[Federal Register Volume 83, Number 198 (Friday, October 12, 2018)]
[Notices]
[Pages 51730-51744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22202]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84373; File No. SR-ISE-2018-56]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Its 
Rules Relating to Complex Orders

October 5, 2018.

I. Introduction

    On June 22, 2018, Nasdaq ISE, LLC (``ISE'' or the ``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 
provide additional detail to its rules governing the trading of Complex 
Orders. The proposed rule change was published for comment in the 
Federal Register on July 9, 2018.\3\ The Commission received no 
comments regarding the proposal. On August 10, 2018, pursuant to 
Section 19(b)(2) of the Act,\4\ the Commission extended the time for 
Commission action on the proposal until October 5, 2018.\5\ ISE filed 
Amendment No. 1 to the proposal on October 1, 2018.\6\ The Commission 
is publishing this notice to solicit comment on Amendment No. 1 to the 
proposed rule change from interested persons and is approving the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83576 (July 2, 
2018), 83 FR 31783 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 83818 (August 10, 
2018), 83 FR 40800 (August 16, 2018).
    \6\ Amendment No. 1 revises the proposal to: (1) Discontinue 
Reserve Complex Orders; (2) indicate in proposed ISE Rule 722(c)(2) 
that complex strategies will not be executed at prices inferior to 
the best net price achievable from the best net price on ISE for the 
individual legs of the strategy; (3) indicate in proposed ISE Rule 
722(d)(2) that complex strategies will execute against Priority 
Customer interest on the single leg book at the same price before 
executing against interest on the Complex Order Book; (4) indicate 
in proposed ISE Rule 722, Supplementary Material .01(b)(ii) that an 
exposure period will end immediately when a Complex Order for the 
same complex strategy on either side of the market becomes 
marketable against interest on the Complex Order Book or bids and 
offers in the leg market; (5) revise proposed ISE Rules 722, 
Supplementary Material .01(b)(iii) and .08(c)(4)(vi) to describe the 
sequence of executions when an incoming Complex Order causes the 
early termination of a complex exposure auction and an auction for 
one of the component legs of the complex strategy; (6) revise 
proposed ISE Rule 722, Supplementary Material .01(c) to indicate 
that at the end of the exposure period, the interest against which 
the exposed order executes includes bids and offers on the Complex 
Order Book and for the individual legs that arrived during the 
exposure period; (7) revise proposed ISE Rule 722, Supplementary 
Material .01(d) to indicate that an exposure process will terminate 
immediately without an execution if a trading halt is initiated in 
any series underlying the Complex Order being exposed; (8) clarify 
the description of the execution of Stock-Option and Stock Complex 
Orders in proposed ISE Rule 722, Supplementary Material .02; (9) 
revise proposed ISE Rule 722, Supplementary Material .08(e) to 
indicate that Complex QCC Orders may be entered in $0.01 increments; 
(10) delete provisions in ISE Rule 722 indicating that ISE will 
recommence the functionality that permits concurrent auctions for 
the same complex strategy by April 17, 2019, and add proposed ISE 
Rule 722, Supplementary Material .08(g) to indicate the auctions for 
the same complex strategy will not operate concurrently; (11) add 
proposed ISE Rule 722, Supplementary Material .08(h) to indicate 
that an auction for a complex strategy and an auction for a 
component leg of the complex strategy may operate concurrently; (12) 
indicate in proposed ISE Rule 722, Supplementary Material .13 to 
indicate that the stock leg of a stock-option order must be marked 
``buy,'' ``sell,'' ``sell short,'' or ``sell short exempt,'' in 
compliance with Regulation SHO under the Act; (13) provide a new 
example illustrating customer priority and the execution of a 
Complex Order; (14) indicate that ISE does not manage and curtail 
its functionality for executing a complex strategy against leg 
market interest; (15) add references to the NBBO and the underlying 
stock in proposed ISE Rule 722, Supplementary Material .07(a); (16) 
provide additional discussion of the rationale for permitting a 
Trade Value Allowance of any amount when a Complex Order executes in 
an auction and does not trade solely with its contra-side order; and 
(17) make several technical corrections to the proposal. Amendment 
No. 1 is available at https://www.sec.gov/comments/sr-ise-2018-56/srise201856-4467038-175833.pdf.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    As described more fully in the Notice, the proposal modifies ISE's 
rules to provide additional detail regarding the trading of Complex 
Orders on ISE.

A. Definitions

    The proposal revises ISE Rule 722(a) to add new defined terms and 
modify existing defined terms relating to Complex Orders. The proposal 
defines ``Complex Order'' to include Complex Options Orders, Stock-
Option Orders, and Stock-Complex Orders.\7\ Complex Options Orders, 
Stock-Option Orders, and Stock-Complex Orders refer to orders for a 
Complex Options Strategy,\8\

[[Page 51731]]

a Stock-Option Strategy,\9\ and a Stock-Complex Strategy,\10\ 
respectively.\11\ The term ``complex strategy'' includes Complex 
Options Strategies, Stock-Option Strategies, and Stock-Complex 
Strategies.\12\ ISE believes that the definitions will help to clarify 
whether provisions in its rules apply only to Complex Options 
Strategies, only to Stock-Option Strategies, only to Stock-Complex 
Strategies, or to all three.\13\ The proposal deletes from ISE Rule 722 
the definition of SSF-option order. ISE states that single stock 
futures have not gained sufficient popularity among investors to 
support a SSF-option product, and that ISE has never received a SSF-
option order.\14\
---------------------------------------------------------------------------

    \7\ See proposed ISE Rule 722(a)(5).
    \8\ A Complex Options Strategy is the simultaneous purchase and/
or sale of two or more different options series in the same 
underlying security, for the same account, in a ratio that is equal 
to or greater than one-to-three (.333) and less than or equal to 
three-to-one (3.00) and for the purpose of executing a particular 
investment strategy. Only those Complex Options Strategies with no 
more than the applicable number of legs, as determined by the 
Exchange on a class-by-class basis, are eligible for processing. See 
proposed ISE Rule 722(a)(1). ISE will determine the applicable 
number of legs for Complex Options Strategies and Stock-Complex 
Strategies on a class-by-class basis. See Notice, 83 FR at 31784. 
ISE notes that, by definition, Stock-Option Strategies will have 
only one option leg and one stock leg. See id. at 31784, n.3.
    \9\ A Stock-Option Strategy is the purchase or sale of a stated 
number of units of an underlying stock or a security convertible 
into the underlying stock (``convertible security'') coupled with 
the purchase or sale of options contract(s) on the opposite side of 
the market representing either (A) the same number of units of the 
underlying stock or convertible security, or (B) the number of units 
of the underlying stock necessary to create a delta neutral 
position, but in no case in a ratio greater than eight-to-one 
(8.00), where the ratio represents the total number of units of the 
underlying stock or convertible security in the option leg to the 
total number of units of the underlying stock or convertible 
security in the stock leg. See proposed Rule 722(a)(2).
    \10\ A Stock-Complex Strategy is the purchase or sale of a 
stated number of units of an underlying stock or a security 
convertible into the underlying stock (``convertible security'') 
coupled with the purchase or sale of a Complex Options Strategy on 
the opposite side of the market representing either (A) the same 
number of units of the underlying stock or convertible security, or 
(B) the number of units of the underlying stock necessary to create 
a delta neutral position, but in no case in a ratio greater than 
eight-to-one (8.00), where the ratio represents the total number of 
units of the underlying stock or convertible security in the option 
legs to the total number of units of the underlying stock or 
convertible security in the stock leg. Only those Stock-Complex 
Strategies with no more than the applicable number of legs, as 
determined by the Exchange on a class-by-class basis, are eligible 
for processing. See proposed ISE Rule 722(a)(3).
    \11\ See proposed ISE Rule 722(a)(5).
    \12\ See proposed ISE Rule 722(a)(4).
    \13\ See Notice, 83 FR at 31784.
    \14\ See id. ISE also proposes to delete current ISE Rule 722, 
Supplementary Material .01, which references SSF-option orders and 
includes outdated language relating to Stock-Option and Stock-
Complex Orders. ISE will file a proposed rule change with the 
Commission if it decides to offer SSF-option orders in the future. 
See id.
---------------------------------------------------------------------------

B. Order Types

    New ISE Rule 722(b) \15\ identifies the following order types and 
designations that are available for Complex Orders: Market Complex 
Order; \16\ Limit Complex Order; \17\ All-or-None Complex Order; \18\ 
Attributable Complex Order; \19\ Customer Cross Complex Order; \20\ 
Qualified Contingent Cross Complex Order; \21\ Day Complex Order; \22\ 
Fill-or-Kill Complex Order; \23\ Immediate-or-Cancel Complex Order; 
\24\ Opening Only Complex Order; \25\ Good-Till-Date Complex Order; 
\26\ Good-Till-Cancel Complex Order; \27\ Exposure Complex Order; \28\ 
Exposure Only Complex Order; \29\ and Complex QCC with Stock Order.\30\ 
The order types and designations for Complex Orders in proposed ISE 
Rule 722(b) are based on order types and designations currently 
provided in ISE Rule 715 for regular orders.\31\ The proposal also 
amends ISE Rule 715(k) to indicate that legging orders are generated 
only for Complex Options Orders.
---------------------------------------------------------------------------

    \15\ The proposal renumbers current ISE Rule 722(b) as ISE Rule 
722(c).
    \16\ A Market Complex Order is a Complex Order to buy or sell a 
complex strategy that is to be executed at the best price 
obtainable. If not executable upon entry, such orders will rest on 
the Complex Order Book unless designated as fill-or-kill or 
immediate-or-cancel. See proposed ISE Rule 722(b)(1).
    \17\ A Limit Complex Order is a Complex Order to buy or sell a 
complex strategy that is entered with a limit price expressed as a 
net purchase or sale price for the components of the order. See 
proposed ISE Rule 722(b)(2).
    \18\ A Complex Order may be designated as an All-or-None Order 
that is to be executed in its entirety or not at all. An All-Or-None 
Order may only be entered as an Immediate-or-Cancel Order. See 
proposed ISE Rule 722(b)(3).
    \19\ A Market or Limit Complex Order may be designated as an 
Attributable Order as provided in Rule 715(h). See proposed ISE Rule 
722(b)(5).
    \20\ A Customer Cross Complex Order is comprised of a Priority 
Customer Complex Order to buy and a Priority Customer Complex Order 
to sell at the same price and for the same quantity. Such orders 
will trade in accordance with Supplementary Material .08(d) to this 
Rule 722. See proposed ISE Rule 722(b)(6).
    \21\ A Complex Options Order may be entered as a Qualified 
Contingent Cross Order, as defined in Rule 715(j). Qualified 
Contingent Cross Complex Orders will trade in accordance with 
Supplementary Material .08(e) to this Rule 722. See proposed ISE 
Rule 722(b)(7).
    \22\ A Complex Order may be designated as a Day Order that if 
not executed, expires at the end of the day on which it was entered. 
See proposed ISE Rule 722(b)(8).
    \23\ A Complex Order may be designated as a Fill-or-Kill Order 
that is to be executed in its entirety as soon as it is received 
and, if not so executed, cancelled. See proposed ISE Rule 722(b)(9).
    \24\ A Complex Order may be designated as an Immediate-or-Cancel 
Order that is to be executed in whole or in part upon receipt. Any 
portion not so executed is cancelled. See proposed ISE Rule 
722(b)(10).
    \25\ An Opening Only Complex Order is a Limit Complex Order that 
may be entered for execution during the Complex Opening Process 
described in Supplementary Material .10 to Rule 722. Any portion of 
the order that is not executed during the Complex Opening Process is 
cancelled. See proposed ISE Rule 722(b)(11).
    \26\ A Good-Till-Date Complex Order is an order to buy or sell 
which, if not executed, will be cancelled at the sooner of the end 
of the expiration date assigned to the Complex Order, or the 
expiration of any individual series comprising the order. See 
proposed ISE Rule 722(b)(12).
    \27\ A Good-Till-Cancel Complex Order is an order to buy or sell 
that remains in force until the order is filled, canceled or any 
series of the order expires; provided, however, that a Good-Till-
Cancel Complex Order will be cancelled in the event of a corporate 
action that results in an adjustment to the terms of any series 
underlying the Complex Order. See proposed ISE Rule 722(b)(13).
    \28\ An Exposure Complex Order is an order that will be exposed 
upon entry as provided in Supplementary Material .01 to Rule 722 if 
eligible, or entered on the complex order book if not eligible. Any 
unexecuted balance of an Exposure Complex Order remaining upon the 
completion of the exposure process will be entered on the complex 
order book. See proposed ISE Rule 722(b)(14).
    \29\ An Exposure Only Complex Order is an order that will be 
exposed upon entry as provided in Supplementary Material .01 to Rule 
722 if eligible, or cancelled if not eligible. Any unexecuted 
balance of an Exposure Only Complex Order remaining upon the 
completion of the exposure process will be cancelled. See proposed 
ISE Rule 722(b)(15).
    \30\ A Complex QCC with Stock Order is a Qualified Contingent 
Cross Complex Order, as defined in Rule 722(b)(7), entered with a 
stock component to be communicated to a designated broker-dealer for 
execution pursuant to Supplementary Material .08(f) to Rule 722. See 
proposed ISE Rule 722(b)(16).
    \31\ See Notice, 83 FR at 31785.
---------------------------------------------------------------------------

    ISE originally proposed to include Reserve Complex Orders in the 
order types available for Complex Orders.\32\ In Amendment No. 1, ISE 
proposes to discontinue offering Reserve Complex Orders in the fourth 
quarter of 2018.\33\

[[Page 51732]]

ISE will continue to offer Reserve Orders in the single leg order 
book.\34\ ISE states that it does not receive a high volume of Reserve 
Complex Orders and believes that it is not necessary to offer Reserve 
Complex Orders because there is no great demand for this order 
type.\35\ ISE notes that it offers a variety of order types to its 
market participants and does not believe that discontinuing Reserve 
Complex Orders will disadvantage market participants when they submit 
Complex Orders.\36\ In addition, ISE states that other options 
exchanges do not offer Reserve Complex Orders.\37\ ISE will issue an 
Options Trader Alert to members indicating the date when Reserve 
Complex Orders will no longer be offered.\38\
---------------------------------------------------------------------------

    \32\ Proposed ISE Rule 722(b)(4) provided that: A Limit Complex 
Order may be designated as a Reserve Order that contains both a 
displayed portion and a non-displayed portion. (i) Both the 
displayed and non-displayed portions of a Reserve Complex Order are 
available for potential execution against incoming marketable orders 
or quotes. A non-marketable Reserve Complex Order will rest on the 
complex order book. (ii) The displayed portion of a Reserve Complex 
Order shall be ranked at the specified limit price and the time of 
order entry. (iii) The displayed portion of a Reserve Complex Order 
will trade in accordance with Rule 722(d). (iv) When the displayed 
portion of a Reserve Complex Order is decremented, either in full or 
in part, it shall be refreshed from the non-displayed portion of the 
resting Reserve Complex Order. If the displayed portion is refreshed 
in part, the new displayed portion shall include the previously 
displayed portion. Upon any refresh, the entire displayed portion 
shall be ranked at the specified limit price and obtain a new time 
stamp, i.e., the time that the new displayed portion of the order 
was refreshed. The new displayed portion will trade in accordance 
with Rule 722(d). (v) The initial non-displayed portion of a Reserve 
Complex Order rests on the complex order book and is ranked based on 
the specified limit price and time of order entry. Thereafter, non-
displayed portions, if any, always obtain the same time stamp as 
that of the new displayed portion in subparagraph (iv) above. The 
non-displayed portion of any Reserve Complex Order is available for 
execution only after all displayed interest on the complex order 
book has been executed. Thereafter, the non-displayed portion of any 
Reserve Complex Order will trade in accordance with Rule 722(d). 
(vi) Only the displayed portion of a Reserve Complex Order is 
eligible to be exposed for price improvement pursuant to Rule 
722(d)(1) and Supplementary Material .01 to Rule 722.
    \33\ See Amendment No. 1. In connection with this change, the 
proposal deletes references to Reserve Complex Orders in the 
following proposed rules: Proposed ISE Rule 722(b)(4); proposed ISE 
Rule 722(c)(2)(iv); proposed ISE Rule 722, Supplementary Material 
.11(vi); and proposed ISE Rule 722, Supplementary Material .12(b).
    \34\ See id.
    \35\ See id.
    \36\ See id.
    \37\ See id.
    \38\ ISE states that it will notify members in October of the 
anticipated discontinuation of Reserve Complex Orders in 2018. See 
id.
---------------------------------------------------------------------------

C. Trading of Complex Orders and Quotes

    Proposed ISE Rule 722(c) (formerly ISE Rule 722(b)) states that 
complex strategies will be subject to all other ISE rules that pertain 
to orders and quotes generally, except as otherwise provided in ISE 
Rule 722.
1. Minimum Increments
    Bids and offers for Complex Options Strategies may be expressed in 
$0.01 increments, and the option(s) legs of Complex Options Strategies, 
Stock-Option Strategies, and Stock-Complex Strategies may be executed 
in $0.01 increments, regardless of the minimum increments otherwise 
applicable to the individual options legs of the order.\39\ Bids and 
offers for Stock-Option Strategies or Stock-Complex Strategies may be 
expressed in any decimal price determined by ISE, and the stock leg of 
a Stock-Option Strategy or Stock-Complex Strategy may be executed in 
any decimal price permitted in the equity market.\40\ ISE states that 
smaller minimum increments are appropriate for Complex Orders that 
contain a stock component because the stock component may trade at 
finer decimal increments permitted by the equity market.\41\ ISE notes 
that even with the flexibility provided in proposed ISE Rule 722(c)(1), 
the individual options and stock legs of a Complex Order must trade in 
increments allowed by the Commission in the options and equities 
markets.\42\
---------------------------------------------------------------------------

    \39\ See proposed ISE Rule 722(c)(1).
    \40\ See id. ISE will communicate the minimum increment for 
Stock-Option Strategies and Stock-Complex Strategies to members via 
Options Trader Alert. See Notice, 83 FR at 31786, n. 10.
    \41\ See Notice, 83 FR at 31786.
    \42\ See id. The proposal makes corresponding changes to ISE 
Rule 722, Supplementary Material .07(b). ISE Rule 722, Supplementary 
Material .07(b), as proposed to be amended, states that the System 
will reject orders and quotes for a complex strategy where all legs 
are to buy if entered at a price that is less than the minimum net 
price, which is calculated as the sum of the ratio on each leg of 
the complex strategy multiplied by the minimum increment applicable 
to that leg pursuant to Rule 722(c)(1). ISE notes that the revised 
rule reflects that the stock leg(s) of a Stock-Option or Stock-
Complex Strategy may be entered in any decimal price determined by 
ISE. For example, an order to buy a share of stock and two call 
options would have a minimum price of $0.0201--i.e., $0.02 for two 
options legs and $0.0001 for the stock leg. See Notice, 83 FR at 
31786. The proposal also amends ISE Rule 710 to reference the 
quoting and trading increments for Complex Strategies specified in 
proposed ISE Rule 722(c)(1).
---------------------------------------------------------------------------

2. Complex Order Priority
    The proposal revises the Complex Order priority provisions in 
current ISE Rule 722(b)(2) (renumbered ISE Rule 722(c)(2)) to make 
several non-substantive clarifying changes, including re-formatting the 
rule into three paragraphs and incorporating new defined terms into the 
rule text.\43\ As described more fully in the Notice, under proposed 
ISE Rule 722(c)(2), the legs of a complex strategy with multiple 
options legs (i.e., Complex Options Strategies and Stock-Complex 
Strategies with more than one options component) may be executed at the 
same price as bids and offers on ISE for the individual series so long 
as there are no Priority Customer Orders on ISE at those prices.\44\ If 
one options leg of such a strategy improves upon the best price 
available on the Exchange, then the other leg(s) of the complex 
strategy may trade at the same price as Priority Customer interest.\45\ 
The option leg of a Stock-Option Strategy may be executed at the same 
price as bids and offers on ISE for the individual series established 
by Professional Orders and market maker quotes, but not at the same 
price as Priority Customer Orders for the individual series.\46\ 
Proposed ISE Rule 722(c)(2) also states that complex strategies will 
not be executed at prices inferior to the best net price achievable 
from the best ISE bids and offers for the individual legs.\47\
---------------------------------------------------------------------------

    \43\ See Notice, 83 FR at 31786-7.
    \44\ See Notice, 83 FR at 31786. Pursuant to ISE Rules 
100(a)(49) and (50), a Priority Customer Order is an order for the 
account of a person or entity that (i) is not a broker or dealer in 
securities; and (ii) does not place more than 390 orders in listed 
options per day on average during a calendar month for its own 
beneficial account(s). See id. at 3178 6, n. 12.
    \45\ See Notice, 83 FR at 31786 and proposed ISE Rule 722(c)(2).
    \46\ See id. at 31786-7 and proposed ISE Rule 722(c)(2).
    \47\ See Amendment No. 1.
---------------------------------------------------------------------------

3. Complex Order Executions
    The proposal renumbers ISE Rule 722(b)(3) as ISE Rule 722(d) and, 
for clarity, states that complex strategies are not executable unless 
all of the terms of the strategy can be satisfied and the options legs 
can be executed at prices that comply with the provisions of proposed 
ISE Rule 722(c)(2).\48\ In addition, proposed ISE Rule 722(d) more 
clearly reflects the sequence in which complex strategies are 
processed. First, eligible Complex Orders are exposed for price 
improvement for a period of up to one second as provided in ISE Rule 
722, Supplementary Material .01.\49\ Second, Complex Orders are matched 
against other interest in the Complex Order Book, if possible.\50\ 
However, executable Complex Orders will execute against Priority 
Customer interest on the single leg book at the same price before 
executing against the Complex Order Book.\51\ Thus, Priority Customer 
Orders on the single leg order book will retain priority and will 
execute prior to any other Complex Order or non-Priority Customer 
single leg interest at the same price.\52\ Third, Complex Orders are 
executed against bids and offers on ISE for the individual series, if 
possible.\53\
---------------------------------------------------------------------------

    \48\ See Amendment No. 1.
    \49\ See proposed ISE Rule 722(d)(1).
    \50\ See proposed ISE Rule 722(d)(2).
    \51\ See id. and Amendment No. 1.
    \52\ See id.
    \53\ See proposed ISE Rule 722(d)(2).
---------------------------------------------------------------------------

    The proposal also adds new ISE Rule 722(d)(4), which indicates 
that, similar to the treatment of orders in the regular market, complex 
strategies that are not executable may rest on the Complex Order Book 
until they become executable.\54\ The proposal retains, without 
substantive changes, provisions in current ISE Rule 722(b)(3) that 
specify the manner in which bids and offers at the same price on the 
Complex Order Book may be allocated and certain restrictions on Complex 
Order executions against leg market interest.\55\
---------------------------------------------------------------------------

    \54\ See Notice, 83 FR at 31787.
    \55\ See proposed ISE Rules 722(d)(2) and (3).
---------------------------------------------------------------------------

4. Complex Order Exposure Process
    Current ISE Rule 722(b)(3)(iii) provides that Complex Orders marked 
for price improvement Complex orders will be exposed on the Complex 
Order Book for a period of up to one second before being automatically 
executed against pre-existing interest to provide

[[Page 51733]]

an opportunity for market participants to enter contra-side Complex 
Orders that provide price improvement. At the end of the display 
period, contra-side orders are executed in price priority and in time 
priority at the same price. The proposal replaces this provision with 
proposed ISE Rule 722, Supplementary Material .01, which describes an 
auction process for Complex Orders. Under proposed ISE Rule 722, 
Supplementary Material .01, a member may designate for exposure a 
Complex Order that improves upon the best price for the same complex 
strategy on the Complex Order Book.\56\ Market participants may enter 
Exposure Complex Orders or Exposure Only Complex Orders.\57\ Upon entry 
of an eligible Complex Order, ISE will send a broadcast message that 
includes net price or at market, size, and side, and Members will be 
able to enter Responses with the prices and sizes at which they are 
willing to participate in the execution of the Complex Order.\58\ 
During the exposure period, ISE will broadcast the best Response price 
and the aggregate size of Responses available at that price.\59\ The 
exposure period will end immediately upon receipt of certain unrelated 
Complex Orders for the same complex strategy,\60\ or if a trading halt 
is initiated in any series underlying the Complex Order during the 
exposure period.\61\ At the end of the exposure period, if the Complex 
Order still improves upon the best price for the complex strategy on 
the same side of the market, the Complex Order will be automatically 
executed to the greatest extent possible pursuant to proposed ISE Rule 
722(d)(2)-(3), taking into consideration: (i) Bids and offers on the 
Complex Order Book, including interest received during the exposure 
period, (ii) bids and offers on ISE for the individual options series, 
including interest received during the exposure period, and (iii) 
Responses received during the exposure period, provided that when 
allocating pursuant to proposed ISE Rule 722(d)(2)(iii), Responses are 
allocated pro-rata based on size.\62\ Any unexecuted balance will be 
placed on the Complex Order Book (or cancelled in the case of an 
Exposure Only Complex Order).\63\
---------------------------------------------------------------------------

    \56\ See proposed ISE Rule 722, Supplementary Material .01(a). 
Incoming orders will not be eligible to be exposed if there are 
market orders on the Complex Order Book on the same side of the 
market for the same complex strategy. See id.
    \57\ See notes 28 and 29, supra.
    \58\ See proposed ISE Rule 722, Supplementary Material .01(b). 
Responses are only executable against the Complex Order with respect 
to which they are entered, can be modified or withdrawn at any time 
prior to the end of the exposure period, and will be considered up 
to the size of the Complex Order being exposed. At the conclusion of 
the exposure period, any unexecuted balance of a Response will be 
cancelled automatically. See proposed ISE Rule 722, Supplementary 
Material .01(b)(i).
    \59\ See id.
    \60\ The exposure period for a Complex Order will end 
immediately: (A) Upon the receipt of a Complex Order or quote for 
the same complex strategy on either side of the market that is 
marketable against the Complex Order Book or bids and offers for the 
individual legs; (B) upon the receipt of a non-marketable Complex 
Order or quote for the same complex strategy on the same side of the 
market that would cause the price of the exposed Complex Order to be 
outside of the best bid or offer for the same complex strategy on 
the Complex Order Book; or (C) when a resting Complex Order for the 
same complex strategy becomes marketable against interest on the 
Complex Order Book or bids and offers for individual legs of the 
same complex strategy.
    \61\ See proposed ISE Rule 722, Supplementary Material. 01(d).
    \62\ See proposed ISE Rule 722, Supplementary Material. 01(c) 
and Amendment No. 1.
    \63\ See id.
---------------------------------------------------------------------------

5. Trade Value Allowance
    The Trade Value Allowance provided in proposed ISE Rule 722, 
Supplementary Material .09 is a functionality that allows Stock-Option 
Strategies and Stock-Complex Strategies to trade outside of their 
expected notional trade value by a specified amount (the ``Trade Value 
Allowance'').\64\ ISE states that after calculating the appropriate 
options match price for a Stock-Option or Stock-Complex Order expressed 
in a valid one cent increment, its trading system calculates the 
corresponding stock match price rounded to the increment supported by 
the equity market.\65\ In a small subset of cases, this rounding may 
result in a small difference between the expected notional value of the 
trade and the actual trade value.\66\ ISE states that its members 
generally prefer not to forgo an execution for their Stock-Option 
Strategies and Stock Complex Strategies when there is a Trade Value 
Allowance because the amount of the rounding is miniscule compared to 
the total value of the trade.\67\ Members may opt out of the Trade 
Value Allowance if they do not want their orders to be executed when 
there is a Trade Value Allowance of any amount.\68\ In those cases, ISE 
will strictly enforce the net price marked on the order.\69\
---------------------------------------------------------------------------

    \64\ The Trade Value Allowance is the percentage difference 
between the expected notional value of a trade and the actual 
notional value of the trade. See proposed ISE Rule 722, 
Supplementary Material .09.
    \65\ See Notice, 83 FR at 31793.
    \66\ See id.
    \67\ See id.
    \68\ See id.
    \69\ See id.
---------------------------------------------------------------------------

    The amount of Trade Value Allowance permitted may be determined by 
the member, or a default value determined by ISE and announced to 
members.\70\ However, any amount of Trade Value Allowance is permitted 
for an order executed in an auction pursuant to ISE Rule 722, 
Supplementary Material .08 that does not trade solely with its contra-
side order.\71\ ISE notes that its auction mechanisms provide an 
opportunity for market participants to respond with better priced 
interest that could execute against an Agency Order.\72\ In the 
interest of maintaining a fair and competitive market, ISE believes 
that it is appropriate to ensure that crosses entered into an auction 
mechanism that are broken up due to better priced interest are actually 
executed against such better priced interest, and are not restricted 
from trading to due to the Trade Value Allowance settings of one or 
more members.\73\ Otherwise, an Agency Order in an auction mechanism 
could be forced to forgo a guaranteed execution with the negotiated 
contra-side party without the benefit of trading at a better price with 
other market participants.\74\ Because the Trade Value Allowance is the 
result of a rounding error, ISE believes that any amount of error 
allowed in these circumstances would be miniscule compared to the value 
of the trade.\75\
---------------------------------------------------------------------------

    \70\ See proposed ISE Rule 722, Supplementary Material .09.
    \71\ See id.
    \72\ See Amendment No. 1.
    \73\ See id.
    \74\ See id.
    \75\ See id.
---------------------------------------------------------------------------

D. Complex Opening and Re-Opening Process and Complex Uncrossing 
Process

    After each of the individual component legs have opened, or 
reopened following a trading halt, Complex Options Strategies will be 
opened pursuant to the Complex Opening Price Determination described in 
proposed ISE Rule 722, Supplementary Material .11, and Stock-Option 
Strategies and Stock-Complex Strategies will be opened pursuant to the 
Complex Uncrossing Process described in proposed ISE Rule 722, 
Supplementary Material .12(b).\76\
---------------------------------------------------------------------------

    \76\ See proposed ISE Rule 722, Supplementary Material .10. The 
Complex Opening Process is described in greater detail in the 
Notice, 83 FR at 31793-5.
---------------------------------------------------------------------------

1. Complex Opening and Re-Opening Process
    ISE opens Complex Options Strategies in an opening process that 
attempts to execute Complex Orders and quotes on the Complex Order Book 
at a single price that is within Boundary Prices that

[[Page 51734]]

are constrained by the NBBO for the individual legs.\77\ Bids and 
offers for the individual legs of a complex strategy are not eligible 
to participate in the Complex Opening Price Determination, although 
they may participate in the Complex Uncrossing Process.\78\ If the best 
bid for a complex strategy does not lock or cross the best offer, there 
will be no trade in the Complex Opening Price Determination and the 
complex strategy will open pursuant to the Complex Uncrossing Process 
described in ISE Rule 722, Supplementary Material .12(b).\79\
---------------------------------------------------------------------------

    \77\ See Notice, 83 FR at 31793. The system calculates Boundary 
Prices at or within which Complex Orders and quotes may be executed 
during the Complex Opening Price Determination based on the NBBO for 
the individual legs; provided that, if the NBBO for any leg includes 
a Priority Customer order on the Exchange, the system adjusts the 
Boundary Prices according to proposed ISE Rule 722(c)(2). See 
proposed ISE Rule 722, Supplementary Material .11(d)(i).
    \78\ See proposed ISE Rule 722, Supplementary Material .11(b) 
and (d)(vi). ISE states that the Complex Opening Price Determination 
considers only interest on the Complex Order Book because the 
process is designed to promote price discovery for the complex 
strategy. See Notice, 83 FR at 31794.
    \79\ See proposed ISE Rule 722, Supplementary Material .11(c).
---------------------------------------------------------------------------

    If the best bid for a complex strategy locks or crosses the best 
offer, the system will calculate the Potential Opening Price by 
identifying the price(s) at which the maximum number of contracts can 
trade (``maximum quantity criterion'') taking into consideration all 
eligible interest.\80\ The proposal also provides a method for 
determining the Potential Opening Price when two or more Potential 
Opening Prices would satisfy the maximum quantity criterion.\81\ If the 
Potential Opening Price is at or within the Boundary Prices, the 
Potential Opening Price becomes the Opening Price.\82\ If the Potential 
Opening Price is not at or within the Boundary Prices, the Opening 
Price will be the price closest to the Potential Opening Price that 
satisfies the maximum quantity criteria without leaving unexecuted 
contracts on the bid or offer side of the market at that price and is 
at or within the Boundary Prices.\83\ If the bid Boundary Price is 
higher than the offer Boundary Price, or if no valid Opening Price can 
be found at or within the Boundary Prices, there will be no trade in 
the Complex Opening Price Determination and the complex strategy will 
open pursuant to the Complex Uncrossing Process described in proposed 
Supplementary Material .12(b) to Rule 722.\84\
---------------------------------------------------------------------------

    \80\ See proposed ISE Rule 722, Supplementary Material 
.11(d)(ii). Eligible interest during the Complex Opening Price 
Determination includes Complex Orders and quotes on the Complex 
Order Book. See proposed ISE Rule 722, Supplementary Material 
.11(b).
    \81\ When two or more Potential Opening Prices would satisfy the 
maximum quantity criterion: (A) Without leaving unexecuted contracts 
on the bid or offer side of the market of Complex Orders and quotes 
to be traded at those prices, the system takes the highest and 
lowest of those prices and takes the mid-point; provided that (1) if 
the highest and/or lowest price described above is through the price 
of a bid or offer that is priced to not allocate in the Complex 
Opening Price Determination, the highest and/or lowest price will be 
rounded to the price of such bid or offer that is priced to not 
allocate before taking the mid-point, and (2) if the mid-point is 
not expressed as a permitted minimum trading increment, it will be 
rounded down to the nearest permissible minimum trading increment; 
or (B) leaving unexecuted contracts on the bid (offer) side of the 
market of Complex Orders and quotes to be traded at those prices, 
the Potential Opening Price is the highest (lowest) executable bid 
(offer) price. Notwithstanding the foregoing: (C) If there are 
Market Complex Orders on the bid (offer) side of the market that 
would equal the full quantity of Complex Orders and quotes on offer 
(bid) side of the market, the limit price of the highest (lowest) 
priced Limit Complex Order or quote is the Potential Opening Price; 
and (D) if there are only Market Complex Orders on both sides of the 
market, or if there are Market Complex Orders on the bid (offer) 
side of the market for greater than the total size of Complex Orders 
and quotes on the offer (bid) side of the market, there will be no 
trade in the Complex Opening Price Determination and the complex 
strategy will open pursuant to the Complex Uncrossing Process 
described in Supplementary Material .12(b) to Rule 722. See proposed 
ISE Rule 722, Supplementary Material .11(d)(iii).
    \82\ See proposed ISE Rule 722, Supplementary Material 
.12(d)(iv).
    \83\ See id.
    \84\ See id.
---------------------------------------------------------------------------

    When an execution is possible during the Complex Opening Price 
Determination, the system gives priority first to Market Complex 
Orders, then to resting Limit Complex Orders and quotes on the Complex 
Order Book, with priority given to better priced interest.\85\ The 
allocation provisions of proposed ISE Rule 722(d)(2) apply with respect 
to Complex Orders and quotes at the same price.\86\
---------------------------------------------------------------------------

    \85\ See proposed ISE Rule 722, Supplementary Material 
.12(d)(v).
    \86\ See id.
---------------------------------------------------------------------------

    If the Complex Order Book remains locked or crossed following the 
process described in proposed ISE Rule 722, Supplementary Material 
.12(d)(i)-(v), the system will process any remaining Complex Orders and 
quotes, including Opening Only Complex Orders, in accordance with the 
Complex Uncrossing Process described in proposed ISE Rule 722, 
Supplementary Material .12(b).\87\ ISE believes that it is appropriate 
to open with a Complex Uncrossing Process when the Complex Order Book 
is not executable in the Complex Opening Price Determination because 
the Complex Uncrossing Process supports the trading of additional 
interest and will thereby provide another opportunity for Complex 
Orders and quotes to be executed in the Complex Opening Process.\88\ 
ISE notes that there may be additional interest on the Complex Order 
Book that could trade, for example, by legging to access liquidity on 
the regular order book.\89\ In addition, ISE notes that trades during 
the Complex Uncrossing Process are not constrained by the NBBO for the 
individual legs and can instead trade at prices permitted under ISE 
Rule 722, Supplementary Material .07, which allows the legs of a 
complex strategy to trade through the NBBO for the individual legs by a 
configurable amount.\90\ ISE therefore continues the opening process by 
performing an uncrossing if the Complex Opening Price Determination 
fails to discover an appropriate execution price (for example, if no 
valid Opening Price can be found at or within the Boundary Prices) or 
where there continues to be interest that is locked or crossed after 
Complex Orders and quotes are executed in the Complex Opening Price 
Determination.\91\
---------------------------------------------------------------------------

    \87\ See proposed ISE Rule 722, Supplementary Material 
.12(d)(vi).
    \88\ See Notice, 83 FR at 31794.
    \89\ See id.
    \90\ See id.
    \91\ See id.
---------------------------------------------------------------------------

2. Complex Uncrossing Process
    The Complex Uncrossing Process is used during the Complex Opening 
Process, as described above, and during regular trading when a resting 
Complex Order or quote that is locked or crossed with other interest 
becomes executable.\92\ During the Complex Uncrossing Process, ISE's 
system identifies the oldest Complex Order or quote among the best 
priced bids and offers on the Complex Order Book and matches that order 
or quote pursuant to proposed ISE Rule 722(d)(2)-(3) with resting 
contra-side interest on the Complex Order Book and, for Complex Orders, 
bids and offers for the individual legs of the complex strategy.\93\ 
This process is repeated until the Complex Order Book is no longer 
executable.\94\
---------------------------------------------------------------------------

    \92\ See id.
    \93\ See proposed ISE Rule 722, Supplementary Material .12(b)(i) 
and (ii). A Complex Order entered with an instruction that it must 
be executed at a price that is equal to or better than the NBBO is 
considered based on its actual limit or market price and not the 
price of the NBBO for the component legs. See proposed ISE Rule 722, 
Supplementary Material .12(b)(i).
    \94\ See proposed ISE Rule 722, Supplementary Material 
.12(b)(iii).
---------------------------------------------------------------------------

    ISE states that the Complex Uncrossing Process provides an 
efficient

[[Page 51735]]

and fair way of determining how to execute Complex Orders and quotes 
when interest that is locked or crossed becomes executable during 
regular trading.\95\ ISE notes that during the trading day there may be 
Complex Orders and quotes on the Complex Order Book that are locked or 
crossed with other interest but that are not executable, for example, 
because the legs cannot be printed at permissible prices.\96\ When 
market conditions change (e.g., the leg markets update) and these 
Complex Orders or quotes become executable, the Exchange uses the 
Complex Uncrossing Process to execute Complex Orders or quotes against 
resting contra-side interest.\97\ ISE believes that describing this 
process in its rules is helpful to members and other market 
participants because it provides additional information about how 
Complex Orders and quotes are executed when the Complex Order Book 
becomes executable.\98\
---------------------------------------------------------------------------

    \95\ See Notice, 83 FR at 31796.
    \96\ See id.
    \97\ See id. at 31796 and 31799.
    \98\ See id. at 31799.
---------------------------------------------------------------------------

E. Internalization and Crossing

    For clarity, ISE proposes to amend ISE Rule 722 to specify that the 
requirements of ISE Rules 722(d) and (e) apply to Complex Orders.\99\ 
Proposed ISE Rule 722(c)(3) states that Complex Orders represented as 
agent may be executed (i) as principal as provided in ISE Rule 717(d), 
or (ii) against orders solicited from Members and non-member broker-
dealers as provided in ISE Rule 717(e). The rule further provides that 
exposure requirements of ISE Rules 717(d) or (e) must be met on the 
Complex Order Book unless the order is executed in one of the 
mechanisms described in proposed Supplementary Material .08 to ISE Rule 
722.\100\ ISE notes that it has consistently applied the exposure 
requirement in ISE Rules 717(d) and (e) to the execution of Complex 
Orders on the Complex Order Book, and that it has provided for the 
execution of Complex Orders using the Facilitation Mechanism, the 
Solicited Order Mechanism, and the Price Improvement Mechanism 
(``PIM'').\101\ The proposal replaces current ISE Rules 716, 
Supplementary Material .08 (describing the execution of Complex Orders 
in the Facilitation and Solicited Order Mechanisms) and 723, 
Supplementary Material .09 (describing the execution of Complex Orders 
in the PIM), with proposed ISE Rules 722, Supplementary Material 
.08(a), (b), and (c), which describe the execution of Complex Orders in 
these mechanisms in greater detail.
---------------------------------------------------------------------------

    \99\ ISE Rule 717(d) states that Electronic Access Members 
(``EAMs'') may not execute as principal orders they represent as 
agent unless (i) agency orders are first exposed on the Exchange for 
at least one (1) second, (ii) the EAM has been bidding or offering 
on the Exchange for at least one (1) second prior to receiving an 
agency order that is executable against such bid or offer, or (iii) 
the Member utilizes the Facilitation Mechanism pursuant to Rule 
716(d), or (iv) the Member utilizes the Price Improvement Mechanism 
for Crossing Transactions pursuant to Rule 723. ISE 717(e) states 
that EAMs may not execute orders they represent as agent on the 
Exchange against orders solicited from Members and non-member 
broker-dealers to transact with such orders unless (i) the 
unsolicited order is first exposed on the Exchange for at least one 
(1) second, (ii) the Member utilizes the Solicited Order Mechanism 
pursuant to Rule 716(e), (iii) the Member utilizes the Facilitation 
Mechanism pursuant to Rule 716(d) or (iv) the Member utilizes the 
Price Improvement Mechanism for Crossing Transactions pursuant to 
Rule 723.
    \100\ See proposed ISE Rule 722(c)(3).
    \101\ See Notice, 83 FR at 31789.
---------------------------------------------------------------------------

1. Complex Facilitation Mechanism and Complex Solicited Order Mechanism
    Proposed ISE Rule 722, Supplementary Material .08(a) provides that 
an Electronic Access Member (``EAM'') may use the Complex Facilitation 
Mechanism to facilitate a block-size Complex Order it represents as 
agent, and/or a transaction in which the EAM has solicited interest to 
execute against a block-size Complex Order it represents as agent. Each 
options leg of a Complex Order entered into the Complex Facilitation 
Mechanism must meet the minimum contract size requirement in ISE Rule 
716(d) (i.e., at least 50 contracts).\102\ An EAM must be willing to 
execute the entire size of Complex Orders entered into the Complex 
Facilitation Mechanism.\103\
---------------------------------------------------------------------------

    \102\ See proposed ISE Rule 722, Supplementary Material .08(a).
    \103\ See id.
---------------------------------------------------------------------------

    The Complex Solicited Order Mechanism allows an EAM to attempt to 
execute a Complex Order it represents as agent (the ``Agency Complex 
Order'') against contra orders that it solicited according to ISE Rule 
716(e). Each Complex Order entered into the Solicited Order Mechanism 
must be designated as all-or-none, and each options leg must meet the 
minimum contract size requirement contained in ISE Rule 716(e) (i.e., 
500 or more contracts).\104\ The Complex Facilitation Mechanism and the 
Complex Solicited Order Mechanism operate in a similar manner, as 
described below.
---------------------------------------------------------------------------

    \104\ See proposed ISE Rule 722, Supplementary Material .08(b). 
Prior to entering Agency Orders into the Complex Solicited Order 
Mechanism on behalf of a customer, EAMs must deliver to the customer 
a written notification informing the customer that its order may be 
executed using Nasdaq ISE's Solicited Order Mechanism. Such written 
notification must disclose the terms and conditions contained in ISE 
Rule 722, Supplementary Material .08(b) and must be in a form 
approved by the Exchange. See proposed ISE Rule 722, Supplementary 
Material .08(5).
---------------------------------------------------------------------------

    Complex Orders must be entered into the Complex Facilitation 
Mechanism or into the Complex Solicited Order Mechanism at a price that 
is (A) equal to or better than the best bid or offer on the Complex 
Order Book on the same side of the market as the Agency Order; and (B) 
equal to or better than the best net price achievable from the best ISE 
bids and offers for the individual legs on the same side of the market 
as the Agency Order; provided that, if there is a Priority Customer 
order on the best bid or offer for any leg, the order must be entered 
at an improved price consistent with ISE Rule 722(c)(2).\105\ A Complex 
Order that does not meet these requirements is not eligible for the 
Complex Facilitation Mechanism or the Complex Solicited Order Mechanism 
and will be rejected.\106\
---------------------------------------------------------------------------

    \105\ See proposed ISE Rule 722, Supplementary Material 
.08(a)(1)(i) and (ii) and .08(b).
    \106\ See proposed ISE Rules 722, Supplementary Material 
.08(a)(1) and .08(b)(1). In addition, a Complex Order entered into 
the Complex Facilitation Mechanism or Complex Solicited Order 
Mechanism will be rejected if any component of the Complex Order has 
not opened for trading, or if there is a trading halt in any series 
underlying the Complex Order. If a trading halt is initiated after 
the order is entered into the Complex Facilitation Mechanism, the 
auction will be automatically terminated without execution. See 
proposed ISE Rules 722, Supplementary Material .08(a)(1) and 
.08(b)(1). The priority rules in proposed ISE Rule 722(c)(2) also 
may prevent the execution of a Complex Order entered into the 
Facilitation Mechanism, in which case the transaction will be 
cancelled. See proposed ISE Rule 722, Supplementary Material 
.08(a)(5)(iv). Similarly, an Agency Complex Order entered into the 
Solicited Order Mechanism may execute against the solicited Complex 
Order only if, among other things, there are no Priority Customer 
Complex Orders or Responses that are priced equal to the proposed 
execution price. See proposed ISE Rule 722, Supplementary Material 
.08(b)(4)(i)(D).
---------------------------------------------------------------------------

    Upon the entry of a Complex Order into the Complex Facilitation 
Mechanism or the Complex Solicited Order Mechanism, ISE will send a 
broadcast message that includes the net price, side, and size of the 
Agency Complex Order, and Members will have an opportunity to enter 
Responses with the net prices and sizes at which they want to 
participate in the facilitation of the Agency Complex Order.\107\ The 
time given to enter Responses, which ISE will designate via Options 
Trader Alert, will be no less than 100 milliseconds and no more than 
one second.\108\ Responses are only executable against the Complex 
Order with respect to which they are entered, and will only be

[[Page 51736]]

considered up to the size of the Complex Order to be facilitated.\109\ 
Responses must be entered in the increments provided in proposed ISE 
Rule 722(c)(1) at the facilitation price or the proposed net execution 
price, as applicable, or at a price that is at least one cent better 
for the Agency Order.\110\ Responses will not be visible to other 
auction participants and can be modified or deleted before the exposure 
period has ended.\111\
---------------------------------------------------------------------------

    \107\ See proposed ISE Rules 722, Supplementary Material 
.08(a)(3) and .08(b)(3).
    \108\ See id.
    \109\ See proposed ISE Rules 722, Supplementary Material 
.08(a)(4) and .08(b)(3).
    \110\ See id.
    \111\ See proposed ISE Rules 722, Supplementary Material 
.08(a)(5) and .08(b)(4).
---------------------------------------------------------------------------

    At the end of the period given for the entry of Responses in the 
Complex Facilitation Mechanism, a facilitation order will be 
automatically executed as provided in the proposed rule.\112\ The 
proposal also provides a guaranteed allocation for the facilitating 
EAM,\113\ and allows the facilitating EAM to elect to automatically 
match the net price and size of Complex Orders, Responses, and quotes 
received during the exposure period up to a specified limit price or 
without specifying a limit price.\114\
---------------------------------------------------------------------------

    \112\ See proposed ISE Rule 722, Supplementary Material 
.08(a)(5). If an improved net price for the Complex Order being 
executed can be achieved from Complex Orders, Responses, and quotes 
on the Complex Order Book and, for Complex Options Orders, the ISE 
best bids and offers on the individual legs, the facilitation order 
will be executed against such interest. See proposed ISE Rule 722, 
Supplementary Material .08(a)(5)(iv). If there is insufficient size 
to execute the entire facilitation order at a better net price, 
Priority Customer Complex Orders and Responses to buy (sell) at the 
time the facilitation order is executed that are priced higher 
(lower) than the facilitation price will be executed at the 
facilitation price. Professional Complex Orders and Responses, and 
quotes to buy (sell) at the time the facilitation order is executed 
that are priced higher (lower) than the facilitation price will be 
executed at their stated price, thereby providing the Complex Order 
being facilitated a better price for the number of contracts 
associated with such higher bids (lower offers). See proposed ISE 
Rule 722, Supplementary Material .08(a)(5)(i).
    \113\ Proposed ISE Rule 722, Supplementary Material 
.08(a)(5)(ii) provides that the facilitating EAM will execute at 
least forty percent (40%) (or such lower percentage requested by the 
member) of the original size of the facilitation order, but only 
after better-priced Responses, Complex Orders and quotes, as well as 
Priority Customer Complex Orders and Responses at the facilitation 
price, are executed in full. Thereafter, Professional Complex Orders 
and Responses, and quotes at the facilitation price will participate 
in the execution of the facilitation order based upon the percentage 
of the total number of contracts available at the facilitation price 
that is represented by the size of the Professional Complex Order or 
Response, or quote.
    \114\ Proposed ISE Rule 722, Supplementary Material 
.08(a)(5)(iii) provides that a facilitating EAM may elect to 
automatically match the net price and size of Complex Orders, 
Responses and quotes received during the exposure period up to a 
specified limit price or without specifying a limit price. This 
election will also automatically match the net price available from 
the ISE best bids and offers on the individual legs for the full 
size of the order; provided that with notice to members the Exchange 
may determine whether to offer this option only for Complex Options 
Orders, Stock-Option Orders, and/or Stock Complex Orders. If a 
member elects to auto-match, the facilitating EAM will be allocated 
its full size at each price point, or at each price point within its 
limit price if a limit is specified, until a price point is reached 
where the balance of the order can be fully executed. At such price 
point, the facilitating EAM will be allocated at least 40% (or such 
lower percentage requested by the member) of the original size of 
the facilitation order, but only after Priority Customer Orders and 
Responses at such price point. Thereafter, Professional Complex 
Orders and Responses, and quotes at the price point will participate 
in the execution of the facilitation order based upon the percentage 
of the total number of contracts available at the facilitation price 
that is represented by the size of the Professional Complex Order or 
Response, or quote. An election to automatically match better prices 
cannot be cancelled or altered during the exposure period.
---------------------------------------------------------------------------

    At the end of the period given for the entry of Responses in the 
Solicited Order Mechanism, an Agency Complex Order will be 
automatically executed in full pursuant to proposed ISE Rule 722, 
Supplementary Material .08(b)(4)(i)-(iv), or cancelled.\115\ The Agency 
Complex Order will execute against the Solicited Complex Order or 
against other interest depending on whether there is insufficient size 
to execute the Agency Order at an improved net price(s),\116\ 
sufficient Priority Customer interest to execute the entire Agency 
Complex order at the proposed net execution price,\117\ or sufficient 
size to execute the entire Agency Complex Order at an improved net 
price(s).\118\ The proposed rule also specifies the allocation of 
interest when the Agency Complex Order executes against interest other 
than the solicited Complex Order.\119\
---------------------------------------------------------------------------

    \115\ See proposed ISE Rule 722, Supplementary Material 
.08(b)(4).
    \116\ If at the time of execution there is insufficient size to 
execute the entire Agency Complex Order at an improved net price(s) 
pursuant to ISE Rule 722, Supplementary Material .08(b)(4)(iii), the 
Agency Complex Order will be executed against the solicited Complex 
Order at the proposed execution net price so long as, at the time of 
execution: (A) The execution net price is equal to or better than 
the best net price achievable from the best ISE bids and offers for 
the individual legs, (B) the Complex Order can be executed in 
accordance with ISE Rule 722(c)(2) with respect to the individual 
legs, (C) the execution net price is equal to or better than the 
best bid or offer on the Complex Order Book, and (D) there are no 
Priority Customer Complex Orders or Responses that are priced equal 
to the proposed execution price. See proposed ISE Rule 722, 
Supplementary Material .08(b)(4)(i).
    \117\ If there are Priority Customer Complex Orders or Responses 
on the opposite side of the Agency Complex Order at the proposed 
execution net price and there is sufficient size to execute the 
entire size of the Agency Complex Order, the Agency Complex Order 
will be executed against such interest, and the solicited Complex 
Order will be cancelled, provided that: (A) The execution net price 
is equal to or better than the best net price achievable from the 
best ISE bids and offers for the individual legs, and (B) the 
Complex Order can be executed in accordance with ISE Rule 722(c)(2) 
with respect to the individual legs. The aggregate size of all 
Complex Orders, Responses and quotes and, for Complex Options 
Orders, the aggregate size available from the best bids and offers 
for the individual legs, will be used to determine whether the 
entire Agency Complex Order can be executed pursuant to this 
paragraph. See proposed ISE Rule 722, Supplementary Material 
.08(b)(4)(ii).
    \118\ If at the time of execution there is sufficient size to 
execute the entire Agency Complex Order at an improved net price(s), 
the Agency Complex Order will be executed at the improved net 
price(s), and the solicited Complex Order will be cancelled, 
provided that: (A) The execution net price is equal to or better 
than the best net price achievable from the best ISE bids and offers 
for the individual legs, and (B) the Complex Order can be executed 
in accordance with ISE Rule 722(c)(2) with respect to the individual 
legs. The aggregate size of all Complex Orders, Responses, and 
quotes, and the aggregate size available from the best bids and 
offers for the individual legs for a Complex Options Order, will be 
used to determine whether the entire Agency Complex Order can be 
executed at an improved net price(s). See proposed ISE Rule 722, 
Supplementary Material .08(b)(4)(iii).
    \119\ Proposed ISE Rule 722, Supplementary Material 
.08(b)(4)(iv) provides that when executing the Agency Complex Order 
against other interest in accordance with proposed ISE Rule 722, 
Supplementary Material .08(b)(ii) and (iii), Priority Customer 
Complex Orders and Responses will be executed first. Professional 
Complex Orders and Responses, and market maker quotes participate 
next in the execution of the Agency Complex Order based upon the 
percentage of the total number of contracts available at the best 
price that is represented by the size of the Professional Complex 
Order or Response, or market maker quote. Finally, for Complex 
Options Orders, bids and offers for the individual legs will be 
executed pursuant to Rule 713 and the Supplementary Material 
thereto.
---------------------------------------------------------------------------

2. Complex PIM
    The Complex PIM allows an EAM to seek price improvement for a 
transaction in which an EAM is facilitating a Complex Order it 
represents as agent, and/or a transaction in which the EAM has 
solicited interest to execute against a Complex Order it represents as 
agent (a ``Crossing Transaction'').\120\ A Crossing Transaction is 
comprised of the order the EAM represents as agent (the ``Agency 
Order'') and a counter-side order for the full size of the Agency Order 
(the ``Counter-Side Order'').\121\ A Complex Order must be entered into 
the Complex PIM at a price that is better than the best net price (i) 
available on the Complex Order Book on both sides of the market; and 
(ii) achievable from the best ISE bids and offers for the individual 
legs on both sides of the market (an ``improved net price'').\122\ A 
Complex Order that does not satisfy this requirement will be 
rejected.\123\
---------------------------------------------------------------------------

    \120\ See proposed ISE Rule 722, Supplementary Material .08(c).
    \121\ The Counter-Side Order may represent interest for the 
Member's own account or interest the Member has solicited from one 
or more other parties, or a combination of both. See proposed ISE 
Rule 722, Supplementary Material .08(c)(1).
    \122\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(2).
    \123\ See id. In addition, a Complex Order entered into the 
Complex PIM will be rejected if any component of the Complex Order 
has not opened for trading, or if there is a trading halt in any 
series underlying the Complex Order. If a trading halt is initiated 
after the order is entered into the Complex PIM, the auction will be 
automatically terminated without an execution. See ISE Rule 722, 
Supplementary Material .08(c)(3).

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

[[Page 51737]]

    Upon entry of a Complex Order into the Complex PIM, ISE will 
broadcast to members a message that includes the net price, side and 
size of the Agency Complex Order.\124\ ISE will designate via Options 
Trader Alert a time of no less than 100 milliseconds and no more than 
one second for members to indicate the size and net price at which they 
want to participate in the execution of the Agency Complex Order 
(``Improvement Complex Orders'').\125\ All members may enter 
Improvement Complex Orders for their own account or for the account of 
a Public Customer.\126\
---------------------------------------------------------------------------

    \124\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(4).
    \125\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(4).
    \126\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(4)(i). An Improvement Complex Order, which is only executable 
against the Complex Order with respect to which it is entered and 
will only be considered up to the size of the Agency Complex Order, 
must be entered in the increments provided in proposed ISE Rule 
722(c)(1) at the same price as the Crossing Transaction or at a 
price that is at least one cent better for the Agency Complex Order. 
An Improvement Complex Order may not be canceled, but it may be 
modified to (1) increase the size at the same price, or (2) improve 
the price of the Improvement Complex Order for any size. Improvement 
Complex Orders will not be visible to other auction participants. 
See proposed ISE Rules 722, Supplementary Material .08(c)(4)(i)-
(iii).
---------------------------------------------------------------------------

    The exposure period for a Complex PIM will automatically terminate 
(A) at the end of the time period designated by ISE pursuant to ISE 
Rule 722, Supplementary Material .08(c)(4)(i), (B) upon the receipt of 
a Complex Order or quote in the same complex strategy on either side of 
the market that is marketable against the Complex Order Book or bids 
and offers for the individual legs, or (C) upon the receipt of a non-
marketable Complex Order or quote in the same complex strategy on the 
same side of the market as the Agency Complex Order that would cause 
the execution of the Agency Complex Order to be outside of the best bid 
or offer on the Complex Order Book.\127\ Although only one Complex PIM 
may be ongoing at any time for a particular complex strategy, a PIM in 
a component leg of a complex strategy may run concurrently with a 
Complex PIM for that strategy.\128\
---------------------------------------------------------------------------

    \127\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(4)(iv). When a marketable Complex Order on the opposite side 
of the Agency Complex Order ends the exposure period, it will 
participate in the execution of the Agency Complex Order at the 
price that is mid-way between the best counter-side interest and the 
same side best bid or offer on the Complex Order Book or net price 
from ISE best bid or offer on individual legs, whichever is better, 
so that both the marketable Complex Order and the Agency Complex 
Order receive price improvement. See proposed ISE Rule 722, 
Supplementary Material .04(c)(5)(iv).
    \128\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(4)(v). A Complex PIM for a complex strategy may be ongoing at 
the same time as a PIM pursuant to ISE Rule 723 or during an 
exposure period pursuant to Supplementary Material .02 to ISE Rule 
1901 in a component leg(s) of such complex strategy. If a Complex 
PIM is early terminated pursuant to ISE Rule 722, Supplementary 
Material .08(c)(4)(iv), and the incoming Complex Order that causes 
the early termination in the complex strategy is also marketable 
against a component leg(s) of the complex strategy that is the 
subject of a concurrent ongoing PIM pursuant to ISE Rule 723 or an 
exposure period pursuant to Supplementary Material .02 to ISE Rule 
1901, then the concurrent Complex PIM and component leg auction(s) 
are processed in the following sequence: (1) The Complex PIM is 
early terminated; (2) the component leg auction(s) are early 
terminated and processed; and (3) legging of residual incoming 
Complex Order interest occurs. See proposed ISE Rule 722, 
Supplementary Material .08(c)(4)(vi) and Amendment No. 1.
---------------------------------------------------------------------------

    At the end of the exposure period, the Agency Complex Order will be 
executed in full at the best prices available, taking into 
consideration Complex Orders and quotes in the Complex Order Book, 
Improvement Complex Orders, the Counter-Side Order, and, for Complex 
Options Orders, the ISE best bids and offers on the individual 
legs.\129\ The Agency Complex Order will receive executions at multiple 
price levels if there is insufficient size to execute the entire order 
at the best price.\130\ At any net price, Priority Customer interest on 
the Complex Order Book (i.e., Priority Customer Complex Orders and 
Improvement Complex Orders) is executed in full before Professional 
interest (i.e., Professional Complex Orders and Improvement Complex 
Orders) and market maker quotes on the Complex Order Book.\131\ After 
Priority Customer interest on the Complex Order Book at a given net 
price, Professional interest and market maker quotes on the Complex 
Order Book will participate in the execution of the Agency Complex 
Order based on the percentage of the total number of contracts 
available at the price represented by the size of that interest.\132\ 
When the Counter-Side Complex Order is at the same net price as 
Professional interest and market maker quotes on the Complex Order 
Book, the Counter-Side Complex Order will be allocated the greater of 
one contract or 40% (or such lower percentage requested by the member) 
of the initial size of the Agency Complex Order before other 
Professional interest and market maker quotes on the Complex Order Book 
are executed.\133\
---------------------------------------------------------------------------

    \129\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(5). If an improved net price for the Complex Order being 
executed can be achieved from Complex Orders, Improvement Complex 
Orders, and quotes on the Complex Order Book and, for Complex 
Options Orders, the ISE best bids and offers on the individual legs, 
the Agency Complex Order will be executed against such interest. In 
addition, the priority provisions in ISE Rule 722(c)(2) will 
continue to apply and may prevent the execution of a Complex Order 
entered into the Complex PIM, in which case the transaction will be 
cancelled. See ISE Rule 722, Supplementary Material .08(c)(5)(v).
    \130\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(5).
    \131\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(5)(i).
    \132\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(5)(ii).
    \133\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(5)(iii). Upon entry of Counter-Side Complex Orders, Members 
can elect to automatically match the price and size of Complex 
Orders, Improvement Complex Orders and quotes received on the 
Complex Order Book during the exposure period up to a specified 
limit net price or without specifying a limit net price. This 
election will also automatically match the net price available from 
the ISE best bids and offers on the individual legs for the full 
size of the order; provided that with notice to members the Exchange 
may determine whether to offer this option only for Complex Options 
Orders, Stock-Option Orders, and/or Stock Complex Orders. If a 
member elects to auto-match, the Counter-Side Complex Order will be 
allocated its full size at each price point, or at each price point 
within its limit net price if a limit is specified, until a price 
point is reached where the balance of the order can be fully 
executed. At such price point, the Counter-Side Complex Order shall 
be allocated the greater of one contract or 40% (or such lower 
percentage requested by the member) of the original size of the 
Agency Complex Order, but only after Priority Customer Complex 
Orders and Improvement Complex Orders at such price point are 
executed in full. Thereafter, all Professional Complex Orders and 
Improvement Complex Orders, and quotes at the price point will 
participate in the execution of the Agency Complex Order based upon 
the percentage of the total number of contracts available at the 
price that is represented by the size of the Professional Complex 
Order or Improvement Complex Order, or quote on the complex order 
book. See id.
---------------------------------------------------------------------------

3. Complex Customer Cross Orders
    ISE notes that ISE Rules 717(d) and (e) apply when a member seeks 
to execute an order it represents as agent against a proprietary order 
(i.e., a facilitation transaction) or an order the member has solicited 
from another broker-dealer (i.e., a solicited transaction).\134\ 
Transactions where neither side is for the account of a broker-dealer 
are not within the scope of ISE Rule 717(d) and (e), and members can 
enter the buy and sell orders on the limit order book nearly 
simultaneously.\135\ To make the

[[Page 51738]]

execution of such customer orders more efficient, the ISE developed 
Customer Cross Orders as a way to enter opposing customer orders using 
a single order type.\136\
---------------------------------------------------------------------------

    \134\ See Notice, 83 FR at 31790.
    \135\ See id. ISE notes that ISE Rule 717, Supplementary 
Material .01 prohibits members from entering into arrangements 
designed to circumvent the exposure requirements for facilitation 
transactions. Accordingly, it would be a violation of ISE Rule 
717(d) for a member to effectively facilitate an order by providing 
an opportunity for a customer or other person (including affiliates) 
to regularly execute against agency orders handled by the member 
immediately upon their entry on the Exchange. See id. at n. 35.
    \136\ See Notice, 83 FR at 31790. See also Securities Exchange 
Act Release No. 60253 (July 7, 2009), 74 FR 34063 (July 14, 2009) 
(notice of filing and immediate effectiveness of File No. SR-ISE-
2009-34).
---------------------------------------------------------------------------

    Proposed ISE Rule 722, Supplementary Material .08(d) addresses the 
application of Customer Cross Orders to Complex Orders.\137\ Proposed 
ISE Rule 722, Supplementary Material .08(d) states that Complex 
Customer Cross Orders will be automatically executed upon entry so long 
as: (i) The price of the transaction is at or within the best bid and 
offer for the same complex strategy on the Complex Order Book; (ii) 
there are no Priority Customer Complex Orders for the same strategy at 
the same price on the Complex Order Book; and (iii) the options legs 
can be executed at prices that comply with the provisions of ISE Rule 
722(c)(2). The proposed rule further states that Complex Customer Cross 
Orders will be rejected if they cannot be executed, and that ISE Rule 
717, Supplementary Material .01 applies to Complex Customer Cross 
Orders.\138\
---------------------------------------------------------------------------

    \137\ See Notice, 83 FR at 31790.
    \138\ See footnote 135, supra.
---------------------------------------------------------------------------

4. Complex Qualified Contingent Cross Orders
    Proposed ISE Rule 722, Supplementary Material .08(e) states that 
Complex Options Orders may be entered as Qualified Contingent Cross 
Orders, as defined in ISE Rule 715(j).\139\ Proposed ISE Rule 722, 
Supplementary Material .08(e) states that Complex Qualified Contingent 
Cross Orders (``Complex QCC Orders'') will be automatically executed 
upon entry so long as: (i) The price of the transaction is at or within 
the best bid and offer for the same complex options strategy on the 
Complex Order Book; (ii) there are no Priority Customer Complex Options 
Orders for the same strategy at the same price on the Complex Order 
Book; and (iii) the options legs can be executed at prices that (A) are 
at or between the NBBO for the individual series, and (B) comply with 
the provisions of ISE Rule 722(c)(2)(i), provided that no legs of the 
Complex Options Order can be executed at the same price as a Priority 
Customer Order on the Exchange in the individual options series. 
Proposed ISE Rule 722, Supplementary Material .08(e) further provides 
that Complex QCC Orders will be rejected if they cannot be executed, 
that they may be entered in one cent increments, and that each leg of a 
Complex Options Order must meet the 1,000 contract minimum size 
requirement for Qualified Contingent Cross Orders. ISE notes that in 
executing Complex QCC Orders, Priority Customer Orders on the Complex 
Order Book and Priority Customer Orders on ISE for the individual 
options series are protected.\140\
---------------------------------------------------------------------------

    \139\ ISE Rule 715(j) defines a Qualified Contingent Cross Order 
as an order comprised of an originating order to buy or sell at 
least 1,000 contracts that is identified as being part of a 
qualified contingent trade, as that term is defined in ISE Rule 715, 
Supplementary Material .01, coupled with a contra-side order or 
orders totaling an equal number of contracts. ISE Rule 715, 
Supplementary Material .01 states that a qualified contingent trade 
is a transaction consisting of two or more component orders, 
executed as agent or principal, where: (a) At least one component is 
an NMS Stock, as defined in Rule 600 of Regulation NMS under the 
Exchange Act; (b) all components are effected with a product or 
price contingency that either has been agreed to by all the 
respective counterparties or arranged for by a broker-dealer as 
principal or agent; (c) the execution of one component is contingent 
upon the execution of all other components at or near the same time; 
(d) the specific relationship between the component orders (e.g., 
the spread between the prices of the component orders) is determined 
by the time the contingent order is placed; (e) the component orders 
bear a derivative relationship to one another, represent different 
classes of shares of the same issuer, or involve the securities of 
participants in mergers or with intentions to merge that have been 
announced or cancelled; and (f) the transaction is fully hedged 
(without regard to any prior existing position) as a result of other 
components of the contingent trade.
    \140\ See Notice, 83 FR at 31791.
---------------------------------------------------------------------------

5. Complex QCC With Stock Orders
    Proposed ISE Rule 722, Supplementary Material .08(f) describes the 
processing of Complex QCC with Stock Orders.\141\ ISE notes that 
because a Complex QCC Order represents one component of a qualified 
contingent trade, each Complex QCC Order must be paired with a stock 
transaction.\142\ ISE further notes that members must separately 
execute the stock component of a regular Complex QCC Order.\143\ By 
contrast, when a member enters a Complex QCC with Stock Order, ISE will 
attempt to facilitate the execution of the stock component in addition 
to the options component.\144\ When a member enters a Complex QCC with 
Stock Order, a Complex QCC Order is entered ISE.\145\ If the Complex 
QCC Order is executed, ISE will automatically communicate the stock 
component to the member's designated broker-dealer for execution.\146\ 
If the Complex QCC Order cannot be executed, the entire Complex QCC 
with Stock Order, including both the stock and options components, is 
cancelled.\147\ ISE Rules 721, Supplementary Material .01-.03 apply to 
the entry and execution of Complex QCC with Stock Orders.\148\ ISE 
states that Complex QCC with Stock Orders assist members in maintaining 
compliance with Exchange rules regarding the execution of the stock 
component of qualified contingent trades, and help maintain an audit 
trail for surveillance of members for compliance with such rules.\149\
---------------------------------------------------------------------------

    \141\ As noted above, a Complex QCC with Stock Order is a 
Complex QCC Order, as defined in Rule 722(b)(7), entered with a 
stock component to be communicated to a designated broker-dealer for 
execution pursuant to proposed ISE Rule 722, Supplementary Material 
.08. See proposed ISE Rule 722(b)(16).
    \142\ See Notice, 83 FR at 31792.
    \143\ See id.
    \144\ See id.
    \145\ See proposed ISE Rule 722, Supplementary Material 
.08(f)(1).
    \146\ See proposed ISE Rule 722, Supplementary Material 
.08(f)(2).
    \147\ See proposed ISE Rule 722, Supplementary Material 
.08(f)(3).
    \148\ See proposed ISE Rule 722, Supplementary Material 
.08(f)(4).
    \149\ See Notice, 83 FR at 31792. Members that execute the 
options component of a qualified contingent trade entered as a QCC 
with Stock Order remain responsible for the execution of the stock 
component if they do not receive an execution from their designated 
broker-dealer. See ISE Rule 721, Supplementary Material .03.
---------------------------------------------------------------------------

F. Concurrent Auctions

1. Concurrent Complex Order and Single Leg Auctions
    Proposed ISE Rule 722, Supplementary Material .08(h) provides that 
an auction in the Block Order Mechanism, Facilitation Mechanism, 
Solicited Order Mechanism, or PIM, or an exposure period as provided in 
ISE Rule 1901, Supplementary Material .02, for an option series may 
occur concurrently with a Complex Order Exposure Auction, Complex 
Facilitation auction, Complex Solicited Order auction, or Complex PIM 
for a Complex Order that includes that series.\150\ To the extent that 
there are concurrent Complex Order and single leg auctions involving a 
specific option series, each auction will be processed sequentially 
based on the time the auction commenced.\151\
---------------------------------------------------------------------------

    \150\ See Amendment No. 1.
    \151\ See Amendment No. 1. At the time an auction concludes, 
including when it concludes early, the auction will be processed 
pursuant to ISE Rules 716(b), (c), (d), or (e), or 723 or 
Supplementary Material .02 to Rule 1901, as applicable, for the 
single option, or pursuant to proposed ISE Rules 722, Supplementary 
Material .01, or .08(a), (b), or (c), as applicable, for the Complex 
Order, except as provided for in proposed Supplementary Material 
.08(c)(4)(vi) to ISE Rule 722. See id.
---------------------------------------------------------------------------

2. Limitation on Concurrent Complex Strategy Auctions
    In conjunction with ISE's migration to the INET platform, ISE filed 
a proposal in 2017 to delay the re-introduction of

[[Page 51739]]

functionality on ISE that permitted concurrent Complex Order auctions 
in the same complex strategy.\152\ ISE subsequently extended its delay 
of the re-introduction of this functionality for an additional year, 
until April 17, 2019.\153\ ISE states that it has no immediate plans to 
re-introduce the functionality.\154\ Accordingly, ISE proposes to 
delete from ISE Rule 722 language indicating that ISE will recommence 
concurrent Complex Order auctions or before April 17, 2019.\155\ In 
addition, ISE proposes to adopt ISE Rule 722, Supplementary Material 
.08(g), which provides that only one Exposure Auction, Complex PIM, 
Complex Facilitation Mechanism auction, or Complex Solicited Order 
Mechanism auction will be ongoing at any given time in a complex 
strategy, and states that such auctions will not queue or overlap in 
any manner.\156\
---------------------------------------------------------------------------

    \152\ INET is the proprietary core technology utilized across 
Nasdaq's global markets and utilized on The Nasdaq Options Market 
LLC, Nasdaq PHLX LLC, and Nasdaq BX, Inc. See Amendment No. 1. See 
also Securities and Exchange Act Release No. 80525 (April 25, 2017), 
82 FR 20405 (May 1, 2017) (notice of filing and immediate 
effectiveness of SR-ISE-2017-33).
    \153\ See Amendment No. 1. See also Securities and Exchange Act 
Release No. 83101 (April 25, 2018), 83 FR 19130 (May 1, 2018) 
(notice of filing and immediate effectiveness of SR-ISE-2018-40) 
(``April 2018 Notice'').
    \154\ See Amendment No. 1.
    \155\ See id. In the event that ISE wishes to implement 
concurrent Complex Order auctions in the future, it will file a 
proposed rule change with the Commission to do so. See id.
    \156\ See Amendment No. 1. Proposed ISE Rule 722, Supplementary 
Material .08(g) states that ISE will not initiate an Exposure 
Auction, Complex PIM, Complex Facilitation Mechanism auction, or 
Complex Solicited Order Mechanism auction in a complex strategy 
while another Exposure Auction, Complex PIM, or Complex Solicited 
Order Mechanism auction in that Complex Strategy is ongoing. If a 
Complex PIM auction, Complex Facilitation Mechanism auction, or 
Complex Solicited Order Mechanism auction for a Complex Strategy has 
been initiated, an Exposure Auction for that Complex Strategy will 
not be initiated, and an Exposure Only Complex Order for the Complex 
Strategy will be cancelled back to the member. An Exposure Order for 
the Complex Strategy will be processed as an order that is not 
marked for price improvement.
---------------------------------------------------------------------------

    ISE states that it has not offered concurrent auctions in the same 
complex order strategy since 2017, and notes that no member has 
complained or expressed concern about the absence of the 
functionality.\157\ In the April 2018 Notice, ISE stated that it was 
rare for multiple auctions in a complex strategy to be ongoing at a 
particular time, particularly due to the decrease in ISE's auction 
timers to 100 milliseconds.\158\ ISE stated that prior to the migration 
to the INET platform concurrent auctions in a complex options strategy 
only occurred approximately 0.5% of the time that an auction ran on the 
Exchange.\159\ ISE believes that the absence of the concurrent Complex 
Order functionality will have an insignificant impact on members.\160\ 
ISE states that a member that has auction-eligible interest to execute 
when another Complex Order auction is ongoing can either re-submit that 
order to the Exchange after the auction has concluded, or submit the 
order to another options market that provides similar auction 
functionality.\161\ In this regard, ISE notes that its market data 
feeds provide information to members about when a Complex Order auction 
is ongoing, and members can therefore use this information to make 
appropriate routing decisions based on applicable market 
conditions.\162\ ISE notes that other options markets do not offer 
concurrent Complex Order auctions in a strategy.\163\
---------------------------------------------------------------------------

    \157\ See Amendment No. 1.
    \158\ See April Notice, 82 FR at n. 10 (citing Securities 
Exchange Act Release No. 79733 (January 4, 2017), 82 FR 3055 
(January 10, 2017) (SR-ISE-2016-26) (permitting the Exchange to 
determine auction timers for PIM, Facilitation, and Solicitation 
within a range of 100 milliseconds and one second)). ISE noted that 
each of these auction timers, as well as the auction timer for 
exposure auctions, was currently set to 100 milliseconds. See also 
Amendment No. 1.
    \159\ See April Notice, 82 FR at 19131. See also Amendment No. 
1.
    \160\ See Amendment No. 1.
    \161\ See id.
    \162\ See id.
    \163\ ISE states that Nasdaq Phlx, LLC does not allow the 
initiation of a Complex Order Live Auction when there is a Price 
Improvement XL auction already ongoing in the strategy pursuant to 
Phlx Rule 1098(e)(2). Similarly, Miami International Securities 
Exchange LLC has the ability to limit the frequency of Complex 
Auctions by establishing a minimum time period between such auctions 
pursuant to MIAX Rule 518(d)(2). See id.
---------------------------------------------------------------------------

G. Stock-Option and Stock-Complex Orders

    Proposed ISE Rule 722, Supplementary Material .13 provides 
requirements for Stock-Option and Stock-Complex Orders. The proposed 
rule allows members to submit only Stock-Option and Stock-Complex 
Orders and quotes that comply with the QCT Exemption from Rule 611(a) 
of Regulation NMS, and members submitting these orders and quotes 
represent that they comply with the QCT Exemption. In addition, 
proposed ISE Rule 722, Supplementary Material .13 requires that the 
stock leg of a Stock-Option Order be marked ``buy,'' ``sell,'' ``sell 
short,'' or ``sell short exempt'' in compliance with Regulation SHO 
under the Exchange Act.

H. Additional Changes

1. Market Maker Quotes
    As part of the transition to the INET platform, ISE has delayed 
until April 26, 2019, the re-introduction of the functionality that 
allows market makers to enter quotes in certain symbols for complex 
strategies on the Complex Order Book.\164\ ISE states that prior to the 
INET transition, quoting in the Complex Order Book was available in a 
subset of the options classes.\165\ Accordingly, ISE proposes to amend 
ISE Rule 722, Supplementary Material .03 to indicate that complex 
quoting will be available only in options classes selected by the 
Exchange and announced to members via Options Trader Alert.\166\ ISE 
notes that market makers that quote in the Complex Order Book must 
enter certain risk parameters pursuant to ISE Rule 722, Supplementary 
Material .04 (``Market Maker Speed Bump'').\167\ In connection with 
proposed changes to the defined terms relating to Complex Orders, as 
described above, ISE proposes to amend ISE Rule 722, Supplementary 
Material .04 to clarify that the Market Maker Speed Bump applies to 
Complex Options Strategies and not to Stock-Option Strategies or Stock-
Complex Strategies.\168\
---------------------------------------------------------------------------

    \164\ See ISE Rule 722, Supplementary Material .03. See also 
Securities Exchange Act Release Number 83001 (April 5, 2018), 83 FR 
15653 (April 11, 2018) (notice of filing and immediate effectiveness 
of File No. SR-ISE-2018-29).
    \165\ See Notice, 83 FR at 31788.
    \166\ See id.
    \167\ See id.
    \168\ See id. ISE notes that because the Market Maker Speed Bump 
is based exclusively on options contracts traded, it applies only to 
Complex Options Strategies and not to complex strategies that have a 
stock component. See id. at 31797.
---------------------------------------------------------------------------

2. Price Limits for Complex Orders and Quotes
    ISE Rule 722, Supplementary Material .07(a) establishes a risk 
protection that limits the amount by which the legs of a complex 
strategy may be executed at prices inferior to the prices available on 
other exchanges trading the same options series. ISE proposes to amend 
ISE Rule 722, Supplementary Material .07(a) to include a reference to 
the stock leg of Stock-Option Strategies and Stock-Complex 
Strategies.\169\ Proposed ISE Rule 722, Supplementary Material .07(a) 
will state, in part, that the System will not permit the legs of a 
complex strategy to trade through the NBBO for the series or any stock 
component by a configurable amount calculated as the lesser of (i) an 
absolute amount not to

[[Page 51740]]

exceed $0.10, and (ii) a percentage of the NBBO not to exceed 500%, as 
determined by the Exchange on a class, series, or underlying basis. 
Similarly, ISE proposes to add a reference to the national best bid or 
offer for the stock leg to the Limit Order Price Protection in ISE Rule 
722, Supplementary Material .07(d).\170\ ISE believes that these 
changes will increase transparency with respect to the prices ISE uses 
when ISE must derive a best bid or offer from the prices available in 
the regular market.\171\ In addition, ISE Rule 722, Supplementary 
Material .07(d) currently describes the application of the Limit Order 
Price Protection to Limit Complex Orders to buy. The proposal revises 
ISE Rule 722, Supplementary Material .07(d) to describe the application 
of the price protection to Limit Complex Orders to sell.\172\
---------------------------------------------------------------------------

    \169\ See Notice, 83 FR at 31792. See id. at 31792-3.
    \170\ See id. at 31792-3. Proposed ISE Rule 722, Supplementary 
Material .07(d) states: There is a limit on the amount by which the 
net price of an incoming Limit Complex Order to buy may exceed the 
net price available from the individual options series on the 
Exchange and the national best bid or offer for any stock leg, and 
by which the net price of an incoming Limit Complex Order to sell 
may be below the net price available from the individual options 
series on the Exchange and the national best bid or offer for any 
stock leg. Limit Complex Orders that exceed the pricing limit are 
rejected. The limit is established by the Exchange from time-to-time 
for Limit Complex Orders to buy (sell) as the net price available 
from the individual options series on the Exchange and the national 
best bid or offer for any stock leg plus (minus) the greater of: (i) 
An absolute amount not to exceed $2.00, or (ii) a percentage of the 
net price available from the individual options series on the 
Exchange and the national best bid or offer for any stock leg not to 
exceed 10%. This limit order price protection applies only to orders 
and does not apply to quotes.
    \171\ See id.
    \172\ See id. at 31793.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\173\ In particular, for 
the reasons discussed below, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\174\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, 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. This order approves the proposed rule change in its 
entirety, although only certain more significant aspects of the 
proposed rules are discussed below.
---------------------------------------------------------------------------

    \173\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \174\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. Definitions and Order Types

    The proposal revises ISE's current definitions relating to Complex 
Orders by creating the new defined terms Complex Options Strategy, 
Stock-Option Strategy, and Stock-Complex Strategy, as well as the 
corresponding orders for each of these strategies. The new defined 
terms should help to clarify ISE's rules by indicating more precisely 
which ISE rules apply to these orders and strategies.\175\ The 
Commission believes that the Complex Order types in proposed ISE Rule 
722(b), including Market Complex Orders, Limit Complex Orders, All-or-
None Complex Orders, Attributable Complex Orders, Day Complex Orders, 
Fill-or-Kill Complex Orders, Immediate-or-Cancel Complex Orders, 
Opening Only Complex Orders, Good-Till-Date Complex Orders, Good-Till-
Cancel Complex Orders, Exposure Complex Orders, and Exposure Only 
Complex Orders provide market participants with flexibility and control 
over the trading of Complex Orders.\176\ The Commission notes that ISE 
currently permits each of these order types (other than Exposure 
Complex Orders and Exposure Only Complex Orders) for orders for a 
single option series.\177\
---------------------------------------------------------------------------

    \175\ For example, the proposal revises ISE Rule 715(k) to 
indicate that legging orders are generated only for Complex Options 
Orders.
    \176\ Complex Customer Cross Orders and Complex QCC Orders are 
discussed in Section III.F(3), infra.
    \177\ See ISE Rule 715.
---------------------------------------------------------------------------

    The proposal deletes from ISE Rule 722 the definition of SSF-option 
order. As noted above, ISE states that single stock futures have not 
gained sufficient popularity among investors to support a SSF-option 
product, and ISE has never received a SSF-option order.\178\ In light 
of the lack of interest in trading SSF-option orders, the Commission 
believes that ISE's elimination of SSF-option orders will not 
negatively impact investors or other market participants.\179\
---------------------------------------------------------------------------

    \178\ See note 14, supra, and accompanying text.
    \179\ ISE will file a proposed rule change with the Commission 
if ISE determines to offer SSF-option orders in the future. See 
Notice, 83 FR at 31784.
---------------------------------------------------------------------------

    ISE also proposes to discontinue Reserve Complex Orders in the 
fourth quarter of 2018.\180\ As noted above, ISE states that it does 
not receive a high volume of Reserve Complex Orders, that there is no 
great demand for this order type, and that other options exchanges do 
not offer this order type.\181\ ISE will issue an Options Trader Alert 
to members indicating the date when Reserve Complex Orders will no 
longer be offered.\182\ The Commission notes that under ISE's 
procedures for executing Reserve Complex Orders, the non-displayed 
portion of a Reserve Complex Order is available for execution before 
displayed interest on the regular order book at the same price.\183\ 
The Commission believes that the discontinuation of Reserve Complex 
Orders will protect investors and the public interest by assuring that 
all displayed interest on the Complex Order book and the regular book 
executes before non-displayed interest at the same price.\184\
---------------------------------------------------------------------------

    \180\ See Amendment No. 1.
    \181\ See id.
    \182\ See id.
    \183\ See Notice, 83 FR at 31785, n.7.
    \184\ ISE will continue to offer Reserve Orders on the single 
leg book. See Amendment No. 1.
---------------------------------------------------------------------------

B. Trading of Complex Orders and Quotes

    The Commission notes that proposed ISE Rule 722(c)(2) is designed 
to protect established leg market interest by providing that if any of 
the bids or offers established in the marketplace consist of a Priority 
Customer Order, at least one leg of a Complex Options Order or the 
options legs of a Stock-Complex Order must trade at a price that is 
better than the corresponding bid or offer in the marketplace by at 
least a $0.01 increment.\185\ Similarly, the option leg of a Stock-
Option Order has priority over leg market interest in the series 
established by Professional Orders and market maker quotes at the same 
price, but not over Priority Customer interest in the series.\186\ The 
Commission notes that other options exchanges have similar provisions 
requiring one leg of a complex order to trade at a better price than 
the derived leg market price when the established interest in the leg 
market price includes customer interest.\187\ ISE's rules further 
protect Priority Customer interest by providing that executable Complex 
Orders will execute against Priority Customer interest on the single 
leg book at the same price before executing against the Complex Order 
book.\188\ Thus, Priority Customer Orders

[[Page 51741]]

on the single leg order book will retain priority and will execute 
prior to any other Complex Order or non-Priority Customer single leg 
interest at the same price.\189\ In addition, ISE, like other 
exchanges, does not allow Complex Orders to be executed at prices 
inferior to the best net price achievable from the best bids and offers 
on the Exchange for the individual legs.\190\
---------------------------------------------------------------------------

    \185\ See proposed ISE Rules 722(c)(2)(i) and (iii). A Complex 
Order that does not satisfy the requirements of proposed ISE Rule 
722(c)(2) is not executable. See proposed ISE Rule 722(d).
    \186\ See proposed ISE Rule 722(c)(2)(ii).
    \187\ See, e.g., Phlx Rule 1098(c)(iii); EDGX Rule 
21.20(c)(1)(B) and (C); and MIAX Rule 518(c)(3).
    \188\ See proposed ISE Rule 722(d)(2) and Amendment No. 1.
    \189\ See id.
    \190\ See proposed ISE ISE Rule 722(c)(2) and Amendment No. 1. 
See also EDGX Rule 21.20(c)(2)(E); and MIAX Rule 518(c)(2)(ii).
---------------------------------------------------------------------------

    ISE allows Complex Orders to execute against bids and offers on ISE 
for the individual legs of the Complex Order if there is no executable 
contra-side complex interest on the Complex Order Book at a particular 
price.\191\ The Commission believes that allowing Complex Orders to 
execute against leg market interest could benefit investors by 
providing additional execution opportunities for both Complex Orders 
and interest in the regular market. In addition, the Commission 
believes that executing Complex Orders against interest in the regular 
market could facilitate interaction between the Complex Order book and 
the regular market, potentially resulting in a more competitive and 
efficient market, and better executions for investors. The Commission 
notes that other exchanges also allow Complex Orders to execute against 
leg market interest.\192\
---------------------------------------------------------------------------

    \191\ See proposed ISE Rule 722(d)(3).
    \192\ See, e.g., EDGX Rule 21.20(c)(2)(F); and MIAX Rule 
518(c)(2)(iii).
---------------------------------------------------------------------------

    As described more fully above, the Trade Value Allowance is a 
functionality that allows Stock-Option Strategies and Stock-Complex 
Strategies to trade outside of their expected notional value by a 
specified amount. The amount of Trade Value Allowance may be determined 
by a member or set at a default value determined by ISE and announced 
to members, although any amount of Trade Value Allowance is permitted 
for orders entered into the auction mechanisms in proposed ISE Rule 
722, Supplementary Material .08 that do not trade solely with their 
contra-side order.\193\ Members may opt out of the Trade Value 
Allowance if they do not want their orders to be executed when there is 
a Trade Value Allowance of any amount and, in those cases, ISE will 
strictly enforce the net price marked on the order.\194\ The Commission 
believes that the Trade Value Allowance will provide members with the 
flexibility to obtain a desired execution of a Stock-Option or Stock-
Complex Order when their order trades at a value outside of the 
expected notional value of the trade due to rounding. The Commission 
notes that members are not obligated to use the Trade Value Allowance 
and may choose to have their orders executed at the net price marked on 
the order.
---------------------------------------------------------------------------

    \193\ See proposed ISE Rule 722, Supplementary Material .09.
    \194\ See Notice, 83 FR at 31793.
---------------------------------------------------------------------------

D. Complex Opening Process and Complex Uncrossing Process

    The Commission believes that the Complex Opening Process is 
designed to provide for the orderly opening of Complex Orders on ISE by 
matching as much interest in a complex strategy as possible at a price 
determined through an objective process set forth in ISE's rules. As 
described more fully above, the Complex Opening Process allows interest 
residing on the Complex Order Book to trade at a single price within 
Boundary Prices that are constrained by the NBBO for the individual 
legs.\195\ If the Complex Opening Process fails to discover an 
appropriate execution price (e.g., there is no valid Opening Price at 
or within the Boundary Prices), ISE continues the Complex Opening 
Process by performing an uncrossing, which provides additional 
execution opportunities by allowing Complex Orders to execute against 
leg market interest.\196\
---------------------------------------------------------------------------

    \195\ See id. at 31796.
    \196\ ISE also performs an uncrossing if there is interest that 
is locked or crossed after Complex Orders and quotes are executed in 
the Complex Opening Price Determination. See id.
---------------------------------------------------------------------------

    ISE states that the Complex Uncrossing Process, when used during 
regular trading, provides a fair and efficient means for executing 
Complex Orders or quotes when interest that is locked or crossed 
becomes executable.\197\ As described more fully above, when Complex 
Orders or quotes become executable, the Complex Uncrossing Process 
identifies the oldest interest on the Complex Order Book and matches it 
pursuant to proposed ISE Rule 722(d)(2)-(3) with resting contra-side 
interest.\198\ This process is repeated until the Complex Order Book is 
no longer executable.\199\ The Commission believes that the Complex 
Uncrossing Process is designed to provide for the execution in 
accordance with ISE's rules of Complex Orders and other interest on ISE 
that becomes executable during regular trading or as part of the 
Complex Opening Process.
---------------------------------------------------------------------------

    \197\ See id.
    \198\ See proposed ISE Rule 722, Supplementary Material .12(b).
    \199\ See proposed ISE Rule 722, Supplementary Material 
.12(b)(iii).
---------------------------------------------------------------------------

E. Complex Order Exposure Process

    The Complex Order exposure auction process will allow members to 
expose eligible Complex Orders for price improvement. ISE notes that 
the exposure process will not interrupt the processing of Complex 
Orders because the exposure period for a Complex Order will end 
immediately upon the receipt of a Complex Order or quote for the same 
complex strategy on either side of the market that is marketable 
against the complex order book or bids and offers for the individual 
legs, thereby assuring that incoming orders are not delayed by the 
exposure process.\200\ In addition, the exposure period will be 
terminated upon the receipt of a nonmarketable Complex Order or quote 
for the same complex strategy on the same side of the market that would 
cause the price of the Complex Order to be outside of the best bid or 
offer for the same complex strategy on the complex order book, which 
protects the Complex Order being exposed from missing an execution 
opportunity.\201\ ISE notes that no market participants are excluded 
from initiating or participating in a Complex Order exposure 
auction.\202\ The Commission believes that the exposure auction process 
may provide additional opportunities for Complex Orders to receive 
price improvement. The Commission notes that other options exchanges 
provide similar auctions for complex orders.\203\
---------------------------------------------------------------------------

    \200\ See Notice, 83 FR at 31797. See also proposed ISE Rule 
722, Supplementary Material .01(b)(ii).
    \201\ See Notice, 83 FR at 31797.
    \202\ See id.
    \203\ See, e.g., Cboe Rule 6.53C(d); and EDGX Rule 21.20(d).
---------------------------------------------------------------------------

F. Internalization and Crossing

1. Complex Facilitation Mechanism and Complex Solicited Order Mechanism
    The Commission believes that the Complex Facilitation Mechanism and 
the Complex Solicited Order Mechanism may provide opportunities for 
Complex Orders to receive price improvement. ISE members may submit a 
customer Complex Order and matching contra-side interest into the 
Complex Facilitation Mechanism or the Complex Solicited Order Mechanism 
for price improvement. Upon entry of a Complex Order into one of the 
mechanisms, ISE sends member a broadcast message that includes the net 
price, side, and size of the Agency Complex Order, and members may 
enter Responses with the net prices and sizes at which they wish to 
participate in the execution of the Agency Complex

[[Page 51742]]

Order.\204\ At the conclusion of the auction, a Complex Order entered 
into the Complex Facilitation Mechanism or the Complex Solicited Order 
Mechanism receives an execution at the best price available and, at a 
minimum, is executed in full against the matching contra-side interest. 
Thus, a Complex Order entered into the Complex Facilitation Mechanism 
or the Complex Solicited Order Mechanism is guaranteed an execution at 
the conclusion of the auction and may be executed at an improved 
price.\205\ The Commission notes that ISE also operates Facilitation 
Mechanism and Solicited Order Mechanism auctions for orders for a 
single option series.\206\
---------------------------------------------------------------------------

    \204\ See proposed ISE Rules 722, Supplementary Material 
.08(a)(3) and (b)(3).
    \205\ See proposed ISE Rules 722, Supplementary Material 
.08(a)(1)(iv) and (b)(4)(iii).
    \206\ See ISE Rule 716(d) and (e).
---------------------------------------------------------------------------

2. Complex PIM
    The Commission believes that the Complex PIM may provide 
opportunities for Complex Orders to receive price improvement. A 
Complex Order entered into Complex PIM auction must be stopped at a 
price that is better than the best net price (i) available on the 
Complex Order book on both sides of the market; and (ii) achievable 
from the best ISE bids and offers for the individual legs on both sides 
of the market (an ``improved net price'').\207\ A member enters an 
Agency Complex Order into the Complex PIM against principal or 
solicited interest for execution.\208\ At the conclusion of the 
exposure period, the Agency Complex Order will be executed in full at 
the best prices available, taking into consideration Complex Orders and 
quotes in the Complex Order book, Improvement Complex Orders, the 
Counter-Side Order, and, for Complex Options Orders, the ISE best bids 
and offers on the individual legs.\209\ Thus, a Complex Order entered 
into a Complex PIM auction would receive an execution at the best price 
available at the conclusion of the auction and, at a minimum, would be 
executed in full at the improved net price. The Commission notes that 
other options exchanges have adopted similar rules to permit the entry 
of complex orders into an electronic price improvement auction 
process.\210\ In addition, the Commission notes that ISE operates a PIM 
auction for orders for a single option series.\211\
---------------------------------------------------------------------------

    \207\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(2).
    \208\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(1).
    \209\ See proposed ISE Rule 722, Supplementary Material 
.08(c)(5).
    \210\ See, e.g., BOX Rule 7245; Cboe Rule 6.74A; MIAX Rule 515A, 
Interpretation and Policy .12; and NYSE American Rule 971.2NY.
    \211\ See ISE Rule 723.
---------------------------------------------------------------------------

3. Complex Customer Cross Orders, Complex QCC Orders, and Complex QCC 
With Stock Orders
    ISE's proposed Customer Cross Complex Orders allow for the crossing 
of Priority Customer Complex Orders in a manner similar to other 
customer crossing rules that the Commission has previously approved for 
another options exchange.\212\ The Commission believes that ISE's 
proposed Customer Cross Complex Orders are consistent with the Act and 
do not raise any novel or significant issues.
---------------------------------------------------------------------------

    \212\ See MIAX Rule 518(h)(3). See also Cboe Rule 6.74A, 
Interpretation and Policy .08(b).
---------------------------------------------------------------------------

    ISE's proposed Complex QCC rules permit Complex Orders to 
participate in a clean cross of the options leg of a subset of 
qualified contingent trades in a similar manner as Qualified Contingent 
Cross Orders already permitted on ISE.\213\ The Commission notes that, 
under the proposal (1) a Complex QCC Order must be part of a qualified 
contingent trade under Regulation NMS; \214\ (2) each options leg of a 
Complex QCC Order must be for 1,000 contracts; and (3) the options legs 
of the Complex QCC Order must be executed at prices that (A) are at or 
between the NBBO for the individual series, and (B) comply with the 
provisions of proposed ISE Rule 722(c)(2)(i), provided that no options 
leg of a Complex QCC Order can be executed at the same price as a 
Priority Customer Order on ISE in the individual options series. The 
Commission believes that these requirements establish a limited 
exception to the general principle of exposure and retain the general 
principle of customer priority in the options markets. In addition, the 
requirement that a Complex QCC Order be part of a qualified contingent 
trade by satisfying each of the six underlying requirements of the NMS 
QCT Exemption, and the requirement that each options leg of a Complex 
QCC Order be for a minimum size of 1,000 contracts, provide another 
limit to the use of Complex QCC Orders by ensuring that only 
transactions of significant size may avail themselves of this order 
type. The Commission notes that ISE's proposed rules for Complex QCC 
Orders are similar to the rules of another options exchange.\215\
---------------------------------------------------------------------------

    \213\ See ISE Rule 721(b). See also Securities Exchange Act 
Release Nos. 64653 (June 13, 2011), 76 FR 35491 (June 17, 2011) 
(order approving File No. SR-CBOE-2011-41); and 63955 (February 24, 
2011), 76 FR 11533 (March 2, 2011) (order approving File No. SR-ISE-
2010-73). The Commission has granted an exemption for qualified 
contingent trades that meet certain requirements from Rule 611(a) of 
Regulation NMS, 17 CFR 242.611(a) (the ``NMS QCT Exemption''). See 
Securities Exchange Act Release No. 57620 (April 4, 2008), 73 FR 
19271 (April 9, 2008) (which supersedes a release initially granting 
the NMS QCT Exemption, Securities Exchange Act Release No. 54389 
(August 31, 2006), 71 FR 52829 (September 7, 2006)).
    \214\ See note 139, supra.
    \215\ See MIAX Rule 515(h)(4).
---------------------------------------------------------------------------

    The Commission believes that ISE's proposed Complex QCC with Stock 
Orders could help ISE members comply with the requirement to execute 
the stock component of a qualified contingent trade. The Commission 
notes that the requirements of ISE Rule 721, Supplementary Material 
.01-.03 apply to the entry and execution of Complex QCC with Stock 
Orders.\216\ The Commission further notes that a member that executes 
the options component of a qualified contingent trade entered as a 
Complex QCC with Stock Order remains responsible for the execution of 
the stock component if it does not receive an execution from its 
designated broker-dealer.\217\
---------------------------------------------------------------------------

    \216\ See proposed ISE Rule 722, Supplementary Material 
.08(f)(4).
    \217\ See ISE Rule 721, Supplementary Material .03.
---------------------------------------------------------------------------

G. Concurrent Auctions

    ISE proposes to permit certain auctions for complex strategies to 
operate concurrently with auctions for a single option series that is a 
component of the complex strategy.\218\ The Commission believes that 
ISE's proposed rule provides for the orderly processing of concurrent 
complex and single leg auctions. The Commission notes that another 
options exchange has adopted similar rules.\219\
---------------------------------------------------------------------------

    \218\ See proposed ISE Rule 722, Supplementary Material .08(h).
    \219\ See NYSE American Rules 971.1NY, Commentary .01, and 
971.2NY, Commentary .03.
---------------------------------------------------------------------------

    In addition, ISE proposes to delete from ISE Rule 722 language 
indicating that ISE will recommence concurrent Complex Order auctions 
in or before April 17, 2019, and to adopt a rule indicating that only 
one auction in a complex strategy will be ongoing at any given 
time.\220\ As noted above, ISE states that no member has complained or 
expressed concern about the absence of the concurrent auction 
functionality, which has not operated on ISE since 2017.\221\ ISE 
further states that, prior to the migration to the INET platform, 
concurrent auctions in a complex strategy occurred rarely, 
approximately 0.5% of the time that an auction ran on

[[Page 51743]]

the Exchange.\222\ Because concurrent auctions for a complex strategy 
occurred infrequently, the Commission does not believe that the 
elimination of the concurrent auction functionality for complex 
strategies will significantly affect investors or other market 
participants. In addition, in the absence of the concurrent auction 
functionality, a market participant with auction-eligible interest that 
wished to initiate an auction on ISE could wait for an ongoing auction 
to conclude or submit its interest to another exchange. The Commission 
notes that another options market does not permit concurrent auctions 
for the same complex strategy.\223\
---------------------------------------------------------------------------

    \220\ See proposed ISE Rule 722, Supplementary Material .08(g) 
and Amendment No. 1.
    \221\ See Amendment No. 1.
    \222\ See April Notice, 82 FR at 19131. See also Amendment No. 
1.
    \223\ See Phlx Rule 1098(e)(2). In addition, MIAX has the 
ability to limit the frequency of Complex Auctions by establishing a 
minimum time period between auctions. See MIAX Rule 518(d).
---------------------------------------------------------------------------

H. Stock-Option and Stock-Complex Orders

    Proposed ISE Rule 722, Supplementary Material .13 allows members to 
submit only Stock-Option and Stock-Complex Orders and quotes that 
comply with the QCT Exemption from Rule 611(a) of Regulation NMS. The 
proposed rule further requires that the stock leg of a Stock-Option 
Order be marked ``buy,'' ``sell,'' ``sell short,'' or ``sell short 
exempt'' in compliance with Regulation SHO under the Exchange Act. The 
Commission notes that other options exchanges have adopted similar 
rules.\224\ Accordingly, the Commission does not believe that proposed 
ISE Rule 722, Supplementary Material .13 raises novel regulatory 
issues.
---------------------------------------------------------------------------

    \224\ See, e.g., Cboe Rule 6.53C, Interpretation and Policy 
.06(a) and (e); MIAX Rule 518, Interpretation and Policy .01.
---------------------------------------------------------------------------

I. Additional Changes

    The Commission believes that the proposed change to ISE Rules 722, 
Supplementary Material .03 makes clear that the market maker quoting 
functionality for Complex Orders will be available only in classes 
selected by ISE, consistent with ISE's practice prior to the transition 
to the INET platform.\225\ In addition, the proposed changes to ISE 
Rule 722, Supplementary Material .04 make clear that the Market Maker 
Speed Bump applies only to Complex Options Strategies. The Commission 
believes that the changes to ISE Rule 722, Supplementary Material .03 
and .04 will help to assure that the rules accurately describe the 
availability and operation of their respective functionalities.
---------------------------------------------------------------------------

    \225\ See Notice, 83 FR at 31788. ISE intends to continue this 
practice after the complex quoting functionality has been re-enabled 
on the INET platform. See id. at 31797. ISE notes that market makers 
can enter Complex Orders in all classes regardless of whether 
quoting is permitted. See id.
---------------------------------------------------------------------------

    The Commission believes that the proposed change to ISE Rule 722, 
Supplementary Material .07(a) to incorporate references to the stock 
leg of a Stock-Option or Stock-Complex Order revises the rule to 
reflect the manner in which Supplementary Material .07(a) applies to 
Complex Orders with a stock component. The Commission notes that the 
proposed changes to ISE Rule 722, Supplementary Material .07(d) include 
a similar clarification and also describe the application of the limit 
order price protection in Supplementary Material .07(d) to Limit 
Complex Orders to sell. The Commission believes that this change will 
assure that ISE Rule 722, Supplementary Material .07(d) accurately 
reflects the manner in which the limit order price protection applies 
to Limit Complex Orders to sell.

IV. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning whether 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ISE-2018-56 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2018-56. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ISE-2018-56, and should be submitted on 
or before November 2, 2018.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of the notice of Amendment No. 1 in the 
Federal Register. In Amendment No. 1, ISE revises its original proposal 
to make the changes discussed in detail above. Notably, in Amendment 
No. 1, ISE revises the proposal to discontinue offering Reserve Complex 
Orders. The Commission believes that eliminating Reserve Complex Orders 
will assure that all displayed interest on the Complex Order Book and 
on the regular book executes before non-displayed interest. Amendment 
No. 1 also provides that ISE will not re-introduce the auction 
functionality that permits concurrent auctions for the same complex 
strategy. For the reasons discussed above, the Commission does not 
believe that the elimination of this functionality will significantly 
affect investors or other market participants on ISE. Amendment No. 1 
clarifies and provides additional detail to the text of the proposed 
rules, makes technical corrections, and provides additional analysis of 
the certain proposed changes, thus facilitating the Commission's 
ability to make the findings set forth above to approve the proposal. 
Accordingly, the Commission finds good cause for approving the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\226\ that the proposed rule change (SR-ISE-2018-

[[Page 51744]]

56), as modified by Amendment No. 1, is approved on an accelerated 
basis.
---------------------------------------------------------------------------

    \226\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\227\
---------------------------------------------------------------------------

    \227\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22202 Filed 10-11-18; 8:45 am]
 BILLING CODE 8011-01-P


