[Federal Register Volume 90, Number 133 (Tuesday, July 15, 2025)]
[Notices]
[Pages 31716-31731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-13197]
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SECURITIES AND EXCHANGE COMMISSION
Release No. 34-103434; File No. SR-ISE-2025-15)]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
of Amendment No. 1 to a Proposed Rule Change To Amend the Short Term
Option Series Program To List Qualifying Securities
July 10, 2025.
On May 1, 2025, the Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend the
Exchange's Short Term Option Series Program to permit the listing of up
to two Monday and Wednesday expirations for options on certain
individual stocks or Exchange-Traded Fund Shares. The proposed rule
change was published for comment in the Federal Register on May 21,
2025.\3\ On June 27, 2025, the Commission designated a longer period
within which to take action on the proposed rule change.\4\ On July 1,
2025, the Exchange filed Amendment No. 1 to the proposed rule
change.\5\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended by Amendment No. 1, from
[[Page 31717]]
interested persons. Items I and II below have been prepared by the
Exchange.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 103048 (May 15,
2025), 90 FR 21805. Comments on the proposed rule change are
available at https://www.sec.gov/comments/sr-ise-2025-15/srise202515.htm.
\4\ See Securities Exchange Act Release No. 103343, 90 FR 29098
(July 2, 2025). The Commission designated August 19, 2025 as the
date by which it should approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change. See id.
\5\ Amendment No. 1 is publicly available on the Commission's
website at: https://www.sec.gov/comments/sr-iex-2025-02/sriex202502-580115-1667463.pdf.
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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 the Short Term Option Series Program
in Supplementary Material .03 of Options 4, Section 5 to permit the
listing of up to two Monday and Wednesday expirations for options on
certain individual stocks or Exchange-Traded Fund Shares. This
Amendment No. 1 supersedes the original filing in its entirety and
proposes to (1) correct certain data points in the Monday and Wednesday
2024 tables; (2) provide additional data regarding the number of strike
breaks for calendar years 2022, 2023 and 2025 for the Sample Qualifying
Securities, in addition to the 2024 calendar year data that was
previously included; and (3) provide data regarding Contrary Exercise
Advices that were liquidated \6\ and abandoned \7\ on a certain date in
SPY.
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\6\ Liquidating an option means closing out an existing options
position.
\7\ Abandoning an option means electing not to take delivery of
stock that would occur through Auto Exercise at The Options Clearing
Corporation (``OCC''). ``Auto-exercise'' or ``automatic exercise''
in options trading refers to the procedure where a long option
(either a call or a put) that is in-the-money at the time of
expiration is automatically exercised on the holder's behalf by OCC.
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The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/ise/rulefilings,
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 the Short Term Option Series Program
in Supplementary Material .03 of Options 4, Section 5. Specifically,
the Exchange proposes to permit the listing of up to two Monday and
Wednesday expirations for options on certain individual stocks or
Exchange-Traded Fund Shares (collectively ``Qualifying Securities'').
Currently, as set forth in Supplementary Material .03 to Options 4,
Section 5, after an option class has been approved for listing and
trading on the Exchange as a Short Term Option Series pursuant to
Options 1, Section 1(a)(49),\8\ the Exchange may open for trading on
any Thursday or Friday that is a business day (``Short Term Option
Opening Date'') series of options on that class that expire at the
close of business on each of the next five Fridays that are business
days and are not Fridays in which standard expiration options series,
Monthly Options Series, or Quarterly Options Series expire (``Friday
Short Term Option Expiration Dates''). The Exchange may have no more
than a total of five Short Term Option Expiration Dates (``Short Term
Option Weekly Expirations''). Further, if the Exchange is not open for
business on the respective Thursday or Friday, the Short Term Option
Opening Date for Short Term Option Weekly Expirations will be the first
business day immediately prior to that respective Thursday or Friday.
Similarly, if the Exchange is not open for business on a Friday, the
Short Term Option Expiration Date for Short Term Option Weekly
Expirations will be the first business day immediately prior to that
Friday.
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\8\ Options 1, Section 1(a)(49) provides that a Short Term
Option Series means a series in an option class that is approved for
listing and trading on the Exchange in which the series is opened
for trading on any Monday, Tuesday, Wednesday, Thursday or Friday
that is a business day and that expires on the Monday, Wednesday or
Friday of the following business week that is a business day, or, in
the case of a series that is listed on a Friday and expires on a
Monday, is listed one business week and one business day prior to
that expiration. If a Tuesday, Wednesday, Thursday or Friday is not
a business day, the series may be opened (or shall expire) on the
first business day immediately prior to that Tuesday, Wednesday,
Thursday or Friday. For a series listed pursuant to this section for
Monday expiration, if a Monday is not a business day, the series
shall expire on the first business day immediately following that
Monday.
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Additionally, the Exchange may open for trading series of options
on the symbols provided in Table 1 of Supplementary Material .03 to
Options 4, Section 5 that expire at the close of business on each of
the next two Mondays, Tuesdays, Wednesdays, and Thursdays,
respectively, that are business days beyond the current week and are
not business days in which standard expiration options series, Monthly
Options Series, or Quarterly Options Series expire (``Short Term Option
Daily Expirations'').\9\ For those symbols listed in Table 1, the
Exchange may have no more than a total of two Short Term Option Daily
Expirations beyond the current week for each of Monday, Tuesday,
Wednesday, and Thursday expirations, as applicable, at one time.
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\9\ As set forth in Table 1 of Supplementary Material .03 to
Options 4, Section 5, the Exchange currently permits expirations in
SPY, IWM, QQQ on Mondays, Tuesdays, Wednesdays and Thursdays. Also,
the Exchange permits expirations in GLD, SLV and TLT on Mondays and
Wednesdays. Finally, the Exchange permits expirations in USO and UNG
on Wednesdays.
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Proposal
At this time, the Exchange proposes to expand the Short Term Option
Series Program to permit certain Qualifying Securities to list up to
two Monday and Wednesday expirations in addition to the Friday weekly
expiration.
The Exchange proposes to define Qualifying Securities as eligible
individual stocks or Exchange-Traded Fund Shares, which are separate
and apart from the symbols listed in Table 1, that have received
approval to list additional expiries on specific symbols, that meet the
following criteria on a quarterly basis:
(1) an underlying security, as measured on the last day of the
prior calendar quarter, must have:
(A) a market capitalization of greater than 700 billion dollars for
an individual stock based on the closing price,\10\ or
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\10\ The closing price and the opening price shall be that of
the primary exchange where the security is listed.
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(B) Assets under Management (``AUM'') greater than 50 billion
dollars for an Exchange-Traded Fund Share based on net asset value
(``NAV'');
(2) monthly options volume, as measured by sides traded in the last
month preceding the quarter end, of greater than 10 million options;
(3) a position limit of at least 250,000 contracts; and
(4) participate in the Penny Interval Program.
Each calendar quarter, the Exchange will apply the above criteria
to individual stocks and Exchange-Traded Fund Shares to determine
eligibility for the following quarter as a Qualifying Security.
Beginning on the second trading day in the first month of each calendar
quarter, the market capitalization of individual stocks shall be
calculated based on the closing price established on the primary
exchange on the last trading day of the prior calendar quarter and the
AUM for Exchange-
[[Page 31718]]
Traded Fund Shares shall be calculated based on the NAV established on
the primary exchange on the last trading day of the prior calendar
quarter. The data establishing the volume thresholds will be
established by using data from the last month of the prior calendar
quarter from The Options Clearing Corporation. For options listed on
the first trading day of a given calendar quarter, the volume shall be
calculated using the last month of the quarter prior to that calendar
quarter.\11\ ISE will make the list of Qualifying Securities available
by close of business on the first trading day of the quarter.\12\
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\11\ OCC data becomes available for the end of a quarter on the
first trading day of a new quarter. For example, if the Exchange
were to list Qualifying Securities in Q3 of 2025, ISE would look at
the volume, measured in sides, for the last month of Q2 2025 or June
2025.
\12\ ISE will make this information available on ISE's website.
This information will be freely accessible to the public.
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Eligible Qualifying Securities would be permitted to list two Short
Term Option Expiration Dates beyond the current week for each Monday
and Wednesday expiration at one time. For Qualifying Securities, the
Exchange would not list an expiry on a day when there will be an
Earnings Announcement \13\ that takes place after market close. For
purposes of this rule proposal, earnings announcements shall include
official public quarterly or yearly earnings filed with the Commission
(``Earnings Announcement'').\14\ Not listing an expiry for a Qualifying
Security on a day where there is an Earnings Announcement that takes
place after market close will avoid permitting an additional expiry on
a day where post-close price volatility may be impacted due to the
Earnings Announcement.
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\13\ An Earnings Announcement is an official public statement of
a company's profitability for a specific period, typically a quarter
or a year.
\14\ For purposes of this rule proposal, pre-announcements or
``guidance'' shall not be considered an Earnings Announcement.
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Qualifying Securities that do not continue to meet the above
criteria would no longer be permitted to list Monday and Wednesday
expiries beginning on the second day of the following quarter.\15\
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\15\ The Exchange has noted the additional expiries in a
proposed Table 2 in Supplementary Material .03 to Options 4, Section
5 along with the criteria for a Qualifying Security.
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The proposed Monday Qualifying Securities expirations will be
similar to the current Monday Expirations in SPY, QQQ, and IWM (among
other symbols that may list a Monday Expiration) in Short Term Option
Daily Expirations set forth in Supplementary Material .03 to Options 4,
Section 5, such that the Exchange may open for trading on any Friday or
Monday that is a business day (beyond the current week) series of
options on Qualifying Securities to expire on any Monday of the month
that is a business day and is not a Monday in which standard expiration
options series, Monthly Options Series, or Quarterly Options Series
expire, provided that Monday expirations that are listed on a Friday
must be listed at least one business week and one business day prior to
the expiration (``Monday Qualifying Securities Expirations'').\16\ In
the event Qualifying Securities expire on a Monday and that Monday is
the same day that a standard expiration options series, Monthly Options
Series, or Quarterly Options Series expires, the Exchange would skip
that week's listing and instead list the following week; the two weeks
would therefore not be consecutive. Today, Monday expirations in SPY,
QQQ, and IWM similarly skip the weekly listing in the event the weekly
listing expires on the same day in the same class as a standard
expiration options series, Monthly Options Series, or Quarterly Options
Series.
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\16\ They may also trade on Fridays, as is the case for all
options series in the Short Term Option Series Program.
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The proposed Wednesday Qualifying Securities expirations will be
similar to the current Wednesday SPY, QQQ, and IWM (among other symbols
that may list a Wednesday Expiration) in Short Term Option Daily
Expirations set forth in Supplementary Material .03 to Options 4,
Section 5, such that the Exchange may open for trading on any Tuesday
or Wednesday that is a business day (beyond the current week) series of
options on Qualifying Securities to expire on any Wednesday of the
month that is a business day and is not a Wednesday in which standard
expiration options series, Monthly Options Series, or Quarterly Options
Series expire (``Wednesday Qualifying Securities Expirations'').\17\ In
the event Qualifying Securities expire on a Wednesday and that
Wednesday is the same day that a standard expiration options series,
Monthly Options Series, or Quarterly Options Series expires, the
Exchange would skip that week's listing and instead list the following
week; the two weeks would therefore not be consecutive. Today,
Wednesday expirations in SPY, QQQ, and IWM similarly skip the weekly
listing in the event the weekly listing expires on the same day in the
same class as a standard expiration options series, Monthly Options
Series, or Quarterly Options Series.
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\17\ See id.
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The interval between strike prices for the proposed Monday and
Wednesday Qualifying Securities Expirations will be the same as those
currently applicable for SPY, QQQ, and IWM Monday and Wednesday
Expirations (among other symbols that may list a Monday or Wednesday
Expiration) in the Short Term Option Series Program.\18\ Specifically,
the Monday and Wednesday Qualifying Securities Expirations will have a
strike interval of (i) $0.50 or greater for strike prices below $100,
and $1 or greater for strike prices between $100 and $150 for all
option classes that participate in the Short Term Option Series
Program, (ii) $0.50 for option classes that trade in one dollar
increments and are in the Short Term Option Series Program, or (iii)
$2.50 or greater for strike prices above $150.\19\ As is the case with
other equity options series listed pursuant to the Short Term Option
Series Program, the Monday and Wednesday Qualifying Securities
Expirations series will be P.M.-settled.
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\18\ See Supplementary Material .03(e) to Options 4, Section 5.
The Exchange notes that equity options which have an expiration of
more than twenty-one days from the listing date would also be
subject to the intervals as noted within Supplementary Material
.03(f) to Options 4, Section 5. See also Supplementary .07 to
Options 4, Section 5.
\19\ See id.
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Pursuant to Options 1, Section 1(a)(49), with respect to the Short
Term Option Series Program, if a Monday is not a business day, the
series shall expire on the first business day immediately following
that Monday. Also, pursuant to Options 1, Section 1(a)(49), with
respect to the Short Term Option Series Program, a Wednesday expiration
series shall expire on the first business day immediately prior to that
Wednesday, e.g., Tuesday of that week if the Wednesday is not a
business day.
Currently, for each option class eligible for participation in the
Short Term Option Series Program, the Exchange is limited to opening
thirty (30) series for each expiration date for the specific class.\20\
The thirty (30) series restriction does not include series that are
open by other securities exchanges under their respective weekly rules;
the Exchange may list these additional series that are listed by other
options exchanges.\21\ With the proposed changes, this thirty (30)
series restriction would apply to Monday and Wednesday Qualifying
Securities Expirations as well. In addition, the
[[Page 31719]]
Exchange will be able to list series that are listed by other
exchanges, assuming they file similar rules with the Commission to list
Monday and Wednesday Qualifying Securities Expirations.
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\20\ See Supplementary Material .03(a) to Options 4, Section 5.
\21\ See id.
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With this proposal, Monday and Wednesday Qualifying Securities
Expirations would be treated similar to existing SPY, QQQ, and IWM
Monday and Wednesday Expirations. With respect to standard expiration
option series, Monday and Wednesday Qualifying Securities Expirations
will be permitted to expire in the same week in which standard
expiration option series on the same class expire.\22\ Not listing
Monday and Wednesday Qualifying Securities Expirations for one week
every month because there was a standard options series on that same
class on the Friday of that week would create investor confusion.
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\22\ See id.
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Further, as with SPY, QQQ, and IWM Monday and Wednesday
Expirations, the Exchange would not permit Monday and Wednesday
Qualifying Securities Expirations to expire on a business day in which
standard expiration option series, Monthly Options Series, or Quarterly
Options Series expire.\23\ Therefore, all Monday and Wednesday
Qualifying Securities Expirations would expire at the close of business
on each of the next two Mondays and Wednesdays, respectively, that are
business days and are not business days in which standard expiration
option series, Monthly Options Series, or Quarterly Options Series
expire. The Exchange believes that it is reasonable to not permit two
expirations on the same day in which a standard expiration option
series, Monthly Options Series, a Quarterly Options Series would expire
because those options would be duplicative of each other.
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\23\ See Supplementary Material .03 to Options 4, Section 5.
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The Exchange does not believe that any market disruptions will be
encountered with the introduction of Monday and Wednesday Qualifying
Securities Expirations. The Exchange currently trades P.M.-settled
Short Term Option Series that expire Monday, Tuesday, Wednesday and
Thursday on several symbols \24\ and has not experienced any market
disruptions nor issues with capacity. Today, the Exchange has
surveillance programs in place to support and properly monitor trading
in Short Term Option Series that expire Monday, Tuesday, Wednesday and
Thursday on several symbols.\25\ The Exchange believes that it has the
necessary capacity and surveillance programs in place to support and
properly monitor trading in the proposed Monday and Wednesday
Qualifying Securities Expirations.
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\24\ See supra note 4.
\25\ See id.
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Impact of Proposal
The Exchange notes that listings in the Short Term Option Series
Program comprise a significant part of the standard listings in options
markets. Table 1 demonstrates the percentage of weekly listings in the
options industry compared to monthly, quarterly, and Long-Term Option
Series for a twelve-month period from February 11, 2024 to February 11,
2025.\26\
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\26\ The Exchange sourced this information from OCC. The
information includes time averaged data (the number of strikes by
maturity date divided from the number of trading days) for all 18
options markets from February 11, 2024 to February 11, 2025.
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Table 1
[GRAPHIC] [TIFF OMITTED] TN15JY25.002
While the Exchange is expanding the Short Term Option Series
Program to permit Monday and Wednesday Qualifying Securities
Expirations, the Exchange anticipates that it would overall add a small
number of weekly expiration dates because the Exchange will limit the
number of Qualifying Securities Expirations to two Monday
[[Page 31720]]
expirations and two Wednesday expirations. If today the data were
applied based on data from January 2025, the following options would
meet the criteria to be a Qualifying Security: NVIDIA Corp (``NVDA''),
Tesla Inc. (``TSLA''), Apple Inc. (``AAPL''), Amazon.com Inc.
(``AMZN''), Broadcom Inc. (``AVGO''), Alphabet Inc. (``GOOGL''),
Microsoft Corp (``MSFT''), Financial Select Sector SPDR Fund (``XLF''),
and Meta Platforms Inc. (``META'') (collectively ``Sample Qualifying
Securities''). Utilizing the Sample Qualifying Securities as a data
point, expanding the Short Term Option Series Program would account for
the addition of approximately 16% of strikes for the total number of
strikes for each of the following symbols: NVDA, TSLA, AAPL, AMZN,
AVGO, GOOGL, MSFT, and META.
Further, as shown in Table 2, weeklies comprise 52% of the total
volume of options contracts.\27\
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\27\ The chart represents industry volume in terms of overall
contracts. Weeklies comprise 52% of volume, as shown in Table 2,
while only being 19% of the strikes, as shown in Table 1. The
Exchange sourced this information from OCC. The information includes
data for all 18 options markets from February 11, 2024 to February
11, 2025.
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Table 2
[GRAPHIC] [TIFF OMITTED] TN15JY25.003
The Exchange believes that inner weeklies (first two weeks)
represent high volume as compared to outer weeklies (the last three
weeks) and would be more attractive to market participants.
In particular, the Exchange looked at the average daily contracts
traded in options that met the criteria for a Qualifying Security.
Specifically, for each of the Sample Qualifying Securities, the
Exchange looked at pre-close movements between 3:30--4:00 p.m. Eastern
Time (``ET'') as well as post-close movements between 4:00-5:30 p.m.
ET.
Table 3, below, references the number of trading days with at least
one strike break post close (comparing 4:00 p.m. ET to 5:30 p.m. ET)
from 2022 through 2024 for the Sample Qualifying Securities and SPY,
QQQ and IWM.
[[Page 31721]]
Table 3
[GRAPHIC] [TIFF OMITTED] TN15JY25.004
Table 4, below, references average annualized closing volatilities
(as measured by the standard deviation of 30 seconds returns over the
last 30 minutes of trading) for the Sample Qualifying Securities from
2022 through 2024. Table 4 shows that the Sample Qualifying Securities
have an average annualized closing volatility of generally less than
20%.
Table 4
[GRAPHIC] [TIFF OMITTED] TN15JY25.005
[[Page 31722]]
Table 4, above, demonstrates that the Sample Qualifying Securities
are more volatile than SPY, QQQ and IWM.
Given that these are individual stocks it is reasonable to expect
that they have idiosyncratic characteristics (increasing their
volatility) relative to broad based Exchange-Traded Fund Shares like
SPY, QQQ and IWM. None, however, are demonstrating average returns that
are more than double that of IWM. Moreover, on Mondays and Wednesdays
the Sample Qualifying Securities do not show any excessive propensity
to penetrate \28\ strikes post close (4:00 p.m.-5:30 p.m. ET) in
comparison to SPY, QQQ and IWM. Consequently, the burden of American-
style option \29\ exercise management on investors is not overwhelming
relative to SPY, QQQ and IWM which have the largest retail
participation based on volume in the industry.
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\28\ For purposes of this rule change, ``penetrating a strike''
refers to the underlying asset's price moving beyond the designated
strike price of an option contract.
\29\ The term ``American-style option'' means an options
contract that, subject to the provisions of Options 6B, Section 1
(relating to the cutoff time for exercise instructions) and to the
Rules of the Clearing Corporation, can be exercised on any business
day prior to its expiration date and on its expiration date. See
Options 1, Section 1(a)(3).
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The Exchange also reviewed the number of strike breaks for calendar
years 2022--2025 for the Sample Qualifying Securities between 4:00 p.m.
and 5:30 p.m. ET to find the maximum \30\ number of strike breaks \31\
as well as the mean \32\ of the number of strike breaks as evidenced by
the various Table 5 charts.
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\30\ The term ``maximum'' refers to the largest instance of
strike breaks measured as the number of strikes crossed by the
underlying security from the 4:00 p.m. ET closing price to the 9:30
a.m. ET opening price.
\31\ A strike break is the existence of a strike between the
closing price and the opening price on the following day when there
has been a penetration of a strike post-close.
\32\ The term ``mean'' refers to the average number of strike
breaks when there has been a penetration of a strike post-close.
Table 5--Monday, Non-Earnings Announcement Charts
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Mean strikes
Max (strikes moved through on
Number of days moved through on Max (percentage a non-earnings
with strike break non-earnings move overnight on announcement
through on non- announcement non-earnings Monday when there
earnings Mondays from 4:00 announcement is an instance of
Security announcement p.m. to 9:30 a.m. Mondays when move through
Mondays (4:00 next day) when there is a strike (from 4:00 p.m.
p.m. ET-5:30 p.m. strikes are break from 4:00 to 5:30 p.m. on a
ET) penetrated from p.m. to 5:30 p.m. non-earnings
4:00-5:30 p.m. ET ET) (%) announcement
Monday)
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2022
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AAPL................................ 1 2.33 1.63 2.33
AMZN................................ 9 14.10 4.32 4.94
AVGO................................ 3 2.76 1.36 1.80
FB.................................. 1 6.28 8.00 6.28
GOOGL............................... 9 22.86 5.13 5.96
IWM................................. 4 2.04 1.02 0.84
MSFT................................ 0 N/A N/A N/A
NVDA................................ 1 0.21 0.24 0.21
QQQ................................. 4 5.30 1.81 2.31
SPY................................. 7 8.33 2.27 2.68
TSLA................................ 3 4.33 3.21 3.09
XLF................................. 4 0.98 1.24 0.56
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2023
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AAPL................................ 0 N/A N/A N/A
AMZN................................ 0 N/A N/A N/A
AVGO................................ 6 5.18 2.03 3.24
GOOGL............................... 1 2.78 1.02 2.78
IWM................................. 0 N/A N/A N/A
META................................ 1 0.18 0.15 0.18
MSFT................................ 0 N/A N/A N/A
NVDA................................ 1 3.24 1.85 3.24
QQQ................................. 0 N/A N/A N/A
SPY................................. 1 2.21 0.52 2.21
TSLA................................ 1 0.66 0.46 0.66
XLF................................. 0 N/A N/A N/A
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2024
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AAPL................................ 0 N/A N/A N/A
AMZN................................ 0 N/A N/A N/A
AVGO................................ 9 6.50 2.10 1.99
GOOGL............................... 0 N/A N/A N/A
IWM................................. 2 0.74 0.36 0.5
META................................ 3 1.31 0.68 0.78
MSFT................................ 1 1.94 1.22 1.94
NVDA................................ 6 7.42 3.44 5.24
QQQ................................. 2 2.35 0.54 1.62
[[Page 31723]]
SPY................................. 1 2.2 0.43 2.2
TSLA................................ 3 5.19 2.80 3.40
XLF................................. 1 0.5 0.59 0.5
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2025
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AAPL................................ 0 N/A N/A N/A
AMZN................................ 0 N/A N/A N/A
AVGO................................ 4 13.95 9.05 4.63
GOOGL............................... 1 * 0.00 0.01 ** 0.00
IWM................................. 1 0.22 0.10 0.22
META................................ 2 1.91 0.69 1.23
MSFT................................ 1 0.18 0.12 0.18
NVDA................................ 5 6.16 6.31 2.72
QQQ................................. 4 14.73 3.48 5.37
SPY................................. 5 17.62 3.49 4.86
TSLA................................ 3 4.35 2.81 2.38
XLF................................. 0 N/A N/A N/A
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* On this date, GOOGL had a strike break post-close but mean reverted to the closing price by the open the next
day.
** See id.
The Table 6 charts, below, reviewed the number of strike breaks for
calendar years 2022-2025 for the Sample Qualifying Securities,\33\
excluding Wednesdays \34\ for scheduled Earning Announcements, between
4:00 p.m. and 5:30 p.m. ET to find the maximum number of strike breaks
as well as the mean of the number of strike breaks.
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\33\ Of note, not all Sample Qualifying Securities had Earnings
Announcements on a Wednesday.
\34\ There were no Earnings Announcements on Mondays for the
Sample Qualifying Securities.
Table 6--Wednesday, Non-Earnings Announcement Charts
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Mean strikes
moved through on
Max (strikes Max (percentage a non-earnings
Number of days moved through on move overnight on announcement
with strike break non-earnings non-earnings Wednesday when
through on non- announcement announcement there is an
Security earnings Wednesdays from Wednesdays when instance of move
announcement 4:00 p.m. to 9:30 there is a strike through (from
Wednesdays (4:00 a.m. next day) break from 4:00 4:00 p.m. to 5:30
p.m. ET-5:30 p.m. when strikes are p.m. to 5:30 p.m. p.m. on a non-
ET) penetrated from ET) (%) earnings
4:00-5:30 p.m. ET announcement
Wednesday)
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2022
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AAPL................................ 0 N/A N/A N/A
AMZN................................ 14 35.50 5.89 8.35
AVGO................................ 9 4.85 2.13 2.07
FB.................................. 2 31.20 24.15 21.22
GOOGL............................... 10 8.73 1.86 4.22
IWM................................. 7 3.71 1.80 2.07
MSFT................................ 2 1.54 1.23 1.14
NVDA................................ 6 8.88 6.20 5.05
QQQ................................. 10 10.75 3.26 4.39
SPY................................. 9 10.94 2.59 4.47
TSLA................................ 8 12.73 8.33 3.45
XLF................................. 6 0.84 1.04 0.42
----------------------------------------------------------------------------------------------------------------
2023
----------------------------------------------------------------------------------------------------------------
AAPL................................ 1 1.08 1.61 1.08
[[Page 31724]]
AMZN................................ 3 5.30 5.04 3.05
AVGO................................ 11 10.31 2.94 2.64
FB.................................. 6 7.32 5.35 3.59
GOOGL............................... 2 1.09 0.63 0.87
IWM................................. 1 1.70 1.45 1.70
MSFT................................ 2 3.67 2.92 3.00
NVDA................................ 3 4.20 2.48 2.06
QQQ................................. 6 7.59 2.29 4.38
SPY................................. 5 4.08 0.99 2.63
TSLA................................ 4 6.39 7.88 2.50
XLF................................. 1 0.12 0.19 0.12
----------------------------------------------------------------------------------------------------------------
2024
----------------------------------------------------------------------------------------------------------------
AAPL................................ 0 N/A N/A N/A
AMZN................................ 1 2.77 3.92 2.77
AVGO................................ 15 10.85 4.42 3.71
GOOGL............................... 3 3.20 5.03 2.86
IWM................................. 1 2.22 1.02 2.22
META................................ 5 5.52 2.56 2.66
MSFT................................ 2 6.09 3.72 4.11
NVDA................................ 15 8.32 3.32 2.82
QQQ................................. 16 11.16 2.37 4.16
SPY................................. 7 9.67 1.72 4.79
TSLA................................ 1 1.70 2.06 1.70
XLF................................. 0 N/A N/A N/A
----------------------------------------------------------------------------------------------------------------
2025
----------------------------------------------------------------------------------------------------------------
AAPL................................ 1 7.36 8.21 7.36
AMZN................................ 1 5.20 6.64 5.20
AVGO................................ 5 11.45 6.65 6.19
GOOGL............................... 1 2.38 3.79 2.38
IWM................................. 2 9.52 4.70 7.39
META................................ 3 15.55 6.66 7.17
MSFT................................ 2 3.35 2.14 1.90
NVDA................................ 4 6.91 6.26 2.56
QQQ................................. 7 19.87 4.17 7.22
SPY................................. 5 19.45 3.45 8.35
TSLA................................ 1 7.03 6.21 7.03
XLF................................. 1 3.90 3.89 3.90
----------------------------------------------------------------------------------------------------------------
Because the Exchange proposes to limit the number of Monday and
Wednesday Qualifying Securities Expirations to two expirations beyond
the current week, the Exchange believes that the addition of these
Monday and Wednesday Qualifying Securities Expirations should encourage
Market Makers to continue to deploy capital more efficiently and
improve displayed market quality.\35\ Utilizing the Sample Qualifying
Securities as a proxy, the marginal increase in the number of
occurrences of strike breaks in 2024 would be sixty-six (66) with the
addition of these expirations. Further, there would be a marginal
increase of twenty-two (22) instances of strike breaks in 2024 on
Monday expiries after regular trading hours, and a marginal increase of
forty-four (44) instances of strike breaks in 2024 on Wednesday
expiries without Earnings Announcements after regular trading hours.
---------------------------------------------------------------------------
\35\ Market Makers include Primary Market Makers and Competitive
Market Makers. See Options 1, Section 1(a)(21). Today, Primary
Market Makers and Competitive Market Makers are required to quote a
specified time in their assigned options series. See Options 2,
Section 5.
---------------------------------------------------------------------------
Similar to SPY, QQQ and IWM Monday and Wednesday Expirations, the
introduction of Monday and Wednesday Qualifying Securities Expirations
will, among other things, expand hedging tools available to market
participants and allow for a reduced premium cost of buying portfolio
protection. The Exchange believes that the proposal would permit only
the most liquid securities to have the additional Monday and Wednesday
Qualifying Security Expirations. The Exchange believes that offering
these
[[Page 31725]]
additional expiries in the Qualifying Securities would permit Market
Makers and other market participants to precisely hedge their positions
in the underlying security with the additional expiries in lieu of
hedging only with Friday expirations.
Finally, the Exchange considered the impact of a market
participant's propensity to rationally exercise outstanding options
contracts by the tender of an exercise notice (``Contrary Exercise
Advice'').\36\ Specifically, ISE examined SPY data from April 2, 2025
(a day where there was a significant drop after the close).\37\ On
April 2, 2025, SPY settled at 4:00 p.m. at $564.52.\38\ At 5:00 p.m.,
SPY was trading at $552.42.\39\ Every call option with a April 2, 2025
expiration date and a strike price below $564 was automatically
exercised by OCC, unless OCC received Contrary Exercise Advices from a
market participant.\40\ ISE obtained the amount of long open interest
in the customer or ``C'' range \41\ at OCC starting at the close of the
prior trading day and added customer long activity that executed on
April 2, 2025 to that figure.\42\ Next, ISE subtracted the liquidating
activity for customers, and examined the quantity of Contrary Exercise
Advices received by OCC on April 2, 2025 and compared that figure to
the number of customers that did not abandon their calls rationally
relative to the number of customers who entered into options contracts.
The data below in Table 7 and Table 8 \43\ applies to calls in SPY in
the customer range at OCC for expiration date April 2, 2025.
---------------------------------------------------------------------------
\36\ A Contrary Exercise Advice may be exercised during the time
period specified in the Rules of the Clearing Corporation by the
tender to the Clearing Corporation of an exercise notice in
accordance with the Rules of the Clearing Corporation. An exercise
notice may be tendered to the Clearing Corporation only by the
Clearing Member in whose account such options contract is carried
with the Clearing Corporation. Members may establish fixed
procedures as to the latest time they will accept exercise
instructions from customers. See Options 6B, Section 1. Option
holders have until 5:30 p.m. Eastern Time (``ET'') on the business
day of expiration, or, in the case of a standardized equity option
expiring on a day that is not a business day, on the business day
immediately prior to the expiration date to make a final exercise
decision to exercise or not exercise an expiring option. Members may
not accept exercise instructions for customer or non-customer
accounts after 5:30 p.m. ET. See FINRA Rule 2360(a)(23)(A)(iii). A
Contrary Exercise Advice is a form approved by the national options
exchanges, FINRA or The Options Clearing Corporation for use by a
member to submit a final exercise decision committing an options
holder to either: (1) not exercise an option position which would
automatically be exercised pursuant to The Options Clearing
Corporation's Ex-by-Ex procedure; or (2) to exercise a standardized
equity option position which would not automatically be exercised
pursuant to The Options Clearing Corporation's Ex-by-Ex procedure.
See FINRA Rule 2360(a)(23)(A)(iv).
\37\ On April 2, 2025, President Trump announced a series of
tariffs on imports, which he called ``Liberation Day''. This news
impacted markets generally.
\38\ The data was obtained from OCC by request.
\39\ See id.
\40\ See id.
\41\ The ``C'' range at OCC includes customer transactions,
professional transactions and transactions executed by broker-
dealers that are not affiliated with a clearing member that clear in
the ``C'' range at OCC.
\42\ See id.
\43\ Table 7 and Table 8 should be read together.
Table 7
----------------------------------------------------------------------------------------------------------------
Open contracts
at EOD which
Longs *** held Buys to open Aggregate are eligible
Strike on 4/1/2025 or expand a longs held for auto-ex on
position April 2, 2025
EOD
----------------------------------------------------------------------------------------------------------------
553............................................. 104 265 369 45
554............................................. 340 795 1,135 258
555............................................. 2,240 4,135 6,375 238
556............................................. 619 5,582 6,201 142
557............................................. 582 9,235 9,817 52
558............................................. 587 14,683 15,270 72
559............................................. 705 22,931 23,636 70
560............................................. 2,218 49,336 51,554 316
561............................................. 2,284 55,318 57,602 1,014
562............................................. 1,941 67,057 68,998 55
563............................................. 1,339 83,871 85,210 87
564............................................. 1,222 78,612 79,834 533
----------------------------------------------------------------------------------------------------------------
*** The term ``long position'' means a person's interest as the holder of one or more options contracts. See
Options 1, Section 1(a)(20).
Table 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Contracts Percentage of
Unabandoned unabandoned or unabandoned
Contracts and unliquidated and
Aggregate Liquidation where abandon unliquidated as a % of unliquidated
Strike liquidation of ratio instructions contracts total long contracts as
longs were issued (auto- contracts held compared to
exercised by during the day open contracts
OCC) (%) (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
553..................................................... 324 87.80 22 23 6.23 51.11
554..................................................... 877 77.27 187 71 6.26 27.52
555..................................................... 6,137 96.27 53 185 2.90 77.73
556..................................................... 6,059 97.71 88 54 0.87 38.03
557..................................................... 9,765 99.47 2 50 0.51 96.15
558..................................................... 15,198 99.53 49 23 0.15 31.94
559..................................................... 23,566 99.70 26 44 0.19 62.86
560..................................................... 51,238 99.39 240 76 0.15 24.05
[[Page 31726]]
561..................................................... 56,588 98.24 994 20 0.03 1.97
562..................................................... 68,943 99.92 16 39 0.06 70.91
563..................................................... 85,123 99.90 25 62 0.07 71.26
564..................................................... 79,301 99.33 467 66 0.08 12.38
--------------------------------------------------------------------------------------------------------------------------------------------------------
The data indicates that the vast majority of open contracts (over
90%) were liquidated by customers prior to the close. Of the remaining
open contracts, a substantial portion were rationally abandoned. In
considering what constitutes rational activity on the part of a market
participant in determining whether to exercise, especially in the
strike near the 5:00 p.m. price, it must be taken into consideration
that some market participants may elect to hold a contract given the
illiquidity of the time period, and the desire for long exposure
despite a trade price that may be lower. In other words, it cannot be
assumed that customers are unaware of the market conditions for SPY
after the close on April 2, 2025, or their ability to liquidate. Also,
it cannot be assumed that the customer would always liquidate in these
circumstances. In reviewing Tables 7 and 8 together, customers with
calls in SPY on April 2, 2025 had a very high liquidation ratio which
is evidenced by comparing the unabandoned contracts to the entire pool
of long contracts throughout the day. Finally, the amount of
unliquidated and unabandoned call contracts in Table 8 represents a de-
minimis amount (less than 1%) when considering that SPY trades millions
of contracts each day.
The Exchange also examined the out-of-the-money or ``OTM'' activity
on the puts in SPY on April 2, 2025 for customers. The data below in
Table 9 and Table 10 \44\ applies to puts in SPY in the customer range
at OCC for expiration date April 2, 2025.
---------------------------------------------------------------------------
\44\ Table 9 and Table 10 should be read together.
Table 9
----------------------------------------------------------------------------------------------------------------
Open contracts
Buys to open Aggregate at EOD on 4/2
Strike Longs held on or expand a longs held on that are
4/1/2025 EOD position on 4/ 4/2 eligible for
2/2025 OTM exercise
----------------------------------------------------------------------------------------------------------------
553............................................. 2,008 17,807 19,815 1,992
554............................................. 3,575 23,220 26,795 2,459
555............................................. 6,271 67,698 73,969 5,009
556............................................. 3,177 37,457 40,634 2,648
557............................................. 3,094 47,699 50,793 1,573
558............................................. 3,091 66,130 69,221 7,063
559............................................. 2,492 82,114 84,606 16,366
560............................................. 3,382 118,564 121,946 17,481
561............................................. 1,707 76,970 78,677 5,660
562............................................. 435 75,447 75,882 6,552
563............................................. 581 75,463 76,044 6,522
564............................................. 399 50,724 51,123 197
----------------------------------------------------------------------------------------------------------------
Table 10
----------------------------------------------------------------------------------------------------------------
Contracts
Contracts not Percentage
where OTM Puts **** exercised of Put
Aggregate exercise where no OTM as a % of contracts
Strike liquidation Liquidation instructions exercise long where no OTM
of longs ratio (%) were instructions contracts exercise
received by were given held instructions
OCC throughout were given
the day (%)
----------------------------------------------------------------------------------------------------------------
553............................ 17,823 89.95 833 1,159 5.85 58.18
554............................ 24,336 90.82 791 1,668 6.23 67.83
555............................ 68,960 93.23 1,436 3,573 4.83 71.33
556............................ 37,986 93.48 1,170 1,478 3.64 55.82
557............................ 49,220 96.90 557 1,016 2.00 64.59
558............................ 62,158 89.80 3,064 3,999 5.78 56.62
559............................ 68,240 80.66 15,642 724 0.86 4.42
[[Page 31727]]
560............................ 104,465 85.66 16,745 736 0.60 4.21
561............................ 73,017 92.81 5,415 245 0.31 4.33
562............................ 69,330 91.37 6,436 116 0.15 1.77
563............................ 69,522 91.42 6,443 79 0.10 1.21
564............................ 50,926 99.61 180 17 0.03 8.63
----------------------------------------------------------------------------------------------------------------
**** The term ``put'' means an options contract under which the holder of the option has the right, in
accordance with the terms and provisions of the option, to sell to the Clearing Corporation the number of
shares of the underlying security covered by the options contract. See Options 1, Section 1(a)(44).
With respect to the put data for SPY on April 2, 2025, it can be
observed that out-of-the-money options were either liquidated or
exercised. Only a small percentage of options went unexercised.
Additionally, it can be observed that very few puts remained
unexercised at the higher strikes where opportunity for profit and less
risk exists. This is in contrast to puts on lower strikes where
opportunity for profit relative to the risk of the short is greater. In
particular, with respect to the risk exposure of put writers, the
exposure to an event similar to April 2, 2025 for the proposed
Wednesday expirations would be substantially similar to the current
risk that a put writer is exposed to with Friday expirations. In other
words, the day of the expiry does not increase or decrease the amount
of risk of a put writer, but for the premium difference. Additionally,
the Exchange believes that since the rational abandonment and out-of-
the-money exercise rates were so high, as evidenced in Tables 9 and 10,
it is clear that customers are largely aware of the exposure between
4:00 and 5:00 p.m. ET and therefore, the risk from the unliquidated
position is undertaken knowingly.
In determining the rational in-the-money abandonment or out-of-the-
money exercise, the Exchange elected not to consider the amount of
contracts rationally exercised/abandoned divided by the amount of open
contracts at the end of the day. The Exchange believes that this data
point fails to consider the outsized amount of liquidation customers
undertake prior to the Contrary Exercise Window.\45\ In other words,
the amount of liquidations taken by customers prior to the Contrary
Exercise Window is evidence that market participants are informed and
electing to accept a premium in lieu of the potential to maximize the
value of their option in the Contrary Exercise Window. The Exchange
believes that the amount of open contracts in these options is de
minimis and, therefore, any evidence of an option trader's failure to
act rationally would skew the percentage in such a way to exaggerate
the perception of the risk averting behaviors. For example, taken to an
extreme, if 3 contracts are left open in an option that trades over
100,000 in a given day, and 2 options are not rationally exercised this
would amount to 66.6% of non-rationally exercised/abandoned contracts.
In this example, 3 options are not rationally exercised out of the 3
open contracts or 100%. The Exchange does not believe this comparison
yields a result that is insightful. For this reason, the Exchange opted
to compare the amount of irrational failures to exercise/abandon to the
total amount of contracts that were open during that trading day. The
Exchange believes its method of comparison provides a better risk
determination.
---------------------------------------------------------------------------
\45\ A ``Contrary Exercise Window'' refers to a specific
timeframe during which an options holder can submit a Contrary
Exercise Advice. Option holders who hold expiring options have until
5:30 p.m. Eastern Time (ET) on the day of expiration to make a final
exercise decision to exercise or not exercise the option. Members
may establish an earlier time to accept exercise instructions for
customer or non-customer accounts (typically by 5:00 p.m. ET) but
may not accept instructions after 5:30 p.m. ET. See https://www.finra.org/rules-guidance/notices/information-notice-020321.
---------------------------------------------------------------------------
The Options Disclosure Document (``ODD'') notes that risks of
option exercises.
To exercise an option that is not subject to automatic exercise,
the holder must direct his brokerage firm to give exercise
instructions to OCC. In order to ensure that an option is exercised
on a particular day, the holder must direct his brokerage firm to
exercise before the firm's cut-off time for accepting exercise
instructions for that day. Different firms may have different cut-
off times for accepting exercise instructions from customers, and
those cut-off times may be different for different options.
A brokerage firm's cut-off time for accepting exercise
instructions becomes critical on the last trading day before an
option expires. An option that expires unexercised becomes
worthless. An option holder who intends to exercise an option before
expiration must give exercise instructions to his brokerage firm
before the firm's cut-off time for accepting exercise instructions
on the last trading day before expiration. If the expiration date of
an option falls on a day on which an options market is open for
trading in that option, a brokerage firm's last cut-off time for
accepting exercise instructions prior to the option's expiration may
be on the expiration date. Investors should be aware of their
brokerage firm's policies in this regard. Many brokerage firms
accept standing instructions to exercise, or have procedures for the
exercise of, every option which is in the money by a specified
amount at expiration. These procedures often incorporate by
reference OCC's administrative procedures that provide for the
exercise of every option that is in the money by a specified amount
at expiration unless the Clearing Firm carrying the option in its
accounts instructs OCC not to exercise the option. Investors should
determine from their brokerage firm the applicable cut-off times,
the firm's procedures for submitting exercise instructions, and
whether any of their options are subject to automatic exercise.
Investors should also determine whether the exercise of their
options is subject to standing instructions of their brokerage firm,
and, if so, they should discuss with the firm the potential
consequences of such instructions.\46\
---------------------------------------------------------------------------
\46\ The ``How to Exercise'' section in the ODD describes how to
utilize the Contrary Exercise Advice. See https://www.theocc.com/getmedia/a151a9ae-d784-4a15-bdeb-23a029f50b70/riskstoc.pdf.
Market participants that elect to transact in options should
receive a copy of the ODD from their broker-
[[Page 31728]]
dealer.\47\ The ODD explains the risks inherent in options trading.\48\
Broker-dealers must have a reasonable basis to believe that a
recommended transaction or investment strategy involving a security or
securities is suitable for the customer.\49\ Suitability rules are
intended to distinguish the trading of customers with those of
professional traders who are likely to have distinct risk/reward
profiles, risk tolerance and capital.
---------------------------------------------------------------------------
\47\ See FINRA Rule 2360(b)(16)(A).
\48\ https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document.
\49\ See FINRA Rule 2111.
---------------------------------------------------------------------------
Finally, the Exchange believes there is general demand for
alternative expirations in Monday and Wednesday Qualifying Securities
Expirations. Table 11 below displays the percentage of SPY options
volume, from 2018-2025, versus the number of days until expiration.
Table 11
[GRAPHIC] [TIFF OMITTED] TN15JY25.006
Table 11 displays a clear preference for shorter-dated options
trading.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\50\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\51\ 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.
---------------------------------------------------------------------------
\50\ 15 U.S.C. 78f(b).
\51\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Similar to Monday expirations in SPY, QQQ, and IWM, the proposal to
permit Monday and Wednesday Qualifying Security Expirations, subject to
the proposed limitation of two expirations beyond the current week,
would protect investors and the public interest by providing the
investing public and other market participants more choice and
flexibility to closely tailor their investment and hedging decisions in
these options and allow for a reduced premium cost of buying portfolio
protection, thus allowing them to better manage their risk exposure.
The Exchange believes that the proposed criteria for Qualifying
Securities requires individual stocks and Exchange-Traded Fund Shares
to be highly liquid. A market capitalization measured on the last day
of the prior calendar quarter based on the closing price of the
underlying, of greater than 700 billion dollars for an individual
stock, or AUM of 50 billion dollars for an Exchange-Trade Fund Share,
in conjunction with the monthly options volume requirement of greater
than 10 million options as measured by sides traded in the last month
preceding the quarter end, is very restrictive. This requirement
represents substantially less than 1% of individual stocks (only eight
(8) individual stocks currently exist as of January 1, 2025) and
substantially less than 1% of Exchange-Traded Fund Shares (only seven
(7) Exchange-Traded Fund Shares currently exist as of January 1, 2025,
of which five (5) are eligible, today, pursuant to Options 4, Section
3, to trade additional expiries) traded.\52\ Therefore, an individual
stock or Exchange-Traded Fund Share that meets the aforementioned
market capitalization and volume requirements are highly liquid and
could be viewed as stable securities. Table 7, below, demonstrates the
very low average realized volatility experienced by the Sample
Qualifying Securities in the last 30 minutes of trading before the
close in 2024 as compared to any security that traded an average of
more than 100 options contracts per day.
---------------------------------------------------------------------------
\52\ Only one (1) of the seven (7) Exchange-Traded Fund Shares
is eligible because the iShares Bitcoin Trust ETF position limit is
restricted at 25,000 contracts pursuant to Supplementary Material
.01 to Options 9, Section 13, although it would otherwise qualify
for a higher position limit pursuant to Options 9, Section 13(d).
---------------------------------------------------------------------------
[[Page 31729]]
Table 7
[GRAPHIC] [TIFF OMITTED] TN15JY25.007
The Exchange notes that with respect to position limits, Options 9,
Section 13(d)(5) provides, that ``[t]o be eligible for the 250,000
contract limit, either the most recent six (6) month trading volume of
the underlying security must have totalled at least 100 million shares
or the most recent six-month trading volume of the underlying security
must have totalled at least seventy-five (75) million shares and the
underlying security must have at least 300 million shares currently
outstanding.'' The 250,000 contract position limit is the highest
position limit by Exchange rule. Options that qualify for the 250,000
position (and exercise) limit are highly liquid securities that have
met the stringent requirements noted in Options 9, Section 13(d)(5) to
qualify for the highest position limit.
Finally, a Qualifying Security must participate in the Penny
Interval Program. In order to qualify for the Penny Interval Program,
an options class must be among the 300 most actively traded multiply
listed option classes overlying securities priced below $200.\53\ The
most actively traded options classes are included in the Penny Interval
Program based on certain objective criteria (trading volume thresholds
and initial price tests).
---------------------------------------------------------------------------
\53\ See Supplementary Material .01(b) to Options 3, Section 3.
Each December OCC ranks all multiply listed option classes based on
National Cleared Volume for the six full calendar months from June 1
through November 30 for determination of the most actively traded
option classes.
---------------------------------------------------------------------------
The number of individual stocks currently meeting all four criteria
for a Qualifying Security is eight (8) and the number of Exchange-
Traded Fund Shares currently meeting all four criteria for a Qualifying
Security that do not already have Monday and Wednesday expirations is
one (1) as of June 27, 2025. Both totals represent less than 0.2% of
all securities with options listed. The Exchange believes that since
individual stocks are the dominant constituents of the broad-based
indexes (e.g., S&P 500 Index and Nasdaq-100 Index), the improvement in
price transparency brought about by Monday and Wednesday trading will
offer Market Makers and investors better volatility pricing which will
inform trading on the related products to these indexes. The Exchange
believes that the proposed criteria for Qualifying Securities is
consistent with the protection of investors and the general public
because the criteria targets the most liquid individual stocks and
Exchange-Traded Fund Shares.
The Exchange would not list an expiry on a Qualifying Security on a
day where there will be an Earnings Announcement that takes place after
market close to avoid post-close price volatility that may arise from
the Earnings Announcement and which may impact exercise and/or
assignment decisions.
Qualifying Securities that do not continue to meet the above
criteria would no longer be permitted to list Monday and Wednesday
expiries in the following quarter, although the Qualifying Security
would potentially have two weeks of strikes already listed which will
persist. These remaining listings could continue to be traded until
they expire.
With this proposal, overall, the Exchange would add a small number
of Monday and Wednesday Qualifying Security Expirations by limiting the
addition of two Monday expirations and two Wednesday expirations beyond
the current week. The addition of Monday and Wednesday Qualifying
Security Expirations would remove impediments to and perfect the
mechanism of a free and open market by encouraging Market Makers to
continue to deploy capital more efficiently and improve displayed
market quality.\54\ The Exchange believes that the proposal will allow
Members to
[[Page 31730]]
expand hedging tools and tailor their investment and hedging needs more
effectively in Qualifying Securities as these funds are most likely to
be utilized by market participants to hedge the underlying asset
classes.
---------------------------------------------------------------------------
\54\ Today, Primary Market Makers and Market Makers are required
to quote a specified time in their assigned options series. See
Options 2, Section 5.
---------------------------------------------------------------------------
Similar to SPY, QQQ, and IWM Monday and Wednesday Expirations, the
introduction of Monday and Wednesday Qualifying Security Expirations is
consistent with the Act as it will, among other things, expand hedging
tools available to market participants and allow for a reduced premium
cost of buying portfolio protection. The Exchange believes that Monday
and Wednesday Qualifying Security Expirations will allow market
participants to purchase options on Qualifying Securities based on
their timing as needed and allow them to tailor their investment and
hedging needs more effectively, thus allowing them to better manage
their risk exposure. Today, ISE lists other Monday and Wednesday
expirations.\55\
---------------------------------------------------------------------------
\55\ See ISE Supplementary Material .03 at Options 4, Section 5
at Table 1.
---------------------------------------------------------------------------
In particular, the Exchange believes the Short Term Option Series
Program has been successful to date and that Monday and Wednesday
Qualifying Security Expirations should simply expand the ability of
investors to hedge risk against market movements stemming from economic
releases or market events that occur throughout the month in the same
way that the Short Term Option Series Program has expanded the
landscape of hedging.
There are no material differences in the treatment of SPY, QQQ and
IWM Monday and Wednesday Expirations compared to the proposed Monday
and Wednesday Qualifying Security Expirations. Given the similarities
between SPY, QQQ and IWM Monday and Wednesday Expirations and the
proposed Monday and Wednesday Qualifying Security Expirations, the
Exchange believes that applying the provisions in Supplementary
Material .03 to Options 4, Section 5 that currently apply to SPY, QQQ
and IWM Monday and Wednesday Expirations is justified.
The data in Table 7 and Table 8 in the Purpose section, related to
calls in SPY on April 2, 2025, indicates that the vast majority of open
contracts (over 90%) were liquidated by customers prior to the close.
Of the remaining open contracts, a substantial portion were rationally
abandoned. In considering what constitutes rational activity on the
part of a market participant in determining whether to exercise,
especially in the strike near the 5:00 p.m. price, it must be taken
into account that some market participants may elect to hold a contract
given the illiquidity of the time period, and the desire for long
exposure despite a trade price that may be lower. In other words, it
cannot be assumed that customers are unaware of the market conditions,
or their ability to liquidate. Also, it cannot be assumed that the
customer would always liquidate in these circumstances. In reviewing
Tables 7 and 8, customers with calls in SPY on April 2, 2025 had a very
high liquidation ratio which is evidenced by comparing the unabandoned
contracts to the entire pool of long contracts throughout the day. With
respect to the put data for SPY on April 2, 2025, it can be observed in
Table 9 and Table 10 in the Purpose section that out-of-the-money
options were either liquidated or exercised. Only a small percentage of
put options went unexercised. Additionally, it can be observed that
very few puts remained unexercised at the higher strikes where
opportunity for profit and less risk exists. This is in contrast to
puts on lower strikes where opportunity for profit relative to the risk
of the short is greater. In particular, with respect to the risk
exposure of put writers, the exposure to an event similar to April 2,
2025 for the proposed Wednesday expirations would be substantially
similar to the current risk that a put writer is exposed to with Friday
expirations. In other words, the day of the expiry does not increase or
decrease the amount of risk of a put writer, but for the premium
difference. Additionally, the Exchange believes that since the rational
abandonment and out-of-the-money exercise rates were so high, as
evidenced in Tables 9 and 10, it is clear that customers are largely
aware of the exposure between 4:00 and 5:00 p.m. ET and therefore, the
risk from the unliquidated position is undertaken knowingly.
Additionally, market participants that elect to utilize options
receive a copy of the ODD which explains the risks inherent in options
trading. Also, broker-dealers must have a reasonable basis to believe
that a recommended transaction or investment strategy involving a
security or securities is suitable for the customer.\56\ Suitability
rules are intended to distinguish the trading of customers with those
of professional traders who are likely to have distinct risk/reward
profiles, risk tolerance and capital. Regardless of whether the account
is self-directed or options are being recommended, broker-dealers must
perform due diligence on the customer and collect information about the
customer to support a determination that options trading is appropriate
for the customer. Options accounts are subject to specific supervisory
reviews, including, among others, reviewing the compatibility of
options transactions with investment objectives and with the types of
transactions for which the account was approved, and are subject to
other FINRA rules that apply when opening customer accounts, including
among others, customer identification requirements under anti-money
laundering rules.\57\ Therefore, ISE does not believe that listing of
up to two Monday and Wednesday expirations for options on certain
individual stocks or Exchange-Traded Fund Shares is inconsistent with
the Act.
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\56\ See FINRA Rule 2111.
\57\ See https://www.finra.org/rules-guidance/notices/21-15.
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ISE represents that it has an adequate surveillance program in
place to detect manipulative trading in the proposed option
expirations, in the same way that it monitors trading in the current
Short Term Option Series for Monday SPY, QQQ and IWM expirations. The
Exchange also represents that it has the necessary system capacity to
support the new expirations. Finally, the Exchange does not believe
that any market disruptions will be encountered with the introduction
of these option expirations. As discussed above, the Exchange believes
that its proposal is a modest expansion of weekly expiration dates for
Monday and Wednesday Qualifying Security Expirations given that it will
be limited to two Monday expirations and two Wednesday expirations
beyond the current week.
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.
While the proposal will expand the Short Term Options Expirations
to allow Monday and Wednesday Qualifying Security Expirations to be
listed on ISE,\58\ the Exchange believes that this limited expansion
for Monday and Wednesday expirations for options on Qualifying
Securities will not impose an undue burden on competition; rather, it
will meet customer demand. The Exchange would uniformly apply the
Qualifying Security criteria to options in individual stocks and
[[Page 31731]]
Exchange-Traded Fund Shares. The Exchange believes that Members will
continue to be able to expand hedging tools and tailor their investment
and hedging needs more effectively in the Qualifying Securities.
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\58\ As noted above, Nasdaq, Phlx, BX, GEMX and MRX incorporate
ISE Options 4, Section 5 by reference, so the proposed changes
herein will apply to those markets as well.
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Similar to SPY, QQQ and IWM Monday and Wednesday Expirations, the
introduction of Monday and Wednesday Qualifying Security Expirations
does not impose an undue burden on competition. The Exchange believes
that it will, among other things, expand the hedging tools available to
market participants and allow for a reduced premium cost of buying
portfolio protection. The Exchange believes that Monday and Wednesday
Qualifying Security Expirations will allow market participants to
purchase options on Qualifying Securities based on their timing as
needed and allow them to tailor their investment and hedging needs more
effectively.
Further, not adding an expiry for a Qualifying Security on a day
where there will be an Earnings Announcement that takes place after
market close does not impose an undue burden on competition as the
Exchange would uniformly apply this practice to the listing of all
Qualifying Securities.
The Exchange does not believe the proposal will impose any burden
on inter-market competition, as nothing prevents other options
exchanges from proposing similar rules to list and trade Monday and
Wednesday Qualifying Security Expirations. Further, the Exchange does
not believe the proposal will impose any burden on intra-market
competition, as all market participants will be treated in the same
manner under this proposal.
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
Within 45 days of the date of publication of the original notice in
the Federal Register or within such longer period up to 90 days (i) as
the Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.\59\
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\59\ See supra note 4 (designating August 19, 2025 as the date
by which it should either approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1, including whether the proposed
rule change as modified by Amendment No. 1 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-2025-15 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-2025-15. 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-2025-15 and should be
submitted on or before August 5, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
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\60\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-13197 Filed 7-14-25; 8:45 am]
BILLING CODE 8011-01-P