Notice2026-08680
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing of Amendment Nos. 3 and 4, and Order Granting Accelerated Approval of a Proposed Rule Change, as Superseded by Amendment No. 3 and Modified by Amendment No. 4, To Adopt New Options Rule 3B To List and Trade Binary Broad-Based Index Options
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 5, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 86 (Tuesday, May 5, 2026)</title>
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[Federal Register Volume 91, Number 86 (Tuesday, May 5, 2026)]
[Notices]
[Pages 24299-24307]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-08680]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105342; File No. SR-MRX-2026-05]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
of Amendment Nos. 3 and 4, and Order Granting Accelerated Approval of a
Proposed Rule Change, as Superseded by Amendment No. 3 and Modified by
Amendment No. 4, To Adopt New Options Rule 3B To List and Trade Binary
Broad-Based Index Options
April 30, 2026.
I. Introduction
On March 2, 2026, Nasdaq MRX, LLC (``MRX'' or ``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 list and
trade binary broad-based index options, particularly, binary options on
the Nasdaq-100 index and the Nasdaq-100 Micro index. The proposed rule
change was published for comment in the Federal Register on March 16,
2025.\3\ On March 12, 2026, the Exchange submitted Amendment No. 1 to
the proposed rule change, which amended and superseded the proposed
rule change as originally filed.\4\ On April 8, 2026, the Exchange
submitted Amendment No. 2 to the proposed rule change, and on April 14,
2026, the Exchange withdrew Amendment No. 2. On April 15, 2026, the
Exchange submitted Amendment No. 3 to the proposed rule change, which
superseded the proposed rule change, as modified by Amendment No. 1, in
its entirety.\5\ On April 23, 2026, the
[[Page 24300]]
Exchange filed partial Amendment No. 4 to the proposed rule change.\6\
The Commission received no comments on the proposed rule change. The
Commission is publishing this Notice and Order to solicit comment on
Amendment No. 3 in Sections II and III below, which sections are being
published verbatim as filed by the Exchange except they also reflect
the further modification in Amendment No. 4, and to approve the
proposed rule change, as superseded by Amendment No. 3 and modified by
Amendment No. 4, 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. 104966 (March 11,
2025), 91 FR 12652.
\4\ See Amendment No. 1, available at <a href="https://www.sec.gov/comments/sr-mrx-2026-05/srmrx202605-722127-2261334.pdf">https://www.sec.gov/comments/sr-mrx-2026-05/srmrx202605-722127-2261334.pdf</a>.
\5\ See Amendment No. 3, available at <a href="https://www.sec.gov/comments/sr-mrx-2026-05/srmrx202605-752647-2320314.pdf">https://www.sec.gov/comments/sr-mrx-2026-05/srmrx202605-752647-2320314.pdf</a>.
\6\ Amendment No. 4 sets forth a technical, non-substantive
modification to remove the proposed rule text of Options 6C Section
3 that updated the name of a cross-referenced exchange, which rule
text was inadvertently included in the initial filing as well as
Amendment No. 3. See Amendment No. 4, available at <a href="https://www.sec.gov/comments/SR-MRX-2026-05/srmrx202605-759407-2333434.pdf">https://www.sec.gov/comments/SR-MRX-2026-05/srmrx202605-759407-2333434.pdf</a>.
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II. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade Outcome-Related Options or
``OROs.'' This Amendment No. 3 supersedes the original filing and
Amendment No. 1 in its entirety and proposes to amend various aspects
of the filing to augment the rule text, add a defined term for the
exercise settlement value and otherwise provide more context around the
options rules that will be applicable.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/mrx/rulefilings">https://listingcenter.nasdaq.com/rulebook/mrx/rulefilings</a>,
and at the principal office of the Exchange.
III. 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 V 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's proposal adopts rules at new Options 3B to govern
the listing and trading of standardized, cash-settled, European-style
binary options \7\ on broad-based security indexes referred to as
Outcome-Related Options or ``OROs.'' The Exchange proposes to list and
trade OROs on the Nasdaq-100[supreg] Index \8\ as ``Nasdaq-100[supreg]
OROs.'' The Exchange also proposes to list and trade OROs on the
Nasdaq-100 Micro Index[supreg] \9\ as ``XND OROs.''
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\7\ The characteristics of standardized binary options are
described in The Options Disclosure Document or ODD and would apply
to OROs. See <a href="https://www.theocc.com/getcontentasset/a151a9ae-d784-4a15-bdeb-23a029f50b70/dfc3d011-8f63-43f6-9ed8-4b444333a1d0/riskstoc.pdf">https://www.theocc.com/getcontentasset/a151a9ae-d784-4a15-bdeb-23a029f50b70/dfc3d011-8f63-43f6-9ed8-4b444333a1d0/riskstoc.pdf</a>.
\8\ The Nasdaq-100 Index (``NDX'') is a modified market
capitalization-weighted index that includes 100 of the largest non-
financial companies listed on The Nasdaq Stock Market LLC, based on
market capitalization. It does not contain securities of financial
companies, including investment companies. Security types generally
eligible for the Nasdaq-100 Index include common stocks, ordinary
shares, American Depository Receipts, and tracking stocks. Security
or company types not included in the Nasdaq-100 Index are closed-end
funds, convertible debentures, exchange traded funds, limited
liability companies, limited partnership interests, preferred
stocks, rights, shares or units of beneficial interest, warrants,
units and other derivative securities. A description of the Nasdaq-
100 Index is available on Nasdaq's website at <a href="https://indexes.nasdaqomx.com/docs/methodology_NDX.pdf">https://indexes.nasdaqomx.com/docs/methodology_NDX.pdf</a>. The Nasdaq-100 Index
is a broad-based index, as defined in Options 4A, Section 3. See
also:<a href="https://www.nasdaq.com/NDX_NDXP_Factsheet">https://www.nasdaq.com/NDX_NDXP_Factsheet</a>.
\9\ The Nasdaq-100 Micro Index or XND is designed to reflect 1/
100th the value of the Nasdaq-100 Index. See <a href="https://www.nasdaq.com/docs/2023/08/14/XND_FactSheet.pdf">https://www.nasdaq.com/docs/2023/08/14/XND_FactSheet.pdf</a>.
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Nasdaq-100 OROs and XND OROs are distinguishable from traditional
NDX options and XND options. OROs would entitle the buyer to receive,
or the seller to pay, a fixed settlement amount at expiration \10\
based on whether the settlement value of the underlying broad-based
index is at, above, or below a predetermined exercise price at
expiration. Unlike traditional NDX options and XND options, OROs will
pay a fixed sum at expiration regardless of the magnitude of the
difference between the settlement value and the option's exercise
price.
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\10\ Rules for binary return options products currently exist on
NYSE American LLC (``NYSE American'') and Cboe Exchange, Inc.
(``Cboe''). See Securities Exchange Act Release Nos. 55843 (June 1,
2007), 72 FR 31636 (June 7, 2007) (Notice); 56251 (August 14, 2007),
72 FR 46523 (August 20, 2007) (Approval) (SR-Amex-2004-27); 57642
(April 9, 2008), 73 FR 20985 (April 17, 2008) (Notice); 57850 (May
22, 2008), 73 FR 31169 (May 30, 2008) (Approval) (SR-CBOE-2006-105).
See also Cboe Rule 4.16, related to binary options, and NYSE
American Rules at Section 18 describing broad-based index binary
options.
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OROs will provide investors with the ability to transact options
that pay a fixed sum at expiration on a listed exchange market subject
to the benefits of a centralized forum for price discovery; pre- and
post-trade transparency; standardized contract specifications; real-
time surveillance; and clearing guaranteed by The Options Clearing
Corporation (``OCC'').
As proposed, new Options 3B, would be titled ``Outcome-Related
Options.''
General Provisions
The Exchange proposes to title Section 1 ``General Provisions.''
The trading of OROs will be subject to all rules applicable to options
on the Exchange, including, without limitation, trading rules, listing
rules and business conduct rules. The Exchange proposes new Options 3B
to address rule differences that are unique to the trading of OROs
while maintaining the applicability of the broader rulebook.
Pursuant to Options 3B, Section 1(a), titled ``Applicability of
Exchange Rules,'' Options 3B Rules will apply only to Outcome-Related
Options or ``OROs.'' Further, the trading of OROs will be subject to
all other Rules applicable to the trading of options on the Exchange,
including the trading rules and functionality in Options 3, unless the
context otherwise requires or otherwise provided in this Options
3B.\11\ For example, the Opening Process at Options 3, Section 8;
Trading Halts at Options 3, Section 9; simple, complex and optional
risk protections at Options 3, Sections 15 and 28; and Market Maker
appointments at Options 2, Section 3 and obligations at Options 2,
Sections 4 and 5 shall all apply to the trading of OROs as they apply
to the trading of other options on the Exchange.
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\11\ See proposed Options 3B, Section 1(a).
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The Exchange proposes the following definitions at Options 3B,
Section 1(b), titled ``Definitions,'' that would apply to Options 3B
rules:
[ssquf] The term ``contract multiplier'' as used in reference to
OROs means the multiple applied to the exercise settlement value to
arrive at the total exercise settlement amount per contract. The
contract multiplier for OROs shall be 100.\12\
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\12\ See proposed Options 3B, Section 1(b)(1).
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[ssquf] The term ``exercise price'' as used in reference to OROs
means the value to which the settlement value of the underlying broad-
based index is compared to determine whether the holder of an ORO is
entitled to an exercise settlement amount on the option contract.\13\
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\13\ See proposed Options 3B, Section 1(b)(2).
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[ssquf] The term ``exercise settlement amount'' as used in
reference to OROs means the amount of cash that a holder will receive
upon exercise of the contract. The exercise settlement amount is $100
which is the exercise
[[Page 24301]]
settlement value multiplied by the contract multiplier.\14\
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\14\ See proposed Options 3B, Section 1(b)(3).
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[ssquf] The term ``exercise settlement value'' as used in reference
to OROs means the value of the ORO. The exercise settlement value for
OROs shall be $1.\15\
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\15\ See proposed Options 3B, Section 1(b)(4).
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[ssquf] The term ``OROs'' represents cash-settled, P.M.-settled,
European-Style binary options on broad-based indexes with a fixed
settlement amount.\16\
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\16\ See proposed Options 3B, Section 1(b)(5).
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[ssquf] The term ``ORO Order'' means an order submitted in an ORO
pursuant to Options 3B.\17\
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\17\ See proposed Options 3B, Section 1(b)(6).
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[ssquf] The term ``settlement value'' is the value of the
underlying broad-based index that is used to determine whether an ORO
is in, at or out of the money. OROs that are ``at-the-money,'' ``in-
the-money,'' or ``out-of-the-money'' are a function of the settlement
value of the underlying broad-based index in relation to the type of
ORO (i.e., put or call) and the exercise price. OROs shall be paid out
if the settlement value of the underlying broad-based index equals,
exceeds or is less than the exercise price, depending on the type of
option (i.e., call or put).\18\
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\18\ See proposed Options 3B, Section 1(b)(7).
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[cir] OROs that are call option contracts would return an exercise
settlement amount if the settlement value of the underlying broad-based
index is at or above the exercise price at expiration (i.e., at or in-
the-money).\19\
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\19\ See proposed Options 3B, Section 1(b)(7)(a).
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[cir] OROs that are put option contracts would return an exercise
settlement amount if the settlement value of the underlying broad-based
index is below the exercise price at expiration (i.e., in-the-
money).\20\
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\20\ See proposed Options 3B, Section 1(b)(7)(b).
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[ssquf] The term ``underlying'' means the broad-based index that
the Clearing Corporation \21\ shall utilize to determine whether an ORO
is in, at or out of the money.\22\
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\21\ The term ``Clearing Corporation'' means The Options
Clearing Corporation. See General 1, Section 1(a)(3).
\22\ See proposed Options 3B, Section 1(b)(8).
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OROs contracts would have an exercise settlement value of $1.\23\
The contract multiplier for OROs shall be 100.\24\ Therefore, OROs
would have a fixed exercise settlement amount of $100 (exercise
settlement value multiplied by the contract multiplier) that is
established at the creation of the option.\25\ OROs would be paid out
if the settlement value of the broad-based index equals, exceeds or is
less than the exercise price, depending on the type of option (i.e.,
call or put).\26\ As proposed, a call option on OROs would pay the
exercise settlement amount of $100 if the settlement value is at or
above the exercise price at expiration.\27\ Conversely, a put option on
OROs would pay the exercise settlement amount of $100 if the settlement
value is below the exercise price at expiration.\28\ There would be no
payout if the ORO Option expires out-of-the money. The ``settlement
value'' for OROs shall be the value of the underlying broad-based index
that is used to determine whether an ORO is in, at or out of the
money.\29\ The underlying is the broad-based index that the Clearing
Corporation shall utilize to determine whether an ORO is in, at or out
of the money.\30\ An ORO Order would mean an order submitted in an ORO
pursuant to Options 3B.\31\
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\23\ See proposed Options 3B, Section 1(b)(4).
\24\ See proposed Options 3B, Section 1(b)(1).
\25\ See proposed Options 3B, Section 1(b)(3).
\26\ See proposed Options 3B, Section 1(b)(7).
\27\ See proposed Options 3B, Section 1(b)(7)(a).
\28\ See proposed Options 3B, Section 1(b)(7)(b).
\29\ See proposed Options 3B, Section 1(b)(7)(b).
\30\ See id.
\31\ See proposed Options 3B, Section 1(b)(6).
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Hours of Business
Section 2 of Options 3B would be titled ``Hours of Business.''
Pursuant to proposed Options 3B, Section 1(c), the trading hours for
OROs would be the same as the trading hours as set forth in Options 3,
Section 1.\32\
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\32\ Options 3, Section 1(d) provides that options on a broad-
based index, as defined in Options 4A, Section 2 may be traded on
the Exchange until 4:15 p.m. each business day.
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Units of Trading and Premium
Section 3 of Options 3B would be titled ``Units of Trading and
Premium.'' Pursuant to proposed Options 3B, Section 3(a), bids and
offers for OROs must be expressed in U.S. dollars.\33\ Also, OROs may
have a premium range \34\ from $0.01 to $1.00.\35\
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\33\ See proposed Options 3B, Section 3(a).
\34\ The premium is the price paid or received when entering an
ORO Order.
\35\ See proposed Options 3B, Section 3(b).
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Minimum Trading Increment
Section 4 of Options 3B would be titled ``Minimum Trading
Increments.'' Pursuant to proposed Options 3B, Section 4(a), OROs on
broad-based indexes may be entered in a minimum increment of $0.01.
Today, NDX options trade in $0.05 and $0.10 increments pursuant to
Options 3, Section 3(a). The Exchange proposes a minimum increment of
$0.01, identical to Cboe Rule 5.4(c)(1).\36\ Today, XND options trade
in $0.01 increments.\37\
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\36\ Cboe Rule 5.4(c)(1) states that the exchange establishes
the minimum increment for bids and offers on orders for binary
options on a class-by-class basis, which may not be less than $0.01.
\37\ See Nasdaq ISE, LLC (``ISE'') Supplementary Material .04 to
Options 3, Section 3. Specifically, ISE Supplementary Material .04
to Options 3, Section 3 states that, Options on the Nasdaq 100 Micro
Index (XND) (as long as QQQ options (``QQQ'') participate in the
Penny Interval Program) shall have a minimum increment of $.01.
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The Exchange notes that MRX Options 4A Rules incorporate by
reference ISE Options 4A Rules. At this time, the Exchange proposes to
add rule text to MRX Supplementary Material .04 to Options 3, Section
3, Minimum Trading Increments, identical to ISE Supplementary Material
.04 to Options 3, Section 3 to make clear that XND trades in a $0.01
increment. This rule change will be explained further below in greater
detail.
Listings
Section 5 of Options 3B would be titled ``Listings.'' Pursuant to
proposed Options 3B, Section 5(a), titled ``OROs Classes,'' the
Exchange authorizes OROs on the Nasdaq-100 Index (``Nasdaq-100 OROs'')
and on the Nasdaq-100 Micro Index (``XND OROs''). The listing of
Nasdaq-100 OROs and XND OROs would be subject to Options 4A Rules,\38\
including but not limited to P.M.-Settlement pursuant to Options 4A,
Section 12(a)(6), the Nonstandard Expirations Program pursuant to
Supplementary Material .07 to Options 4A, Section 12, the Short Term
Series Options Program pursuant to Supplementary Material .01 to
Options 4A, Section 12, the Quarterly Options Series Program pursuant
to Supplementary Material .02 to Options 4A, Section 12, and the
Monthly Options Series Program pursuant to Supplementary Material .06
to Options 4A, Section 12, unless otherwise specified. Nasdaq-100 OROs
and XND OROs will trade independently of and in addition to other
standard options on NDX or XND, respectively.
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\38\ As noted above, MRX incorporates ISE Options 4A Rules by
reference.
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Like NDX and XND options,\39\ Nasdaq-100 OROs and XND OROs will be
P.M.-settled.\40\ Options 3B, Section 5(a)(1) would be titled ``P.M.-
Settled'' and state, that the Exchange authorizes P.M.-Settled Nasdaq-
100 OROs and XND OROs pursuant to Options 4A,
[[Page 24302]]
Section 12(a)(6). A.M.-Settled Nasdaq-100 OROs and XND OROs pursuant to
Options 4A, Section 12(a)(5) are not authorized. As a result, exercise
will result in delivery of cash on the business day following
expiration.\41\
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\39\ Today, the Exchange authorizes P.M.-Settled NDX and XND
options pursuant to Options 4A, Section 12(a)(6)(i).
\40\ See proposed Options 3B, Section 5(a)(1). Of note, Nasdaq-
100 OROs and XND OROs would not trade A.M.-Settled. Today, NDX
options trade A.M.-Settled.
\41\ The last day of trading for P.M.-settled index options
shall be the business day of expiration, or, in the case of an
option contract expiring on a day that is not a business day, on the
last business day before its expiration date. See Options 4A,
Section 12(a)(6).
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Like NDX options and XND options,\42\ Nasdaq-100 OROs and XND OROs
may be P.M.-Settled on the third Friday-of-the-month.\43\
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\42\ Today, NDX options and XND options may be P.M.-Settled on
the third Friday-of-the-month. See Options 4A, Section 12(a)(6)(i).
\43\ See proposed Options 3B, Section 5(a)(2). The Exchange
proposes to add the title ``Third Friday-of-the-Month'' to proposed
Options 3B, Section 5(a)(2).
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As proposed in Options 3B, Section 5(a)(3), the reporting authority
for Nasdaq-100 OROs and XND OROs shall be The Nasdaq Stock Market.
Options 3B, Section 5(a)(3) would be titled ``Reporting Authority.''
Pursuant to proposed Options 3B, Section 5(b), titled ``Permissible
Series,'' Nasdaq-100 OROs and XND OROs each would be separate classes
and separate from other options overlying the Nasdaq-100 Index and the
Nasdaq-100 Micro Index.
Like NDX and XND options,\44\ Nasdaq-100 OROs and XND OROs may
expire at three (3)-month intervals, in consecutive weeks or in
consecutive months and may list up to 12 standard (monthly)
expirations.\45\ Like NDX and XND options,\46\ Nasdaq-100 OROs and XND
OROs shall be European-style exercise.\47\
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\44\ See Options 4A, Section 12(a)(3).
\45\ See proposed Options 3B, Section 5(b)(1).
\46\ See Options 4A, Section 12(a)(4).
\47\ See proposed Options 3B, Section 5(b)(2).
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The initial and continued listing standards will apply to OROs as
they apply to other broad-based index options. Nasdaq-100 OROs and XND
OROs would be subject to the provisions of Options 4A with respect to
weekly expirations provided, however, that weekly expirations would
only be P.M.-Settled.\48\ New series in weekly expirations on Nasdaq-
100 OROs and XND OROs may be added up to and including on the
expiration date for an expiring weekly expiration. Further, the
Exchange may open for trading end of month (EOM) expirations on Nasdaq-
100 OROs and XND OROs to expire on last trading day of the month. EOMs
on OROs would be subject to all provisions of Options 4A, except that
EOMs on Nasdaq-100 OROs and XND OROs shall only be P.M.-Settled. New
series in EOMs on Nasdaq-100 OROs and XND OROs may be added up to and
including on the expiration date for an expiring EOM. Finally, the
Exchange may list long term index options series (``LEAPS'') on Nasdaq-
100 OROs and XND OROs that expire from twelve (12) to sixty (60) months
from the date of issuance.\49\
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\48\ Today, NDX options are both A.M.-Settled and P.M.-Settled.
\49\ See Options 4A, Section 12(b)(2) and (3).
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Proposed Options 3B, Section 5(c), titled ``Terms,'' provides the
terms for submitting an ORO Order for a OROs series to the System, the
submitting Member must include one of each of the following terms in
the ORO Order: (1) underlying broad-based index (the contract
multiplier is 100); (2) type of option (i.e., put or call); (3)
expiration date; and (4) exercise price.\50\
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\50\ See proposed Options 3B, Section 5(c).
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Proposed Options 3B, Section 5(d), titled ``Determination of
Settlement Value,'' provides the determination for settlement value.
For Nasdaq-100 OROs, the settlement value shall be the value of the
Nasdaq-100 Index as reported by Nasdaq at the conclusion of the Nasdaq
Closing Cross pursuant to Nasdaq Equity 4, Rule 4757. The settlement
value for XND OROs shall be the value of the Nasdaq-100 Micro Index as
reported by Nasdaq at the conclusion of the Nasdaq Closing Cross
pursuant to Nasdaq Equity 4, Rule 4757.
Proposed Options 3B, Section 5(e), titled ``Adjustment,'' provides
the manner in which adjustments will be handled. OROs contracts are
subject to adjustment only in accordance with and to the extent
specified in the By-Laws and Rules of the Clearing Corporation. When
any such adjustment has been determined, an announcement shall be made
by the Exchange and shall become effective as of the time specified in
such announcement.
Proposed Options 3B, Section 5(f), titled ``Position Limits,''
states that the position limits in Options 4A, Section 6, Position
Limits for broad-based index options, shall not apply to OROs, rather
the position limits for OROs shall be equal to 25,000 contracts on the
same side of the market. Position limits in OROs shall not be
aggregated with other options contracts for the underlying broad-based
index. OROs shall not be subject to the exemptions from position limits
in Options 4A, Section 9, Exemptions from Position Limits.
Further, proposed Options 3B, Section 5(f)(1), titled ``Reporting
of Position Limits,'' states that with respect to positions in OROs,
the minimum position in an account which must be reported shall be 200
contracts.\51\ Pursuant to Options 3B, Section 5(f)(1)(a), titled
``Market Side,'' for purposes of the position limits set forth in
subparagraph (f) of this Rule, long positions in put OROs and short
positions in call OROs shall be considered to be on the same side of
the market; and short positions in put OROs and long positions in call
OROs shall be considered to be on the same side of the market.
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\51\ See proposed Options 3B, Section 5(f)(1).
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Proposed Options 3B, Section 5(g), would be titled ``Exercise
Limits.'' The exercise limits specified in Options 4A, Section 10,
Exercise Limits, shall not apply to OROs. OROs will automatically be
exercised at expiration if the settlement value of the underlying
broad-based index is equal to or greater than the exercise price of
call OROs or less than the exercise price in the case of put OROs.
Therefore, OROs on broad-based indexes are not subject to the rules in:
(i) Options 6B, Exercises and Deliveries; and (ii) Options 9, Section
19, Other Restrictions on Options Transactions and Exercise, as that
Section 19 relates to exercises.
Types of Orders; Order and Quote Protocols
Options 3B, Section 6 shall be titled ``Types of Orders; Order and
Quote Protocols.'' The Exchange may determine to make any eligible
order types and times-in-force, respectively, in Options 3, Section 7,
Types of Orders and Order and Quote Protocols, available on a class or
System basis to be submitted as ORO Orders. Eligible ORO Orders shall
include all order types in Options 3, Section 7 except for: (1) Market
Orders \52\ at Options 3, Section 7(a); (2) Stop Orders \53\ at Options
3, Section 7(d); and (3) Stop
[[Page 24303]]
Limit Orders \54\ at Options 3, Section 7(e) because a Market Order
does not specify a price and Stop Orders and Stop Limit Orders require
a price to be elected.
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\52\ A Market Order is an order to buy or sell a stated number
of options contracts that is to be executed at the best price
obtainable when the order reaches the Exchange. Members can
designate that their Market Orders not executed after a pre-
established period of time, as established by the Exchange, will be
cancelled back to the Member once an options series has opened for
trading. Market Orders on the order book would be immediately
cancelled if an options series is halted, provided the Member
designated the cancellation of Market Orders. See Options 3, Section
7(a).
\53\ A stop order is an order that becomes a market order when
the stop price is elected. A stop order to buy is elected when the
option is bid or trades on the Exchange at, or above, the specified
stop price. A stop order to sell is elected when the option is
offered or trades on the Exchange at, or below, the specified stop
price. A Stop Order shall be cancelled if it is immediately
electable upon receipt. Stop Orders may only be entered through FIX.
A Stop Order shall not be elected by a trade that is reported late
or out of sequence or by a Complex Order trading with another
Complex Order. See Options 3, Section 7(d).
\54\ A stop limit order is an order that becomes a limit order
when the stop price is elected. A stop limit order to buy is elected
when the option is bid or trades on the Exchange at, or above, the
specified stop price. A stop limit order to sell becomes a sell
limit order when the option is offered or trades on the Exchange at,
or below, the specified stop price. A Stop Limit Order shall be
cancelled if it is immediately electable upon receipt. Stop Limit
Orders may only be entered through FIX. A Stop Limit Order shall not
be elected by a trade that is reported late or out of sequence or by
a Complex Order trading with another Complex Order. See Options 3,
Section 7(e).
---------------------------------------------------------------------------
Pursuant to Options 3B, Section 6(b), all order and quote protocols
in Supplementary Material .03 to Options 3, Section 7 are available for
OROs.
Pursuant to Options 3B, Section 6(c), ORO Orders may be submitted
in both simple and complex order books. ORO Orders may be entered as
complex orders as specified in Options 3, Section 14, except that a
Stock-Complex Strategy \55\ as defined in Options 3, Section 14(a)(3)
is not permitted because the underlying to the ORO would be a broad-
based index and stock-tied orders are not applicable to broad based
indexes. ORO Orders may be submitted into any of the auction mechanisms
specified in Options 3, Sections 11 (Auction Mechanisms) or 13 (Price
Improvement Mechanism for Crossing Transactions). ORO Orders may be
submitted as Crossing Orders, as specified in Options 3, Section 12,
except that ORO Orders may not be submitted as a Qualified Contingent
Cross Order or a Complex Qualified Contingent Cross Order subject to
Options 3, Section 12(c) and (d), respectively.
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\55\ 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 Options 3, Section 14(a)(3).
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Risk Protections
Options 3B, Section 7 shall be titled ``Risk Protections.''
Pursuant to Options 3B, Section 7(a), for purposes of ORO Orders, the
simple order risk protections in Options 3, Section 15 and the optional
risk protections in Options 3, Section 28 will apply to ORO Orders.
Further, the complex order risk protections in Options 3, Section 16
will apply to ORO Orders except for the Strategy Protections in Options
3, Section 16(b). The Strategy Protections at Options 3, Section 16(b)
include a Vertical Spread Protection, a Calendar Spread Protection, a
Butterfly Spread Protection and a Box Spread Protection. Strategy
Protections (Vertical, Calendar, Butterfly, and Box) are not applicable
to OROs because unlike standard options, OROs do not have intrinsic
value as they are ``all-or-nothing'' contracts that pay out a fixed
amount if they settle in-the-money.
Obvious Errors
Options 3B, Section 8 shall be titled ``Obvious Error.'' Pursuant
to Options 3B, Section 8(a), for purposes of ORO Orders, the Obvious
Error provisions in Options 3, Section 20, Nullification and Adjustment
of Options Transactions including Obvious Errors, shall apply except
that with respect to Options 3, Section 20(c), the adjusted price
(including any applicable adjustment under subparagraph (c)(4)(A) for
Non-Customer transactions) shall not exceed the applicable exercise
settlement value for OROs, which is $1.
Margin
Options 6C, Section 3, Margin Requirements, provides at
subparagraph (a) that a Member must elect to be bound by the initial
and maintenance margin requirements of either the Chicago Board of
Options Exchange or the New York Stock Exchange as the same may be in
effect from time to time.\56\ The Exchange proposes to elect Cboe's
margin requirements \57\ with respect to OROs.
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\56\ MRX Options 6C Rules incorporate by reference ISE's Options
6C Rules.
\57\ Cboe Rule 10.3 describes margin requirements.
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Suitability and Risk Disclosures
Since OROs are standardized options, market participants that elect
to transact in OROs must receive a copy of the ODD from their broker-
dealer.\58\ The ODD explains the risks inherent in standardized options
trading including binary options.\59\ Broker-dealers must have a
reasonable basis to believe that a recommended transaction or
investment strategy involving a security or securities is suitable for
the customer.\60\ Suitability rules are intended to distinguish the
trading of customers from those of professional traders who are likely
to have distinct risk/reward profiles, risk tolerance and capital.
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\58\ See FINRA Rule 2360(b)(16)(A).
\59\ See supra note 7.
\60\ See FINRA Rule 2111.
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Surveillance
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to OROs that it applies to the Exchange's other options
products.\61\ Additionally, the Exchange is a member of the Intermarket
Surveillance Group (``ISG'') under the Intermarket Surveillance Group
Agreement. ISG members work together to coordinate surveillance and
investigative information sharing in the stock, options, and futures
markets. Further, the Exchange has a Regulatory Services Agreement
(``RSA'') with the Financial Industry Regulatory Authority (``FINRA'').
Pursuant to a multi-party 17d-2 joint plan, all options exchanges
allocate regulatory responsibilities to FINRA to conduct certain
options-related market surveillance that are common to rules of all
options exchanges. The Exchange believes that its existing surveillance
and reporting safeguards are designed to deter and detect possible
manipulative behavior which might potentially arise from listing and
trading OROs.
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\61\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
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Capacity
The Exchange represents that it has the necessary systems capacity
to support trading OROs. Further, the Exchange has confirmed that the
Options Price Reporting Authority or ``OPRA'' has the necessary systems
capacity to handle the additional traffic associated with the listing
of OROs series. Because the proposal is limited to two classes, the
Exchange believes any additional traffic that may be generated from the
introduction of Nasdaq-100 OROs and XND OROs will be manageable.
Other Amendments
Options 3, Section 3
As noted above, MRX Options 4A Rules incorporate by reference ISE
Options 4A Rules. As a result, today, MRX may list and trade XND
Options pursuant to Options 4A Rules. However, the rule proposal \62\
which permitted ISE
[[Page 24304]]
to list and trade XND Options in a minimum increment of $0.01 also
amended ISE Supplementary Material .04 to Options 3, Section 3, a
section that is not incorporated by reference and, therefore, unlike
Options 4A Rules, does not apply to MRX. To correct this discrepancy,
the Exchange proposes to add rule text at MRX Supplementary Material
.04 to Options 3, Section 3 identical to ISE Supplementary Material .04
to Options 3, Section 3, to codify the minimum increment for XND
Options to accompany the Options 4A listing rules for XND Options. The
Exchange proposes to state at MRX Supplementary Material .04 to Options
3, Section 3 that, ``Options on the Nasdaq 100 Micro Index (XND) (as
long as QQQ options (``QQQ'') participate in the Penny Interval
Program) shall have a minimum increment of $.01.'' The proposed rule
text is consistent with the manner in which XND Options trade today on
ISE, in $0.01 minimum increments.
---------------------------------------------------------------------------
\62\ See Securities Exchange Act Release No. 98886 (November 8,
2023), 88 FR 78417 (November 15, 2023) (SR-ISE-2023-24) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Permit
the Listing and Trading of XND Options).
---------------------------------------------------------------------------
While MRX currently does not list options on XND, the Exchange
proposes to codify the minimum increments for XND standard options
which trade in the same increment as proposed for XND OROs.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\63\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\64\ 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.
---------------------------------------------------------------------------
\63\ 15 U.S.C. 78f(b).
\64\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
OROs will provide investors with the ability to transact options
that pay a fixed sum at expiration on a listed exchange market subject
to the benefits of a centralized forum for price discovery; pre- and
post-trade transparency; standardized contract specifications; real-
time surveillance; and the centralized clearing guaranteed by OCC,
thereby promoting just and equitable principles of trade. Further, the
introduction of OROs will provide advantages to the investing public
that are not provided for by other options overlying the Nasdaq-100
Index and the Nasdaq-100 Micro Index. OROs offer investors a relatively
low risk security where the risk reduction results from knowing the
maximum risk exposure when the contract is written. The maximum
exercise settlement amount is set at listing, therefore, the maximum
risk is limited and known at listing. Also, as proposed, the trading of
OROs will be subject to all other Rules applicable to the trading of
options on the Exchange, including, without limitation, the trading
rules, listing rules and business conduct rules, unless the context
otherwise requires or otherwise provided in Options 3B.\65\
---------------------------------------------------------------------------
\65\ See proposed Options 3B, Section 1(a). For example, the
Opening Process at Options 3, Section 8; Trading Halts at Options 3,
Section 9; simple, complex and optional risk protections at Options
3, Sections 15 and 28; and Market Maker appointments at Options 2,
Section 3 and obligations at Option 2, Section 5 shall all apply to
the trading of OROs as they apply to the trading of other options on
the Exchange.
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The Exchange proposes a minimum increment of $0.01 for Nasdaq-100
OROs and XND OROs. Today, NDX options trade in $0.05 and $0.10
increments \66\ and XND options trade in $0.01 increments.\67\ The
proposed minimum increment, which is identical to Cboe's increment for
binary options,\68\ will permit OROs to trade in intervals like other
index products in Cboe's rules.
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\66\ See MRX Options 3, Section 3(a).
\67\ See ISE Supplementary Material .04 to Options 3, Section 3.
\68\ Cboe Rule 5.4(c)(1) states that the exchange establishes
the minimum increment for bids and offers on orders for binary
options on a class-by-class basis, which may not be less than $0.01.
---------------------------------------------------------------------------
The remainder of the proposed rules permit trading in Nasdaq-100
OROs and XND OROs in an identical manner to the trading of NDX options
and XND options, respectively. The listing of Nasdaq-100 OROs and XND
OROs shall be subject to Options 4A Rules, including but not limited to
P.M.-Settlement pursuant to Options 4A, Section 12(a)(6), the
Nonstandard Expirations Program pursuant to Supplementary Material .07
to Options 4A, Section 12, the Short Term Series Options Program
pursuant to Supplementary Material .01 to Options 4A, Section 12, the
Quarterly Options Series Program pursuant to Supplementary Material .02
to Options 4A, Section 12, and the Monthly Options Series Program
pursuant to Supplementary Material .06 to Options 4A, Section 12,
unless otherwise specified. Like NDX options and XND options,\69\
Nasdaq-100 OROs and XND OROs will be P.M.-settled.\70\ Like NDX
options,\71\ Nasdaq-100 OROs and XND OROs may be P.M.-Settled on the
third Friday-of-the-month.\72\ Like NDX options and XND options,\73\
Nasdaq-100 OROs and XND OROs may expire at three (3)-month intervals,
in consecutive weeks or in consecutive months and may list up to 12
standard (monthly) expirations.\74\
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\69\ Today, the Exchange authorizes P.M.-Settled NDX options and
XND options pursuant to Options 4A, Section 12(a)(6).
\70\ See proposed Options 3B, Section 5(a)(1).
\71\ See Options 4A, Section 12(a)(6)(i).
\72\ See proposed Options 3B, Section 5(a)(2)(a).
\73\ See Options 4A, Section 12(a)(3).
\74\ See proposed Options 3B, Section 5(b)(1).
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The Exchange's proposed position limit for the OROs of 25,000
contracts on the same side \75\ promotes just and equitable principles
of trade. Also, the proposed position limit of 25,000 contracts
reasonably balances the promotion of a free and open market for these
securities with minimization of incentives for market manipulation. A
position limit of 25,000 contracts is the lowest position limit
available in the options industry and conservative given the size and
liquidity of Nasdaq-100 Index constituents, thereby substantially
reducing the feasibility of price distortion. Further the price of each
constituent in the Nasdaq-100 Index is independently formed, therefore
there is no single price input that determines the index, rather the
various market prices are aggregated. Finally, the Nasdaq-100 Index
value reflects continuous market pricing of its constituents. As
proposed, the settlement value of the Nasdaq-100 Index is based on the
closing price of its components in the Nasdaq Closing Cross, a robust
auction mechanism with significant volume and oversight and the
highest-volume trading event of the day for securities comprising the
Nasdaq-100 Index that make it difficult to manipulate. Therefore, the
Exchange believes that the proposed position limit is consistent with
the Act as it addresses concerns related to manipulation and protection
of investors because the position limit is extremely conservative and
more than appropriate.
---------------------------------------------------------------------------
\75\ Position limits in OROs would not be aggregated with other
options contracts where the overlying is the Nasdaq-100 Index. OROs
shall not be subject to the exemptions from position limits in
Options 4A, Section 9. See proposed Options 3B, Section 5(f).
---------------------------------------------------------------------------
The proposal to not apply the Strategy Protections at Options 3,
Section 16(b) to OROs \76\ is consistent with the Act because Strategy
Protections (Vertical, Calendar, Butterfly, and Box) are not applicable
to OROs. Unlike standard options, OROs do not have intrinsic value as
they are ``all-or-nothing'' contracts that pay out a fixed amount if
they settle in-the-money. The Exchange notes that other complex order
risk protections in Options 3, Section 16, the simple order risk
protections in Options
[[Page 24305]]
3, Section 15, and the optional risk protections in Options 3, Section
28 will apply to ORO Orders.
---------------------------------------------------------------------------
\76\ See proposed Options 3B, Section 7.
---------------------------------------------------------------------------
The proposed adjustments to OROs with respect to the Obvious Error
provisions \77\ are designed to promote just and equitable principles
of trade, and to remove impediments to and perfect the mechanism of a
free and open market and a national market system, as the proposal
would ensure that ORO Orders that are deemed Obvious Errors are
appropriately adjusted given the nature of these contracts.
---------------------------------------------------------------------------
\77\ See proposed Options 3B, Section 8.
---------------------------------------------------------------------------
The margin requirements specified in Options 6C, Section 3 will
apply to OROs in an identical manner to all other options in that
Cboe's margin requirements at Cboe Rule 10.3 will govern.
Further, since OROs are standardized options, market participants
that elect to transact in OROs must receive a copy of the ODD from
their broker-dealer.\78\ The ODD explains the risks inherent in
standardized options trading including binary options.\79\ Broker-
dealers must have a reasonable basis to believe that a recommended
transaction or investment strategy involving a security or securities
is suitable for the customer.\80\ Suitability rules are intended to
distinguish the trading of customers from those of professional traders
who are likely to have distinct risk/reward profiles, risk tolerance
and capital. These measures are all designed to protect investors and
the public interest.
---------------------------------------------------------------------------
\78\ See FINRA Rule 2360(b)(16)(A).
\79\ See supra note 7.
\80\ See FINRA Rule 2111.
---------------------------------------------------------------------------
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to OROs that apply to the Exchange's other options
products.\81\ Additionally, the Exchange is a member of ISG under the
Intermarket Surveillance Group Agreement. ISG members work together to
coordinate surveillance and investigative information sharing in the
stock, options, and futures markets. In addition, the Exchange has an
RSA with the FINRA. Pursuant to a multi-party 17d-2 joint plan, all
options exchanges allocate regulatory responsibilities to FINRA to
conduct certain options-related market surveillance that are common to
rules of all options exchanges. The Exchange believes that its existing
surveillance and reporting safeguards are designed to deter and detect
possible manipulative behavior which might potentially arise from
listing and trading OROs.
---------------------------------------------------------------------------
\81\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
---------------------------------------------------------------------------
Finally, the Exchange represents that it has the necessary systems
capacity to support trading OROs. Further, the Exchange has confirmed
that OPRA has the necessary systems capacity to handle the additional
traffic associated with the listing of OROs series. Because the
proposal is limited to two classes, the Exchange believes any
additional traffic that may be generated from the introduction of
Nasdaq-100 OROs and XND OROs will be manageable.
Other Amendments
Options 3, Section 3
Adding rule text at MRX Supplementary Material .04 to Options 3,
Section 3 that is identical to ISE Supplementary Material .04 to
Options 3, Section 3 is consistent with the Act because it will make
clear that standard options on XND trade in a $0.01 increment.\82\
---------------------------------------------------------------------------
\82\ Proposed MRX Supplementary Material .04 to Options 3,
Section 3 would state that, Options on the Nasdaq 100 Micro Index
(XND) (as long as QQQ options (``QQQ'') participate in the Penny
Interval Program) shall have a minimum increment of $.01.
---------------------------------------------------------------------------
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 Exchange's proposal to list Nasdaq-100 OROs and XND OROs does
not impose an undue burden on intra-market competition as any Member
may transact OROs. The Exchange notes that Nasdaq-100 OROs and XND OROs
are proprietary indexes and as such not subject to an intra-market
burden on competition.
The Exchange's proposal to list Nasdaq-100 OROs and XND OROs does
not impose an undue burden on inter-market competition as competitors
have rules for similar products.\83\ Today, Cboe \84\ and NYSE American
\85\ both have the ability to list options that pay a fixed sum at
expiration.
---------------------------------------------------------------------------
\83\ See Cboe Rule 4.16. See also NYSE American Rules at Section
18.
\84\ See Cboe Rule 4.16 related to binary options.
\85\ See NYSE American Rules at Section 18 which describe broad-
based index binary options.
---------------------------------------------------------------------------
Other Amendments
Options 3, Section 3
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 Exchange's proposal to
codify the minimum increments for standard XND Options at MRX
Supplementary Material .04 to Options 3, Section 3 is consistent with
ISE's rule proposal \86\ to list and trade XND Options and ISE
Supplementary Material .04 to Options 3, Section 3 and, therefore, does
not impose an undue burden on intra-market or inter-market competition.
---------------------------------------------------------------------------
\86\ MRX Options 4A Rules incorporate by reference ISE Options
4A Rules.
---------------------------------------------------------------------------
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.
IV. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as superseded by Amendment No. 3 and modified by Amendment No.
4 (``Amended Proposal''), is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to a national
securities exchange.\87\ In particular, the Commission finds that the
Amended Proposal is consistent with Section 6(b)(1) of the Act,\88\
which requires, among other things, that the Exchange be so organized
and have the capacity to be able to carry out the purposes of the Act
and to enforce compliance by its members and persons associated with
its members with the provisions of the Act, Commission rules and
regulations thereunder, and its own rules; and Section 6(b)(5) of the
Act,\89\ which requires that the rules of the 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.
---------------------------------------------------------------------------
\87\ 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).
\88\ 15 U.S.C. 78f(b)(1).
\89\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
As discussed above, the Exchange proposes to adopt rules to govern
the listing and trading of standardized, cash-settled, European-style
exercise binary options on broad-based security indexes, which the
Exchange would refer to as OROs.\90\ In particular, pursuant to these
rules, the Exchange
[[Page 24306]]
has proposed to list and trade binary options on the Nasdaq-100 index
(NDX) and the reduced value version of that index, the Nasdaq-100 Micro
index (XND).\91\ Traditional, non-binary NDX and XND options are
already exchange-traded, and like those options, the proposed binary
NDX and XND options would be standardized options that are cleared by
the OCC.\92\ A distinguishing feature of the proposed binary NDX and
XND options is a fixed, all-or-nothing exercise settlement amount that
the option holder is entitled to receive and the option writer is
obligated to pay if the option expires at- or in-the-money in the case
of a call option or in-the-money in the case of a put option.\93\ This
is in contrast to the payout structure for traditional, non-binary NDX
and XND options, where the exercise settlement amount varies relative
to the degree to which the option expires in-the-money, i.e., relative
to the magnitude of the difference between the underlying index's
settlement value and the option's exercise price.\94\
---------------------------------------------------------------------------
\90\ See proposed Options 3B; see also Section III, supra.
\91\ See proposed Options 3B; see also Section III, supra.
\92\ See Section III, supra. The characteristics and risks of
standardized binary options, which would include binary NDX and XND
options, are described in the ODD, which broker-dealers must furnish
to customers seeking to trade standardized options. See Section III,
n. 7, supra; see also 17 CFR 240.9b-1.
\93\ See proposed Options 3B, Section 1(b); see also Section
III, supra. Under the Amended Proposal, binary broad-based index
options that are call options would return an exercise settlement
amount of $100 if the settlement value of the underlying broad-based
index is at or above the exercise price at expiration (i.e., at- or
in-the-money); binary broad-based index options that are put options
would return an exercise settlement amount of $100 if the settlement
value of the underlying broad-based index is below the exercise
price at expiration (i.e., in-the-money). See proposed Options 3B,
Section 1(b).
\94\ See Section III, supra.
---------------------------------------------------------------------------
The Amended Proposal does not raise novel regulatory concerns. The
proposed binary NDX and XND options would be subject to the existing
rules of the Exchange that govern options trading generally and the
listing of traditional broad-based index options,\95\ including initial
and continued listing criteria among other things, unless otherwise
required by context or provided for in proposed Options 3B.\96\ Insofar
as the specific context of binary broad-based index options is
concerned--specifically, the fixed payout structure attendant to binary
broad-based index options as set forth in proposed Options 3B--the
rules of other options exchanges already permit the listing and trading
of binary options on broad-based security indexes with a fixed, all-or-
nothing payout structure.\97\ The Commission has previously stated that
it believes binary options on broad-based indexes would provide
investors with a potentially useful investment choice, and that
extending the benefits of a listed exchange market to such options
would provide a centralized forum for price discovery, pre- and post-
trade transparency, standardized contract specifications, and the
guarantee of the OCC.\98\ Moreover, the Exchange proposes to apply to
its proposed binary broad-based index options another exchange's
existing margin requirements for binary options.\99\
---------------------------------------------------------------------------
\95\ See Options 3 (Options Trading Rules) and Options 4A
(Options Index Rules). Options 4A incorporates by reference Nasdaq
ISE Options 4A.
\96\ See proposed Options 3B, Sections 1(a), 2, 5-8. Proposed
Options 3B, Section 3 sets forth the units of trading and premium
for binary broad-based index options on the Exchange, and proposed
Options 3B, Section 4 sets forth a minimum trading increment of
$0.01 for binary broad-based index options on the Exchange. Cboe
already permits a minimum trading increment of $0.01 for binary
broad-based index options. See Cboe Rule 5.4(c)(1). Traditional,
non-binary XND options already trade in penny increments (see Nasdaq
ISE Options 3, Section 3, Supp. Material .04), and for clarity
within the Exchange's rulebook, the Exchange has proposed to
replicate that rule text in proposed Options 3, Section 3, Supp.
Material .04.
\97\ See, e.g., Cboe Rule 4.16; NYSE American Options Rules,
Section 18.
\98\ See Securities Exchange Act Release No. 57850 (May 22,
2008), 73 FR 31169, 31171 (May 30, 2008) (order approving SR-CBOE-
2006-105) (``2008 Cboe Approval Order'').
\99\ See proposed Options 6C, Section 3; see also Section III,
supra (stating that the Exchange will apply Cboe's margin
requirements); Cboe Rule 10.3(m) (margin requirements for binary
options); 2008 Cboe Approval Order, 73 FR at 31171-72 (stating that
Cboe's proposed margin rules for binary index options are reasonable
and consistent with the Act, and appear reasonably designed to deter
a member or its customer from assuming an imprudent position in
binary index options).
---------------------------------------------------------------------------
In addition, the Exchange's proposed position limit of 25,000
contracts for binary broad-based index option positions--in particular,
for positions in the proposed binary NDX option or binary XND option--
on the same side of the market is consistent with Section 6(b)(5) of
the Act.\100\ Position limits serve as a regulatory tool designed to
deter manipulative schemes and adverse market impact surrounding the
use of options by preventing the establishment of options positions
that can be used to, or might create incentives to, manipulate the
underlying market so as to benefit the options positions, or that might
contribute to disruptions in the underlying market.\101\ Compared to a
traditional, non-binary option, the incentive to manipulate the
underlying market so as to benefit a binary option position may be
stronger in light of its fixed, all-or-nothing payout structure. This
is because a small movement in the underlying settlement value for a
near-the-money binary option could translate into more significant
profit or loss avoidance than would be realized in a similar scenario
for a traditional, non-binary option. The proposed 25,000-contract
position limit, which is relatively conservative,\102\ is reasonably
designed to minimize the manipulation incentive, consistent with the
protection of investors and public interest and the prevention of
manipulation.\103\ Further, the large number of underlying securities
contained in the underlying Nasdaq-100 index (and the Nasdaq-100 Micro
index), as well as their large capitalization and deep, liquid markets
reduces concerns regarding the potential for cash market manipulation
or disruption related to the trading of binary NDX and XND
options.\104\ At the same time, insofar as market demand is as yet
undetermined for the Exchange's proposed binary NDX and XND options,
[[Page 24307]]
the proposed 25,000-contract position limit is designed to balance the
minimization of incentives for market manipulation with the promotion
of a free and open market for these securities.
---------------------------------------------------------------------------
\100\ See proposed Options 3B, Section 5(f). The Exchange also
has proposed not to aggregate position limits for binary broad-based
index options with other option contracts for the underlying, and
not to subject binary broad-based index options to the exemptions
from position limits set forth in Options 4A, Section 9. Id.
Traditional, non-binary NDX and XND options currently trade without
any position limits. See Nasdaq ISE Options 4A, Section 6(a).
\101\ See, e.g., Securities Exchange Act Release No. 40969
(January 22, 1999), 64 FR 4911 (February 1, 1999) (SR-CBOE-1998-23).
The Commission traditionally has balanced these concerns against the
recognition that position limits should not be established at levels
that are so low as to discourage participation in the options market
by institutions and other investors with substantial hedging needs
or to prevent specialists and market-makers from adequately meeting
their obligations to maintain a fair and orderly market. Id.
\102\ The proposed 25,000-contract position is considerably
smaller than the position limit that would be permitted by other
options exchanges for binary broad-based index options with a $100
exercise settlement amount (i.e., the exercise settlement amount
that the Exchange has proposed here). See proposed Options 3B,
Section 1(b)(3). See also, e.g., Cboe Rule 8.36(a), pursuant to
which the position limit for a binary broad-based index option,
where the traditional option overlying the same index has no
position limit, is calculated by multiplying 15,000 by the ratio of
10,000 to the exercise settlement amount. That ratio would be 100
when the exercise settlement amount is $100, which in turn would
generate a position limit of 1.5 million contracts (15,000
multiplied by 100). Id.
\103\ In addition, the Exchange has proposed 200 contracts as
the minimum binary broad-based index option position in an account
that must be reported to the Exchange. See proposed Options 3B,
Section 5(f)(1). Exercise limits would not apply to the proposed
binary broad-based index options since they will be automatically
exercised at expiration if they are at- or in-the-money (for call
options) or in-the-money (for put options). See proposed Options 3B,
Section 5(g); see also Section III, supra.
\104\ See Section III, supra (the Exchange stating, among other
things, that the Nasdaq-100 index settlement value is based on the
closing prices of its component securities in the Nasdaq Closing
Cross, a robust auction mechanism with significant volume and
oversight); see also Section III, notes 8-9, supra.
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The potential risks of trading binary broad-based index options on
the Exchange also are mitigated by the Exchange's surveillance
mechanisms, consistent with Sections 6(b)(1) and 6(b)(5) of the
Act.\105\ The Exchange represents that its existing surveillance
program for options, which would apply to binary broad-based index
options, is adequate.\106\ Additionally, the Exchange is a member of
ISG, whose members work together to coordinate surveillance and
investigative information sharing in the stock, options, and futures
markets.\107\ The Exchange also has a RSA with FINRA for certain market
surveillance, investigation and examinations functions.\108\ Further,
pursuant to a multi-party Rule 17d-2 joint plan, all options exchanges
allocate amongst themselves and FINRA responsibilities to conduct
certain options-related market surveillance that are common to rules of
all options exchanges.\109\
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\105\ 15 U.S.C. 78f(b)(1), 78f(b)(5). In addition, the Exchange
represents that it has the necessary systems capacity to support
trading the proposed binary NDX and XND options, and that it has
confirmed that OPRA has the necessary systems capacity to handle the
additional traffic associated with the listing and trading of these
options. See Section III, supra.
\106\ See Section III, supra.
\107\ Id.
\108\ Id.
\109\ Id.
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For the foregoing reasons, the Commission finds that the Amended
Proposal is consistent with Sections 6(b)(1) and 6(b)(5) of the Act
\110\ and the rules and regulations thereunder applicable to a national
securities exchange.
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\110\ 15 U.S.C. 78f(b)(1), 78f(b)(5).
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V. Solicitation of Comments on Amendment Nos. 3 and 4 to the Proposed
Rule Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment Nos. 3 and 4 are 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#4c3e392029612f2321212922383f0c3f292f622b233a"><span class="__cf_email__" data-cfemail="4735322b226a24282a2a222933340734222469202831">[email protected]</span></a>. Please include
file number SR-MRX-2026-05 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-MRX-2026-05. 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-MRX-2026-05 and should be submitted on
or before May 26, 2026.
VI. Accelerated Approval of the Proposed Rule Change, as Superseded by
Amendment No. 3 and Modified by Amendment No. 4
The Commission finds good cause to approve the Amended Proposal
prior to the thirtieth day after the date of publication of notice of
the filing of Amendment Nos. 3 and 4 in the Federal Register. Amendment
No. 3 provides additional detail and language clarifications in the
Exchange's proposed rules for the listing and trading of binary broad-
based index options and, in particular, binary NDX and XND options.
Amendment No. 3 also makes corresponding changes to the narrative
portion of the proposal. Amendment No. 3, without altering the purpose
of the initial proposal, strengthens the original proposal by providing
additional clarity and support, as explained above and set forth fully
in Sections II and III above. Amendment No. 4 makes technical, non-
substantive revisions to Amendment 3 that are not material to the
proposal.\111\
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\111\ See Section I, n. 6, supra.
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Amendment Nos. 3 and 4 raise no novel regulatory issues that have
not previously been subject to comment, and the Commission finds that
Amendment Nos. 3 and 4 are reasonably designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest; as well as enable the Exchange to carry out the
purposes of the Act and enforce compliance by its members and their
associated persons with the Act, Commission rules, and Exchange rules.
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Act,\112\ to approve the Amended Proposal on an
accelerated basis prior to the 30th day after publication of notice of
the filing of Amendment Nos. 3 and 4 in the Federal Register.
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\112\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\113\ that the proposed rule change, as superseded by Amendment No.
3 and modified by Amendment No. 4 (SR-MRX-2026-05), be, and hereby is,
approved on an accelerated basis.
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\113\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\114\
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\114\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2026-08680 Filed 5-4-26; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on May 5, 2026.
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