[Federal Register Volume 87, Number 245 (Thursday, December 22, 2022)]
[Notices]
[Pages 78740-78757]
[FR Doc No: 2022-27785]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96518; File No. SR-ISE-2022-28]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Certain
ISE Complex Order Functionalities in Connection With a Technology
Migration

December 16, 2022.
    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 December 9, 2022, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend Options 3, Section 7, Types of
Orders and Order and Quote Protocols; Options 3, Section 10, Priority
of Quotes and Orders; Options 3, Section 12, Crossing Orders; Options
3, Section 13, Price Improvement Mechanisms for Crossing Transactions;
Options 3, Section 14, Complex Orders; and Options 3, Section 16,
Complex Risk Protections.
    The Exchange also proposes some technical amendments within Options
3, Section 6, Collection and Dissemination of Quotations, and Section
8, Options Opening Process.
    The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.

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

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

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

1. Purpose
    In connection with a technology migration to an enhanced Nasdaq,
Inc. (``Nasdaq'') functionality which will result in higher
performance, scalability, and more robust architecture, the Exchange
intends to adopt certain trading functionality currently utilized at
Nasdaq affiliate exchanges. Also, the Exchange intends to remove
certain functionality. Specifically, the following sections would be
amended: Options 3, Section 7, Types of Orders and Order and Quote
Protocols; Options 3, Section 10, Priority of Quotes and Orders;
Options 3, Section 12, Crossing Orders; Options 3, Section 13, Price
Improvement Mechanisms for Crossing Transactions; Options 3, Section
14, Complex Orders; and Options 3, Section 16, Complex Risk
Protections. The changes proposed herein are identical to changes that
were recently proposed for MRX.\3\ The Exchange also proposes some
technical amendments specific to ISE within Options 3, Section 6,
Collection and Dissemination of Quotations, and Section 8, Options
Opening Process. Each change will be described below.
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    \3\ See Securities Exchange Act Release No. 95854 (September 21,
2022), 87 FR 58571 (September 27, 2022) (Order Approving SR-MRX-
2022-10).
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Legging Order
    The Exchange proposes to amend Options 3, Section 7(k)(1) to add a
provision which states that a Legging Order \4\ will not be generated
during a Posting Period, as described in detail below, in progress on
the same side in the series pursuant to Options 3, Section 15 regarding
Acceptable Trade Range (``ATR''). A Legging Order would not be
generated because it would no longer be at the Exchange's displayed
best bid or offer, therefore, generating a Legging Order during a
Posting Period in progress, on the same side in the series, would lead
to its immediate removal, making it superfluous to have been generated.
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    \4\ A Legging Order is a limit order on the regular limit order
book that represents one side of a Complex Options Order that is to
buy or sell an equal quantity of two options series resting on the
Exchange's Complex Order Book. See Options 3, Section 7(k).
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    ATR is a risk protection, that sets dynamic boundaries within which
quotes and orders may trade.\5\ It is designed to guard the System \6\
from experiencing dramatic price swings by preventing the immediate
execution of quotes and orders beyond the thresholds set by this risk
protection. The Exchange recently amended ATR to adopt an iterative
process wherein an order/quote that reaches its ATR boundary is paused
for a brief period of time to allow more liquidity to be collected,
before the order/quote is automatically re-priced and a new ATR is
calculated.\7\
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    \5\ See ISE Options 3, Section 15(a)(2)(A).
    \6\ The term ``System'' means the electronic system operated by
the Exchange that receives and disseminates quotes, executes orders
and reports transactions. See ISE Options 1, Section 1(a)(50).
    \7\ See Securities Exchange Act Release No. 96362 (November 18,
2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25). SR-ISE-
2022-25 proposed an iterative process for ATR wherein the Exchange
will attempt to execute interest that exceeds the outer limit of the
ATR for a brief period of time while that interest is automatically
re-priced as described herein. The Exchange also updated the
reference price definition to provide that upon receipt of a new
order or quote, the reference price will now be the better of the
NBB or internal best bid for sell orders/quotes and the better of
the NBO or internal best offer for buy orders/quotes or the last
price at which the order/quote is posted, whichever is higher for a
buy order/quote or lower for a sell order/quote. The additions of
``internal BBO'' were consistent with the re-pricing of orders. SR-
ISE-2022-25 is effective, but not yet operative. SR-ISE-2022-25
would be implemented as part of the same technology migration as the
changes proposed herein.
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    Specifically, SR-ISE-2022-25 amended current Options 3, Section
15(a)(2)(A)(iii) to adopt an iterative process wherein an order or
quote that reaches the outer limits of the ATR (``Threshold Price'')
without being fully executed, will be posted at the Threshold Price for
a brief period, not to exceed one second (``Posting Period''), to allow
the market to refresh and determine whether or not more liquidity will
become available (on the Exchange or any other exchange if the order is
designated as routable) within the posted price of the order or quote
before moving on to a new Threshold Price. With this change, upon
posting, either the current Threshold Price of the order/quote or an
updated NBB for buy orders/quotes or the NBO for sell orders/quotes
(whichever is higher for a buy order/quote or lower for a sell order/
quote) would become the reference price for calculating a new ATR. If
the order/quote remains unexecuted after the Posting Period, a new ATR
will be calculated and the order/quote will execute, route, or post up
to the new Threshold Price. This process will repeat until either (1)
the order/quote is executed, cancelled, or posted at its limit price or
(2) the order/quote has been subject to a configurable number of
instances of the ATR as determined by the Exchange (in which case it
will be returned).
    With this change, during the proposed Posting Period, an order
would be in flux and would potentially increase (decrease) past the
price of any Legging Order generated on the bid (offer) as the order
works its way through the order book. Legging Orders are removed from
the order book when they are no longer at the Exchange's displayed best
bid or offer and, therefore, generating a Legging Order during a
Posting Period in progress on the same side in the series would lead to
its immediate removal. Accordingly, in the current proposal, the
Exchange proposes to amend Options 3, Section 7(k)(1) to provide that a
Legging Order would not be created during the Posting Period in
progress on the same side in the series. By way of example, assume that
the ATR is set for $0.05, the MPV is $0.01 and the following quotations
are posted on ISE and away markets:
    Away Exchange Quotes:

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                    Exchange                         Bid size        Bid price      Offer price     Offer size
----------------------------------------------------------------------------------------------------------------
ISE.............................................              10           $0.75           $0.90              10
AMEX............................................              10            0.75            0.92              10
PHLX............................................              10            0.75            0.94              10
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    ISE Price Levels:

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                    Exchange                         Bid size        Bid price      Offer price     Offer size
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ISE.............................................              10           $0.75           $0.90              10
ISE.............................................              10            0.75            0.95              10
ISE.............................................              10            0.75            1.00              10
ISE.............................................              10            0.75            1.05              10
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ISE receives a routable order to buy 70 contracts at $1.10. The ATR is
$0.05 and the reference price is the National Best Offer--$0.90. The
ATR threshold is then $0.90 + $0.05 = $0.95 which is the Threshold
Price. The order is allowed to execute up to and including $0.95.
     10 contracts will be executed at $0.90 against ISE.
     10 contracts will be executed at $0.90 against ISE.
     10 contracts will be executed at $0.92 against AMEX.
     10 contracts will be executed at $0.94 against PHLX.
     10 contracts will be executed at $0.95 against ISE.
     Then, after executing at multiple price levels, the order
is posted at $0.95 for a brief period not to exceed one second (Posting
Period) to determine whether additional liquidity will become
available.
     During this pause, the ISE BBO for this option is 0.95 x
1.00.
     Assume the leg above with the Posting Period in progress
is Leg A of an A-B complex strategy.
     Leg B has a BBO of 0.85 x 0.88
     Therefore, the cBBO \8\ of this A-B complex strategy is
0.07 x 0.15
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    \8\ The ``cBBO'' represents the net price of a complex strategy
comprised of the best bids and offers of the individual legs.
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    [cir] (Leg A Bid 0.95 - Leg B Offer 0.88 = 0.07)
    [cir] (Leg A Offer 1.00 - Leg B Bid 0.85 = 0.15)
     Also during the pause, a Complex Options Order to buy A-B
arrives for net price of $0.11.
     The Complex Options Order could generate a Legging Order
at $0.96 on the bid of Leg A, relying on the $0.85 bid to sell Leg B
and achieve a net price $0.11, however the Legging Order is not
generated because Leg A has an order on the bid side in an ATR Posting
Period which will continue to move through the order book, and would
ultimately lead to the immediate removal of the Legging Order once it
is no longer at the Exchange's displayed best bid.
     During the Posting Period, a new ATR Price of $1.00 is
determined (new reference price $0.95 + $0.05 = $1.00).
     If, during the Posting Period (brief pause not to exceed 1
second), no liquidity becomes available within the order's posted price
of $0.95, then at the conclusion of the Posting Period, the System will
execute 10 contracts at $1.00.
     Then, after executing at multiple price levels, the order
is posted at $1.00 for a brief period not to exceed one second to
determine whether additional liquidity will become available.
     A new ATR Threshold Price of $1.05 is determined (new
reference price of $1.00 + $0.05 = $1.05).
     During this time the ISE BBO would be $1.00 x $1.05.
     If, during the brief pause not to exceed 1 second, no
liquidity becomes available within the order's posted price of $1.00,
the System will then execute 10 contracts at $1.05.
The Exchange believes from a System processing and user acceptance
standpoint, the best practice is to wait for the ATR Posting Period to
complete before attempting to generate a Legging Order on the same side
in the series, as the time required to complete the ATR Posting Period
is minimal. This amendment is identical to a change recently adopted
for MRX.\9\ Additionally, Nasdaq Phlx LLC's (``Phlx'') legging order
rule in Options 3, Section 14(f)(iii)(C)(2) has the same restriction on
generating legging orders during the ATR Posting Period as proposed to
be added to ISE's Legging Order rule.\10\
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    \9\ See note 3 above. MRX amended Options 3, Section
15(a)(2)(A)(iii).
    \10\ Phlx Options 3, Section 14(f)(iii)(C)(2) provides that a
Legging Order will not be created, ``. . .(ii) if there is . . . a
Posting Period under Options 3, Section 15 regarding Acceptable
Trade Range on the same side in progress in the series. . .''.
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Changes to the Single-Leg Price Improvement Mechanism for Crossing
Transactions
    The Price Improvement Mechanism (``PIM'') is a process by which an
Electronic Access Member can provide price improvement opportunities
for a transaction wherein the Electronic Access Member seeks to
facilitate an order it represents as agent, and/or a transaction
wherein the Electronic Access Member solicited interest to execute
against an order it represents as agent (a ``Crossing Transaction'').
The Exchange provides a PIM for single-leg \11\ orders and for Complex
Orders \12\ and proposes to amend both single-leg and Complex PIM
rules. The Exchange proposes to amend the single-leg PIM in Options 3,
Section 13(d)(4) which currently provides,
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    \11\ See ISE Options 3, Section 13(a)-(d).
    \12\ See ISE Options 3, Section 13(e).

    When a market order or marketable limit order on the opposite
side of the market from the Agency Order ends the exposure period,
it will participate in the execution of the Agency Order at the
price that is mid-way between the best counter-side interest and the
NBBO, so that both the market or marketable limit order and the
Agency Order receive price improvement. Transactions will be
rounded, when necessary, to the $.01 increment that favors the
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Agency Order.

Today, unrelated interest in the form of a market order or marketable
limit order, on the opposite side of the market from an Agency
Order,\13\ may end an exposure period \14\ within a single-leg

PIM and participate in the execution of the Agency Order. The unrelated
order would participate at the price that is mid-way between the best
counter-side interest and the NBBO, so that both the market order or
marketable limit order and the Agency Order receive price improvement.
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    \13\ An Agency Order is the part of a Crossing Transaction that
an Electronic Access Member represents as agent. See ISE Options 3,
Section 13(b).
    \14\ Upon entry of a Crossing Transaction into the PIM, a
broadcast message that includes the series, price and size of the
Agency Order, and whether it is to buy or sell, will be sent to all
Members. The Exchange designates a time of no less than 100
milliseconds and no more than 1 second for Members to indicate the
size and price at which they want to participate in the execution of
the Agency Order (``Improvement Orders''). Improvement Orders may be
entered by all Members in one-cent increments at the same price as
the Crossing Transaction or at an improved price for the Agency
Order, and will only be considered up to the size of the Agency
Order. During the exposure period, Improvement Orders may not be
canceled, but may be modified to (i) increase the size at the same
price, or (ii) improve the price of the Improvement Order for any
size up to the size of the Agency Order. During the exposure period,
responses (including the Counter-Side Order, Improvement Orders, and
any changes to either) submitted by Members shall not be visible to
other auction participants. The exposure period will automatically
terminate (i) at the end of the time period designated by the
Exchange pursuant to Options 3, Section 13(c)(1) above, (ii) upon
the receipt of a market or marketable limit order on the Exchange in
the same series, or (iii) upon the receipt of a non-marketable limit
order in the same series on the same side of the market as the
Agency Order that would cause the price of the Crossing Transaction
to be outside of the best bid or offer on the Exchange. See ISE
Options 3, Section 13(c).
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    First, the Exchange proposes to not permit unrelated marketable
interest on the opposite side of the market from the Agency Order,
which is received during a single-leg PIM, to early terminate a PIM.
The Exchange proposes to amend ISE Options 3, Section 13(d)(4) to
instead provide,

    Unrelated market or marketable interest (against the ISE BBO) on
the opposite side of the market from the Agency Order received
during the exposure period will not cause the exposure period to end
early and will execute against interest outside of the Crossing
Transaction. If contracts remain from such unrelated order at the
time the auction exposure period ends, they will be considered for
participation in the order allocation process described in sub-
paragraph (3).\15\
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    \15\ Subparagraph (3) of Options 3, Section 13(d) describes the
manner in which a Counter-Side Order would be allocated. The Counter
Side Order is one part of a Crossing Transaction and represents the
full size of the Agency Order. 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 ISE Options 3, Section 13(b).

This amendment is identical to a change recently adopted for MRX.\16\
Additionally, Phlx \17\ and Nasdaq BX, Inc. (``BX'') \18\ similarly do
not permit unrelated interest on the opposite side of the market from
the Agency Order to early terminate their price improvement auctions.
With this proposed change, the single-leg PIM exposure period would
continue for the full period despite the receipt of unrelated
marketable interest on the opposite side of the market from the Agency
Order. Allowing the single-leg PIM to run its full course would provide
an opportunity for additional price improvement to the Crossing
Transaction. Further, the unrelated interest would participate in the
single-leg PIM allocation with any residual contracts remaining after
interacting with the order book pursuant to ISE Options 3, Section
13(d). The aforementioned residual contracts are contracts that remain
available for execution after the unrelated order on the opposite side
of market as the Agency Order, which was marketable with bids and
offers on the same side of the market as the Agency Order, executed
against bids and offers on the Exchange's order book.
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    \16\ See note 3 above. MRX amended Options 3, Section 13(d)(4).
    \17\ Phlx Options 3, Section 13(b)(4) provides that an unrelated
market or marketable Limit Order (against the PBBO) on the opposite
side of the market from the PIXL Order received during the Auction
will not cause the Auction to end early and will execute against
interest outside of the Auction. See Securities Exchange Act
Releases No. 79835 (January 18, 2017), 82 FR 8445 (January 25, 2017)
(SR-Phlx-2016-119) (Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To
Amend the PIXL Price Improvement Auction in Phlx Rule 1080(n) and To
Make Pilot Program Permanent) and 63027 (October 1, 2010), 75 FR
62160 (October 7, 2010) (SR-Phlx-2010-108) (``PIXL Approval
Order''). The Commission noted in SR-Phlx-2016-119 that, ``In
approving this feature on a pilot basis, the Commission found that
`allowing the PIXL auction to continue for the full auction period
despite receipt of unrelated orders outside the Auction would allow
the auction to run its full course and, in so doing, will provide a
full opportunity for price improvement to the PIXL Order. Further,
the unrelated order would be available to participate in the PIXL
order allocation.' The Exchange does not believe that this provision
has had a significant impact on either the unrelated order or the
PIXL Auction process, either for simple or Complex PIXL Orders. The
Exchange therefore has requested that the Commission approve this
aspect of the Pilot on a permanent basis for both simple and Complex
PIXL Orders.''
    \18\ BX Options 3, Section 13(ii)(D) provides that unrelated
market or marketable interest (against the BX BBO) on the opposite
side of the market from the PRISM Order received during the Auction
will not cause the Auction to end early and will execute against
interest outside of the Auction.
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    Second, the Exchange also proposes to amend current ISE Options 3,
Section 13(c)(5) which states,

    The exposure period will automatically terminate (i) at the end
of the time period designated by the Exchange pursuant to Options 3,
Section 13(c)(1) above, (ii) upon the receipt of a market or
marketable limit order on the Exchange in the same series, or (iii)
upon the receipt of a non-marketable limit order in the same series
on the same side of the market as the Agency Order that would cause
the price of the Crossing Transaction to be outside of the best bid
or offer on the Exchange.

Specifically, the Exchange proposes to remove ``(ii),'' which provides
the exposure period will automatically terminate ``. . . (ii) upon the
receipt of a market or marketable limit order on the Exchange in the
same series . . .''. The Exchange notes that this sentence applies to
the receipt of marketable orders both on the same side and opposite
side of the Agency order. As described above, the Exchange proposes to
not permit unrelated marketable interest on the opposite side of the
market from the Agency Order, which is received during a single-leg
PIM, to early terminate a PIM. Therefore, with respect to the opposite
side of the Agency Order, the termination of the auction will no longer
be possible with the proposed change to ISE Options 3, Section
13(d)(4). With respect to the same side of the Agency Order, today, an
unrelated market or marketable limit order in the same series on the
same side of the Agency Order would cause the PIM to early terminate as
well. At this time the Exchange proposes to not permit an unrelated
market or marketable limit order in the same series on the same side of
the Agency Order to cause the PIM to early terminate. This proposed
change will align the functionality of ISE's PIM to that of MRX's
PIM,\19\ BX's PRISM and Phlx's PIXL,\20\ which do not permit an
unrelated market or marketable limit order in the same series on the
same side of the Agency Order to cause the PRISM or PIXL to early
terminate, unless the BBO improves beyond the price of the Crossing
Transaction on the same side. The Exchange notes that a market or
marketable limit order in the same series on the same side of the
Agency Order cannot interact with a PIM auction. The market or
marketable limit order may interact with the single-leg order book, and
if there are residual contracts that remain from the market or
marketable limit order in the same series on the same side of the
Agency Order, they could rest on the order book and improve the BBO
beyond the price of the Crossing Transaction which would cause early
termination pursuant to proposed Options 3, Section 13(c)(5)(ii) as
discussed below. In this instance, residual contracts are contracts
that remain available for execution after the unrelated order on the
same side of market as the Agency Order, which was marketable with bids
and offers on the opposite side of the market as the Agency Order,
executed against bids and offers on the Exchange's order book. The
Exchange believes that this outcome would allow for the single-leg PIM
exposure period to continue for the full period despite the receipt of

unrelated marketable interest on the same side of the market from the
Agency Order, provided residual interest does not go on to rest on the
order book, improving the BBO beyond the price of the Crossing
Transaction. Allowing the single-leg PIM to run its full course (unless
the BBO improves beyond the price of the Crossing Transaction on the
same side), rather than early terminate, would provide an opportunity
for price improvement to the Agency Order.
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    \19\ See MRX Options 3, Section 13(d)(4).
    \20\ See BX Options 3, Section 13(ii)(D) and Phlx Options 3,
Section 13(b)(4).
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    Third, the Exchange proposes to amend current ISE Options 3,
Section 13(c)(5)(iii) to align the rule text to a recent change adopted
on MRX.\21\ Additionally, BX Options 3, Section 13(ii)(B)(2) has
similar language.\22\ Specifically, the Exchange proposes to amend
Options 3, Section 13(c)(5) to delete current ``iii'' and renumber as
``ii''. Proposed new Options 3, Section 13(c)(5)(ii) would state, ``The
exposure period will automatically terminate . . . (ii) any time the
Exchange best bid or offer improves beyond the price of the Crossing
Transaction on the same side of the market as the Agency Order . . .''
The proposed rule is designed to align to MRX's and BX's rule text to
remove any ambiguity that a market or marketable limit order priced
more aggressively than the Agency Order could ultimately rest on the
order book, improving the BBO beyond the price of the Crossing
Transaction and, therefore, cause the early termination of a PIM
auction.
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    \21\ See note 3 above. MRX amended Options 3, Section
13(c)(5)(iii).
    \22\ BX Options 3, Section 13(ii)(B) provides ``Conclusion of
Auction. The PRISM Auction shall conclude at the earlier to occur of
(1) through (3) below, with the PRISM Order executing pursuant to
paragraph (C)(1) or (C)(2) below if it concludes pursuant to (2) or
(3) of this paragraph. (1) The end of the Auction period; (2) For a
PRISM Auction any time the BX BBO crosses the PRISM Order stop price
on the same side of the market as the PRISM Order; (3) Any time
there is a trading halt on the Exchange in the affected series.''
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    By way of example, assume: ISE 1.00 x 2.00 (10) and a second ISE
Market Maker's quote is 1.00 x 2.10 (10). If a PIM auction starts with
a buy at 1.50, and subsequently an order to buy for 20 @2.00 arrives,
the incoming order would trade with the quote, and the remaining 10
contracts would rest on the order book. Thereafter, the ISE BBO would
update to 2.00 x 2.10 and trigger the early termination of the single-
leg PIM pursuant to Options 3, Section 13(c)(5)(iii), which is being
renumbered to Options 3, Section 13(c)(5)(ii). Early terminating the
single-leg PIM in this example is necessary because the price of the
single-leg PIM is no longer at the top of book (best price) and would
not have execution priority with respect to responses or unrelated
interest that arrive. By early terminating the single-leg PIM, ISE
allows responses to the single-leg PIM, which arrived prior to the time
the Exchange's best bid and offer improved beyond the Crossing
Transaction, to execute.
    The Exchange believes the proposed rule text will provide greater
clarity to the manner in which the System operates today with respect
to early termination of single-leg PIMs when the BBO on the same side
improves beyond the price of the Crossing Transaction. The proposed
amendment to the rule text is not intended to amend the current System
functionality, rather it is intended to make clear that a market or
marketable limit order could ultimately rest on the order book with
residual interest and improve the BBO on the same side as the Agency
Order beyond the price of the Crossing Transaction and cause the
single-leg PIM to early terminate.
    Fourth, the Exchange proposes to add a new ISE Options 3, Section
13(c)(5)(iii) which states, ``. . . (iii) any time there is a trading
halt on the Exchange in the affected series . . .''. This proposed rule
text is not modifying how the System currently operates.\23\ Today, a
trading halt would cause a single-leg PIM to early terminate. Current
ISE Options 3, Section 13(d)(5) notes such an early termination as a
result of the aforementioned trading halt. Adding this circumstance to
the list of events that would terminate the exposure period would make
the list complete and add clarity to the rule. Furthermore, the
Exchange notes that in a separate rule change, SR-ISE-2022-15P,\24\ the
Exchange is proposing to amend Options 3, Section 13(d)(5) to change
the System behavior such that if a trading halt is initiated after an
order is entered into the PIM, such auction will be automatically
terminated with execution solely with the Counter-Side Order. Today, if
a trading halt is initiated after an order is entered into the PIM,
such auction will be automatically terminated without execution.\25\
This amendment is identical to a change recently adopted for MRX.\26\
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    \23\ ISE Options 3, Section 13(d)(5) currently states that, ``If
a trading halt is initiated after an order is entered into the Price
Improvement Mechanism, such auction will be automatically terminated
without execution.'' Of note, the Exchange is proposing to amend
ISE's PIM within a separate rule change, SR-ISE-2022-15P. Among
other things, the Exchange proposes to amend the PIM functionality
so that if a trading halt is initiated after an order is entered
into the PIM, the auction will be automatically terminated with an
execution. Specifically, SR-ISE-2022-15 proposes to renumber current
ISE Options 3, Section 13(d) to Options 3, Section 13(d)(6) and
proposes to state, ``If a trading halt is initiated after an order
is entered into the Price Improvement Mechanism, such auction will
be automatically terminated with execution solely with the Counter-
Side Order.''
    \24\ ISE has separately filed to amend Options 3, Section
13(d)(5) within SR-ISE-2022-15P. SR-ISE-2022-15P proposes to amend,
among other things, the rule text in Options 3, Section 13, except
that it does not amend Options 3, Section 13(c)(5).
    \25\ See current ISE Options 3, Section 13(d)(5).
    \26\ See note 3 above. MRX amended Options 3, Section
13(c)(5)(iii).
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Changes to the Complex PIM
    In accordance with the proposed rule change regarding the early
termination provisions of a single-leg PIM auction explained above, the
Exchange also proposes to remove a paragraph related to Complex PIM in
current ISE Options 3, Section 13(e)(4)(vi) which provides,

    A Complex Price Improvement Mechanism in a complex strategy may
be ongoing at the same time as a Price Improvement Auction pursuant
to this Rule or during an exposure period pursuant to Supplementary
Material .02 to Options 5, Section 2 in a component leg(s) of such
Complex Order. If a Complex Price Improvement Mechanism is early
terminated pursuant to paragraph (iv) above, 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 Price
Improvement Auction pursuant to this Rule or an exposure period
pursuant to Supplementary Material .02 to Options 5, Section 2, then
the concurrent Complex Price Improvement Mechanism and component leg
auction(s) are processed in the following sequence: (1) the Complex
Price Improvement Mechanism is early terminated; (2) the component
leg auction(s) are early terminated and processed; and (3) legging
of residual incoming Complex Order interest occurs, except with
respect to Stock Option Orders and Stock Complex Orders.

Today, unrelated marketable interest may cause the early termination of
a single-leg PIM, if a component leg of a Complex Order is marketable
against the order book in the same series as the single-leg PIM. An
example is provided below.

Example #1 (Complex PIM early termination elimination--opposite side)
\27\
---------------------------------------------------------------------------

    \27\ Example 1 addresses an order on the opposite side of the
Agency Order, although the same early termination would apply to an
order on the same side of an Agency Order pursuant to ISE Options 3,
Section 13(e)(4)(vi).
---------------------------------------------------------------------------

Complex Order Strategy A-B
MM Quote Leg A 4.20 (100) x 4.50 (100)
MM Quote Leg B 4.00 (100) x 4.10 (100)
cBBO 0.10 x 0.50
(Leg A Bid 4.20-Leg B Offer 4.10 = 0.10)
(Leg A Offer 4.50-Leg B Bid 4.00 = 0.50)

Complex PIM to Buy A-B 10 @0.20, with an election to automatically
match to a net price of 0.10
Complex PIM Begins
Single-leg PIM Auction on Leg A to Buy 100 @4.25
Single-Leg PIM Begins
    During both auction timers, an unrelated marketable Complex Order
A-B to sell 50 @a net price of 0.10 arrives (the individual legs of the
marketable Complex Order would be selling A @4.20 and buying B @4.10).
    Complex Order PIM is early terminated and trades 4 with the
Counter-Side Order @a net price of 0.10 and 6 with the unrelated
Complex Order @a net price of 0.15.
    Today, the unrelated Complex Order would have legged-in after
trading with the Complex PIM and caused the single-leg PIM to early
terminate because one leg of the Complex Order was marketable against
the Leg A bid of 4.20.
    With the proposed amendment, the unrelated Complex Order will not
cause the single-leg PIM to early terminate as a result of trading with
an unrelated order on the opposite side in the same series. The
unrelated marketable Complex Order will trade with the Complex PIM as
well as the best bids and offers from the single-leg order book. In
this case, the remaining quantity of the unrelated Complex Order would
leg-in and trade with the single-leg quotes without impacting the
single-leg PIM; the single-leg PIM auction timer would conclude after
running its full course. Thereafter, if there are no responses to the
single-leg PIM, the Agency Order would trade 100 @4.25 with the
Counter-Side Order.
    Today, if a Complex PIM is early terminated pursuant to ISE Options
3, Section 14(e)(4)(iv) \28\ 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 single-leg PIM, or an exposure period pursuant
to flash functionality as provided for in Supplementary Material .02 to
Options 5, Section 2,\29\ then the concurrent Complex PIM and component
leg auction(s) are processed in accordance with ISE Options 3, Section
14(e)(4)(vi).
---------------------------------------------------------------------------

    \28\ ISE Options 3, Section 14(e)(4)(iv) provides, ``The
exposure period will automatically terminate (A) at the end of the
time period designated by the Exchange pursuant to subparagraph
(4)(i) above, (B) upon the receipt of a Complex Order 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 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.''
    \29\ Pursuant to Supplementary Material .02 to ISE Options 5,
Section 2, ISE permits certain orders to first be exposed at the
NBBO to all Members for execution at the National Best Bid or Offer
(``NBBO'') before the order would be routed to another market for
execution (``flash functionality'').
---------------------------------------------------------------------------

    With this proposed change, a single-leg PIM will no longer early
terminate as a result of the arrival of unrelated marketable interest
on either the same or the opposite side of the market from the Agency
Order. Because a single-leg PIM will no longer early terminate from the
arrival of unrelated marketable interest on either the same or the
opposite side of the market from the Agency Order, and because the
flash functionality will no longer exist,\30\ the Exchange proposes to
delete ISE Options 3, Section 13(e)(4)(vi) in its entirety. This
amendment is identical to a change recently adopted for MRX.\31\
---------------------------------------------------------------------------

    \30\ ISE filed a rule change to eliminate its flash
functionality. See Securities Exchange Act Release No. 94897 (May
12, 2022), 87 FR 30294 (May 18, 2022) (SR-ISE-2022-11) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Routing Functionality in Connection With a Technology Migration).
Therefore, eliminating the flash functionality from ISE Options 5
rules also eliminates the flash functionality from ISE's Options 5
rules. SR-ISE-2022-11 is effective but not yet operative. SR-ISE-
2022-11 would be implemented as part of the same technology
migration as the changes proposed herein.
    \31\ See note 3 above. MRX recently deleted Options 3, Section
13(e)(4)(vi) in its entirety.
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to remove a related paragraph
in current Supplementary Material .01(b)(iii) of ISE Options 3, Section
14 describing Complex Order Exposure, which states,

    A Complex Order Exposure in a complex strategy may be ongoing in
a complex strategy at the same time as a Price Improvement Auction
pursuant to Options 3, Section 13 or during an exposure period
pursuant to Supplementary Material .02 to Options 5, Section 2 in a
component leg(s) of such complex strategy. If a Complex Order
Exposure is early terminated pursuant to paragraph (ii) above, 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
Price Improvement Auction pursuant to Options 3, Section 13 or an
exposure period pursuant to Supplementary Material .02 to Options 5,
Section 2, then the concurrent Complex Order and component leg
auction(s) are processed in the following sequence: (1) the Complex
Order exposure is early terminated; (2) the component leg
auction(s), which are early terminated and processed; and (3)
legging of residual incoming Complex Order interest occurs.

Today, unrelated marketable interest may cause the early termination of
a single-leg PIM, therefore, when a Complex Order legs into the single-
leg order book, it may cause the early termination of a single-leg PIM
if that leg was on either the same or the opposite side of the market
from the single-leg PIM. An example is provided below.

Example #2 (Complex Exposure early termination elimination--opposite
side) \32\
---------------------------------------------------------------------------

    \32\ Example 2 addresses an order on the opposite side of the
Agency Order, although the same early termination would apply to an
order on the same side of the Agency Order pursuant to Supplementary
Material .01(b)(iii) of ISE Options 3, Section 14.
---------------------------------------------------------------------------

Complex Order Strategy A-B
MM Quote Leg A 4.20 (100) x 4.50 (100)
MM Quote Leg B 4.00 (100) x 4.10 (100)
cBBO 0.10 x 0.50
(Leg A Bid 4.20-Leg B Offer 4.10 = 0.10)
(Leg A Offer 4.50-Leg B Bid 4.00 = 0.50)
Complex Order in A-B Strategy marked for Complex Order Exposure to buy
10 @0.20
Complex Order Exposure Auction Begins
Single-leg PIM Auction on Leg A to Buy 100 @4.25
Single-Leg PIM Begins
    During both auction timers, unrelated marketable Complex Order A-B
Sell 50 @0.10 arrives Complex Order Exposure is early terminated and
the exposed order to buy A-B 10 @0.20 and trades with the unrelated
Complex Order 10 @net price of 0.10.
    Today, the unrelated marketable Complex Order would have legged-in
after trading with the Complex Order Exposure and caused the single-leg
PIM to early terminate because one leg of the marketable Complex Order
on the opposite side was marketable against the Leg A bid of 4.20.
    With the proposed amendment, the unrelated marketable Complex Order
will not cause the single-leg PIM on the opposite side in the same
series to early terminate as a result of the component leg of the
Complex Order being marketable against the bid in the same series as
the single-leg PIM. The unrelated marketable Complex Order will trade
with the Complex Order Exposure order as well as the best bids and
offers from the single-leg order book. In this case, the remaining
quantity would leg-in and trade with the single-leg quotes without
impacting the single-leg PIM; the auction timer would conclude after
running its full course.

Thereafter, the Crossing Transaction would trade 100 @4.25 Agency Order
with the Counter-Side Order.
    Today, when a Complex Order Exposure early terminates, as a result
of the arrival of unrelated marketable Complex Order interest that
trades against the exposed Complex Order and the best bids and offers
on the single-leg order book (as described in Supplementary Material
.01(b)(ii) of ISE Options 3, Section 14), the component legs of the
unrelated marketable Complex Order on either the same or the opposite
side of the single-leg PIM may leg-in and cause early termination of
the single-leg PIM. Thereafter, the component leg auction(s) would be
processed pursuant to Supplementary Material .01(b)(iii) of ISE Options
3, Section 14. With this proposed change to ISE Options 3, Section
13(d)(4), a single-leg PIM will no longer early terminate from the
arrival of unrelated marketable interest on either the same or opposite
side of the market from the Agency Order. Therefore, because a single-
leg PIM will no longer early terminate from the arrival of unrelated
marketable interest on either the same or opposite side of the market
from the Agency Order, and because the flash functionality will no
longer exist,\33\ the early termination circumstances addressed in
Supplementary Material .01(b)(iii) of ISE Options 3, Section 14 will no
longer arise, accordingly, the Exchange proposes to delete
Supplementary Material .01(b)(iii) of ISE Options 3, Section 14 in its
entirety. This amendment is identical to a change recently adopted for
MRX.\34\
---------------------------------------------------------------------------

    \33\ Id. [sic].
    \34\ See note 3 above. MRX recently deleted Supplementary
Material .01(b)(iii) of ISE Options 3, Section 14 in its entirety.
---------------------------------------------------------------------------

Re-Pricing
    In connection with the technology migration, the Exchange recently
adopted re-pricing functionality for certain quotes and orders that
lock or cross an away market's price.\35\ As a result of the
effectiveness of SR-ISE-2022-25, the Exchange proposes a number of
corresponding amendments in Options 2, Section 12, as well as the
proposed definition of Complex Preferenced Orders, which is discussed
below, in connection with adopting the re-pricing mechanism. This
amendment is identical to a change recently adopted for MRX.\36\
---------------------------------------------------------------------------

    \35\ See Securities Exchange Act Release No. 96362 (November 18,
2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25). This rule
change is effective, but not yet operative. SR-ISE-2022-25 would be
implemented as part of the same technology migration as the changes
proposed herein.
    \36\ See note 3 above. MRX amended Options 2, Section 12(c) and
(d) as well as Options 3, Section 14(b)(19).
---------------------------------------------------------------------------

    With the recent change within SR-ISE-2022-25, the System will re-
price certain quotes and orders that lock or cross an away market's
price. Specifically, quotes and orders which lock or cross an away
market price will be automatically re-priced to the current national
best offer (for bids) or the current national best bid (for offers) and
displayed one minimum price variance (``MPV'') above (for offers) or
below (for bids) the national best price. The re-priced quotes and
orders will be displayed on OPRA at its displayed price and placed on
the Exchange's order book at its re-priced, non-displayed price, which
may be priced better than the NBBO. The quotes and orders will remain
on the Exchange's order book and will be accessible at their non-
displayed price. With this change, a non-displayed limit order or quote
may be available on the Exchange at a price that is better than the
NBBO. The following example illustrates how the proposed re-pricing
mechanism would work:

Symbol ABCD in a Non-Penny name
CBOE BBO at 1.00 x 1.20
DNR order to buy ABCD for 1.30 arrives
DNR buy order books at 1.20 (current national best offer) and displays
at 1.15 (one MPV below national best offer) *
CBOE BBO adjusts to 1.00 x 1.25
DNR buy order adjusts to book at 1.25 (current national best offer) and
displays at 1.20 (one MPV below national best offer) *
* OPRA will show the displayed price, not the booked price

    Recently amended Options 3, Section 5(c) provides that the System
automatically executes eligible orders using the Exchange's displayed
best bid and offer (i.e., BBO) or the Exchange's non-displayed order
book (``internal BBO'') if the best bid and/or offer on the Exchange
has been re-priced pursuant to Options 3, Section 5(d).\37\ The
definition of an ``internal BBO'' covers re-priced quotes and orders
that remain on the order book and are available at non-displayed prices
while resting on the order book.\38\
---------------------------------------------------------------------------

    \37\ A similar change was made for quotes within Options 3,
Section 4(b)(7). The Exchange added the following new rule text to
Options 3, Section 4(b)(7), ``The System automatically executes
eligible quotes using the Exchange's displayed best bid and offer
(``BBO'') or the Exchange's non-displayed order book (``internal
BBO'') if the best bid and/or offer on the Exchange has been
repriced pursuant to Options 3, Section 5(d) below and subsection
(6) above.''
    \38\ The Exchange amended the rule text within Options 3,
Section 4 and Options 3, Section 5, within SR-ISE-2022-25, to
describe the manner in which a non-routable quotes and orders would
be re-priced, respectively. The Exchange added rule text within
Options 3, Section 4(b)(6) to state, ``A quote will not be executed
at a price that trades through another market or displayed at a
price that would lock or cross another market. If, at the time of
entry, a quote would cause a locked or crossed market violation or
would cause a trade-through violation, it will be re-priced to the
current national best offer (for bids) or the current national best
bid (for offers) and displayed at one minimum price variance above
(for offers) or below (for bids) the national best price, or
immediately cancelled, as configured by the Member.'' The Exchange
amended the rule text within Options 3, Section 5(d) to state, ``An
order that is designated by a Member as non-routable will be re-
priced in order to comply with applicable Trade-Through and Locked
and Crossed Markets restrictions. If, at the time of entry, an order
that the entering party has elected not to make eligible for routing
would cause a locked or crossed market violation or would cause a
trade-through violation, it will be re-priced to the current
national best offer (for bids) or the current national best bid (for
offers) and displayed at one minimum price variance above (for
offers) or below (for bids) the national best price.''
---------------------------------------------------------------------------

    In connection with the foregoing changes, the Exchange proposes to
add references to ``internal BBO'' within Options 3, Section 12(c) and
(d) which describe the Qualified Contingent Cross Orders and Complex
Qualified Contingent Cross Orders, respectively, to conform with the
concept of re-pricing at an internal BBO as provided in Options 3,
Sections 4(b)(6) and 4(b)(7) and Options 3, Section 5(c) and (d) within
SR-ISE-2022-25. This amendment is identical to a change recently
adopted for MRX.\39\
---------------------------------------------------------------------------

    \39\ See note 3 above. MRX amended Options 3, Section 12(c) and
(d).
---------------------------------------------------------------------------

    As noted above, the internal BBO could be better than the NBBO. The
Exchange believes that adding references to the internal BBO to Options
3, Section 12(c) and (d) would continue to require Members to be at or
between the best price, that is not at the same price as a Priority
Customer Order on the Exchange's limit order book, to execute a
Qualified Contingent Cross Order. Further, with respect to Complex
Qualified Contingent Cross Orders, the Exchange would continue to
require a Member to be at or between the best price for the individual
series and comply with other relevant provisions noted within Options
3, Section 12(d) to execute a Complex Qualified Contingent Cross Order.
The Exchange believes that the addition of ``internal BBO'' is
consistent with the intent of these order types, which is to require
Members submit these orders at the best price and not execute ahead of
better-priced quotes or orders.

    The Exchange proposes to amend Options 3, Section 12(c), which
describes the conditions under which a Qualified Contingent Cross Order
may be entered into the System for execution, to state that a Qualified
Contingent Cross Order may be executed upon entry provided the
execution is at or between the better of the internal BBO or the
NBBO.\40\ Similarly, the Exchange proposes to amend Options 3, Section
12(d), which describes the conditions under which a Complex Qualified
Contingent Cross Order may be entered into the System for execution, to
state that Complex Options Orders may be entered as Qualified
Contingent Cross Orders to be automatically executed upon entry so long
as the options legs can be executed at prices that are at or between
the better of the internal BBO or the NBBO for the individual
series.\41\ This amendment is identical to a change recently adopted
for MRX.\42\
---------------------------------------------------------------------------

    \40\ The Qualified Contingent Cross Order must also not be at
the same price as a Priority Customer Order on the Exchange's limit
order book. See ISE Options 3, Section 12(c).
    \41\ Currently, Options 3, Section 12(d) provides in its
entirety that Complex Options Orders may be entered as Qualified
Contingent Cross Orders, as defined in Options 3, Section 7(j). Such
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 Options 3, Section 14(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. Complex Qualified Contingent Cross Orders will be rejected
if they cannot be executed. Complex Qualified Contingent Cross
Orders may be entered in one cent increments. Each leg of a Complex
Options Order must meet the 1,000 contract minimum size requirement
for Qualified Contingent Cross Orders.
    \42\ See note 3 above. MRX amended Options 3, Section 12(c) and
(d).
---------------------------------------------------------------------------

    The Exchange also proposes to add the ``internal BBO'' rule text in
its description of Complex Preferenced Orders within new Options 3,
Section 14(b)(19). This change is described below.
Other Complex Order Amendments
Opening Only Complex Order
    Currently, ISE Options 3, Section 14(b)(10) states, ``An Opening
Only Complex Order is a Limit Order that may be entered for execution
during the Complex Opening Process described in Supplementary Material
.04 to Options 3, Section 14. Any portion of the order that is not
executed during the Complex Opening Process is cancelled.'' The
Exchange proposes to amend ISE Options 3, Section 14(b)(10) to remove
the word ``Limit'' within the description of the Opening Only Complex
Order to allow Opening Only Complex Orders to be submitted as Market
Orders or Limit Orders. This amendment is consistent with current
System operations. The Exchange believes that both Market and Limit
Orders should be permitted in the Complex Opening Process.\43\ Market
Orders are typically the most aggressively priced orders, while Limit
Orders have a limit price contingency that Market Orders do not have.
Allowing both of these order types to participate in the Complex
Opening Process allows greater liquidity to be present to determine the
Opening Price.\44\ All Members may enter both Market Orders and Limit
Orders during the Complex Opening Process, as well as intra-day. This
amendment is identical to a change recently adopted for MRX.\45\
---------------------------------------------------------------------------

    \43\ The Complex Opening Process is described in Supplementary
Material .04 of ISE Options 3, Section 14.
    \44\ The Opening Price is described in ISE Options 3, Section
14(a)(2).
    \45\ See note 3 above. MRX amended Options 3, Section 14(b)(10).
---------------------------------------------------------------------------

Complex QCC With Stock Orders
    The Exchange proposes to correct a non-substantive citation with
ISE Options 3, Section 14(b)(15) related to Complex QCC with Stock
Orders. The current citation to ISE Options 3, Section 12(e) within the
description of this order type is incorrect. The citation should be to
ISE Options 3, Section 12(f). Correcting this cross reference will
clarify the description of the order type.
Complex Preferenced Orders
    The Exchange proposes to add ``Complex Preferenced Orders'' to the
list of Complex Order Types in Options 3, Section 14(b). This proposal
describes how Complex Preferenced Orders will work. ISE Options 2,
Section 10 currently describes Preferenced Orders which may be Complex
Preferenced Orders.\46\ To complete the list of Complex Order types,
the Exchange proposes to state in ISE Options 3, Section 14(b)(19)
that,
---------------------------------------------------------------------------

    \46\ ISE Options 2, Section 10 provides, ``Preferenced Orders.
An Electronic Access Member may designate a ``Preferred Market
Maker'' on orders it enters into the System (``Preferenced
Orders''). (1) A Preferred Market Maker may be the Primary Market
Maker appointed to the options class or any Competitive Market Maker
appointed to the options class. (2) If the Preferred Market Maker is
not quoting at a price equal to the NBBO at the time the Preferenced
Order is received, the allocation procedure described in Options 3,
Section 10(c)(1)(C) shall not be applied to the execution of the
Preferenced Order. (3) If the Preferred Market Maker is quoting at
the NBBO at the time the Preferenced Order is received, the
allocation procedure described in Options 3, Section 10(c)(1)(C)
shall be applied to the execution of the Preferenced Order.''

    [a] Complex Preferenced Order is a Complex Order for which an
Electronic Access Member has designated a Preferred Market Maker as
described in Options 2, Section 10. The component leg(s) of a
Complex Order with a Preferenced Order instruction may allocate
pursuant to Options 3, Section 10(c)(1)(C) when the Complex
Preferenced Order legs into the single-leg market provided that the
Preferred Market Maker is quoting at the better of the internal BBO
or the NBBO for a component leg(s) of the Complex Preferenced Order
at the time the Complex Preferenced Order is received. A Preferred
Market Maker will not receive an allocation pursuant to Options 3,
Section 10(c)(1)(C) for a component leg(s) of a Complex Preferenced
Order if the Preferred Market Maker is not quoting at the better of
the internal BBO or the NBBO for that leg at the time the Complex
---------------------------------------------------------------------------
Preferenced Order is received.

Allocation of a leg(s) of a Complex Preferenced Order, pursuant to ISE
Options 3, Section 10, would occur when a leg(s) of a Complex Order
trades synthetically with the Preferred Market Maker's \47\ quote that
was at the better of the internal BBO or the NBBO on the single-leg
order book in accordance with ISE Options 3, Section 10. A Preferred
Market Maker must be quoting at the NBBO for a component leg(s) of the
Complex Preferenced Order at the time the Complex Preferenced Order is
received. As is the case for single-leg orders, a Preferred Market
Maker will not receive an allocation pursuant to Options 3, Section
10(c)(1)(C) for a component leg(s) of a Complex Preferenced Order if
the Preferred Market Maker is not quoting at the better of the internal
BBO or NBBO for that leg at the time the Complex Preferenced Order is
received.
---------------------------------------------------------------------------

    \47\ Preferred Market Maker may be the Primary Market Maker
appointed to the options class or any Competitive Market Maker
appointed to the options class. See ISE Options 2, Section 10(a)(1).
---------------------------------------------------------------------------

    The referenced internal BBO is being utilized within the
description of the Complex Preferenced Order because the internal BBO
for a leg component of Complex Order on the single-leg order book may
be priced better than the NBBO. The Exchange notes that similar changes
were recently made to the Preferenced Order type for single-leg orders
within Options 7, Section 3.\48\ The Exchange described re-pricing
earlier in [sic] Purpose section.
---------------------------------------------------------------------------

    \48\ See Securities Exchange Act Release No. 96362 (November 18,
2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25).
---------------------------------------------------------------------------

    With respect to orders which leg into the single-leg order book,
ISE Options 3, Section 14(c) states that, ``Except as

otherwise provided in this Rule, complex strategies shall be subject to
all other Exchange Rules that pertain to orders and quotes generally.''
Additionally, the Exchange notes that orders that execute against
interest on the single-leg order book, including the options leg of
Complex Options Strategies are subject to the provisions of ISE Options
3, Section 5 which, among other things, describes the NBBO Price
Protection and Trade-Through Compliance and Locked or Crossed Markets.
    Further, Supplementary Material .01 to Options 9, Section 1
provides,

    [i]t will be a violation of this Rule for a Member to have a
relationship with a third party regarding the disclosure of agency
orders. Specifically, a Member may not disclose to a third party
information regarding agency orders represented by the Member prior
to entering such orders into the System to allow such third party to
attempt to execute against the Member's agency orders. A Member's
disclosing information regarding agency orders prior to the
execution of such orders on the Exchange would provide an
inappropriate informational advantage to the third party in
violation of this Rule. For purposes of this paragraph .01, a third
party includes any other person or entity, including affiliates of
the Member. Nothing in this paragraph is intended to prohibit a
Member from soliciting interest to execute against an order it
represents as agent (a ``solicited order''), the execution of which
is governed by Options 3, Section 22(e) and paragraph .02 of
Supplementary Material to Options 3, Section 22.

This rule prohibits a Member from notifying a Preferred Market Maker of
an intention to submit a Complex Preferenced Order so that the
Preferred Market Maker could change its quotation to match the NBBO
immediately prior to submission of the Complex Preferenced Order, and
then fade its quote. The Exchange represents that it proactively
conducts surveillance for, and enforces against, violations of
Supplementary Material .01 to Options 9, Section 1.
    The Exchange's proposal to add ``Complex Preferenced Orders'' to
the list of Complex Order Types in ISE Options 3, Section 14(b) will
continue to encourage Preferred Market Makers to quote aggressively in
an effort to execute against the Complex Preferenced Order. Preferred
Marker Makers are not able to ascertain if a particular order is a
Complex Preferenced Order. The Exchange believes the proposal will
encourage Market Makers to quote tighter and add a greater amount of
liquidity on ISE in an attempt to interact with Complex Preferenced
Orders that are sent to the Exchange. This order flow will benefit all
market participants on the Exchange because any ISE Member may interact
with that order flow.
    The addition of Complex Preferenced Orders to the list of order
types in ISE Options 3, Section 14(b) will make clear to Members the
availability of Complex Preferenced Orders. This amendment is identical
to a change recently adopted for MRX.\49\ Additionally. [sic] Phlx \50\
and MIAX \51\ have a similar order type.
---------------------------------------------------------------------------

    \49\ See note 3 above. MRX amended Options 3, Section 14(b).
    \50\ See Phlx Options 3, Section 14(b)(v) which specifies that a
Directed Order may be submitted as a Complex Order. See also Phlx
Options 3, Section 7(b)(11) which describes a Directed Order. Phlx's
Options 2, Section 10 Directed Order rule is similar to ISE's
Options 2, Section 10 Preferenced Order rule.
    \51\ A ``Directed Order'' is an order entered into the System by
an Electronic Exchange Member with a designation for a Lead Market
Maker (referred to as a ``Directed Lead Market Maker''). Only
Priority Customer Orders will be eligible to be entered into the
System as a Directed Order by an Electronic Exchange Member. See
MIAX Rule 100. See also MIAX Rule 514(h) which describes allocation.
Today, MIAX permits Directed Orders to be submitted as a New Order--
Multileg. See https://www.miaxoptions.com/sites/default/files/page-files/FIX%20Order%20Interface_FOI_v2.5a_re.pdf. Pursuant to MIAX's
specifications, ``AllocAccount (Tag 79) is defined as MIAX assigned
directed firm code of the designated participant for directed order
flow.''
---------------------------------------------------------------------------

Complex Opening Price Determination
    The Exchange proposes to amend the citation within Supplementary
Material .05(d)(2) to Options 3, Section 14 which states, ``Potential
Opening Price. 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 pursuant to Supplementary Material .06(b) to this
Rule.'' The citation to Supplementary Material .06(b), related to
Uncrossing is incorrect. The citation should be to Supplementary
Material .05(b), related to Complex Opening Price Determination. The
citation is referring is to eligible interest during the Complex
Opening Price Determination.
    The Exchange proposes to amend the Complex Opening Price
Determination in Supplementary Material .05(d)(3) to Options 3, Section
14 to allow for additional contracts to be included in the Potential
Opening Price calculation leading to better price discovery and more
contracts executing as part of the Complex Opening Price Determination
process. This amendment is identical to a change recently adopted for
MRX.\52\
---------------------------------------------------------------------------

    \52\ See note 3 above. MRX amended Supplementary Material
.05(d)(3) to Options 3, Section 14.
---------------------------------------------------------------------------

    With this proposal, when the interest does not match the size and
there is more than one Potential Opening Price at which the interest
may execute, the Exchange would calculate a Potential Opening Price
using the mid-point of the highest (lowest) executable offer (bid)
price and the next available executable offer (bid) price rounded, if
necessary, down (up) to the closest minimum trading increment. As a
result, more options contracts are likely to be executed at better
prices than under the current rule. Example number 3 below demonstrates
this behavior. This behavior differs from current rules in that, today,
the Exchange would calculate the Potential Opening Price as the highest
(lowest) executable bid (offer) when there would be contracts left
unexecuted on the bid (offer) side of the complex market.
    Further, the proposed amendment will allow Market Complex Orders to
participate in the Opening Price Determination process in a broader
capacity than the rule allows for today. Today, 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 on the offer (bid) side of the
market, then ISE will not open pursuant to the Complex Opening Price
Determination process and would instead open pursuant to an Uncrossing
as provide for in Supplementary Material .06(b) of ISE Options 3,
Section 14. With the proposed amendment Market Complex Orders will be
included in the Complex Opening Price Determination process in both
situations described above, leading to more contracts being able to
trade in the Complex Opening Price Determination with better price
discovery. Example 5 below illustrates this point.
    Finally, the proposed amendment considers the Boundary Price
earlier in the Complex Opening Process. Today, the rule seeks to
satisfy the maximum quantity criterion first and then consider Boundary
Prices. With the proposed change, the Exchange will consider the
Boundary Price while determining the Potential Opening Price, thereby
enabling as many contracts as possible to trade sooner, which reduces
risk for market participants awaiting executions. With this proposal,
the Complex Opening Process considers the Boundary Price earlier in the
process and the Boundary Price becomes the limit price for Market
Complex Orders. This proposal should maximize the number of contracts
executed, to the benefit of those

Members participating in that complex strategy.
    Current Supplementary Material .05 of ISE Options 3, Section 14
describes how Complex Orders arrive at an Opening Price. Specifically,
Supplementary .05(b) of ISE Options 3, Section 14 describes the
interest that is eligible within the Complex Opening Price
Determination. The rule text provides that the System would calculate
Boundary Prices \53\ at or within which Complex Orders may be executed
during the Complex Opening Price Determination.\54\ Current
Supplementary Material .05(d)(2) of ISE Options 3, Section 14 provides,
``The System will calculate the Potential Opening Price \55\ by
identifying the price(s) at which the maximum number of contracts can
trade (``maximum quantity criterion'') taking into consideration all
eligible interest pursuant to Supplementary Material .06(b) to this
Rule.'' \56\ The System takes into consideration all Complex Orders,
identifies the price at which the maximum number of contracts can
trade, and calculates the Potential Opening Price as described in
Supplementary Material .05(d)(2) of ISE Options 3, Section 14.
Supplementary Material .05(d)(3) of ISE Options 3, Section 14 further
describes the way the System handles more than one Potential Opening
Price. Current Supplementary Material .05(d)(3) of ISE Options 3,
Section 14 states,
---------------------------------------------------------------------------

    \53\ The Boundary Price is described in Supplementary Material
.05(d)(1) of ISE Options 3, Section 14(a)(1).
    \54\ See Supplementary Material .05(d)(1) of ISE Options 3,
Section 14.
    \55\ The Potential Opening Price is described in Supplementary
Material .05(d)(2) of ISE Options 3, Section 14.
    \56\ The Exchange proposes to amend the citation within
Supplementary Material .05(d)(2) to Options 3, Section 14 within
this proposal. The citation to Supplementary Material .06(b),
related to Uncrossing, should be to Supplementary Material .05(b),
related to Complex Opening Price Determination. Specifically, the
reference is to Eligible Interest during the Complex Opening Price
Determination.

    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 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 midpoint 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 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 on offer (bid) side of the market,
the limit price of the highest (lowest) priced Limit Complex Order
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 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
---------------------------------------------------------------------------
.06(b) to this Rule.

At this time, the Exchange proposes to amend the System handling within
the Complex Opening Process by replacing Supplementary Material
.05(d)(3) of ISE Options 3, Section 14 with the following proposed rule
text,

    Opening Price Determination. When interest crosses and does not
match in size, the System will calculate the Potential Opening Price
based on the highest (lowest) executable offer (bid) price when the
larger sized interest is offering (bidding), provided, however, that
if there is more than one price at which the interest may execute,
the Potential Opening Price when the larger sized interest is
offering (bidding) shall be the mid-point of the highest (lowest)
executable offer (bid) price and the next available executable offer
(bid) price rounded, if necessary, down (up) to the closest minimum
trading increment; or
    When interest crosses and is equal in size, the System will
calculate the Potential Opening Price based on the mid-point of
lowest executable bid price and the highest executable offer price,
rounded, if necessary, up to the closest minimum trading increment.
    (A) Executable bids/offers include any interest which could be
executed at the Potential Opening Price without trading through
residual interest or the Boundary Price or without trading at the
Boundary Price where there is Priority Customer interest at the best
bid or offer for any leg, consistent with paragraph Options 3,
Section 14(c)(2).
    (B) Executable bids/offers will be bounded by the Boundary Price
on the contra-side of the interest, for determination of the
Potential Opening Price described above.

    This proposed new Complex Opening Process seeks to maximize the
interest which is traded during the Complex Opening Price Determination
process and deliver a rational price for the available interest at the
opening. The Complex Opening Price Determination process maximizes the
number of contracts executed during the Complex Opening Process and
ensures that residual contracts of partially executed orders or quotes
are at a price equal to or inferior to the Opening Price. In other
words, the logic ensures there is no remaining unexecuted interest
available at a price which crosses the Opening Price. If multiple
prices exist that ensure that there is no remaining unexecuted interest
available through such price(s), the opening logic selects the mid-
point of such price points. Below are some examples.
Example # 3 (More Than One Potential Opening Price--Mid-Point of
Larger-Sized Interest)
``if there is more than one price at which the interest may execute,
the Potential Opening Price when the larger sized interest is offering
(bidding) is the mid-point of the highest (lowest) executable offer
(bid) price and the next available executable offer (bid) price
rounded, if necessary, down (up) to the closest minimum trading
increment''
Assume
Complex Order Strategy: A+B strategy
Quote for Leg A @1.75 x 1.95
Quote for Leg B @1.75 x 1.95
Boundary Price = 3.50 (10)-3.90 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 1.95 + Leg B Offer 1.95 = 3.90)
Complex Order #1: Buy 20 for $3.79
Complex Order #2: Buy 20 at $3.73
Complex Order #3: Sell 20 at $3.60

    With the proposed amendment, Opening Price would be for 20
strategies at a price of $3.76. The execution price of $3.76 is derived
from the mid-point of the lowest executable bid price of $3.73 and the
next available executable bid price of $3.79. In this example, 20
strategies can be opened at multiple price points ranging from $3.73 up
to $3.79. None of these Potential Opening Prices would cause the
unexecuted $3.73 buy order to be available at a price which crosses the
Opening Price, therefore, the System opens at the mid-point of such
prices, $3.76.
    Today, with this same example, the Opening Price would be 3.79, the
highest executable bid price, which provides the offer side with all
price improvement. With the proposed amendment, the Opening Price seeks
to distribute to the extent possible price improvement to both the bid
and offer side of the transaction.
Example # 4 (Mid-Point When Interest Is Equal in Size)
``Provided such crossing interest is equal in size, the System will
calculate the Potential Opening Price based on the mid-point of lowest
executable bid

price and the highest executable offer price, rounded, if necessary, up
to the closest minimum trading increment''

Complex Order Strategy: A+B strategy
Quote for Leg A @1.75 x 1.95 each
Quote for Leg B @1.75 x 1.95 each
Boundary Price= 3.50 (10)-3.90 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 1.95 + Leg B Offer 1.95 = 3.90)
Complex Order #1: Buy 10 for $3.78
Complex Order #2: Buy 20 for $3.74
Complex Order #3: Buy 10 at $3.71
Complex Order #4: Sell 20 at $3.64
Complex Order #5: Sell 20 at $3.66

    With the proposed amendment, the Opening Price will be for 40
strategies at a price of $3.69. The execution price of $3.69 is derived
from the mid-point of the lowest executable bid price of $3.71 and the
highest executable offer price of $3.66, rounded up to the closest
minimum trading increment. Today, rounding would be down and with this
proposal the rounding would be up.
    If the example were changed slightly such that Complex Order #4 and
Complex Order #5 were Market Complex Orders rather than Limit Orders,
the Opening Price for the 40 strategies would be $3.61, which is
derived from the mid-point of the lowest executable bid price of $3.71
and the highest executable offer of $3.50 (which is the Boundary Price
of the sell Market Complex Orders), rounded up to the closest minimum
trading increment.
    The Exchange notes that executable bids/offers include any interest
that could be executed at the net price without trading through
residual interest or the Boundary Price, or without trading at the
Boundary Price where there is Priority Customer interest at the best
bid or offer for any leg, consistent with current ISE Options 3,
Section 14(c)(2).\57\ Further, executable bids/offers would be bounded
to the Boundary Price on the contra-side of the interest, for
determination of the Opening Price described above when crossing
interest is different in size and when crossing interest is equal in
size.
---------------------------------------------------------------------------

    \57\ ISE Options 3, Section 14(c)(2) provides, ``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. Notwithstanding the provisions of Options 3,
Section 10: (i) a Complex Options Strategies may be executed at a
total credit or debit price with one other Member without giving
priority to bids or offers established on the Exchange that are no
better than the bids or offers in the individual options series
comprising such total credit or debit; provided, however, that if
any of the bids or offers established on the Exchange consist of a
Priority Customer Order, the price of at least one leg of the
complex strategy must trade at a price that is better than the
corresponding bid or offer on the Exchange by at least one minimum
trading increment for the series as defined in Options 3, Section 3;
(ii) the option leg of a Stock-Option Strategy has priority over
bids and offers for the individual options series established on the
Exchange by Professional Orders and market maker quotes that are no
better than the price of the options leg, but not over such bids and
offers established by Priority Customer Orders; and (iii) the
options legs of a Stock-Complex Strategy are executed in accordance
with subparagraph (c)(2)(i).
---------------------------------------------------------------------------

    The amendment will benefit Members by smoothing the way for the
complex strategy to open with Market Complex Orders. Today, Market
Complex Orders participate in the Complex Opening Process in a limited
capacity as explained above. By permitting Market Complex Orders to
participate in the Complex Opening Price Determination process in more
situations, the Exchange can provide more opportunity for Complex
Orders to trade in the Opening Process without having to go to the
Uncrossing process. Market conditions can change between the Complex
Opening Price Determination process and the Uncrossing process, which
can lead to missed opportunities for execution. The proposed rule would
have the Boundary Price assign limits to the Opening Price and
therefore permit Market Complex Orders to participate in the Complex
Opening Process to the extent that they are within the Boundary Prices.
With this change, ISE would permit a complex strategy to calculate an
Opening Price utilizing a greater number of Market Complex Orders,
which benefits the Opening Process by taking into account these more
aggressively priced orders \58\ while also bringing more liquidity into
the Opening Price calculation.
---------------------------------------------------------------------------

    \58\ The allowance of a greater number of Market Complex Orders
within the Opening Process provides a greater depth of price
discovery for an options series. As noted above, the Boundary Price
would assign limits to the Opening Price, therefore preventing
Market Complex Orders which are aggressively priced from negatively
impacting the Opening Price.
---------------------------------------------------------------------------

Example # 5 (Market Complex Orders Trading in Opening Price
Determination)
``Provided interest crosses and does not match in size, the System will
calculate the Potential Opening Price based on the highest (lowest)
executable offer (bid) price when the larger sized interest is offering
(bidding)''

As referenced above,
Assume
Complex Order Strategy: A+B strategy
Quote for Leg A @1.75 x 2.00
Quote for Leg B @1.75 x 2.00
Boundary Price = 3.50 (10)-4.00 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 2.00 + Leg B Offer 2.00 = 4.00)
Market Complex Order #1: Buy 30
Complex Order #2: Sell 20 at $3.95
After Complex Opening Price Determination process, but before
Uncrossing
ABBO for Leg A updates: 1.85 x 1.90
ABBO for Leg B updates 1.85 x 1.90
cNBBO: 3.70 x 3.80
(ABBO Leg A Bid 1.85 + Leg B Bid 1.85 = 3.70)(ABBO Leg A Offer 1.90 +
Leg B Offer 1.90 = 3.80)

    With the proposed amendment the Market Complex Order can be
considered in the Complex Opening Price Determination process and
therefore is able to trade at the Opening Price of $4.00 for 20
strategies with Complex Order #2 and also able to trade 10 strategies
at a net price $4.00 with the individual legs at the best bids and
offers before the ABBO updates, leaving no place for this complex
strategy to trade. The Opening Price in this example is determined as
the lowest executable bid because the bid side is the larger sized
interest, which is limited by the Boundary Price on the offer side at
4.00.
    Today, Market Complex Orders with a larger quantity than the
quantity of interest on the contra side of the market do not
participate in the Complex Opening Price Determination and can only
execute during the Uncrossing pursuant to Supplementary Material
.05(d)(6) of ISE Options 3, Section 14. In the example above, the ABBO
of each leg updates after the Complex Opening Price Determination
process and restricts the Market Complex Order and Complex Limit Order
from trading in the Uncrossing because they cannot match at a price
that would be within the Price Limits for Complex Orders pursuant to
ISE Options 3, Section 16(a).
    Finally, with this proposal and as demonstrated in Example 5 above,
a complex strategy would open pursuant to Supplementary Material
.05(d)(5) of ISE Options 3, Section 14, with less contracts becoming
subject to the Uncrossing pursuant to Supplementary Material .06(b) of
ISE Options 3, Section 14. As a result of this change, more interest
would be able to trade within the Opening Process, ensuring a greater
number of contracts are executed on ISE at the Complex Opening and
lessening the likelihood that contracts which remain unmatched during
the Complex Opening Price Determination process receive no execution in
the Uncrossing due to changing market conditions.\59\
---------------------------------------------------------------------------

    \59\ Unmatched orders would rest on the Order Book with the
potential to execute intra-day.
---------------------------------------------------------------------------

    As noted above, this amendment is identical to a change recently
adopted

for MRX.\60\ Additionally, Phlx has a similar methodology to arrive at
a complex opening price at Phlx Options 3, Section 14(d)(ii)(C)(2) \61\
as compared to proposed Supplementary Material .05(d)(3) of ISE Options
3, Section 14. Phlx's COOP Evaluation and ISE's proposed Opening Price
Determination both seek the price at which the maximum number of
contracts can trade. Phlx's COOP Evaluation is an auction with a timer,
unlike ISE's Opening Price Determination.\62\ Proposed Supplementary
Material .05(d)(3)(A) and (B) of ISE Options 3, Section 14 differs from
Phlx Options 3, Section 14(d)(ii)(C)(2). ISE will open a complex
strategy with the Complex Order Book crossed if an Opening Price cannot
be found within the Boundary Prices and remain crossed while attempting
to uncross the Complex Order Book on a best effort basis, pursuant to
Supplementary Material .06 of ISE Options 3, Section 14, until all
interest can be executed. Today, Phlx will open a complex strategy
crossed when a price cannot be found within Phlx's cPBBO during the
COOP Evaluation period and there are more aggressive away market prices
that are limiting the ability to leg into the single-leg book, but will
not remain crossed as complex orders that are through Phlx's cPBBO
would be cancelled pursuant to Phlx Options 3, Section 14(f)(i)(A).\63\
---------------------------------------------------------------------------

    \60\ See note 3 above. MRX amended Supplementary Material
.05(d)(3) of ISE Options 3, Section 14.
    \61\ COOP Evaluation. Upon expiration of the COOP Timer, the
System will conduct a COOP Evaluation to determine, for a Complex
Order Strategy, the price at which the maximum number of contracts
can trade, taking into account Complex Orders marked All-or-None
(which will be executed if possible) unless the maximum number of
contracts can only trade without including All-or-None Orders. The
Exchange will open the Complex Order Strategy at that price,
executing marketable trading interest, in the following order:
first, to Public Customers in time priority; next to Phlx electronic
market makers on a pro rata basis; and then to all other
participants on a pro rata basis. The imbalance of Complex Orders
that are unexecutable at that price are placed on the CBOOK. (1) No
trade possible. If at the end of the COOP Timer the System
determines that no market or marketable limit Complex Orders or COOP
Sweeps, Complex Orders or COOP Sweeps that are equal to or improve
the cPBBO, and/or Complex Orders or COOP Sweeps that cross within
the cPBBO exist in the System, all Complex Orders received during
the COOP Timer will be placed on the CBOOK, as described in
paragraph (f) below. (2) Trade is possible. If at the end of the
COOP Timer the System determines that there are market or marketable
limit Complex Orders or COOP Sweeps, Complex Orders or COOP Sweeps
that are equal to or improve the cPBBO, and/or Complex Orders or
COOP Sweeps that cross within the cPBBO in the System, the System
will do the following: if such interest crosses and does not match
in size, the execution price is based on the highest (lowest)
executable offer (bid) price when the larger sized interest is
offering (bidding), provided, however, that if there is more than
one price at which the interest may execute, the execution price
when the larger sized interest is offering (bidding) is the midpoint
of the highest (lowest) executable offer (bid) price and the next
available executable offer (bid) price rounded, if necessary, down
(up) to the closest minimum trading increment. If the crossing
interest is equal in size, the execution price is the midpoint of
lowest executable bid price and the highest executable offer price,
rounded, if necessary, up to the closest minimum trading increment.
Executable bids/offers include any interest which could be executed
at the net price without trading through residual interest or the
cPBBO or without trading at the cPBBO where there is Public Customer
interest at the best bid or offer for any leg, consistent with
paragraph (c)(iii). If there is any remaining interest and there is
no component that consists of the underlying security and provided
that the order is not marked all-or-none, such interest may ``leg''
whereby each options component may trade at the PBBO with existing
quotes and/or Limit Orders on the Limit Order book for the
individual components of the Complex Order; provided that remaining
interest may execute against any eligible Complex Orders received
before legging occurs. If the remaining interest has a component
that consists of the underlying security, such Complex Order will be
placed on the CBOOK (as defined below). (3) The Complex Order
Strategy will be open after the COOP even if no executions occur.
    \62\ Phlx's All-or-None order type differs from ISE's All-or-
None order in that only Public Customers may utilize the Phlx All-
or-None order type and Phlx's All-or-None order may rest on the
order book. See Phlx Option 3, Section 7(b)(5). ISE's All-or-None
order is a limit or market order that is to be executed in its
entirety or not at all. See ISE Options 3, Section 7(c).
    \63\ By way of example, assume Phlx cPBBO is 1.00 x 2.00 and
cNBBO is 1.45 x 1.50. Also, assume Phlx complex Day Order to buy the
strategy @$0.50 which begins a COOP timer. Next, a complex day order
to sell the strategy @$0.50 arrives during the COOP timer. These
orders are crossed, but are not within Phlx's cPBBO, and, therefore,
both orders cannot trade as part of the COOP Evaluation.
Additionally, the sell order cannot leg into Phlx's simple order
book because of the more aggressive cNBBO which would limit legging
as part of the ACE price protection described within Phlx Options 3,
Section 16(b)(i), and, therefore, the sell order that is crossed
with Phlx's cPBBO cannot remain on the Complex Order Book and is
ultimately cancelled. In contrast, on ISE, this sell order would
remain crossed on the Complex Order Book while continuously looking
for an opportunity to uncross and trade these Complex Orders as new
orders arrive or the market moves. Options 3, Section 14(f)(i)(A)
provides that Complex Orders must be entered onto the CBOOK in
increments of $0.01. The individual components of a Complex Order
may be executed in minimum increments of $0.01, regardless of the
minimum increments applicable to such components. Such orders will
be placed on the CBOOK by the System when the following conditions
exist: (A) When the Complex Order does not price-improve upon the
cPBBO upon receipt . . .''.
---------------------------------------------------------------------------

The Exchange also proposes to amend the Opening Price in Supplementary
Material .05(d)(4) of ISE Options 3, Section 14 that currently
provides,

    Opening Price. If the Potential Opening Price is at or within
the Boundary Prices, the Potential Opening Price becomes the Opening
Price. 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. 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 Supplementary Material .06(b) to
this Rule.

The Exchange proposes to amend this rule to instead provide,

    If the Potential Opening Price is at or within the Boundary
Prices, the Potential Opening Price becomes the Opening Price and
the complex strategy will open pursuant to Supplementary Material
.05(d)(5) to this Rule. If the bid Boundary Price is higher than the
offer Boundary Price, or if no valid Potential 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
Supplementary Material .06(b) to this Rule.

    With the proposed change, if the Potential Opening Price is at or
within the Boundary Prices, the Potential Opening Price becomes the
Opening Price and the complex strategy will open pursuant to the
Uncrossing described in Supplementary Material .05(d)(5) of ISE Options
3, Section 14, as is the case today. However, as is the case today, if
the bid Boundary Price is higher than the offer Boundary Price, or if
no valid Potential 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 Supplementary Material .06(b)
of ISE Options 3, Section 14 pursuant to the proposed amendment to the
Complex Opening Price Determination. As noted above, this amendment is
identical to a change recently adopted for MRX.\64\
---------------------------------------------------------------------------

    \64\ See note 3 above. MRX amended Supplementary Material
.05(d)(4) of ISE Options 3, Section 14.
---------------------------------------------------------------------------

Complex Order Risk Protections
    The Exchange proposes a non-substantive amendment to the title of a
Complex Order Risk Protection in ISE Options 3, Section 16, Complex
Order Risk Protections. Specifically, the Exchange proposes to amend
ISE Options 3, Section 16(c)(1) to change the title from ``Limit Order
Price Protection'' to ``Complex Order Price Protection.'' The Exchange
believes the proposed title more accurately describes the risk
protection.

Implementation
    The Exchange intends to begin implementation of the proposed rule
change prior to December 23, 2023. The implementation would commence
with a limited symbol migration and continue to migrate symbols over
several weeks. The Exchange will issue an Options Trader Alert to
Members to provide notification of the symbols that will migrate and
the relevant dates.
Technical Amendments
    The Exchange proposes to amend an incorrect citation within Options
3, Section 6, Collection and Dissemination of Quotations. Specifically,
the Exchange proposes to amend Options 3, Section 6(c)(2) to correct a
citation to ``Options 5, Section 8''. The citation should be to
``Options 3, Section 8''.
    The Exchange proposes to amend ``Option'' to ``Options'' within
Options 3, Section 8(b)(2) related to the Opening Process and Options
3, Section 9(d)(2) related to Trading Halts.
    The Exchange proposes to delete the words ``which is'' within
Options 3, Section 8(j)(3)(B) because they are duplicative.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\65\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\66\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest for the reasons discussed below.
---------------------------------------------------------------------------

    \65\ 15 U.S.C. 78f(b).
    \66\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Legging Order
    Amending ISE Options 3, Section 7(k)(1) to add a provision which
states that a Legging Order will not be generated during a Posting
Period in progress on the same side in the series pursuant to Options
3, Section 15 regarding Acceptable Trade Range, is consistent with the
Act because from a System processing and user acceptance standpoint,
the best practice is to wait for the ATR Posting Period to complete
before attempting to generate a Legging Order on the same side in the
series, as the time required to complete the ATR Posting Period is
minimal. The proposed change is designed to protect investors and the
public interest as automatically generated Legging Orders would be
removed from the single-leg order book when they are no longer at the
Exchange's displayed best bid or offer. Generating a Legging Order
during a Posting Period in progress on the same side in the series
would lead to the immediate removal of the Legging Order from the
single-leg order book, making it superfluous to have been generated.
This amendment is identical to a change recently adopted for MRX.\67\
Additionally, Phlx's legging order rule in Options 3, Section
14(f)(iii)(C)(2) \68\ has the same restriction on generating legging
orders as proposed herein.
---------------------------------------------------------------------------

    \67\ See note 3 above. MRX amended Options 3, Section 7(k)(1).
    \68\ See note 10 above.
---------------------------------------------------------------------------

Re-Pricing
    The Exchange believes that amending Options 3, Section 12(c) and
(d) and Options 3, Section 14(b)(19) to account for re-pricing of
quotes and orders that would otherwise lock or cross an away market, as
provided in Options 3, Section 4(b)(6) and (7) and Options 3, Section
5(c) and (d) of SR-ISE-2022-25, is consistent with the Act.
    As discussed above with the implementation of re-pricing as
provided in Options 3, Section 4(b)(6) and (7) and Options 3, Section
5(c) and (d), interest could be available on the Exchange at a price
that is better than the NBBO but is non-displayed (i.e., the Exchange's
non-displayed order book or internal BBO). The proposed addition of
``internal BBO'' to Options 3, Section 12(c) and (d) will ensure that
Members continue to submit Qualified Contingent Cross Orders and
Complex Qualified Contingent Cross Orders at prices equal to or better
than the best prices available in the market and ensure that these
orders are not executed ahead of better-priced interest. This amendment
is identical to a change recently adopted for MRX.\69\
---------------------------------------------------------------------------

    \69\ See note 3 above. MRX amended Options 3, Section 12(c) and
(d).
---------------------------------------------------------------------------

    Further, with respect to the amendment to Options 3, Section
14(b)(19), regarding Complex Preferenced Orders, the addition of
``internal BBO'' is designed to ensure that Complex Preferenced Orders
are not allocated unless the Preferred Market Maker is quoting at the
better of the internal BBO (which could be better than the NBBO) or the
NBBO for a component leg(s) of the Complex Preferenced Order at the
time the Complex Preferenced Order is received. This amendment is
identical to a change recently adopted for MRX.\70\
---------------------------------------------------------------------------

    \70\ See note 3 above. MRX amended Options 3, Section 14(b)(19).
---------------------------------------------------------------------------

Changes to the Single-Leg Price Improvement Mechanism for Crossing
Transactions
    The Exchange's proposal to amend ISE Options 3, Section 13(d)(4),
related to single-leg PIM, to not permit unrelated marketable interest,
on the opposite side of the market from the Agency Order, which is
received during a single-leg PIM to early terminate a single-leg PIM is
consistent with the Act and promotes just and equitable principles
because allowing the auction to run its full course would provide a
full opportunity for price improvement to the Crossing Transaction. The
unrelated interest would participate in the single-leg PIM allocation
pursuant to ISE Options 3, Section 13(d), if residual contracts remain
after executing with interest on the single-leg order book. This
amendment is identical to a change recently adopted for MRX.\71\
Additionally, Phlx \72\ and BX \73\ do not permit unrelated interest on
the same or opposite side of an Agency Order to early terminate their
simple price improvement auctions.
---------------------------------------------------------------------------

    \71\ See note 3 above. MRX amended Options 3, Section 13(d)(4).
    \72\ See note 17 above.
    \73\ See note 18 above.
---------------------------------------------------------------------------

    The proposed amendment in ISE Options 3, Section 13(c)(5)(ii),
related to single-leg PIM, applies to the receipt of marketable orders
both on the same side and opposite side of the Agency order. With
respect to the same side of the Agency Order, today, an unrelated
market or marketable limit order in the same series on the same side of
the Agency Order would cause the single-leg PIM to early terminate as
well. The proposal promotes just and equitable principles of trade
because a market or marketable limit order in the same series on the
same side of the Agency Order cannot interact with a single-leg PIM
auction. The market or marketable limit order may interact with the
order book, and if there are residual contracts that remain from the
market or marketable order in the same series on the same side of the
Agency Order, they will rest on the order book and improve the BBO
beyond the price of the Crossing Transaction which will cause early
termination of the single-leg PIM pursuant to proposed ISE Options 3,
Section 13(c)(5)(ii). The Exchange believes that this outcome would
allow for the single-leg PIM exposure period to continue for the full
period despite the receipt of unrelated marketable interest on the same
side of the market from the Agency Order, provided residual interest
does not go on to rest on the order book improving the BBO beyond the
price of the Crossing Transaction of the PIM. Allowing the single-leg
PIM to run its full course protects investors and the general public
because it would provide an

opportunity for price improvement to the Agency Order. This amendment
is identical to a change recently adopted for MRX.\74\
---------------------------------------------------------------------------

    \74\ See note 3 above. MRX amended Options 3, Section
13(c)(5)(ii).
---------------------------------------------------------------------------

    Amending current ISE Options 3, Section 13(c)(5)(iii) to align the
rule text with MRX \75\ and also more closely with BX Options 3,
Section 13(ii)(B)(2) \76\ is consistent with the Act because it removes
any ambiguity that a market or marketable limit order priced more
aggressively than the Agency Order on the same side could ultimately
rest on the order book, improving the BBO beyond the price of the
Crossing Transaction of the PIM and, therefore, cause the early
termination of a single-leg PIM. Continuing to permit a single-leg PIM
to early terminate any time the Exchange best bid or offer improves
beyond the price of the Crossing Transaction on the same side of the
market as the Agency Order protects investors and the general public
because the Crossing Transaction Agency Order's price is inferior to
the Exchange's best bid or offer on the same side of the market as the
Agency Order. Upon early termination of the single-leg PIM, the
Crossing Transaction would execute against responses that arrived prior
to the time the Exchange's best bid or offer improved beyond the
Crossing Transaction. The proposed amendment to the rule text is not
intended to amend the current System functionality, rather it is
intended to make clear that a market or marketable limit order could
ultimately rest on the order book and improve the BBO beyond the price
of the Crossing Transaction.
---------------------------------------------------------------------------

    \75\ See MRX Options 3, Section 13(c)(5)(iii).
    \76\ See note 22 above.
---------------------------------------------------------------------------

    Adding proposed new ISE Options 3, Section 13(c)(5)(iii), which
describes the automatic termination of the exposure period resulting
from a trading halt on the Exchange in the affected series, is
consistent with the Act because a trading halt would cause an option
series to stop trading on ISE and thereby impact the PIM auction.
Today, if a trading halt is initiated after an order is entered into
the single-leg PIM, such auction will be automatically terminated
without execution. Of note, the Exchange is separately proposing to
amend ISE Options 3, Section 13(d)(5) \77\ to change System behavior
such that if a trading halt is initiated after an order is entered into
the single-leg PIM, such auction will be automatically terminated with
execution solely with the Counter-Side Order.\78\ The proposed
amendment to ISE Options 3, Section 13(c)(5)(iii) protects investors
and the general public by making clear that a trading halt would lead
to early termination of a single-leg PIM. This amendment is not
intended to amend the current System functionality, rather it is
intended to make clear that a trading halt will cause the single-leg
PIM to early terminate. This amendment is identical to a change
recently adopted for MRX.\79\
---------------------------------------------------------------------------

    \77\ See note 23 above.
    \78\ SR-ISE-2022-15P proposes to renumber ISE Options 3, Section
13(d)(5) as Options 3, Section 13(d)(6), and proposes to amend the
rule text to state, ``If a trading halt is initiated after an order
is entered into the Price Improvement Mechanism, such auction will
be automatically terminated with execution solely with the Counter-
Side Order.''
    \79\ See note 3 above. MRX amended Options 3, Section
13(c)(5)(iii).
---------------------------------------------------------------------------

Changes to the Complex PIM
    Deleting ISE Options 3, Section 13(e)(4)(vi) within Complex PIM, as
well as a paragraph in Supplementary Material .01(b)(ii) of ISE Options
3, Section 14 discussing Complex Order Exposure, related to the early
termination of single-leg PIM from the arrival of unrelated marketable
interest on either the same or opposite side of the market from the
Agency Order, is consistent with the Act because a single-leg PIM will
no longer early terminate from the arrival of unrelated marketable
interest on either the same or opposite side of the market from the
Agency Order and because the flash functionality will no longer
exist.\80\ The removal of the aforementioned rule text will protect
investors and the public by avoiding confusion as the scenarios
contemplated by ISE Options 3, Section 13(e)(4)(vi) and Supplementary
Material .01(b)(ii) of ISE Options 3, Section 14 will no longer be able
to occur. This amendment is identical to a change recently adopted for
MRX.\81\
---------------------------------------------------------------------------

    \80\ See note 28 above.
    \81\ See note 3 above. MRX deleted Options 3, Section
13(e)(4)(vi) within Complex PIM, as well as a paragraph in
Supplementary Material .01(b)(ii) of Options 3, Section 14.
---------------------------------------------------------------------------

Other Complex Order Amendments
Opening Only Complex Order
    The Exchange's proposal to remove the word ``Limit'' within the
description of the Opening Only Complex Order Type in ISE Options 3,
Section 14(b)(10) is consistent with the Act because it allows Opening
Only Complex Orders to be submitted as Market Orders or Limit Orders.
The Exchange believes that allowing Market and Limit Orders to be
submitted within the Complex Opening Process promotes just and
equitable principles of trade. Market Orders are typically the most
aggressively priced orders while Limit Orders have a limit price
contingency that Market Orders do not have. Allowing both of these
order types to participate in the Complex Opening Process protects
investors and the general public because it allows greater liquidity to
be present to determine the Opening Price. All Members may enter both
Market Orders and Limit Orders in the Complex Opening Process as well
as intra-day. This proposal is consistent with current System
operations. This amendment is identical to a change recently adopted
for MRX.\82\
---------------------------------------------------------------------------

    \82\ See note 3 above. MRX amended Options 3, Section 14(b)(10).
---------------------------------------------------------------------------

Complex QCC With Stock Orders
    The Exchange's proposal to amend an incorrect citation with ISE
Options 3, Section 14(b)(15), related to Complex QCC with Stock Orders,
is consistent with the Act because the current citation to ISE Options
3, Section 12(e) in the description of this order type should be to ISE
Options 3, Section 12(f). This non-substantive amendment will make
clear what was meant by the reference.
Complex Preferenced Orders
    The Exchange's proposal to add ``Complex Preferenced Orders'' to
the list of Complex Order Types in ISE Options 3, Section 14(b) is
consistent with the Act because the Exchange believes that this order
type will promote just and equitable principles of trade because the
order type will continue to encourage Preferred Market Makers to quote
aggressively in an effort to execute against the Complex Preferenced
Order. Preferred Marker Makers are not able to ascertain if a
particular order is a Complex Preferenced Order. The Exchange believes
the proposal will protect investors and the general public by
encouraging greater order flow to be sent to the Exchange through
Complex Preferenced Orders and that this increased order flow will
benefit all market participants on the Exchange because they may
interact with that order flow.
    The proposal promotes just and equitable principles of trade
because it continues to prioritize Priority Customer \83\ Orders on the
single-leg order book. Priority Customers have priority over non-
Priority Customer interest at the same price in the same options series
on the single-leg order

book.\84\ Complex Preferenced Orders are allocated based on the
competitive bidding of market participants. The Exchange's proposal
promotes just and equitable principles of trade as a Preferred Marker
Maker must be at the NBBO for a component leg(s) of the Complex
Preferenced Order at the time the Complex Preferenced Order is
received. Moreover, participation entitlements for Preferred Market
Makers are designed to balance the obligations \85\ that the Preferred
Market Maker has to the market with corresponding benefits. In its
approval of other options exchange preferenced or directed order
programs, the Commission has, like proposals to amend a specialist
guarantee, focused on whether the percentage of the ``entitlement''
would rise to a level that could have a material adverse impact on
quote competition within a particular exchange, and concluded that such
programs do not jeopardize market integrity or the incentive for market
participants to post competitive quotes.\86\
---------------------------------------------------------------------------

    \83\ The term ``Priority Customer'' means 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
Options 1, Section 1(a)(36).
    \84\ See ISE Options 3, Section 10(c)(1)(A).
    \85\ Primary Market Makers are obligated to quote in the Opening
Process pursuant to ISE Options 3, Section 8(c) as well as intra-day
pursuant to Options 2, Section 5(e), in addition to other
obligations noted within ISE Options 2, Sections 4-8.
    \86\ See Securities Exchange Act Release Nos. 74129 (January 23,
2015), 80 FR 4954 at 4955 (January 29, 2015) (SR-BX-2014-049) (Order
Approving Proposed Rule Change Relating to Directed Market Makers);
and 51759 (May 27, 2005), 70 FR 32860 at 32861(June 6, 2005) (SR-
Phlx-2004-91) (Order Approving Proposed Rule Change and Notice of
Filing and Order Granting Accelerated Approval to Amendment No. 1
Thereto To Establish a Directed Order Process for Orders Delivered
to the Phlx Via AUTOM).
---------------------------------------------------------------------------

    Further, adding this existing order type, which is described in ISE
Options 2, Section 10, would complete the list of Complex Order types
in ISE Options 3, Section 14(b). The addition of Complex Preferenced
Orders to the list of order types in ISE Options 3, Section 14(b) will
make clear to Members the availability of Complex Preferenced Orders.
This amendment is identical to a change recently adopted for MRX.\87\
Additionally, Phlx \88\ and MIAX \89\ have a similar order type.
---------------------------------------------------------------------------

    \87\ See note 3 above. MRX amended Options 3, Section 14(b).
    \88\ See note 50 above.
    \89\ See note 51 above.
---------------------------------------------------------------------------

Complex Opening Price Determination
    The Exchange's proposal to amend the citation within Supplementary
Material .05(d)(2) to Options 3, Section 14, related to the Potential
Opening Price, is consistent with the Act because the current citation
to Supplementary Material .06(b) should be to Supplementary Material
.05(b). This non-substantive amendment will make clear what was meant
by the reference.
    The Exchange's proposal to amend Supplementary Material .05(d)(3)
of ISE Options 3, Section 14, which describes the Complex Opening Price
Determination, is consistent with the Act because the proposed new
Complex Opening Process would allow for additional contracts to be
included in the Potential Opening Price calculation. This proposed
methodology would protect investors and the general public by leading
to better price discovery and more contracts executing as part of the
Complex Opening Price Determination. With this proposal, when the
interest does not match in size and there is more than one Potential
Opening Price at which the interest may execute, then the Exchange
would calculate a Potential Opening Price using the mid-point of the
highest (lowest) executable offer (bid) price and the next available
executable offer (bid) price rounded, if necessary, down (up) to the
closest minimum trading increment. As a result, the proposal promotes
just and equitable principles of trade as more options contracts are
likely to be executed at better prices than under current rule. This
behavior differs from ISE's current opening rule in that, today, the
Exchange would calculate the Potential Opening Price as the highest
(lowest) executable bid (offer) when there would be contracts left
unexecuted on the bid (offer) side of the complex market. This
amendment is identical to a change recently adopted for MRX.\90\ Also,
the proposed methodology is similar to Phlx.\91\
---------------------------------------------------------------------------

    \90\ See note 3 above. MRX amended Supplementary Material
.05(d)(3) of ISE Options 3, Section 14.
    \91\ See Phlx Options 3, Section 14(d)(ii)(C)(2).
---------------------------------------------------------------------------

    Further, the proposed amendment promotes just and equitable
principles of trade by allowing Market Complex Orders to participate in
the Opening Price Determination process in a broader capacity than the
ISE opening rule allows for today. Today, 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 on the offer (bid) side of the market,
then ISE will not open pursuant to the Complex Opening Price
Determination process and would instead open pursuant to an Uncrossing
pursuant to Supplementary Material .06(b) of ISE Options 3, Section 14.
The proposed rule would have the Boundary Price assign limits to the
Opening Price and, therefore, permit Market Complex Orders to
participate in the Complex Opening Process, without limitation to the
benefit of investors and the public interest. With this change, ISE
would permit a complex strategy to calculate an Opening Price utilizing
a greater number of Market Complex Orders, which benefits the Opening
Process by taking into account these more aggressively priced orders
\92\ while also bringing more liquidity into the Opening Price
calculation. The amendment is designed to promote just and equitable
principles of trade as it will benefit Members by smoothing the way for
the complex strategy to open with Market Complex Orders.
---------------------------------------------------------------------------

    \92\ The allowance of a greater number of Market Complex Orders
within the Opening Process provides a greater depth of price
discovery for an options series. As noted above, the Boundary Price
would assign limits to the Opening Price, therefore preventing
Market Complex Orders which are aggressively priced from negatively
impacting the Opening Price.
---------------------------------------------------------------------------

    Finally, the proposed amendments to the Complex Opening Process
should promote just and equitable principles by allowing a complex
strategy to open pursuant to Supplementary Material .05(d)(4) of ISE
Options 3, Section 14, with less contracts becoming subject to the
Uncrossing pursuant to Supplementary Material .06(b) of ISE Options 3,
Section 14. As a result of this change, more interest would be able to
trade within the Opening Process, ensuring a greater number of
contracts are executed on ISE at the opening and lessening the
likelihood that contracts which remain unmatched during the Uncrossing
receive no execution.\93\
---------------------------------------------------------------------------

    \93\ Unmatched orders would rest on the order book with the
potential to execute intra-day.
---------------------------------------------------------------------------

Complex Order Risk Protections
    The Exchange's proposal to amend the title of a Complex Order Risk
Protection in Options 3, Section 16, Complex Order Risk Protections is
a non-substantive amendment. The proposal to amend Options 3, Section
16 protects investors and the general public by making clear the
contents of Options 3, Section 16.
Technical Amendments
    The Exchange's amendment to Options 3, Section 6(c)(2) to correct a
citation is non-substantive. The proposed amendments will protect
investors and the general public by updating incorrect citations to
make the rules clear.
    The Exchange's amendments to Options 3, Section 8(b)(2) and Options
3, Section 9(d)(2) related to Trading Halts are non-substantive
corrections. The proposed amendments will protect investors and the
general public by

updating incorrect citations to make the rules clear.
    Finally, the Exchange's amendment to Options 3, Section 8(j)(3)(B)
to remove duplicative rule text is non-substantive. The proposed
amendments will protect investors and the general public by updating
incorrect citations to make the rules clear.

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.
Legging Orders
    Amending ISE Options 3, Section 7(k)(1) to add a provision which
states that a Legging Order will not be generated during a Posting
Period in progress on the same side in the series pursuant to Options
3, Section 15 regarding Acceptable Trade Range does not impose an undue
burden on intra-market competition because the amendment will apply
equally to all Members as Legging Orders are generated by the System.
    Additionally, this proposal does not impose an undue burden on
inter-market competition as other options exchanges may adopt Legging
Orders and similar rules for the generation of such orders. In addition
to mirroring MRX Options 3, Section 7(k)(1), Phlx's legging order rule
in Options 3, Section 14(f)(iii)(C)(2) has the same restriction as
proposed to be added to ISE's Legging Order rule in ISE Options 3,
Section 7(k)(1).\94\
---------------------------------------------------------------------------

    \94\ See note 10 above.
---------------------------------------------------------------------------

Re-Pricing
    Adding language consistent with re-pricing within Options 3,
Section 12(c) and (d) and Options 3, Section 14(b)(19) does not impose
an undue burden on competition on intra-market competition as all
orders and quotes on ISE will be re-priced uniformly as provided for
within Options 3, Section 4(b)(6) and (7) and Options 5(c) and (d),
which recently became effective.\95\ With this recent change, re-priced
quotes and orders are accessible on the Exchange's order book at the
non-displayed price. Amending Options 3, Section 12(c) and (d) to
utilize the ``internal BBO'' language would continue to require Members
to submit Qualified Contingent Cross Orders and Complex Qualified
Contingent Cross Orders at the best price to receive an execution.
Furthermore, amending Options 3, Section 14(b)(19) to utilize the
``internal BBO'' language does not impose an undue burden on
competition on intra-market competition, rather it would specify
clearly that Members must quote at the best price to receive allocation
of a Complex Preferenced Order. The introduction of ``internal BBO''
will ensure that Qualified Contingent Cross Orders and Complex
Qualified Contingent Cross Orders do not execute if better-priced
interest is available and that a Complex Preferenced Order would not
receive a Preferred Market Maker allocation if better-priced interest
was available.
---------------------------------------------------------------------------

    \95\ See Securities Exchange Act Release No. 96362 (November 18,
2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25).
---------------------------------------------------------------------------

    The re-pricing proposals within Options 3, Section 12(c) and (d)
and Options 3, Section 14(b)(19) do not impose an undue burden on
inter-market competition because these rules continue to support
executions at the best price.
Changes to the Single-Leg Price Improvement Mechanism for Crossing
Transactions
    The Exchange's proposal to amend ISE Options 3, Section 13(d)(4),
ISE Options 3, Section 13(c)(5)(ii) and (iii), and add a proposed new
ISE Options 3, Section 13(c)(5)(iii), related to single-leg PIM, does
not impose an undue burden on intra-market competition because the
amendment will apply equally to all Members. All Members may utilize
PIM.
    The Exchange's proposal to amend ISE Options 3, Section 13(d)(4),
ISE Options 3, Section 13(c)(5)(ii) and (iii), and add a proposed new
ISE Options 3, Section 13(c)(5)(iii), related to single-leg PIM, does
not impose an undue burden on inter-market competition because other
options exchanges may adopt similar rules. In addition to mirroring to
MRX Options 3, Section 13, Phlx \96\ and BX \97\ do not permit
unrelated marketable interest on either the same or opposite side of
the market from an Agency Order to early terminate their simple price
improvement auctions.
---------------------------------------------------------------------------

    \96\ See note 17 above.
    \97\ See note 18 above.
---------------------------------------------------------------------------

Changes to the Complex PIM
    Deleting ISE Options 3, Section 13(e)(4)(vi) within Complex PIM, as
well as a related paragraph in Supplementary Material .01(b)(ii) of ISE
Options 3, Section 14, which describes Complex Order Exposure, related
to the early termination of single-leg PIM as a result of the arrival
of unrelated marketable interest on either the same or the opposite