[Federal Register Volume 88, Number 164 (Friday, August 25, 2023)]
[Notices]
[Pages 58368-58373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-18304]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98182; File No. SR-ISE-2023-18]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, 
Section 15 (Simple Order Risk Protections) To Adopt an Active Quote 
Protection

August 21, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 11, 2023, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Options 3, Section 15 (Risk 
Protections) to adopt an active quote protection.

[[Page 58369]]

    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    The purpose of the proposed rule change is to adopt an active risk 
counter functionality called active quote protection (``Active Quote 
Protection'') in Options 3, Section 15. The Exchange intends to 
introduce the foregoing changes with its upcoming technology migration 
to enhanced Nasdaq, Inc. (``Nasdaq'') functionality, and intends to 
begin implementation prior to December 20, 2024.\3\ The Exchange will 
announce the initial migration date and symbol rollout schedule to 
Members in an Options Trader Alert at a later date.
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    \3\ See Securities Exchange Act Release No. 97605 (May 26, 
2023), 88 FR 36350 (June 2, 2023) (SR-ISE-2023-10) (delaying the 
implementation of all ISE technology migration rule filings).
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    The Exchange proposes to offer an optional active risk counter 
functionality called Active Quote Protection, which will be available 
to Market Makers as an alternative to existing passive risk counter 
functionality described in Options 3, Section 15(a)(3)(B) (i.e., 
``Automated Quotation Adjustments'').\4\ The proposed Active Quote 
Protection functionality will be similar to existing active risk 
counter functionality on another options exchange, which currently 
allows exchange users to actively decrement the risk counter by a 
specified amount at any time, rather than waiting until a risk limit is 
reached or the user otherwise sends a specific instruction to the 
exchange to completely reset the counting program.\5\
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    \4\ As described below, the Exchange will specifically define 
this passive risk counter functionality as ``Rapid Fire'' within 
this Rule.
    \5\ See MEMX LLC (``MEMX'') Rule 21.16(b) (Active Risk Counter). 
See also Securities Exchange Act Release No. 95445 (August 8, 2022), 
87 FR 49894 (August 12, 2022) (SR-MEMX-2022-10). Similar to the 
proposed Active Quote Protection, the active risk counter on MEMX is 
voluntary and offers a way for users to proactively manage their 
risk. The MEMX risk protection, however, allows the user to actively 
manage all the risk limits specified in MEMX's rule (e.g., executed 
contracts, notional value, etc.) whereas the Exchange's proposal 
would allow Market Makers to actively manage executed contracts 
only, as discussed later in this filing. In addition, the Exchange's 
proposal will only apply to quotes whereas MEMX's functionality 
applies to both orders and quotes.
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    Today, the Exchange requires Market Makers to configure risk 
exposure thresholds based on various metrics for each options class, 
including percentage of executed quotes (``Percentage Threshold''), 
total number of executed contracts (``Volume Threshold''), absolute 
value of the difference between long and short positions (``Delta 
Threshold''), and absolute value of the difference between contracts 
bought and contracts sold (``Vega Threshold'') (collectively, 
``Thresholds'').\6\ As set forth in Options 3, Section 15(a)(3)(B)(i), 
the System tracks each Threshold with a corresponding risk counter over 
a Market Maker-specified rolling time period not to exceed 30 seconds. 
Furthermore, Section 15(a)(3)(B)(i) and (ii) describes that when a risk 
counter exceeds the corresponding Threshold during the specified time 
period, the System would automatically remove the Market Maker's quotes 
in all series of the applicable options class (each, a ``Purge 
Event''). As a result of a Purge Event, the corresponding risk counter 
and Threshold would reset upon such removal. The Exchange also notes 
that pursuant to Section 15(a)(3)(B)(iii) today, the Thresholds and 
risk counters can be completely reset if the Market Maker specifically 
requests the System to remove quotes in all series of an options class. 
This risk protection is passive in that the risk counters wait to reset 
until the expiry of a specified time period, a Purge Event, or when the 
Market Maker otherwise sends a specific instruction to the Exchange to 
remove quotes to completely reset the counters.
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    \6\ The Thresholds are described in detail in Options 3, Section 
15(a)(3)(B)(i)(a)-(d). If a Market Maker does not provide a 
parameter for each Threshold, the Exchange will apply default 
parameters announced to Members.
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    The Exchange now proposes to introduce a new risk protection called 
Active Quote Protection that would enable Market Makers to actively 
manage their executed contract limit (``Contract Limit'') by sending an 
electronic instruction to the Exchange to decrement their executed 
contract limit counter (``Limit Counter'') by a specified amount at any 
time, rather than waiting until the expiry of a defined time period, 
when the risk limit is exceeded (like a Purge Event), or when the 
Market Maker otherwise sends a specific instruction to purge quotes to 
completely reset the risk counter. The Contract Limit, as set by the 
Market Maker, would apply for the duration of the trading day. Once the 
Market Maker's Limit Counter exceeds the Contract Limit set by the 
Market Maker, the System would automatically remove quotes in all 
series of the applicable options class submitted through the Exchange's 
Specialized Quote Feed protocol,\7\ identical to how the quote removal 
mechanism works for a Purge Event today.\8\ Today, Purge Events are 
triggered under the existing Automated Quotation Adjustments on the 
first execution that exceeds the applicable Threshold. Once an 
execution occurs, the System checks all Thresholds to see if they have 
been exceeded. If exceeded, the Market Maker's quote would be purged 
pursuant to Options 3, Section 15(a)(3)(B)(iii). In order to remain 
consistent with the firm quote obligations of a broker-dealer pursuant 
to Rule 602 of Regulation NMS, any marketable orders or quotes that are 
executable against a Market Maker's quotes that are received \9\ prior 
to the time the applicable Threshold is triggered will be automatically 
executed up to the size of the Market Maker's quote, regardless of 
whether the execution would cause the Market Maker to exceed their pre-
set Percentage Threshold, Volume Threshold, Delta Threshold, or Vega 
Threshold.\10\
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    \7\ Specialized Quote Feed or ``SQF'' is an interface that only 
Market Makers may use to submit quotes to the Exchange. See 
Supplementary Material .03(c) to Options 3, Section 7.
    \8\ See Options 3, Section 15(a)(3)(B)(ii) (renumbered as 
Section 15(a)(3)(B)(iii) under this proposal, as noted below).
    \9\ The time of receipt for an order or quote is the time such 
message is processed by the Exchange's order book.
    \10\ See current Options 3, Section 15(a)(3)(B)(ii)(b). The 
Exchange will renumber this as Section 15(a)(3)(B)(iii)(b) and 
clarify this provision in the manner described later in this filing.
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    Under Active Quote Protection, the System would similarly handle 
the Market Maker's quote in that the quote could be filled one 
execution over the Contract Limit before the Market Maker's remaining 
quotes are cancelled by the System in order to be consistent with the 
firm quote obligations under Rule 602 of Regulation NMS. Specifically, 
the Exchange notes that any marketable orders or quotes that are 
executable against a Market Maker's

[[Page 58370]]

quotes that are received \11\ prior to the time the Contract Limit is 
triggered will be automatically executed up to the size of the Market 
Maker's quote, regardless of whether the execution would cause the 
Market Maker to exceed the Contract Limit.\12\
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    \11\ See supra note 9.
    \12\ For both the current Automated Quotation Adjustments and 
proposed Active Quote Protection, the System will execute marketable 
interest up to the size of the Market Maker's quote, but cannot 
guarantee interest will be fully executed, as is the case with any 
execution in the Exchange's order book. There is always the 
possibility that the Market Maker's quote size (and/or Market 
Maker's quote plus other interest on the order book) may not be 
sufficient volume to fill the incoming interest.
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    Additionally, under Active Quote Protection, Market Makers will be 
able to submit a request (i) to decrement their Limit Counter by a 
specified number of contracts, or (ii) to fully decrement their Limit 
Counter to zero.\13\ Market Makers that elect to use the proposed 
Active Quote Protection on a badge \14\ will not be able to use the 
existing Threshold risk protections described above on the same badge 
(i.e., the active and passive risk counter functionality would be 
mutually exclusive per badge) given that it would be unnecessarily 
complex to implement from a technology standpoint. Market Makers may be 
associated with multiple badges today, so if they want to use both risk 
protections for their activity on the Exchange, they will be able to 
set either the active or passive risk counter functionality on each 
one.
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    \13\ As discussed later in this filing, in order to re-enter the 
System after their quotes are purged pursuant to the Active Quote 
Protection, Market Makers will need to submit the same request to 
fully decrement their Limit Counter to zero.
    \14\ A ``badge'' shall mean an account number, which may contain 
letters and/or numbers, assigned to Market Makers. A Market Maker 
account may be associated with multiple badges. See Options 1, 
Section 1(a)(5).
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    To effectuate the foregoing changes, the Exchange proposes to set 
forth the new risk protection in subparagraph (B)(ii) of Options 3, 
Section 15(a)(3), as follows: \15\
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    \15\ As a result, the Exchange will also renumber existing 
subparagraphs (B)(ii)-(vi) as proposed subparagraphs (B)(iii)-(vii).

    In lieu of Rapid Fire, a Market Maker may provide an executed 
contract limit (``Contract Limit'') that, if exceeded, the System 
will automatically remove the Market Maker's quotes in all series of 
an options class submitted through SQF. The System will apply the 
Contract Limit for the duration of the trading day. For each class 
of options, the System will maintain an active limit counter that 
will track the current number of contracts executed through the 
Market Maker's quotes (``Limit Counter''). If the Limit Counter 
exceeds the Contract Limit established by the Market Maker, the 
System will automatically remove the Market Maker's quotes as 
described in Section 15(a)(3)(B)(iii). Market Makers may submit a 
request (i) to decrement their Limit Counter by a specified number 
of contracts, or (ii) to fully decrement their Limit Counter to 
zero, including to re-enter the System as described in Section 
15(a)(3)(B)(v). For Market Makers that elect to utilize the Contract 
Limit, the Percentage Threshold, Volume Threshold, Delta Threshold, 
and Vega Threshold will not be available for use on the Market 
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Maker's badge.

    As described above, once the Limit Counter exceeds the Contract 
Limit set by the Market Maker under the proposed Active Quote 
Protection, the System would automatically remove quotes in the same 
manner as currently specified for a Purge Event in proposed 
subparagraph (B)(iii) of Options 3, Section 15(a)(3). Accordingly, the 
Exchange proposes to add Active Quote Protection's Contract Limit 
throughout this Rule. Specifically, proposed subparagraph (B)(iii) will 
provide that the System will automatically remove quotes in all series 
of an options class when the Percentage Threshold, Volume Threshold, 
Delta Threshold, Vega Threshold, or Contract Limit has been exceeded. 
The System will send a Purge Notification Message to the Market Maker 
for all affected series when the above thresholds have been exceeded. 
Proposed subparagraph (B)(iii)(a) will provide that the Percentage 
Threshold, Volume Threshold, Delta Threshold, Vega Threshold, and 
Contract Limit are considered independently of each other.
    Further, as discussed above, any marketable orders or quotes that 
are executable against a Market Maker's quotes that are received \16\ 
prior to the time the applicable Threshold or Contract Limit is 
triggered will be automatically executed up to the size of the Market 
Maker's quote, even if such execution would cause the Market Maker to 
exceed any of their pre-set risk limits with respect to any of the 
foregoing risk parameters. The Exchange notes that the current related 
Rule in sub-paragraph (B)(ii)(b)(3) only mentions that quotes will 
execute up to the Market Maker's size, and is silent on marketable 
orders. In addition, the current Rule does not specify the time of 
receipt of such marketable interest that is executable against the size 
of the Market Maker's quote. As such, the Exchange proposes to add this 
specificity in proposed sub-paragraph (B)(iii)(b)(3) to better describe 
how the System operates today for Automated Quotation Adjustments and 
how the System will operate for proposed Active Quote Protection. In 
particular, sub-paragraph (B)(iii)(b)(3) will provide:
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    \16\ See supra note 9.

    The System will execute any marketable orders or quotes that are 
executable against a Market Maker's quote and received prior to the 
time the Percentage Threshold, Volume Threshold, Delta Threshold, 
Vega Threshold, or Contract Limit is triggered up to the size of the 
Market Maker's quote, even if such execution results in executions 
in excess of the Market Maker's applicable Threshold or Contract 
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Limit with respect to any parameter.

    In addition, when the System removes quotes as a result of 
exceeding the Contract Limit under Active Quote Protection, the 
Exchange proposes to require the Market Maker to submit a request to 
re-enter the System. This request will be the same type of message as 
the request described in proposed subparagraph (B)(ii) where the Market 
Maker must request to fully decrement their Limit Counter back to zero 
in order to re-enter the System. This requirement will be added in 
proposed subparagraph (B)(v) of Options 3, Section 15(a)(3), and will 
be similar to how the existing quote purge mechanism works for the 
Thresholds today, except the Market Maker needs to send a separate 
message (i.e., a re-entry indicator) to re-enter the System when their 
quotes are purged as a result of exceeding any of the existing 
Thresholds.
    Similar to how default parameters are currently applied for each of 
the existing Thresholds described above, the Exchange proposes to apply 
a default parameter for the Active Quote Protection Contract Limit 
(which would be announced to Members) if the Market Maker opting to use 
Active Quote Protection does not provide a Contract Limit at the 
outset.\17\ Accordingly, proposed subparagraph (B)(vi) will provide 
that if a Market Maker does not provide a parameter for each of the 
automated quotation removal protections described in (B)(i)(a)-(d) and 
(B)(ii) above, the Exchange will apply default parameters, which are 
announced to Members.
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    \17\ The Exchange will initially set the default Contract Limit 
at 100 contracts.
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    The Exchange also proposes that the new Active Quote Protection 
would leverage the existing market-wide speed bump (``MWSB'') 
functionality currently set forth in Options 3, Section 15(a)(3)(B)(vi) 
(renumbered as Section 15(a)(3)(B)(vii) under this proposal). Today, 
MWSB is a risk protection offered alongside the current Automated 
Quotation Adjustments and triggers when, during a time period 
established by the Market Maker, the total number of Purge Events 
exceeds a market-wide parameter provided to the Exchange by

[[Page 58371]]

the Market Maker.\18\ When MWSB is triggered, the Exchange 
automatically purges the Market Maker's quotes in all classes, and the 
Market Maker must request re-entry to the System by contacting the 
Exchange's Operations Department. Today, MWSB is meant to provide 
Market Makers with protection from the risk of multiple executions 
across multiple series of an option or across multiple options. This 
risk protection recognizes that risk to Market Makers is not limited to 
a single series in an option or even to all series in an option; Market 
Makers that quote in multiple series of multiple options have 
significant exposure, requiring them to offset or hedge their overall 
positions. Market Makers are required to continuously quote in assigned 
options, and quoting across many series in an option or multiple 
options creates the possibility of executions that can create large, 
unintended principal positions that could expose Market Makers to 
unnecessary risk. MWSB is therefore intended to assist Market Makers in 
managing their market risk by tracking the number of Purge Events 
relative to the market-wide parameter set by the Market Maker. The 
Exchange believes that tracking the number of Active Quote Protection 
Purge Events for a Market Maker against its MWSB market-wide parameter 
would be similarly useful for managing market risk.
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    \18\ Market Makers may request the Exchange to set the market 
wide parameter to apply to just Nasdaq ISE or across Nasdaq ISE and 
Nasdaq GEMX. The Exchange notes that the MWSB rule currently refers 
to Supplementary Material .04 to Options 3, Section 14, which will 
be deleted as an obsolete reference, as described later in this 
filing.
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    To that end, the Exchange proposes to update MWSB to add purge 
events under Active Quote Protection to the MWSB counter such that 
Active Quote Protection purge events and Purge Events under the current 
Automated Quotation Adjustments will be aggregated together as counting 
toward the specified market-wide parameter. Accordingly, the Exchange 
proposes to add references to the Active Quote Protection rule (i.e., 
proposed subparagraph (B)(ii) of Options 3, Section 15(a)(3)) 
throughout the MWSB rule in proposed subparagraph (B)(vii), 
specifically:

    In addition to the automated quotation removal protections 
described in (B)(i)(a)-(d) and (B)(ii) above, a Market Maker must 
provide a market wide parameter by which the Exchange will 
automatically remove a Market Maker's quotes in all classes when, 
during a time period established by the Market Maker, the total 
number of quote removal events specified in (B)(i)(a)-(d) and 
(B)(ii) above exceeds the market wide parameter provided to the 
Exchange by the Market Maker. Market Makers may request the Exchange 
to set the market wide parameter to apply to just Nasdaq ISE or 
across Nasdaq ISE and Nasdaq GEMX. Market Makers must request the 
Exchange enable re-entry by contacting the Exchange's Operations 
Department.

    The following example illustrates the proposed behavior of the 
Active Quote Protection risk protection:

Market Maker AAPL

    Contract Limit: 100.
     Market Maker trades a transaction for 10 contracts in 
AAPL; Limit Counter goes from 0 to 10.
     Market Maker sends a request to decrement its Limit 
Counter in AAPL for 10 contracts; Limit Counter goes from 10 to 0.
     Market Maker trades a transaction for 20 contracts in 
AAPL; Limit Counter goes from 0 to 20.
     Market Maker trades a transaction for 50 contracts in 
AAPL; Limit Counter goes from 20 to 70.
     Market Maker sends a request to decrement its Limit 
Counter in AAPL for 20 contracts; Limit Counter goes from 70 to 50.
     Market Maker trades a transaction for 60 contracts in 
AAPL; Limit Counter goes from 50 to 110 and all Market Maker quotes in 
AAPL are automatically purged after the execution because the Limit 
Counter exceeded the Market Maker's Contract Limit of 100 executed 
contracts.
     At this point, the Market Maker must send a request to 
fully decrement its Limit Counter in AAPL back to zero in order to 
begin quoting again.
    The following example illustrates how MWSB will work with the 
proposed Active Quote Protection functionality:
     Assume Market Maker in AAPL and SPY has Automated 
Quotation Adjustments set for AAPL and Active QP set for SPY.
     Market Maker sets its MWSB market-wide parameter so that 
it is triggered at 25 purge events within a 20 second time period.
     On a given trading day, if an Active Quote Protection 
Purge Event is triggered 15 times in SPY and an Automated Quotation 
Adjustment Purge Event is triggered 10 times in AAPL, all within 20 
seconds, then the Exchange will automatically remove all of the Market 
Maker's quotes AAPL and SPY.
Technical Amendments
    The Exchange proposes a few technical, non-substantive amendments 
in Options 3, Section 15(a)(3)(B). With the addition of the new Active 
Quote Protection rule in proposed subparagraph (B)(ii), the Exchange 
proposes to renumber existing subparagraphs (B)(ii)-(vi) as proposed 
subparagraphs (B)(iii)-(vii) and make related changes to update 
existing cross-cites within Section 15(a)(3)(B). The Exchange also 
proposes to title subparagraph (B)(i) as ``Rapid Fire'' and 
subparagraph (B)(vii) as ``Market-Wide Speed Bump'' to more clearly 
identify which rules apply to which risk protections.
    Lastly, the Exchange proposes in the MWSB rule (i.e., proposed 
Options 3, Section 15(a)(3)(B)(vii)) to delete the reference to 
Supplementary Material .04 to Options 3, Section 14. When the Exchange 
originally adopted the MWSB rule, the intent was for the MWSB risk 
protection to cover curtailment events under Supplementary Material .04 
to Rule 722.\19\ Supplementary Material .04 to Rule 722 previously 
governed Automated Spread Quotation Adjustments for complex quotes. The 
Exchange subsequently removed complex quoting and all related 
functionality (including Automated Spread Quotation Adjustments), but 
did not remove the cross-cite to Supplementary Material .04 to Rule 722 
in the MWSB rule.\20\ As a result, this cross-cite was ported over to 
the Exchange's relocated Rulebook in 2019 and updated to Supplementary 
Material .04 to Options 3, Section 14,\21\ when it should have been 
deleted as an obsolete reference at the time the Exchange removed 
complex quoting functionality.\22\ The Exchange now proposes to 
eliminate this cross-cite in the MWSB rule as an obsolete reference.
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    \19\ See Securities Exchange Act Release No. 71446 (January 30, 
2014), 79 FR 6951 (February 5, 2014) (SR-ISE-2014-04). The MWSB rule 
was originally set forth in Rule 804, relocated to Rule 714, and 
finally relocated to its current place in Options 3, Section 15. See 
Securities Exchange Act Release Nos. 84237 (September 20, 2018), 83 
FR 48660 (September 26, 2018) (SR-ISE-2018-80); and 86138 (June 18, 
2019), 84 FR 29567 (June 24, 2019) (SR-ISE-2019-17).
    \20\ See Securities Exchange Act Release No. 85308 (March 13, 
2019), 84 FR 10136 (March 19, 2019) (SR-ISE-2019-05).
    \21\ See Securities Exchange Act Release No. 86138 (June 18, 
2019), 84 FR 29567 (June 24, 2019) (SR-ISE-2019-17).
    \22\ See supra note 20.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\23\ in general, and furthers the objectives of section 
6(b)(5) of the Act,\24\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and

[[Page 58372]]

open market and a national market system, and, in general to protect 
investors and the public interest.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed Active Quote Protection 
risk protection is consistent with the Act because it will enhance the 
risk protection tools available to Market Makers by introducing a new 
method of establishing and monitoring for risk parameters that will be 
offered as an alternative to existing Rapid Fire risk parameters, 
thereby supporting a Market Maker's ability to manage their risk on the 
Exchange, and also providing them with flexibility to use additional 
tools to manage risk. As noted above, while the passive (Rapid Fire) 
and active (Active QP) risk counter functionality will be mutually 
exclusive on each badge, Market Makers will still be able to use both 
to cover their activity on the Exchange by getting multiple badges and 
setting each risk counter by badge. The Exchange believes that offering 
more risk management tools to Market Makers would mitigate their 
exposure to excessive risk. The Exchange further believes that having 
the new Active Quote Protection functionality leverage the existing 
MWSB functionality will similarly support a Market Maker's ability to 
manage their risk on the Exchange by including Active Quote Protection 
purge events to the MWSB counter. As noted above, the risk to Market 
Makers is not limited to a single series in an option or even multiple 
series in an option as Market Makers that quote in multiple series of 
multiple options have significant exposure, requiring them to offset or 
hedge their overall positions. Market Makers are required to 
continuously quote in assigned options, and quoting across many series 
in an option or multiple options creates the possibility of executions 
that can create large, unintended principal positions that could expose 
Market Makers to unnecessary risk. Today, MWSB is designed to assist 
Market Makers in managing their market risk by tracking the number of 
Purge Events relative to the market-wide parameter set by the Market 
Maker. The Exchange therefore believes that tracking the number of 
Active Quote Protection purge events for a Market Maker against its 
MWSB market-wide parameter would be similarly useful for managing 
market risk so that they can provide deep and liquid markets to the 
benefit of all investors. Ultimately, the Exchange believes that 
providing Market Makers with additional tools in the manner described 
above to manage their risk parameters serves to perfect the mechanism 
of a free and open market and a national market system, and, in general 
to protect investors and the public interest because Market Makers will 
be better able to manage risks with these tools.
    With regard to the impact of this proposal on system capacity, the 
Exchange notes that it has analyzed its capacity and represents that it 
and the Options Price Reporting Authority have the necessary systems 
capacity to handle any potential additional traffic associated with the 
proposed rule change. The Exchange believes that its members will not 
have a capacity issue as a result of this proposal.
    The Exchange further represents that its proposal will continue to 
operate consistently with the firm quote obligations of a broker-dealer 
pursuant to Rule 602 of Regulation NMS. Specifically, any marketable 
interest that is executable against a Market Maker's quotes that are 
received \25\ by the Exchange prior to the time this functionality is 
triggered will be automatically executed at the price up to the Market 
Maker's size, regardless of whether such execution results in 
executions in excess of the Market Maker's pre-set Contract Limit.\26\ 
As discussed above, this is also in line with how current Rapid Fire 
operates today. The Exchange believes that the proposed changes in 
proposed sub-paragraph (B)(iii)(b) to specify that this Rule will apply 
to marketable orders and quotes (currently silent on marketable 
orders), and to specify the time of receipt of such marketable interest 
that is executable against the size of the Market Maker's quote, will 
promote clarity in how the System currently operates for Rapid Fire and 
will operate for Active Quote Protection.
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    \25\ See supra note 9.
    \26\ See proposed subparagraph (B)(iii)(b) of Options 3, Section 
15(a)(3).
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    As noted above, the proposed Active Quote Protection functionality 
is similar to existing active risk counter functionality on another 
options exchange, which currently allows users to actively decrement 
the risk counter by a specified amount at any time, rather than waiting 
until a risk limit is reached or the user otherwise sends a specific 
instruction to the exchange to completely reset the counting 
program.\27\
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    \27\ See supra note 5.
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Technical Amendments
    The Exchange believes that the technical amendments in Options 3, 
Section 15(a)(3)(B) described above are consistent with the Act because 
they will promote clarity in the rules and make the Rulebook easier to 
navigate for market participants by updating rule numbering and 
existing cross-cites as described above. Furthermore, the Exchange also 
believes that adding the defined terms for Rapid Fire and MWSB in the 
rule text will promote clarity so that Members can more easily locate 
the relevant functionalities in the Rulebook. Lastly, the Exchange 
believes that the proposed changes to remove the cross-cite to 
Supplementary Material .04 to Options 3, Section 14 from the MWSB rule 
is consistent with the Act because it will eliminate an obsolete 
reference to functionality that no longer exists on the Exchange, which 
will promote clarity in the Rulebook and avoid any potential confusion.

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.
    The Exchange does not believe that the proposed Active Quote 
Protection functionality will impose any undue burden on intra-market 
competition as it is aimed at mitigating exposure to excessive risk 
when trading on the Exchange. While the Exchange will offer the 
proposed functionality to Market Makers only, the proposed risk 
protection is intended to provide Market Makers with an additional tool 
to manage their risk parameters in a manner they deem appropriate. As 
such, the Exchange believes that the proposed functionality may 
facilitate Market Makers' provision of liquidity on the Exchange, 
thereby benefitting all market participants through additional 
execution opportunities at potentially improved prices.
    The Exchange also believes that its Active Quote Protection 
proposal does not impose an undue burden on inter-market competition as 
the proposed risk protection is similar to an existing risk protection 
on MEMX \28\ as described above, and any options market could adopt 
similar rules.
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    \28\ See supra note 5.
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    Lastly, the Exchange does not believe that the proposed technical 
amendments in Options 3, Section 15(a)(3)(B) will impose an undue 
burden on competition as these are non-substantive changes to promote 
clarity in the rules and make the Rulebook easier to navigate for 
market participants.

[[Page 58373]]

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 \29\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\30\
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    \29\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \30\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-ISE-2023-18 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-ISE-2023-18. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-ISE-2023-18 and should be 
submitted on or before September 15, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-18304 Filed 8-24-23; 8:45 am]
BILLING CODE 8011-01-P