[Federal Register Volume 87, Number 245 (Thursday, December 22, 2022)]
[Notices]
[Pages 78740-78757]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-27785]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96518; File No. SR-ISE-2022-28]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Certain 
ISE Complex Order Functionalities in Connection With a Technology 
Migration

December 16, 2022.
    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 December 9, 2022, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

---------------------------------------------------------------------------

[[Page 78741]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Options 3, Section 7, Types of 
Orders and Order and Quote Protocols; Options 3, Section 10, Priority 
of Quotes and Orders; Options 3, Section 12, Crossing Orders; Options 
3, Section 13, Price Improvement Mechanisms for Crossing Transactions; 
Options 3, Section 14, Complex Orders; and Options 3, Section 16, 
Complex Risk Protections.
    The Exchange also proposes some technical amendments within Options 
3, Section 6, Collection and Dissemination of Quotations, and Section 
8, Options Opening Process.
    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
    In connection with a technology migration to an enhanced Nasdaq, 
Inc. (``Nasdaq'') functionality which will result in higher 
performance, scalability, and more robust architecture, the Exchange 
intends to adopt certain trading functionality currently utilized at 
Nasdaq affiliate exchanges. Also, the Exchange intends to remove 
certain functionality. Specifically, the following sections would be 
amended: Options 3, Section 7, Types of Orders and Order and Quote 
Protocols; Options 3, Section 10, Priority of Quotes and Orders; 
Options 3, Section 12, Crossing Orders; Options 3, Section 13, Price 
Improvement Mechanisms for Crossing Transactions; Options 3, Section 
14, Complex Orders; and Options 3, Section 16, Complex Risk 
Protections. The changes proposed herein are identical to changes that 
were recently proposed for MRX.\3\ The Exchange also proposes some 
technical amendments specific to ISE within Options 3, Section 6, 
Collection and Dissemination of Quotations, and Section 8, Options 
Opening Process. Each change will be described below.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 95854 (September 21, 
2022), 87 FR 58571 (September 27, 2022) (Order Approving SR-MRX-
2022-10).
---------------------------------------------------------------------------

Legging Order
    The Exchange proposes to amend Options 3, Section 7(k)(1) to add a 
provision which states that a Legging Order \4\ will not be generated 
during a Posting Period, as described in detail below, in progress on 
the same side in the series pursuant to Options 3, Section 15 regarding 
Acceptable Trade Range (``ATR''). A Legging Order would not be 
generated because it would no longer be at the Exchange's displayed 
best bid or offer, therefore, generating a Legging Order during a 
Posting Period in progress, on the same side in the series, would lead 
to its immediate removal, making it superfluous to have been generated.
---------------------------------------------------------------------------

    \4\ A Legging Order is a limit order on the regular limit order 
book that represents one side of a Complex Options Order that is to 
buy or sell an equal quantity of two options series resting on the 
Exchange's Complex Order Book. See Options 3, Section 7(k).
---------------------------------------------------------------------------

    ATR is a risk protection, that sets dynamic boundaries within which 
quotes and orders may trade.\5\ It is designed to guard the System \6\ 
from experiencing dramatic price swings by preventing the immediate 
execution of quotes and orders beyond the thresholds set by this risk 
protection. The Exchange recently amended ATR to adopt an iterative 
process wherein an order/quote that reaches its ATR boundary is paused 
for a brief period of time to allow more liquidity to be collected, 
before the order/quote is automatically re-priced and a new ATR is 
calculated.\7\
---------------------------------------------------------------------------

    \5\ See ISE Options 3, Section 15(a)(2)(A).
    \6\ The term ``System'' means the electronic system operated by 
the Exchange that receives and disseminates quotes, executes orders 
and reports transactions. See ISE Options 1, Section 1(a)(50).
    \7\ See Securities Exchange Act Release No. 96362 (November 18, 
2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25). SR-ISE-
2022-25 proposed an iterative process for ATR wherein the Exchange 
will attempt to execute interest that exceeds the outer limit of the 
ATR for a brief period of time while that interest is automatically 
re-priced as described herein. The Exchange also updated the 
reference price definition to provide that upon receipt of a new 
order or quote, the reference price will now be the better of the 
NBB or internal best bid for sell orders/quotes and the better of 
the NBO or internal best offer for buy orders/quotes or the last 
price at which the order/quote is posted, whichever is higher for a 
buy order/quote or lower for a sell order/quote. The additions of 
``internal BBO'' were consistent with the re-pricing of orders. SR-
ISE-2022-25 is effective, but not yet operative. SR-ISE-2022-25 
would be implemented as part of the same technology migration as the 
changes proposed herein.
---------------------------------------------------------------------------

    Specifically, SR-ISE-2022-25 amended current Options 3, Section 
15(a)(2)(A)(iii) to adopt an iterative process wherein an order or 
quote that reaches the outer limits of the ATR (``Threshold Price'') 
without being fully executed, will be posted at the Threshold Price for 
a brief period, not to exceed one second (``Posting Period''), to allow 
the market to refresh and determine whether or not more liquidity will 
become available (on the Exchange or any other exchange if the order is 
designated as routable) within the posted price of the order or quote 
before moving on to a new Threshold Price. With this change, upon 
posting, either the current Threshold Price of the order/quote or an 
updated NBB for buy orders/quotes or the NBO for sell orders/quotes 
(whichever is higher for a buy order/quote or lower for a sell order/
quote) would become the reference price for calculating a new ATR. If 
the order/quote remains unexecuted after the Posting Period, a new ATR 
will be calculated and the order/quote will execute, route, or post up 
to the new Threshold Price. This process will repeat until either (1) 
the order/quote is executed, cancelled, or posted at its limit price or 
(2) the order/quote has been subject to a configurable number of 
instances of the ATR as determined by the Exchange (in which case it 
will be returned).
    With this change, during the proposed Posting Period, an order 
would be in flux and would potentially increase (decrease) past the 
price of any Legging Order generated on the bid (offer) as the order 
works its way through the order book. Legging Orders are removed from 
the order book when they are no longer at the Exchange's displayed best 
bid or offer and, therefore, generating a Legging Order during a 
Posting Period in progress on the same side in the series would lead to 
its immediate removal. Accordingly, in the current proposal, the 
Exchange proposes to amend Options 3, Section 7(k)(1) to provide that a 
Legging Order would not be created during the Posting Period in 
progress on the same side in the series. By way of example, assume that 
the ATR is set for $0.05, the MPV is $0.01 and the following quotations 
are posted on ISE and away markets:
    Away Exchange Quotes:

[[Page 78742]]



----------------------------------------------------------------------------------------------------------------
                    Exchange                         Bid size        Bid price      Offer price     Offer size
----------------------------------------------------------------------------------------------------------------
ISE.............................................              10           $0.75           $0.90              10
AMEX............................................              10            0.75            0.92              10
PHLX............................................              10            0.75            0.94              10
----------------------------------------------------------------------------------------------------------------

    ISE Price Levels:

----------------------------------------------------------------------------------------------------------------
                    Exchange                         Bid size        Bid price      Offer price     Offer size
----------------------------------------------------------------------------------------------------------------
ISE.............................................              10           $0.75           $0.90              10
ISE.............................................              10            0.75            0.95              10
ISE.............................................              10            0.75            1.00              10
ISE.............................................              10            0.75            1.05              10
----------------------------------------------------------------------------------------------------------------

ISE receives a routable order to buy 70 contracts at $1.10. The ATR is 
$0.05 and the reference price is the National Best Offer--$0.90. The 
ATR threshold is then $0.90 + $0.05 = $0.95 which is the Threshold 
Price. The order is allowed to execute up to and including $0.95.
     10 contracts will be executed at $0.90 against ISE.
     10 contracts will be executed at $0.90 against ISE.
     10 contracts will be executed at $0.92 against AMEX.
     10 contracts will be executed at $0.94 against PHLX.
     10 contracts will be executed at $0.95 against ISE.
     Then, after executing at multiple price levels, the order 
is posted at $0.95 for a brief period not to exceed one second (Posting 
Period) to determine whether additional liquidity will become 
available.
     During this pause, the ISE BBO for this option is 0.95 x 
1.00.
     Assume the leg above with the Posting Period in progress 
is Leg A of an A-B complex strategy.
     Leg B has a BBO of 0.85 x 0.88
     Therefore, the cBBO \8\ of this A-B complex strategy is 
0.07 x 0.15
---------------------------------------------------------------------------

    \8\ The ``cBBO'' represents the net price of a complex strategy 
comprised of the best bids and offers of the individual legs.
---------------------------------------------------------------------------

    [cir] (Leg A Bid 0.95 - Leg B Offer 0.88 = 0.07)
    [cir] (Leg A Offer 1.00 - Leg B Bid 0.85 = 0.15)
     Also during the pause, a Complex Options Order to buy A-B 
arrives for net price of $0.11.
     The Complex Options Order could generate a Legging Order 
at $0.96 on the bid of Leg A, relying on the $0.85 bid to sell Leg B 
and achieve a net price $0.11, however the Legging Order is not 
generated because Leg A has an order on the bid side in an ATR Posting 
Period which will continue to move through the order book, and would 
ultimately lead to the immediate removal of the Legging Order once it 
is no longer at the Exchange's displayed best bid.
     During the Posting Period, a new ATR Price of $1.00 is 
determined (new reference price $0.95 + $0.05 = $1.00).
     If, during the Posting Period (brief pause not to exceed 1 
second), no liquidity becomes available within the order's posted price 
of $0.95, then at the conclusion of the Posting Period, the System will 
execute 10 contracts at $1.00.
     Then, after executing at multiple price levels, the order 
is posted at $1.00 for a brief period not to exceed one second to 
determine whether additional liquidity will become available.
     A new ATR Threshold Price of $1.05 is determined (new 
reference price of $1.00 + $0.05 = $1.05).
     During this time the ISE BBO would be $1.00 x $1.05.
     If, during the brief pause not to exceed 1 second, no 
liquidity becomes available within the order's posted price of $1.00, 
the System will then execute 10 contracts at $1.05.
The Exchange believes from a System processing and user acceptance 
standpoint, the best practice is to wait for the ATR Posting Period to 
complete before attempting to generate a Legging Order on the same side 
in the series, as the time required to complete the ATR Posting Period 
is minimal. This amendment is identical to a change recently adopted 
for MRX.\9\ Additionally, Nasdaq Phlx LLC's (``Phlx'') legging order 
rule in Options 3, Section 14(f)(iii)(C)(2) has the same restriction on 
generating legging orders during the ATR Posting Period as proposed to 
be added to ISE's Legging Order rule.\10\
---------------------------------------------------------------------------

    \9\ See note 3 above. MRX amended Options 3, Section 
15(a)(2)(A)(iii).
    \10\ Phlx Options 3, Section 14(f)(iii)(C)(2) provides that a 
Legging Order will not be created, ``. . .(ii) if there is . . . a 
Posting Period under Options 3, Section 15 regarding Acceptable 
Trade Range on the same side in progress in the series. . .''.
---------------------------------------------------------------------------

Changes to the Single-Leg Price Improvement Mechanism for Crossing 
Transactions
    The Price Improvement Mechanism (``PIM'') is a process by which an 
Electronic Access Member can provide price improvement opportunities 
for a transaction wherein the Electronic Access Member seeks to 
facilitate an order it represents as agent, and/or a transaction 
wherein the Electronic Access Member solicited interest to execute 
against an order it represents as agent (a ``Crossing Transaction''). 
The Exchange provides a PIM for single-leg \11\ orders and for Complex 
Orders \12\ and proposes to amend both single-leg and Complex PIM 
rules. The Exchange proposes to amend the single-leg PIM in Options 3, 
Section 13(d)(4) which currently provides,
---------------------------------------------------------------------------

    \11\ See ISE Options 3, Section 13(a)-(d).
    \12\ See ISE Options 3, Section 13(e).

    When a market order or marketable limit order on the opposite 
side of the market from the Agency Order ends the exposure period, 
it will participate in the execution of the Agency Order at the 
price that is mid-way between the best counter-side interest and the 
NBBO, so that both the market or marketable limit order and the 
Agency Order receive price improvement. Transactions will be 
rounded, when necessary, to the $.01 increment that favors the 
---------------------------------------------------------------------------
Agency Order.

Today, unrelated interest in the form of a market order or marketable 
limit order, on the opposite side of the market from an Agency 
Order,\13\ may end an exposure period \14\ within a single-leg

[[Page 78743]]

PIM and participate in the execution of the Agency Order. The unrelated 
order would participate at the price that is mid-way between the best 
counter-side interest and the NBBO, so that both the market order or 
marketable limit order and the Agency Order receive price improvement.
---------------------------------------------------------------------------

    \13\ An Agency Order is the part of a Crossing Transaction that 
an Electronic Access Member represents as agent. See ISE Options 3, 
Section 13(b).
    \14\ Upon entry of a Crossing Transaction into the PIM, a 
broadcast message that includes the series, price and size of the 
Agency Order, and whether it is to buy or sell, will be sent to all 
Members. The Exchange designates a time of no less than 100 
milliseconds and no more than 1 second for Members to indicate the 
size and price at which they want to participate in the execution of 
the Agency Order (``Improvement Orders''). Improvement Orders may be 
entered by all Members in one-cent increments at the same price as 
the Crossing Transaction or at an improved price for the Agency 
Order, and will only be considered up to the size of the Agency 
Order. During the exposure period, Improvement Orders may not be 
canceled, but may be modified to (i) increase the size at the same 
price, or (ii) improve the price of the Improvement Order for any 
size up to the size of the Agency Order. During the exposure period, 
responses (including the Counter-Side Order, Improvement Orders, and 
any changes to either) submitted by Members shall not be visible to 
other auction participants. The exposure period will automatically 
terminate (i) at the end of the time period designated by the 
Exchange pursuant to Options 3, Section 13(c)(1) above, (ii) upon 
the receipt of a market or marketable limit order on the Exchange in 
the same series, or (iii) upon the receipt of a non-marketable limit 
order in the same series on the same side of the market as the 
Agency Order that would cause the price of the Crossing Transaction 
to be outside of the best bid or offer on the Exchange. See ISE 
Options 3, Section 13(c).
---------------------------------------------------------------------------

    First, the Exchange proposes to not permit unrelated marketable 
interest on the opposite side of the market from the Agency Order, 
which is received during a single-leg PIM, to early terminate a PIM. 
The Exchange proposes to amend ISE Options 3, Section 13(d)(4) to 
instead provide,

    Unrelated market or marketable interest (against the ISE BBO) on 
the opposite side of the market from the Agency Order received 
during the exposure period will not cause the exposure period to end 
early and will execute against interest outside of the Crossing 
Transaction. If contracts remain from such unrelated order at the 
time the auction exposure period ends, they will be considered for 
participation in the order allocation process described in sub-
paragraph (3).\15\
---------------------------------------------------------------------------

    \15\ Subparagraph (3) of Options 3, Section 13(d) describes the 
manner in which a Counter-Side Order would be allocated. The Counter 
Side Order is one part of a Crossing Transaction and represents the 
full size of the Agency Order. The Counter-Side Order may represent 
interest for the Member's own account, or interest the Member has 
solicited from one or more other parties, or a combination of both. 
See ISE Options 3, Section 13(b).

This amendment is identical to a change recently adopted for MRX.\16\ 
Additionally, Phlx \17\ and Nasdaq BX, Inc. (``BX'') \18\ similarly do 
not permit unrelated interest on the opposite side of the market from 
the Agency Order to early terminate their price improvement auctions. 
With this proposed change, the single-leg PIM exposure period would 
continue for the full period despite the receipt of unrelated 
marketable interest on the opposite side of the market from the Agency 
Order. Allowing the single-leg PIM to run its full course would provide 
an opportunity for additional price improvement to the Crossing 
Transaction. Further, the unrelated interest would participate in the 
single-leg PIM allocation with any residual contracts remaining after 
interacting with the order book pursuant to ISE Options 3, Section 
13(d). The aforementioned residual contracts are contracts that remain 
available for execution after the unrelated order on the opposite side 
of market as the Agency Order, which was marketable with bids and 
offers on the same side of the market as the Agency Order, executed 
against bids and offers on the Exchange's order book.
---------------------------------------------------------------------------

    \16\ See note 3 above. MRX amended Options 3, Section 13(d)(4).
    \17\ Phlx Options 3, Section 13(b)(4) provides that an unrelated 
market or marketable Limit Order (against the PBBO) on the opposite 
side of the market from the PIXL Order received during the Auction 
will not cause the Auction to end early and will execute against 
interest outside of the Auction. See Securities Exchange Act 
Releases No. 79835 (January 18, 2017), 82 FR 8445 (January 25, 2017) 
(SR-Phlx-2016-119) (Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To 
Amend the PIXL Price Improvement Auction in Phlx Rule 1080(n) and To 
Make Pilot Program Permanent) and 63027 (October 1, 2010), 75 FR 
62160 (October 7, 2010) (SR-Phlx-2010-108) (``PIXL Approval 
Order''). The Commission noted in SR-Phlx-2016-119 that, ``In 
approving this feature on a pilot basis, the Commission found that 
`allowing the PIXL auction to continue for the full auction period 
despite receipt of unrelated orders outside the Auction would allow 
the auction to run its full course and, in so doing, will provide a 
full opportunity for price improvement to the PIXL Order. Further, 
the unrelated order would be available to participate in the PIXL 
order allocation.' The Exchange does not believe that this provision 
has had a significant impact on either the unrelated order or the 
PIXL Auction process, either for simple or Complex PIXL Orders. The 
Exchange therefore has requested that the Commission approve this 
aspect of the Pilot on a permanent basis for both simple and Complex 
PIXL Orders.''
    \18\ BX Options 3, Section 13(ii)(D) provides that unrelated 
market or marketable interest (against the BX BBO) on the opposite 
side of the market from the PRISM Order received during the Auction 
will not cause the Auction to end early and will execute against 
interest outside of the Auction.
---------------------------------------------------------------------------

    Second, the Exchange also proposes to amend current ISE Options 3, 
Section 13(c)(5) which states,

    The exposure period will automatically terminate (i) at the end 
of the time period designated by the Exchange pursuant to Options 3, 
Section 13(c)(1) above, (ii) upon the receipt of a market or 
marketable limit order on the Exchange in the same series, or (iii) 
upon the receipt of a non-marketable limit order in the same series 
on the same side of the market as the Agency Order that would cause 
the price of the Crossing Transaction to be outside of the best bid 
or offer on the Exchange.

Specifically, the Exchange proposes to remove ``(ii),'' which provides 
the exposure period will automatically terminate ``. . . (ii) upon the 
receipt of a market or marketable limit order on the Exchange in the 
same series . . .''. The Exchange notes that this sentence applies to 
the receipt of marketable orders both on the same side and opposite 
side of the Agency order. As described above, the Exchange proposes to 
not permit unrelated marketable interest on the opposite side of the 
market from the Agency Order, which is received during a single-leg 
PIM, to early terminate a PIM. Therefore, with respect to the opposite 
side of the Agency Order, the termination of the auction will no longer 
be possible with the proposed change to ISE Options 3, Section 
13(d)(4). With respect to the same side of the Agency Order, today, an 
unrelated market or marketable limit order in the same series on the 
same side of the Agency Order would cause the PIM to early terminate as 
well. At this time the Exchange proposes to not permit an unrelated 
market or marketable limit order in the same series on the same side of 
the Agency Order to cause the PIM to early terminate. This proposed 
change will align the functionality of ISE's PIM to that of MRX's 
PIM,\19\ BX's PRISM and Phlx's PIXL,\20\ which do not permit an 
unrelated market or marketable limit order in the same series on the 
same side of the Agency Order to cause the PRISM or PIXL to early 
terminate, unless the BBO improves beyond the price of the Crossing 
Transaction on the same side. The Exchange notes that a market or 
marketable limit order in the same series on the same side of the 
Agency Order cannot interact with a PIM auction. The market or 
marketable limit order may interact with the single-leg order book, and 
if there are residual contracts that remain from the market or 
marketable limit order in the same series on the same side of the 
Agency Order, they could rest on the order book and improve the BBO 
beyond the price of the Crossing Transaction which would cause early 
termination pursuant to proposed Options 3, Section 13(c)(5)(ii) as 
discussed below. In this instance, residual contracts are contracts 
that remain available for execution after the unrelated order on the 
same side of market as the Agency Order, which was marketable with bids 
and offers on the opposite side of the market as the Agency Order, 
executed against bids and offers on the Exchange's order book. The 
Exchange believes that this outcome would allow for the single-leg PIM 
exposure period to continue for the full period despite the receipt of

[[Page 78744]]

unrelated marketable interest on the same side of the market from the 
Agency Order, provided residual interest does not go on to rest on the 
order book, improving the BBO beyond the price of the Crossing 
Transaction. Allowing the single-leg PIM to run its full course (unless 
the BBO improves beyond the price of the Crossing Transaction on the 
same side), rather than early terminate, would provide an opportunity 
for price improvement to the Agency Order.
---------------------------------------------------------------------------

    \19\ See MRX Options 3, Section 13(d)(4).
    \20\ See BX Options 3, Section 13(ii)(D) and Phlx Options 3, 
Section 13(b)(4).
---------------------------------------------------------------------------

    Third, the Exchange proposes to amend current ISE Options 3, 
Section 13(c)(5)(iii) to align the rule text to a recent change adopted 
on MRX.\21\ Additionally, BX Options 3, Section 13(ii)(B)(2) has 
similar language.\22\ Specifically, the Exchange proposes to amend 
Options 3, Section 13(c)(5) to delete current ``iii'' and renumber as 
``ii''. Proposed new Options 3, Section 13(c)(5)(ii) would state, ``The 
exposure period will automatically terminate . . . (ii) any time the 
Exchange best bid or offer improves beyond the price of the Crossing 
Transaction on the same side of the market as the Agency Order . . .'' 
The proposed rule is designed to align to MRX's and BX's rule text to 
remove any ambiguity that a market or marketable limit order priced 
more aggressively than the Agency Order could ultimately rest on the 
order book, improving the BBO beyond the price of the Crossing 
Transaction and, therefore, cause the early termination of a PIM 
auction.
---------------------------------------------------------------------------

    \21\ See note 3 above. MRX amended Options 3, Section 
13(c)(5)(iii).
    \22\ BX Options 3, Section 13(ii)(B) provides ``Conclusion of 
Auction. The PRISM Auction shall conclude at the earlier to occur of 
(1) through (3) below, with the PRISM Order executing pursuant to 
paragraph (C)(1) or (C)(2) below if it concludes pursuant to (2) or 
(3) of this paragraph. (1) The end of the Auction period; (2) For a 
PRISM Auction any time the BX BBO crosses the PRISM Order stop price 
on the same side of the market as the PRISM Order; (3) Any time 
there is a trading halt on the Exchange in the affected series.''
---------------------------------------------------------------------------

    By way of example, assume: ISE 1.00 x 2.00 (10) and a second ISE 
Market Maker's quote is 1.00 x 2.10 (10). If a PIM auction starts with 
a buy at 1.50, and subsequently an order to buy for 20 @2.00 arrives, 
the incoming order would trade with the quote, and the remaining 10 
contracts would rest on the order book. Thereafter, the ISE BBO would 
update to 2.00 x 2.10 and trigger the early termination of the single-
leg PIM pursuant to Options 3, Section 13(c)(5)(iii), which is being 
renumbered to Options 3, Section 13(c)(5)(ii). Early terminating the 
single-leg PIM in this example is necessary because the price of the 
single-leg PIM is no longer at the top of book (best price) and would 
not have execution priority with respect to responses or unrelated 
interest that arrive. By early terminating the single-leg PIM, ISE 
allows responses to the single-leg PIM, which arrived prior to the time 
the Exchange's best bid and offer improved beyond the Crossing 
Transaction, to execute.
    The Exchange believes the proposed rule text will provide greater 
clarity to the manner in which the System operates today with respect 
to early termination of single-leg PIMs when the BBO on the same side 
improves beyond the price of the Crossing Transaction. The proposed 
amendment to the rule text is not intended to amend the current System 
functionality, rather it is intended to make clear that a market or 
marketable limit order could ultimately rest on the order book with 
residual interest and improve the BBO on the same side as the Agency 
Order beyond the price of the Crossing Transaction and cause the 
single-leg PIM to early terminate.
    Fourth, the Exchange proposes to add a new ISE Options 3, Section 
13(c)(5)(iii) which states, ``. . . (iii) any time there is a trading 
halt on the Exchange in the affected series . . .''. This proposed rule 
text is not modifying how the System currently operates.\23\ Today, a 
trading halt would cause a single-leg PIM to early terminate. Current 
ISE Options 3, Section 13(d)(5) notes such an early termination as a 
result of the aforementioned trading halt. Adding this circumstance to 
the list of events that would terminate the exposure period would make 
the list complete and add clarity to the rule. Furthermore, the 
Exchange notes that in a separate rule change, SR-ISE-2022-15P,\24\ the 
Exchange is proposing to amend Options 3, Section 13(d)(5) to change 
the System behavior such that if a trading halt is initiated after an 
order is entered into the PIM, such auction will be automatically 
terminated with execution solely with the Counter-Side Order. Today, if 
a trading halt is initiated after an order is entered into the PIM, 
such auction will be automatically terminated without execution.\25\ 
This amendment is identical to a change recently adopted for MRX.\26\
---------------------------------------------------------------------------

    \23\ ISE Options 3, Section 13(d)(5) currently states that, ``If 
a trading halt is initiated after an order is entered into the Price 
Improvement Mechanism, such auction will be automatically terminated 
without execution.'' Of note, the Exchange is proposing to amend 
ISE's PIM within a separate rule change, SR-ISE-2022-15P. Among 
other things, the Exchange proposes to amend the PIM functionality 
so that if a trading halt is initiated after an order is entered 
into the PIM, the auction will be automatically terminated with an 
execution. Specifically, SR-ISE-2022-15 proposes to renumber current 
ISE Options 3, Section 13(d) to Options 3, Section 13(d)(6) and 
proposes to state, ``If a trading halt is initiated after an order 
is entered into the Price Improvement Mechanism, such auction will 
be automatically terminated with execution solely with the Counter-
Side Order.''
    \24\ ISE has separately filed to amend Options 3, Section 
13(d)(5) within SR-ISE-2022-15P. SR-ISE-2022-15P proposes to amend, 
among other things, the rule text in Options 3, Section 13, except 
that it does not amend Options 3, Section 13(c)(5).
    \25\ See current ISE Options 3, Section 13(d)(5).
    \26\ See note 3 above. MRX amended Options 3, Section 
13(c)(5)(iii).
---------------------------------------------------------------------------

Changes to the Complex PIM
    In accordance with the proposed rule change regarding the early 
termination provisions of a single-leg PIM auction explained above, the 
Exchange also proposes to remove a paragraph related to Complex PIM in 
current ISE Options 3, Section 13(e)(4)(vi) which provides,

    A Complex Price Improvement Mechanism in a complex strategy may 
be ongoing at the same time as a Price Improvement Auction pursuant 
to this Rule or during an exposure period pursuant to Supplementary 
Material .02 to Options 5, Section 2 in a component leg(s) of such 
Complex Order. If a Complex Price Improvement Mechanism is early 
terminated pursuant to paragraph (iv) above, and the incoming 
Complex Order that causes the early termination in the complex 
strategy is also marketable against a component leg(s) of the 
complex strategy that is the subject of a concurrent ongoing Price 
Improvement Auction pursuant to this Rule or an exposure period 
pursuant to Supplementary Material .02 to Options 5, Section 2, then 
the concurrent Complex Price Improvement Mechanism and component leg 
auction(s) are processed in the following sequence: (1) the Complex 
Price Improvement Mechanism is early terminated; (2) the component 
leg auction(s) are early terminated and processed; and (3) legging 
of residual incoming Complex Order interest occurs, except with 
respect to Stock Option Orders and Stock Complex Orders.

Today, unrelated marketable interest may cause the early termination of 
a single-leg PIM, if a component leg of a Complex Order is marketable 
against the order book in the same series as the single-leg PIM. An 
example is provided below.

Example #1 (Complex PIM early termination elimination--opposite side) 
\27\
---------------------------------------------------------------------------

    \27\ Example 1 addresses an order on the opposite side of the 
Agency Order, although the same early termination would apply to an 
order on the same side of an Agency Order pursuant to ISE Options 3, 
Section 13(e)(4)(vi).
---------------------------------------------------------------------------

Complex Order Strategy A-B
MM Quote Leg A 4.20 (100) x 4.50 (100)
MM Quote Leg B 4.00 (100) x 4.10 (100)
cBBO 0.10 x 0.50
(Leg A Bid 4.20-Leg B Offer 4.10 = 0.10)
(Leg A Offer 4.50-Leg B Bid 4.00 = 0.50)

[[Page 78745]]

Complex PIM to Buy A-B 10 @0.20, with an election to automatically 
match to a net price of 0.10
Complex PIM Begins
Single-leg PIM Auction on Leg A to Buy 100 @4.25
Single-Leg PIM Begins
    During both auction timers, an unrelated marketable Complex Order 
A-B to sell 50 @a net price of 0.10 arrives (the individual legs of the 
marketable Complex Order would be selling A @4.20 and buying B @4.10).
    Complex Order PIM is early terminated and trades 4 with the 
Counter-Side Order @a net price of 0.10 and 6 with the unrelated 
Complex Order @a net price of 0.15.
    Today, the unrelated Complex Order would have legged-in after 
trading with the Complex PIM and caused the single-leg PIM to early 
terminate because one leg of the Complex Order was marketable against 
the Leg A bid of 4.20.
    With the proposed amendment, the unrelated Complex Order will not 
cause the single-leg PIM to early terminate as a result of trading with 
an unrelated order on the opposite side in the same series. The 
unrelated marketable Complex Order will trade with the Complex PIM as 
well as the best bids and offers from the single-leg order book. In 
this case, the remaining quantity of the unrelated Complex Order would 
leg-in and trade with the single-leg quotes without impacting the 
single-leg PIM; the single-leg PIM auction timer would conclude after 
running its full course. Thereafter, if there are no responses to the 
single-leg PIM, the Agency Order would trade 100 @4.25 with the 
Counter-Side Order.
    Today, if a Complex PIM is early terminated pursuant to ISE Options 
3, Section 14(e)(4)(iv) \28\ and the incoming Complex Order that causes 
the early termination in the complex strategy is also marketable 
against a component leg(s) of the complex strategy that is the subject 
of a concurrent ongoing single-leg PIM, or an exposure period pursuant 
to flash functionality as provided for in Supplementary Material .02 to 
Options 5, Section 2,\29\ then the concurrent Complex PIM and component 
leg auction(s) are processed in accordance with ISE Options 3, Section 
14(e)(4)(vi).
---------------------------------------------------------------------------

    \28\ ISE Options 3, Section 14(e)(4)(iv) provides, ``The 
exposure period will automatically terminate (A) at the end of the 
time period designated by the Exchange pursuant to subparagraph 
(4)(i) above, (B) upon the receipt of a Complex Order in the same 
complex strategy on either side of the market that is marketable 
against the Complex Order Book or bids and offers for the individual 
legs, or (C) upon the receipt of a non-marketable Complex Order in 
the same complex strategy on the same side of the market as the 
Agency Complex Order that would cause the execution of the Agency 
Complex Order to be outside of the best bid or offer on the Complex 
Order Book.''
    \29\ Pursuant to Supplementary Material .02 to ISE Options 5, 
Section 2, ISE permits certain orders to first be exposed at the 
NBBO to all Members for execution at the National Best Bid or Offer 
(``NBBO'') before the order would be routed to another market for 
execution (``flash functionality'').
---------------------------------------------------------------------------

    With this proposed change, a single-leg PIM will no longer early 
terminate as a result of the arrival of unrelated marketable interest 
on either the same or the opposite side of the market from the Agency 
Order. Because a single-leg PIM will no longer early terminate from the 
arrival of unrelated marketable interest on either the same or the 
opposite side of the market from the Agency Order, and because the 
flash functionality will no longer exist,\30\ the Exchange proposes to 
delete ISE Options 3, Section 13(e)(4)(vi) in its entirety. This 
amendment is identical to a change recently adopted for MRX.\31\
---------------------------------------------------------------------------

    \30\ ISE filed a rule change to eliminate its flash 
functionality. See Securities Exchange Act Release No. 94897 (May 
12, 2022), 87 FR 30294 (May 18, 2022) (SR-ISE-2022-11) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Routing Functionality in Connection With a Technology Migration). 
Therefore, eliminating the flash functionality from ISE Options 5 
rules also eliminates the flash functionality from ISE's Options 5 
rules. SR-ISE-2022-11 is effective but not yet operative. SR-ISE-
2022-11 would be implemented as part of the same technology 
migration as the changes proposed herein.
    \31\ See note 3 above. MRX recently deleted Options 3, Section 
13(e)(4)(vi) in its entirety.
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to remove a related paragraph 
in current Supplementary Material .01(b)(iii) of ISE Options 3, Section 
14 describing Complex Order Exposure, which states,

    A Complex Order Exposure in a complex strategy may be ongoing in 
a complex strategy at the same time as a Price Improvement Auction 
pursuant to Options 3, Section 13 or during an exposure period 
pursuant to Supplementary Material .02 to Options 5, Section 2 in a 
component leg(s) of such complex strategy. If a Complex Order 
Exposure is early terminated pursuant to paragraph (ii) above, and 
the incoming Complex Order that causes the early termination in the 
complex strategy is also marketable against a component leg(s) of 
the complex strategy that is the subject of a concurrent ongoing 
Price Improvement Auction pursuant to Options 3, Section 13 or an 
exposure period pursuant to Supplementary Material .02 to Options 5, 
Section 2, then the concurrent Complex Order and component leg 
auction(s) are processed in the following sequence: (1) the Complex 
Order exposure is early terminated; (2) the component leg 
auction(s), which are early terminated and processed; and (3) 
legging of residual incoming Complex Order interest occurs.

Today, unrelated marketable interest may cause the early termination of 
a single-leg PIM, therefore, when a Complex Order legs into the single-
leg order book, it may cause the early termination of a single-leg PIM 
if that leg was on either the same or the opposite side of the market 
from the single-leg PIM. An example is provided below.

Example #2 (Complex Exposure early termination elimination--opposite 
side) \32\
---------------------------------------------------------------------------

    \32\ Example 2 addresses an order on the opposite side of the 
Agency Order, although the same early termination would apply to an 
order on the same side of the Agency Order pursuant to Supplementary 
Material .01(b)(iii) of ISE Options 3, Section 14.
---------------------------------------------------------------------------

Complex Order Strategy A-B
MM Quote Leg A 4.20 (100) x 4.50 (100)
MM Quote Leg B 4.00 (100) x 4.10 (100)
cBBO 0.10 x 0.50
(Leg A Bid 4.20-Leg B Offer 4.10 = 0.10)
(Leg A Offer 4.50-Leg B Bid 4.00 = 0.50)
Complex Order in A-B Strategy marked for Complex Order Exposure to buy 
10 @0.20
Complex Order Exposure Auction Begins
Single-leg PIM Auction on Leg A to Buy 100 @4.25
Single-Leg PIM Begins
    During both auction timers, unrelated marketable Complex Order A-B 
Sell 50 @0.10 arrives Complex Order Exposure is early terminated and 
the exposed order to buy A-B 10 @0.20 and trades with the unrelated 
Complex Order 10 @net price of 0.10.
    Today, the unrelated marketable Complex Order would have legged-in 
after trading with the Complex Order Exposure and caused the single-leg 
PIM to early terminate because one leg of the marketable Complex Order 
on the opposite side was marketable against the Leg A bid of 4.20.
    With the proposed amendment, the unrelated marketable Complex Order 
will not cause the single-leg PIM on the opposite side in the same 
series to early terminate as a result of the component leg of the 
Complex Order being marketable against the bid in the same series as 
the single-leg PIM. The unrelated marketable Complex Order will trade 
with the Complex Order Exposure order as well as the best bids and 
offers from the single-leg order book. In this case, the remaining 
quantity would leg-in and trade with the single-leg quotes without 
impacting the single-leg PIM; the auction timer would conclude after 
running its full course.

[[Page 78746]]

Thereafter, the Crossing Transaction would trade 100 @4.25 Agency Order 
with the Counter-Side Order.
    Today, when a Complex Order Exposure early terminates, as a result 
of the arrival of unrelated marketable Complex Order interest that 
trades against the exposed Complex Order and the best bids and offers 
on the single-leg order book (as described in Supplementary Material 
.01(b)(ii) of ISE Options 3, Section 14), the component legs of the 
unrelated marketable Complex Order on either the same or the opposite 
side of the single-leg PIM may leg-in and cause early termination of 
the single-leg PIM. Thereafter, the component leg auction(s) would be 
processed pursuant to Supplementary Material .01(b)(iii) of ISE Options 
3, Section 14. With this proposed change to ISE Options 3, Section 
13(d)(4), a single-leg PIM will no longer early terminate from the 
arrival of unrelated marketable interest on either the same or opposite 
side of the market from the Agency Order. Therefore, because a single-
leg PIM will no longer early terminate from the arrival of unrelated 
marketable interest on either the same or opposite side of the market 
from the Agency Order, and because the flash functionality will no 
longer exist,\33\ the early termination circumstances addressed in 
Supplementary Material .01(b)(iii) of ISE Options 3, Section 14 will no 
longer arise, accordingly, the Exchange proposes to delete 
Supplementary Material .01(b)(iii) of ISE Options 3, Section 14 in its 
entirety. This amendment is identical to a change recently adopted for 
MRX.\34\
---------------------------------------------------------------------------

    \33\ Id. [sic].
    \34\ See note 3 above. MRX recently deleted Supplementary 
Material .01(b)(iii) of ISE Options 3, Section 14 in its entirety.
---------------------------------------------------------------------------

Re-Pricing
    In connection with the technology migration, the Exchange recently 
adopted re-pricing functionality for certain quotes and orders that 
lock or cross an away market's price.\35\ As a result of the 
effectiveness of SR-ISE-2022-25, the Exchange proposes a number of 
corresponding amendments in Options 2, Section 12, as well as the 
proposed definition of Complex Preferenced Orders, which is discussed 
below, in connection with adopting the re-pricing mechanism. This 
amendment is identical to a change recently adopted for MRX.\36\
---------------------------------------------------------------------------

    \35\ See Securities Exchange Act Release No. 96362 (November 18, 
2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25). This rule 
change is effective, but not yet operative. SR-ISE-2022-25 would be 
implemented as part of the same technology migration as the changes 
proposed herein.
    \36\ See note 3 above. MRX amended Options 2, Section 12(c) and 
(d) as well as Options 3, Section 14(b)(19).
---------------------------------------------------------------------------

    With the recent change within SR-ISE-2022-25, the System will re-
price certain quotes and orders that lock or cross an away market's 
price. Specifically, quotes and orders which lock or cross an away 
market price will be automatically re-priced to the current national 
best offer (for bids) or the current national best bid (for offers) and 
displayed one minimum price variance (``MPV'') above (for offers) or 
below (for bids) the national best price. The re-priced quotes and 
orders will be displayed on OPRA at its displayed price and placed on 
the Exchange's order book at its re-priced, non-displayed price, which 
may be priced better than the NBBO. The quotes and orders will remain 
on the Exchange's order book and will be accessible at their non-
displayed price. With this change, a non-displayed limit order or quote 
may be available on the Exchange at a price that is better than the 
NBBO. The following example illustrates how the proposed re-pricing 
mechanism would work:

Symbol ABCD in a Non-Penny name
CBOE BBO at 1.00 x 1.20
DNR order to buy ABCD for 1.30 arrives
DNR buy order books at 1.20 (current national best offer) and displays 
at 1.15 (one MPV below national best offer) *
CBOE BBO adjusts to 1.00 x 1.25
DNR buy order adjusts to book at 1.25 (current national best offer) and 
displays at 1.20 (one MPV below national best offer) *
* OPRA will show the displayed price, not the booked price

    Recently amended Options 3, Section 5(c) provides that the System 
automatically executes eligible orders using the Exchange's displayed 
best bid and offer (i.e., BBO) or the Exchange's non-displayed order 
book (``internal BBO'') if the best bid and/or offer on the Exchange 
has been re-priced pursuant to Options 3, Section 5(d).\37\ The 
definition of an ``internal BBO'' covers re-priced quotes and orders 
that remain on the order book and are available at non-displayed prices 
while resting on the order book.\38\
---------------------------------------------------------------------------

    \37\ A similar change was made for quotes within Options 3, 
Section 4(b)(7). The Exchange added the following new rule text to 
Options 3, Section 4(b)(7), ``The System automatically executes 
eligible quotes using the Exchange's displayed best bid and offer 
(``BBO'') or the Exchange's non-displayed order book (``internal 
BBO'') if the best bid and/or offer on the Exchange has been 
repriced pursuant to Options 3, Section 5(d) below and subsection 
(6) above.''
    \38\ The Exchange amended the rule text within Options 3, 
Section 4 and Options 3, Section 5, within SR-ISE-2022-25, to 
describe the manner in which a non-routable quotes and orders would 
be re-priced, respectively. The Exchange added rule text within 
Options 3, Section 4(b)(6) to state, ``A quote will not be executed 
at a price that trades through another market or displayed at a 
price that would lock or cross another market. If, at the time of 
entry, a quote would cause a locked or crossed market violation or 
would cause a trade-through violation, it will be re-priced to the 
current national best offer (for bids) or the current national best 
bid (for offers) and displayed at one minimum price variance above 
(for offers) or below (for bids) the national best price, or 
immediately cancelled, as configured by the Member.'' The Exchange 
amended the rule text within Options 3, Section 5(d) to state, ``An 
order that is designated by a Member as non-routable will be re-
priced in order to comply with applicable Trade-Through and Locked 
and Crossed Markets restrictions. If, at the time of entry, an order 
that the entering party has elected not to make eligible for routing 
would cause a locked or crossed market violation or would cause a 
trade-through violation, it will be re-priced to the current 
national best offer (for bids) or the current national best bid (for 
offers) and displayed at one minimum price variance above (for 
offers) or below (for bids) the national best price.''
---------------------------------------------------------------------------

    In connection with the foregoing changes, the Exchange proposes to 
add references to ``internal BBO'' within Options 3, Section 12(c) and 
(d) which describe the Qualified Contingent Cross Orders and Complex 
Qualified Contingent Cross Orders, respectively, to conform with the 
concept of re-pricing at an internal BBO as provided in Options 3, 
Sections 4(b)(6) and 4(b)(7) and Options 3, Section 5(c) and (d) within 
SR-ISE-2022-25. This amendment is identical to a change recently 
adopted for MRX.\39\
---------------------------------------------------------------------------

    \39\ See note 3 above. MRX amended Options 3, Section 12(c) and 
(d).
---------------------------------------------------------------------------

    As noted above, the internal BBO could be better than the NBBO. The 
Exchange believes that adding references to the internal BBO to Options 
3, Section 12(c) and (d) would continue to require Members to be at or 
between the best price, that is not at the same price as a Priority 
Customer Order on the Exchange's limit order book, to execute a 
Qualified Contingent Cross Order. Further, with respect to Complex 
Qualified Contingent Cross Orders, the Exchange would continue to 
require a Member to be at or between the best price for the individual 
series and comply with other relevant provisions noted within Options 
3, Section 12(d) to execute a Complex Qualified Contingent Cross Order. 
The Exchange believes that the addition of ``internal BBO'' is 
consistent with the intent of these order types, which is to require 
Members submit these orders at the best price and not execute ahead of 
better-priced quotes or orders.

[[Page 78747]]

    The Exchange proposes to amend Options 3, Section 12(c), which 
describes the conditions under which a Qualified Contingent Cross Order 
may be entered into the System for execution, to state that a Qualified 
Contingent Cross Order may be executed upon entry provided the 
execution is at or between the better of the internal BBO or the 
NBBO.\40\ Similarly, the Exchange proposes to amend Options 3, Section 
12(d), which describes the conditions under which a Complex Qualified 
Contingent Cross Order may be entered into the System for execution, to 
state that Complex Options Orders may be entered as Qualified 
Contingent Cross Orders to be automatically executed upon entry so long 
as the options legs can be executed at prices that are at or between 
the better of the internal BBO or the NBBO for the individual 
series.\41\ This amendment is identical to a change recently adopted 
for MRX.\42\
---------------------------------------------------------------------------

    \40\ The Qualified Contingent Cross Order must also not be at 
the same price as a Priority Customer Order on the Exchange's limit 
order book. See ISE Options 3, Section 12(c).
    \41\ Currently, Options 3, Section 12(d) provides in its 
entirety that Complex Options Orders may be entered as Qualified 
Contingent Cross Orders, as defined in Options 3, Section 7(j). Such 
orders will be automatically executed upon entry so long as: (i) the 
price of the transaction is at or within the best bid and offer for 
the same complex options strategy on the Complex Order Book; (ii) 
there are no Priority Customer Complex Options Orders for the same 
strategy at the same price on the Complex Order Book; and (iii) the 
options legs can be executed at prices that (A) are at or between 
the NBBO for the individual series, and (B) comply with the 
provisions of Options 3, Section 14(c)(2)(i), provided that no legs 
of the Complex Options Order can be executed at the same price as a 
Priority Customer Order on the Exchange in the individual options 
series. Complex Qualified Contingent Cross Orders will be rejected 
if they cannot be executed. Complex Qualified Contingent Cross 
Orders may be entered in one cent increments. Each leg of a Complex 
Options Order must meet the 1,000 contract minimum size requirement 
for Qualified Contingent Cross Orders.
    \42\ See note 3 above. MRX amended Options 3, Section 12(c) and 
(d).
---------------------------------------------------------------------------

    The Exchange also proposes to add the ``internal BBO'' rule text in 
its description of Complex Preferenced Orders within new Options 3, 
Section 14(b)(19). This change is described below.
Other Complex Order Amendments
Opening Only Complex Order
    Currently, ISE Options 3, Section 14(b)(10) states, ``An Opening 
Only Complex Order is a Limit Order that may be entered for execution 
during the Complex Opening Process described in Supplementary Material 
.04 to Options 3, Section 14. Any portion of the order that is not 
executed during the Complex Opening Process is cancelled.'' The 
Exchange proposes to amend ISE Options 3, Section 14(b)(10) to remove 
the word ``Limit'' within the description of the Opening Only Complex 
Order to allow Opening Only Complex Orders to be submitted as Market 
Orders or Limit Orders. This amendment is consistent with current 
System operations. The Exchange believes that both Market and Limit 
Orders should be permitted in the Complex Opening Process.\43\ Market 
Orders are typically the most aggressively priced orders, while Limit 
Orders have a limit price contingency that Market Orders do not have. 
Allowing both of these order types to participate in the Complex 
Opening Process allows greater liquidity to be present to determine the 
Opening Price.\44\ All Members may enter both Market Orders and Limit 
Orders during the Complex Opening Process, as well as intra-day. This 
amendment is identical to a change recently adopted for MRX.\45\
---------------------------------------------------------------------------

    \43\ The Complex Opening Process is described in Supplementary 
Material .04 of ISE Options 3, Section 14.
    \44\ The Opening Price is described in ISE Options 3, Section 
14(a)(2).
    \45\ See note 3 above. MRX amended Options 3, Section 14(b)(10).
---------------------------------------------------------------------------

Complex QCC With Stock Orders
    The Exchange proposes to correct a non-substantive citation with 
ISE Options 3, Section 14(b)(15) related to Complex QCC with Stock 
Orders. The current citation to ISE Options 3, Section 12(e) within the 
description of this order type is incorrect. The citation should be to 
ISE Options 3, Section 12(f). Correcting this cross reference will 
clarify the description of the order type.
Complex Preferenced Orders
    The Exchange proposes to add ``Complex Preferenced Orders'' to the 
list of Complex Order Types in Options 3, Section 14(b). This proposal 
describes how Complex Preferenced Orders will work. ISE Options 2, 
Section 10 currently describes Preferenced Orders which may be Complex 
Preferenced Orders.\46\ To complete the list of Complex Order types, 
the Exchange proposes to state in ISE Options 3, Section 14(b)(19) 
that,
---------------------------------------------------------------------------

    \46\ ISE Options 2, Section 10 provides, ``Preferenced Orders. 
An Electronic Access Member may designate a ``Preferred Market 
Maker'' on orders it enters into the System (``Preferenced 
Orders''). (1) A Preferred Market Maker may be the Primary Market 
Maker appointed to the options class or any Competitive Market Maker 
appointed to the options class. (2) If the Preferred Market Maker is 
not quoting at a price equal to the NBBO at the time the Preferenced 
Order is received, the allocation procedure described in Options 3, 
Section 10(c)(1)(C) shall not be applied to the execution of the 
Preferenced Order. (3) If the Preferred Market Maker is quoting at 
the NBBO at the time the Preferenced Order is received, the 
allocation procedure described in Options 3, Section 10(c)(1)(C) 
shall be applied to the execution of the Preferenced Order.''

    [a] Complex Preferenced Order is a Complex Order for which an 
Electronic Access Member has designated a Preferred Market Maker as 
described in Options 2, Section 10. The component leg(s) of a 
Complex Order with a Preferenced Order instruction may allocate 
pursuant to Options 3, Section 10(c)(1)(C) when the Complex 
Preferenced Order legs into the single-leg market provided that the 
Preferred Market Maker is quoting at the better of the internal BBO 
or the NBBO for a component leg(s) of the Complex Preferenced Order 
at the time the Complex Preferenced Order is received. A Preferred 
Market Maker will not receive an allocation pursuant to Options 3, 
Section 10(c)(1)(C) for a component leg(s) of a Complex Preferenced 
Order if the Preferred Market Maker is not quoting at the better of 
the internal BBO or the NBBO for that leg at the time the Complex 
---------------------------------------------------------------------------
Preferenced Order is received.

Allocation of a leg(s) of a Complex Preferenced Order, pursuant to ISE 
Options 3, Section 10, would occur when a leg(s) of a Complex Order 
trades synthetically with the Preferred Market Maker's \47\ quote that 
was at the better of the internal BBO or the NBBO on the single-leg 
order book in accordance with ISE Options 3, Section 10. A Preferred 
Market Maker must be quoting at the NBBO for a component leg(s) of the 
Complex Preferenced Order at the time the Complex Preferenced Order is 
received. As is the case for single-leg orders, a Preferred Market 
Maker will not receive an allocation pursuant to Options 3, Section 
10(c)(1)(C) for a component leg(s) of a Complex Preferenced Order if 
the Preferred Market Maker is not quoting at the better of the internal 
BBO or NBBO for that leg at the time the Complex Preferenced Order is 
received.
---------------------------------------------------------------------------

    \47\ Preferred Market Maker may be the Primary Market Maker 
appointed to the options class or any Competitive Market Maker 
appointed to the options class. See ISE Options 2, Section 10(a)(1).
---------------------------------------------------------------------------

    The referenced internal BBO is being utilized within the 
description of the Complex Preferenced Order because the internal BBO 
for a leg component of Complex Order on the single-leg order book may 
be priced better than the NBBO. The Exchange notes that similar changes 
were recently made to the Preferenced Order type for single-leg orders 
within Options 7, Section 3.\48\ The Exchange described re-pricing 
earlier in [sic] Purpose section.
---------------------------------------------------------------------------

    \48\ See Securities Exchange Act Release No. 96362 (November 18, 
2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25).
---------------------------------------------------------------------------

    With respect to orders which leg into the single-leg order book, 
ISE Options 3, Section 14(c) states that, ``Except as

[[Page 78748]]

otherwise provided in this Rule, complex strategies shall be subject to 
all other Exchange Rules that pertain to orders and quotes generally.'' 
Additionally, the Exchange notes that orders that execute against 
interest on the single-leg order book, including the options leg of 
Complex Options Strategies are subject to the provisions of ISE Options 
3, Section 5 which, among other things, describes the NBBO Price 
Protection and Trade-Through Compliance and Locked or Crossed Markets.
    Further, Supplementary Material .01 to Options 9, Section 1 
provides,

    [i]t will be a violation of this Rule for a Member to have a 
relationship with a third party regarding the disclosure of agency 
orders. Specifically, a Member may not disclose to a third party 
information regarding agency orders represented by the Member prior 
to entering such orders into the System to allow such third party to 
attempt to execute against the Member's agency orders. A Member's 
disclosing information regarding agency orders prior to the 
execution of such orders on the Exchange would provide an 
inappropriate informational advantage to the third party in 
violation of this Rule. For purposes of this paragraph .01, a third 
party includes any other person or entity, including affiliates of 
the Member. Nothing in this paragraph is intended to prohibit a 
Member from soliciting interest to execute against an order it 
represents as agent (a ``solicited order''), the execution of which 
is governed by Options 3, Section 22(e) and paragraph .02 of 
Supplementary Material to Options 3, Section 22.

This rule prohibits a Member from notifying a Preferred Market Maker of 
an intention to submit a Complex Preferenced Order so that the 
Preferred Market Maker could change its quotation to match the NBBO 
immediately prior to submission of the Complex Preferenced Order, and 
then fade its quote. The Exchange represents that it proactively 
conducts surveillance for, and enforces against, violations of 
Supplementary Material .01 to Options 9, Section 1.
    The Exchange's proposal to add ``Complex Preferenced Orders'' to 
the list of Complex Order Types in ISE Options 3, Section 14(b) will 
continue to encourage Preferred Market Makers to quote aggressively in 
an effort to execute against the Complex Preferenced Order. Preferred 
Marker Makers are not able to ascertain if a particular order is a 
Complex Preferenced Order. The Exchange believes the proposal will 
encourage Market Makers to quote tighter and add a greater amount of 
liquidity on ISE in an attempt to interact with Complex Preferenced 
Orders that are sent to the Exchange. This order flow will benefit all 
market participants on the Exchange because any ISE Member may interact 
with that order flow.
    The addition of Complex Preferenced Orders to the list of order 
types in ISE Options 3, Section 14(b) will make clear to Members the 
availability of Complex Preferenced Orders. This amendment is identical 
to a change recently adopted for MRX.\49\ Additionally. [sic] Phlx \50\ 
and MIAX \51\ have a similar order type.
---------------------------------------------------------------------------

    \49\ See note 3 above. MRX amended Options 3, Section 14(b).
    \50\ See Phlx Options 3, Section 14(b)(v) which specifies that a 
Directed Order may be submitted as a Complex Order. See also Phlx 
Options 3, Section 7(b)(11) which describes a Directed Order. Phlx's 
Options 2, Section 10 Directed Order rule is similar to ISE's 
Options 2, Section 10 Preferenced Order rule.
    \51\ A ``Directed Order'' is an order entered into the System by 
an Electronic Exchange Member with a designation for a Lead Market 
Maker (referred to as a ``Directed Lead Market Maker''). Only 
Priority Customer Orders will be eligible to be entered into the 
System as a Directed Order by an Electronic Exchange Member. See 
MIAX Rule 100. See also MIAX Rule 514(h) which describes allocation. 
Today, MIAX permits Directed Orders to be submitted as a New Order--
Multileg. See https://www.miaxoptions.com/sites/default/files/page-files/FIX%20Order%20Interface_FOI_v2.5a_re.pdf. Pursuant to MIAX's 
specifications, ``AllocAccount (Tag 79) is defined as MIAX assigned 
directed firm code of the designated participant for directed order 
flow.''
---------------------------------------------------------------------------

Complex Opening Price Determination
    The Exchange proposes to amend the citation within Supplementary 
Material .05(d)(2) to Options 3, Section 14 which states, ``Potential 
Opening Price. The System will calculate the Potential Opening Price by 
identifying the price(s) at which the maximum number of contracts can 
trade (``maximum quantity criterion'') taking into consideration all 
eligible interest pursuant to Supplementary Material .06(b) to this 
Rule.'' The citation to Supplementary Material .06(b), related to 
Uncrossing is incorrect. The citation should be to Supplementary 
Material .05(b), related to Complex Opening Price Determination. The 
citation is referring is to eligible interest during the Complex 
Opening Price Determination.
    The Exchange proposes to amend the Complex Opening Price 
Determination in Supplementary Material .05(d)(3) to Options 3, Section 
14 to allow for additional contracts to be included in the Potential 
Opening Price calculation leading to better price discovery and more 
contracts executing as part of the Complex Opening Price Determination 
process. This amendment is identical to a change recently adopted for 
MRX.\52\
---------------------------------------------------------------------------

    \52\ See note 3 above. MRX amended Supplementary Material 
.05(d)(3) to Options 3, Section 14.
---------------------------------------------------------------------------

    With this proposal, when the interest does not match the size and 
there is more than one Potential Opening Price at which the interest 
may execute, the Exchange would calculate a Potential Opening Price 
using the mid-point of the highest (lowest) executable offer (bid) 
price and the next available executable offer (bid) price rounded, if 
necessary, down (up) to the closest minimum trading increment. As a 
result, more options contracts are likely to be executed at better 
prices than under the current rule. Example number 3 below demonstrates 
this behavior. This behavior differs from current rules in that, today, 
the Exchange would calculate the Potential Opening Price as the highest 
(lowest) executable bid (offer) when there would be contracts left 
unexecuted on the bid (offer) side of the complex market.
    Further, the proposed amendment will allow Market Complex Orders to 
participate in the Opening Price Determination process in a broader 
capacity than the rule allows for today. Today, if there are only 
Market Complex Orders on both sides of the market, or if there are 
Market Complex Orders on the bid (offer) side of the market for greater 
than the total size of Complex Orders on the offer (bid) side of the 
market, then ISE will not open pursuant to the Complex Opening Price 
Determination process and would instead open pursuant to an Uncrossing 
as provide for in Supplementary Material .06(b) of ISE Options 3, 
Section 14. With the proposed amendment Market Complex Orders will be 
included in the Complex Opening Price Determination process in both 
situations described above, leading to more contracts being able to 
trade in the Complex Opening Price Determination with better price 
discovery. Example 5 below illustrates this point.
    Finally, the proposed amendment considers the Boundary Price 
earlier in the Complex Opening Process. Today, the rule seeks to 
satisfy the maximum quantity criterion first and then consider Boundary 
Prices. With the proposed change, the Exchange will consider the 
Boundary Price while determining the Potential Opening Price, thereby 
enabling as many contracts as possible to trade sooner, which reduces 
risk for market participants awaiting executions. With this proposal, 
the Complex Opening Process considers the Boundary Price earlier in the 
process and the Boundary Price becomes the limit price for Market 
Complex Orders. This proposal should maximize the number of contracts 
executed, to the benefit of those

[[Page 78749]]

Members participating in that complex strategy.
    Current Supplementary Material .05 of ISE Options 3, Section 14 
describes how Complex Orders arrive at an Opening Price. Specifically, 
Supplementary .05(b) of ISE Options 3, Section 14 describes the 
interest that is eligible within the Complex Opening Price 
Determination. The rule text provides that the System would calculate 
Boundary Prices \53\ at or within which Complex Orders may be executed 
during the Complex Opening Price Determination.\54\ Current 
Supplementary Material .05(d)(2) of ISE Options 3, Section 14 provides, 
``The System will calculate the Potential Opening Price \55\ by 
identifying the price(s) at which the maximum number of contracts can 
trade (``maximum quantity criterion'') taking into consideration all 
eligible interest pursuant to Supplementary Material .06(b) to this 
Rule.'' \56\ The System takes into consideration all Complex Orders, 
identifies the price at which the maximum number of contracts can 
trade, and calculates the Potential Opening Price as described in 
Supplementary Material .05(d)(2) of ISE Options 3, Section 14. 
Supplementary Material .05(d)(3) of ISE Options 3, Section 14 further 
describes the way the System handles more than one Potential Opening 
Price. Current Supplementary Material .05(d)(3) of ISE Options 3, 
Section 14 states,
---------------------------------------------------------------------------

    \53\ The Boundary Price is described in Supplementary Material 
.05(d)(1) of ISE Options 3, Section 14(a)(1).
    \54\ See Supplementary Material .05(d)(1) of ISE Options 3, 
Section 14.
    \55\ The Potential Opening Price is described in Supplementary 
Material .05(d)(2) of ISE Options 3, Section 14.
    \56\ The Exchange proposes to amend the citation within 
Supplementary Material .05(d)(2) to Options 3, Section 14 within 
this proposal. The citation to Supplementary Material .06(b), 
related to Uncrossing, should be to Supplementary Material .05(b), 
related to Complex Opening Price Determination. Specifically, the 
reference is to Eligible Interest during the Complex Opening Price 
Determination.

    When two or more Potential Opening Prices would satisfy the 
maximum quantity criterion: (A) without leaving unexecuted contracts 
on the bid or offer side of the market of Complex Orders to be 
traded at those prices, the System takes the highest and lowest of 
those prices and takes the mid-point; provided that (1) if the 
highest and/or lowest price described above is through the price of 
a bid or offer that is priced to not allocate in the Complex Opening 
Price Determination, the highest and/or lowest price will be rounded 
to the price of such bid or offer that is priced to not allocate 
before taking the mid-point, and (2) if the midpoint is not 
expressed as a permitted minimum trading increment, it will be 
rounded down to the nearest permissible minimum trading increment; 
or (B) leaving unexecuted contracts on the bid (offer) side of the 
market of Complex Orders to be traded at those prices, the Potential 
Opening Price is the highest (lowest) executable bid (offer) price. 
Notwithstanding the foregoing: (C) if there are Market Complex 
Orders on the bid (offer) side of the market that would equal the 
full quantity of Complex Orders on offer (bid) side of the market, 
the limit price of the highest (lowest) priced Limit Complex Order 
is the Potential Opening Price; and (D) if there are only Market 
Complex Orders on both sides of the market, or if there are Market 
Complex Orders on the bid (offer) side of the market for greater 
than the total size of Complex Orders on the offer (bid) side of the 
market, there will be no trade in the Complex Opening Price 
Determination and the complex strategy will open pursuant to the 
Complex Uncrossing Process described in Supplementary Material 
---------------------------------------------------------------------------
.06(b) to this Rule.

At this time, the Exchange proposes to amend the System handling within 
the Complex Opening Process by replacing Supplementary Material 
.05(d)(3) of ISE Options 3, Section 14 with the following proposed rule 
text,

    Opening Price Determination. When interest crosses and does not 
match in size, the System will calculate the Potential Opening Price 
based on the highest (lowest) executable offer (bid) price when the 
larger sized interest is offering (bidding), provided, however, that 
if there is more than one price at which the interest may execute, 
the Potential Opening Price when the larger sized interest is 
offering (bidding) shall be the mid-point of the highest (lowest) 
executable offer (bid) price and the next available executable offer 
(bid) price rounded, if necessary, down (up) to the closest minimum 
trading increment; or
    When interest crosses and is equal in size, the System will 
calculate the Potential Opening Price based on the mid-point of 
lowest executable bid price and the highest executable offer price, 
rounded, if necessary, up to the closest minimum trading increment.
    (A) Executable bids/offers include any interest which could be 
executed at the Potential Opening Price without trading through 
residual interest or the Boundary Price or without trading at the 
Boundary Price where there is Priority Customer interest at the best 
bid or offer for any leg, consistent with paragraph Options 3, 
Section 14(c)(2).
    (B) Executable bids/offers will be bounded by the Boundary Price 
on the contra-side of the interest, for determination of the 
Potential Opening Price described above.

    This proposed new Complex Opening Process seeks to maximize the 
interest which is traded during the Complex Opening Price Determination 
process and deliver a rational price for the available interest at the 
opening. The Complex Opening Price Determination process maximizes the 
number of contracts executed during the Complex Opening Process and 
ensures that residual contracts of partially executed orders or quotes 
are at a price equal to or inferior to the Opening Price. In other 
words, the logic ensures there is no remaining unexecuted interest 
available at a price which crosses the Opening Price. If multiple 
prices exist that ensure that there is no remaining unexecuted interest 
available through such price(s), the opening logic selects the mid-
point of such price points. Below are some examples.
Example # 3 (More Than One Potential Opening Price--Mid-Point of 
Larger-Sized Interest)
``if there is more than one price at which the interest may execute, 
the Potential Opening Price when the larger sized interest is offering 
(bidding) is the mid-point of the highest (lowest) executable offer 
(bid) price and the next available executable offer (bid) price 
rounded, if necessary, down (up) to the closest minimum trading 
increment''
Assume
Complex Order Strategy: A+B strategy
Quote for Leg A @1.75 x 1.95
Quote for Leg B @1.75 x 1.95
Boundary Price = 3.50 (10)-3.90 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 1.95 + Leg B Offer 1.95 = 3.90)
Complex Order #1: Buy 20 for $3.79
Complex Order #2: Buy 20 at $3.73
Complex Order #3: Sell 20 at $3.60

    With the proposed amendment, Opening Price would be for 20 
strategies at a price of $3.76. The execution price of $3.76 is derived 
from the mid-point of the lowest executable bid price of $3.73 and the 
next available executable bid price of $3.79. In this example, 20 
strategies can be opened at multiple price points ranging from $3.73 up 
to $3.79. None of these Potential Opening Prices would cause the 
unexecuted $3.73 buy order to be available at a price which crosses the 
Opening Price, therefore, the System opens at the mid-point of such 
prices, $3.76.
    Today, with this same example, the Opening Price would be 3.79, the 
highest executable bid price, which provides the offer side with all 
price improvement. With the proposed amendment, the Opening Price seeks 
to distribute to the extent possible price improvement to both the bid 
and offer side of the transaction.
Example # 4 (Mid-Point When Interest Is Equal in Size)
``Provided such crossing interest is equal in size, the System will 
calculate the Potential Opening Price based on the mid-point of lowest 
executable bid

[[Page 78750]]

price and the highest executable offer price, rounded, if necessary, up 
to the closest minimum trading increment''

Complex Order Strategy: A+B strategy
Quote for Leg A @1.75 x 1.95 each
Quote for Leg B @1.75 x 1.95 each
Boundary Price= 3.50 (10)-3.90 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 1.95 + Leg B Offer 1.95 = 3.90)
Complex Order #1: Buy 10 for $3.78
Complex Order #2: Buy 20 for $3.74
Complex Order #3: Buy 10 at $3.71
Complex Order #4: Sell 20 at $3.64
Complex Order #5: Sell 20 at $3.66

    With the proposed amendment, the Opening Price will be for 40 
strategies at a price of $3.69. The execution price of $3.69 is derived 
from the mid-point of the lowest executable bid price of $3.71 and the 
highest executable offer price of $3.66, rounded up to the closest 
minimum trading increment. Today, rounding would be down and with this 
proposal the rounding would be up.
    If the example were changed slightly such that Complex Order #4 and 
Complex Order #5 were Market Complex Orders rather than Limit Orders, 
the Opening Price for the 40 strategies would be $3.61, which is 
derived from the mid-point of the lowest executable bid price of $3.71 
and the highest executable offer of $3.50 (which is the Boundary Price 
of the sell Market Complex Orders), rounded up to the closest minimum 
trading increment.
    The Exchange notes that executable bids/offers include any interest 
that could be executed at the net price without trading through 
residual interest or the Boundary Price, or without trading at the 
Boundary Price where there is Priority Customer interest at the best 
bid or offer for any leg, consistent with current ISE Options 3, 
Section 14(c)(2).\57\ Further, executable bids/offers would be bounded 
to the Boundary Price on the contra-side of the interest, for 
determination of the Opening Price described above when crossing 
interest is different in size and when crossing interest is equal in 
size.
---------------------------------------------------------------------------

    \57\ ISE Options 3, Section 14(c)(2) provides, ``Complex 
strategies will not be executed at prices inferior to the best net 
price achievable from the best ISE bids and offers for the 
individual legs. Notwithstanding the provisions of Options 3, 
Section 10: (i) a Complex Options Strategies may be executed at a 
total credit or debit price with one other Member without giving 
priority to bids or offers established on the Exchange that are no 
better than the bids or offers in the individual options series 
comprising such total credit or debit; provided, however, that if 
any of the bids or offers established on the Exchange consist of a 
Priority Customer Order, the price of at least one leg of the 
complex strategy must trade at a price that is better than the 
corresponding bid or offer on the Exchange by at least one minimum 
trading increment for the series as defined in Options 3, Section 3; 
(ii) the option leg of a Stock-Option Strategy has priority over 
bids and offers for the individual options series established on the 
Exchange by Professional Orders and market maker quotes that are no 
better than the price of the options leg, but not over such bids and 
offers established by Priority Customer Orders; and (iii) the 
options legs of a Stock-Complex Strategy are executed in accordance 
with subparagraph (c)(2)(i).
---------------------------------------------------------------------------

    The amendment will benefit Members by smoothing the way for the 
complex strategy to open with Market Complex Orders. Today, Market 
Complex Orders participate in the Complex Opening Process in a limited 
capacity as explained above. By permitting Market Complex Orders to 
participate in the Complex Opening Price Determination process in more 
situations, the Exchange can provide more opportunity for Complex 
Orders to trade in the Opening Process without having to go to the 
Uncrossing process. Market conditions can change between the Complex 
Opening Price Determination process and the Uncrossing process, which 
can lead to missed opportunities for execution. The proposed rule would 
have the Boundary Price assign limits to the Opening Price and 
therefore permit Market Complex Orders to participate in the Complex 
Opening Process to the extent that they are within the Boundary Prices. 
With this change, ISE would permit a complex strategy to calculate an 
Opening Price utilizing a greater number of Market Complex Orders, 
which benefits the Opening Process by taking into account these more 
aggressively priced orders \58\ while also bringing more liquidity into 
the Opening Price calculation.
---------------------------------------------------------------------------

    \58\ The allowance of a greater number of Market Complex Orders 
within the Opening Process provides a greater depth of price 
discovery for an options series. As noted above, the Boundary Price 
would assign limits to the Opening Price, therefore preventing 
Market Complex Orders which are aggressively priced from negatively 
impacting the Opening Price.
---------------------------------------------------------------------------

Example # 5 (Market Complex Orders Trading in Opening Price 
Determination)
``Provided interest crosses and does not match in size, the System will 
calculate the Potential Opening Price based on the highest (lowest) 
executable offer (bid) price when the larger sized interest is offering 
(bidding)''

As referenced above,
Assume
Complex Order Strategy: A+B strategy
Quote for Leg A @1.75 x 2.00
Quote for Leg B @1.75 x 2.00
Boundary Price = 3.50 (10)-4.00 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 2.00 + Leg B Offer 2.00 = 4.00)
Market Complex Order #1: Buy 30
Complex Order #2: Sell 20 at $3.95
After Complex Opening Price Determination process, but before 
Uncrossing
ABBO for Leg A updates: 1.85 x 1.90
ABBO for Leg B updates 1.85 x 1.90
cNBBO: 3.70 x 3.80
(ABBO Leg A Bid 1.85 + Leg B Bid 1.85 = 3.70)(ABBO Leg A Offer 1.90 + 
Leg B Offer 1.90 = 3.80)

    With the proposed amendment the Market Complex Order can be 
considered in the Complex Opening Price Determination process and 
therefore is able to trade at the Opening Price of $4.00 for 20 
strategies with Complex Order #2 and also able to trade 10 strategies 
at a net price $4.00 with the individual legs at the best bids and 
offers before the ABBO updates, leaving no place for this complex 
strategy to trade. The Opening Price in this example is determined as 
the lowest executable bid because the bid side is the larger sized 
interest, which is limited by the Boundary Price on the offer side at 
4.00.
    Today, Market Complex Orders with a larger quantity than the 
quantity of interest on the contra side of the market do not 
participate in the Complex Opening Price Determination and can only 
execute during the Uncrossing pursuant to Supplementary Material 
.05(d)(6) of ISE Options 3, Section 14. In the example above, the ABBO 
of each leg updates after the Complex Opening Price Determination 
process and restricts the Market Complex Order and Complex Limit Order 
from trading in the Uncrossing because they cannot match at a price 
that would be within the Price Limits for Complex Orders pursuant to 
ISE Options 3, Section 16(a).
    Finally, with this proposal and as demonstrated in Example 5 above, 
a complex strategy would open pursuant to Supplementary Material 
.05(d)(5) of ISE Options 3, Section 14, with less contracts becoming 
subject to the Uncrossing pursuant to Supplementary Material .06(b) of 
ISE Options 3, Section 14. As a result of this change, more interest 
would be able to trade within the Opening Process, ensuring a greater 
number of contracts are executed on ISE at the Complex Opening and 
lessening the likelihood that contracts which remain unmatched during 
the Complex Opening Price Determination process receive no execution in 
the Uncrossing due to changing market conditions.\59\
---------------------------------------------------------------------------

    \59\ Unmatched orders would rest on the Order Book with the 
potential to execute intra-day.
---------------------------------------------------------------------------

    As noted above, this amendment is identical to a change recently 
adopted

[[Page 78751]]

for MRX.\60\ Additionally, Phlx has a similar methodology to arrive at 
a complex opening price at Phlx Options 3, Section 14(d)(ii)(C)(2) \61\ 
as compared to proposed Supplementary Material .05(d)(3) of ISE Options 
3, Section 14. Phlx's COOP Evaluation and ISE's proposed Opening Price 
Determination both seek the price at which the maximum number of 
contracts can trade. Phlx's COOP Evaluation is an auction with a timer, 
unlike ISE's Opening Price Determination.\62\ Proposed Supplementary 
Material .05(d)(3)(A) and (B) of ISE Options 3, Section 14 differs from 
Phlx Options 3, Section 14(d)(ii)(C)(2). ISE will open a complex 
strategy with the Complex Order Book crossed if an Opening Price cannot 
be found within the Boundary Prices and remain crossed while attempting 
to uncross the Complex Order Book on a best effort basis, pursuant to 
Supplementary Material .06 of ISE Options 3, Section 14, until all 
interest can be executed. Today, Phlx will open a complex strategy 
crossed when a price cannot be found within Phlx's cPBBO during the 
COOP Evaluation period and there are more aggressive away market prices 
that are limiting the ability to leg into the single-leg book, but will 
not remain crossed as complex orders that are through Phlx's cPBBO 
would be cancelled pursuant to Phlx Options 3, Section 14(f)(i)(A).\63\
---------------------------------------------------------------------------

    \60\ See note 3 above. MRX amended Supplementary Material 
.05(d)(3) of ISE Options 3, Section 14.
    \61\ COOP Evaluation. Upon expiration of the COOP Timer, the 
System will conduct a COOP Evaluation to determine, for a Complex 
Order Strategy, the price at which the maximum number of contracts 
can trade, taking into account Complex Orders marked All-or-None 
(which will be executed if possible) unless the maximum number of 
contracts can only trade without including All-or-None Orders. The 
Exchange will open the Complex Order Strategy at that price, 
executing marketable trading interest, in the following order: 
first, to Public Customers in time priority; next to Phlx electronic 
market makers on a pro rata basis; and then to all other 
participants on a pro rata basis. The imbalance of Complex Orders 
that are unexecutable at that price are placed on the CBOOK. (1) No 
trade possible. If at the end of the COOP Timer the System 
determines that no market or marketable limit Complex Orders or COOP 
Sweeps, Complex Orders or COOP Sweeps that are equal to or improve 
the cPBBO, and/or Complex Orders or COOP Sweeps that cross within 
the cPBBO exist in the System, all Complex Orders received during 
the COOP Timer will be placed on the CBOOK, as described in 
paragraph (f) below. (2) Trade is possible. If at the end of the 
COOP Timer the System determines that there are market or marketable 
limit Complex Orders or COOP Sweeps, Complex Orders or COOP Sweeps 
that are equal to or improve the cPBBO, and/or Complex Orders or 
COOP Sweeps that cross within the cPBBO in the System, the System 
will do the following: if such interest crosses and does not match 
in size, the execution price is based on the highest (lowest) 
executable offer (bid) price when the larger sized interest is 
offering (bidding), provided, however, that if there is more than 
one price at which the interest may execute, the execution price 
when the larger sized interest is offering (bidding) is the midpoint 
of the highest (lowest) executable offer (bid) price and the next 
available executable offer (bid) price rounded, if necessary, down 
(up) to the closest minimum trading increment. If the crossing 
interest is equal in size, the execution price is the midpoint of 
lowest executable bid price and the highest executable offer price, 
rounded, if necessary, up to the closest minimum trading increment. 
Executable bids/offers include any interest which could be executed 
at the net price without trading through residual interest or the 
cPBBO or without trading at the cPBBO where there is Public Customer 
interest at the best bid or offer for any leg, consistent with 
paragraph (c)(iii). If there is any remaining interest and there is 
no component that consists of the underlying security and provided 
that the order is not marked all-or-none, such interest may ``leg'' 
whereby each options component may trade at the PBBO with existing 
quotes and/or Limit Orders on the Limit Order book for the 
individual components of the Complex Order; provided that remaining 
interest may execute against any eligible Complex Orders received 
before legging occurs. If the remaining interest has a component 
that consists of the underlying security, such Complex Order will be 
placed on the CBOOK (as defined below). (3) The Complex Order 
Strategy will be open after the COOP even if no executions occur.
    \62\ Phlx's All-or-None order type differs from ISE's All-or-
None order in that only Public Customers may utilize the Phlx All-
or-None order type and Phlx's All-or-None order may rest on the 
order book. See Phlx Option 3, Section 7(b)(5). ISE's All-or-None 
order is a limit or market order that is to be executed in its 
entirety or not at all. See ISE Options 3, Section 7(c).
    \63\ By way of example, assume Phlx cPBBO is 1.00 x 2.00 and 
cNBBO is 1.45 x 1.50. Also, assume Phlx complex Day Order to buy the 
strategy @$0.50 which begins a COOP timer. Next, a complex day order 
to sell the strategy @$0.50 arrives during the COOP timer. These 
orders are crossed, but are not within Phlx's cPBBO, and, therefore, 
both orders cannot trade as part of the COOP Evaluation. 
Additionally, the sell order cannot leg into Phlx's simple order 
book because of the more aggressive cNBBO which would limit legging 
as part of the ACE price protection described within Phlx Options 3, 
Section 16(b)(i), and, therefore, the sell order that is crossed 
with Phlx's cPBBO cannot remain on the Complex Order Book and is 
ultimately cancelled. In contrast, on ISE, this sell order would 
remain crossed on the Complex Order Book while continuously looking 
for an opportunity to uncross and trade these Complex Orders as new 
orders arrive or the market moves. Options 3, Section 14(f)(i)(A) 
provides that Complex Orders must be entered onto the CBOOK in 
increments of $0.01. The individual components of a Complex Order 
may be executed in minimum increments of $0.01, regardless of the 
minimum increments applicable to such components. Such orders will 
be placed on the CBOOK by the System when the following conditions 
exist: (A) When the Complex Order does not price-improve upon the 
cPBBO upon receipt . . .''.
---------------------------------------------------------------------------

The Exchange also proposes to amend the Opening Price in Supplementary 
Material .05(d)(4) of ISE Options 3, Section 14 that currently 
provides,

    Opening Price. If the Potential Opening Price is at or within 
the Boundary Prices, the Potential Opening Price becomes the Opening 
Price. If the Potential Opening Price is not at or within the 
Boundary Prices, the Opening Price will be the price closest to the 
Potential Opening Price that satisfies the maximum quantity criteria 
without leaving unexecuted contracts on the bid or offer side of the 
market at that price and is at or within the Boundary Prices. If the 
bid Boundary Price is higher than the offer Boundary Price, or if no 
valid Opening Price can be found at or within the Boundary Prices, 
there will be no trade in the Complex Opening Price Determination 
and the complex strategy will open pursuant to the Complex 
Uncrossing Process described in Supplementary Material .06(b) to 
this Rule.

The Exchange proposes to amend this rule to instead provide,

    If the Potential Opening Price is at or within the Boundary 
Prices, the Potential Opening Price becomes the Opening Price and 
the complex strategy will open pursuant to Supplementary Material 
.05(d)(5) to this Rule. If the bid Boundary Price is higher than the 
offer Boundary Price, or if no valid Potential Opening Price can be 
found at or within the Boundary Prices, there will be no trade in 
the Complex Opening Price Determination and the complex strategy 
will open pursuant to the Complex Uncrossing Process described in 
Supplementary Material .06(b) to this Rule.

    With the proposed change, if the Potential Opening Price is at or 
within the Boundary Prices, the Potential Opening Price becomes the 
Opening Price and the complex strategy will open pursuant to the 
Uncrossing described in Supplementary Material .05(d)(5) of ISE Options 
3, Section 14, as is the case today. However, as is the case today, if 
the bid Boundary Price is higher than the offer Boundary Price, or if 
no valid Potential Opening Price can be found at or within the Boundary 
Prices, there will be no trade in the Complex Opening Price 
Determination and the complex strategy will open pursuant to the 
Complex Uncrossing process described in Supplementary Material .06(b) 
of ISE Options 3, Section 14 pursuant to the proposed amendment to the 
Complex Opening Price Determination. As noted above, this amendment is 
identical to a change recently adopted for MRX.\64\
---------------------------------------------------------------------------

    \64\ See note 3 above. MRX amended Supplementary Material 
.05(d)(4) of ISE Options 3, Section 14.
---------------------------------------------------------------------------

Complex Order Risk Protections
    The Exchange proposes a non-substantive amendment to the title of a 
Complex Order Risk Protection in ISE Options 3, Section 16, Complex 
Order Risk Protections. Specifically, the Exchange proposes to amend 
ISE Options 3, Section 16(c)(1) to change the title from ``Limit Order 
Price Protection'' to ``Complex Order Price Protection.'' The Exchange 
believes the proposed title more accurately describes the risk 
protection.

[[Page 78752]]

Implementation
    The Exchange intends to begin implementation of the proposed rule 
change prior to December 23, 2023. The implementation would commence 
with a limited symbol migration and continue to migrate symbols over 
several weeks. The Exchange will issue an Options Trader Alert to 
Members to provide notification of the symbols that will migrate and 
the relevant dates.
Technical Amendments
    The Exchange proposes to amend an incorrect citation within Options 
3, Section 6, Collection and Dissemination of Quotations. Specifically, 
the Exchange proposes to amend Options 3, Section 6(c)(2) to correct a 
citation to ``Options 5, Section 8''. The citation should be to 
``Options 3, Section 8''.
    The Exchange proposes to amend ``Option'' to ``Options'' within 
Options 3, Section 8(b)(2) related to the Opening Process and Options 
3, Section 9(d)(2) related to Trading Halts.
    The Exchange proposes to delete the words ``which is'' within 
Options 3, Section 8(j)(3)(B) because they are duplicative.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\65\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\66\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest for the reasons discussed below.
---------------------------------------------------------------------------

    \65\ 15 U.S.C. 78f(b).
    \66\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Legging Order
    Amending ISE Options 3, Section 7(k)(1) to add a provision which 
states that a Legging Order will not be generated during a Posting 
Period in progress on the same side in the series pursuant to Options 
3, Section 15 regarding Acceptable Trade Range, is consistent with the 
Act because from a System processing and user acceptance standpoint, 
the best practice is to wait for the ATR Posting Period to complete 
before attempting to generate a Legging Order on the same side in the 
series, as the time required to complete the ATR Posting Period is 
minimal. The proposed change is designed to protect investors and the 
public interest as automatically generated Legging Orders would be 
removed from the single-leg order book when they are no longer at the 
Exchange's displayed best bid or offer. Generating a Legging Order 
during a Posting Period in progress on the same side in the series 
would lead to the immediate removal of the Legging Order from the 
single-leg order book, making it superfluous to have been generated. 
This amendment is identical to a change recently adopted for MRX.\67\ 
Additionally, Phlx's legging order rule in Options 3, Section 
14(f)(iii)(C)(2) \68\ has the same restriction on generating legging 
orders as proposed herein.
---------------------------------------------------------------------------

    \67\ See note 3 above. MRX amended Options 3, Section 7(k)(1).
    \68\ See note 10 above.
---------------------------------------------------------------------------

Re-Pricing
    The Exchange believes that amending Options 3, Section 12(c) and 
(d) and Options 3, Section 14(b)(19) to account for re-pricing of 
quotes and orders that would otherwise lock or cross an away market, as 
provided in Options 3, Section 4(b)(6) and (7) and Options 3, Section 
5(c) and (d) of SR-ISE-2022-25, is consistent with the Act.
    As discussed above with the implementation of re-pricing as 
provided in Options 3, Section 4(b)(6) and (7) and Options 3, Section 
5(c) and (d), interest could be available on the Exchange at a price 
that is better than the NBBO but is non-displayed (i.e., the Exchange's 
non-displayed order book or internal BBO). The proposed addition of 
``internal BBO'' to Options 3, Section 12(c) and (d) will ensure that 
Members continue to submit Qualified Contingent Cross Orders and 
Complex Qualified Contingent Cross Orders at prices equal to or better 
than the best prices available in the market and ensure that these 
orders are not executed ahead of better-priced interest. This amendment 
is identical to a change recently adopted for MRX.\69\
---------------------------------------------------------------------------

    \69\ See note 3 above. MRX amended Options 3, Section 12(c) and 
(d).
---------------------------------------------------------------------------

    Further, with respect to the amendment to Options 3, Section 
14(b)(19), regarding Complex Preferenced Orders, the addition of 
``internal BBO'' is designed to ensure that Complex Preferenced Orders 
are not allocated unless the Preferred Market Maker is quoting at the 
better of the internal BBO (which could be better than the NBBO) or the 
NBBO for a component leg(s) of the Complex Preferenced Order at the 
time the Complex Preferenced Order is received. This amendment is 
identical to a change recently adopted for MRX.\70\
---------------------------------------------------------------------------

    \70\ See note 3 above. MRX amended Options 3, Section 14(b)(19).
---------------------------------------------------------------------------

Changes to the Single-Leg Price Improvement Mechanism for Crossing 
Transactions
    The Exchange's proposal to amend ISE Options 3, Section 13(d)(4), 
related to single-leg PIM, to not permit unrelated marketable interest, 
on the opposite side of the market from the Agency Order, which is 
received during a single-leg PIM to early terminate a single-leg PIM is 
consistent with the Act and promotes just and equitable principles 
because allowing the auction to run its full course would provide a 
full opportunity for price improvement to the Crossing Transaction. The 
unrelated interest would participate in the single-leg PIM allocation 
pursuant to ISE Options 3, Section 13(d), if residual contracts remain 
after executing with interest on the single-leg order book. This 
amendment is identical to a change recently adopted for MRX.\71\ 
Additionally, Phlx \72\ and BX \73\ do not permit unrelated interest on 
the same or opposite side of an Agency Order to early terminate their 
simple price improvement auctions.
---------------------------------------------------------------------------

    \71\ See note 3 above. MRX amended Options 3, Section 13(d)(4).
    \72\ See note 17 above.
    \73\ See note 18 above.
---------------------------------------------------------------------------

    The proposed amendment in ISE Options 3, Section 13(c)(5)(ii), 
related to single-leg PIM, applies to the receipt of marketable orders 
both on the same side and opposite side of the Agency order. With 
respect to the same side of the Agency Order, today, an unrelated 
market or marketable limit order in the same series on the same side of 
the Agency Order would cause the single-leg PIM to early terminate as 
well. The proposal promotes just and equitable principles of trade 
because a market or marketable limit order in the same series on the 
same side of the Agency Order cannot interact with a single-leg PIM 
auction. The market or marketable limit order may interact with the 
order book, and if there are residual contracts that remain from the 
market or marketable order in the same series on the same side of the 
Agency Order, they will rest on the order book and improve the BBO 
beyond the price of the Crossing Transaction which will cause early 
termination of the single-leg PIM pursuant to proposed ISE Options 3, 
Section 13(c)(5)(ii). The Exchange believes that this outcome would 
allow for the single-leg PIM exposure period to continue for the full 
period despite the receipt of unrelated marketable interest on the same 
side of the market from the Agency Order, provided residual interest 
does not go on to rest on the order book improving the BBO beyond the 
price of the Crossing Transaction of the PIM. Allowing the single-leg 
PIM to run its full course protects investors and the general public 
because it would provide an

[[Page 78753]]

opportunity for price improvement to the Agency Order. This amendment 
is identical to a change recently adopted for MRX.\74\
---------------------------------------------------------------------------

    \74\ See note 3 above. MRX amended Options 3, Section 
13(c)(5)(ii).
---------------------------------------------------------------------------

    Amending current ISE Options 3, Section 13(c)(5)(iii) to align the 
rule text with MRX \75\ and also more closely with BX Options 3, 
Section 13(ii)(B)(2) \76\ is consistent with the Act because it removes 
any ambiguity that a market or marketable limit order priced more 
aggressively than the Agency Order on the same side could ultimately 
rest on the order book, improving the BBO beyond the price of the 
Crossing Transaction of the PIM and, therefore, cause the early 
termination of a single-leg PIM. Continuing to permit a single-leg PIM 
to early terminate any time the Exchange best bid or offer improves 
beyond the price of the Crossing Transaction on the same side of the 
market as the Agency Order protects investors and the general public 
because the Crossing Transaction Agency Order's price is inferior to 
the Exchange's best bid or offer on the same side of the market as the 
Agency Order. Upon early termination of the single-leg PIM, the 
Crossing Transaction would execute against responses that arrived prior 
to the time the Exchange's best bid or offer improved beyond the 
Crossing Transaction. The proposed amendment to the rule text is not 
intended to amend the current System functionality, rather it is 
intended to make clear that a market or marketable limit order could 
ultimately rest on the order book and improve the BBO beyond the price 
of the Crossing Transaction.
---------------------------------------------------------------------------

    \75\ See MRX Options 3, Section 13(c)(5)(iii).
    \76\ See note 22 above.
---------------------------------------------------------------------------

    Adding proposed new ISE Options 3, Section 13(c)(5)(iii), which 
describes the automatic termination of the exposure period resulting 
from a trading halt on the Exchange in the affected series, is 
consistent with the Act because a trading halt would cause an option 
series to stop trading on ISE and thereby impact the PIM auction. 
Today, if a trading halt is initiated after an order is entered into 
the single-leg PIM, such auction will be automatically terminated 
without execution. Of note, the Exchange is separately proposing to 
amend ISE Options 3, Section 13(d)(5) \77\ to change System behavior 
such that if a trading halt is initiated after an order is entered into 
the single-leg PIM, such auction will be automatically terminated with 
execution solely with the Counter-Side Order.\78\ The proposed 
amendment to ISE Options 3, Section 13(c)(5)(iii) protects investors 
and the general public by making clear that a trading halt would lead 
to early termination of a single-leg PIM. This amendment is not 
intended to amend the current System functionality, rather it is 
intended to make clear that a trading halt will cause the single-leg 
PIM to early terminate. This amendment is identical to a change 
recently adopted for MRX.\79\
---------------------------------------------------------------------------

    \77\ See note 23 above.
    \78\ SR-ISE-2022-15P proposes to renumber ISE Options 3, Section 
13(d)(5) as Options 3, Section 13(d)(6), and proposes to amend the 
rule text to state, ``If a trading halt is initiated after an order 
is entered into the Price Improvement Mechanism, such auction will 
be automatically terminated with execution solely with the Counter-
Side Order.''
    \79\ See note 3 above. MRX amended Options 3, Section 
13(c)(5)(iii).
---------------------------------------------------------------------------

Changes to the Complex PIM
    Deleting ISE Options 3, Section 13(e)(4)(vi) within Complex PIM, as 
well as a paragraph in Supplementary Material .01(b)(ii) of ISE Options 
3, Section 14 discussing Complex Order Exposure, related to the early 
termination of single-leg PIM from the arrival of unrelated marketable 
interest on either the same or opposite side of the market from the 
Agency Order, is consistent with the Act because a single-leg PIM will 
no longer early terminate from the arrival of unrelated marketable 
interest on either the same or opposite side of the market from the 
Agency Order and because the flash functionality will no longer 
exist.\80\ The removal of the aforementioned rule text will protect 
investors and the public by avoiding confusion as the scenarios 
contemplated by ISE Options 3, Section 13(e)(4)(vi) and Supplementary 
Material .01(b)(ii) of ISE Options 3, Section 14 will no longer be able 
to occur. This amendment is identical to a change recently adopted for 
MRX.\81\
---------------------------------------------------------------------------

    \80\ See note 28 above.
    \81\ See note 3 above. MRX deleted Options 3, Section 
13(e)(4)(vi) within Complex PIM, as well as a paragraph in 
Supplementary Material .01(b)(ii) of Options 3, Section 14.
---------------------------------------------------------------------------

Other Complex Order Amendments
Opening Only Complex Order
    The Exchange's proposal to remove the word ``Limit'' within the 
description of the Opening Only Complex Order Type in ISE Options 3, 
Section 14(b)(10) is consistent with the Act because it allows Opening 
Only Complex Orders to be submitted as Market Orders or Limit Orders. 
The Exchange believes that allowing Market and Limit Orders to be 
submitted within the Complex Opening Process promotes just and 
equitable principles of trade. Market Orders are typically the most 
aggressively priced orders while Limit Orders have a limit price 
contingency that Market Orders do not have. Allowing both of these 
order types to participate in the Complex Opening Process protects 
investors and the general public because it allows greater liquidity to 
be present to determine the Opening Price. All Members may enter both 
Market Orders and Limit Orders in the Complex Opening Process as well 
as intra-day. This proposal is consistent with current System 
operations. This amendment is identical to a change recently adopted 
for MRX.\82\
---------------------------------------------------------------------------

    \82\ See note 3 above. MRX amended Options 3, Section 14(b)(10).
---------------------------------------------------------------------------

Complex QCC With Stock Orders
    The Exchange's proposal to amend an incorrect citation with ISE 
Options 3, Section 14(b)(15), related to Complex QCC with Stock Orders, 
is consistent with the Act because the current citation to ISE Options 
3, Section 12(e) in the description of this order type should be to ISE 
Options 3, Section 12(f). This non-substantive amendment will make 
clear what was meant by the reference.
Complex Preferenced Orders
    The Exchange's proposal to add ``Complex Preferenced Orders'' to 
the list of Complex Order Types in ISE Options 3, Section 14(b) is 
consistent with the Act because the Exchange believes that this order 
type will promote just and equitable principles of trade because the 
order type will continue to encourage Preferred Market Makers to quote 
aggressively in an effort to execute against the Complex Preferenced 
Order. Preferred Marker Makers are not able to ascertain if a 
particular order is a Complex Preferenced Order. The Exchange believes 
the proposal will protect investors and the general public by 
encouraging greater order flow to be sent to the Exchange through 
Complex Preferenced Orders and that this increased order flow will 
benefit all market participants on the Exchange because they may 
interact with that order flow.
    The proposal promotes just and equitable principles of trade 
because it continues to prioritize Priority Customer \83\ Orders on the 
single-leg order book. Priority Customers have priority over non-
Priority Customer interest at the same price in the same options series 
on the single-leg order

[[Page 78754]]

book.\84\ Complex Preferenced Orders are allocated based on the 
competitive bidding of market participants. The Exchange's proposal 
promotes just and equitable principles of trade as a Preferred Marker 
Maker must be at the NBBO for a component leg(s) of the Complex 
Preferenced Order at the time the Complex Preferenced Order is 
received. Moreover, participation entitlements for Preferred Market 
Makers are designed to balance the obligations \85\ that the Preferred 
Market Maker has to the market with corresponding benefits. In its 
approval of other options exchange preferenced or directed order 
programs, the Commission has, like proposals to amend a specialist 
guarantee, focused on whether the percentage of the ``entitlement'' 
would rise to a level that could have a material adverse impact on 
quote competition within a particular exchange, and concluded that such 
programs do not jeopardize market integrity or the incentive for market 
participants to post competitive quotes.\86\
---------------------------------------------------------------------------

    \83\ The term ``Priority Customer'' means a person or entity 
that (i) is not a broker or dealer in securities, and (ii) does not 
place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s). See 
Options 1, Section 1(a)(36).
    \84\ See ISE Options 3, Section 10(c)(1)(A).
    \85\ Primary Market Makers are obligated to quote in the Opening 
Process pursuant to ISE Options 3, Section 8(c) as well as intra-day 
pursuant to Options 2, Section 5(e), in addition to other 
obligations noted within ISE Options 2, Sections 4-8.
    \86\ See Securities Exchange Act Release Nos. 74129 (January 23, 
2015), 80 FR 4954 at 4955 (January 29, 2015) (SR-BX-2014-049) (Order 
Approving Proposed Rule Change Relating to Directed Market Makers); 
and 51759 (May 27, 2005), 70 FR 32860 at 32861(June 6, 2005) (SR-
Phlx-2004-91) (Order Approving Proposed Rule Change and Notice of 
Filing and Order Granting Accelerated Approval to Amendment No. 1 
Thereto To Establish a Directed Order Process for Orders Delivered 
to the Phlx Via AUTOM).
---------------------------------------------------------------------------

    Further, adding this existing order type, which is described in ISE 
Options 2, Section 10, would complete the list of Complex Order types 
in ISE Options 3, Section 14(b). The addition of Complex Preferenced 
Orders to the list of order types in ISE Options 3, Section 14(b) will 
make clear to Members the availability of Complex Preferenced Orders. 
This amendment is identical to a change recently adopted for MRX.\87\ 
Additionally, Phlx \88\ and MIAX \89\ have a similar order type.
---------------------------------------------------------------------------

    \87\ See note 3 above. MRX amended Options 3, Section 14(b).
    \88\ See note 50 above.
    \89\ See note 51 above.
---------------------------------------------------------------------------

Complex Opening Price Determination
    The Exchange's proposal to amend the citation within Supplementary 
Material .05(d)(2) to Options 3, Section 14, related to the Potential 
Opening Price, is consistent with the Act because the current citation 
to Supplementary Material .06(b) should be to Supplementary Material 
.05(b). This non-substantive amendment will make clear what was meant 
by the reference.
    The Exchange's proposal to amend Supplementary Material .05(d)(3) 
of ISE Options 3, Section 14, which describes the Complex Opening Price 
Determination, is consistent with the Act because the proposed new 
Complex Opening Process would allow for additional contracts to be 
included in the Potential Opening Price calculation. This proposed 
methodology would protect investors and the general public by leading 
to better price discovery and more contracts executing as part of the 
Complex Opening Price Determination. With this proposal, when the 
interest does not match in size and there is more than one Potential 
Opening Price at which the interest may execute, then the Exchange 
would calculate a Potential Opening Price using the mid-point of the 
highest (lowest) executable offer (bid) price and the next available 
executable offer (bid) price rounded, if necessary, down (up) to the 
closest minimum trading increment. As a result, the proposal promotes 
just and equitable principles of trade as more options contracts are 
likely to be executed at better prices than under current rule. This 
behavior differs from ISE's current opening rule in that, today, the 
Exchange would calculate the Potential Opening Price as the highest 
(lowest) executable bid (offer) when there would be contracts left 
unexecuted on the bid (offer) side of the complex market. This 
amendment is identical to a change recently adopted for MRX.\90\ Also, 
the proposed methodology is similar to Phlx.\91\
---------------------------------------------------------------------------

    \90\ See note 3 above. MRX amended Supplementary Material 
.05(d)(3) of ISE Options 3, Section 14.
    \91\ See Phlx Options 3, Section 14(d)(ii)(C)(2).
---------------------------------------------------------------------------

    Further, the proposed amendment promotes just and equitable 
principles of trade by allowing Market Complex Orders to participate in 
the Opening Price Determination process in a broader capacity than the 
ISE opening rule allows for today. Today, if there are only Market 
Complex Orders on both sides of the market, or if there are Market 
Complex Orders on the bid (offer) side of the market for greater than 
the total size of Complex Orders on the offer (bid) side of the market, 
then ISE will not open pursuant to the Complex Opening Price 
Determination process and would instead open pursuant to an Uncrossing 
pursuant to Supplementary Material .06(b) of ISE Options 3, Section 14. 
The proposed rule would have the Boundary Price assign limits to the 
Opening Price and, therefore, permit Market Complex Orders to 
participate in the Complex Opening Process, without limitation to the 
benefit of investors and the public interest. With this change, ISE 
would permit a complex strategy to calculate an Opening Price utilizing 
a greater number of Market Complex Orders, which benefits the Opening 
Process by taking into account these more aggressively priced orders 
\92\ while also bringing more liquidity into the Opening Price 
calculation. The amendment is designed to promote just and equitable 
principles of trade as it will benefit Members by smoothing the way for 
the complex strategy to open with Market Complex Orders.
---------------------------------------------------------------------------

    \92\ The allowance of a greater number of Market Complex Orders 
within the Opening Process provides a greater depth of price 
discovery for an options series. As noted above, the Boundary Price 
would assign limits to the Opening Price, therefore preventing 
Market Complex Orders which are aggressively priced from negatively 
impacting the Opening Price.
---------------------------------------------------------------------------

    Finally, the proposed amendments to the Complex Opening Process 
should promote just and equitable principles by allowing a complex 
strategy to open pursuant to Supplementary Material .05(d)(4) of ISE 
Options 3, Section 14, with less contracts becoming subject to the 
Uncrossing pursuant to Supplementary Material .06(b) of ISE Options 3, 
Section 14. As a result of this change, more interest would be able to 
trade within the Opening Process, ensuring a greater number of 
contracts are executed on ISE at the opening and lessening the 
likelihood that contracts which remain unmatched during the Uncrossing 
receive no execution.\93\
---------------------------------------------------------------------------

    \93\ Unmatched orders would rest on the order book with the 
potential to execute intra-day.
---------------------------------------------------------------------------

Complex Order Risk Protections
    The Exchange's proposal to amend the title of a Complex Order Risk 
Protection in Options 3, Section 16, Complex Order Risk Protections is 
a non-substantive amendment. The proposal to amend Options 3, Section 
16 protects investors and the general public by making clear the 
contents of Options 3, Section 16.
Technical Amendments
    The Exchange's amendment to Options 3, Section 6(c)(2) to correct a 
citation is non-substantive. The proposed amendments will protect 
investors and the general public by updating incorrect citations to 
make the rules clear.
    The Exchange's amendments to Options 3, Section 8(b)(2) and Options 
3, Section 9(d)(2) related to Trading Halts are non-substantive 
corrections. The proposed amendments will protect investors and the 
general public by

[[Page 78755]]

updating incorrect citations to make the rules clear.
    Finally, the Exchange's amendment to Options 3, Section 8(j)(3)(B) 
to remove duplicative rule text is non-substantive. The proposed 
amendments will protect investors and the general public by updating 
incorrect citations to make the rules clear.

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.
Legging Orders
    Amending ISE Options 3, Section 7(k)(1) to add a provision which 
states that a Legging Order will not be generated during a Posting 
Period in progress on the same side in the series pursuant to Options 
3, Section 15 regarding Acceptable Trade Range does not impose an undue 
burden on intra-market competition because the amendment will apply 
equally to all Members as Legging Orders are generated by the System.
    Additionally, this proposal does not impose an undue burden on 
inter-market competition as other options exchanges may adopt Legging 
Orders and similar rules for the generation of such orders. In addition 
to mirroring MRX Options 3, Section 7(k)(1), Phlx's legging order rule 
in Options 3, Section 14(f)(iii)(C)(2) has the same restriction as 
proposed to be added to ISE's Legging Order rule in ISE Options 3, 
Section 7(k)(1).\94\
---------------------------------------------------------------------------

    \94\ See note 10 above.
---------------------------------------------------------------------------

Re-Pricing
    Adding language consistent with re-pricing within Options 3, 
Section 12(c) and (d) and Options 3, Section 14(b)(19) does not impose 
an undue burden on competition on intra-market competition as all 
orders and quotes on ISE will be re-priced uniformly as provided for 
within Options 3, Section 4(b)(6) and (7) and Options 5(c) and (d), 
which recently became effective.\95\ With this recent change, re-priced 
quotes and orders are accessible on the Exchange's order book at the 
non-displayed price. Amending Options 3, Section 12(c) and (d) to 
utilize the ``internal BBO'' language would continue to require Members 
to submit Qualified Contingent Cross Orders and Complex Qualified 
Contingent Cross Orders at the best price to receive an execution. 
Furthermore, amending Options 3, Section 14(b)(19) to utilize the 
``internal BBO'' language does not impose an undue burden on 
competition on intra-market competition, rather it would specify 
clearly that Members must quote at the best price to receive allocation 
of a Complex Preferenced Order. The introduction of ``internal BBO'' 
will ensure that Qualified Contingent Cross Orders and Complex 
Qualified Contingent Cross Orders do not execute if better-priced 
interest is available and that a Complex Preferenced Order would not 
receive a Preferred Market Maker allocation if better-priced interest 
was available.
---------------------------------------------------------------------------

    \95\ See Securities Exchange Act Release No. 96362 (November 18, 
2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25).
---------------------------------------------------------------------------

    The re-pricing proposals within Options 3, Section 12(c) and (d) 
and Options 3, Section 14(b)(19) do not impose an undue burden on 
inter-market competition because these rules continue to support 
executions at the best price.
Changes to the Single-Leg Price Improvement Mechanism for Crossing 
Transactions
    The Exchange's proposal to amend ISE Options 3, Section 13(d)(4), 
ISE Options 3, Section 13(c)(5)(ii) and (iii), and add a proposed new 
ISE Options 3, Section 13(c)(5)(iii), related to single-leg PIM, does 
not impose an undue burden on intra-market competition because the 
amendment will apply equally to all Members. All Members may utilize 
PIM.
    The Exchange's proposal to amend ISE Options 3, Section 13(d)(4), 
ISE Options 3, Section 13(c)(5)(ii) and (iii), and add a proposed new 
ISE Options 3, Section 13(c)(5)(iii), related to single-leg PIM, does 
not impose an undue burden on inter-market competition because other 
options exchanges may adopt similar rules. In addition to mirroring to 
MRX Options 3, Section 13, Phlx \96\ and BX \97\ do not permit 
unrelated marketable interest on either the same or opposite side of 
the market from an Agency Order to early terminate their simple price 
improvement auctions.
---------------------------------------------------------------------------

    \96\ See note 17 above.
    \97\ See note 18 above.
---------------------------------------------------------------------------

Changes to the Complex PIM
    Deleting ISE Options 3, Section 13(e)(4)(vi) within Complex PIM, as 
well as a related paragraph in Supplementary Material .01(b)(ii) of ISE 
Options 3, Section 14, which describes Complex Order Exposure, related 
to the early termination of single-leg PIM as a result of the arrival 
of unrelated marketable interest on either the same or the opposite 
side of the market from the Agency Order does not impose an undue 
burden on intra-market competition because the amendment will apply 
equally to all Members. All Members may utilize Complex PIM.
    Deleting ISE Options 3, Section 13(e)(4)(vi) within Complex PIM, as 
well as a related paragraph in Supplementary Material .01(b)(ii) of ISE 
Options 3, Section 14, which describes Complex Order Exposure, related 
to the early termination of single-leg PIM from the arrival of 
unrelated marketable interest on either the same or opposite side of 
the market from the Agency Order does not impose an undue burden on 
inter-market competition as other options exchanges may adopt similar 
rules. In addition to mirroring to MRX Options 3, Section 13, Phlx \98\ 
and BX \99\ do not permit unrelated marketable interest on either the 
same or opposite side of the market from an Agency Order to early 
terminate their simple price improvement auctions.
---------------------------------------------------------------------------

    \98\ See note 17 above.
    \99\ See note 18 above.
---------------------------------------------------------------------------

Other Complex Order Amendments
    The Exchange does not believe that the proposed amendments to the 
Complex Orders rule will impose any significant burden on inter-market 
competition. Other exchanges today offer complex order functionalities. 
These options markets may amend their rules to mirror those of ISE. 
Other options exchanges offer orders similar to Complex Preferenced 
Orders.\100\ Additionally, the proposed Complex Opening Process is 
identical to MRX \101\ and similar to Phlx.\102\ Finally, the proposed 
Complex Opening Process methodology would allow ISE to compete with 
other options exchanges that offer Complex Order functionality.
---------------------------------------------------------------------------

    \100\ See e.g. Phlx Options 2, Section 10 and MIAX Rule 100.
    \101\ See note 3 above. MRX amendment Supplementary Material .05 
to Options 3, Section 14.
    \102\ See Phlx Options 3, Section 14(d)(ii)(C)(2).
---------------------------------------------------------------------------

Opening Only Complex Order
    The Exchange's proposal to remove the word ``Limit'' within the 
description of the Opening Only Complex Order Type in ISE Options 3, 
Section 14(b)(10) does not impose an undue burden on intra-market 
competition because this proposed change will apply to all Members. 
Additionally, the Exchange's proposal to remove the word ``Limit'' 
within the description of the Opening Only Complex Order Type in ISE 
Options 3, Section 14(b)(10) does not impose an undue burden on inter-
market competition because other options exchanges could adopt a 
similar order type.

[[Page 78756]]

Complex QCC With Stock Orders
    The Exchange's proposal to amend an incorrect citation with ISE 
Options 3, Section 14(b)(15), related to Complex QCC with Stock Orders, 
does not impose an undue burden on intra-market or inter-market 
competition because the amendment is non-substantive.
Complex Preferenced Orders
    The Exchange's proposal to add ``Complex Preferenced Orders'' to 
the list of Complex Order Types in ISE Options 3, Section 14(b) does 
not impose an undue burden on intra-market competition. Preferred 
Market Makers have obligations \103\ unlike other market participants. 
The allocation entitlements for Preferred Market Makers are designed to 
balance the obligations that the Preferred Market Makers has to the 
market with corresponding benefits. In order to receive the 
participation entitlement for a Complex Preferenced Order, Preferred 
Market Makers are required to quote 90% of the trading day as compared 
to Market Makers who are required to quote 60% of the trading day.\104\ 
Further, Priority Customers \105\ have priority over non-Priority 
Customer interest at the same price in the same options series on the 
single-leg order book. \106\
---------------------------------------------------------------------------

    \103\ See ISE Options 2, Section 5.
    \104\ See ISE Options 2, Section 5.
    \105\ See note 83 above.
    \106\ See ISE Options 3, Section 10(c)(1)(A).
---------------------------------------------------------------------------

    At the time of receipt of the Complex Preferenced Order, a 
Preferred Market Maker would have to be quoting at the NBBO, which is 
intended to incentivize the Preferred Market Maker to quote 
aggressively in order to execute against the Complex Preferenced Order. 
Preferred Marker Makers are not able to ascertain if a particular order 
is a Complex Preferenced Order. The Exchange believes the proposal will 
encourage Market Makers to quote tighter and add a greater amount of 
liquidity on ISE in an attempt to interact with Complex Preferenced 
Orders that are sent to the Exchange. This order flow will benefit all 
market participants on the Exchange because any ISE Member may interact 
with that order flow. Finally, any ISE Member on the single-leg or 
Complex Order Book may trade with a Complex Preferenced Order. Also, 
any ISE Market Maker may elect to receive Preferenced Order.
    The Exchange's proposal to add ``Complex Preferenced Orders'' to 
the list of Complex Order Types in ISE Options 3, Section 14(b) does 
not impose an undue burden on inter-market competition as other options 
exchanges could adopt a similar order type.
Complex Opening Price Determination
    The Exchange's proposal to amend an incorrect citation within 
Supplementary Material .05(d)(2) to Options 3, Section 14, related to 
the Potential Opening Price, does not impose an undue burden on intra-
market competition or inter-market burden on competition because the 
amendment makes clear the correct applicable text it was referring to 
within the Rulebook.
    The Exchange's proposal to amend Supplementary Material .05(d)(3) 
to ISE Options 3, Section 14, which describes the Complex Opening Price 
Determination, does not impose an undue burden on intra-market 
competition because all Members may submit interest into the Complex 
Opening Process.
    The Exchange's proposal to amend Supplementary Material .05(d)(3) 
to ISE Options 3, Section 14, which describes the Complex Opening Price 
Determination, does not impose an undue burden on inter-market 
competition because other options exchanges today offer complex order 
functionalities. These options markets may amend their rules to mirror 
those of ISE.
Complex Order Risk Protections
    The Exchange's proposal to amend the title of a Complex Order Risk 
Protection in Options 3, Section 16, Complex Order Risk Protections 
from ``Limit'' to ``Complex'' Order Price Protection does not impose an 
undue burden on intra-market or inter-market competition because the 
change in the title makes clear the contents of that rule.
Technical Amendments
    The Exchange's amendment to Options 3, Section 6(c)(2) to correct a 
citation does not impose an undue burden on intra-market or inter-
market competition because it makes clear the proper ISE rule that was 
being referenced.
    The Exchange's amendments to Options 3, Section 8(b)(2) and Options 
3, Section 9(d)(2) related to Trading Halts does not impose an undue 
burden on intra-market or inter-market competition because the 
amendments make the rule clear.
    Finally, the Exchange's amendment to Options 3, Section 8(j)(3)(B) 
to remove duplicative rule does not impose an undue burden on intra-
market or inter-market competition because it removes confusion from 
the rule.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \107\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\108\
---------------------------------------------------------------------------

    \107\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \108\ 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.
---------------------------------------------------------------------------

    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 [email protected]. Please include 
File Number SR-ISE-2022-28 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-2022-28. This file

[[Page 78757]]

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-2022-28, and should be submitted on 
or before January 12, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\109\
---------------------------------------------------------------------------

    \109\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27785 Filed 12-21-22; 8:45 am]
BILLING CODE 8011-01-P