[Federal Register Volume 89, Number 163 (Thursday, August 22, 2024)]
[Notices]
[Pages 68014-68016]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18785]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100743; File No. SR-ISE-2024-39]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
of Proposed Rule Change To Amend Complex Order Risk Protections

August 16, 2024.
    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 9, 2024, 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 to amend Options 3, Section 16, Complex Order Risk 
Protections.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Options 3, Section 16, Complex Order 
Risk Protections. Specifically, the Exchange proposes to amend Options 
3, Section 16(b), Strategy Protections, to provide that the protections 
in Options 3, Section 16(b) would not apply to a Complex Order that 
includes at least one P.M.-settled leg and at least one A.M.-settled 
leg.
    The Exchange received approval to permit the listing and trading of 
p.m.-settled Nasdasq-100 Index[supreg] options \3\ with a third-Friday 
of-the-month

[[Page 68015]]

expiration.\4\ With this amendment, Options 4A, Section 12 was amended 
to permit the listing of p.m.-settled third-Friday-of-the-month 
Expiration Dates under the trading symbol ``NDXP.'' Therefore, ISE may 
list third-Friday-of-the-month expirations on Nasdaq-100 Index options 
that are both a.m.-settled and p.m.-settled on the same day.\5\
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    \3\ Nasdaq-100 Index options trade under the symbol (``NDX'').
    \4\ See Securities Exchange Act Release No. 98935 (November 14, 
2023), 88 FR 80792 (November 20, 2023) (SR-ISE-2023-20) (Order 
Approving a Proposed Rule Change To Permit the Listing and Trading 
of P.M.-Settled Nasdaq-100 Index[supreg] Options With a Third-
Friday-of-the-Month Expiration) (``SR-ISE-2023-20). The Exchange has 
not yet listed a Third-Friday-of-the Month P.M. expiration.
    \5\ The conditions for listing p.m.-settled third-Friday-of-the-
month expirations on Nasdaq-100 Index options will be similar to 
those for a.m.-settled third-Friday-of-the-month expirations on 
Nasdaq-100 Index options.
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    Pursuant to Options 3, Section 14(a)(1), a Complex Options Strategy 
is the simultaneous purchase and/or sale of two or more different 
options series in the same underlying security, for the same account, 
in a ratio that is equal to or greater than one-to-three (.333) and 
less than or equal to three-to-one (3.00) and for the purpose of 
executing a particular investment strategy. Only those Complex Options 
Strategies with no more than the applicable number of legs, as 
determined by the Exchange on a class-by-class basis, are eligible for 
processing.\6\ Pursuant to Options 3, Section 16(b), Vertical Spread 
Protections,\7\ Calendar Spread Protections,\8\ Butterfly Spread 
Protections \9\ and BOX Spread Protections \10\ apply throughout the 
trading day to Complex Orders, including pre-market, during the Opening 
Process and during a trading halt.\11\
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    \6\ The term ``complex strategy'' includes Complex Options 
Strategies, Stock-Option Strategies, and Stock-Complex Strategies. 
See Options 3, Section 14(a)(4).
    \7\ A vertical spread is an order to buy a call (put) option and 
to sell another call (put) option in the same security with the same 
expiration but at a higher (lower) strike price. See Options 3, 
Section 16(b)(1).
    \8\ A calendar spread is an order to buy a call (put) option 
with a longer expiration and to sell another call (put) option with 
a shorter expiration in the same security at the same strike price. 
See Options 3, Section 16(b)(2).
    \9\ A butterfly spread is a three legged Complex Order with the 
following: (1) two legs to buy (sell) the same number of calls 
(puts); (2) one leg to sell (buy) twice the number of calls (puts) 
with a strike price at mid-point of the two legs to buy (sell); (3) 
all legs have the same expiration; and (4) each leg strike price is 
equidistant from the next sequential strike price. See Options 3, 
Section 16(b)(3).
    \10\ A box spread is a four legged Complex Order with the 
following: (1) one pair of legs with the same strike price with one 
leg to buy a call (put) and one leg to sell a put (call); (2) a 
second pair of legs with a different strike price from the pair 
described in (1) with one leg to sell a call (put) and one leg to 
buy a put (call); (3) all legs have the same expiration; and (4) all 
legs have equal volume. See Options 3, Section 16(b)(4).
    \11\ The protections do not apply to Complex Orders being 
auctioned and auction responses in the Facilitation Mechanism, 
Solicited Order Mechanism within Options 3, Section 11, and Price 
Improvement Mechanism within Options 3, Section 13 and do not apply 
to Customer Cross Orders pursuant to Options 3, Section 12. See 
Options 3, Section 16(b).
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    With the approval of SR-ISE-2023-20, a Complex Options Strategy may 
consist of legs with different expirations based on settlement (a.m. or 
p.m.-settled). The Exchange proposes to provide at Options 3, Section 
16(b) that the complex risk protections would not apply to a Complex 
Order that includes at least one P.M.-settled leg and at least one 
A.M.-settled leg. The last day of trading for A.M.-settled index 
options shall be the business day preceding the business day of 
expiration, or, in the case of an option contract expiring on a day 
that is not a business day, the business day preceding the last day of 
trading in the underlying securities prior to the expiration date.\12\ 
In contrast, the last day of trading for P.M.-settled index options 
shall be the business day of expiration, or, in the case of an option 
contract expiring on a day that is not a business day, on the last 
business day before its expiration date.\13\
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    \12\ See Options 4A, Section 12(a)(5).
    \13\ See Options 4A, Section 12(a)(6).
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    At this time, the Exchange proposes to not apply the strategy 
protections in Options 3, Section 16(b) to a Complex Order that 
includes at least one P.M.-settled leg and at least one A.M.-settled 
leg.\14\ A Complex Order that includes at least one P.M.-settled leg 
and at least one A.M.-settled leg would not qualify as a Vertical 
Spread, Butterfly Spread, Calendar Spread or BOX Spread because the 
P.M.-settled leg and the A.M.-settled leg would have different 
expirations. The System considers these Complex Orders to be different 
products, as well as customized Complex Orders, so System limitations 
would prevent the application of the Strategy Price Protections to 
these Complex Orders. The Exchange notes that the Vertical Spread 
Protections, Butterfly Spread Protections and BOX Spread Protections 
all have the same expirations unlike a Complex Order that includes at 
least one P.M.-settled leg and at least one A.M.-settled leg. The 
Exchange also notes that the System considers a Calendar Spread to have 
all legs in the same product, unlike a Complex Order that includes at 
least one P.M.-settled leg and at least one A.M.-settled leg. A Complex 
Order that includes at least one P.M.-settled leg and at least one 
A.M.-settled leg would still be subject to the price limits for Complex 
Orders in Options 3, Section 16(a) and the price protections in Options 
3, Section 16(c), namely the Complex Order Price Protection, Size 
Limitation and Price Level Protection.
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    \14\ The a.m. expiration and p.m. expiration would have 
different settlement days.
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Implementation
    The Exchange intends to begin implementation of the proposed rule 
change by Q1 2025. The Exchange will announce the date to Members in an 
Options Trader Alert.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\15\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\16\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general to protect 
investors and the public interest.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Exchange's proposal to exclude a Complex Order that includes at 
least one P.M.-settled leg and at least one A.M.-settled leg \17\ from 
the strategy protections in Options 3, Section 16(b) removes 
impediments to and perfect the mechanism of a free and open market 
because it would not qualify as a Vertical Spread, Butterfly Spread, 
Calendar Spread, or BOX Spread because the P.M.-settled leg and the 
A.M.-settled leg would have different expirations. The System considers 
these Complex Orders to be different products, as well as customized 
Complex Orders, so System limitations would prevent the application of 
the Strategy Price Protections to these Complex Orders. The Exchange 
notes that the Vertical Spread Protections, Butterfly Spread 
Protections and BOX Spread Protections all have the same expirations 
unlike a Complex Order that includes at least one P.M.-settled leg and 
at least one A.M.-settled leg. The Exchange also notes that the System 
considers a Calendar Spread to have all legs in the same product, 
unlike a Complex Order that includes at least one P.M.-settled leg and 
at least one A.M.-settled leg. A Complex Order that includes at least 
one P.M.-settled leg and at least one A.M.-settled leg would still be 
subject to the price limits for Complex Orders in Options 3, Section

[[Page 68016]]

16(a) and the price protections in Options 3, Section 16(c), namely the 
Complex Order Price Protection, Size Limitation and Price Level 
Protection. Finally, the Exchange's proposal informs Members that the 
strategy protections would not apply in those cases where the Member 
elected to utilize a combination of A.M.-Settled and P.M.-Settled leg 
expirations in the Complex Order.
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    \17\ The a.m. expiration and p.m. expiration would have 
different settlement days.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The Exchange's proposal does not impose an undue burden on intra-
market competition because the proposed changes are going to apply 
equally to all Members. The Exchange's proposal does not impose an 
undue burden on inter-market competition as other exchanges that 
utilize third-Friday of-the-month P.M.-Settled Options could also adopt 
a similar 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 \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 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-2024-39 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-ISE-2024-39. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-ISE-2024-39 and should be 
submitted on or before September 12, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-18785 Filed 8-21-24; 8:45 am]
BILLING CODE 8011-01-P