Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Change To Amend NYSE Arca Rule 5.32-O

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<title>Federal Register, Volume 91 Issue 190 (Friday, October 2, 2026)</title>
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[Federal Register Volume 91, Number 190 (Friday, October 2, 2026)]
[Notices]
[Pages 62773-62777]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-20196]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-106523; File No. SR-NYSEARCA-2026-99]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Change To Amend NYSE Arca Rule 
5.32-O

September 29, 2026.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on September 16, 2026, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 Rules 5.32-O (Terms of Flexible 
Exchange (``FLEX'') Options). The proposed rule change is available on 
the Exchange's website at <a href="http://www.nyse.com">www.nyse.com</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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rules 5.32-O (Terms of FLEX Options) 
FLEX Options as it relates to FLEX Equity Options where the underlying 
security is an ETF that is eligible for cash settlement. Specifically, 
the proposed amendments would: (i) permit newly FLEX-eligible ETFs that 
satisfy heightened eligibility thresholds of $600 million average daily 
notional value and 5,616,000 shares ADV, based on the previous one-
month period of trading statistics to be eligible for cash settlement 
as a contract term; (ii) establish tiered criteria governing the 
treatment of cash-settled FLEX ETF Options where the underlying ETF 
ceases to satisfy the requirements of Rule 5.32-O(f)(3)(ii) at the time 
of the Exchange's bi-annual review; and (iii) eliminate the existing 
provision limiting cash settlement as a contract term to no more than 
50 underlying ETFs.
    This filing is based on substantially identical proposals by Cboe 
Exchange, Inc. (``Cboe''),\4\ Nasdaq ISE, LLC (``ISE'') \5\ and Nasdaq 
PHLX Exchange (``PHLX'').\6\
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    \4\ See Securities Exchange Act Release No. 105929 (July 16, 
2026), 91 FR 45856 (July 21, 2026) (SR-Cboe-2026-035) (Notice of 
Filing of Amendment No. 1 and Order Approving a Proposed Rule 
Change, as Modified and Superseded by Amendment No. 1, To Amend Rule 
4.21 (Series of FLEX Options) (``Cboe Approval'').
    \5\ See Securities Exchange Act Release No. 106015 (July 30, 
2026), 91 FR 49470 (August 4, 2026) (SR-ISE-2026-44) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
FLEX Options Listing Rules) (``ISE Notice'').
    \6\ See Securities Exchange Act Release No. 106016 (July 30, 
2026), 91 FR 49476 (August 4, 2026) (SR-PHLX-2026-49) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
FLEX Electronic Options Listing Rules) (``PHLX Notice'').
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Background
    Generally, FLEX Equity Options are settled by physical delivery of 
the underlying security,\7\ while all FLEX Index Options are settled in 
cash.\8\ In February 2020, however, the Exchange amended Rule 5.32-O to 
permit cash settlement for up to 50 FLEX Equity Options with an 
underlying security that is an ETF meeting certain criteria: an average 
daily notional value of $500 Million or more and a national average 
daily volume of 4,680,000 shares, measured over the prior six-month 
period. Where more than 50 ETFs qualify, the Exchange selects the 50 
with the highest average daily volume.\9\
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    \7\ See Rule 5.32-O(f)(3)(i).
    \8\ See Rule 5.32-O(e)(2) and (3). Similarly, pursuant to 
Exchange rules, Binary Return Derivatives (``ByRDs'') are also 
settled in cash (See Rule 5.82-O(b)) and, as discussed below, cash 
settlement is also permitted in the over-the-counter (``OTC'') 
market.
    \9\ See Rule 5.32-O(f)(3)(ii)(B). See also Securities Exchange 
Release No. 104692 (January 27, 2026), 91 FR 4145 (January 27, 2026) 
(SR-NYSEARCA-2026-4) (Notice of Filing and Immediate Effectiveness 
of a Proposed Rule Change to Amend Rules 5.32-O and 5.35-O Related 
to Flexible Exchange Options).
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    The Exchange adopted these specific thresholds to limit cash-
settled FLEX ETF Options to the most highly liquid and actively-traded 
ETFs, thereby mitigating concerns about susceptibility to manipulation 
at settlement. With respect to the notional value threshold, the 
Exchange determined that average daily notional value is an appropriate 
proxy for selecting underlying securities that are not readily 
susceptible to manipulation for purposes of establishing a settlement 
price. The Exchange noted that average daily notional value takes into 
account both the trading activity and the price of an underlying 
security. As a general matter, the more expensive an underlying 
security's price, the less cost-effective manipulation could become. 
Further, manipulation of the price of a security encounters greater 
difficulty the more volume that is traded.
    With respect to the ADV threshold, the Exchange determined that a 
requirement of 4,680,000 shares per day is appropriate because it 
represents average trading in the underlying ETF of approximately 200 
shares per second, a level of continuous trading activity that the 
Exchange believes meaningfully limits the ability to influence the 
ETF's price for purposes of establishing a settlement value. The 
Exchange acknowledged that no security is immune from all manipulation, 
but determined that the combination of these two requirements would 
appropriately limit cash settlement of FLEX ETF Options to underlying 
securities that are less susceptible to manipulation.
    Under this framework, the Exchange conducts a bi-annual review on 
January 1 and July 1 of each year to identify qualifying ETFs. The rule 
caps the number of eligible underlying ETFs at 50; if more than 50 ETFs 
satisfy the criteria, the Exchange selects the top 50 by highest ADV. 
This cap was designed to prevent the scope of cash-settled FLEX ETF 
Options from expanding considerably without a corresponding evaluation 
of whether the level of the requirements remains reasonable, while 
still providing flexibility to add ETFs given that the initial list of 
eligible ETFs numbered well below 50 at the time of

[[Page 62774]]

adoption. In the event a previously eligible ETF fails to satisfy the 
criteria at the time of a bi-annual review, any new positions overlying 
that ETF must be physically settled and any existing open cash-settled 
positions may be traded only to close. This provision was designed to 
address how to wind down outstanding cash-settled positions in an ETF 
that no longer qualifies under the liquidity and volume criteria, 
thereby addressing manipulation concerns while still permitting market 
participants to exit existing positions.
    In connection with the adoption of this framework, the Exchange 
committed to conducting a five-year review of cash-settled FLEX ETF 
Option trading activity and furnishing the Commission with five annual 
reports. Pursuant to this commitment, the Exchange has submitted two 
annual monitoring reports to the Commission covering the two years of 
trading. The report assessed trading volume and open interest in cash-
settled FLEX ETF options relative to physically settled options on the 
same underlying ETFs, market maker participation, the liquidity of the 
market for such options products and the underlying ETF, and any 
manipulation concerns arising in connection with the trading of cash-
settled FLEX ETF Options under the proposed rule. The reports also 
discuss any recommendations the Exchange may have for enhancements to 
the listing standards based on its review. The Exchange had no 
recommendations for enhancements to the listing standards based on its 
reviews. The Exchange had no open investigation, inquiry, or 
enforcement matter relating to the manipulation of cash-settled FLEX 
ETF options or their underlying ETFs.
    As discussed in the Cboe Approval, Cboe noted that it submitted two 
annual monitoring reports to the Commission covering the periods of 
August 1, 2023 through July 31, 2024 and August 1, 2024 through July 
31, 2025, respectively.\10\ The reports assessed trading volume and 
open interest in cash-settled FLEX ETF options relative to physically 
settled options on the same underlying ETFs, market maker 
participation, position limit activity, and manipulation concerns.\11\ 
Cboe had no recommendations for enhancements to the listing standards 
based on either review.\12\ Also, Cboe noted that in both review 
periods, neither Cboe nor any affiliated Cboe securities exchange had 
an open investigation, inquiry, or enforcement matter relating to the 
manipulation of cash-settled FLEX ETF options or their underlying 
ETFs.\13\ Financial Industry Regulatory Authority (``FINRA''), acting 
as Cboe's regulatory services provider for position limit surveillance, 
confirmed the same finding for both periods.\14\ While both of Cboe's 
reports note that certain regulatory matters arose during each period 
involving the applicable ETFs or related physically-settled options, 
Cboe's surveillance and investigatory staff confirmed in each instance 
that the activity did not appear to relate to manipulation of an ETF 
for the purpose of benefiting a cash-settled FLEX ETF option 
position.\15\
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    \10\ See Cboe Approval, supra note 4.
    \11\ See Id.
    \12\ See Id.
    \13\ See Id.
    \14\ See Id.
    \15\ See Id.
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    The review period reflects broad and stable market maker 
participation across the eligible underlying ETFs. Cboe stated that the 
highest levels of FLEX market maker participation were observed in SPY 
(9 to 12 per month), QQQ (6 to 10 per month), and IWM (3 to 15 per 
month).\16\ Cboe noted that participation in less actively traded 
eligible ETFs was more limited but consistent across both periods, 
reflecting a well-supported and liquid product across the eligible 
universe.\17\
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    \16\ See Id.
    \17\ See Id.
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Proposal
    The Exchange proposes to amend Rule 5.32-O(f)(3)(ii) to refine two 
aspects of the framework governing cash-settled FLEX ETF Options and to 
eliminate the 50- ETF cap. First, the Exchange proposes to permit newly 
FLEX-eligible ETFs to qualify for cash settlement as a contract term 
based on one month of trading statistics outside of the Exchange's 
regular bi-annual review cycle.\18\ Second, the Exchange proposes to 
replace the existing provision governing ETFs that cease to satisfy the 
eligibility criteria with a tiered framework that more precisely 
calibrates treatment to the actual state of open interest in cash-
settled FLEX ETF Options overlying the affected ETF.\19\ Third, the 
Exchange proposes to eliminate the existing cap limiting cash 
settlement as a contract term to no more than 50 underlying ETFs.\20\
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    \18\ See proposed Rule 5.32-O(f)(3)(ii)(A).
    \19\ See proposed Rule 5.32-O(f)(3)(ii)(B).
    \20\ See proposed Rule 5.32-O(f)(3)(ii)(A).
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One-Month Lookback for Newly Eligible ETFs
    Under the current rule, the Exchange determines eligible underlying 
ETFs bi-annually, on January 1 and July 1 of each year, using six 
months of prior trading statistics, with newly eligible ETFs permitted 
to list cash-settled FLEX options beginning on February 1 and August 1, 
respectively. No mechanism currently exists to add newly FLEX-eligible 
ETFs to the eligible list between bi-annual reviews. As a result, an 
ETF that becomes FLEX-eligible after a bi-annual review has been 
conducted may not be considered for cash-settled FLEX ETF Option 
eligibility for up to six months, even if it otherwise satisfies the 
notional value and ADV requirements of Rule(f)(3)(ii).
    The Exchange proposes to address this gap by permitting, outside of 
the regular bi-annual review, the Exchange to determine that a newly 
FLEX-eligible ETF satisfies heightened notional value and trading 
volume requirements of $600 million average daily notional value and 
5,616,000 shares ADV based on the previous one-month period of trading 
statistics. Any ETF satisfying such requirements on that basis shall be 
eligible for cash settlement as a contract term.
    The Exchange believes a one-month lookback is appropriate in this 
context because an ETF that has newly become FLEX-eligible and 
simultaneously satisfies both the $600 million average daily notional 
value threshold and the 5,616,000-share ADV requirement over the prior 
month has already demonstrated the degree of liquidity and trading 
activity that the eligibility criteria are designed to capture. These 
thresholds represent a 20% increase over the standard $500 million and 
4,680,000-share thresholds that apply to the bi-annual review, 
reflecting the Exchange's determination that heightened criteria are 
appropriate for ETFs seeking to qualify based on a shorter lookback 
period. The Exchange believes Cboe's and its annual monitoring reports 
demonstrate that the existing criteria are an effective proxy for 
identifying ETFs that are not readily susceptible to manipulation. 
Requiring newly eligible ETFs to await the next bi-annual review before 
becoming eligible for cash settlement would delay investor access to 
the product.
    Cboe's back-testing analysis of newly listed FLEX ETFs supports the 
appropriateness of the heightened thresholds.\21\ Under the standard 
eligibility criteria ($500 million average daily notional value and 
4,680,000 shares ADV), ten ETFs would have qualified based on one month 
of trading data. Under the 20% increased

[[Page 62775]]

thresholds ($600 million average daily notional value and 5,616,000 
shares ADV), only eight ETFs qualified. Cboe noted that the two ETFs 
excluded by the heightened thresholds did not qualify at their next 
six-month bi-annual review, demonstrating that the heightened 
thresholds effectively filter out ETFs whose initial trading activity 
may not be sustained.
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    \21\ For purposes of the back-testing analysis, Cboe reviewed 
all newly listed FLEX-eligible ETFs from January 1, 2025 through 
April 6, 2026.
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    The Exchange believes the heightened thresholds for the one-month 
lookback appropriately address the concern that a newly listed ETF may 
experience elevated trading activity in its initial period that is not 
representative of sustained liquidity. By requiring newly eligible ETFs 
to satisfy thresholds that are 20% above the standard bi-annual review 
criteria, the Exchange ensures that only those ETFs demonstrating a 
meaningfully higher level of liquidity and trading activity--beyond 
what may reflect initial market interest--are eligible for cash 
settlement based on the shorter lookback period.
    Further, the Exchange represents that it will continue to monitor 
the one-month lookback criteria on an ongoing basis to assess the 
appropriateness of the threshold. As part of this ongoing monitoring, 
the Exchange will evaluate whether the heightened criteria continue to 
effectively identify ETFs with sustained liquidity and trading 
activity, and will propose adjustments to the threshold if warranted by 
the Exchange's review.
Tiered Criteria for ETFs Ceasing To Satisfy Eligibility Requirements
    Under the current rule, if the Exchange determines at the time of a 
bi-annual review that an underlying ETF ceases to satisfy the 
eligibility criteria, any new position overlying that ETF must be 
physically settled and any existing open cash-settled positions may be 
traded only to close. While this provision addresses the wind-down of 
cash-settled activity in a straightforward manner, it does not 
distinguish between ETFs with active open interest and those with no 
meaningful cash-settled activity, nor does it account for the 
possibility that an ETF may temporarily fall below the eligibility 
thresholds and subsequently recover.
    The Exchange proposes to replace this provision with a tiered 
framework that more precisely calibrates the treatment of an ineligible 
ETF to the actual state of the market for cash-settled FLEX ETF Options 
overlying that ETF. Under the proposed framework, if no open interest 
in cash-settled FLEX Equity Options overlying the ETF exists during the 
previous six-month period at the time of the bi-annual review 
determination, the existing treatment will apply: any new position must 
be physically settled and any open cash-settled positions may be traded 
only to close. Where open interest in cash-settled FLEX Equity Options 
overlying the ETF does exist during the previous six-month period, the 
Exchange will permit the opening of new cash-settled positions in that 
ETF for a period of one year from the date of the bi-annual review, 
after which any new position must be physically settled and any 
remaining open cash-settled positions may be traded only to close. This 
one-year continuation period is intended to provide market participants 
holding or seeking to manage existing cash-settled positions with a 
reasonable and predictable runway to do so, rather than abruptly 
restricting new position activity at the time of the bi-annual review 
determination.
    The proposed framework also includes a recovery provision: if the 
underlying ETF satisfies the eligibility criteria at the time of either 
bi-annual review conducted during the one-year continuation period, 
that period will terminate and the ETF will resume full eligibility for 
cash settlement as a contract term. The Exchange believes this 
provision appropriately accounts for the possibility that an ETF's 
trading statistics may fluctuate around the eligibility thresholds and 
prevents an unnecessarily disruptive wind-down in cases where the ETF 
promptly returns to eligibility.
Elimination of the 50-ETF Cap
    The Exchange also proposes to eliminate the existing provision 
limiting cash settlement as a contract term to no more than 50 
underlying ETFs. The cap was adopted at the outset of the program to 
prevent the scope of cash-settled FLEX ETF Options from expanding 
considerably without a corresponding evaluation of whether the level of 
the eligibility requirements remained reasonable. While the number of 
ETFs satisfying the eligibility criteria remained well below 50 during 
the initial period of the program's operation, over the two-year period 
that Cboe monitored the market, the number of qualifying ETFs has grown 
to exceed that threshold (as of February 1, 2026, 60 ETFs were 
eligible), such that the cap now operates as an active constraint on 
the availability of cash-settled FLEX ETF Options on ETFs that 
otherwise satisfy the established eligibility criteria. The Exchange 
does not believe this result is consistent with the purpose of the cap, 
which was intended as a programmatic guardrail rather than a permanent 
numerical ceiling. As noted above, neither the Exchange nor Cboe 
identified manipulation concerns in their reviews. Given the same 
eligibility criteria and position and exercise limits would apply to 
any cash-settled FLEX ETF option, as would the Exchange's surveillance 
program, the Exchange believes the 50-ETF cap is no longer necessary. 
The Exchange believes these protections and the eligibility criteria 
themselves sufficiently mitigate any manipulation concerns associated 
with cash-settled FLEX ETF Options.
    The Exchange also notes that, consistent with its commitment in the 
original proposal, it will continue to furnish the Commission with 
annual reports for the remainder of the five-year review period. The 
Exchange believes that the continued reporting commitment, together 
with the proposed amendments, appropriately positions the cash-settled 
FLEX ETF Option framework to address the operational gaps identified 
through the Exchange's review to date while preserving the monitoring 
mechanisms that allow the Exchange and the Commission to evaluate the 
ongoing impact of the program.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\22\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\23\ in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, 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. In addition, the Exchange 
believes that the proposed rule change is consistent with the Section 
6(b)(5) \24\ requirement that the rules of an exchange not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 15 U.S.C. 78f(b)(5).
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One-Month Lookback for Newly Eligible ETFs
    The Exchange believes the proposed one-month lookback for newly 
FLEX-eligible ETFs is consistent with the Act because it removes an 
impediment to the offering of cash-settled FLEX ETF Options on ETFs 
that have already demonstrated the liquidity and trading activity that 
the eligibility criteria are designed to capture, without

[[Page 62776]]

compromising the manipulation-resistant features of those criteria. 
Under the current rule, an ETF that becomes FLEX-eligible after a bi-
annual review has been conducted must wait up to six months before it 
may be considered for cash-settled FLEX ETF Option eligibility, even if 
it satisfies both the $600 million average daily notional value 
threshold and the 5,616,000-share ADV requirement at the time it 
becomes FLEX-eligible. The Exchange believes this gap is not necessary 
to protect against manipulation.
    An ETF that satisfies both heightened thresholds over the prior 
one-month period has demonstrated a degree of liquidity and breadth of 
trading activity exceeding that which the six-month bi-annual review is 
designed to identify as indicative of reduced susceptibility to 
manipulation. The heightened thresholds, which represent a 20% increase 
over the standard $500 million and 4,680,000-share thresholds 
applicable to the bi-annual review, are designed to account for the 
possibility that a newly listed ETF may experience elevated trading 
activity in its initial period that is not representative of sustained 
liquidity. As noted above, Cboe's and the Exchange's annual monitoring 
reports have demonstrated the existing eligibility criteria are an 
effective and reliable proxy for identifying ETFs that are not readily 
susceptible to manipulation, and neither Cboe nor the Exchange has 
identified any manipulation concerns in connection with cash-settled 
FLEX ETF Options or their underlying ETFs during that period. The 
Exchange therefore believes that permitting a one-month lookback for 
newly FLEX-eligible ETFs between bi-annual reviews, subject to the 
heightened thresholds, removes an impediment to and perfects the 
mechanism of a free and open market and protects investors and the 
public interest by providing timely investor access to a cash-
settlement alternative on ETFs that satisfy the established eligibility 
criteria, while maintaining the protections afforded by those criteria.
    Cboe's back-testing analysis further supports the consistency of 
the heightened thresholds with the Act's anti-manipulation objectives. 
Under the standard criteria, ten newly listed FLEX ETFs would have 
qualified based on one month of trading data, but under the 20% 
increased thresholds only 8 qualified. The two names excluded (AMDL and 
SIVR) did not qualify at their next six-month bi-annual review, 
confirming that the heightened thresholds effectively identify and 
exclude ETFs whose initial trading statistics do not reflect sustained 
market activity. The Exchange believes this empirical evidence 
demonstrates that the heightened thresholds are reasonably designed to 
prevent ETFs with potentially transient liquidity from qualifying for 
cash settlement based on the shorter lookback period.
Tiered Criteria for ETFs Ceasing To Satisfy Eligibility Requirements
    The Exchange believes the proposed tiered framework for ETFs that 
cease to satisfy the eligibility criteria at the time of a bi-annual 
review is consistent with the Act because it is reasonably designed to 
prevent fraudulent and manipulative acts and practices while also 
promoting just and equitable principles of trade and protecting 
investors. The current rule applies a single, uniform wind-down 
treatment to any ETF that falls below the eligibility thresholds at bi-
annual review, regardless of whether active open interest in cash-
settled FLEX ETF Options overlying that ETF exists. The Exchange 
believes this one-size-fits-all approach does not adequately account 
for the legitimate interests of market participants that hold existing 
cash-settled positions or that need the ability to open new positions 
to manage existing risk exposure in an ETF that has temporarily fallen 
below the thresholds.
    The proposed tiered framework addresses this concern in a manner 
consistent with the Act's investor protection and anti-manipulation 
objectives. Where no open interest in cash-settled FLEX ETF Options 
overlying the affected ETF has existed during the previous six-month 
period, the current treatment would continue to apply, because the 
Exchange believes an immediate restriction on new cash-settled 
positions would not disrupt market participants' activity. Where open 
interest does exist at the time of the bi-annual review, the proposed 
one-year continuation period provides market participants with a 
reasonable and predictable runway to manage existing positions, which 
the Exchange believes promotes just and equitable principles of trade. 
The Exchange further believes that the recovery provision, under which 
the continuation period terminates and full eligibility is restored if 
the ETF satisfies the criteria at either bi-annual review during the 
one-year period, is consistent with the Act because it prevents an 
unnecessarily disruptive wind-down where an ETF's trading statistics 
temporarily dip below the eligibility thresholds and then recover, and 
it reinforces the principle that the eligibility criteria, rather than 
arbitrary timing, are the appropriate determinant of cash-settlement 
eligibility. Taken together, the Exchange believes the tiered framework 
is a reasonable means to address manipulation concerns while not unduly 
burdening market participants with existing cash-settled positions, as 
it eliminates the current immediate disruption to their investment 
strategies.
Elimination of the 50-ETF Cap
    The Exchange believes the elimination of the 50-ETF cap is 
consistent with the Act because the cap is no longer necessary to 
protect against the concerns it was designed to address and, as 
currently operative, functions as an impediment to the offering of 
cash-settled FLEX ETF Options on ETFs that otherwise satisfy the 
established eligibility criteria. The cap was adopted at the outset of 
the program to prevent the scope of cash-settled FLEX ETF Options from 
expanding considerably without a corresponding evaluation of whether 
the level of the eligibility requirements remained reasonable. While 
the number of qualifying ETFs remained well below 50 during the initial 
period of the program's operation, that number has more recently grown 
to exceed the cap, such that the cap now actively restricts the 
availability of cash-settled FLEX ETF Options on ETFs that fully 
satisfy the notional value and ADV requirements of Rule 5.32-O. The 
Exchange believes that retaining this arbitrary restriction is 
inconsistent with the Act's objectives because Cboe's two-year 
monitoring record demonstrates that the eligibility criteria themselves 
limit the availability of cash settlement to FLEX ETF Options. The 
liquidity and trading activity requirements mitigate manipulation 
concerns for any ETF that satisfies those requirements, not just the 
top 50.
    During the first two years that cash-settled FLEX ETF Options were 
available on Cboe, it identified (and its annual monitoring reports 
demonstrated) no manipulation concerns in connection with cash-settled 
FLEX ETF Options or their underlying ETFs. The Exchange did not 
identify any manipulation in its two years of monitoring. The Exchange 
believes the eligibility criteria, position and exercise limits, and 
surveillance program applicable to the 50 ETFs eligible for FLEX 
options with cash-settlement provide adequate protections against 
manipulation and market disruption to all ETFs that satisfy the 
criteria, regardless of the number of qualifying ETFs. The Exchange 
therefore believes that eliminating the cap

[[Page 62777]]

removes an impediment to and perfects the mechanism of a free and open 
market, protects investors and the public interest, and is otherwise 
consistent with the Act.

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. In this regard and as 
indicated above, the Exchange notes that the rule change is 
substantially similar in all material respects to proposals submitted 
by Cboe, ISE and PHLX.\25\
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    \25\ Cboe Approval Order, ISE Notice and PHLX Notice, supra 
notes 4-6.
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    The Exchange does not believe that the proposed rule change will 
impose any burden on inter-market competition as the proposal is not 
competitive in nature. The Exchange expects that all option exchanges 
have or will adopt substantively similar proposals, such that the 
Exchange's proposal would benefit competition. For these reasons, 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. The Exchange's proposal does not burden intra-
market competition because all Options Trading Permit (``OTP'') Holders 
and OTP Firms would be subject to the proposed changes to Rule 5.32-O. 
The Exchange believes that the proposed rule change will also provide 
additional opportunities for market participants to continue to 
efficiently achieve their investment and trading objectives for equity 
options on the Exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \26\ and Rule 19b-4(f)(6) thereunder.\27\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.
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    \26\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \27\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \28\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\29\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. Waiver of the 30-day 
operative delay would allow the Exchange to immediately align its rules 
with the current rules of Cboe, ISE and PHLX. The Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest. Accordingly, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change operative upon filing.
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    \28\ 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, along 
with a brief description and text of 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.
    \29\ 17 CFR 240.19b-4(f)(6)(iii).
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    At any time within 60 days of the filing of such 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 under 
Section 19(b)(2)(B) \30\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \30\ 15 U.S.C. 78s(b)(2)(B).
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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#4230372e276f212d2f2f272c3631023127216c252d34"><span class="__cf_email__" data-cfemail="90e2e5fcf5bdf3fffdfdf5fee4e3d0e3f5f3bef7ffe6">[email&#160;protected]</span></a>. Please include 
file number SR-NYSEARCA-2026-99 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-NYSEARCA-2026-99. 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-NYSEARCA-2026-99 and should be submitted 
on or before October 23, 2026.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-20196 Filed 10-1-26; 8:45 am]
BILLING CODE 8011-01-P


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