to an exchange’s quotations’’); see also id. 

(‘‘The SEC’s conclusion that mere de minimis 

delays do not cause an order to violate Regulation 

NMS’s immediacy requirement was therefore 

reasonable.’’) 

179See https://www.ice.com/publicdocs/ICE_

Global_Network_Factsheet.pdf. 

180 15 U.S.C. 78f(b). 

181 15 U.S.C. 78f(b)(5). 

primarily markouts 173 and IEX fill 

rate 174 data. 

IEX also believes that the latency 

mechanism is consistent with the 

Commission Interpretation Regarding 

Automated Quotations Under 

Regulation NMS (‘‘de minimis delay 

interpretation’’).175 Although options 

markets do not have the same 

automated quotation requirements as in 

equities, even if they were to apply, the 

Commission’s reasoning in the de 

minimis delay interpretation in the 

context of NMS automated quotations is 

instructive, as the latency mechanism 

IEX is proposing for the options 

exchange is a de minimis delay that 

does not impair fair and efficient access 

to an exchange’s quotation. Specifically, 

the Commission stated in issuing its 

interpretation that intentional delays 

that are well within the geographic and 

technological latencies experienced by 

market participants when routing orders 

are de minimis to the extent they would 

not impair a market participant’s ability 

to access a displayed quotation 

consistent with the goals of NMS Rule 

611.176 The Commission also noted that 

an intentional delay of any duration 

must be fully disclosed and codified in 

a written rule of the exchange, which, 

as described below, the latency 

mechanism will be fully disclosed and 

codified in IEX’s written rules.177

IEX believes that its proposed latency 

mechanism of up to 350 microseconds 

is fully consistent with the reasoning in 

the Commission’s de minimis delay 

interpretation.178 First, the maximum 

delay is less than the existing 

geographic latencies experienced by 

market participants when routing 

orders. For example, latency between 

and among the data centers located in 

New Jersey range up to several hundred 

microseconds, with additional latency 

introduced by technology processing on 

both sides of an order or quote route 

between these data centers.179

Accordingly, the proposed latency 

mechanism is consistent with this 

aspect of the Commission’s de minimis 

interpretation. 

The proposed latency mechanism also 

meets the additional prongs of the de 

minimis interpretation, that it be fully 

disclosed and codified in a written rule 

of the exchange that has become 

effective pursuant to Section 19 of the 

Act (or in a publicly-issued Trading 

Alert); and that the exchange articulates 

how the purpose, operation, and 

application of the delay is consistent 

with the Act and the rules and 

regulations thereunder applicable to the 

exchange. The latency mechanism’s 

operation, as proposed, would be 

disclosed and codified in detail in IEX 

Rules 22.100(n) and 22.170(g). Those 

provisions specify that the latency 

mechanism shall mean a delay that is 

equivalent to up to 350 microseconds of 

latency that is added to each incoming 

order and quote message from a User 

prior to processing by the Trading 

System, with the specific amount of 

latency communicated by Trading Alert 

(with at least 30 days prior notice), and 

that will not apply to other 

communications between the Exchange 

and Users, Away Markets, data feeds, 

order processing and order execution on 

the IEX Options Book, and outbound 

communications to the Exchange’s 

proprietary data feeds and OPRA. As 

discussed above, the purpose of the 

latency mechanism is to provide 

adequate time for the IEX Trading 

System to update its view of market data 

to enable it to accurately price orders as 

well as to perform the Indicator 

calculation with current market data. 

Consequently, based on the foregoing, 

the Exchange believes that the latency 

mechanism is both de minimis and 

otherwise consistent with the Act. 

The Exchange believes that the 

proposed ORP is consistent with 

Section 6(b) of the Act 180 in general, 

including furthering the objectives of 

Section 6(b)(5) of the Act,181 as the 

proposed optional risk protection 

mechanism would remove impediments 

to and perfect the mechanism of a free 

and open market and a national market 

system and promote just and equitable 

principles of trade by providing an 

optional quote parameter, available to 

all IEX Options market makers, that is 

designed to identify when a quote is 

likely mispriced so that the Trading 

System can effectuate the advance 

trading instructions provided by the 

Market Maker to cancel or reprice its 

quote, as selected by the Market Maker. 

The ORP is an optional, narrowly 

tailored approach designed to provide 

protection from excessive risk of 

execution of stale quotes and thereby 

enable market makers to make tighter 

and larger quotes (i.e., quotes at 

narrower spreads with greater size) thus 

enhancing the quality of IEX Options 

markets to the benefit of all market 

participants. The Exchange believes it is 

appropriate to provide market makers 

with the choice to utilize this reasonable 

quote protection, particularly given the 

continuous quoting obligations specific 

to market makers and their importance 

in providing liquidity in the listed 

options market. The Exchange further 

believes this risk functionality will 

encourage market makers to provide 

additional depth and liquidity to the 

Exchange’s markets, thereby removing 

impediments to and perfecting the 

mechanisms of a free and open market 

and a national market system and, in 

general, protecting investors and the 

public interest. 

The Exchange believes that the ORP 

supports the protection of investors and 

public interest goals of the Act. As 

described in the Purpose section, based 

on the structural differences between 

equities and listed options markets, the 

options exchanges often do not have the 

same natural liquidity of buyers and 

sellers for each tradeable instrument 

(i.e., options series) as is generally the 

case in equities. As a result, market 

makers with affirmative obligations play 

a central role in providing liquidity to 

options exchanges through continuous 

two-sided quotes in large numbers of 

listed options series, thereby enabling 

investors to transact in listed options in 

accordance with their investment 

objectives. Because options market 

makers are required to maintain 

hundreds (and sometimes thousands) of 

quotes on options overlying underlying 

securities at any one time, a sudden 


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182See, e.g., Lehoczky, Sandor and Woods, Ellen 

and Russell, Matthew and Nguyen, Mina and 

Somers, James, Dead Man’s Switch: Making Options 

Markets Safer with Active Quote Protection (May 

2020) at 2–3, 6, available at https://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=3675849 (discussing the need for quote 

protection for market makers to allow for a deep 

and liquid listed options market and explaining that 

‘‘race conditions’’ negatively impact pricing 

efficiency, ‘‘as market makers have been shown to 

quote wider spreads or step back instead of 

continually updating with price moves for fear of 

being ‘‘picked off.’’); see also Citadel Securities, 

Market Lens, July 2020, available at https://

www.citadel.com/securities/wp-content/uploads/ 

sites/2/2020/07/Market-Lens-Order-CancellationWhite-Paper_FINAL.pdf (explaining the need for 

risk management in electronic trading given that 

‘‘traders who place limit orders—the foundation of 

public price discovery—are exposed to the risk that 

their quotations will be executed at an inopportune 

time, leading to potential losses’’ and that the 

‘‘greater the risk of an inopportune execution, the 

more compensation is required, which leads to 

wider bid-ask spreads. Conversely, anything the 

trader can do to lower the risk of an inopportune 

execution will lower the compensation required, 

which leads to narrower bid-ask spreads.’’). 

183See, e.g., Market-Maker Protections, Market 

Structure, Optiver, July 17, 2023, available at 

https://optiver.com/insights/market-makerprotections/ (explaining that exchanges implement 

robust market-maker protections to ‘‘assist market 

makers in coping with the risks of posting 

continuous, two-sided quotes in thousands of 

financial instruments’’ and to provide the ability to 

automatically pull or amend their quotes so that 

‘‘all quotes falling within the scope of protection 

still resting on the book are prohibited from further 

execution’’). 

184 In 2016, IEX received SEC approval of the 

IEX’s exchange system that provides a similar quote 

indicator for equities. See Securities Exchange Act 

Release No. 78101 (June 17, 2016), 81 FR 41142, 

41161 (June 23, 2016) (‘‘2016 SEC Approval Order’’) 

(approving IEX’s exchange system in its registration 

as a national securities exchange, which included 

the approval of IEX’s crumbling quote indicator that 

assesses quote instability by utilizing a real-time, 

based on pre-determined, objective set of conditions 

that protects orders from unfavorable executions 

when the market is moving against them). In 2020, 

IEX received SEC approval to apply the quote 

indicator to displayed orders in equities. See 2020 

SEC Approval Order, supra note 172, at 6–7 

(receiving unanimous support and concluding that 

the Exchange’s displayed order proposal that 

included a similar quote indicator is consistent 

with the requirements of the Exchange Act and the 

rules and regulations thereunder applicable to a 

national securities exchange and that is designed to 

improve market quality, enhance price discovery, 

and promote just and equitable principles of trade). 

185Because of this difference, the Indicator is 

designed to identify when the Protected Bid and/ 

or Protected Offer in an option is dislocated from 

the price of the underlying based on a price change 

in the underlying and therefore likely to be in 

transition to a less aggressive price, while the 

Crumbling Quote Indicator utilizes changes in the 

protected quote in the security itself to make such 

a prediction. 

186See, e.g., 2020 SEC Approval Order, supra 

note 172, at 19 (concluding that IEX’s exchange 

functionality protects against adverse selection and 

incentivizes more displayed liquidity through 

improved execution quality for liquidity providers, 

which contributes ‘‘to fair and orderly markets’’ and 

supports ‘‘the public price discovery process’’); at 

26 (finding that the Exchange’s speedbump and 

crumbling quote indicator promotes the interest of 

long term investors and inures to the ‘‘benefit of 

displayed markets, leading to increased displayed 

liquidity from which all market participants 

ultimately will benefit’’); at 52 (concluding that the 

Exchange’s order protection functionality ‘‘is 

designed to encourage market participants to post 

more priced limit orders, including displayed 

orders, on IEX, and thereby promotes just and 

equitable principles of trade, removes impediments 

to and perfects the mechanism of a free and open 

market and a national market, and, in general, 

protects investors and the public interest.’’). 

market move in the underlying security 

can leave them vulnerable to being 

executed on quotes that are stale and 

dislocated from the price of the 

underlying security.182 Liquidity takers 

can target these stale quotes, with 

limited risk should they fail, before the 

market maker has time to move its 

quotes to reflect the price change in the 

underlying security exposing them to 

potentially major losses. 

The ORP is designed to supplement 

the standard proposed risk checks to 

provide augmented protection to 

address the inherent risks faced by 

market makers. IEX believes that the 

operation of the ORP is similar to 

activity-based and price reasonability 

risk checks offered by other options 

exchanges (and proposed by IEX 

herein), in terms of its objective and 

impact on a resting quote.183 Each of 

these risk controls will cancel an order 

when the control is triggered based on 

a determination that the price of the 

market maker’s quote is ‘‘unreasonable’’ 

because it is no longer reflective of the 

price of the underlying security and 

therefore likely stale (price reasonability 

check) or that the execution activity of 

a market maker’s quotes exceeds the 

market maker’s risk tolerance (activitybased controls). Additionally, the 

trading collar and limit order protection 

rules of other options exchanges and 

those similarly proposed by IEX provide 

for orders to be repriced. 

However, IEX notes that the proposed 

ORP would be more transparent than 

the activity-based controls in 

determining when a market maker quote 

is potentially subject to cancelation (or 

adjustment) because it is based on a 

transparent formula specified in IEX’s 

rules and related Trading Alerts. In 

contrast, those triggers for an activitybased control are nonpublic and set by 

each exchange member. 

As discussed above, because of the 

lack of natural sources of liquidity 

across the multitude of listed options 

series, market makers are subject to 

affirmative obligations to maintain 

continuous two-sided quotes on 

hundreds or thousands of individual 

options series. While IEX proposes to 

offer bulk quoting and purge port 

functionality to market makers (in the 

same manner as other options 

exchanges), in a fast-moving market, 

their quotes can nonetheless become 

stale almost instantaneously. In those 

times, a sophisticated liquidity taker can 

target one or more stale market maker 

quotes before the market maker can 

update its quotes, thereby exposing the 

market maker to potentially major 

losses. The ORP is designed to assist 

market makers with an option to 

manage this risk, similar to the other 

risk controls. While some overlap is 

expected, IEX believes that the Indicator 

would potentially identify additional 

instances of stale quotes beyond those 

identified by the other price 

reasonability checks. 

Further, IEX notes that the operation 

of the Options Quote Indicator is similar 

to the manner in which IEX’s equities 

market (the ‘‘Equities System’’) utilizes 

a ‘‘crumbling quote indicator’’ to 

encourage the provision of displayed 

liquidity by providing reasonably 

tailored protections against adverse 

executions.184 As with the crumbling 

quote indicator, the Indicator will be a 

transparent formula based on a predetermined objective set of 

circumstances that will be specified in 

IEX’s rules to identify when the 

Protected Bid and/or Protected Offer in 

a particular options series is likely to 

move to a less aggressive price. 

Moreover, the Options Trading 

System will use the ORP in a manner 

similar to the way in which the Equities 

System applies the crumbling quote 

indicator to resting displayed liquidity, 

which reprices the applicable order or 

quote. The functional differences 

between the crumbling quote indicator 

and the Indicator reflect that options 

pricing is derivative.185 Thus, the 

Indicator will trigger when it identifies 

that a Protected Bid or Protected Offer 

is likely to move to a less aggressive 

price, based on a price change in the 

underlying security, thereby exposing 

the market maker to excessive risk, but, 

unlike the crumbling quote indicator, 

would reprice or cancel the impacted 

quote and not remain ‘‘on’’ for a period 

of time after triggering. IEX believes that 

this approach is appropriate in view of 

the derivative pricing of options and 

that it will contribute to more displayed 

liquidity through improved execution 

quality, enhance the public price 

discovery process, and promote just and 

equitable principles of trade.186

Further, the ORP would be available, 

as a quote parameter, only to market 

makers and on an optional basis, 

because the Exchange believes that it is 

most appropriate as a tool to address 

market maker risk. IEX believes that this 

approach is appropriate because market 


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187See, e.g., Protecting Liquidity in Options 

Markets, Market Structure, Optiver, July 12, 2023, 

available at https://optiver.com/insights/protectingliquidity-in-options-markets/ (explaining that 

without robust liquidity protection mechanisms for 

market makers to protect against the risks of 

displaying stale or outdated quotes, ‘‘market makers 

may be forced to widen their spreads, show less 

liquidity or simply exit the market’’ and overall 

‘‘market quality can deteriorate’’ with the result of 

investors suffering). 

188See proposed IEX Rule 22.170(g). 

189See supra notes 184 and 186 and 

accompanying text. 

190See proposed IEX Rule 23.140(d). 

191 15 U.S.C. 78f(b)(5). 192 15 U.S.C. 78k–1. 

makers are subject to affirmative 

obligations to provide continuous twosided quotes and cannot back away or 

unduly widen their quotes during 

periods of price volatility, as can other 

liquidity providers.187 By offering 

market makers this narrowly-tailored, 

optional tool, IEX believes it will attract 

additional displayed liquidity that will 

be available to all market participants. 

IEX also believes that use of the 

Indicator in determining when to trigger 

the ORP is consistent with the 

protection of investors and the public 

interest because the Indicator is based 

on the well-recognized Black-Scholes 

options pricing model, which IEX 

believes is an appropriate methodology 

to identify when a market maker’s quote 

in an option is dislocated from the price 

of the underlying security based on the 

mathematical relationship between the 

price of the underlying security and the 

overlying options. Moreover, IEX 

believes that the access delay 188 (as 

discussed above) will serve to enhance 

the accuracy of the Indicator by 

providing adequate time for the IEX 

Trading System to update its Indicator 

calculation with current market data. In 

this regard, as discussed earlier, IEX 

notes that the proposed access delay of 

up to a maximum of 350 microseconds 

is well within the geographic delays that 

exist among and between the data 

centers that IEX Options Members, and 

other options exchanges, use and is 

consistent with the naturally occurring 

time indeterminism that exists in order 

processing. 

Further, IEX believes that limiting the 

availability of the ORP to resting market 

maker quotes is consistent with the Act 

for several reasons. As discussed in 

depth above, market makers are integral 

to providing liquidity on options 

exchanges, and at the same time subject 

to a potentially excessive level of risk 

from execution of one or more stale 

quotes. Additionally, Market Makers’ 

obligations apply across all series in 

their appointed class. Other liquidity 

providers are free to concentrate their 

efforts in a select number of series. 

Thus, Market Makers have greater 

exposure to latency arbitrage, take on 

greater risk, and incur more related 

capital charges than other liquidity 

providers. IEX determined to apply the 

functionality to resting quotes only as 

this approach will best achieve the 

purpose of protecting market markets 

from the excessive risk of executions at 

stale prices without disrupting market 

makers’ ability to update their 

quotations. 

Moreover, IEX notes that the 

Commission has previously recognized 

the utility of IEX providing protection to 

liquidity providers through order types 

that leverage its crumbling quote 

indicator to appropriately protect 

market participants from the risks of 

transacting when the market is in 

transition and thereby incentivize the 

entry of liquidity providing orders. The 

Exchange believes that the proposed 

ORP is consistent with this history and 

is in furtherance of driving tighter and 

deeper displayed markets to the benefit 

of investors.189

IEX also believes that the proposal is 

consistent with the firm quote 

obligations of a broker-dealer pursuant 

to Rule 602 of Regulation NMS.190

Specifically, any marketable interest 

that is executable against a market 

maker’s quote that has been received by 

the Trading System prior to the time 

that a quote instability determination is 

received by Trading System will be 

automatically executed, subject to 

processing of any prior messages, at the 

price and up to the size of the market 

maker’s quote. 

IEX believes that the proposed ORP is 

consistent with the protection of 

investors and the public interest, and is 

consistent with the Exchange Act, 

including furthering the objectives of 

Section 6(b)(5) of the Act,191 because it 

is a narrowly-tailored approach 

designed to appropriately balance the 

risks faced by market makers with the 

legitimate objectives of liquidity takers 

by providing additional optional risk 

protection to market makers and thereby 

encourage aggressive quoting. The 

Exchange further believes that offering 

more risk management protections to 

Market Makers would mitigate their 

exposure to excessive risk. As discussed 

in detail above, Market Makers are 

required to continuously provide twosided quotes in substantial numbers of 

listed options series that can create 

large, unintended positions exposing 

market makers to excessive risk. Market 

Maker quotes are critical to provide 

liquidity to the market and contribute to 

price discovery for investors. Without 

robust liquidity protection, market 

makers may be forced to widen their 

spreads, show less liquidity or simply 

exit the market, which can result in 

deterioration of market quality and 

adversely impact investors’ and other 

liquidity takers’ ability to transact in the 

options markets. In sum, liquidity 

protection for options market makers is 

vital for achieving a healthy balance 

between liquidity providers and 

liquidity takers in the options market 

that will promote more displayed 

liquidity from which all market 

participants ultimately will benefit. 

The Exchange believes that the 

proposed rules of IEX Options, as well 

as the proposed method of monitoring 

for compliance with and enforcing such 

rules is also consistent with the Act, 

particularly Sections 6(b)(1), 6(b)(5) and 

6(b)(6) of the Act, which require, in part, 

that an exchange have the capacity to 

enforce compliance with, and provide 

appropriate discipline for, violations of 

the rules of the Commission and of the 

exchange. The Exchange has proposed 

to adopt rules necessary to regulate 

Options Members that are nearly 

identical to the approved rules of other 

options exchanges, as described above. 

The Exchange proposes to regulate 

activity on IEX Options in the same way 

it regulates activity on its equities 

market (and comparable to other options 

exchanges), through various Exchange 

specific functions, an RSA with FINRA, 

as well as participation in industry 

plans, including plans pursuant to Rule 

17d–2 under the Exchange Act. 

In conclusion, for the reasons 

discussed above, IEX believes that the 

proposed rule change is consistent with 

the investor protection and public 

interest purposes of Section 6 of the Act. 

Additionally, IEX believes that 

establishing a new options market that 

participates in all the current (and any 

future) national market system plans 

governing options trading is consistent 

with Section 11A of the Act relating to 

the establishment of the national market 

system for securities.192 As proposed, 

IEX Options will offer a simple 

alternative to existing options exchanges 

that is designed to support competitive 

quoting to the benefit of all market 

participants. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will result in 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. To the 

contrary, the proposed rule change is 

designed to enhance competition by 


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193 17 CFR 200.30–3(a)(12). 

providing for an additional exchange 

market for the trading of listed options. 

IEX believes that this proposal will 

enhance competition by allowing the 

Exchange to leverage its existing robust 

technology platform to provide a 

resilient, deterministic, and transparent 

execution platform for options. The 

proposed rule change will insert an 

additional competitive dynamic to the 

options landscape by allowing the 

Exchange to compete with existing 

options exchanges and will promote 

further initiative and innovation among 

market centers and market participants. 

Further, the Exchange does not 

believe that the latency mechanism or 

optional Market Maker quote parameter 

aspect of the proposed rule change will 

impose any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. To the 

contrary, these features are designed to 

enhance IEX Option’s competitiveness 

by incentivizing the entry of increased 

Market Maker liquidity. 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on intra-market competition 

because it will apply to all Options 

Members in the same manner and any 

Options Member can perform any 

specified function subject to meeting 

applicable requirements. 

The Exchange also does not believe 

that the proposed latency mechanism 

will impose any burden on intra-market 

competition that is not necessary or 

appropriate because it will apply in the 

same manner to all incoming orders and 

quotes. Further, as noted in the Purpose 

section, the Exchange will determine 

the length of the latency mechanism 

with a view towards achieving a healthy 

balance between liquidity providers and 

liquidity takers. 

The Exchange also does not believe 

that the proposed ORP will impose any 

burden on intra-market competition that 

is not necessary or appropriate because 

it will be available in the same manner 

to all Market Makers and any Options 

Member could become a Market Maker, 

subject to meeting applicable 

requirements. The ORP is designed to 

mitigate Market Makers’ exposure to 

excessive risk and thereby enable them 

to provide more competitive quotes to 

the benefit of all market participants. 

The Exchange also believes that limiting 

the ORP functionality to Market Makers 

will not impose any burden on intramarket competition that is not necessary 

and appropriate because Market Makers 

are subject to robust affirmative quoting 

obligations and thus can uniquely 

benefit from the protections to be 

provided by the ORP. The Exchange 

thus believes it is reasonable to provide 

Market Makers with an additional tool 

to manage their risk parameters, 

particularly given their unique and 

critical role in the listed options market 

and the obligations that Market Makers 

must satisfy. As discussed in the 

Purpose and Statutory Basis sections, 

the proposed ORP will protect resting 

market-maker quotes (which are subject 

to quoting obligations) from executions 

at potentially stale prices, which the 

Exchange believes will reduce their risk 

and encourage Market Makers to 

provide more competitive markets on 

the Exchange, thereby benefitting all 

market participants through additional 

execution opportunities at prices that 

reflect the then-current market 

conditions. The Exchange expects the 

proposed rule change to increase 

liquidity and enhance competition in 

the market because Market Makers may 

be able to quote more aggressively with 

added productions from exposure to 

execution risk, thereby 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 also does not believe 

that the proposal will impose any 

burden on inter-market competition that 

is not necessary or appropriate. 

Competing exchanges are free to adopt 

similar functionality, subject to the 

Commission rule filing process. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) by order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

IEX–2025–02 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–IEX–2025–02. 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–IEX–2025–02 and should be 

submitted on or before February 11, 

2025. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.193

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2025–01290 Filed 1–17–25; 8:45 am] 

BILLING CODE 8011–01–P 


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