[Federal Register Volume 91, Number 128 (Tuesday, July 7, 2026)]
[Notices]
[Pages 41696-41702]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-13650]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105831; File No. SR-NYSEAMER-2026-54]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing of a Proposed Rule Change To Amend Rule 903G and 906G
July 1, 2026.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on June 29, 2026, NYSE American LLC (``NYSE American'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 903G and 906G related to
Flexible Exchange (``FLEX'') Options. The proposed rule change is
available on the Exchange's website at www.nyse.com and at the
principal office of the Exchange.
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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rules 903G and 906G related to FLEX
Options.
FLEX Options are customized equity or index contracts that allow
investors to tailor contract terms for exchange-listed equity and index
options. A ``FLEX Equity Option'' is an option on a specified
underlying equity security that is subject to the rules of Section
15.\4\
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\4\ See Rule 900G(b)(10).
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Generally, FLEX Equity Options are settled by physical delivery of
the underlying security,\5\ while all FLEX Index Options are settled in
cash.\6\ In February 2020, however, the Exchange amended Rule 903G to
permit cash settlement for up to 50 FLEX Equity Options with an
underlying security that is an ETF meeting certain criteria: an average
daily notional value of $500 Million or more and a national average
daily volume of 4,680,000 shares, measured over the prior six-month
period. Where more than 50 ETFs qualify, the Exchange selects the 50
with the highest average daily volume.\7\
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\5\ See Rule 903G(c)(3)(i).
\6\ See Rule 903G(b)(2) and (3). Similarly, pursuant to Exchange
rules, Binary Return Derivatives (``ByRDs'') are also settled in
cash (See Rule 900ByRDS(b)) and, as discussed below, cash settlement
is also permitted in the over-the-counter (``OTC'') market.
\7\ See Rule 903G(c)(3)(ii). See also Securities Exchange
Release No. 88131 (February 5, 2020), 85 FR 7806 (February 11, 2020)
(SR-NYSEAMER-2019-38) (Notice of Filing of Amendment No. 1 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 1, To Allow Certain Flexible Equity Options To Be
Cash Settled).
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The Exchange proposes to: (i) amend paragraph (c)(3)(ii) of Rule
903G to permit cash settlement for up to 50 non-ETF FLEX Equity Options
whose underlying security meets the same criteria currently applicable
to ETF FLEX Equity Options noted above; and (ii) amend paragraph
(c)(3)(ii)(A) of Rule 903G to provide that, where more than 50
underlying ETFs or 50 underlying non-ETFs qualify, the Exchange will
select the 50 qualifying securities with the highest average daily
notional value, replacing the current usage of highest average daily
volume.\8\
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\8\ The Exchange acknowledges that this change will become moot
as it relates to FLEX ETF Equity options if CBOE's current rule
filing proposing to amend its Rule 4.21 to, among other things,
eliminate the provision limiting cash settlement as a contract term
to no more than 50 ETFs. See Securities Exchange Act Release No.
105277 (April 20, 2026) (SR-CBOE-2026-35) (Notice of Designation of
a Longer Period for Commission Action on a Proposed Rule Change to
Amend Rule 4.21 (Series of FLEX Options)).
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The Exchange proposes to amend Rule 903G, paragraph (c)(3)(ii), to
permit cash settlement for up to 50 non-ETF FLEX Equity Options whose
underlying security meets the same criteria currently applicable to ETF
FLEX Equity Options: an average daily notional value of $500 Million or
more and a national average daily volume of at least 4,680,000 shares,
measured over the prior six-month period.\9\ The Exchange believes that
average daily notional value and national average daily volume are,
collectively, an appropriate proxy for selecting underlying securities
that are not readily susceptible to manipulation for purposes of
establishing a settlement price. Average daily notional value considers
both the trading activity and the price of an underlying security. As a
general matter, the more expensive an underlying security's price, the
less cost-effective manipulation could become. Further, manipulation of
the price of a security encounters greater difficulty the more volume
that is traded.
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\9\ See proposed Rule 903G(3)(ii).
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To calculate average daily notional value (provided in the table
below), the Exchange summed the notional value of each trade for each
symbol (i.e., the number of shares multiplied by the execution price)
and divided that total by the number of trading days in the six-month
period reviewed (July 1, 2025 through December 31, 2025). To calculate
national average daily volume (provided in the table below), the
Exchange summed the share volume of each trade for each symbol and
divided that total by the number of trading days in the same six-month
period. Based on these calculations, the Exchange identified 143 non-
ETF securities eligible for cash settlement of FLEX options overlying
them. As noted in the proposed amendment to Rule
[[Page 41697]]
903G(c)(3)(ii)(A), however, only the FLEX Equity Options overlying the
non-ETF securities with the highest average daily notional value would
be eligible for cash settlement. The table below identifies the 50 non-
ETF FLEX Equity Options that would qualify for cash settlement under
the Exchange's most recent review, effective February 2, 2026.\10\ The
table also includes, for each symbol, closing auction average daily
volume and closing auction average daily notional value over the same
six-month period, which reflect the depth of trading activity
specifically at the close and thereby illustrate each symbol's
resilience to potential price manipulation at the time of settlement.
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\10\ The Exchange notes that, if approved after August 3, 2026,
the Exchange's list of eligible symbols may differ slightly from the
table below, as a new semiannual review would be effective on that
date.
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Closing Closing
National Average daily auction auction
Symbol Name average daily notional value average daily average daily
volume volume notional value
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TSLA.......................................... Tesla, Inc........................... 86,178,496 33,900,266,523 3,190,644 1,269,430,007
NVDA.......................................... Nvidia Corp.......................... 179,041,356 32,307,823,899 12,868,161 2,321,433,344
AAPL.......................................... Apple Inc............................ 50,490,993 12,378,849,915 7,226,393 1,806,481,590
MSFT.......................................... Microsoft Corp....................... 21,252,429 10,744,061,849 3,544,334 1,784,873,081
AMD........................................... Advanced Micro Devices............... 53,267,301 10,373,623,850 2,493,925 488,464,603
META.......................................... Meta Platforms, Inc.................. 14,808,166 10,257,169,282 1,446,720 1,002,367,069
AMZN.......................................... Amazon.Com Inc....................... 43,640,268 9,944,290,596 4,938,798 1,124,263,780
PLTR.......................................... Palantir Technologies Inc............ 56,659,273 9,609,181,571 2,638,743 456,276,952
GOOGL......................................... Alphabet Inc. Class A................ 35,705,006 8,886,422,708 3,721,259 943,979,178
AVGO.......................................... Broadcom Inc......................... 24,847,975 8,399,788,094 3,670,925 1,240,180,161
GOOG.......................................... Alphabet Inc. Class C................ 22,971,782 5,726,646,457 2,445,189 626,368,731
ORCL.......................................... Oracle Corp.......................... 22,510,933 5,639,724,093 1,572,261 381,075,627
MU............................................ Micron Technology, Inc............... 24,285,194 4,467,837,733 1,970,831 361,184,152
HOOD.......................................... Robinhood Markets, Inc............... 36,997,040 4,306,868,213 1,954,129 238,103,937
NFLX.......................................... Netflix Inc.......................... 13,214,039 4,287,659,509 1,465,607 405,513,118
MSTR.......................................... Strategy Inc......................... 14,042,388 3,950,992,841 1,040,765 297,429,799
UNH........................................... UnitedHealth Group Incorporated...... 11,961,746 3,729,620,578 826,104 262,526,732
COIN.......................................... Coinbase Global, Inc................. 10,231,567 3,331,720,883 614,219 197,541,974
TSM........................................... Taiwan Semiconductor Manufacturing 12,008,931 3,246,781,038 752,418 203,136,969
Company Ltd.
INTC.......................................... Intel Corp........................... 103,754,853 3,219,916,507 6,929,263 218,261,697
APP........................................... Applovin Corporation................. 5,782,947 3,195,229,826 566,833 341,886,958
CRWV.......................................... CoreWeave, Inc....................... 26,134,544 2,786,774,579 945,274 92,136,014
JPM........................................... JPMorgan Chase & Co.................. 8,447,294 2,563,687,629 1,612,884 491,974,304
BABA.......................................... Alibaba Group Holding Limited........ 15,702,967 2,330,733,305 417,707 61,037,911
BMNR.......................................... BitMine Immersion Technologies, Inc.. 45,742,244 2,114,623,207 1,538,644 62,322,489
V............................................. VISA Inc............................. 6,064,874 2,079,103,486 1,346,605 461,301,568
CRM........................................... Salesforce, Inc...................... 8,170,611 2,033,145,491 895,261 223,551,717
CRCL.......................................... Circle Internet Group, Inc........... 13,890,967 1,876,964,806 438,058 50,218,550
BAC........................................... Bank of America Corporation.......... 36,433,684 1,848,841,746 5,536,718 282,799,082
RGTI.......................................... Rigetti Computing, Inc............... 61,001,534 1,818,953,391 2,249,745 64,386,440
WMT........................................... Walmart Inc.......................... 17,171,708 1,785,470,800 3,965,604 452,283,958
SOFI.......................................... SoFi Technologies, Inc............... 68,778,271 1,774,108,244 2,462,163 63,663,350
OKLO.......................................... Oklo Inc............................. 17,056,654 1,722,406,038 636,877 63,026,808
XOM........................................... Exxon Mobil Corporation.............. 14,923,963 1,694,641,338 2,369,124 269,222,575
BA............................................ Boeing Company....................... 7,771,390 1,664,026,520 647,649 138,422,692
UBER.......................................... Uber Technologies, Inc............... 17,771,441 1,623,852,154 1,748,330 159,554,138
AMAT.......................................... Applied Materials Inc................ 7,630,690 1,590,411,121 1,239,413 264,834,901
JNJ........................................... Johnson & Johnson.................... 8,508,238 1,570,954,763 1,590,260 295,976,568
MRVL.......................................... Marvell Technology, Inc.............. 19,141,701 1,534,320,570 2,125,390 172,519,290
NBIS.......................................... Nebius Group N.V..................... 16,580,887 1,509,559,015 530,793 49,592,906
IREN.......................................... IREN Limited......................... 35,551,466 1,465,271,072 817,801 33,589,290
QCOM.......................................... Qualcomm Inc......................... 8,743,386 1,462,236,794 1,589,760 263,590,678
LRCX.......................................... Lam Research Corp.................... 11,098,219 1,443,543,642 1,936,139 259,497,229
CSCO.......................................... Cisco Systems, Inc................... 19,993,372 1,430,793,231 3,451,961 248,085,586
PFE........................................... Pfizer Inc........................... 55,503,187 1,385,704,301 4,483,737 112,014,095
SMCI.......................................... Super Micro Computer, Inc............ 30,070,928 1,385,222,973 1,592,481 70,488,062
IBM........................................... International Business Machines 4,915,186 1,372,464,742 715,181 200,577,771
Corporation.
C............................................. Citigroup Inc........................ 13,787,319 1,366,461,810 1,972,207 197,886,096
IONQ.......................................... IonQ, Inc............................ 24,413,055 1,339,549,825 1,588,871 86,626,817
TXN........................................... Texas Instruments Incorporated....... 7,247,390 1,314,583,022 1,350,604 244,860,485
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The Exchange believes that expanding cash settlement to a select
group of non-ETF options reflects changes in the marketplace since cash
settlement was first expanded to options overlying ETFs.\11\
Specifically, in 2020, only 52 single stocks within the S&P 500 and 32
ETFs met the above-captioned criteria (i.e., average daily notional
value of
[[Page 41698]]
$500 Million and average daily volume of 4,680,000 shares). As of
December 31, 2025, however, 143 S&P 500 single stocks meet these same
criteria, evidencing that the eligible single stocks are far deeper and
more liquid than the ETF universe was at the time cash settlement for
them was approved.
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\11\ See Securities Exchange Act Release No. 88131 (February 5,
2020), 85 FR 7806 (February 11, 2020) (NYSEAMER-2019-38) (Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of
a Proposed Rule Change, as Modified by Amendment No. 1, To Allow
Certain Flexible Equity Options To Be Cash Settled).
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The Exchange believes it is appropriate to introduce cash
settlement as an alternative contract term to this select group of non-
ETF securities because they are among the most highly liquid and
actively traded securities. As described more fully below, the Exchange
believes that the deep liquidity and robust trading activity (in
general and at the close) in the securities identified by the Exchange
as meeting the criteria mitigate historic concerns regarding
susceptibility to manipulation.
Moreover, the Exchange believes that permitting cash settlement as
a contract term for the FLEX non-ETF Equity Options for the securities
in the above table or later found to be in the top 50 would broaden the
base of investors that use FLEX Options to manage their trading and
investment risk, including investors that currently trade in the OTC
market for customized options, where settlement restrictions do not
apply.
Equity options are generally settled physically at The Options
Clearing Corporation (``OCC''), (i.e., upon exercise, shares of the
underlying security must be assumed or delivered). Physical settlement
entails certain risks with respect to volatility and movement of the
underlying security at expiration that market participants may need to
hedge against. Cash settlement may be preferable to physical delivery
in some circumstances as it does not present the same risk. If an issue
with the delivery of the underlying security arises, it may become more
expensive and time-consuming to reverse the delivery because the price
of the underlying security would almost certainly have changed.
Reversing a cash payment, on the other hand, would not involve any such
issue because reversing a cash delivery would simply involve the
exchange of cash. Additionally, with physical settlement, market
participants that have a need to generate cash would have to sell the
underlying security while incurring the costs associated with
liquidating their position in the underlying security as well as the
risk of an adverse movement in the price of the underlying
security.\12\
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\12\ Market participants have voiced additional concerns with
physical delivery to explain why they participate in the OTC markets
that allow cash settlement for equity options including, among other
things, that certain custodians will not permit short options
positions requiring physical delivery and physical settlement
certain tax triggering events.
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The Exchange notes that cash settlement for options is not a unique
feature and other options exchanges have previously received approval
that allow for the trading of cash-settled options \13\ and cash
settled FLEX ETF Options.\14\
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\13\ See e.g. PHLX FX Options traded on Nasdaq PHLX and S&P
500[supreg] Index Options traded on Cboe Options Exchange. More
recently, the Commission approved, on a pilot basis, the listing and
trading of RealDayTM Options on the SPDR S&P 500 Trust on
the BOX Options Exchange LLC (``BOX''). See Securities Exchange Act
Release No. 79936 (February 2, 2017), 82 FR 9886 (February 8, 2017)
(``RealDay Pilot Program''). The RealDay Pilot Program was extended
until February 2, 2019. See Securities Exchange Act Release No.
82414 (December 28, 2017), 83 FR 577 (January 4, 2018) (SR-BOX-2017-
38). The RealDay Pilot Program was never implemented by BOX. See
also Securities Exchange Act Release Nos. 56251 (August 14, 2007),
72 FR 46523 (August 20, 2007) (SR-Amex-2004-27) (Order approving
listing of cash-settled Fixed Return Options (``FROs'')); and 71957
(April 16, 2014), 79 FR 22563 (April 22, 2014) (SR-NYSEMKT-2014-06)
(Order approving name change from FROs to ByRDs and re-launch of
these products, with certain modifications).
\14\ See Securities Exchange Act Release Nos. 102839 (April 11,
2025), 90 FR 16410 (April 17, 2025) (SR-BOX-2025-07) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Rule 5055 To Allow for Cash Settlement of Certain FLEX Equity
Options); 98044 (August 2, 2023), 88 FR 53548 (August 8, 2023) (SR-
CBOE-2023-036) (Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change to Allow Certain Flexible Exchange Equity
Options To Be Cash Settled); and 101720 (November 22, 2024), 89 FR
94986 (November 29, 2024) (SR-ISE-2024-12) (Notice of Amendment No.
1 and Order Granting Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment No. 1, To Adopt Rules To List and Trade
FLEX Options). See also Securities Exchange Act Release Nos. 88131
(February 5, 2020), 85 FR 7806 (February 11, 2020) (SR-NYSEAMER-
2019-38) (Order Approving a Proposed Rule Change, as Modified by
Amendment No. 1, to Allow Certain Flexible Equity Options To Be Cash
Settled); and 97231 (March 31, 2023), 88 FR 20587 (April 6, 2023)
(SR-NYSEAMER-2023-22) (Notice of Filing and Immediate Effectiveness
of Proposed Change to Make a Clarifying Change to the Term
Settlement Style Applicable to Flexible Exchange Options).
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With respect to position limits, like ETF FLEX options, cash-
settled FLEX non-ETF Equity Options would be subject to the position
limits set forth in Rule 906G. Accordingly, the Exchange proposes to
amend Rule 906G(b)(ii) to remove reference to Exchange-Traded Funds and
would provide that positions for all FLEX Equity Options settled in
cash pursuant to Rule 903G(c)(3)(ii) would be subject to the limits set
forth in Rule 904, and the exercise limits set forth in Rule 905.\15\
Given that each of the underlying securities that would currently be
eligible to have cash-settlement as a contract term have established
position and exercise limits applicable to physically-settled options,
the Exchange believes it is appropriate for the same position and
exercise limits to also apply to cash-settled options. Accordingly, as
of December 31, 2025, of the 143 non-ETF underlying securities that
would currently be eligible to have cash settlement as a contract term,
all 143 (and all 50 on the above chart) would have a position limit of
250,000 contracts pursuant to Rule 904, Commentary .07(a).\16\
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\15\ See proposed Rule 906G(b)(ii).
\16\ Rule 904, Commentary .07(a) provides that the position
limit shall be 250,000 contracts for options: (i) on an underlying
security that had trading volume of at least 100,000,000 shares
during the most recent six-month trading period; or (ii) on an
underlying security that had trading volume of at least 75,000,000
shares during the most recent six-month trading period and has at
least 300,000,000 shares currently outstanding.
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The Exchange understands that cash-settled FLEX non-ETF Equity
Options are currently traded in the OTC market by a variety of market
participants (e.g., hedge funds, proprietary trading firms, and pension
funds). The Exchange believes some of these market participants would
prefer to trade these instruments on an exchange, where they would be
cleared and settled through a regulated clearing agency. The Exchange
expects that users of these OTC products would be among the primary
users of exchange-traded cash-settled FLEX non-ETF Equity Options. The
Exchange also believes that the trading of cash-settled FLEX non-ETF
Equity Options would allow these same market participants to better
manage the risk associated with the volatility of underlying equity
positions given the enhanced liquidity that an exchange-traded product
would bring.
Cash-settled FLEX non-ETF Equity Options traded on the Exchange
would have three important advantages over the contracts that are
traded in the OTC market. First, as a result of greater standardization
of contract terms, exchange-traded contracts should develop more
liquidity. Second, counter-party credit risk would be mitigated by the
fact that the contracts are issued and guaranteed by the OCC. Finally,
the price discovery and dissemination provided by the Exchange and its
members would lead to more transparent markets. The Exchange believes
that its ability to offer cash-settled FLEX non-ETF Equity Options
would aid it in competing with the OTC market and, at the same time,
expand the universe of products available to interested market
participants. The Exchange believes that an exchange-traded alternative
may provide a useful risk management and
[[Page 41699]]
trading vehicle for market participants and their customers.
The Exchange notes that cash-settled FLEX non-ETF Equity Options
would not be available for trading until OCC represents to the Exchange
that it is fully able to clear and settle such options.\17\ The
Exchange has also analyzed its capacity and represents that it and The
Options Price Reporting Authority (OPRA) have the necessary systems
capacity to handle the additional traffic associated with the listing
of cash-settled FLEX Equity Options. The Exchange believes any
additional traffic that would be generated from the introduction of
cash-settled FLEX non-ETF Equity Options would be manageable. The
Exchange represents that ATP Holders will not have a capacity issue as
a result of this proposed rule change.
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\17\ It is the Exchange's understanding that the OCC intends to
make rule filing to allow it to clear cash settled non-ETF equity
options.
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The Exchange also represents that it does not believe this proposed
rule change will cause fragmentation of liquidity. The Exchange will
monitor the trading volume associated with the additional options
series listed as a result of this proposed rule change and the effect
(if any) of these additional series on market fragmentation and on the
capacity of the Exchange's automated systems.
The Exchange believes it has an adequate surveillance program in
place for cash-settled FLEX non-ETF equity Options and intends to apply
the same program procedures that it applies to the Exchange's other
options products.
FLEX option products, including non-ETF equity options, and their
respective symbols are integrated into the Exchange's existing
surveillance system architecture and are thus subject to the relevant
surveillance processes. The Exchange believes that the existing
surveillance procedures at the Exchange are capable of properly
identifying unusual and/or illegal trading activity, which procedures
the Exchange would utilize to surveil for aberrant trading in cash-
settled FLEX non-ETF Options. As a result, the Exchange believes it
would be able to effectively regulate the trading of cash-settled FLEX
non-ETF Equity Options using means that include its surveillance for
manipulation. The Exchange believes that manipulating the settlement
price of cash-settled FLEX non-ETF Equity Options would be difficult
based on the size of the market for the securities that are the subject
of this proposed rule change.
With respect to regulatory scrutiny, the Exchange believes its
existing surveillance technologies and procedures adequately address
potential concerns regarding possible manipulation of the settlement
value at or near the close of the market. The Exchange notes that the
regulatory program operated by, and overseen by NYSE Regulation,\18\
includes cross-market surveillance designed to identify manipulative
and other improper trading, including spoofing, algorithm gaming,
marking the close and open, as well as more general, abusive behavior
related to front running, wash sales, quoting/routing, and Reg SHO
violations, that may occur on the Exchange and other markets. These
cross-market patterns incorporate relevant data from various markets
beyond the Exchange and its affiliates and from markets not affiliated
with the Exchange. The Exchange represents that its existing trading
surveillances are adequate to monitor the trading in the underlying
equity securities and subsequent trading of options on those securities
on the Exchange, including cash-settled FLEX non-ETF Options.\19\
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\18\ The Exchange maintains regulatory services agreements with
Financial Industry Regulatory Authority, Inc. (``FINRA'') whereby
FINRA provides certain regulatory services to the exchanges,
including cross-market surveillance, investigation, and enforcement
services.
\19\ Such surveillance procedures generally focus on detecting
securities trading subject to opening price manipulation, closing
price manipulation, layering, spoofing or other unlawful activity
impacting an underlying security, the option, or both. The Exchange
has price movement alerts, unusual market activity and order book
alerts active for all trading symbols.
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Additionally, for options, the Exchange utilizes an array of
patterns that monitor manipulation of options, or manipulation of
equity securities (regardless of venue) for the purpose of impacting
options prices on the Exchange (i.e., mini-manipulation strategies).
That surveillance coverage is initiated once options begin trading on
the Exchange. Accordingly, the Exchange believes that the cross-market
surveillance performed by the Exchange or FINRA, on behalf of the
Exchange, coupled with NYSE Regulation's own monitoring for violative
activity on the Exchange comprise a comprehensive surveillance program
that is adequate to monitor for manipulation of the underlying security
and overlying option. Furthermore, the Exchange believes that the
existing surveillance procedures at the Exchange are capable of
properly identifying unusual and/or illegal trading activity, which the
Exchange would utilize to surveil for aberrant trading in cash-settled
FLEX non-ETF Options.
In addition to the surveillance procedures and processes described
above, improvements in audit trails (i.e., the Consolidated Audit
Trail), recordkeeping practices, and inter-exchange cooperation over
the last two decades have greatly increased the Exchange's ability to
detect and punish attempted manipulative activities. In addition, the
Exchange is a member of the Intermarket Surveillance Group
(``ISG'').\20\ The ISG members work together to coordinate surveillance
and investigative information sharing in the stock and options markets.
For surveillance purposes, the Exchange would therefore have access to
information regarding trading activity in the pertinent underlying
securities. The Exchange is confident that its existing surveillance
procedures, which have proven effective with respect to FLEX ETF
Options, are sufficient for the cash settlement of FLEX non-ETF Options
and will monitor and adjust such procedures as needed.
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\20\ ISG is an industry organization formed in 1983 to
coordinate intermarket surveillance among the SROs by cooperatively
sharing regulatory information pursuant to a written agreement
between the parties. The goal of the ISG's information sharing is to
coordinate regulatory efforts to address potential intermarket
trading abuses and manipulations.
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Additionally, the Exchange notes that each cash-settled FLEX non-
ETF Equity Option that is subject to this proposed rule change is
sufficiently active so as to alleviate concerns about potential
manipulative activity. Further, in the Exchange's view, the vast
liquidity of the 143 underlying securities ensures a multitude of
market participants at any given time. Given the high level of
participation among market participants that enter quotes and/or orders
in the options on these securities, the Exchange believes it would be
very difficult for a single participant to alter the price of each of
the underlying securities in any significant way without exposing the
would-be manipulator to regulatory scrutiny. The Exchange further
believes any attempt to manipulate the price of the underlying
securities would also be cost prohibitive.
The Exchange does not believe that allowing cash settlement as a
contract term would render the marketplace for equity options more
susceptible to manipulative practices. In addition to the surveillance
procedures and processes described above, improvements in audit trails,
recordkeeping practices, and inter-exchange cooperation over the last
two decades have greatly increased the Exchange's ability to detect and
punish
[[Page 41700]]
attempted manipulative activities. The Exchange therefore believes that
the decision of whether or not to allow cash settlement as a contract
term should rest on the ability of the Exchange to monitor and detect
manipulative activity, not on any perceived threat of increased
attempted manipulative activity.
The proposed rule change is designed to allow investors seeking to
effect cash-settled FLEX non-ETF Equity Options with the opportunity
for a different method of settling option contracts at expiration if
they choose to do so. As noted above, market participants may choose
cash settlement because physical settlement possesses certain risks
with respect to volatility and movement of the underlying security at
expiration that market participants may need to hedge against. The
Exchange believes that offering innovative products flows to the
benefit of the investing public. A robust and competitive market
requires that exchanges respond to members' evolving needs by
constantly improving their offerings. Such efforts would be stymied if
exchanges were prohibited from offering innovative products for reasons
that are generally debated in academic literature.
The Exchange believes that introducing cash-settled FLEX non-ETF
Equity Options would further broaden the base of investors that use
FLEX Options to manage their trading and investment risk, including
investors that currently trade in the OTC markets for customized
options, where settlement restrictions do not apply. The proposed rule
change is also designed to encourage market makers to shift liquidity
from the OTC market onto the Exchange, which, the Exchange believes,
will enhance the process of price discovery conducted on the Exchange
through increased order flow. The Exchange also believes that this may
open up cash settled FLEX non-ETF Equity Options to more retail
investors.
The Exchange also proposes to amend paragraph (c)(3)(ii)(A) of Rule
903G to provide that, where more than 50 underlying ETFs or 50
underlying non-ETFs qualify for cash settlement, the Exchange will
select the 50 qualifying securities with the highest average daily
notional value, replacing the current usage of highest average daily
volume. The Exchange believes that, in making this determination,
average daily notional value is a more appropriate metric.
Specifically, it accounts for both trading activity and the price of
the underlying security, which average daily volume alone does not
capture.
As a general matter, higher-priced securities are less susceptible
to cost-effective manipulation. Manipulative price impact is better
measured by value, not share count. Thus, notional value more
accurately identifies securities where potential manipulation is
economically feasible and meaningful. Moreover, average daily notional
value reduces the potential of a low-priced underlying equity that is
potentially more susceptible to manipulation from being eligible for
participating in the program.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\21\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\22\ in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, 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. In addition, the Exchange
believes that the proposed rule change is consistent with the Section
6(b)(5) \23\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
\23\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes that introducing cash-settled
FLEX non-ETF Equity Options will increase order flow to the Exchange,
increase the variety of options products available for trading, and
provide a valuable tool for investors to manage risk. The Exchange
further believes that using average daily notional value, rather than
average daily volume, in determining eligibility where more than 50
underlying equity securities qualify ensures that cash settlement
eligibility is tied to a more robust and meaningful measure of market
activity, thereby better protecting investors and the public interest.
The Exchange believes that the proposal to permit cash settlement
as a contract term for options on the specified group of non-ETF equity
securities would remove impediments to and perfect the mechanism of a
free and open market as cash-settled FLEX non-ETF Equity Options would
enable market participants to receive cash in lieu of shares of the
underlying security, which would, in turn, provide greater
opportunities for market participants to manage risk through the use of
a cash-settled product to the benefit of investors and the public
interest.
The Exchange does not believe that allowing cash settlement as a
contract term for options on the specified group of non-ETF equity
securities would render the marketplace for equity options more
susceptible to manipulative practices. As illustrated in the table
above, each of the qualifying underlying securities is actively traded
and highly liquid (in general and at the close) and, thus, would not be
susceptible to manipulation because, over a six-month period, each
security had an average daily notional value of at least $500 Million
and an ADV of at least 4,680,000 shares, which indicates that there is
substantial liquidity present in the trading of these securities, and
that there is significant depth and breadth of market participants
providing liquidity and of investor interest.
The Exchange believes that the data provided by the Exchange
supports the supposition that permitting cash settlement as a FLEX term
for the 143 underlying securities that would currently qualify to have
cash settlement as a contract term would broaden the base of investors
that use FLEX Options to manage their trading and investment risk,
including investors that currently trade in the OTC market for
customized options, where settlement restrictions do not apply.
The Exchange believes that the proposal to permit cash settlement
would remove impediments to and perfect the mechanism of a free and
open market because the proposed rule change would provide ATP Holders
with enhanced methods to manage risk by receiving cash if they choose
to do so instead of the underlying security. In addition, this proposal
would promote just and equitable principles of trade and protect
investors and the general public because cash settlement would provide
investors with an additional tool to manage their risk. Further, the
Exchange notes that its proposal to introduce cash-settled FLEX non-ETF
Equity Options is not novel in that other exchanges have previously
received approval that allow for the trading of cash-settled options.
The proposed rule change therefore should not raise issues for the
Commission that have not been previously addressed.\24\
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\24\ See supra, Notes 13 and 14.
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The proposed rule change to permit cash settlement as a contract
term for options on the 143 underlying securities is designed to
promote just and
[[Page 41701]]
equitable principles of trade in that the availability of cash
settlement as a contract term would give market participants an
alternative to trading similar products in the OTC market. By trading a
product in an exchange-traded environment (that is currently traded in
the OTC market), the Exchange would be able to compete more effectively
with the OTC market. The Exchange believes the proposed rule change is
designed to prevent fraudulent and manipulative acts and practices in
that it would lead to the migration of options currently trading in the
OTC market to trading on the Exchange. Also, any migration to the
Exchange from the OTC market would result in increased market
transparency. Additionally, the Exchange believes the proposed rule
change is designed to remove impediments to and to perfect the
mechanism for a free and open market and a national market system, and,
in general, to protect investors and the public interest in that it
should create greater trading and hedging opportunities and
flexibility. The proposed rule change should also result in enhanced
efficiency in initiating and closing out positions and heightened
contra-party creditworthiness due to the role of OCC as issuer and
guarantor of the proposed cash-settled options. Further, the proposed
rule change would result in increased competition by permitting the
Exchange to offer products that are currently available for trading
only in the OTC market.
Finally, the Exchange represents that it has an adequate
surveillance program in place to detect manipulative trading in cash-
settled FLEX non-ETF Equity Options. Regarding the proposed cash
settlement, the Exchange would use the same surveillance procedures
currently utilized for the Exchange's other FLEX Options. For
surveillance purposes, the Exchange would have access to information
regarding trading activity in the pertinent underlying securities. The
Exchange believes that limiting cash settlement to options on 50 non-
ETF underlying securities that would currently be eligible to have
cash-settlement as a contract term would minimize the possibility of
manipulation due to the robust liquidity in both the equities and
options markets. Further, the Exchange believes that assessing
eligibility of qualifying securities using the highest average daily
notional value, rather than with the highest average daily volume,
ensures that cash settlement eligibility is tied to a more robust and
meaningful measure of market activity that is less susceptible to
manipulation.
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 does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as all Floor Brokers and FLEX
Market Makers that are authorized to trade FLEX Equity Options,
including non-ETF options, in accordance with the Exchange's Rules will
be able to trade cash-settled FLEX non-ETF Equity Options in the same
manner. This includes that, for all FLEX Equity Options at least one of
exercise style, expiration date, and exercise price must differ from
options in the non-FLEX market. Additionally, positions in cash-settled
FLEX non-ETF Equity Options of all ATP Holders will be subject to the
same position limits, and such positions will be aggregated with
positions in physically settled options on the same underlying in the
same manner.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as the proposal
is designed to increase competition for order flow on the Exchange in a
manner that is beneficial to investors because it is designed to
provide investors seeking to transact in FLEX non-ETF Equity Options
with the opportunity for an alternative method of settling their option
contracts at expiration. The Exchange believes the proposed rule change
will encourage competition, as it may broaden the base of investors
that use FLEX Equity Options to manage their trading and investment
risk, including investors that currently trade in the OTC market for
customized options, where settlement restrictions do not apply. The
proposed rule change would give market participants an alternative to
trading similar products in the OTC market. By trading a product in an
exchange-traded environment (that is currently traded in the OTC
market), the Exchange would be able to compete more effectively with
the OTC market. The Exchange believes the proposed rule change may
increase competition as it may lead to the migration of options
currently trading in the OTC market to trading on the Exchange. Also,
any migration to the Exchange from the OTC market would result in
increased market transparency and thus increased price competition.
The Exchange notes that it operates in a highly competitive market
in which market participants can readily direct order flow to competing
venues who offer similar functionality. The Exchange believes the
proposed rule change encourages competition amongst market participants
to provide tailored cash-settled FLEX non-ETF Equity Option contracts.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this 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.
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-NYSEAMER-2026-54 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-NYSEAMER-2026-54. 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/
[[Page 41702]]
rules/sro.shtml). Copies of the filing 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-NYSEAMER-2026-54 and should be submitted
on or before July 28, 2026.
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\25\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-13650 Filed 7-6-26; 8:45 am]
BILLING CODE 8011-01-P