Notice2025-23330
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt ISE Options 9, Section 25 To Codify an Options Unbundling Rule
Primary source
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Published
December 19, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 242 (Friday, December 19, 2025)</title>
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[Federal Register Volume 90, Number 242 (Friday, December 19, 2025)]
[Notices]
[Pages 59598-59599]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-23330]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104394; File No. SR-ISE-2025-40]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Adopt ISE
Options 9, Section 25 To Codify an Options Unbundling Rule
December 16, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 11, 2025, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III, below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt ISE Options 9, Section 25 to codify
the Exchange's longstanding guidance that the unbundling of orders for
any purpose other than best execution is considered conduct
inconsistent with just and equitable principles of trade.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/ise/rulefilings">https://listingcenter.nasdaq.com/rulebook/ise/rulefilings</a>,
and at the principal office of the Exchange.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend ISE Options 9 by adding a new
Section 25 to codify its longstanding guidance that it shall be
considered conduct inconsistent with just and equitable principles of
trade for any member, member organization, or person associated with or
employed by a member or member organization (collectively, ``member''
or ``members'') to split an order into multiple smaller orders for any
purpose other than seeking the best execution of the entire order.\3\
Members of the Exchange are not allowed to engage in conduct
inconsistent with just and equitable principles of trade.\4\
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\3\ Nasdaq GEMX, LLC (``GEMX'') Options 9 and Nasdaq MRX, LLC
(``MRX'') Options 9 incorporate ISE Options 9 by reference.
Therefore, the proposed rule change also adds the new ISE Options 9,
Section 25 to the GEMX and MRX rulebooks as GEMX Options 9, Section
25 and MRX Options 9, Section 25, respectively.
\4\ See ISE General 9, Section 1 (``No Member shall engage in
acts or practices inconsistent with just and equitable principles of
trade. Persons associated with Members shall have the same duties
and obligations as Members under the Rules of this Options 9.'').
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``Unbundling,'' also known as ``trade shredding,'' is the practice
of breaking up an order into multiple smaller orders for some purpose
other than the best execution of the order. The practice of unbundling
has in the past been used for purposes such as improperly maximizing
commissions and fees charged to customers, distorting trade data, or
circumventing rules pertaining to maximum order size.\5\
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\5\ See, e.g., Securities Exchange Act Release No. 62667 (Aug.
9, 2010), 75 FR 50013 (Aug. 16, 2010) (File No. SR-NYSEAmex-2010-77)
(Self-Regulatory Organizations; NYSE Amex, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending Rule
995NY).
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The Exchange believes that the unbundling of orders generally
serves no purpose to the customer that entered the order and may cause
unnecessary delays in the execution of that order. This belief has been
reflected in the Exchange's longstanding regulatory guidance to its
members.\6\
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\6\ See Options Regulatory Alert #2025-34 (Aug. 29, 2025),
available at <a href="https://www.nasdaqtrader.com/MicroNews.aspx?id=ORA2025-34">https://www.nasdaqtrader.com/MicroNews.aspx?id=ORA2025-34</a>; Options Regulatory Alert #2016-6 (Feb. 17, 2016), available at
<a href="https://www.nasdaqtrader.com/MicroNews.aspx?id=ORA2016-6">https://www.nasdaqtrader.com/MicroNews.aspx?id=ORA2016-6</a>; and
Options Regulatory Alert #2016-4 (Jan. 22, 2016), available at
<a href="https://www.nasdaqtrader.com/MicroNews.aspx?id=ORA2016-4">https://www.nasdaqtrader.com/MicroNews.aspx?id=ORA2016-4</a>.
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The impermissibility of unbundling is a well-established principle
across the U.S. securities markets. Other options exchanges have anti-
unbundling rules or rule interpretations that are similar to the rule
being adopted by the Exchange.\7\ Additionally, other exchanges have
also issued regulatory guidance to their members warning them against
the practice of unbundling.\8\ Finally, the Financial
[[Page 59599]]
Industry Regulatory Authority (``FINRA'') also has its own anti-
unbundling rule, FINRA Rule 5290, which specifies, in part, that ``[n]o
member . . . shall engage in conduct that has the intent or effect of
splitting any order into multiple smaller orders for execution or any
execution into multiple smaller executions for transaction reporting
for the primary purpose of maximizing a monetary or in-kind amount to
be received by the member . . . as a result of the execution of such
orders or the transaction reporting of such executions.''
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\7\ See, e.g., NYSE American Rule 995NY(d) (``It shall be
considered conduct inconsistent with just and equitable principles
of trade for an ATP Holder to split an order into multiple smaller
orders for any purpose other than seeking the best execution of the
entire order.''), NYSE Arca Rule 11.2(g) (``An ETP Holder may not
split any order into multiple orders for any purpose other than
seeking the best execution of the entire order.''), and MIAX Chapter
III, Rule 301, Interpretation .03 (``It shall be considered conduct
inconsistent with just and equitable principles of trade and a
violation of Rule 301 for a Member to split an order into multiple
smaller orders for any purpose other than seeking the best execution
of the entire order.'').
\8\ See, e.g., Cboe Regulatory Circular RG-15-011 (Sept. 23,
2015) (``Please note that unbundling of orders greater than 5
contracts into 1 to 5 lot increments for the purpose of achieving
small order preference in favor of any [Designated Primary Market-
Maker] or [Lead Market-Maker] may be a violation of CBOE Rule 4.1,
Just and Equitable Principles of Trade''), available at <a href="https://cdn.cboe.com/resources/regulation/circulars/regulatory/RG15-130.pdf">https://cdn.cboe.com/resources/regulation/circulars/regulatory/RG15-130.pdf</a>.
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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, by deterring and helping to prevent the distortive practice
of unbundling.
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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 believes that the unbundling of orders generally
serves no purpose to the customer that entered the order and may cause
unnecessary delays in the execution of that order. Codifying its
longstanding guidance in its rulebook that unbundling is conduct
inconsistent with just and equitable principles of trade is thus
designed to promote just and equitable principles of trade.
Additionally, by defining unbundling as the practice of splitting an
order into multiple smaller orders for any purpose other than seeking
the best execution of the entire order, the proposal is designed to
promote best execution and thus protect investors and the public
interest.
Additionally, the Exchange reiterates that the proposed rule is
substantively identical to NYSE American Rule 995NY(d) and it is
consistent with the rules and regulatory guidance of other exchanges,
as well as FINRA Rule 5290.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In terms of intra-market
competition, the Exchange notes that the proposed rule will apply
equally to all members of the Exchange. Additionally, in terms of
intermarket competition, the Exchange notes that the proposed rule is
consistent with the rules of other exchanges, as well as the rules of
FINRA.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \11\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A)(iii).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#97e5e2fbf2baf4f8fafaf2f9e3e4d7e4f2f4b9f0f8e1"><span class="__cf_email__" data-cfemail="0371766f662e606c6e6e666d7770437066602d646c75">[email protected]</span></a>. Please include
file number SR-ISE-2025-40 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-2025-40. 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the filing will be available for inspection and
copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to file number SR-ISE-2025-40 and should be submitted on
or before January 9, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-23330 Filed 12-18-25; 8:45 am]
BILLING CODE 8011-01-P
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