[Federal Register Volume 85, Number 82 (Tuesday, April 28, 2020)]
[Notices]
[Pages 23573-23580]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08940]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88729; File No. SR-ISE-2020-15]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend ISE Rules 
at Options 3, Section 8, Titled Options Opening Process

April 22, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 14, 2020, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend ISE Rules at Options 3, Section 8, 
titled ``Options Opening Process.''
    The text of the proposed rule change is available on the Exchange's 
website at http://ise.cchwallstreet.com/, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend ISE Rules at Options 3, Section 8, 
titled ``Options Opening Process.'' The proposal seeks to amend aspects 
of the current functionality of the Exchange's System regarding the 
opening of trading in an option series. Each amendment is described 
below.
Definitions
    The Exchange proposes to define the term ``imbalance'' at proposed 
Options 3, Section 8(a)(10) as the number of unmatched contracts priced 
through the Potential Opening Price. The Exchange believes that the 
addition of this defined term will bring greater clarity to the manner 
in which the term ``imbalance'' is defined within the System. This 
description is consistent with the current System operation. This is a 
non-substantive rule change. In conjunction with this rule change, the 
Exchange proposes to remove the text within Options 3, Section 8(j)(1) 
which seeks to define an imbalance as an unmatched contracts. The 
Exchange is proposing a description which is more specific than this 
rule text and is intended to bring greater clarity to the term 
``imbalance.''
Eligible Interest
    Options 3, Section 8(b) describes the eligible interest that will 
be accepted during the Opening Process. This includes Valid Width 
Quotes, Opening Sweeps and orders. The Exchange proposes to 
specifically exclude orders with a Time in Force of ``Immediate-or-

[[Page 23574]]

Cancel'' \3\ and Add Liquidity Orders \4\ from the type of orders that 
are eligible during the Opening Process. Today, the Exchange does not 
accept Immediate-or-Cancel Orders during the Opening Process, except 
for Opening Only Orders.\5\ The Exchange does permit orders marked as 
Opening Only Orders to be entered as Immediate-or-Cancel. These are the 
only acceptable Immediate-or-Cancel Orders for the Opening Process. All 
other types of Immediate-or-Cancel Orders may not be entered during the 
Opening Process. For example, All-or-None \6\ Orders may not be entered 
during the Opening Process because they have a time-in-force 
designation of Immediate-or-Cancel. With respect to Add Liquidity 
Orders, these orders are not appropriate for the Opening Process 
because these orders cannot add liquidity during the Opening Process. 
The Exchange notes that today, these orders may not be entered into the 
Opening Process. This amendment does not result in a System change. The 
Exchange believes the addition of this rule text will clarify which 
order types are eligible to be entered during the Opening Process. The 
Exchange also proposes to add commas to the second sentence of Options 
3, Section 8(b).
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    \3\ An Immediate-or-Cancel order is a limit order that is to be 
executed in whole or in part upon receipt. Any portion not so 
executed is to be treated as cancelled. An Immediate-or-Cancel order 
entered by a Market Maker through the Specialized Quote Feed 
protocol will not be subject to the Limit Order Price Protection and 
Size Limitation Protection as defined in ISE Options 3, Section 
15(b)(2) and (3). See Options 3, Section 7(b)(3).
    \4\ An Add Liquidity Order is a limit order that is to be 
executed in whole or in part on the Exchange (i) only after being 
displayed on the Exchange's limit order book; and (ii) without 
routing any portion of the order to another market center. Members 
may specify whether an Add Liquidity Order shall be cancelled or re-
priced to the minimum price variation above the national best bid 
price (for sell orders) or below the national best offer price (for 
buy orders) if, at the time of entry, the order (i) is executable on 
the Exchange; or (ii) the order is not executable on the Exchange, 
but would lock or cross the national best bid or offer. If at the 
time of entry, an Add Liquidity Order would lock or cross one or 
more non-displayed orders on the Exchange, the Add Liquidity Order 
shall be cancelled or re-priced to the minimum price variation above 
the best non-displayed bid price (for sell orders) or below the best 
non-displayed offer price (for buy orders). An Add Liquidity Order 
will only be re-priced once and will be executed at the re-priced 
price. An Add Liquidity Order will be ranked in the Exchange's limit 
order book in accordance with Options 3, Section 10. See Options 3, 
Section 7(n).
    \5\ An Opening Only Order is a limit order that can be entered 
for the opening rotation only. Any portion of the order that is not 
executed during the opening rotation is cancelled. See Options 3, 
Section 7(o).
    \6\ An All-Or-None order is a limit or market 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 Options 3, 
Section 7(c).
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    Additionally, the Exchange proposes a non-substantive amendment at 
Options 3, Section 8(b)(2) to replace the phrase ``aggregate the size 
of all eligible interest for a particular participant category at a 
particular price level for trade allocation purposes'' with ``allocate 
interest'' pursuant to Options 3, Section 10. Options 3, Section 10 
describes the manner in which interest is allocated on ISE. The 
Exchange believes that simply referring to the allocation rule will 
accurately describe the manner in which the System will allocate 
interest.
Valid Width Quotes
    The Exchange proposes to amend the requirements for ISE Market 
Makers \7\ to enter Valid Width Quotes within Options 3, Section 8(c). 
Today, a Primary Market Maker is required to enter a Valid Width Quote 
within two minutes (or such shorter time as determined by the Exchange 
and disseminated to membership on the Exchange's website) of the 
opening trade or quote on the market for the underlying security in the 
case of equity options or, in the case of index options, within two 
minutes of the receipt of the opening price in the underlying index (or 
such shorter time as determined by the Exchange and disseminated to 
membership on the Exchange's website), or within two minutes of market 
opening for the underlying security in the case of U.S. dollar-settled 
foreign currency options (or such shorter time as determined by the 
Exchange and disseminated to membership on the Exchange's website). 
Alternatively, the Valid Width Quote of at least two Competitive Market 
Makers entered within the above-referenced timeframe would also open an 
option series. Finally, if neither the Primary Market Maker's Valid 
Width Quote nor the Valid Width Quotes of two Competitive Market Makers 
have been submitted within such timeframe, one Competitive Market Maker 
may submit a Valid Width Quote to open the options series.
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    \7\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21).
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    The Exchange proposes to amend the requirement to submit Valid 
Width Quotes in an effort to streamline its current process. The 
Exchange proposes to continue to require a Primary Market Maker to 
submit a Valid Width Quote, but also would permit the Valid Width Quote 
of one Competitive Market Maker to open an option series without 
waiting for the two minute timeframe described above to conclude. This 
effectively would take the 2 step process for accepting quotes to a one 
step process. The Exchange believes this proposal would allow the 
market to open more efficiently as well as enable greater participation 
by Competitive Market Makers in the Opening Process. As is the case 
today, Primary Market Makers are required to ensure each option series 
to which it is appointed is opened each day by submitting a Valid Width 
Quote.\8\ Moreover, a Primary Market Maker has continuing obligations 
to quote intra-day pursuant to Options 2, Section 5.
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    \8\ Options 3, Section 8(c)(3) provides, ``The PMM assigned in a 
particular equity or index option must enter a Valid Width Quote, in 
90% of their assigned series, not later than one minute following 
the dissemination of a quote or trade by the market for the 
underlying security or, in the case of index options, following the 
receipt of the opening price in the underlying index. The PMM 
assigned in a particular U.S. dollar-settled foreign currency option 
must enter a Valid Width Quote, in 90% of their assigned series, not 
later than one minute after the announced market opening. Provided 
an options series has not opened pursuant to Options 3, Section 
8(c)(1)(ii) or (iii), PMMs must promptly enter a Valid Width Quote 
in the remainder of their assigned series, which did not open within 
one minute following the dissemination of a quote or trade by the 
market for the underlying security or, in the case of index options, 
following the receipt of the opening price in the underlying index 
or, with respect to U.S. dollar-settled foreign currency options, 
following the announced market opening.''
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Potential Opening Price
    The Exchange proposes to amend Options 3, Section 8(g) to add an 
introductory sentence to the Potential Opening Process paragraph which 
provides, ``The Potential Opening Price indicates a price where the 
System may open once all other Opening Process criteria is met.'' This 
paragraph is not intended to amend the function of the Opening Process, 
rather it is intended to provide context to the process and describe a 
Potential Opening Price within Options 3, Section 8(g). This is a non-
substantive amendment.
    An amendment is proposed to Options 3, Section 8(g)(3) to replace 
the words ``Potential Opening Price calculation'' with the more defined 
term ``Opening Price.'' The Opening Price is defined within Options 3, 
Section 8(a)(3) and provides, ``The Opening Price is described herein 
in sections (h) and (j).'' The Exchange notes that ``Opening Price'' is 
the more accurate term that represents current System functionality as 
compared to Potential Opening Price. Options 3, Section 8(g)(3) 
provides that ``the Potential Opening Price calculation is bounded by 
the better away market price that may not be satisfied with the 
Exchange

[[Page 23575]]

routable interest.'' In fact, the Opening Price is bounded by the 
better away market price that may not be satisfied with Exchange 
routable interest pursuant to sections (h) and (j). The Potential 
Opening Price indicates a price where the System may open once all 
other Opening Process criteria is met. The Potential Opening Price is a 
less accurate term and the Exchange proposes to utilize the more 
precise term by changing the words in this sentence to ``Opening 
Price'' for specificity. This amendment is not substantive, rather it 
is clarifying.
Opening Quote Range
    The Exchange proposes to add a sentence to Options 3, Section 8(i) 
to describe the manner in which the Opening Quote Range or ``OQR'' is 
bound. The Exchange proposes to provide, ``OQR is constrained by the 
least aggressive limit prices within the broader limits of OQR. The 
least aggressive buy order or Valid Width Quote bid and least 
aggressive sell order or Valid Width Quote offer within the OQR will 
further bound the OQR.'' The Exchange previously described \9\ the OQR 
as an additional type of boundary beyond the boundaries mentioned in 
Options 3, Section 8 at proposed paragraph (j). OQR is intended to 
limit the Opening Price to a reasonable, middle ground price and thus 
reduce the potential for erroneous trades during the Opening Process. 
Although the Exchange applies other boundaries such as the Best Bid or 
Best Offer (``BBO''), the OQR is outside of the BBO. It is meant to 
provide a price that can satisfy more size without becoming 
unreasonable. The Exchange proposes to add rule text within Options 3, 
Section 8 to describe the manner in which today OQR is bound. This 
proposed amendment does not change the manner in which ISE's System 
operates today. The Exchange believes that this rule text will bring 
greater transparency to the manner in which the Exchange arrives at an 
Opening Price. Below is an example of the manner in which OQR is 
constrained.
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    \9\ See Securities Exchange Commission Release No. 79887 
(February 2, 2017), 82 FR 9090 (January 27, 2017) (SR-ISE-2017-02).

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Assume the below pre-opening interest:

Primary Market Maker quotes 4.10 (100) x 4.20 (50)
Order 1: Priority Customer Buy 300 @ 4.39
Order 2: Priority Customer Sell 50 @ 4.13
Order 3: Priority Customer Sell 5 @ 4.37
Opening Quote Range configuration in this scenario is +/-0.18

9:30 a.m. events occur, underlying opens
First imbalance message: Buy imbalance @ 4.20, 100 matched, 200 
unmatched
Next 4 imbalance messages: Buy imbalance @ 4.37, 105 matched, 195 
unmatched
Potential Opening Price calculation would have been 4.20 + 0.18 = 4.38, 
but OQR is further bounded by the least aggressive sell order @ 4.37

Order 1 executes against Order 2 50 @ 4.37
Order 1 executes against Primary Market Maker quote 50 @ 4.37
Order 1 executes against Order 3 5 @ 4.37
Remainder of Order 1 cancels as it is through the Opening Price
Primary Market Maker quote purges as its entire offer side volume has 
been exhausted

    Similarly, the Exchange proposes to amend Options 3, Section 
8(i)(3) which currently provides, ``If one or more away markets are 
disseminating a BBO that is not crossed (the Opening Process will stop 
and an options series will not open if the ABBO becomes crossed 
pursuant to (c)(5)) and there are Valid Width Quotes on the Exchange 
that are executable against each other or the ABBO:''. The Exchange 
proposes to instead state, ``If one or more away markets are 
disseminating a BBO that is not crossed (the Opening Process will stop 
and an options series will not open if the ABBO becomes crossed 
pursuant to (c)(5)) and there are Valid Width Quotes on the Exchange 
that cross each other or are marketable against the ABBO:''. The 
proposed language more accurately describes the current Opening 
Process. Valid Width Quotes are not routable and would not be 
executable against the ABBO. A similar change is also proposed to 
Options 3, Section 8(i)(4) to replace the words ``are executable 
against'' with ``cross''. The Exchange believes that the amended rule 
text adds greater transparency to the Opening Process. These are non-
substantive amendments.
    The Exchange proposes to replace the phrase ``route'' with ``route 
routable'' and also replace the phrase ``in price/time priority to 
satisfy the away market'' with ``pursuant to Options 3, Section 
10(c)(1)(A)'' at the end of Options 3, Section 8(i)(7). The final 
sentence would provide, ``The System will route routable Public 
Customer interest pursuant to Options 3, Section 10(c)(1)(A).'' The 
current rule text is imprecise. When routing, the Exchange first 
determine if the interest is routable. A DNR Order \10\ would not be 
routable. Of the routable interest, the Exchange will route the 
interest in price/time priority to satisfy the away market interest. 
The Exchange believes changing the word ``route'' to ``route routable'' 
and adding the citation to the allocation rule within Options 3, 
Section 10 clarifies the meaning of this sentence and better explains 
the System handling. This is a non-substantive amendment which is 
intended to bring greater clarity to the Exchange's Rules.
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    \10\ The manner in which the System will handle orders marked 
with the instruction ``Do-Not-Route'' (``DNR'' Orders) is described 
in Options 3, Section 8(j)(6).
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Price Discovery Mechanism
    The Exchange proposes to add new rule text to Options 3, Section 
8(j)(1)(A) to describe the information conveyed in an Imbalance 
Message. The Exchange proposes to provide at Options 3, Section 
8(j)(1)(A),

    An Imbalance Message will be disseminated showing a ``0'' volume 
and a $0.00 price if: (1) No executions are possible but routable 
interest is priced at or through the ABBO; (2) internal quotes are 
crossing each other; or (3) there is a Valid Width Quote, but there 
is no Quality Opening Market. Where the Potential Opening Price is 
through the ABBO, an imbalance message will display the side of 
interest priced through the ABBO.

    This rule text is consistent with the current operation of the 
System. The purpose of this proposed text is to provide greater 
information to market participants to explain the information that is 
being conveyed when an imbalance message indicates ``0'' volume. The 
Exchange believes that explaining the potential scenarios which led to 
the dissemination of a ``0'' volume, such as (1) when no executions are 
possible and routable interest is priced at or through the ABBO; (2) 
internal quotes are crossing; and (3) there is a Valid Width Quote, but 
there is no Quality Opening Market, will provide greater detail to the 
potential state of the interest available. The Exchange further 
clarifies in this new rule text, ``Where the Potential Opening Price is 
through the ABBO, an imbalance message will display the side of 
interest priced through the ABBO.'' The Exchange believes that this 
proposed text will bring greater transparency to the information 
available to market participants during the Opening Process.
    The Exchange proposes to amend Options 3, Section 8(j)(3)(B) to 
remove the phrase ``at the Opening Price'' within the paragraph in two 
places. The current second sentence of paragraph

[[Page 23576]]

8(j)(3)(B) states, ``If during the Route Timer, interest is received by 
the System which would allow the Opening Price to be within OQR without 
trading through away markets and without trading through the limit 
price(s) of interest within OQR which is unable to be fully executed at 
the Opening Price, the System will open with trades at the Opening 
Price and the Route Timer will simultaneously end.'' The Exchange 
proposes to remove the words ``at the Opening Price'' because while 
anything traded on ISE would be at the Opening Price, the trades that 
are routed away would be at an ABBO price which may differ from the ISE 
Opening Price. To avoid any confusion, the Exchange is amending the 
sentence to remove the reference to the Opening Price. In addition, the 
Exchange proposes to add the phrase ``and orders'' to Options 3, 
Section 8(j)(3)(B) which currently only references quotes. During the 
Price Discovery Mechanism, both quotes and orders are considered.
    The Exchange proposes to amend the last sentence of Options 3, 
Section 8(j)(5) to add the phrase ``if consistent with the Member's 
instructions'' to the end of the paragraph to make clear that the 
instructions provided by a Member in terms of order types and routing 
would be applicable to interest entered during the Opening Process 
which remains eligible for intra-day trading. This amendment brings 
greater clarity to the Exchange's Rules.
    The Exchange proposes to amend the last sentence of Options 3, 
Section 8(j)(6) which provides, ``The System will only route non-
contingency Public Customer orders, except that only the full volume of 
Public Customer Reserve Orders may route.'' The Exchange proposes to 
instead provide, ``The System will only route non-contingency Public 
Customer orders, except that Public Customer Reserve Orders may route 
up to their full volume.'' The Exchange is rewording the current 
sentence to make clear that Public Customer Reserve Orders may route up 
to their full volume. The current sentence is awkward in that is seems 
to imply that only full volume would route. This was not the intent of 
the sentence. As revised, the sentence more clearly conveys its intent. 
The Exchange believes that this amendment brings greater clarity to the 
rule.
    The Exchange proposes to add an introductory sentence of Options 3, 
Section 8(j)(6)(A) which provides, ``For contracts that are not 
routable, pursuant to Options 3, Section 8(j)(6), such as DNR Orders 
and orders priced through the Opening Price . . .''. The addition of 
this sentence is intended to provide context to the handling of orders. 
The Exchange opens and routes simultaneously during its Opening 
Process. This proposed sentence is a transition sentence from Options 
3, Section 8(j)(6), wherein the System executes and routes orders. 
Options 3, Section 8(j)(6)(A) describes DNR Orders, which are not 
routed. The proposed introductory sentence would reflect that Options 
3, Section 8(j)(6) is intended to make clear that as DNR Orders and 
orders priced through the Opening Price are not routable orders that 
will cancel. The System will cancel any portion of a Do-Not-Route order 
that would otherwise have to be routed to the exchange(s) disseminating 
the ABBO for an opening to occur. An order or quote that is priced 
through the Opening Price will also be cancelled. All other interest 
will be eligible for trading after opening. This amended rule text is 
consistent with the behavior of the System. This non-substantive 
amendment is intended to add greater clarity to the Exchange's Rules. 
The Exchange also proposes to remove the phrase ``will be cancelled'', 
which is duplicative, and add the words ``or quote'' to the first 
sentence so it would provide, ``[t]he System will cancel (i) any 
portion of a Do-Not-Route order that would otherwise have to be routed 
to the exchange(s) disseminating the ABBO for an opening to occur, or 
(ii) any order or quote that is priced through the Opening Price. All 
other interest will be eligible for trading after opening.'' Today, any 
order or quote that is priced through the Opening Price will be 
cancelled. This new rule text makes clear that all interest applies.
    The Exchange proposes to renumber current Options 3, Section 8(k) 
as Section 8(j)(6)(B) and renumber current Options 3, Section 8(l) as 
Section 8(j)(6)(C).
    The Exchange proposes to add a new paragraph at Options 3, Section 
8(j)(6)(D) which provides, ``Remaining contracts which are not priced 
through the Exchange Opening Price after routing a number of contracts 
to satisfy better priced away contracts will be posted to the Order 
Book at the better of the away market price or the order's limit 
price.'' The Exchange notes that this paragraph describes current 
System behavior. This rule text accounts for orders which routed away 
and were returned unsatisfied to ISE as well as interest that was 
unfilled during the Opening Process, provided it was not priced through 
the Opening Price. This sentence is being included to account for the 
manner in which all interest is handled today by ISE and how certain 
interest rests on the order book once the Opening Process is complete. 
The Exchange notes that the posted interest will be priced at the 
better of the away market price or the order's limit price. This 
additional clarity will bring greater transparency to the Rules and is 
consistent with the Exchange's current System operation. The Exchange 
believes that this detail will provide market participants with all 
possible scenarios that may occur once ISE opens an options series.
Opening Process Cancel Timer
    The Exchange proposes to adopt an Opening Process Cancel Timer 
within Options 3, Section 8(k), similar to The Nasdaq Options Market 
LLC's (``NOM'') Rules and Nasdaq BX, Inc.'s (``BX'') at Options 3, 
Section 8(c).\11\ The Exchange proposes to add a process whereby if an 
options series has not opened before the conclusion of the Opening 
Process Cancel Timer, a Member may elect to have orders returned by 
providing written notification to the Exchange. The Opening Process 
Cancel Timer would be established by the Exchange and posted on the 
Exchange's website. Similar to NOM and BX, orders submitted through 
OTTO or FIX with a TIF of Good-Till-Canceled \12\ or ``GTC'' or Good-
Till-Date \13\ or ``GTD'' may not be cancelled. ISE has monitored the 
operation of the Opening Process to identify instances where market 
efficiency can be enhanced. The Exchange believes that adopting a 
cancel timer similar to NOM and BX will increase the efficiency of 
ISE's Opening Process. This provision would provide for the return of 
orders for un-opened options symbols. This enhancement will provide 
market participants the ability to elect to have orders returned, 
except for non-GTC/GTD Orders, when options do not open. It provides 
Members with choice about where, and when, they can send orders for the 
opening that would afford them

[[Page 23577]]

the best experience. The Exchange believes that this additional feature 
will attract additional order flow to the Exchange. The proposed 
changes should prove to be very helpful to market participants, 
particularly those that are involved in adding liquidity during the 
Opening Cross. These proposed enhancements will allow ISE to continue 
to have a robust Opening Process.
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    \11\ NOM Options 3, Section 8(c) provides, ``Absence of Opening 
Cross. If an Opening Cross in a symbol is not initiated before the 
conclusion of the Opening Process Cancel Timer, a firm may elect to 
have orders returned by providing written notification to the 
Exchange. These orders include all non GTC orders received over the 
FIX protocol. The Opening Process Cancel Timer represents a period 
of time since the underlying market has opened, and shall be 
established and disseminated by Nasdaq on its website.'' BX Options 
3, Section 8 is worded similarly.
    \12\ An order to buy or sell that remains in force until the 
order is filled, canceled or the option contract expires; provided, 
however, that GTC Orders will be canceled in the event of a 
corporate action that results in an adjustment to the terms of an 
option contract. See Options 3, Section 7(r).
    \13\ A Good-Till-Date Order is a limit 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 order, or the expiration of 
the series. See Options 3, Section 7(p).
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Implementation
    The Exchange proposes to implement the amendments proposed herein 
prior to Q3 2020. The Exchange will issue an Options Trader Alert 
announcing the date of implementation.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest by enhancing its Opening Process. The Exchange 
believes that the proposed changes significantly improve the quality of 
execution of ISE's opening.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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Definitions
    The Exchange's proposal to define the term ``imbalance'' at 
proposed Options 3, Section 8(a)(10) and remove the text within Options 
3, Section 8(j)(1), which seeks to define an imbalance as an unmatched 
contract, will bring greater clarity to the manner in which the term 
``imbalance'' is defined within the System. This is a non-substantive 
rule change and represents current System functionality. Today, the 
term ``imbalance'' is simply defined as unmatched contracts. The 
proposed definition is more precise in its representation of the 
current System functionality.
Eligible Interest
    The Exchange's proposal to amend Options 3, Section 8(b) which 
describes the eligible interest that will be accepted during the 
Opening Process is consistent with the Act. Specifically, only 
accepting Opening Only Orders and excluding all other orders with a 
Time in Force of ``Immediate-or-Cancel'' is the manner in which the 
System operates today. The Exchange proposes to specifically note 
within the Opening Process that all other Immediate-or-Cancel Orders 
would not be acceptable if they are not Opening Only Orders. 
Notwithstanding the foregoing, Opening Only Orders would be accepted. 
Further, Add Liquidity Orders are not accepted from the Opening Process 
because these orders cannot add liquidity during the Opening Process. 
The Exchange notes that today, both of these types of orders may not be 
entered into the Opening Process. The Exchange believes making clear 
which orders are not accepted within the Opening Process will bring 
greater transparency for market participants who desire to enter 
interest and understand the System handling.
    The proposed amendment to Options 3, Section 8(b)(2) to replace the 
phrase ``aggregate the size of all eligible interest for a particular 
participant category at a particular price level for trade allocation 
purposes'' with ``allocate interest pursuant to Options 3, Section 10 
is consistent with the Act. This amendment is non-substantive and 
merely points to Options 3, Section 10, which today describes the 
manner in which interest is allocated on ISE. The Exchange believes 
that simply referring to the allocation rule will accurately describe 
the manner in which the System will allocate interest.
Valid Width Quotes
    The Exchange's proposal to amend the requirements within Options 3, 
Section 8(c) for ISE Market Makers to enter Valid Width Quotes by 
permitting the Valid Width Quote of one Competitive Market Maker to 
open an option series without waiting for the two minute timeframe is 
consistent with the Act. This proposal would allow the market to open 
more efficiently as well as enable greater participation by Competitive 
Market Makers in the Opening Process. A Primary Market Maker has 
continuing obligations to quote throughout the trading day pursuant to 
Options 2, Section 5. In addition, Primary Market Makers are required 
to ensure each option series to which it is appointed is opened each 
day ISE is open for business by submitting a Valid Width Quote.\16\ 
Primary Market Makers will continue to remain responsible to open an 
options series, unless it is otherwise opened by a Competitive Market 
Maker. A Competitive Market Maker also has obligations to quote intra-
day, once they commence quoting for that day.\17\ The Exchange notes if 
Competitive Market Makers entered quotes during the Opening Process to 
open an option series, those quote must qualify as Valid Width Quotes. 
This ensures that the quotations that are entered are in alignment with 
standards that help ensure a quality opening. The Exchange believes 
that allowing one Competitive Market Maker to enter a quotation 
continues to protect investors and the general public because the 
Competitive Market Maker will be held to the same standard for entering 
quotes as a Primary Market Maker and the process will also ensure an 
efficient and timely opening, while continuing to hold Primary Market 
Makers responsible for entering Valid Width Quotes during the Opening 
Process.
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    \16\ See note 9 above.
    \17\ See Options 2, Section 5.
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Potential Opening Price
    The Exchange's proposal to amend Options 3, Section 8(g) to add an 
introductory sentence to the Potential Opening Process which provides, 
``The Potential Opening Price indicates a price where the System may 
open once all other Opening Process criteria is met,'' is consistent 
with the Act. This paragraph is not intended to amend the current 
function of the Opening Process, rather it is intended to provide 
context to the process described within Options 3, Section 8(g). 
Specifically, the new text describes a Potential Opening Price. This 
rule text is consistent with the current operation of the System. This 
is a non-substantive amendment.
    Further, the amendment to Options 3, Section 8(g)(3) to replace the 
words ``Potential Opening Price calculation'' with the more defined 
term ``Opening Price'' is consistent with the Act. ``Opening Price'' is 
the more accurate term that represents current System functionality. 
The Opening Price is bounded by any better away market price that may 
not be satisfied with the Exchange routable interest. Changing the 
words in this sentence to ``Opening Price'' will make this statement 
accurate. This amendment is not substantive.
Opening Quote Range
    The Exchange's proposal to add a sentence to Options 3, Section 
8(i) to describe the manner in which the OQR is bound will bring 
greater clarity to the manner in which OQR is calculated. OQR is an 
additional type of boundary beyond the boundaries mentioned within the 
Opening Process rule. The System will calculate an OQR for a particular 
option series that will be utilized in the Price Discovery Mechanism if 
the Exchange has not opened, pursuant to the provisions in Options 3, 
Section 8(c)-(h). OQR would broaden the range of prices at which the 
Exchange may open to allow additional interest to be eligible for 
consideration in the Opening Process. OQR is

[[Page 23578]]

intended to limit the Opening Price to a reasonable, middle ground 
price and thus reduce the potential for erroneous trades during the 
Opening Process. Although the Exchange applies other boundaries such as 
the BBO, the OQR provides a range of prices that may be able to satisfy 
additional contracts while still ensuring a reasonable Opening Price. 
More specifically, the Exchange's Opening Price is bounded by the OQR 
without trading through the limit price(s) of interest within OQR, 
which is unable to fully execute at the Opening Price in order to 
provide participants with assurance that their orders will not be 
traded through. The Exchange seeks to execute as much volume as is 
possible at the Opening Price. The Exchange's method for determining 
the Potential Opening Price and Opening Price is consistent with the 
Act because the proposed process seeks to discover a reasonable price 
and considers both interest present in System as well as away market 
interest. The Exchange's method seeks to validate the Opening Price and 
avoid opening at aberrant prices. The rule provides for opening with a 
trade, which is consistent with the Act because it enables an immediate 
opening to occur within a certain boundary without the need for the 
price discovery process. The boundary provides protections while still 
ensuring a reasonable Opening Price. The Exchange's proposal protects 
investors and the general public by more clearly describing how the 
boundaries are handled by the System. This proposed amendment does not 
change the manner in which ISE's System operates today. The Exchange 
believes that this rule text will bring greater transparency to the 
manner in which the Exchange arrives at an Opening Price.
    The Exchange's proposal to amend Options 3, Section 8(i)(3) to 
replace the phrase ``that are executable against each other or the 
ABBO:'' with ``that cross each other or are marketable against the 
ABBO:'' will more accurately describes the current Opening Process. 
Valid Width Quotes are not routable and would not be executable against 
the ABBO. This rule text is more specific than ``executable against 
each other.'' The Exchange believes that this rule text adds greater 
transparency to the Opening Process. This is a non-substantive 
amendment.
    The Exchange's proposal to make a similar change to Options 3, 
Section 8(i)(4) to replace the words ``are executable against'' with 
``cross,'' is consistent with the Act. The Exchange believes that the 
amended rule text adds greater transparency to the Opening Process. 
These are non-substantive amendments.
    The Exchange's proposal to replace the phrase ``route'' with 
``route routable'' and also replace the phrase ``in price/time priority 
to satisfy the away market'' with ``pursuant to Options 3, Section 
10(c)(1)(A)'' at the end of Options 3, Section 8(i)(7) is consistent 
with the Act. The current rule text is imprecise. When allocating, the 
Exchange first determines if the interest is routable, it may be marked 
as a DNR Order, which is not routable. Of the routable interest, the 
Exchange will route the interest in price/time priority to satisfy the 
away market interest. The Exchange believes changing the word ``route'' 
to ``route routable'' and adding the citation to the allocation rule 
within Options 3, Section 10 clarifies the meaning of this sentence and 
better explains the System handling. The final sentence would provide, 
``The System will route routable Public Customer interest pursuant to 
Options 3, Section 10(c)(1)(A).'' This is a non-substantive amendment 
which is intended to bring greater clarity to the Exchange's Rules.
Price Discovery Mechanism
    The Exchange's proposal to add new rule text at Options 3, Section 
8(j)(1)(A) to describe the current operation of the System with respect 
to imbalance messages is consistent with the Act. The purpose of this 
proposed text is to provide greater information to market participants 
to explain the information that is being conveyed when an imbalance 
message indicates ``0'' volume. An imbalance process is intended to 
attract liquidity to improve the price at which an option series will 
open, as well as to maximize the number of contracts that can be 
executed on the opening. This process will only occur if the Exchange 
has not been able to otherwise open an option series utilizing the 
other processes available in Options 3, Section 8. The Imbalance Timer 
is intended to provide a reasonable time for participants to respond to 
the Imbalance Message before any opening interest is routed to away 
markets and, thereby, maximize trading on the Exchange. The Exchange 
believes that the proposed rule text provides market participants with 
additional information as to the imbalance message. The following 
potential scenarios, which may lead to the dissemination of a ``0'' 
volume, include (1) when no executions are possible and routable 
interest is priced at or through the ABBO: (2) Internal quotes are 
crossing; and (3) there is a Valid Width Quote, but there is no Quality 
Opening Market. The Exchange believes adding this detail will provide 
greater information as to the manner in which Imbalance Messages are 
disseminated today. The Exchange's process of disseminating zero 
imbalance messages is consistent with the Act because the Exchange is 
seeking to identify a price on the Exchange without routing away, yet 
which price may not trade through another market and the quality of 
which is addressed by applying the OQR boundary. Announcing a price of 
zero will permit market participants to respond to the Imbalance 
Message, which interest would be considered in determining a fair and 
reasonable Opening Price.
    The Exchange further proposes to clarify its current System 
functionality by stating, ``Where the Potential Opening Price is 
through the ABBO, an imbalance message will display the side of 
interest priced through the ABBO.'' The Exchange believes that this 
proposed text will bring greater transparency to the information 
available to market participants during the Opening Process.
    The Exchange's proposal to amend Options 3, Section 8(j)(3)(B) to 
remove the phrase ``at the Opening Price'' within the paragraph in two 
places is consistent with the Act because removing the current phrase 
will avoid confusion. The Exchange notes that anything traded on ISE 
would be at the Opening Price, the trades that are routed away would be 
at an ABBO price, which differs from the ISE Opening Price. To avoid 
any confusion the Exchange is amending the sentence to remove the 
reference to the Opening Price. In addition, the Exchange proposes to 
add the phrase ``and orders'' to Options 3, Section 8(j)(3)(B) which 
currently only references quotes. During the Price Discovery Mechanism 
both quotes and orders are considered.
    The Exchange's proposal to amend the last sentence of Options 3, 
Section 8(j)(5) to amend the phrase ``if consistent with the Member's 
instructions'' to the end of the paragraph will make clear that the 
instructions provided by a Member in terms of order types and routing 
would be applicable to interest entered during the Opening Process 
which remains eligible for intra-day trading. This proposal is 
consistent with the Act and will add greater clarity to the Exchange's 
Rules.
    The Exchange's proposal to amend the last sentence of Options 3, 
Section 8(j)(6) to provide, ``The System will only route non-
contingency Public Customer orders, except that Public Customer Reserve 
Orders may route up to their full volume,'' is consistent with the Act.

[[Page 23579]]

The Exchange is re-wording the current sentence to make clear that 
Public Customer Reserve Orders may route up to their full volume. The 
current sentence is awkward in that is seems to imply that only full 
volume would route. This was not the intent of the sentence. As 
revised, the sentence more clearly conveys its intent. The Exchange 
believes that this amendment is non-substantive and is a more precise 
manner of expressing the quantity of Reserve Orders that may route.
    The Exchange's proposal to add an introductory phrase to Options 3, 
Section 8(j)(6)(A) which provides, ``For contracts that are not 
routable, pursuant to Options 3, Section 8(j)(6), such as DNR Orders 
and orders priced through the Opening Price . . .,'' is consistent with 
the Act. The addition of this sentence is intended simply to provide 
context to the handling of orders. The prior paragraph, Options 3, 
Section 8(j)(6), describes how the System executes and routes orders. 
This proposed new text explains why DNR Orders are cancelled. This 
sentence is being added to indicate that at this stage in the Opening 
Process, routable interest would have routed, non-routable interest 
does not route and may not execute if priced through the Opening Price. 
This information is currently not contained within the rules, however 
the rule text is consistent with the behavior of the System. This non-
substantive amendment is consistent with the Act because it adds 
greater clarity to the Exchange's Rules.
    The proposal to remove the duplicative text ``will be cancelled'' 
and add the words ``or quote'' to the second sentence are non-
substantive rule changes. All other interest will be eligible for 
trading after opening,'' is consistent with the Act. Today, any order 
or quote that is priced through the Opening Price will be cancelled. 
This rule text is consistent with the System's current operation. This 
amendment is intended to add greater clarity to the Exchange's Rules.
    The Exchange's proposal to add a new paragraph at Options 3, 
Section 8(j)(6)(D) which provides, ``Remaining contracts which are not 
priced through the Exchange Opening Price after routing a number of 
contracts to satisfy better priced away contracts will be posted to the 
Order Book at the better of the away market price or the order's limit 
price,'' will bring greater transparency to the handling of orders once 
an option series is opened for trading. After away interest is cleared 
by routable interest and the opening cross has occurred, DNR Orders are 
handled by the System. DNR Order interest will rest on the Order Book, 
provided it was not priced through the Opening Price. This rule text 
accounts for orders which have routed away and returned to ISE 
unsatisfied and also accounts for interest that remains unfilled during 
the Opening Process, provided it was not priced through the Opening 
Price. The Exchange notes that the posted interest will be priced at 
the better of the away market price or the order's limit price. This 
additional clarity will protect investors and the general public by 
adding greater transparency to the Exchange's current System operation 
by explaining how all interest is handled during the Opening Process. 
The Exchange believes that this detail will provide market participants 
with all possible scenarios that may occur once ISE opens its options 
series. This amendment represents the System's current function.
Opening Process Cancel Timer
    The Exchange's proposal to adopt an Opening Process Cancel Timer 
within Options 3, Section 8(k), similar to NOM's and BX's Rules at 
Options 3, Section 8(c) is consistent with the Act. The Exchange's 
proposal to add a process whereby if an options series has not opened 
before the conclusion of the Opening Process Cancel Timer, a Member may 
elect to have orders returned by providing written notification to the 
Exchange is consistent with the Act. ISE believes that this amendment 
will promote just and equitable principles of trade and to protect 
investors and the public interest by enhancing its Opening Process. 
Adopting a cancel timer similar to NOM and BX will increase the 
efficiency of ISE's Opening Process by providing Members with the 
ability to elect to have orders returned, except for non-GTC/GTD 
orders. This functionality provides Members with choice, when symbols 
do not open, about where, and when, they can send orders for the 
opening that would afford them the best experience. The Exchange 
believes that this additional feature will attract additional order 
flow to the Exchange. The proposed changes should prove to be very 
helpful to market participants, particularly those that are involved in 
adding liquidity during the Opening Cross. These proposed enhancements 
will allow ISE to continue to have a robust Opening Process.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. While the Exchange does not 
believe that the proposal should have any direct impact on competition, 
it believes the proposal will enhance the Opening Process by making it 
more efficient and beneficial to market participants. Moreover, the 
Exchange believes that the proposed amendments will significantly 
improve the quality of execution of ISE's Opening Process. The proposed 
amendments provide market participants more choice about where, and 
when, they can send orders for the opening that would afford them the 
best experience. The Exchange believes that this should attract new 
order flow.
    The Exchange's s proposal to define the term ``imbalance'' at 
proposed Options 3, Section 8(a)(10) and remove the text within Options 
3, Section 8(j)(1), which seeks to define an imbalance as an unmatched 
contract does not impose an undue burden on competition. The Exchange 
believes that the addition of this defined term will bring greater 
clarity to the manner in which the term ``imbalance'' is defined within 
the System. This description is consistent with the current System 
operation. This is a non-substantive rule change.
    The Exchange's proposal to specifically exclude orders with a Time 
in Force of ``Immediate-or-Cancel'' and Add Liquidity Orders from the 
type of orders that are eligible during the Opening Process does not 
impose an undue burden on competition. The Exchange notes that today 
all market participants may enter Opening Only Orders. Today, the 
Exchange does not permit Immediate-or-Cancel Orders to be entered 
unless they are Opening Only Orders. With respect to Add Liquidity 
Orders, these orders are not appropriate for the Opening Process 
because these orders cannot add liquidity during the Opening Process 
and would not be accepted from any market participant today. The 
addition of these exceptions does not impact any market participant as 
today all market participants are restricted from utilizing 
``Immediate-or-Cancel''or Add Liquidity Orders.
    The Exchange's proposal to amend the requirements within Options 3, 
Section 8(c) for ISE Market Makers to enter Valid Width Quotes by 
permitting the Valid Width Quote of one Competitive Market Maker to 
open an option series without waiting for the two minute timeframe does 
not impose an undue burden on competition. This proposal would allow 
the market to open more efficiently as well as enable greater 
participation by Competitive Market Makers in the Opening Process.

[[Page 23580]]

Primary Market Makers continue to remain obligated to open their 
appointed options series. Competitive Market Maker may participate in 
the Opening Process, as is the case today, provided they enter Valid 
Width Quotes, which is intended to ensure a quality opening. The 
Exchange does not believe this proposal would burden the ability of 
market participants who enter quotes to participate in the Opening 
Process.
    The Exchange's proposal to add a sentence to Options 3, Section 
8(i) to describe the manner in which the OQR is bound does not impose 
an undue burden on competition. OQR is intended to limit the Opening 
Price to a reasonable, middle ground price and thus reduce the 
potential for erroneous trades during the Opening Process. The 
Exchange's method seeks to validate the Opening Price and avoid opening 
at aberrant prices for the protection of all investors. This proposed 
amendment does not change the manner in which ISE's System operates 
today. The Exchange believes that this rule text will bring greater 
transparency to the manner in which the Exchange arrives at an Opening 
Price.
    The Exchange's proposal to add new rule text at Options 3, Section 
8(j)(1)(A) to describe the current operation of the System with respect 
to imbalance messages does not impose an undue burden on competition. 
The purpose of this proposed text is to provide greater information to 
market participants to explain the information that is being conveyed 
when an imbalance message indicates ``0'' volume. All market 
participants are able to respond to an imbalance messages and have 
their interest considered in determining a fair and reasonable Opening 
Price.
    The Exchange's proposal to adopt an Opening Process Cancel Timer 
within Options 3, Section 8(k), similar to NOM's and BX's Rules at 
Options 3, Section 8(c), does not impose an undue burden on 
competition. Adopting a cancel timer similar to NOM and BX will 
increase the efficiency of ISE's Opening Process for all market 
participants. All market participants will have the ability to elect to 
have orders returned, except for non-GTC/GTD orders, when symbols do 
not open. This feature provides Members with choice about where, and 
when, they can send orders for the opening that would afford them the 
best experience. The Exchange believes that this additional feature 
will attract additional order flow to the Exchange.
    The remainder of the proposed rule text is intended to bring 
greater transparency to the Opening Process rule while also adding 
additional detail and clarity and therefore does not have an impact on 
competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2020-15 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2020-15. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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 the 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-2020-15 and should be submitted on 
or before May 19, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08940 Filed 4-27-20; 8:45 am]
 BILLING CODE 8011-01-P


