[Federal Register Volume 83, Number 198 (Friday, October 12, 2018)]
[Notices]
[Pages 51730-51744]
[FR Doc No: 2018-22202]

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SECURITIES AND EXCHANGE COMMISSION

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

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

October 5, 2018.

I. Introduction

    On June 22, 2018, Nasdaq ISE, LLC (``ISE'' or the ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
provide additional detail to its rules governing the trading of Complex
Orders. The proposed rule change was published for comment in the
Federal Register on July 9, 2018.\3\ The Commission received no
comments regarding the proposal. On August 10, 2018, pursuant to
Section 19(b)(2) of the Act,\4\ the Commission extended the time for
Commission action on the proposal until October 5, 2018.\5\ ISE filed
Amendment No. 1 to the proposal on October 1, 2018.\6\ The Commission
is publishing this notice to solicit comment on Amendment No. 1 to the
proposed rule change from interested persons and is approving the
proposed rule change, as modified by Amendment No. 1, on an accelerated
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83576 (July 2,
2018), 83 FR 31783 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 83818 (August 10,
2018), 83 FR 40800 (August 16, 2018).
    \6\ Amendment No. 1 revises the proposal to: (1) Discontinue
Reserve Complex Orders; (2) indicate in proposed ISE Rule 722(c)(2)
that complex strategies will not be executed at prices inferior to
the best net price achievable from the best net price on ISE for the
individual legs of the strategy; (3) indicate in proposed ISE Rule
722(d)(2) that complex strategies will execute against Priority
Customer interest on the single leg book at the same price before
executing against interest on the Complex Order Book; (4) indicate
in proposed ISE Rule 722, Supplementary Material .01(b)(ii) that an
exposure period will end immediately when a Complex Order for the
same complex strategy on either side of the market becomes
marketable against interest on the Complex Order Book or bids and
offers in the leg market; (5) revise proposed ISE Rules 722,
Supplementary Material .01(b)(iii) and .08(c)(4)(vi) to describe the
sequence of executions when an incoming Complex Order causes the
early termination of a complex exposure auction and an auction for
one of the component legs of the complex strategy; (6) revise
proposed ISE Rule 722, Supplementary Material .01(c) to indicate
that at the end of the exposure period, the interest against which
the exposed order executes includes bids and offers on the Complex
Order Book and for the individual legs that arrived during the
exposure period; (7) revise proposed ISE Rule 722, Supplementary
Material .01(d) to indicate that an exposure process will terminate
immediately without an execution if a trading halt is initiated in
any series underlying the Complex Order being exposed; (8) clarify
the description of the execution of Stock-Option and Stock Complex
Orders in proposed ISE Rule 722, Supplementary Material .02; (9)
revise proposed ISE Rule 722, Supplementary Material .08(e) to
indicate that Complex QCC Orders may be entered in $0.01 increments;
(10) delete provisions in ISE Rule 722 indicating that ISE will
recommence the functionality that permits concurrent auctions for
the same complex strategy by April 17, 2019, and add proposed ISE
Rule 722, Supplementary Material .08(g) to indicate the auctions for
the same complex strategy will not operate concurrently; (11) add
proposed ISE Rule 722, Supplementary Material .08(h) to indicate
that an auction for a complex strategy and an auction for a
component leg of the complex strategy may operate concurrently; (12)
indicate in proposed ISE Rule 722, Supplementary Material .13 to
indicate that the stock leg of a stock-option order must be marked
``buy,'' ``sell,'' ``sell short,'' or ``sell short exempt,'' in
compliance with Regulation SHO under the Act; (13) provide a new
example illustrating customer priority and the execution of a
Complex Order; (14) indicate that ISE does not manage and curtail
its functionality for executing a complex strategy against leg
market interest; (15) add references to the NBBO and the underlying
stock in proposed ISE Rule 722, Supplementary Material .07(a); (16)
provide additional discussion of the rationale for permitting a
Trade Value Allowance of any amount when a Complex Order executes in
an auction and does not trade solely with its contra-side order; and
(17) make several technical corrections to the proposal. Amendment
No. 1 is available at https://www.sec.gov/comments/sr-ise-2018-56/srise201856-4467038-175833.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1

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

A. Definitions

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

a Stock-Option Strategy,\9\ and a Stock-Complex Strategy,\10\
respectively.\11\ The term ``complex strategy'' includes Complex
Options Strategies, Stock-Option Strategies, and Stock-Complex
Strategies.\12\ ISE believes that the definitions will help to clarify
whether provisions in its rules apply only to Complex Options
Strategies, only to Stock-Option Strategies, only to Stock-Complex
Strategies, or to all three.\13\ The proposal deletes from ISE Rule 722
the definition of SSF-option order. ISE states that single stock
futures have not gained sufficient popularity among investors to
support a SSF-option product, and that ISE has never received a SSF-
option order.\14\
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    \7\ See proposed ISE Rule 722(a)(5).
    \8\ A Complex Options Strategy is the simultaneous purchase and/
or sale of two or more different options series in the same
underlying security, for the same account, in a ratio that is equal
to or greater than one-to-three (.333) and less than or equal to
three-to-one (3.00) and for the purpose of executing a particular
investment strategy. Only those Complex Options Strategies with no
more than the applicable number of legs, as determined by the
Exchange on a class-by-class basis, are eligible for processing. See
proposed ISE Rule 722(a)(1). ISE will determine the applicable
number of legs for Complex Options Strategies and Stock-Complex
Strategies on a class-by-class basis. See Notice, 83 FR at 31784.
ISE notes that, by definition, Stock-Option Strategies will have
only one option leg and one stock leg. See id. at 31784, n.3.
    \9\ A Stock-Option Strategy is the purchase or sale of a stated
number of units of an underlying stock or a security convertible
into the underlying stock (``convertible security'') coupled with
the purchase or sale of options contract(s) on the opposite side of
the market representing either (A) the same number of units of the
underlying stock or convertible security, or (B) the number of units
of the underlying stock necessary to create a delta neutral
position, but in no case in a ratio greater than eight-to-one
(8.00), where the ratio represents the total number of units of the
underlying stock or convertible security in the option leg to the
total number of units of the underlying stock or convertible
security in the stock leg. See proposed Rule 722(a)(2).
    \10\ A Stock-Complex Strategy is the purchase or sale of a
stated number of units of an underlying stock or a security
convertible into the underlying stock (``convertible security'')
coupled with the purchase or sale of a Complex Options Strategy on
the opposite side of the market representing either (A) the same
number of units of the underlying stock or convertible security, or
(B) the number of units of the underlying stock necessary to create
a delta neutral position, but in no case in a ratio greater than
eight-to-one (8.00), where the ratio represents the total number of
units of the underlying stock or convertible security in the option
legs to the total number of units of the underlying stock or
convertible security in the stock leg. Only those Stock-Complex
Strategies with no more than the applicable number of legs, as
determined by the Exchange on a class-by-class basis, are eligible
for processing. See proposed ISE Rule 722(a)(3).
    \11\ See proposed ISE Rule 722(a)(5).
    \12\ See proposed ISE Rule 722(a)(4).
    \13\ See Notice, 83 FR at 31784.
    \14\ See id. ISE also proposes to delete current ISE Rule 722,
Supplementary Material .01, which references SSF-option orders and
includes outdated language relating to Stock-Option and Stock-
Complex Orders. ISE will file a proposed rule change with the
Commission if it decides to offer SSF-option orders in the future.
See id.
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B. Order Types

    New ISE Rule 722(b) \15\ identifies the following order types and
designations that are available for Complex Orders: Market Complex
Order; \16\ Limit Complex Order; \17\ All-or-None Complex Order; \18\
Attributable Complex Order; \19\ Customer Cross Complex Order; \20\
Qualified Contingent Cross Complex Order; \21\ Day Complex Order; \22\
Fill-or-Kill Complex Order; \23\ Immediate-or-Cancel Complex Order;
\24\ Opening Only Complex Order; \25\ Good-Till-Date Complex Order;
\26\ Good-Till-Cancel Complex Order; \27\ Exposure Complex Order; \28\
Exposure Only Complex Order; \29\ and Complex QCC with Stock Order.\30\
The order types and designations for Complex Orders in proposed ISE
Rule 722(b) are based on order types and designations currently
provided in ISE Rule 715 for regular orders.\31\ The proposal also
amends ISE Rule 715(k) to indicate that legging orders are generated
only for Complex Options Orders.
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    \15\ The proposal renumbers current ISE Rule 722(b) as ISE Rule
722(c).
    \16\ A Market Complex Order is a Complex Order to buy or sell a
complex strategy that is to be executed at the best price
obtainable. If not executable upon entry, such orders will rest on
the Complex Order Book unless designated as fill-or-kill or
immediate-or-cancel. See proposed ISE Rule 722(b)(1).
    \17\ A Limit Complex Order is a Complex Order to buy or sell a
complex strategy that is entered with a limit price expressed as a
net purchase or sale price for the components of the order. See
proposed ISE Rule 722(b)(2).
    \18\ A Complex Order may be designated as an All-or-None Order
that is to be executed in its entirety or not at all. An All-Or-None
Order may only be entered as an Immediate-or-Cancel Order. See
proposed ISE Rule 722(b)(3).
    \19\ A Market or Limit Complex Order may be designated as an
Attributable Order as provided in Rule 715(h). See proposed ISE Rule
722(b)(5).
    \20\ A Customer Cross Complex Order is comprised of a Priority
Customer Complex Order to buy and a Priority Customer Complex Order
to sell at the same price and for the same quantity. Such orders
will trade in accordance with Supplementary Material .08(d) to this
Rule 722. See proposed ISE Rule 722(b)(6).
    \21\ A Complex Options Order may be entered as a Qualified
Contingent Cross Order, as defined in Rule 715(j). Qualified
Contingent Cross Complex Orders will trade in accordance with
Supplementary Material .08(e) to this Rule 722. See proposed ISE
Rule 722(b)(7).
    \22\ A Complex Order may be designated as a Day Order that if
not executed, expires at the end of the day on which it was entered.
See proposed ISE Rule 722(b)(8).
    \23\ A Complex Order may be designated as a Fill-or-Kill Order
that is to be executed in its entirety as soon as it is received
and, if not so executed, cancelled. See proposed ISE Rule 722(b)(9).
    \24\ A Complex Order may be designated as an Immediate-or-Cancel
Order that is to be executed in whole or in part upon receipt. Any
portion not so executed is cancelled. See proposed ISE Rule
722(b)(10).
    \25\ An Opening Only Complex Order is a Limit Complex Order that
may be entered for execution during the Complex Opening Process
described in Supplementary Material .10 to Rule 722. Any portion of
the order that is not executed during the Complex Opening Process is
cancelled. See proposed ISE Rule 722(b)(11).
    \26\ A Good-Till-Date Complex Order is an order to buy or sell
which, if not executed, will be cancelled at the sooner of the end
of the expiration date assigned to the Complex Order, or the
expiration of any individual series comprising the order. See
proposed ISE Rule 722(b)(12).
    \27\ A Good-Till-Cancel Complex Order is an order to buy or sell
that remains in force until the order is filled, canceled or any
series of the order expires; provided, however, that a Good-Till-
Cancel Complex Order will be cancelled in the event of a corporate
action that results in an adjustment to the terms of any series
underlying the Complex Order. See proposed ISE Rule 722(b)(13).
    \28\ An Exposure Complex Order is an order that will be exposed
upon entry as provided in Supplementary Material .01 to Rule 722 if
eligible, or entered on the complex order book if not eligible. Any
unexecuted balance of an Exposure Complex Order remaining upon the
completion of the exposure process will be entered on the complex
order book. See proposed ISE Rule 722(b)(14).
    \29\ An Exposure Only Complex Order is an order that will be
exposed upon entry as provided in Supplementary Material .01 to Rule
722 if eligible, or cancelled if not eligible. Any unexecuted
balance of an Exposure Only Complex Order remaining upon the
completion of the exposure process will be cancelled. See proposed
ISE Rule 722(b)(15).
    \30\ A Complex QCC with Stock Order is a Qualified Contingent
Cross Complex Order, as defined in Rule 722(b)(7), entered with a
stock component to be communicated to a designated broker-dealer for
execution pursuant to Supplementary Material .08(f) to Rule 722. See
proposed ISE Rule 722(b)(16).
    \31\ See Notice, 83 FR at 31785.
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    ISE originally proposed to include Reserve Complex Orders in the
order types available for Complex Orders.\32\ In Amendment No. 1, ISE
proposes to discontinue offering Reserve Complex Orders in the fourth
quarter of 2018.\33\

ISE will continue to offer Reserve Orders in the single leg order
book.\34\ ISE states that it does not receive a high volume of Reserve
Complex Orders and believes that it is not necessary to offer Reserve
Complex Orders because there is no great demand for this order
type.\35\ ISE notes that it offers a variety of order types to its
market participants and does not believe that discontinuing Reserve
Complex Orders will disadvantage market participants when they submit
Complex Orders.\36\ In addition, ISE states that other options
exchanges do not offer Reserve Complex Orders.\37\ ISE will issue an
Options Trader Alert to members indicating the date when Reserve
Complex Orders will no longer be offered.\38\
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    \32\ Proposed ISE Rule 722(b)(4) provided that: A Limit Complex
Order may be designated as a Reserve Order that contains both a
displayed portion and a non-displayed portion. (i) Both the
displayed and non-displayed portions of a Reserve Complex Order are
available for potential execution against incoming marketable orders
or quotes. A non-marketable Reserve Complex Order will rest on the
complex order book. (ii) The displayed portion of a Reserve Complex
Order shall be ranked at the specified limit price and the time of
order entry. (iii) The displayed portion of a Reserve Complex Order
will trade in accordance with Rule 722(d). (iv) When the displayed
portion of a Reserve Complex Order is decremented, either in full or
in part, it shall be refreshed from the non-displayed portion of the
resting Reserve Complex Order. If the displayed portion is refreshed
in part, the new displayed portion shall include the previously
displayed portion. Upon any refresh, the entire displayed portion
shall be ranked at the specified limit price and obtain a new time
stamp, i.e., the time that the new displayed portion of the order
was refreshed. The new displayed portion will trade in accordance
with Rule 722(d). (v) The initial non-displayed portion of a Reserve
Complex Order rests on the complex order book and is ranked based on
the specified limit price and time of order entry. Thereafter, non-
displayed portions, if any, always obtain the same time stamp as
that of the new displayed portion in subparagraph (iv) above. The
non-displayed portion of any Reserve Complex Order is available for
execution only after all displayed interest on the complex order
book has been executed. Thereafter, the non-displayed portion of any
Reserve Complex Order will trade in accordance with Rule 722(d).
(vi) Only the displayed portion of a Reserve Complex Order is
eligible to be exposed for price improvement pursuant to Rule
722(d)(1) and Supplementary Material .01 to Rule 722.
    \33\ See Amendment No. 1. In connection with this change, the
proposal deletes references to Reserve Complex Orders in the
following proposed rules: Proposed ISE Rule 722(b)(4); proposed ISE
Rule 722(c)(2)(iv); proposed ISE Rule 722, Supplementary Material
.11(vi); and proposed ISE Rule 722, Supplementary Material .12(b).
    \34\ See id.
    \35\ See id.
    \36\ See id.
    \37\ See id.
    \38\ ISE states that it will notify members in October of the
anticipated discontinuation of Reserve Complex Orders in 2018. See
id.
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C. Trading of Complex Orders and Quotes

    Proposed ISE Rule 722(c) (formerly ISE Rule 722(b)) states that
complex strategies will be subject to all other ISE rules that pertain
to orders and quotes generally, except as otherwise provided in ISE
Rule 722.
1. Minimum Increments
    Bids and offers for Complex Options Strategies may be expressed in
$0.01 increments, and the option(s) legs of Complex Options Strategies,
Stock-Option Strategies, and Stock-Complex Strategies may be executed
in $0.01 increments, regardless of the minimum increments otherwise
applicable to the individual options legs of the order.\39\ Bids and
offers for Stock-Option Strategies or Stock-Complex Strategies may be
expressed in any decimal price determined by ISE, and the stock leg of
a Stock-Option Strategy or Stock-Complex Strategy may be executed in
any decimal price permitted in the equity market.\40\ ISE states that
smaller minimum increments are appropriate for Complex Orders that
contain a stock component because the stock component may trade at
finer decimal increments permitted by the equity market.\41\ ISE notes
that even with the flexibility provided in proposed ISE Rule 722(c)(1),
the individual options and stock legs of a Complex Order must trade in
increments allowed by the Commission in the options and equities
markets.\42\
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    \39\ See proposed ISE Rule 722(c)(1).
    \40\ See id. ISE will communicate the minimum increment for
Stock-Option Strategies and Stock-Complex Strategies to members via
Options Trader Alert. See Notice, 83 FR at 31786, n. 10.
    \41\ See Notice, 83 FR at 31786.
    \42\ See id. The proposal makes corresponding changes to ISE
Rule 722, Supplementary Material .07(b). ISE Rule 722, Supplementary
Material .07(b), as proposed to be amended, states that the System
will reject orders and quotes for a complex strategy where all legs
are to buy if entered at a price that is less than the minimum net
price, which is calculated as the sum of the ratio on each leg of
the complex strategy multiplied by the minimum increment applicable
to that leg pursuant to Rule 722(c)(1). ISE notes that the revised
rule reflects that the stock leg(s) of a Stock-Option or Stock-
Complex Strategy may be entered in any decimal price determined by
ISE. For example, an order to buy a share of stock and two call
options would have a minimum price of $0.0201--i.e., $0.02 for two
options legs and $0.0001 for the stock leg. See Notice, 83 FR at
31786. The proposal also amends ISE Rule 710 to reference the
quoting and trading increments for Complex Strategies specified in
proposed ISE Rule 722(c)(1).
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2. Complex Order Priority
    The proposal revises the Complex Order priority provisions in
current ISE Rule 722(b)(2) (renumbered ISE Rule 722(c)(2)) to make
several non-substantive clarifying changes, including re-formatting the
rule into three paragraphs and incorporating new defined terms into the
rule text.\43\ As described more fully in the Notice, under proposed
ISE Rule 722(c)(2), the legs of a complex strategy with multiple
options legs (i.e., Complex Options Strategies and Stock-Complex
Strategies with more than one options component) may be executed at the
same price as bids and offers on ISE for the individual series so long
as there are no Priority Customer Orders on ISE at those prices.\44\ If
one options leg of such a strategy improves upon the best price
available on the Exchange, then the other leg(s) of the complex
strategy may trade at the same price as Priority Customer interest.\45\
The option leg of a Stock-Option Strategy may be executed at the same
price as bids and offers on ISE for the individual series established
by Professional Orders and market maker quotes, but not at the same
price as Priority Customer Orders for the individual series.\46\
Proposed ISE Rule 722(c)(2) also states that complex strategies will
not be executed at prices inferior to the best net price achievable
from the best ISE bids and offers for the individual legs.\47\
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    \43\ See Notice, 83 FR at 31786-7.
    \44\ See Notice, 83 FR at 31786. Pursuant to ISE Rules
100(a)(49) and (50), a Priority Customer Order is an order for the
account of a person or entity that (i) is not a broker or dealer in
securities; and (ii) does not place more than 390 orders in listed
options per day on average during a calendar month for its own
beneficial account(s). See id. at 3178 6, n. 12.
    \45\ See Notice, 83 FR at 31786 and proposed ISE Rule 722(c)(2).
    \46\ See id. at 31786-7 and proposed ISE Rule 722(c)(2).
    \47\ See Amendment No. 1.
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3. Complex Order Executions
    The proposal renumbers ISE Rule 722(b)(3) as ISE Rule 722(d) and,
for clarity, states that complex strategies are not executable unless
all of the terms of the strategy can be satisfied and the options legs
can be executed at prices that comply with the provisions of proposed
ISE Rule 722(c)(2).\48\ In addition, proposed ISE Rule 722(d) more
clearly reflects the sequence in which complex strategies are
processed. First, eligible Complex Orders are exposed for price
improvement for a period of up to one second as provided in ISE Rule
722, Supplementary Material .01.\49\ Second, Complex Orders are matched
against other interest in the Complex Order Book, if possible.\50\
However, executable Complex Orders will execute against Priority
Customer interest on the single leg book at the same price before
executing against the Complex Order Book.\51\ Thus, Priority Customer
Orders on the single leg order book will retain priority and will
execute prior to any other Complex Order or non-Priority Customer
single leg interest at the same price.\52\ Third, Complex Orders are
executed against bids and offers on ISE for the individual series, if
possible.\53\
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    \48\ See Amendment No. 1.
    \49\ See proposed ISE Rule 722(d)(1).
    \50\ See proposed ISE Rule 722(d)(2).
    \51\ See id. and Amendment No. 1.
    \52\ See id.
    \53\ See proposed ISE Rule 722(d)(2).
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    The proposal also adds new ISE Rule 722(d)(4), which indicates
that, similar to the treatment of orders in the regular market, complex
strategies that are not executable may rest on the Complex Order Book
until they become executable.\54\ The proposal retains, without
substantive changes, provisions in current ISE Rule 722(b)(3) that
specify the manner in which bids and offers at the same price on the
Complex Order Book may be allocated and certain restrictions on Complex
Order executions against leg market interest.\55\
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    \54\ See Notice, 83 FR at 31787.
    \55\ See proposed ISE Rules 722(d)(2) and (3).
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4. Complex Order Exposure Process
    Current ISE Rule 722(b)(3)(iii) provides that Complex Orders marked
for price improvement Complex orders will be exposed on the Complex
Order Book for a period of up to one second before being automatically
executed against pre-existing interest to provide

an opportunity for market participants to enter contra-side Complex
Orders that provide price improvement. At the end of the display
period, contra-side orders are executed in price priority and in time
priority at the same price. The proposal replaces this provision with
proposed ISE Rule 722, Supplementary Material .01, which describes an
auction process for Complex Orders. Under proposed ISE Rule 722,
Supplementary Material .01, a member may designate for exposure a
Complex Order that improves upon the best price for the same complex
strategy on the Complex Order Book.\56\ Market participants may enter
Exposure Complex Orders or Exposure Only Complex Orders.\57\ Upon entry
of an eligible Complex Order, ISE will send a broadcast message that
includes net price or at market, size, and side, and Members will be
able to enter Responses with the prices and sizes at which they are
willing to participate in the execution of the Complex Order.\58\
During the exposure period, ISE will broadcast the best Response price
and the aggregate size of Responses available at that price.\59\ The
exposure period will end immediately upon receipt of certain unrelated
Complex Orders for the same complex strategy,\60\ or if a trading halt
is initiated in any series underlying the Complex Order during the
exposure period.\61\ At the end of the exposure period, if the Complex
Order still improves upon the best price for the complex strategy on
the same side of the market, the Complex Order will be automatically
executed to the greatest extent possible pursuant to proposed ISE Rule
722(d)(2)-(3), taking into consideration: (i) Bids and offers on the
Complex Order Book, including interest received during the exposure
period, (ii) bids and offers on ISE for the individual options series,
including interest received during the exposure period, and (iii)
Responses received during the exposure period, provided that when
allocating pursuant to proposed ISE Rule 722(d)(2)(iii), Responses are
allocated pro-rata based on size.\62\ Any unexecuted balance will be
placed on the Complex Order Book (or cancelled in the case of an
Exposure Only Complex Order).\63\
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    \56\ See proposed ISE Rule 722, Supplementary Material .01(a).
Incoming orders will not be eligible to be exposed if there are
market orders on the Complex Order Book on the same side of the
market for the same complex strategy. See id.
    \57\ See notes 28 and 29, supra.
    \58\ See proposed ISE Rule 722, Supplementary Material .01(b).
Responses are only executable against the Complex Order with respect
to which they are entered, can be modified or withdrawn at any time
prior to the end of the exposure period, and will be considered up
to the size of the Complex Order being exposed. At the conclusion of
the exposure period, any unexecuted balance of a Response will be
cancelled automatically. See proposed ISE Rule 722, Supplementary
Material .01(b)(i).
    \59\ See id.
    \60\ The exposure period for a Complex Order will end
immediately: (A) Upon the receipt of a Complex Order or quote for
the same complex strategy on either side of the market that is
marketable against the Complex Order Book or bids and offers for the
individual legs; (B) upon the receipt of a non-marketable Complex
Order or quote for the same complex strategy on the same side of the
market that would cause the price of the exposed Complex Order to be
outside of the best bid or offer for the same complex strategy on
the Complex Order Book; or (C) when a resting Complex Order for the
same complex strategy becomes marketable against interest on the
Complex Order Book or bids and offers for individual legs of the
same complex strategy.
    \61\ See proposed ISE Rule 722, Supplementary Material. 01(d).
    \62\ See proposed ISE Rule 722, Supplementary Material. 01(c)
and Amendment No. 1.
    \63\ See id.
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5. Trade Value Allowance
    The Trade Value Allowance provided in proposed ISE Rule 722,
Supplementary Material .09 is a functionality that allows Stock-Option
Strategies and Stock-Complex Strategies to trade outside of their
expected notional trade value by a specified amount (the ``Trade Value
Allowance'').\64\ ISE states that after calculating the appropriate
options match price for a Stock-Option or Stock-Complex Order expressed
in a valid one cent increment, its trading system calculates the
corresponding stock match price rounded to the increment supported by
the equity market.\65\ In a small subset of cases, this rounding may
result in a small difference between the expected notional value of the
trade and the actual trade value.\66\ ISE states that its members
generally prefer not to forgo an execution for their Stock-Option
Strategies and Stock Complex Strategies when there is a Trade Value
Allowance because the amount of the rounding is miniscule compared to
the total value of the trade.\67\ Members may opt out of the Trade
Value Allowance if they do not want their orders to be executed when
there is a Trade Value Allowance of any amount.\68\ In those cases, ISE
will strictly enforce the net price marked on the order.\69\
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    \64\ The Trade Value Allowance is the percentage difference
between the expected notional value of a trade and the actual
notional value of the trade. See proposed ISE Rule 722,
Supplementary Material .09.
    \65\ See Notice, 83 FR at 31793.
    \66\ See id.
    \67\ See id.
    \68\ See id.
    \69\ See id.
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    The amount of Trade Value Allowance permitted may be determined by
the member, or a default value determined by ISE and announced to
members.\70\ However, any amount of Trade Value Allowance is permitted
for an order executed in an auction pursuant to ISE Rule 722,
Supplementary Material .08 that does not trade solely with its contra-
side order.\71\ ISE notes that its auction mechanisms provide an
opportunity for market participants to respond with better priced
interest that could execute against an Agency Order.\72\ In the
interest of maintaining a fair and competitive market, ISE believes
that it is appropriate to ensure that crosses entered into an auction
mechanism that are broken up due to better priced interest are actually
executed against such better priced interest, and are not restricted
from trading to due to the Trade Value Allowance settings of one or
more members.\73\ Otherwise, an Agency Order in an auction mechanism
could be forced to forgo a guaranteed execution with the negotiated
contra-side party without the benefit of trading at a better price with
other market participants.\74\ Because the Trade Value Allowance is the
result of a rounding error, ISE believes that any amount of error
allowed in these circumstances would be miniscule compared to the value
of the trade.\75\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    ISE states that the Complex Uncrossing Process provides an
efficient

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

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

E. Internalization and Crossing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

F. Concurrent Auctions

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

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

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

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

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

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

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

G. Stock-Option and Stock-Complex Orders

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

H. Additional Changes

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

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

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

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

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

III. Discussion and Commission Findings

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

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

A. Definitions and Order Types

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

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

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

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

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

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

B. Trading of Complex Orders and Quotes

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

on the single leg order book will retain priority and will execute
prior to any other Complex Order or non-Priority Customer single leg
interest at the same price.\189\ In addition, ISE, like other
exchanges, does not allow Complex Orders to be executed at prices
inferior to the best net price achievable from the best bids and offers
on the Exchange for the individual legs.\190\
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    \185\ See proposed ISE Rules 722(c)(2)(i) and (iii). A Complex
Order that does not satisfy the requirements of proposed ISE Rule
722(c)(2) is not executable. See proposed ISE Rule 722(d).
    \186\ See proposed ISE Rule 722(c)(2)(ii).
    \187\ See, e.g., Phlx Rule 1098(c)(iii); EDGX Rule
21.20(c)(1)(B) and (C); and MIAX Rule 518(c)(3).
    \188\ See proposed ISE Rule 722(d)(2) and Amendment No. 1.
    \189\ See id.
    \190\ See proposed ISE ISE Rule 722(c)(2) and Amendment No. 1.
See also EDGX Rule 21.20(c)(2)(E); and MIAX Rule 518(c)(2)(ii).
---------------------------------------------------------------------------

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

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

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

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

D. Complex Opening Process and Complex Uncrossing Process

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

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

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

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

E. Complex Order Exposure Process

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

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

F. Internalization and Crossing

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

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

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

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

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

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

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

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

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

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

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

G. Concurrent Auctions

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

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

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

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

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

H. Stock-Option and Stock-Complex Orders

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

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

I. Additional Changes

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

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

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

IV. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 is consistent with the
Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-ISE-2018-56 on the subject line.

Paper Comments

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

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

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

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

VI. Conclusion

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

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

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

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

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

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