Self-Regulatory Organization Alert! Nasdaq ISE, LLC Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Delay the Implementation of Certain Trading Functionality impacting:
Routing, ATR and Repricing Rules, Complex Order Rules, and multiple functionalities. OPEN for comment!
https://public-inspection.federalregister.gov/2023-11715.pdf
https://listingcenter.nasdaq.com/assets/rulebook/ISE/filings/SR-ISE-2023-10.pdf
Purpose:
- In connection with a technology migration to an enhanced Nasdaq, Inc. (“Nasdaq”) functionality, the Exchange filed various rule changes to adopt certain trading functionality currently utilized at Nasdaq affiliate exchanges.
- At this time, the Exchange proposes to delay the implementation of the various rule changes.
The Exchange filed the following rule changes in connection with its technology migration:
- SR-ISE-2022-11 which impacts routing ( Securities Exchange Act Release No. 94897 (May 12, 2022), 87 FR 30294 (May 18, 2022) (SR-ISE-2022-11));
- SR-ISE-2022-25 which amended ATR and Repricing Rules ( Securities Exchange Act Release No. 96362 (November 18, 2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25))
- SR-ISE-2022-28 which amended Complex Order Rules ( Securities Exchange Act Release No. 96518 (December 16, 2022), 87 FR 78740 (December 22, 2022) (SR-ISE-2022-28))
- SR-ISE-2023-06 a rule change amending multiple functionalities ( Securities Exchange Act Release No. 96818 (February 6, 2023), 88 FR 8950 (February 10, 2023) (SR-ISE-2023-06)0
- The aforementioned rule changes (collectively “Impacted Rule Changes”) indicated that the technology migration for ISE would commence by Q4 2023 or prior to December 2023.
New Implementation:
- At this time, the Exchange proposes to delay the implementation of the Impacted Rule Changes, which all relate to ISE’s upcoming technology migration, to a date prior to December 20, 2024.
- The Exchange will announce the initial migration date and symbol rollout schedule to Members in an Options Trader Alert.
- The Exchange proposes to delay the migration to allow the Nasdaq GEMX, LLC (“GEMX”) migration to complete and thereafter allow the Exchange and its Members additional time to prepare and test the new ISE functionality.
Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received from Members, Participants, or Others:
- No written comments were either solicited or received.
- Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to section 19(b)(3)(A)(iii) of the Act12 and subparagraph (f)(6) of Rule 19b-4 thereunder.
- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
Solicitation of Comments:
- Use the Commission’s Internet comment form (http://www.sec.gov/rules/sro.shtml);
Send an e-mail to [email protected].
- Please include File Number SR-ISE-2023-10 on the subject line.
- Do not include personal identifiable information in submissions;
- you should submit only information that you wish to make available publicly.
- Comments due by 6/23/23
About the Rules being delayed:
Routing: SR-ISE-2022-11 which impacts routing (Securities Exchange Act Release No. 94897 (May 12, 2022), 87 FR 30294:
The Exchange proposes to amend ISE's order routing functionality to conform to that of BX Options 5, Section 4. As part of the technology migration, Nasdaq seeks to conform certain trading functionality to functionality currently available on other Nasdaq affiliated options markets to create a similar routing experience for market participants across the Nasdaq options markets. Similar to BX, ISE would continue to route orders to away markets via NES. Similar to BX, ISE would offer the following order types for routing: DNR Order, FIND Order and SRCH Order. Each order type for routing will be explained below.
ISE would no longer offer flash functionality because the proposed routing functionality, similar to BX, would permit an order to be exposed for a period of time that would allow other Members to trade with the order prior to the order routing to an away market. ISE proposes to remove the rule text related to flash functionality within Supplementary Material .02 to Options 5, Section 2.
Sweep Orders were adopted on ISE in 2014, to supplement ISE's away market routing capabilities. Sweep Orders do not enter the flash functionality process of Supplementary Material .02 of Options 5, Section 2 and are processed separately. This proposal would eliminate the Sweep Order type within Options 3, Section 7(s) and remove the Sweep Order routing discussion within Supplementary Material .05 to Options 5, Section 2. Sweep Orders are not necessary to facilitate the routing of Public Customer and Non-Customer orders to away markets because the proposed routing functionality would route all orders to away markets uniformly. Additionally, uniformly, all orders would be subject to re-pricing if the order would otherwise lock or cross an away market. The Exchange would continue to not cancel marketable orders that could not be executed on ISE because the order would lock or cross an away market, rather the order would be re-priced with the new routing functionality.
With the new routing process, a Route Timer would begin for each order that is subject to routing on the Exchange. While Members may not opt out of the Route Timer, as is the case today, the proposed routing process would create a uniform streamlined process for routing all orders (FIND and SRCH) where a market participant has elected to have an order routed; Member may continue to elect to not have their orders routed. The new routing process does not distinguish as between Public Customer orders and Non-Customer orders, rather all orders would be processed in the same manner. Further, the proposed routing process would serve to further harmonize routing across Nasdaq affiliated markets.
The Exchange also proposes to remove Supplementary Material .04 to Options 5, Section 2, which sets forth routing procedures for Non-Customer orders that opt out of being processed under the flash functionality. The Exchange has proposed to replace its current away routing regime with the proposed FIND and SRCH order routing types. The processing of Sweep Orders and the routing procedures under Supplementary Material .04 to Options 5, Section 2 were established as alternative routing procedures to the flash functionality and because the Exchange proposes to eliminate the flash order functionality, these routing procedures are no longer needed under the proposed routing procedures.
Finally, the rule text within Supplementary Material .06 to Options 5, Section 2, relating to Public Customer orders that are not automatically executed because there is a displayed bid or offer on another exchange trading the same options contract that is better than the best bid or offer on the Exchange, would be removed as handling of Public Customer orders is being amended to conform to BX Options 4 handling. The Exchange will explain that handling below. The rule text within Supplementary Material .06 to Options 5, Section 2 was adopted in 2009 when ISE adopted new rules to implement the Options Order Protection and Locked/Crossed Market Plan. ISE continues to be subject to compliance with its Rules, the Act, and the rules thereunder, including Sections 6(b)(4) and (5) of the Act which require the Exchange to: (1) Provide for the equitable allocation of reasonable dues, fees, and other charges among its participants and other persons using its facilities; and (2) prohibit unfair discrimination among customers, issuers, brokers or dealers. As noted in the Approval Order to SR-ISE-2009-27, Customers may choose to avoid having their orders routed away by entering their order with an Immediate-or-Cancel or Fill-or-Kill designation in addition to the DNR functionality.
The Exchange proposes to remove the Supplementary Material to Options 5, Section 3 which describes how an order would be handled when the price of an incoming limit order that is not executable upon entry would lock or cross a Protected Quotation because that functionality is being amended with this filing. Specifically, today, the order would be handled in accordance with the provisions of Supplementary Material .02, .04 or .05 to Options 5, Section 2, as applicable. The Exchange's proposal removes Supplementary Material .02, .04 and .05 to Options 5, Section 2, therefore this section would no longer be possible as the current order handling is being amended with this proposal.
The Exchange also proposes to make certain conforming amendments within Options 3. First, the Exchange proposes to remove rule text within Options 3, Section 5(b)(1) which relates to flash functionality. Options 3, Section 5(b)(1) provides, “Orders that are not automatically executed will be handled as provided in Supplementary Material .02 to Options 5, Section 2; provided that Members may specify that a Non-Customer order should instead be accepted and immediately canceled automatically by the System at the time of receipt.” This rule text would no longer be necessary as the flash functionality is being eliminated.
SR-ISE-2022-25 which amended ATR and Repricing Rules ( Securities Exchange Act Release No. 96362 (November 18, 2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25)):
Re-Pricing
In connection with the technology migration, the Exchange proposes to adopt re-pricing functionality in Options 3, Section 4 and Section 5 for certain orders and quotes that lock or cross an away market's price. The proposed functionality will be materially identical to current BX functionality. As further described below, the Exchange proposes a number of corresponding amendments throughout Options 2 and Options 3 in connection with adopting the re-pricing mechanism.
The Exchange notes that today, it would cancel any unexecuted balances of non-routable orders that cannot be placed on the order book. With the technology migration, any unexecuted balances may rest on the order book as the Exchange would re-price an order that locks or crosses another market as described in this proposal.
As proposed, the System will re-price certain orders to avoid locking or crossing an away market's price. Orders that are designated as non-routable and that lock or cross an away market price will be automatically re-priced to the current national best offer (for bids) or the current national best bid (for offers) as non-displayed and displayed one minimum price variance (“MPV”) above (for offers) or below (for bids) the national best price.
Upon re-pricing in this manner, such order will be displayed on OPRA at one MPV above (for offers) or below (for bids) the national best price. The order will remain on the Exchange's order book and will be accessible at the non-displayed price. For example, a non-displayed limit order may be accessed on the Exchange by a Member if the limit order is priced better than the NBBO.
SR-ISE-2022-28 which amended Complex Order Rules ( Securities Exchange Act Release No. 96518 (December 16, 2022), 87 FR 78740 (December 22, 2022) (SR-ISE-2022-28)):
Purpose
In connection with a technology migration to an enhanced Nasdaq, Inc. (“Nasdaq”) functionality which will result in higher performance, scalability, and more robust architecture, the Exchange intends to adopt certain trading functionality currently utilized at Nasdaq affiliate exchanges. Also, the Exchange intends to remove certain functionality. Specifically, the following sections would be amended: Options 3, Section 7, Types of Orders and Order and Quote Protocols; Options 3, Section 10, Priority of Quotes and Orders; Options 3, Section 12, Crossing Orders; Options 3, Section 13, Price Improvement Mechanisms for Crossing Transactions; Options 3, Section 14, Complex Orders; and Options 3, Section 16, Complex Risk Protections. The changes proposed herein are identical to changes that were recently proposed for MRX.
TLDRS:
- Nasdaq ISE, LLC Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Delay the Implementation of Certain Trading Functionality impacting: Routing, ATR and Repricing Rules, Complex Order Rules, and multiple functionalities.
- At this time, the Exchange proposes to delay the implementation of the various rule changes.
The Exchange filed the following rule changes in connection with its technology migration:
- SR-ISE-2022-11 which impacts routing ( Securities Exchange Act Release No. 94897 (May 12, 2022), 87 FR 30294 (May 18, 2022) (SR-ISE-2022-11));
- SR-ISE-2022-25 which amended ATR and Repricing Rules ( Securities Exchange Act Release No. 96362 (November 18, 2022), 87 FR 72539 (November 25, 2022) (SR-ISE-2022-25))
- SR-ISE-2022-28 which amended Complex Order Rules ( Securities Exchange Act Release No. 96518 (December 16, 2022), 87 FR 78740 (December 22, 2022) (SR-ISE-2022-28))
- SR-ISE-2023-06 a rule change amending multiple functionalities ( Securities Exchange Act Release No. 96818 (February 6, 2023), 88 FR 8950 (February 10, 2023) (SR-ISE-2023-06)0
- The aforementioned rule changes (collectively “Impacted Rule Changes”) indicated that the technology migration for ISE would commence by Q4 2023 or prior to December 2023.
- At this time, the Exchange proposes to delay the implementation of the Impacted Rule Changes, which all relate to ISE’s upcoming technology migration, to a date prior to December 20, 2024.
