Document ID: SEC-2021-0899-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2021-06-28T04:00Z

[Federal Register Volume 86, Number 121 (Monday, June 28, 2021)]
[Notices]
[Pages 34096-34101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13654]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92226; File No. SR-ISE-2021-14]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 2, 
Section 4 (Obligations of Market Makers), Options 4, Section 3 
(Criteria for Underlying Securities), Options 4, Section 8 (Long-Term 
Options Contracts), and Options 4A, Section 12 (Terms of Index Options 
Contracts)

June 22, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 9, 2021, Nasdaq ISE, LLC (``ISE'' 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 Exchange. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Options 2, Section 4, Obligations of 
Market Makers; Options 4, Section 3, Criteria for Underlying 
Securities; Options 4, Section 8, Long-Term Options Contracts; and 
Options 4A, Section 12, Terms of Index Options Contracts.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Options 2, Section 4, Obligations of 
Market Makers; Options 4, Section 3, Criteria for Underlying 
Securities; Options 4, Section 8, Long-Term Options Contracts; and 
Options 4A, Section 12, Terms of Index Options Contracts. Each change 
will be described below.
Options 2, Section 4(a)
    The Exchange proposes to remove the following rule text from 
Options 2, Section 4(a), which has been in place since ISE's inception: 
\3\
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    \3\ See Securities Exchange Act Release No. 42455 (February 24, 
2000), 65 FR 11388 (March 2, 2000) (In the Matter of the Application 
of The International Securities Exchange LLC for Registration as a 
National Securities Exchange; Findings and Opinion of the 
Commission).

. . . Ordinarily, Market Makers are expected to:
    (1) Refrain from purchasing a call option or a put option at a 
price more than $0.25 below parity, although a larger amount may be 
appropriate considering the particular market conditions. In the 
case of calls, parity is measured by the bid in the underlying 
security, and in the case of puts, parity is measured by the offer 
in the underlying security.
    (2) The $0.25 amount above may be increased, or the provisions 
of this Rule may be waived, by the Exchange on a series-by-series 
basis.

This proposed rule text also previously existed on Cboe Exchange, Inc. 
within prior Rule 8.7 \4\ and was removed from Cboe's Rulebook in 
2019.\5\ The

[[Page 34097]]

Exchange likewise desires to remove this restriction on Market Makers 
which does not exist on Cboe or other Nasdaq affiliated markets.\6\ The 
proposed rule text is currently waived on ISE pursuant to Options 2, 
Section 4(a)(2). The Exchange proposes to remove this rule text from 
Options 2, Section 4 as the Exchange does not desire to enforce this 
provision in the future. The Exchange believes that this market maker 
provision is no longer necessary. Today, ISE incentivizes Market Makers 
through pricing \7\ and allocation \8\ to quote tightly in their 
assigned options series. Primary Market Makers and Competitive Market 
Makers also have other obligations with respect to market making \9\ in 
addition to other quoting obligations \10\ that they must abide by when 
quoting on ISE. Also, since the adoption of the rule, the Exchange has 
adopted the obvious error rule \11\ which permits the Exchange to 
review a transaction as potentially erroneous based on a theoretical 
price. Also, ISE orders are subject to trade-through compliance, 
thereby limiting the prices at which orders may execute.\12\ Market 
Makers are relied upon to provide liquidity on ISE, which benefits 
other Members who have an opportunity to interact with the order flow. 
The Exchange believes that the obligation to refrain from purchasing a 
call option or a put option at a price more than $0.25 below parity 
places yet another obligation on ISE Market Makers that is not required 
on Cboe or other Nasdaq markets. The Exchange believes that this 
additional obligation is not necessary to maintain fair and orderly 
markets and notes the Exchange has waived this obligation.
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    \4\ Prior Interpretation and Policy .02 to Rule 8.7 provided, 
``Market-Makers are expected ordinarily to refrain from purchasing a 
call option or a put option at a price more than $0.25 below parity, 
although a larger amount may be appropriate considering the 
particular market conditions. In the case of calls, parity is 
measured by the bid in the underlying security, and in the case of 
puts, parity is measured by the offer in the underlying security. 
The $0.25 amount above may be increased, or the provisions of this 
Interpretation may be waived, by the Exchange on a series-by-series 
basis.''
    \5\ Cboe's rule change merely noted, with respect to the removal 
of Cboe's parity rule, that the filing makes non-substantive changes 
to the rule governing a Market-Maker's general obligations (current 
Rule 8.7, in part), most of which remove redundant provisions that 
are already covered under the umbrella of a Market-Maker's 
obligation to engage in dealing to maintain fair and orderly 
markets. No specific argument is provided with respect to removing 
this provision. See Securities Exchange Act 87024 (September 19, 
2019), 84 FR 50545 (September 25, 2019) (SR-CBOE-2019-059) (Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Certain Rules Relating To Market-Makers Upon Migration to the 
Trading System Used by Cboe Affiliated Exchanges).
    \6\ See Nasdaq Phlx LLC, The Nasdaq Options Market LLC and 
Nasdaq BX, Inc. at Options 2, Section 4 (Obligations of Market 
Makers).
    \7\ See Options 7 (Option Pricing). ISE offers lower fees and 
rebates to Market Makers based on the percentage of time spent on 
the National Best Bid or National Best Offer (``NBBO'') for certain 
qualifying series.
    \8\ See Options 3, Section 10 (Priority of Quotes and Orders). 
Primary Market Makers are offered an enhanced allocation provided 
the Primary Market Maker is quoting at same price as a non-Priority 
Customer Order or Market Maker quote.
    \9\ See Options 2, Section 4. ISE Market Makers must for 
example: (1) Compete with other Market Makers to improve the market 
in all series of options classes to which the Market Maker is 
appointed; (2) make markets that, absent changed market conditions, 
will be honored for the number of contracts entered into the 
Exchange's System in all series of options classes to which the 
Market Maker is appointed; (3) update market quotations in response 
to changed market conditions in all series of options classes to 
which the Market Maker is appointed; and (4) price options contracts 
fairly by, among other things, bidding and offering so as to create 
differences of no more than $5 between the bid and offer following 
the opening rotation in an equity or index options contract. See 
Options 2, Section 4(b).
    \10\ See Options 2, Section 5 (Electronic Market Maker 
Obligations and Quoting Requirements). Further, Options 3, Section 
8(c)(3) requires Primary Market Makers to submit a Valid Width Quote 
during the Opening Process.
    \11\ See Options 3, Section 20 (Nullification and Adjustment of 
Options Transactions including Obvious Errors).
    \12\ See Options 3, Section 4(b)(6).
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Bid/Ask Differentials
    The Exchange proposes to amend Options 2, Section 4(b)(4) and 
Options 4A, Section 12(b)(i) to relocate text concerning bid/ask 
differentials for long-term option series. Currently, Options 4, 
Section 8(a) describes the bid/ask differentials for long-term options 
series for equity options and exchange-traded products and Options 4A, 
Section 12(b)(i) describes the bid/ask differentials for long-term 
options series for indexes. Currently, the bid/ask differentials shall 
not apply to any options series until the time to expiration is less 
than nine (9) months for equity options and exchange-traded funds as 
provided for within Options 4, Section 8(a). Currently, bid/ask 
differentials shall not apply to any options series until the time to 
expiration is less than twelve (12) months for index options as 
provided for within Options 4A, Section 12(b)(i).
    The Exchange proposes to centralize the bid/ask differentials 
within new Options 2, Section 4(b)(4)(iii) and add a sentence to both 
Options 4, Section 8(a) and Options 4A, Section 12(b)(i) that cites to 
Options 2, Section 4(b)(4)(iii) for information on bid/ask 
differentials for the various products. The Exchange believes that this 
relocation will provide Primary Market Makers and Competitive Market 
Makers with centralized information regarding their bid/ask 
differential requirements. The Exchange is not amending the bid/ask 
differentials; the rule text is simply being relocated.
Business Continuity and Disaster Recovery Plan
    The Exchange proposes to relocate Supplementary Material .02 to 
Options 2, Section 4, concerning business continuity and disaster 
recovery plans, to General 2, Section 12, which is currently reserved. 
The Exchange proposes to title General 2, Section 12 as ``Business 
Continuity and Disaster Recovery Plan Testing Requirements for Members 
Pursuant to Regulation SCI.'' The rule text is being relocated without 
change. The Exchange proposes to relocate this rule text to harmonize 
ISE's rules with that of Nasdaq PHLX LLC (``Phlx''), Nasdaq BX, Inc. 
and The Nasdaq Stock Market LLC which all have business continuity and 
disaster recovery plans located within General 2, Section 12 of their 
respective rulebooks.\13\ The Exchange also proposes to reserve 
Sections 7-10 and 13-22 within General 2.\14\ Harmonizing the rule 
locations of the rules of the Nasdaq affiliated markets will make it 
easier for market participants to review and compare the rules of each 
Nasdaq market.
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    \13\ Similar rule changes will also be made for Nasdaq GEMX, LLC 
and Nasdaq MRX, LLC.
    \14\ General 2, Sections 5 and 6 are currently reserved. These 
sections are proposed to be deleted. The proposed text would instead 
reflect General 2, Sections 5-10 are reserved.
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Options 4, Section 3
    The Exchange proposes to remove the following products from Options 
4, Section 3(h): The ETFS Silver Trust, the ETFS Palladium Trust, the 
ETFS Platinum Trust or the Sprott Physical Gold Trust. The Exchange no 
longer lists these products and proposes to remove them the products 
from its listing rules. The Exchange will file a proposal with the 
Commission if it determines to list these products in the future.
    The Exchange proposes to amend Options 4, Section 3(h) by removing 
the rule text at the end of the paragraph which provides, ``all of the 
following conditions are met.'' Paragraph (h) would simply end with 
``provided that:'' and direct market participants to subparagraphs (1) 
and (2). The Exchange also proposes to capitalize ``the'' at the 
beginning of Options 4, Section 3(h)(1) and remove ``; and'' at the end 
of the paragraph and instead at a period so that subparagraphs (1) and 
(2) are not linked, but rather read independently. Today, Options 4, 
Section 3(h)(1) applies to all Exchange-Traded Fund Shares. The 
Exchange proposes to clarify that Options 4, Section 3(h)(2) applies to 
only international or global Exchange-Traded Fund Shares. Specifically, 
the Exchange proposes to amend Options 4, Section 3(h)(2) to provide, 
``Exchange-Traded Fund Shares based on international or global indexes, 
or portfolios that include non-U.S. securities, shall meet the 
following criteria.'' Phlx Options 4, Section 3(h) currently has 
similar rule text.\15\ Proposed Options 4, Sections 3(h) generally 
concerns securities deemed appropriate for options trading. The 
proposed new rule text adds language stating that subparagraph (h)(2) 
of Options 4, Section 3 applies to the extent the Exchange-Traded Fund 
Share is based on international or global indexes, or portfolios that 
include non-U.S. securities. This language is

[[Page 34098]]

intended to serve as a guidepost and clarify that (1) subparagraph 
(h)(2) does not apply to an Exchange-Traded Fund Shares based on a U.S. 
domestic index or portfolio, and (2) subparagraph (h)(2) includes 
Exchange-Traded Fund Shares that track a portfolio and do not track an 
index.
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    \15\ Phlx will also file to conform its rule text to the 
proposed text within Options 4, Section 3(h)(2).
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    The Exchange proposes to amend Options 4, Section 3(h)(2)(A) to 
remove the phrase ``for series of portfolio depositary receipts and 
index fund shares based on international or global indexes,''. Today, 
Options 4, Section 3(h), subparagraphs (h)(1) \16\ and (h)(v) \17\ 
permit the Exchange to list options on Exchange-Traded Fund Shares 
based on generic listing standards for portfolio depositary receipts 
and index fund shares without applying component based requirements in 
subparagraphs (h)(2)(B)-(D). By removing the proposed rule text, the 
Exchange would make clear that subparagraph (h)(2)(A) applies to 
Exchange-Traded Fund Shares based on international or global indexes, 
or portfolios that include non-U.S. securities, that are listed 
pursuant to generic listing standards and comply with Options 4, 
Section 3(h) and subparagraph (h)(1).
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    \16\ Subsection (h)(i) concerns passive Exchange-Traded Fund 
Shares. Subsection (h)(1) provides, ``represent interests in 
registered investment companies (or series thereof) organized as 
open-end management investment companies, unit investment trusts or 
similar entities that hold portfolios of securities and/or financial 
instruments, including, but not limited to, stock index futures 
contracts, options on futures, options on securities and indices, 
equity caps, collars and floors, swap agreements, forward contracts, 
repurchase agreements and reverse repurchase agreements (the 
``Financial Instruments''), and money market instruments, including, 
but not limited to, U.S. government securities and repurchase 
agreements (the ``Money Market Instruments'') comprising or 
otherwise based on or representing investments in broad-based 
indexes or portfolios of securities and/or Financial Instruments and 
Money Market Instruments (or that hold securities in one or more 
other registered investment companies that themselves hold such 
portfolios of securities and/or Financial Instruments and Money 
Market Instruments).''
    \17\ Subsection (h)(v) concerns active Exchange-Traded Fund 
Shares. Subsection (h)(v) Provides, ``represents an interest in a 
registered investment company (``Investment Company'') organized as 
an open-end management company or similar entity, that invests in a 
portfolio of securities selected by the Investment Company's 
investment adviser consistent with the Investment Company's 
investment objectives and policies, which is issued in a specified 
aggregate minimum number in return for a deposit of a specified 
portfolio of securities and/or a cash amount with a value equal to 
the next determined net asset value (``NAV''), and when aggregated 
in the same specified minimum number, may be redeemed at a holder's 
request, which holder will be paid a specified portfolio of 
securities and/or cash with a value equal to the next determined NAV 
(``Managed Fund Share'').
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    The Exchange also proposes to amend the term ``comprehensive 
surveillance agreement'' within Options 4, Section 3(h)(2)(A)-(D) to 
instead provide ``comprehensive surveillance sharing agreement.'' This 
amendment will bring greater clarity to the term.
    Further, the Exchange proposes to add the phrase ``if not available 
or applicable, the Exchange-Traded Fund's'' within Options 4, Section 
3(h)(2)(B), (C), and (D) to clarify that when component securities are 
not available, the portfolio of securities upon which the Exchange-
Traded Fund Share is based can be used instead. The Exchange notes that 
``not available'' is intended for cases where the Exchange does not 
have access to the index components, in those cases the Exchange would 
look to the portfolio components. The term ``not applicable'' is 
intended if the fund is active and does not track an index and only the 
portfolio is available. As noted above, this rule text currently exists 
within Phlx Options 4, Section 3(h).
    The Exchange also proposes to wordsmith Options 4, Section 
3(h)(2)(B) to amend the phrase to provide, ``any non-U.S. component 
securities of an index on which the Exchange-Traded Fund Shares are 
based or if not available or applicable, the Exchange-Traded Fund's 
portfolio of securities that are not subject to comprehensive 
surveillance sharing agreements do not in the aggregate represent more 
than 50% of the weight of the index or portfolio;''. The Exchange 
believes that the revised wording will bring greater clarity to the 
rule text.
    Similarly, the Exchange proposes to wordsmith Options 4, Section 
3(h)(2)(C) and (D) to relocate the phrase ``on which the Exchange-
Traded Fund Shares are based'' and add ``or portfolio'' to bring 
greater clarity to the rule text by conforming the rule text of (C) and 
(D) to the language within (B).
Technical Amendments
    The Exchange proposes a non-substantive technical amendment to 
Options 4, Section 3(C)(2)(A)(ii) to correct a typographical error by 
changing a ``than'' to a ``that''. The Exchange proposes a non-
substantive technical amendment to Options 4, Section 3(g)(2) to 
capitalize ``section''. The Exchange proposes a non-substantive 
technical amendment to Options 4, Section 3(h)(1) to change ``In'' to 
``in''.
    Finally, the Exchange proposes to add new Options 4C and mark it as 
reserved. Phlx added a 4C to its Rulebook and this rule change will 
harmonize ISE's Rulebook structure to Phlx's Rulebook Structure.\18\
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    \18\ See Securities Exchange Act Release No. 91488 (April 6, 
2021), 86 FR 19037 (April 12, 2021) (SR-Phlx-2021-14) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
the Phlx Options Rules at Options 4 Under the Options 4 Title in the 
Exchanges Rulebooks Shell Structure).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\19\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\20\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
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Options 2, Section 4(a)
    The Exchange's proposal to remove certain rule text from Options 2, 
Section 4(a) that refrains Market Makers from purchasing a call option 
or a put option at a price more than $0.25 below parity is consistent 
with the Act. The Exchange desires to remove this restriction on Market 
Makers which does not exist on Cboe or other Nasdaq affiliated 
markets.\21\ The proposed rule text is currently waived on ISE pursuant 
to Options 2, Section 4(a)(2). The Exchange believes that this market 
maker provision is no longer necessary. Today, ISE incentivizes Market 
Makers through pricing \22\ and allocation \23\ to quote tightly in 
their assigned options series. Primary Market Makers and Competitive 
Market Makers also have other obligations with respect to market making 
\24\ in addition to other quoting obligations \25\ that they must abide 
by when quoting on ISE. Also, since the adoption of the rule, the 
Exchange has adopted the obvious error rule \26\ which permits the 
Exchange to review a transaction as potentially erroneous based on a 
theoretical price. Also, ISE orders are subject to trade-through 
compliance, thereby limiting the prices at which orders may 
execute.\27\ Market Makers are relied upon to provide liquidity on ISE, 
which benefits other Members who have an opportunity to interact with 
the order flow. The Exchange believes that the obligation to refrain 
from purchasing a call option or

[[Page 34099]]

a put option at a price more than $0.25 below parity places yet another 
obligation on ISE Market Makers that is not required on Cboe or other 
Nasdaq markets. The Exchange believes that this additional obligation 
is not necessary to maintain fair and orderly markets and notes the 
Exchange has waived this obligation and the removal of this provision 
would remove an impediment to and perfect the mechanism of a free and 
open market and a national market system.
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    \21\ See supra note 5.
    \22\ See supra note 7.
    \23\ See supra note 8.
    \24\ See supra note 9.
    \25\ See supra note 10.
    \26\ See supra note 11.
    \27\ See supra note 12.
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Bid/Ask Differentials
    The Exchange's proposal to amend Options 2, Section 4(b)(4) and 
Options 4A, Section 12(b)(i) to relocate text concerning bid/ask 
differentials for long-term option series is consistent with the Act. 
The Exchange's proposal will centralize the bid/ask differentials 
within new Options 2, Section 4(b)(4)(iii) and add a sentence to both 
Options 4, Section 8(a) and Options 4A, Section 12(b)(i) that cites to 
Options 2, Section 4(b)(4)(iii) for information on bid/ask 
differentials for the various products. The Exchange is not amending 
the bid/ask differentials; the rule text is simply being relocated. The 
Exchange believes that this relocation will provide Primary Market 
Makers and Competitive Market Makers with centralized information 
regarding their bid/ask differential requirements.
Business Continuity and Disaster Recovery Plan
    The Exchange's proposal to relocate Supplementary Material .02 to 
Options 2, Section 4, concerning business continuity and disaster 
recovery plans, to General 2, Section 12, which is currently reserved, 
is consistent with the Act. This rule text will harmonize ISE's rules 
with that of Phlx, Nasdaq BX, Inc. and The Nasdaq Stock Market LLC 
which all have business continuity and disaster recovery plans located 
within General 2, Section 12 of their respective rulebooks.\28\ 
Harmonizing the rule locations of the rules of the Nasdaq affiliated 
markets will make it easier for market participants to review and 
compare the rules of each Nasdaq market. The Exchange also proposes to 
reserve Sections 7-10 and 13-22 within General 2. These changes are 
non-substantive as the rule text is not being amended.
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    \28\ See supra note 13.
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Options 4, Section 3
    The Exchange's proposal to remove the following products from 
Options 4, Section 3(h): The ETFS Silver Trust, the ETFS Palladium 
Trust, the ETFS Platinum Trust or the Sprott Physical Gold Trust is 
consistent with the Act because the Exchange no longer lists these 
products and proposes to remove them the products from its listing 
rules. The Exchange will file a proposal with the Commission if it 
determines to list these products in the future.
    The Exchange's proposal to amend Options 4, Section 3(h) by 
removing the rule text at the end of the paragraph which provides, 
``all of the following conditions are met,'' and creating separate 
paragraphs for Options 4, Section 3(h)(1) and (2) is consistent with 
the Act. These amendments will de-link these subparagraphs so they are 
read independently. Today, Options 4, Section 3(h)(1) applies to all 
Exchange-Traded Fund Shares. The Exchange's proposal to clarify that 
Options 4, Section 3(h)(2) applies to only international or global 
indexes or portfolios that include non-U.S. securities will bring 
greater clarity to the qualification standards for listing options on 
Exchange-Traded Fund Shares. Phlx Options 4, Section 3(h) currently has 
similar rule text.\29\ Proposed Options 4, Sections 3(h) generally 
concerns securities deemed appropriate for options trading. The 
proposed new rule text adds language stating that subparagraph (h)(2) 
of Options 4, Section 3 applies to the extent the Exchange-Traded Fund 
Share is based on international or global indexes or portfolios that 
include non-U.S. securities. This language is intended to serve as a 
guidepost and clarify that (1) subparagraph (h)(2) does not apply to an 
Exchange-Traded Fund Shares based on a U.S. domestic index or 
portfolio, and (2) subparagraph (h)(2) includes Exchange-Traded Fund 
Shares that track a portfolio and do not track an index.
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    \29\ Phlx will also file to conform its rule text to the 
proposed text within Options 4, Section 3(h)(2).
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    The Exchange's proposal to amend Options 4, Section 3(h)(2)(A) to 
remove the phrase ``for series of portfolio depositary receipts and 
index fund shares based on international or global indexes,'' is 
consistent with the Act. Today, Options 4, Section 3(h), subparagraphs 
(h)(1) \30\ and (h)(v) \31\ permit the Exchange to list options on 
Exchange-Traded Fund Shares based on generic listing standards for 
portfolio depositary receipts and index fund shares without applying 
component based requirements in subparagraphs (h)(2)(B)-(D). By 
removing the proposed rule text, the Exchange would make clear that 
subparagraph (h)(2)(A) applies to Exchange-Traded Fund Shares based on 
international or global indexes, or portfolios that include non-U.S. 
securities, that are listed pursuant to generic listing standards and 
comply with Options 4, Section 3(h) and subparagraph (h)(1).
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    \30\ See supra note 16.
    \31\ See supra note 17.
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    The Exchange's proposal to amend the term ``comprehensive 
surveillance agreement'' within Options 4, Section 3(h)(2) (A)-(D) to 
instead provide ``comprehensive surveillance sharing agreement'' is 
consistent with the Act as the amendment will bring greater clarity to 
the term.
    The Exchange's proposal to add the phrase ``if not available or 
applicable, the Exchange-Traded Fund's'' to Options 4, Section 
3(h)(2)(B), (C), and (D) is consistent with the Act as it will clarify 
that when component securities are not available, the portfolio of 
securities upon which the Exchange-Traded Fund Share is based can be 
used instead. This rule text currently exists within Phlx Options 4, 
Section 3(h).
    The Exchange's proposal to amend and relocate the rule text within 
Options 4, Section 3(h)(2)(B), (C), and (D) will bring greater clarity 
to the current rule text by explicitly providing that the index being 
referenced is the one on which the Exchange-Traded Fund Shares is 
based. Also, adding ``or portfolio'' to Options 4, Section 3(h)(2)(C), 
and (D) will bring greater clarity to the rule text by conforming the 
rule text of (C) and (D) to the language within (B).
Technical Amendments
    The Exchange's proposal to make certain non-substantive technical 
amendment to Options 4, Section 3(C)(2)(A)(ii), Options 4, Section 
3(g)(2) and Options 4, Section 3(h)(1) are consistent with the Act. 
Also, adding Options 4C and reserving it within the rules is a non-
substantive amendment which will harmonize ISE's Rulebook structure to 
Phlx's Rulebook Structure.\32\
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    \32\ See supra note 18.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Options 2, Section 4(a)
    The Exchange's proposal to remove certain rule text from Options 2, 
Section 4(a) that refrains Market Makers from purchasing a call option 
or a put option at a price more than $0.25 below parity

[[Page 34100]]

does not impose an undue burden on competition. The Exchange desires to 
remove this restriction on Market Makers which does not exist on Cboe 
or other Nasdaq affiliated markets.\33\ The proposed rule text is 
currently waived on ISE pursuant to Options 2, Section 4(a)(2). Market 
Makers are relied upon to provide liquidity on ISE, which benefits 
other Members who have an opportunity to interact with the order flow. 
The Exchange believes that the obligation to refrain from purchasing a 
call option or a put option at a price more than $0.25 below parity 
places yet another obligation on ISE Market Makers that is not required 
on Cboe or other Nasdaq markets. The Exchange believes that this 
additional obligation is not necessary to maintain fair and orderly 
markets and notes the Exchange has waived this obligation.
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    \33\ See supra note 5.
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Bid/Ask Differentials
    The Exchange's proposal to amend Options 2, Section 4(b)(4) and 
Options 4A, Section 12(b)(i) to relocate text concerning bid/ask 
differentials for long-term option series does not impose an undue 
burden on competition. The Exchange's proposal will centralize the bid/
ask differentials within new Options 2, Section 4(b)(4)(iii) and add a 
sentence to both Options 4, Section 8(a) and Options 4A, Section 
12(b)(i) that cites to Options 2, Section 4(b)(4)(iii) for information 
on bid/ask differentials for the various products. The Exchange 
believes that this relocation will provide Primary Market Makers and 
Competitive Market Makers with centralized information regarding their 
bid/ask differential requirements.
Business Continuity and Disaster Recovery Plan
    The Exchange's proposal to relocate Supplementary Material .02 to 
Options 2, Section 4, concerning business continuity and disaster 
recovery plans, to General 2, Section 12, which is currently reserved, 
does not impose an undue burden on competition. This rule text will 
harmonize ISE's rules with that of Phlx, Nasdaq BX, Inc. and The Nasdaq 
Stock Market LLC which all have business continuity and disaster 
recovery plans located within General 2, Section 12 of their respective 
rulebooks.\34\ Harmonizing the rule locations of the rules of the 
Nasdaq affiliated markets will make it easier for market participants 
to review and compare the rules of each Nasdaq market. This change is 
non-substantive as the rule text is not being amended.
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    \34\ See supra note 13.
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Options 4, Section 3
    The Exchange's proposal to remove the following products from 
Options 4, Section 3(h): The ETFS Silver Trust, the ETFS Palladium 
Trust, the ETFS Platinum Trust or the Sprott Physical Gold Trust does 
not impose an undue burden on competition because the Exchange no 
longer lists these products and proposes to remove them the products 
from its listing rules. No Member will be permitted to trade these 
products on ISE.
    The Exchange's proposal to amend Options 4, Section 3(h) by 
removing the rule text at the end of the paragraph which provides, 
``all of the following conditions are met,'' and creating separate 
paragraphs for Options 4, Section 3(h)(1) and (2) does not impose an 
undue burden on competition. These amendments will de-link these 
subparagraphs so they are read independently. Today, Options 4, Section 
3(h)(1) applies to all Exchange-Traded Fund Shares. The Exchange's 
proposal to clarify that Options 4, Section 3(h)(2) applies to only 
international or global Exchange-Traded Fund Shares that include non-
U.S. securities will bring greater clarity to the qualification 
standards for listing options on Exchange-Traded Fund Shares. 
Specifically, this language is intended to serve as a guidepost and 
clarify that (1) subparagraph (h)(2) does not apply to an Exchange-
Traded Fund Shares based on a U.S. domestic index or portfolio, and (2) 
subparagraph (h)(2) includes Exchange-Traded Fund Shares that track a 
portfolio and do not track an index. This amendment will uniformly 
apply the criteria within Options 4, Section 3 when it lists options 
products on ISE.
    The Exchange's proposal to amend Options 4, Section 3(h)(2)(A) to 
remove the phrase ``for series of portfolio depositary receipts and 
index fund shares based on international or global indexes,'' does not 
impose an undue burden on competition. Today, Options 4, Section 3(h), 
subparagraphs (h)(1) \35\ and (h)(v) \36\ permit the Exchange to list 
options on Exchange-Traded Fund Shares based on generic listing 
standards for portfolio depositary receipts and index fund shares 
without applying component based requirements in subparagraphs 
(h)(2)(B)-(D). By removing the proposed rule text, the Exchange would 
make clear that subparagraph (h)(2)(A) applies to Exchange-Traded Fund 
Shares based on international or global indexes, or portfolios that 
include non-U.S. securities, that are listed pursuant to generic 
listing standards and comply with Options 4, Section 3(h) and 
subparagraph (h)(1). This amendment will uniformly apply the criteria 
within Options 4, Section 3 when it lists options products on ISE.
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    \35\ See supra note 16.
    \36\ See supra note 17.
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    The Exchange's proposal to amend the term ``comprehensive 
surveillance agreement'' within Options 4, Section 3(h)(2) (A)-(D) to 
instead provide ``comprehensive surveillance sharing agreement'' does 
not impose an undue burden on competition as the amendment will bring 
greater clarity to the term.
    The Exchange's proposal to add the phrase ``if not available or 
applicable, the Exchange-Traded Fund's'' to Options 4, Section 
3(h)(2)(B), (C), and (D) does not impose an undue burden on competition 
as it will clarify that when component securities are not available, 
the portfolio of securities upon which the Exchange-Traded Fund Share 
is based can be used instead.
    The Exchange's proposal to amend and relocate the rule text within 
Options 4, Section 3(h)(2)(B), (C), and (D) will bring greater clarity 
to the current rule text by explicitly providing that the index being 
referenced is the one on which the Exchange-Traded Fund Shares is 
based. Also, adding ``or portfolio'' to Options 4, Section 3(h)(2)(C), 
and (D) will bring greater clarity to the rule text by conforming the 
rule text of (C) and (D) to the language within (B).
Technical Amendments
    The Exchange's proposal to make certain non-substantive technical 
amendment to Options 4, Section 3(C)(2)(A)(ii), Options 4, Section 
3(g)(2) and Options 4, Section 3(h)(1) does no impose an undue burden 
on competition. Also, adding Options 4C and reserving it within the 
rules is a non-substantive amendment which will harmonize ISE's 
Rulebook structure to Phlx's Rulebook Structure.\37\
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    \37\ See supra note 18.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

[[Page 34101]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \38\ and Rule 19b-4(f)(6) \39\ thereunder. 
Because the foregoing proposed rule change does not: (i) Significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; and (iii) become operative for 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, it has become effective pursuant to 
Section 19(b)(3)(A) of the Act \40\ and Rule 19b-4(f)(6) \41\ 
thereunder.
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    \38\ 15 U.S.C. 78(b)(3)(A).
    \39\ 17 CFR 240.19b-4(f)(6).
    \40\ 15 U.S.C. 78s(b)(3)(A).
    \41\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \42\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\43\ the Commission 
may designate a shorter time if such action is consistent with 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative upon filing. The Exchange's proposal 
does not raise any new or novel issues. Therefore, the Commission 
believes that waving the 30-day operative delay is consistent with the 
protection of investors and the public interest. Accordingly, the 
Commission designates the proposed rule change to be operative on upon 
filing.\44\
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    \42\ 17 CFR 240.19b-4(f)(6).
    \43\ 17 CFR 240.19b-4(f)(6).
    \44\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \45\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\46\
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    \45\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \46\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2021-14 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2021-14. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ISE-2021-14 and should be submitted on 
or before July 19, 2021.
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    \47\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13654 Filed 6-25-21; 8:45 am]
BILLING CODE 8011-01-P