Notice2022-08911
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of Proposed Rule Change To Amend ISE Options 4, Section 5, Series of Options Contracts Open for Trading
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Published
April 27, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 81 (Wednesday, April 27, 2022)</title>
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[Federal Register Volume 87, Number 81 (Wednesday, April 27, 2022)]
[Notices]
[Pages 25065-25069]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-08911]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94773; File No. SR-ISE-2022-10]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
of Proposed Rule Change To Amend ISE Options 4, Section 5, Series of
Options Contracts Open for Trading
April 21, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 11, 2022, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 4, Section 5, ``Series of
Options Contracts Open for Trading.'' Specifically, this proposal seeks
to amend Supplementary Material .07 to Options 4, Section 5.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/ise/rules">https://listingcenter.nasdaq.com/rulebook/ise/rules</a>, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Options 4, Section 5, ``Series of
Options Contracts Open for Trading.'' Specifically, the Exchange
proposes to amend Supplementary Material .07 to Options 4, Section 5 to
account for conflicts between different provisions within the Short
Term Options Series Rules.
In 2021, ISE amended Options 4, Section 5 to limit the intervals
between strikes in equity options listed as part of the Short Term
Option Series Program, excluding Exchange-Traded Fund Shares and ETNs,
that have an expiration date more than twenty-one days from the listing
date (``Strike Interval Proposal'').\3\ The Strike Interval Proposal
adopted a new Supplementary Material .07 to Options 4, Section 5 which
included a table that intended to
[[Page 25066]]
specify the applicable strike intervals that would supersede
Supplementary Material .03(e) \4\ for Short Term Option Series in
equity options, excluding Exchange-Traded Fund Shares and ETNs, which
have an expiration date more than twenty-one days from the listing
date. The Strike Interval Proposal was designed to reduce the density
of strike intervals that would be listed in later weeks, within the
Short Term Options Series Program, by utilizing limitations for
intervals between strikes which have an expiration date more than
twenty-one days from the listing date.
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\3\ See Securities Exchange Act Release No. 91930 (May 18,
2021), 86 FR 27907 (May 24, 2021) (SR-ISE-2021-09) (Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options
4, Section 5, ``Series of Options Contracts Open for Trading'' To
Limit Short Term Options Series Intervals Between Strikes).
\4\ Supplementary Material .03(e) of Options 4, Section 5
states, ``Strike Interval. During the month prior to expiration of
an option class that is selected for the Short Term Option Series
Program pursuant to this Rule (``Short Term Option''), the strike
price intervals for the related non-Short Term Option (``Related
non-Short Term Option'') shall be the same as the strike price
intervals for the Short Term Option. The Exchange may open for
trading Short Term Option Series on the Short Term Option Opening
Date that expire on the Short Term Option Expiration Date at strike
price intervals of (i) $0.50 or greater where the strike price is
less than $100, and $1 or greater where the strike price is between
$100 and $150 for all option classes that participate in the Short
Term Options Series Program; (ii) $0.50 for option classes that
trade in one dollar increments and are in the Short Term Option
Series Program; or (iii) $2.50 or greater where the strike price is
above $150.''
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At this time, the Exchange proposes to amend the rule text within
Supplementary Material .07 to Options 4, Section 5 to clarify the
current rule text and amend the application of the table to account for
potential conflicts within the Short Term Options Series Rules.
Currently, the table within Supplementary Material .07 to Options 4,
Section 5 is as follows: \5\
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\5\ The Share Price would be the closing price on the primary
market on the last day of the calendar quarter and the Average Daily
Volume would be the total number of options contracts traded in a
given security for the applicable calendar quarter divided by the
number of trading days in the applicable calendar quarter The
Average Daily Volume would be the total number of options contracts
traded in a given security for the applicable calendar quarter
divided by the number of trading days in the applicable calendar
quarter. Beginning on the second trading day in the first month of
each calendar quarter, the Average Daily Volume shall be calculated
by utilizing data from the prior calendar quarter based on Customer-
cleared volume at The Options Clearing Corporation. For options
listed on the first trading day of a given calendar quarter, the
Average Daily Volume shall be calculated using the quarter prior to
the last trading calendar quarter. See Supplementary Material .07 to
Options 4, Section 5.
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Share price
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Tier $25 to less $75 to less $150 to less $500 or
Average daily volume Less than $25 than $75 than $150 than $500 greater
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1......................................... Greater than 5,000.......... $0.50 $1.00 $1.00 $5.00 $5.00
2......................................... Greater than 1,000 to 5,000. 1.00 1.00 1.00 5.00 10.00
3......................................... 0 to 1,000.................. 2.50 5.00 5.00 5.00 10.00
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The first sentence of Supplementary Material .07 to Options 4,
Section 5 provides, ``With respect to listing Short Term Option Series
in equity options, excluding Exchange-Traded Fund Shares and ETNs,
which have an expiration date more than twenty-one days from the
listing date, the following table will apply as noted within
Supplementary Material .03(e).''
First, the Exchange proposes to amend the first sentence of
Supplementary Material .07 to instead provide, ``With respect to
listing Short Term Option Series in equity options, excluding Exchange-
Traded Fund Shares and ETNs, which have an expiration date more than
twenty-one days from the listing date, the following table, which
specifies the applicable interval for listing, will apply as noted
within Supplementary Material .03(f).'' The table within Supplementary
Material .07 provides for the listing of intervals based on certain
parameters (average daily volume and share price). The Exchange
proposes to add the phrase ``which specifies the applicable interval
for listing'' to make clear that the only permitted intervals are as
specified in the table within Supplementary Material .07, except in the
case where Supplementary Material .03(e) provides for a greater
interval as described in more detail below.
Second, the Exchange proposes to amend the first sentence of
Supplementary Material .07 to cite to Supplementary Material .03(f) \6\
instead of .03(e) \7\ as paragraph (f) indicates when the table within
Supplementary Material .07 applies.
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\6\ Supplementary Material .03(f) of Options 4, Section 5
provides, ``Notwithstanding (e) above, when Short Term Options
Series in equity options, excluding Exchange-Traded Funds (``ETFs'')
and ETNs, have an expiration more than twenty-one days from the
listing date, the strike interval for each options class shall be
based on the table within Supplementary Material .07.''
\7\ Supplementary Material .03(e) of Options 4, Section 5,
provides, ``Strike Interval. During the month prior to expiration of
an option class that is selected for the Short Term Option Series
Program pursuant to this Rule (``Short Term Option''), the strike
price intervals for the related non-Short Term Option (``Related
non-Short Term Option'') shall be the same as the strike price
intervals for the Short Term Option. The Exchange may open for
trading Short Term Option Series on the Short Term Option Opening
Date that expire on the Short Term Option Expiration Date at strike
price intervals of (i) $0.50 or greater where the strike price is
less than $100, and $1 or greater where the strike price is between
$100 and $150 for all option classes that participate in the Short
Term Options Series Program; (ii) $0.50 for option classes that
trade in one dollar increments and are in the Short Term Option
Series Program; or (iii) $2.50 or greater where the strike price is
above $150.''
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Third, the Exchange proposes to add a new sentence within
Supplementary Material .07 to Options 4, Section 5 which states, ``To
the extent there is a conflict between applying Supplementary Material
.03(e) and the below table, the greater interval would apply.'' Today,
there are instances where a conflict is presented as between the
application of the table within Supplementary Material .07 and the rule
text within Supplementary Material .03(e) with respect to the correct
interval. Adding the proposed sentence would make clear to Members the
applicable intervals where there is a conflict between the rule text
within Supplementary Material .07 and the rule text within
Supplementary Material .03(e), thereby providing certainty as to the
outcome. The Exchange proposes to insert the words ``greater than''
because it proposes to permit Supplementary Material .03(e) of Options
4, Section 5 to govern only in the event that the interval would be
greater. The same analysis would not be conducted where the result
would be a lesser interval. By way of example,
Example 1: Assume a Tier 1 stock that closed on the last day of Q1
with a quarterly share price less than $150. Next, assume during Q2 the
share price rose above $150. Utilizing the table within Supplementary
Material .07, the interval would be $1.00 even though the price rose
above $150 because the Share Price was calculated utilizing data from
the prior calendar quarter. Utilizing Supplementary Material .03(e),
the interval would be $2.50 if the price rose above $150. The greater
interval would then be $2.50 as per Supplementary Material .03(e) in
this scenario. Therefore, the following strikes would
[[Page 25067]]
be eligible to list: $152.5 and $157.5. For strikes less than $150, the
following strikes would be eligible to list: $149 and $148 because
Short Term Options Series with expiration dates more than 21 days from
the listing date as well as Short Term Options Series with expiration
dates less than 21 days from the listing date would both be eligible to
list $1 intervals pursuant to Supplementary Material .07 and
Supplementary Material .03(e) of Options 5, Section 4.
Example 2: Assume a Tier 2 stock that closed on the last day of Q1
with a quarterly share price less than $25. Next, assume during Q2 the
share price rose above $100. Utilizing the table within Supplementary
Material .07 the interval would be $1.00 even though the price rose
above $100 because the Share Price was calculated utilizing data from
the prior calendar quarter. Utilizing Supplementary Material .03(e),
the interval would be $1.00 if the price rose above $100. The $1
interval is the same in both cases in this scenario and therefore there
is no conflict. Now assume during the quarter the price rose above
$150. Utilizing the table within Supplementary Material .07, the
interval would continue to be $1.00 because the Share Price relied on
data from the prior calendar quarter, however, pursuant to
Supplementary Material .03(e), the interval would be $2.50. The greater
interval would then be $2.50 as per Supplementary Material .03(e) in
this scenario.
Example 3: Assume a Tier 3 stock that closed on the last day of Q1
with a quarterly share price less than $25. Next, assume during Q2 the
share price rose above $100. Utilizing the table within Supplementary
Material .07 the interval would be $2.50 even though the price rose
above $100 because the Share Price relied on data from the prior
calendar quarter. Utilizing Supplementary Material .03(e), the interval
would be $1.00 if the price rose above $100. The greater interval would
then be $2.50 as per the table in Supplementary Material .07 in this
scenario.
Fourth, the Exchange proposes to delete the last sentence of the
first paragraph of Supplementary Material .07 to Options 4, Section 5
which states, ``The below table indicates the applicable strike
intervals and supersedes Supplementary Material .03(d) which permits
additional series to be opened for trading on the Exchange when the
Exchange deems it necessary to maintain an orderly market, to meet
customer demand or when the market price of the underlying security
moves substantially from the exercise price or prices of the series
already opened.'' The table within Supplementary Material .07 impacts
strike intervals, while Supplementary Material .03(d) \8\ describes
adding series of options. The table within Supplementary Material .07
supersedes other rules pertaining to strike intervals, but the table
does not supersede rules governing the addition of options series.
Therefore, the table within Supplementary Material .07 and
Supplementary Material .03(d) do not conflict with each other. Deleting
the reference to Supplementary Material .03(d) will avoid confusion.
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\8\ Supplementary Material .03(d) of Options 5, Section 4
provides, ``Additional Series. If the Exchange opens less than
thirty (30) Short Term Option Series for a Short Term Option
Expiration Date, additional series may be opened for trading on the
Exchange when the Exchange deems it necessary to maintain an orderly
market, to meet customer demand or when the market price of the
underlying security moves substantially from the exercise price or
prices of the series already opened.''
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Fifth, and finally, the Exchange provides within the last sentence
of Supplementary Material .07 to Options 4, Section 5 that,
``Notwithstanding the limitations imposed by Supplementary Material
.07, this proposal does not amend the range of strikes that may be
listed pursuant to Supplementary Material .03, regarding the Short Term
Option Series Program.'' The Exchange proposes to remove this rule
text. While the range limitations continue to be applicable to the
table within Supplementary Material .07, the strike ranges do not
conflict with strike intervals and therefore the sentence is not
necessary. Removing the last sentence of Supplementary Material .07 to
Options 4, Section 5 will avoid confusion. Also, the rule text within
Supplementary Material .03(f) of Options 5, Section 4 otherwise
indicates when Supplementary Material .07 would apply.
Implementation
The Exchange proposes to implement this rule change on August 1,
2022. The Exchange will issue an Options Trader Alert to notify Members
of the implementation date.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\10\ in particular, in that it is designed 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. The Strike Proposal continues to limit the intervals between
strikes listed in the Short Term Options Series Program that have an
expiration date more than twenty-one days.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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The Exchange's proposal to add clarifying language to the first
sentence of Supplementary Material .07 of Options 4, Section 5, is
consistent with the Act because it will make clear that the only
permitted intervals are as specified in the table within Supplementary
Material .07, except in the case where Supplementary Material .03(e)
provides for a greater interval. This amendment will bring greater
transparency to the rule.
Amending the first sentence of Supplementary Material .07 to cite
to Supplementary Material .03(f) instead of .03(e) is consistent with
the Act because paragraph (f) indicates when the table within
Supplementary Material .07 applies.
Adopting a new sentence within Supplementary Material .07 of
Options 4, Section 5 to address a potential conflict between the Short
Term Options Series Program rules, specifically as between the
application of the table within Supplementary Material .07 and the rule
text within Supplementary Material .03(e), with respect to the correct
interval is consistent with the Act. The table within Supplementary
Material .07 supersedes other strike interval rules, but does not
supersede the addition of option series. Therefore, these rules do not
conflict with the table. Deleting the reference to Supplementary
Material .03(d) will avoid confusion. This new rule text will make
clear to Members the applicable intervals when there is a conflict
between the rule text within Supplementary Material .07 and the rule
text within Supplementary Material .03(e), thereby providing certainty
as to the outcome. The proposed new rule text promotes just and
equitable principles of trade by adding transparency to the manner in
which ISE implements its listing rules, and protects investors and the
general public by removing uncertainty.
Removing the last sentence of the first paragraph of Supplementary
Material .07 to Options 4, Section 5 is consistent with the Act because
the table within Supplementary Material .07 impacts strike intervals,
while Supplementary Material .03(d) describes the addition of options
series. The table within Supplementary Material .07 supersedes other
rules pertaining to strike intervals, but the table does not supersede
rules governing the addition of options series.
[[Page 25068]]
Therefore, the table within Supplementary Material .07 and
Supplementary Material .03(d) do not conflict with each other. Deleting
the reference to Supplementary Material .03(d) will avoid confusion.
Removing the last sentence of Supplementary Material .07 to Options
4, Section 5 is consistent with the Act because while the range
limitations continue to be applicable, the strike ranges do not
conflict with strike intervals, rendering the sentence unnecessary.
Removing the last sentence of Supplementary Material .07 to Options 4,
Section 5 will avoid confusion. Also, the rule text within
Supplementary Material .03(f) of Options 5, Section 4 otherwise
indicates when Supplementary Material .07 would apply.
The Strike Interval Proposal was designed to reduce the density of
strike intervals that would be listed in later weeks, within the Short
Term Options Series Program, by utilizing limitations for intervals
between strikes which have an expiration date more than twenty-one days
from the listing date. The Exchange's proposal intends to continue to
remove certain strike intervals where there exist clusters of strikes
whose characteristics closely resemble one another and, therefore, do
not serve different trading needs,\11\ rendering these strikes less
useful. Also, the Strike Interval Proposal continues to reduce the
number of strikes listed on ISE, allowing Lead Market Makers and Market
Makers to expend their capital in the options market in a more
efficient manner, thereby improving overall market quality on ISE.
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\11\ For example, two strikes that are densely clustered may
have the same risk properties and may also be the same percentage
out-of-the money.
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Additionally, by making clear that the greater interval would
control as between the rule text within Supplementary Material .07 and
the rule text within Supplementary Material .03(e), the Exchange is
reducing the number of strikes listed in a manner consistent with the
intent of the Strike Interval Proposal, which was to reduce strikes
which were farther out in time. The result of this clarification is to
select wider strike intervals for Short Term Option Series in equity
options which have an expiration date more than twenty-one days from
the listing date. This rule change would harmonize strike intervals as
between inner weeklies (those having less than twenty-one days from the
listing date) and outer weeklies (those having more than twenty-one
days from the listing date) so that strike intervals are not widening
as the listing date approaches.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Strike Interval Proposal
continues to limit the number of Short Term Options Series Program
strike intervals available for quoting and trading on ISE for all ISE
Participants.
Adding clarifying language to the first sentence of Supplementary
Material .07 of Options 4, Section 5 to make clear which parameter the
table within Supplementary Material .07 of Options 4, Section 5 amends
within the Short Term Options Series Program will bring greater
transparency to the rules. Amending the first sentence of Supplementary
Material .07 to cite to Supplementary Material .03(f) instead of .03(e)
does not impose an undue burden on competition because paragraph (f)
indicates when the table within Supplementary Material .07 applies.
Adopting a new sentence to address potential conflicts as between the
rule text within Supplementary Material .07 and the rule text within
Supplementary Material .03(e) of Options 4, Section 5, within the Short
Term Options Series Program, will bring greater transparency to the
manner in which ISE implements its listing rules. The table within
Supplementary Material .07 impacts strike intervals, while
Supplementary Material .03(d) describes adding series of options. The
table within Supplementary Material .07 supersedes other strike
interval rules, but does not supersede the addition of series. Removing
the last sentence of the first paragraph of Supplementary Material .07
to Options 4, Section 5 does not impose an undue burden on competition
because the table within Supplementary Material .07 supersedes other
rules pertaining to strike intervals, but the table does not supersede
rules governing the addition of options series. Also, deleting the
reference to Supplementary Material .03(d) will avoid confusion.
Finally, removing the last sentence of Supplementary Material .07 to
Options 4, Section 5 will remove any potential confusion. While the
range limitations continue to be applicable, the strike ranges do not
conflict with strike intervals and are not necessary.
While this proposal continues to limit the intervals of strikes
listed on ISE, the Exchange continues to balance the needs of market
participants by continuing to offer a number of strikes to meet a
market participant's investment objective. The Exchange's Strike
Interval Proposal does not impose an undue burden on inter-market
competition as this Strike Interval Proposal does not impact the
listings available at another self-regulatory organization.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5a282f363f77393537373f342e291a293f39743d352c"><span class="__cf_email__" data-cfemail="3b494e575e16585456565e554f487b485e58155c544d">[email protected]</span></a>. Please include
File Number SR-ISE-2022-10 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2022-10. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements
[[Page 25069]]
with respect to the proposed rule change that are filed with the
Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-ISE-2022-10, and should be submitted on
or before May 18, 2022.
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\12\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08911 Filed 4-26-22; 8:45 am]
BILLING CODE 8011-01-P
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