I. Introduction

On January 10, 2025, the Investors Exchange LLC (“IEX” 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 adopt rules to govern the trading of options on IEX Options LLC (“IEX Options”). The proposed rule change was published for comment in the Federal Register on January 21, 2025.^[3] On March 6, 2025, the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.^[4] On March 12, 2025, the Exchange filed Amendment No. 1 to the proposed rule change, which superseded and replaced the original proposal in its entirety.^[5] The proposed rule change, as modified by Amendment No. 1, was published for comment in the Federal Register on March 19, 2025.^[6] On April 21, 2025, the Commission instituted proceedings to determine whether to approve or disapprove the proposed rule change, as ( printed page 45862) modified by Amendment No. 1.^[7] On June 13, 2025, the Exchange filed Amendment No. 2 to the proposed rule change, which superseded and replaced Amendment No. 1 in its entirety. On June 17, 2025, the Exchange withdrew Amendment No. 2 and filed Amendment No. 3, which replaced and superseded Amendment No. 1 in its entirety. The proposed rule change, as modified by Amendment No. 3, was published for comment in the Federal Register on June 24, 2025.^[8] On July 17, 2025, the Commission designated a longer period within which to approve or disapprove the proposed rule change.^[9] The Commission has received comments on the proposal.^[10] This order approves the proposed rule change, as modified by Amendment No. 3.

II. Description of the Proposed Rule Change, as Modified by Amendment No. 3 ^[11]

The Exchange's proposal sets forth rules in connection with its launch of IEX Options, which will be “a fully automated trading system built on the core functionality of the Exchange's approved equities platform” for the listing and trading of options issued by the Options Clearing Corporation.^[12] As discussed in the proposal, as modified by Amendment No. 3, the Exchange proposes to operate IEX Options as a pro-rata options market with a latency mechanism.^[13] Specifically, IEX proposes “to utilize a de minimis delay on incoming order and quote messages designed to enable IEX to obtain the most accurate view of the market prior to processing orders and quotes” (“access delay”) to support an optional Options Risk Parameter (“ORP”) that is “designed to protect [registered market makers on IEX] from excessive risk due to execution of quotes at stale prices . . . .” ^[14]

The Exchange's rules applicable to the IEX equities market, contained in Chapters 1 through 16 of its rulebook, will apply to Options Members unless a proposed rule in proposed Chapters 17 through 29, applicable to the IEX Options market, applies or the context otherwise requires.^[15] With the exception of the access delay and ORP, the proposed rules for IEX Options are all substantially similar or substantively identical to the rules of other options exchanges.^[16]

Definitions

The Exchange proposes to define relevant terms in proposed Rule 17.100, which terms are either identical or substantially similar to definitions included in MEMX Options Rule 16.1 or rules of Cboe, MIAX, or NYSE Amex.^[17]

Chapters 18 Through 21

In Chapter 18, the Exchange proposes to set forth rules governing participation on IEX Options.^[18]

Specifically, the Exchange will authorize any Exchange Member that meets certain qualifications and their Sponsored Participants to obtain access to and transact business on IEX Options.^[19] To accomplish this, the Exchange is adding new categories of trading permits for a new type of member called “Options Member” that can participate as an Options Order Entry Firm, Options Market Maker, or Clearing Member.^[20] An Options Member that represents Customer Orders as agent on IEX Options or that conducts proprietary trading as a non-Options Market Maker will be referred to as an Options Order Entry Firm (“OEF”).^[21] Options Market Makers are Options Members registered, pursuant to Rule 23.100, as either a “Registered Market Maker” or a “Specialist.” ^[22]

Only Options Members and their Sponsored Participants ^[23] may transact business on IEX Options via IEX Options' trading system (the “System”).^[24] Options Members may trade options for their own proprietary accounts or, if authorized to do so under applicable law, and consistent with these Rules and with applicable law and SEC rules and regulations, may conduct business on behalf of Customers.^[25]

The Exchange will authorize any Exchange Member that meets certain enumerated qualification requirements and any Options Member's Sponsored Participants to obtain access to, and transact business on, IEX Options.^[26] Among other things, OEFs and other Options Members that transact business with Public Customers must be ( printed page 45863) members of the Financial Industry Regulatory Authority (“FINRA”).^[27] An Options Member also must maintain membership in another registered options exchange that is not registered solely under Section 6(g) of the Act (15 U.S.C. 78f(g)) or in FINRA.^[28] Every Options Member also will be required to have at least one registered Options Principal with responsibility for the overall oversight of the Options Member's options-related activities on the Exchange.^[29] Proposed Rules 18.100, 18.110, 18.120, 18.130 are substantially similar to the analogous rules on MEMX Options, and proposed Rule 18.140 is similar to the analogous rule on Cboe.^[30]

In addition, the Exchange proposes to adopt rules in Chapter 19 regarding business conduct that are substantively identical to MEMX Options rules.^[31]

In Chapter 20, the Exchange proposes to adopt rules regarding listing standards for options traded on IEX Options that are substantively identical to MEMX Options rules ^[32] and in Chapter 21, to adopt rules that are substantially similar to MEMX Options rules regarding regulation of trading, including rules addressing halts, unusual market conditions, extraordinary market volatility, obvious errors, audit trail, and rules regarding prohibited and permissible transfers of options positions off the Exchange.^[33]

Chapter 22—Trading Systems

The Exchange proposes to adopt rules in Chapter 22 regarding the System.^[34] IEX Options will not have a physical trading floor.

IEX Options will be open on normal business days and will accept orders and quotes beginning at 8:00 a.m. Eastern time until 4:00 p.m. except for options contracts on Fund Shares and options contracts on exchange-traded notes including Index-Linked Securities, which may close as of 4:15 p.m.^[35] IEX Options will accept quotes, Market orders, and Limit orders with a Time-in-Force (“TIF”) of Day for inclusion in the opening process.^[36] The Exchange will conduct its opening auction for each series after the primary market for the underlying security first disseminates both a two-sided quote and a trade of any size at or within the quote (or, after a Regulatory Halt, notification that the underlying stock is no longer halted), after which it will transition to continuous trading.^[37]

The Exchange's minimum quotation and trading increment will be the same as on other exchanges ^[38] and the minimum trading increment will be one cent for all series.^[39] In addition, the Exchange's Penny Interval Program is substantially similar to the penny programs of other exchanges, which includes minimum quoting requirements for options classes listed under the Penny Interval Program.^[40]

IEX Options will offer standard order types and handling instructions including Book Only, Post Only, and Intermarket Sweep Orders.^[41] In addition, for certain processes, IEX Options may allow a User ^[42] to optionally mark an order as “attributable” to that User's MPID, resulting in the order displaying the User's MPID for purposes of trading on the Exchange.^[43]

IEX Options will allow Users to specify TIF designations on their orders and quotes of Immediate or Cancel (“IOC”) or Day.^[44] Like other options exchanges, IEX Options will offer a re-pricing Price Adjust mechanism to comply with applicable order protection and trade through restrictions that will offer a single price adjustment.^[45] As with its equities market, the Exchange will allow Users to use certain Anti-Internalization Qualifier (“AIQ”) modifiers to prevent execution of orders originating from the same identifier including: AIQ Cancel Newest, AIQ Cancel Oldest, AIQ Cancel Both, and AIQ Cancel Smallest.^[46]

IEX Options will have a pro-rata allocation model with execution priority dependent on the size and capacity of an order.^[47] Resting quotes and orders will be prioritized according to price, after which contracts will be allocated proportionally according to size (in a pro-rata fashion), rounded down to the nearest whole contract.^[48] Residual options contracts will be filled one at a time based on price-size-time priority.^[49]

IEX Options will support priority overlays, which the Exchange may make available on a class-by-class basis.^[50] The Priority Customer overlay will provide resting interest from Priority Customers with priority over all non-Priority Customer interest at the same price and will always take priority over all other priority overlays.^[51] The Specialist Participation Entitlement overlay will provide a Specialist with priority over interest from other non-Priority Customers for a certain percentage of contracts allocated at the same price (entitling Specialists to a 60% allocation if there is one other non-Priority Customer at the National Best Bid or National Best Offer (“NBBO”) or 40% if there are two or more other non-Priority Customers at the NBBO ^[52] ) when quoting at the NBBO, inclusive of the case in which the order is directed to Specialists.^[53] The Directed Market Maker Participation Entitlement overlay ^[54] will provide a Directed Market Maker with priority over interest from other non-Priority Customers for a certain percentage of contracts allocated at the same price (entitling the Directed Market Maker to a 60% allocation if there is one other non-Priority Customer at the NBBO or 40% if there are two or more other non-Priority Customers at the NBBO ^[55] ) when quoting at the NBBO, and always applies in place of the Specialist Participation Entitlement overlay when both are in effect and the order is directed to a Directed Market Maker other than the Specialist.^[56] The Small-Size Order Entitlement overlay ^[57] will provide a Specialist quoting at the NBBO with priority to execute against the entire size of an order or quote of five or fewer contracts that does not first execute against any Priority Customer orders at that price. However, if an order that is subject to the Small-Size Order Entitlement is directed to a Directed Market Maker who is not the Specialist quoting at the NBBO, and the Directed Market Maker priority overlay is enabled in the series, then the Directed Market Maker Participation Entitlement priority overlay will apply instead of the Small-Size Order Entitlement priority overlay.^[58] In the case that an order subject to the Small-Size Order Entitlement is directed to the Specialist, the Small-Size Order Entitlement priority overlay will apply while the Specialist Participation Entitlement and Directed Market Maker Entitlement overlays will not.^[59]

IEX Options will offer an optional Step Up Mechanism (“SUM”) in designated classes that is substantively identical to functionality offered by Cboe, except that IEX will not offer all or none orders.^[60] If elected, SUM will expose a routable order and initiate an auction when the order is not immediately eligible for execution on IEX because IEX is not at the NBBO.^[61] Any remaining portion of the order will be routed to other exchanges.^[62]

To facilitate compliance with applicable regulations, including the Options Order Protection and Locked/Crossed Market Plan, IEX Options will offer an optional service to route orders to away exchanges when the Exchange is not at the NBBO via IEX Services LLC (“IEX Services”), which is subject to regulation as a facility of the Exchange. IEX Services will transmit such orders to other options exchanges via one or more routing brokers that are not affiliated with the Exchange (“Routing Services”).^[63] Users that do not wish to use Routing Services can designate their orders as not available for routing.^[64] Orders that have been routed by the System to other options exchanges are not ranked and maintained in the IEX Options Book. If a routed order is subsequently returned, in whole or in part, that order, or its remainder, will receive a new time stamp reflecting the time of its return to the System.^[65]

The Exchange will offer three proprietary data feeds: (1) IEX Options DEEP (depth of book quotations and execution information based on options orders entered into the System); (2) IEX Options TOPS (top of book quotations and execution information based on options orders entered into the System); and (3) DROP (regarding the options trading activity of a User).^[66]

The proposed rules in Chapter 22 are substantially similar or substantively identical to rules from MEMX Options, NYSE Amex, NYSE Arca, Cboe, and MIAX.

Chapter 23—Market Participants

Chapter 23 will govern registration and obligations of market participants.^[67]

An Options Member will be able to apply to register with the Exchange as an Options Market Maker (or “Market Maker”) for the purpose of making transactions as a dealer-specialist in one or more classes of options.^[68] A Market Maker can participate as a Registered Market Maker or seek an appointment as a Specialist in a particular class by qualifying through the Exchange's ( printed page 45865) Specialist Qualification Process.^[69] While the Exchange may appoint multiple Registered Market Makers to a particular class of options contracts,^[70] only one Specialist will be appointed to an options class.^[71]

Each Options Market Maker must employ Registered Options Traders (“ROTs”) to submit Options Market Maker quotations and orders to the System solely for the account of the Market Maker with which it is associated. ROTs may be individual Options Members registered with the Exchange as Market Makers, or officers, partners, employees, or associated persons of Options Members that are registered with the Exchange as Market Makers.^[72]

Quotations may only be entered by a Market Maker and only in its appointed classes.^[73] Market Makers can submit “bulk messages” in their appointed classes, which are a single electronic message to enter, modify, or cancel up to a specified number of bids and offers. The System handles a bulk message in the same manner as it handles an order or quote, unless the Exchange Rules specify otherwise. Bulk messages will have a default TIF of Day and a default designation of Post Only. As proposed, the System will cancel, reject, or reprice a Post Only bulk message bid (offer) with a price that locks or crosses the Exchange best offer (bid) or away best offer (away best bid).^[74]

Both Registered Market Makers and Specialists will be vested with certain rights and responsibilities and will be required to electronically engage in a course of dealing reasonably calculated to contribute to the maintenance of fair and orderly markets.^[75] Specialists will be subject to obligations in addition to those applicable to Registered Market Makers.^[76]

Among other things, a Registered Market Maker must provide continuous two-sided quotations throughout the trading day in its appointed issues for 60% of the time the Exchange is open for trading in each issue,^[77] while a Specialist must provide continuous two-sided quotations throughout the trading day in its appointed issues for 90% of the time the Exchange is open for trading in each issue,^[78] provided in both instances that the options classes have a time to expiration of less than nine months.^[79] In addition, Market Maker quotes must be firm quotes that comply with enumerated price and size rules ^[80] and Market Makers must maintain minimum net capital in accordance with applicable rules.^[81]

Both Specialists and Registered Market Makers may also participate as Directed Market Makers that can receive Directed Orders ^[82] entered into the System on behalf of Priority Customers.^[83] Directed Market Makers will be subject to enhanced quoting obligations compared to Registered Market Makers.^[84]

In exchange for accepting these obligations, Registered Market Makers, Specialists, and Directed Market Makers are provided certain benefits such as credit from lenders without regard to the restrictions in Regulation T of the Board of Governors of the Federal Reserve System if the credit is to be used to finance the broker-dealer's activities as a specialist or market maker on a national securities exchange.^[85] Another benefit is that Specialists and Directed Market Makers will be granted participation entitlements. As discussed above, Specialists will receive the Specialist Participation Entitlement overlay ^[86] and the Small-Size Order Entitlement priority overlay,^[87] and Directed Market Makers will receive the Directed Market Maker Participation Entitlement overlay, subject to certain conditions.^[88]

The Exchange will periodically evaluate Options Market Makers to determine whether each has fulfilled the Exchange's performance standards for Registered Market Makers or Specialists, ( printed page 45866) as applicable.^[89] Substantial or continued failure by a Registered Market Maker to meet any of its obligations and duties may subject the Registered Market Maker to disciplinary action, suspension, or revocation of its registration as such or its appointment in one or more of its appointed options classes.^[90] For Specialists, a finding by the Exchange that a Specialist has failed to meet minimum performance standards may result in one or more of the following actions: a moratorium on the allocation of new options issues, a reallocation of existing options, and other disciplinary actions as deemed appropriate under the rules of the Exchange.^[91]

Options Risk Parameter

The Exchange will offer the ORP as an additional optional risk tool in addition to the standard risk tools it will make available to Options Market Makers.^[92] According to IEX, “[t]he ORP is designed to enable Market Makers to provide tighter and deeper quotes on IEX by providing protection from execution against quotes at stale prices by identifying when the best Protected Bid or best Protected Offer of the Away Markets (as defined in proposed Rule 22.160(a)(8)) in a particular options series is sufficiently dislocated from the price of the underlying security to indicate that the best Protected Bid or best Protected Offer of the Away Markets in the options series is likely in transition.” ^[93] The Exchange will offer the ORP on a class-by-class basis and may not offer the ORP in all classes.

To support the ORP, IEX Options will employ a hardware-based latency mechanism that adds 350 microseconds of additional latency to each incoming order and quote message from any User, like it does for its equities platform.^[94] This latency mechanism provides the Exchange with a very short amount of time to “obtain the most accurate view of the market prior to processing orders and quotes” as it takes in current market data, performs the calculations that inform the ORP, and then cancels or adjusts quotes that have elected to use the ORP.^[95]

The ORP will be informed by the Options Quote Indicator (“Indicator”) based on the Black-Scholes options pricing model, which will “assess the materiality of an imminent change to the current best Protected Bid of the Away Markets to a lower price or of an imminent change to the current best Protected Offer of the Away Markets to a higher price for a particular listed options series ( i.e., an imminent adverse price change).” ^[96] To perform this assessment, the Indicator will use both real time relative quoting activity of protected quotations from eleven exchanges ^[97] and a proprietary quote instability calculation.^[98]

According to the Exchange, when the quote instability calculation “identifies an imminent adverse price change to the best Protected Bid and/or best Protected Offer of the Away Markets in a particular listed options series, it will generate a quote instability determination” that “may only be generated at least 200 microseconds after a prior quote instability determination for a particular options series on the same side of the market ( i.e., affecting resting bids or offers).” ^[99] The 200-microsecond waiting period ensures that the ORP does not trigger repeatedly in rapid succession, which helps to narrowly tailor the effect that the ORP could have when it cancels or reprices quotes.^[100] Once triggered, “[i]f a quote instability determination is generated for an options series quoted by a Market Maker and the quote is above (below) the price level of the quote instability determination, the quote will be either cancelled or repriced to the price level of the quote instability determination, as instructed by the Market Maker” in advance on its quote.^[101]

Subject to a proposed rule change filing, the Exchange can adjust within prescribed ranges three aspects of the Indicator's formula—the frequency of calculation of implied volatility,^[102] the Quote Instability Threshold,^[103] and the Delta Bound Band that determines which series are eligible for the ORP.^[104] For each of these three aspects, the Exchange specifies in the rule text the possible ranges or values it may use and also specifies in the rule text the applicable range or value that is in effect.^[105] The applicable rule text reflects that the Exchange will submit a proposed rule change under Rule 19b-4 for any changes to the applicable ranges or values that are in effect.^[106] When determining to modify values within the specified range for the Quote Instability Threshold and the Delta Bound Band, the Exchange states that it would consider “the distribution of quote instability determinations, the precision of quote instability determinations, system capacity and performance, fill rates, markout data, and client feedback.” ^[107]

The Exchange also proposes to require Options Members to expose their customers' orders on the Exchange for at least one second under certain circumstances before trading against such orders. The Exchange explains that this is consistent with the rules of other ( printed page 45867) options exchanges ^[108] and therefore would allow members of such other options exchanges to comply with proposed Rule 23.200 without having to program separate time parameters into their systems for compliance or order entry purposes.^[109]

The proposed rules within Chapter 23 are substantially similar or substantively identical to rules from MIAX, NYSE Amex, MEMX Options, and Cboe, with the exception of the proposed ORP.

Chapters 24 Through 29

The Exchange also proposes to adopt the following chapters: (i) Chapter 24 regarding exercises and deliveries; ^[110] (ii) Chapter 25 regarding records, reports, and audits; ^[111] (iii) Chapter 26 regarding discipline and summary suspension; ^[112] (iv) Chapter 27 regarding doing business with the public; ^[113] (v) Chapter 28 regarding options order protection and locked and crossed markets; ^[114] and (vi) Chapter 29 regarding margin requirements.^[115] The proposed rules within these chapters are substantively identical to MEMX Options rules.

Other Provisions

Before commencing operations, IEX Options will become a member of the Options Price Reporting Authority (“OPRA”).^[116] As a member of OPRA, IEX Options will disseminate to OPRA its highest bid and its lowest offer and aggregate quotation size in accordance with Rule 602 of Regulation NMS.^[117] IEX Options also will become an exchange member of the Options Clearing Corporation (“OCC”) and will be linked to OCC to transmit locked-in trades for clearance and settlement.

With respect to options regulation, the Exchange's Chief Regulatory Officer, who reports to the Regulatory Oversight Committee of the Exchange's board of directors, will supervise the regulatory operations of IEX Options, including surveillance, examination, and enforcement functions and will administer regulatory services agreements applicable to IEX Options. The Exchange's existing Regulatory Oversight Committee will be responsible for overseeing the adequacy and effectiveness of the Exchange's regulatory and self-regulatory organization responsibilities, including those applicable to IEX Options. The Exchange proposes to amend its Minor Rule Violation Plan (“MRVP”) to add rules related to the operation of IEX Options consistent with other options exchanges.^[118]

As discussed in more detail in its filing, the Exchange will join the Options Order Protection and Locked/Crossed Market Plan, the multiparty plans under Rule 17d-2 applicable to options, a bilateral Rule 17d-2 plan with FINRA as well as a Regulatory Services Agreement with FINRA, the Options Regulatory Surveillance Authority (“ORSA”), and the Options Listing Procedures Plan (“OLPP”).^[119]

Finally, the Exchange proposes to modify several existing rules to accommodate IEX Options including Exchange Rule 2.160(i) (concerning registration of Principals), Exchange Rule 2.220 (concerning routing by IEX Services), and Exchange Rule 9.208 (concerning minor rule violations) as well as adopt new Rule 21.220 (concerning limitation of liability) into the options portion of its rulebook that corresponds to Rule 11.260 in the equities portion of its rulebook. These rule amendments are designed to accommodate options trading on IEX Options in a manner similar to existing options exchanges.^[120]

III. Discussion and Commission Findings

After careful review, the Commission finds that the Exchange's proposal, as modified by Amendment No. 3, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.^[121] In particular, the Commission finds that the proposed rule change, as modified by Amendment No. 3, is consistent with Section 6 including, among others, Sections 6(b)(1),^[122] 6(b)(5),^[123] and 6(b)(8) ^[124] of the Act. Section 6(b)(1) of the Act requires that an exchange be so organized and have the capacity to be able to carry out the purposes of the Act and to comply and enforce compliance by its members and persons associated with its members with the provisions of the Act, the rules and regulations thereunder, and the rules of the Exchange. Section 6(b)(5) of the Act requires that the rules of a national securities exchange be designed, among other things, 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, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. Section 6(b)(8) of the Act requires that the rules of a national securities exchange not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.^[125]

As detailed above, most of IEX Options' proposed rules are substantially similar or substantively identical to those of other exchanges and do not raise any novel issues.

The proposed ORP, together with the access delay that effectuates it, are novel for an options exchange and were the focus of commenters. However, as discussed below, an access delay paired with a mechanism to cancel or reprice orders is not novel for trading on an exchange in general as IEX already operates its equities market with the exact same access delay and an order type (D-Limit order) that can be repriced or cancelled by the Exchange.

As discussed below, the ORP is a new type of options market maker risk protection designed to protect options market makers from latency arbitrage when they need to update their option quotes following a change in the price of the security underlying the option. Options exchanges commonly offer optional risk mitigation functionality (also called risk controls) that allow market makers and others to have the exchange automatically cancel their quotes and orders when certain triggers specified by the market participant are met.^[126] The material differences between existing options risk mitigation functionality and the ORP, discussed further below, are that (1) the ORP can reprice a quote whereas existing risk mitigation functionality will only cancel quotes and orders and (2) the ORP is effectuated by a de minimis access delay on all incoming messages and orders to enable the Exchange to operate it during periods where latency arbitrage may be present.

The same reasons the Commission approved the D-Limit order type effectuated by the 350-microsecond access delay for the IEX equities market also apply to the options context for the ORP effectuated by an identical 350-microsecond access delay, as explained below.^[127] Those reasons are even more appropriate in the options context, as discussed below.

A. Exchange Members

As described above, only Options Members and their Sponsored Participants will be permitted to transact on the System.^[128] The Exchange also proposes rules governing member operations and member conduct, all of which are substantively identical to the rules of other exchanges, including MEMX Options. Those rules include recordkeeping and reporting requirements,^[129] discipline,^[130] margin requirements,^[131] and requirements applicable to doing business with the public.^[132]

The rules applicable to qualification, registration, member operations, and use of IEX Options are substantially similar to those of other options exchanges. For the same reasons provided by the Commission in its order approving MEMX Options,^[133] the proposed qualification, registration, member operations, and use of IEX Options requirements provide the Exchange with the capacity to carry out the purposes of the Exchange Act and enforce compliance by its members and persons associated with its members with the provisions of the Exchange Act, the rules and regulations thereunder, and the rules of the Exchange, provide that registered broker-dealers can become members and have access to IEX Options, and ensure that Options Members and their associated persons can be appropriately disciplined for violations of the Act, the rules and regulations thereunder, and Exchange rules.^[134]

Additionally, for the same reasons provided by the Commission in its order approving the MIAX exchange registration application,^[135] the proposed Options Market Maker registration and qualification requirements provide an objective process by which an Options Member could become a Market Maker on IEX, and provide for continued oversight by the Exchange to monitor for continued compliance by Market Makers with the terms of their application for such status.^[136] The proposed registration and qualification requirements are also substantially similar to those of other options exchanges, such as MIAX and NYSE Amex.^[137]

The proposed Options Market Maker participation requirements provide that Market Makers receive certain benefits for carrying out their responsibilities.^[138] At the same time, the proposed IEX Options Market Maker participation requirements impose affirmative obligations on Market Makers that balance the benefits afforded to such participants.^[139] In addition, the continuous quoting obligations for Market Makers are designed to contribute to the maintenance of a fair and orderly market. Further, IEX Options' Market Maker participation requirements are substantially similar to the participation requirements of other exchanges that the Commission has previously approved.^[140]

B. IEX Options Market Structure and Trading Rules

With the exception of the ORP and the access delay that effectuates it, the functionalities and features of IEX Options are based on the functionalities and features previously approved for other options exchanges and do not raise novel issues. Among other things, IEX's proposed rules provide for a simple, orderly opening process for an exchange that only trades multiply listed options and an orderly re-opening process following the conclusion of a trading halt. Further, the rules provide for the electronic display and execution of orders using a pro-rata allocation model with execution priority dependent on the size and capacity of an order. IEX Options will only utilize the two industry standard order types (Limit orders and Market orders) and will offer a limited suite of order handling instructions that are substantially similar to the rules of other options exchanges, all of which are well-established in both the equities and ( printed page 45869) options markets. The rules also provide an optional SUM that would initiate an auction for orders that are not immediately executable on the Exchange.^[141] For the same reasons provided by the Commission in its orders approving other similar options exchange rules, the proposed execution priority rules and order types are designed to promote just and equitable principles of trade and are not designed to permit unfair discrimination between customers, issuers, brokers or dealers.^[142]

1. Access Delay and the Options Risk Parameter

As it does for equities, IEX will operate IEX Options subject to a physical latency mechanism that applies an access delay of 350 microseconds on all incoming quote and order messages from all Users. IEX explains that the delay is intended to “support IEX's ability to accurately account for contemporaneous market data” by providing a de minimis amount of time for “IEX to obtain the most accurate view of market data prior to executing an order or quote.” ^[143] Specifically, the delay “supports operation of the ORP” by providing “adequate time for the IEX System to obtain the most accurate view of market data to enable it to accurately price orders as well as to perform the Indicator calculation with current market data.” ^[144]

The ORP is an optional risk parameter available to Market Makers for their displayed quotes in certain classes. The ORP will identify when the price of an option on specified Away Markets ^[145] “is sufficiently dislocated from the price of the underlying security to indicate that the best Protected Bid or best Protected Offer of the Away Markets in the options series is likely in transition.” ^[146] An options quote would be sufficiently dislocated from the price of its underlying stock if, e.g., the stock price moved by a large enough amount that the price of the option on it is now mispriced or “stale” ( i.e., not yet updated to reflect the current market price of the underlying security). When the quote instability calculation identifies an unstable quote for a specific options series where a Market Maker is quoting and has the ORP enabled for its quote, IEX will effectuate the Market Maker's preexisting instructions to either: (1) cancel the quote or (2) reprice the quote to the price level of the quote instability determination.^[147] The access delay, which enables the System to perform the Indicator calculation with current market data, supports the ORP. IEX believes that this protection will “encourage market makers to post aggressively priced and/or deeper quotes on [IEX Options] which will benefit all market participants” who will have access to that liquidity.^[148]

IEX may not offer the ORP in all options classes. Rather, it will determine on a class-by-class basis whether to make the ORP available.^[149] Specifically, the Exchange will “focus its technology resources in an impactful manner” by offering the ORP in classes where it is likely to “achieve its intended purpose, while excluding its use where it would likely provide minimal incremental value (for example, for classes with nonstandard characteristics).” ^[150] Additionally, the ORP is optional. For the ORP to apply, a Market Maker has to designate which quotes will be subject to the ORP.^[151] Thus, not all quotes on IEX will be subject to being cancelled or repriced by the ORP as some classes may not be eligible for the ORP and a Market Maker may or may not elect to use the ORP when it is available.

Some commenters oppose the proposed access delay and the ORP for the reasons discussed below while other commenters support the proposal, as also discussed below.^[152]

a. Quote Fading Concerns

From the perspective of the liquidity taker, quote fading refers to the lack of ability to execute against a displayed quote. The ability of any market participant to successfully execute against any particular displayed quote is subject to a number of factors and is not guaranteed on any market, as at any time any market participant can be seeking to execute against an order that is being repriced, changed, cancelled, or executed by a different market participant.^[153]

Several commenters expressed concern that the ORP together with the access delay will lead to quote fading that could affect liquidity takers.^[154] For example, one commenter expressed concern that the ORP “will lead to increased quote fading and a less reliable displayed NBBO” and stated that it “believe[s] that designating intentionally delayed quotes as protected and requiring market participants to route orders to a delayed exchange whenever that exchange displays the best price—including when such price is stale and no longer accessible, results in inferior executions.” ^[155] Another commenter characterized quotes subject to the ORP as “maybe quotations” that would be “inaccessible” and stated that IEX failed to back up with data its assertion that the ORP would be narrowly tailored.^[156] Similarly, one commenter stated that the proposal could result in order routers experiencing more cancels and lower fill rates because “firms will be forced to route to IEX as if it were a typical firm quote to avoid trade-through and best execution violations.” ^[157] The commenter distinguished the ORP from other options risk protection mechanisms, stating that “ORP is designed to protect the IEX market maker from market movements by not requiring the market maker to be firm. . . .” ^[158]

Other commenters stated that the ORP and the access delay would not cause quote fading.^[159] For example, one commenter stated that the ORP “in no way offers a `last look' or opportunity for market makers to `change their mind' about a quote by examining inbound orders in some nefarious way. . . .” but rather “[t]he chance of missing a fill by the blink of an eye has always—and will always—exist.” ^[160] The commenter stated that options risk mitigation functionality offers “irrefutable precedent” for similar mechanisms that “have been in place for about 20 years” where exchange functionality “prevent[s] execution of otherwise-marketable orders that may already be in flight to the exchange, or even already queued up for execution in the exchange matching engine.” ^[161] Another commenter stated that “the concept of absolute quote firmness that opponents invoke simply does not reflect current practice in modern options markets” because “[o]ptions markets are characterized by ubiquitous repricing and canceling, with market makers employing sophisticated risk controls precisely because the alternative—maintaining stale quotes in rapidly moving markets—would be economically ruinous.” ^[162] Another commenter stated that “[o]rders sent to every exchange are always at risk of missing the market due to a cancel that may already be in flight . . . or an order update from another participant with a faster connection . . . or a shorter geographic distance to the relevant exchange data center.” ^[163] One commenter stated that “[t]he markets disseminated by IEX Options will be fully available for end users to trade, with the exception of the few fractions of a second after the underlying changes while market-maker quotes are being cancelled/updated. These few fractions of a second when quotes are displayed in the NBBO but are unavailable for trading happen regularly on every market, even today.” ^[164] Another commenter, a former US equity options market making firm, stated that “[q]uote availability is already limited by frequent and necessary bulk cancellations as a means of risk control. Market makers regularly cancel entire swaths of quotes in response to volatility or systemic risk.” ^[165] The commenter also stated that, with respect to quote availability, “quote fragmentation, latency asymmetries, and differing exchange protocols contribute to periods of unavailability. These issues are well known to practitioners and are exacerbated during volatile market conditions.” ^[166]

In response to comments, IEX stated that the ORP would not prevent investors from accessing liquidity on IEX Options because the ORP would operate to protect resting orders in microsecond increments that would “add up to a miniscule percentage of the trading day” and since “investors are not attempting to time their orders in the way latency arbitrageurs do, they will be able to access IEX quotes that are subject to the ORP to the same extent as any other exchange quotes.” ^[167] IEX estimated that the ORP would affect quotes less than 0.001% of the trading day, on average,^[168] and stated that “because market makers' systems are designed to react as quickly as possible to price changes in underlying stocks, any moments in which their quotes are substantially misaligned from these prices are necessarily extremely ephemeral, i.e., lasting microseconds.” ^[169] According to IEX, the commenters that argued that the ORP would make quotes inaccessible or undermine the integrity of the NBBO lack support for their allegations and repeat similar arguments made when IEX's D-Limit order type was proposed, and ultimately approved by the Commission, for its equities market.^[170] IEX also cited as precedent options purge ports that provide an expedited way for market makers to “mass cancel” their quotes in bulk across classes and series simultaneously as well as options risk mitigation functionality in place at most options exchanges—activity-based risk limits, arbitrage checks, and intrinsic value checks—that allow market makers to direct an exchange to cancel their quotes or reject orders based on various triggers, and that such risk controls “have never been viewed as allowing `quote fading' by an exchange or the market makers that choose to use them.” ^[171] In contrast to these existing exchange risk controls, IEX stated that the ORP is transparent and predictable as it is triggered by price changes in the underlying securities, while “the circumstances in which other risk limits will be employed may be known only by the market maker and are not transparent to the broader market.” ^[172] IEX further states that it is “providing a very high level of transparency to all aspects of the ORP.” ^[173]

For the same reasons the Commission found that IEX's D-Limit order for equities will not impair access to IEX's quotation, the ORP and the access delay that effectuates it will not impair access to IEX Options' quotation.^[174]

Unlike equities, options are derivative securities, which means their quoted price is derived in substantial part from the price of the underlying security or securities upon which they are based.^[175] Options quotes are primarily provided by options market makers who are the primary liquidity providers of displayed quotes for options because the large number of quoted options products, compared to equities, makes natural liquidity from other market participants less common across the many series across so many options classes.^[176] In those moments when the price of an underlying equity security has changed, ( printed page 45871) a race condition exists between a market maker that needs to update and reprice its option quotes to reflect the changed market price of the underlying security and high-speed liquidity takers that seek the short term opportunity presented by trading against those option quotes before the market maker's quote update can occur.^[177] Some liquidity takers that are technologically sophisticated are able to minimize latencies in seeing and reacting to market data through use of low-latency systems and technology, as well as connectivity and proprietary market data purchased from exchanges, may, as a result, be able to react faster to changing market prices than others (including the market maker that posted the quote) that have not purchased those same low-latency systems, connectivity, and data sources, which can be expensive.^[178] This scenario is “latency arbitrage” and results in economic losses for options market makers when they are unable to update the quoted price of their options derivative securities to correspond to a change in the price of the underlying security because a faster market participant is able to execute against the old “stale” price before the market maker can update it.

To help minimize the risk that its option quote may trade immediately following a price change in the underlying equity security before it is able to update its options quote, a market maker may find utility in an exchange risk protection tool that enables it to more efficiently and expeditiously effectuate options quote updates or take down a quote without the delay that results from it having to send in additional separate messages to instruct the exchange to do so. While some market makers may not need or want such exchange-offered risk protections because they have their own cutting-edge systems, connectivity, and data to minimize latencies and model price movements, other market makers that lack those items might benefit from functionality that minimizes latencies in effectuating quote updates. Updating or cancelling options quotes in response to a change in the price of the underlying equity security is part of the price discovery process for options and activity that a market maker is constantly doing as part of its continuous quoting requirement. The access delay and the ORP together speed up that quote update or cancel process by fractions of a millisecond (because the market maker will not have to send in a separate message to update or cancel its quote) while simultaneously slowing down by those same fractions of a millisecond a market participant attempting to access that quote while the Exchange updates or cancels it.^[179] On account of that small delay, after which a quote could be repriced or cancelled, some commenters assert that the ORP will lead to quote fading because a market participant may not be able to successfully execute against the quote it had seen and thus from the market participant's perspective it may appear as if the quote had faded or disappeared.

First, not all classes will be eligible for the ORP and, for those classes that are eligible, some Market Makers may choose not to use it. When it is used, based on the data provided by IEX discussed in detail below, IEX states that the ORP will infrequently result in the cancelling or repricing of a displayed quote on IEX in response to a very targeted and specific pre-defined signal that suggests a high potential for latency arbitrage—considerably less than 1% of regular trading hours.^[180] This is because the ORP is narrowly tailored to only take action when there is a sufficient dislocation between the price of the underlying stock and the price of the option. When the ORP is not repricing or cancelling a quote, which is virtually the entire regular trading hours session, an options quote subject to the ORP will be as equally accessible as any other quote or order on IEX Options. For the small part of the day when the ORP does reprice or cancel a quote, market participants that are not engaging in latency arbitrage trading strategies are unlikely to be seeking to trade with the quote precisely when it is in the process of being repriced. As noted by several commenters, investors do not typically trade in microseconds and even sophisticated market makers face challenges when competing with the small number of firms that purchase the necessary systems, connectivity, and exchange proprietary market data to target their trading to those precise periods options quotes are temporarily mispriced.^[181]

The ORP attempts to address the latency arbitrage impact on options market makers using a predetermined, transparent, and codified rules-based optional tool.^[182] That tool will cancel or update a quote after the underlying security changes price to reflect that price change. By their nature as derivative securities, options prices are derived in substantial part from the price of the security underlying the option, so market participants expect the price of a derivative to be determined in substantial part by the price of the underlying security.^[183] In the absence of the ORP, when the underlying security changes price, Market Makers quoting the option will correspondingly update their options quote to maintain that derivative pricing relationship. IEX's ORP, if available and opted into, will allow the options quote update process to take effect more promptly than if the Market Maker had to send in separate messages to effect that change itself. While one commenter stated that for “the first time, an exchange will adjust prices of a quote in one asset class using inputs from another asset class,” ^[184] that fact simply reflects that options are derivative securities whose prices are substantially and directly correlated with the price of their underlying security. Since the ORP is designed to reprice (or cancel) a quote to minimize latency arbitrage, IEX needs to use the security price for an input. The ORP will not offer a “last look” to a Market Maker by allowing it to back away from a quote when presented with an incoming order, as one commenter claimed.^[185] The Market Maker will have no ability to influence the operation of the ORP (other than to opt into it or not for each quote it submits to IEX) or to choose which incoming orders to execute against (or not execute against), and IEX will effectuate the ORP without exercising subjective judgment or taking into account the interests of the Market Maker. The ORP is designed to avoid stale quotes by updating or cancelling quotes when latency arbitrage conditions are present following a price change in the underlying security and does not offer Market Makers control over who they execute against or when.

As discussed above, the ORP assesses the probability and materiality of an imminent adverse price change to the ( printed page 45872) options quoted NBBO for each individual series using a formula (the “Indicator”). When the formula generates this “quote instability” determination for an options series, it calculates the appropriate price for the options in light of the new price for the underlying security based on the Black-Scholes options pricing model. IEX then looks to see if the Market Maker's quote for that series (when the Market Maker elected to use the ORP) is above (below) that price level. If it is, IEX will either cancel the quote or reprice it to the level of the quote instability determination (as instructed in advance by the Market Maker). Also, as discussed above, the formula contains a few variables that are set by IEX and can be changed only through a proposed rule change filing, including the Quote Instability Threshold and the Delta Bound Band. The Quote Instability Threshold, set within a range of 0% to 100%, will trigger the ORP to reprice or cancel a quote. The initial value is set at 0.1% meaning the ORP will trigger to cancel or reprice a specific quote when the expected change in the options NBB/NBO is 0.01% of the current value of the NBB/NBO (rounded to the nearest minimum price variation).^[186] The Delta Bound Band, with a range of 0 to 1, reflects an option's delta, which refers to the sensitivity of the options price to changes in the price of the underlying security with higher values indicating greater sensitivity.^[187] The Exchange has no discretion to determine whether it will cancel or reprice a quote subject to the ORP, as the entire process is governed by the formula and methodology contained in the rulebook which is fully transparent to the public and can only be changed through a proposed rule change filing. Because the formula is codified in IEX's rulebook, it is fully transparent and commenters had the opportunity to review IEX's material and critique it and submit their own analysis.

In general, market participants have no guarantee that they will be successful in trading with a quote they see because intervening factors are always present, such as another broker-dealer being faster to access the quote or the market maker that posted it may already have cancelled or repriced it.^[188] The fastest market participants with the most latency sensitive systems, connectivity, and data needed to achieve the necessary speed to act upon the information asymmetries that underlie latency arbitrage have the advantage in that speed race, and may be accustomed to higher fill rates as a result, but those items may be prohibitively expensive for many market participants and even with those items the race still is a winner-take-all scenario where the absolute fastest takes the quote. By slightly increasing the speed at which market makers are able to update their quotes when the underlying security changes price, the ORP will accelerate the quote update process and therein will facilitate competition between market makers by allowing maker makers with less access to the most latency-sensitive technology to provide more liquidity at competitive prices alongside those market makers that have such access.

If such functionality is successful and results in IEX attracting more market makers to quote on its platform, then that additional liquidity, at potentially better prices if a market maker decides to quote more aggressively given the protection against latency arbitrage the ORP provides, will be available to all investors including those whose investment decisions are not informed by sub-millisecond dislocations in the price of a derivative security. Even when the ORP results in a quote being cancelled, which commonly occurs with exchange risk mitigation functionality and purge ports as discussed above, because market makers are subject to an obligation to provide continuous quotes, the ORP should not result in less liquidity because market makers will promptly reenter quotes at the updated prices.^[189] In this way, exchange-provided functionality that carries out a market maker's instructions to cancel or reprice an options quote in specific conditions, where such functionality is objective, transparent, narrowly tailored, and not overbroad in its application as proposed here, can have a beneficial effect on the options market by attracting more market makers to make markets. The result should be an increase in displayed liquidity at competitive prices, which facilitates fair competition and economically efficient executions for investors.^[190] Similar to IEX's D-Limit order, the ORP will result in the repricing or cancelling of a quote so infrequently ( i.e., considerably less than 1% of regular trading hours as discussed above) “that only a small number of market participants are capable of detecting and acting upon” those conditions that trigger it such that the ORP will “not result in needless missed executions for most traders, though it will make it more difficult for a few latency arbitrage traders to profit by taking advantage of idiosyncrasies in market structure to trade with stale-price displayed quotes on IEX.” ^[191]

As was the case for D-Limit, IEX's proposal identifies a legitimate disadvantage in latency arbitrage faced by market makers that may lack the expensive low-latency systems, connectivity, and data sources used by those engaged in such strategies. The existence of this problem is uncontroverted and supported by the several options market makers that submitted comment letters saying how latency arbitrage is a problem that negatively affects them and how IEX's proposal addresses the problem in a manner that could result in them becoming Options Market Makers on IEX and adding new liquidity to the market.^[192] Given how narrowly tailored the ORP is in addressing latency arbitrage and how infrequently it activates, it will not result in the average market participant being unduly frustrated when trying to take liquidity on IEX Options and thus will not contribute to inaccessible quotes or a less reliable NBBO if IEX is at the NBB or NBO or result in inferior executions for traders not engaged in latency arbitrage; however, as discussed above, it will by design affect speed traders engaging in latency arbitrage.^[193] By protecting Market Makers in this narrowly tailored way, IEX may attract additional liquidity, including from new market makers, which will promote more displayed liquidity that will be available to all market participants. The ORP and the access delay are a competitive response from IEX to mitigate competitive imbalances between liquidity providers and latency arbitrage liquidity takers in the same manner as IEX's D-Limit proposal, which is designed to encourage ( printed page 45873) liquidity provision to the benefit of investors.^[194] Accordingly, the ORP and the access delay that effectuates it are 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.

Further, while other exchanges' options risk protection mechanisms cancel quotes when triggered, IEX's ORP allows a Market Maker to either cancel or reprice the quote. While this is a difference for a risk protection mechanism, a repriced quote keeps that liquidity continuously available to the market (albeit at the new price) whereas a cancelled quote removes that liquidity from the market temporarily pending the market maker resubmitting a quote to comply with its continuous quote obligations. Market participants seeking to trade with a quote that is repriced by the ORP (instead of cancelled) can still get a fill using a market order or an aggressively priced limit order instead of missing an execution or being routed away if that liquidity was entirely cancelled. Given how infrequently the ORP will likely affect a quote, the ability to reprice in addition to cancelling should not detract from fair and orderly markets by making IEX's quote inaccessible or non-firm. As discussed above, long-standing options risk protection functionality and purge port functionality, which are non-transparent in their settings and customized by each firm compared to the transparent and fixed-formula ORP, have never been viewed as allowing quote fading nor have they been viewed as making quotes that can be cancelled non-firm.^[195] Rather, they have been considered as tools to enable market makers to better manage risk in support of their ability to provide continuous quotes. In addition, some existing order types on exchanges, including IEX's market maker peg order for equities, involve an exchange continually updating quotes for market makers based on an offset to a reference price, and those have also not been viewed as allowing quote fading or making quotes non-firm.^[196]

Accordingly, the ability of the ORP to reprice a quote 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.

b. Protected Quote Status

Several commenters opposed treating IEX Options' quotes as protected under the Options Order Protection and Locked/Crossed Market Plan ^[197] because of the access delay that IEX will impose on all incoming messages.^[198] One commenter stated that “designating intentionally delayed quotes as protected and requiring market participants to route orders to a delayed exchange whenever that exchange displays the best price—including when such price is stale and no longer accessible, results in inferior executions.” ^[199] Another commenter stated that this requirement could require market participants to route orders to IEX “even if a market participant believes they would achieve better execution on another exchange” and suggested that “IEX may often display quotes which set the NBBO but are routinely inaccessible, compelling all other market participants to chase fleeting liquidity.” ^[200] One commenter stated that market participants will be “effectively required to route orders to exchanges with artificial delays even if it is to their detriment.” ^[201]

Commenters that supported treating IEX Options quotes as protected pointed out that options exchanges already protect quotes that can be automatically and expeditiously cancelled by an exchange due to non-transparent activity-based risk mitigation protections and bulk quote cancel functionality, none of which are related to any observable change in the underlying security price.^[202] One commenter explained that “options markets are full of risk tools exchanges use to automatically cancel [quotes]” but that IEX's ORP is “more narrowly drawn than other risk tools to focus specifically on risks from latency arbitrage.” ^[203] Another commenter contrasted the ORP with existing risk mitigation functionality by explaining that the ORP is “transparent, predictable, and designed to address the specific problem of latency arbitrage.” ^[204]

In response, IEX stated that “the argument that a quote cannot be considered protected if it is subject to any intentional delay, regardless of the length of the delay or its purpose or effect, should be put to bed” because “[t]he Commission has rejected that argument twice” including in an order that was upheld by the United States Court of Appeals for the District of Columbia Circuit.^[205] IEX also explained that “the debate on whether minimally-delayed equities quotes can be protected arose entirely because of specific ( printed page 45874) language in the definition of `automated quotation' under Regulation NMS, which is not used in the options definition of protected quotation under the Options Order Protection and Locked/Crossed Market Plan.” ^[206]

The concept of an “automated” quotation that can be executed “immediately and automatically” in a manner that “precludes any . . . type of intentional device that would delay the action taken with respect to a quotation” is part of Regulation NMS that applies only to equities.^[207] The Options Order Protection and Locked/Crossed Market Plan does not contain any concept of an “automated” quotation or contain any provision that addresses delays in actions taken with respect to quotations. In 2016, the Commission addressed the interpretation of the word “immediate” in the context of Regulation NMS as “not precluding a de minimis intentional delay— i.e., a delay so short as to not frustrate the purposes of Rule 611 by impairing fair and efficient access to an exchange's quotations.” ^[208] While that interpretation does not apply by its terms to options because the options plan does not contain the automated quotation concept, the remaining provisions in the Options Order Protection and Locked/Crossed Market Plan are substantially similar to the remaining provisions in Regulation NMS such that the Commission's interpretation also is relevant for options. As was the case for IEX's equities market, where the Commission previously determined that IEX can maintain a protected quotation when it approved IEX's exchange registration, the ORP and the access delay that effectuates it are a response to the specific problem of latency arbitrage and are designed to address that problem in a very narrowly tailored manner that promotes competition among market makers to the benefit of all investors without impeding fair and efficient access to quotes as the potential for the ORP to affect an investor is remote.^[209] IEX proposes to apply to its new options trading facility an access delay based on a speed bump that is identical to what it uses for its equities facility. Accordingly, IEX can maintain a “protected quotation” as defined by the Options Order Protection and Locked/Crossed Market Plan even if IEX's quote contains an individual quote that is subject to the ORP because IEX's best bid or best offer will meet the three conditions of the term “protected quotation” by (1) IEX (a participant of the OCC and a party to the OPRA Plan) displaying the quote, (2) IEX disseminating it pursuant to the OPRA Plan, and (3) being the best bid or best offer of IEX. Accordingly, IEX Option's quote will not be considered non-firm under the Plan.

c. Options Markets Are Different

A few commenters stated that, while the Commission has previously approved an access delay coupled with an order type that allows an exchange to cancel or reprice orders, options markets are different from equities markets such that the Commission should disapprove IEX's similar proposal for options.^[210] For example, one commenter stated that “unlike the US equities market, all [options] orders must be executed on exchange” and that “the combination of far more options quotations (given the number of unique series) and far more repricing opportunities (given that IEX's quote fading mechanism is based on price movements in the underlying security) means that overall quote fading may be far more damaging compared to equities if this type of mechanism were implemented. . . .” ^[211]

Other commenters stated that the benefits of an access delay coupled with functionality that allows an exchange to cancel or reprice orders is even more appropriate for options given the differences between equities and options market structure. For example, one commenter stated that “[t]he characteristics that distinguish options markets from equities markets make them particularly vulnerable to the latency arbitrage that IEX's protections address.” ^[212] In particular, the “complete reliance on exchange-based trading means that options markets cannot benefit from the off-exchange mechanisms that provide some latency arbitrage protection in equities markets” as the options market structure “creates a more rigid environment where latency arbitrageurs can systematically exploit temporary pricing dislocations without the competitive pressure that off-exchange venues provide in equities.” ^[213] The commenter stated that “[t]he relationship between options prices and underlying securities creates additional vulnerabilities that do not exist in single-asset markets” because “Market Makers must continuously update quotes across hundreds or thousands of series as underlying stock prices change, creating numerous opportunities for latency arbitrageurs to exploit temporary pricing misalignments” where “[a] single movement in an underlying stock can trigger arbitrage opportunities across multiple strikes and expirations, multiplying the potential for systematic adverse selection.” ^[214]

An options market maker commenter stated that regulatory continuous quoting obligations across many series for each options class exposes market makers to a risk of significant loss due to instantaneous adverse selection across those many quotes, which results from professional high-frequency trading firms with systems that are “faster than a market maker's by tiny, otherwise insignificant fractions of a second” that “can be a significant source of such adverse selection” for market maker quotes.^[215] The commenter described this as a technological “arms race” between professional traders and market makers where the “[i]ncreased risk of instantaneous adverse selection, ( printed page 45875) and the increased infrastructure cost necessary to mitigate that risk, is therefore a direct cause of market makers' quoting wider spreads and/or smaller size in order to generate sufficient risk-adjusted returns—thereby increasing costs for investors.” ^[216] The commenter stated that “[t]hese technology expenditures by all parties serve only to protect professional market participants from one another (and, perhaps, to generate a profit for purveyors of market data and trading infrastructure), and do not fill any expressed need for additional speed on the part of end users.” ^[217]

Responding to comments, IEX stated that the latency arbitrage problem “is even more acute in options markets than in equities because the structure of the options markets means that market makers are even less able to protect themselves.” ^[218] The Exchange stated that “the fact that standardized options must be traded on exchanges reinforces the point that in options, market makers have even more significant need for protection from latency arbitrage strategies because they cannot avoid them through other venues whose design limits the effectiveness of such strategies.” ^[219] As a consequence, IEX stated that “competition in options markets has declined.” ^[220] Specifically, IEX stated that the “burden on liquidity provision has contributed to a sharp decrease over time in the number of competing market makers” (noting the recent exit of Morgan Stanley from the options market making business) which has reduced competition and “contributed to a decrease in displayed liquidity per instrument, while market maker spreads have nearly doubled in the past decade.” ^[221] Further, “as the number of instruments has also nearly doubled alongside a sharp decrease in the number of market makers, risks to the supply of liquidity in the options markets have grown.” ^[222]

In prior orders, the Commission acknowledged the risks and costs presented by latency arbitrage and the disincentive it imposes on some liquidity providers.^[223] This problem is especially acute for options compared to equities given the far greater number of quoted options securities and the critical role that options market makers play in providing that liquidity on multiple exchanges across a vast number of related instruments. The differences between equities and options ( i.e., for options, the substantially greater number of securities listed, the lack of an over-the-counter market, and the derivative nature of an option that requires expeditious repricing when the underlying security changes price) means the risks and costs presented by latency arbitrage and the corresponding disincentive those risks and costs impose on some liquidity providers may be greater for options than for equities. Accordingly, the protections from latency arbitrage offered by IEX Options will be appropriate and impactful for those affected market makers to the extent they can help reduce the risks and costs that the Market Makers experience from latency arbitrage. Further, the narrowly tailored character of the ORP, which is expected to impact quotes less than 1% of regular trading hours,^[224] shows how the proposal will not be over broad in its application but rather will offer protection against latency arbitrage to Options Market Makers providing liquidity without being disruptive to investors seeking that liquidity, which is supported by several commenters that represent options market makers as well as institutions that trade on behalf of investors. The ORP should incentivize more Market Makers to become Options Market Makers on IEX thus adding those quotes to the national market system, including those market makers (and some commenters on the proposal) that may previously have been unable or unwilling to spend the considerable amount of money needed to invest in the technology necessary to conduct operations within microseconds-level timeframes that are imperceptible to many market participants.

d. Impact on Price Improvement Auctions

A few commenters expressed concern that the ORP could harm investors by disrupting the ability to initiate auctions on other exchanges. For example, one commenter stated that “[r]etail investor orders typically receive price improvement above and beyond the market-wide best price through `price improvement auctions' ” that require a market participant to initiate the auction at the NBBO or better.^[225] The problem the commenter identified is that “to the extent the market-wide best price is set by a Market Maker on IEX (and is a better price because of the quote fading mechanism available to the Market Maker on IEX), liquidity providers on other exchanges will be less likely to be willing (or able) to provide retail investors with additional price improvement (as the market-wide best price is already artificially aggressive). . . [a]nd yet the IEX price may not actually be accessible in practice.” ^[226] Similarly, another commenter stated that the proposal has “the potential to prevent intra-day price improvement auctions on other option exchanges as well as other intraday auctions from commencing due to a better displayed quote on IEX that may not be accessible once an order is routed to IEX.” ^[227]

Other commenters stated that ORP would not impact retail investors.^[228] For example, one commenter stated that “[r]etail investors simply do not trade within the microsecond timeframes during which IEX's protections operate.” ^[229] Another commenter stated that “this argument seems to be that a tighter NBBO on one exchange would be problematic because it means market makers will have to display better prices elsewhere too,” which the commenter stated “is similar to claiming that a company should refrain from introducing innovative features to its products because doing so would increase competitive pressure on its rivals.” ^[230] A large number of individual commenters stated that certain broker-dealers (including those who commented in opposition to IEX's proposal) do not necessarily represent their interests especially when they give or accept payment for order flow.^[231] Additionally, one commenter stated that the proposal would benefit retail investors because it would protect them from high-frequency traders who act on information faster than retail investors and profit at their expense.^[232] The commenter stated that the proposal would prevent a “wealth transfer from retail investors to high-frequency traders by reducing latency arbitrage” so that ( printed page 45876) “retail investors are not left behind as high-frequency traders prosper.” ^[233] Several pension plans and institutional investors similarly stated that IEX's proposal “will result in fairer and more efficient options markets by reducing barriers to entry and encouraging price competition,” which will “directly benefit[ ] investors. . . .” ^[234]

In response, IEX stated that “the chance that a retail order would by chance arrive while a quote has been affected by the ORP is less than 1 in 100,000” and so “[t]he assertion that retail price improvement auctions will be `disrupted' rests on the premise that any better-priced IEX quote will not be accessible” but “IEX quotes will be as fully accessible to retail orders as any better priced quotes appearing on any other exchange.” ^[235] IEX further stated that “[a] retail investor stands to benefit from the availability of the ORP in one of two ways: the investor's order can benefit if her order executes directly against the better priced IEX quote; or, the investor will benefit if the better-priced quote creates a better starting reference price for the auction.” ^[236]

The ORP is designed to protect investors and will not materially disrupt price improvement auctions. The ORP will make it more difficult for latency sensitive professional traders to trade against Market Maker quotes during the less-than-1% of the regular trading day when the ORP may reprice or cancel those quotes.^[237] However, other than the 1 in 100,000 chance that a retail order would arrive while a quote has been affected by the ORP, a quote displayed on IEX Options will still be accessible to market participants, including to retail traders whose trading decisions typically are not informed or effected on a microsecond timescale smaller than the technological, geographic, and OPRA latencies that they encounter.^[238] To the extent IEX Options' quote is alone at the NBBO, investors will have access to that better price and will benefit either by being able to trade with it or by having their order auctioned on another exchange at that price (or better).

e. Unfair Advantage for Market Makers

Some commenters stated that IEX proposes to convey a significant benefit to its Market Makers through the ORP without requiring any new obligations in return.^[239] One commenter explained that market makers, the only options exchange members that can quote, are subject to rigorous quoting obligations on options exchanges, and in return are rewarded by exchanges with enhanced allocations and more favorable pricing compared to other non-customer market participants who are not subject to such obligations.^[240] The commenter stated that IEX's ORP would protect IEX Market Makers while not requiring them to provide firm quotes,^[241] and that “[r]ewarding IEX market makers with enhanced allocations for stale quotes does not align with the risk/reward models in place at other options markets.” ^[242] The commenter stated that “counting quotes toward market maker obligations where the quotes become stale due to the [access delay], or were marketable and cancelled due to the ORP, does not meet the intent of the quoting obligations.” ^[243] Other commenters stated that the proposal could favor IEX Market Makers at the expense of other market participants.^[244] One commenter suggested that, when cancelling or repricing a quote, the ORP “is explicitly designed to maintain queue priority” unlike “purge ports” where a market maker “completely loses queue priority” when it cancels its quotes.^[245]

Three options market maker commenters stated that the ORP will allow a larger universe of market makers to participate on IEX and provide liquidity on the basis of price competitiveness rather than speed.^[246] One such commenter stated that, “[b]y reducing the advantage of speed, it broadens access to a wider range of liquidity providers, resulting in deeper markets and tighter spreads” and “[c]rucially, it enables new market maker entrants like ourselves to participate on the basis of price competitiveness rather than speed alone.” ^[247] Another market maker commenter stated that options exchanges “continue to be characterized by a race for speed as desired by the largest market participants to increase their internalization, reduce existing competition, and prevent new entrants.” ^[248] The commenter stated that it “has firsthand experience with this market evolution and our firm's ability to improve markets and stay on the ( printed page 45877) inside of the market have been reduced significantly over the last decade.” ^[249] The commenter further stated that “IEX is proposing a new model which seeks to cap the technical costs of speed and encourage new market-making participants to compete on price and size rather than speed,” which “would cause us to reinvest in our competitive quoting efforts, set more new NBBOs, and spend more time using our quote to augment available liquidity at the inside of the market.” ^[250] Another commenter stated that the proposal is “explicitly pro-competitive” in that “[u]sing an exchange-controlled mechanism to mitigate `pick-off' risk that could otherwise only be addressed through massive technology expenditures will lower technological barriers to entry and allow more firms—including those unwilling or unable to spend giant sums to build a microsecond-latency trading platform—to become competitive at providing liquidity, and empower many existing liquidity providers to quote more aggressively.” ^[251] The commenter observed that “the two largest U.S. equities options market making wholesalers have commented opposing the filing, while three comparatively smaller ones (including CTC) have all commented in support (including one international firm which we understand to be a new entrant to US options market making)—implying the Proposal may support/encourage more upstart competitors in the market making space.” ^[252] The commenter further stated that the proposal “still allows for benefits to those who choose to invest in higher-performance trading systems since, under the Proposal, the first liquidity-taker to pass through the speedbump will uniquely be able to execute against the entire remaining posted size, if desired—even if he or she beats out other would-be takers by only a single nanosecond.” ^[253] One commenter stated that the costs of competing with high-frequency traders have disincentivized meaningful participation in the markets by major market participants, which makes “prices less reflective of fundamental information.” ^[254] The commenter stated that the proposal will “level the playing field” between high-frequency traders and other market participants by allowing market participants to better compete with high-frequency traders.^[255]

Another commenter, a former US equity options market making firm, stated that it was “ultimately forced to exit the business due to the escalating costs and arms race associated with maintaining latency competitiveness.” ^[256] The commenter stated that “the playing field has increasingly tilted toward a small number of firms with the financial and technological resources and economies of scale to operate at the bleeding edge of latency-sensitive infrastructure. These developments have created unsustainable barriers to entry and reduced the diversity of liquidity providers, ultimately harming market quality for end investors.” ^[257] The commenter further stated that “the IEX mechanism offers a precise, event driven tool that . . . does not inhibit access or confer unfair advantages—it levels the playing field. By helping reduce the dependency on expensive infrastructure and allowing market makers to quote more competitively without being exposed to asymmetric risks, the proposal will enhance liquidity, improve price discovery, and ultimately benefit all investors.” ^[258]

Finally, one commenter, an options market making firm, stated that it has had to “add tremendous complexity to combat predatory latency arbitrage,” and that “if our systems are too slow (for example, more than a millionth of a second reaction time), then our quotes are traded before the exchange can process our updates. . . these trades happen very frequently and, in the aggregate, are very costly.” ^[259] The commenter stated that defending against latency arbitrage “requires annual investments in the area of $5 million, which we project will at least double once we complete our expansion to the remaining US equity option exchanges” to merely reduce, but not eliminate, “pickoff” trades from latency arbitrageurs.^[260] The commenter stated that all market makers need this technology at a minimum, describing this as “avoidable barriers to entry” that “grow ever larger.” ^[261] The commenter added that retail and institutional end users are “paying the price in the form of wider than necessary spreads and less available liquidity.” ^[262] The commenter stated that the proposal would likely result in a tightened NBBO on IEX Options by Market Makers protected by the access delay and the ORP.^[263]

Responding to comments, the Exchange stated that the ORP is “narrowly-targeted” to “limit costs from latency arbitrage,” which “can help to induce market makers to compete in more options classes, potentially with greater size and tighter spreads.” ^[264] In turn, the Exchange stated that “[t]hese are all effects that benefit public investors and other participants by increasing liquidity and improving price and choice in options markets.” ^[265]

The ORP is a new type of optional risk mitigation protection and thus will confer a benefit to Market Makers trading on the Exchange in their assigned classes when they elect to use it. IEX has not, however, proposed to subject Market Makers to additional quoting requirements as a condition for using the ORP. Other exchanges offer risk mitigation functionality to members, including to market makers, some of which is far broader in its application than the ORP, and similarly do not impose additional quoting requirements on market makers as a condition for using it.^[266] In particular, the ORP is more narrowly tailored than other options risk mitigation functionality because it will only reprice or cancel a specific series in a class whereas options risk mitigation functionality typically will cancel all quotes and orders in all series across a class.

Only market makers are subject to continuous quoting requirements, and they take on considerable financial risk when they quote large numbers of series simultaneously.^[267] While the ORP will provide a valuable protection to Market Makers, it is narrowly tailored to affect quotes during an exceptionally small portion of the trading day. While that effect occurs at important points when options prices are in transition and orders from high frequency traders may attempt to take quotes before they can be repriced, the ORP is “off” ( i.e., not cancelling or repricing a quote) over 99% of regular trading hours where IEX will not cancel or reprice Market Maker quotes during that time. In contrast, risk mitigation functionality and bulk cancel functionality is not so narrowly tailored and can more frequently result in cancelled quotes across all series in a class at any point during trading hours based on non-transparent settings specific to each individual market-maker using the functionality.^[268] Yet other exchanges do not impose additional obligations on market makers in return for the benefits conferred to market makers when they use their risk mitigation and bulk cancel functionality.^[269]

While the ORP will confer a direct benefit to Market Makers and not other types of market participants that post orders on IEX Options, that protection contributes to fair and orderly markets and the protection of investors through increased competition and liquidity provision by the primary source of options liquidity to the market.^[270] Market Makers are continuously managing the risk associated with their continuous quoting and thus are particularly focused on very short term movements in prices and the dislocations they can cause for derivatively-priced securities like options.^[271] As the Exchange stated in the filing, options market makers must “maintain hundreds (and sometimes thousands) of quotes on options for an underlying security at any one time” and sudden market moves in the securities underlying their quoted options can leave them vulnerable to latency arbitrage if they cannot adjust quotes quickly enough to reflect the price changes of the underlying securities.^[272] This potential for major losses resulting from latency arbitrage can cause options market makers to be less willing to quote their best possible price in the largest number of contracts they might otherwise display and that aversion to loss and inability to compete with the most technologically sophisticated firms can lead to market makers decreasing the number of options classes that they quote or leaving the business entirely.^[273] Because the options markets are quote-driven, they are dependent on options market makers to set prices and provide liquidity, and therefore it is crucial for options market quality to encourage options market makers to continue to quote and provide liquidity so that market participants, including retail investors, have access to liquidity at favorable prices. Limiting the ORP to Market Makers is commensurate with the risk uniquely undertaken by Market Makers by the continuous quoting obligations that apply to the multitude of series within each assigned class, which risk is not present for other market participants when they only post one or a few limit orders in specific series and are not required to provide continuous quotes as are market makers. The protections afforded to market makers through risk mitigation functionality, including the ORP, are intended to incentivize market makers to quote with additional depth at potentially improved prices, which directly benefits all market participants when that liquidity is available to the market.

Accordingly, the benefits provided to Market Makers by IEX's proposal are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. Those benefits are focused and not overbroad and are intended to specifically address the disincentive to be a market maker that latency arbitrage can present to many firms. Further, those benefits are commensurate with the benefits provided to market makers by other risk mitigation functionality and is consistent with prior precedent with other exchange options risk mitigation rules that have not imposed additional requirements on market makers for using risk mitigation functionality.^[274] The benefits provided to Market Makers by IEX's proposal also do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.^[275]

f. Intermarket Competition

Several commenters stated that the proposal would impose a burden on competition between IEX Options and other options exchanges.^[276] One commenter stated that intra-day auctions on other options exchanges would be unable to commence if there were a better displayed quote on IEX that, due to the ORP, may be a stale quote or a quote that is cancelled by the ORP in the interim.^[277] The commenter stated that “[p]reventing other options markets from commencing auctions by displaying liquidity that isn't firm or accessible creates an inter-market burden on competition.” ^[278] Another commenter stated that “the speed bump would incentivize market participants to interact with IEX first before trading on other markets triggers IEX to fade its existing quote.” ^[279] One commenter stated that “the ORP mechanism would also have significant implications for competing exchanges as firms are forced to direct their orders to IEX Options when better execution opportunities may in fact exist on other exchanges.” ^[280]

Responding to the comments about burdens on competition with other exchanges, IEX stated that the ORP “promotes fair competition among trading venues, consistent with the Commission's prior approvals, by allowing an exchange to innovate to provide a specific solution to a specific problem.” ^[281] IEX also stated that IEX ( printed page 45879) Options' quotes would be accessible and reiterated that the point of the ORP is to reduce stale quotes so that IEX quotes would be just as current as quotes on other exchanges.^[282] Additionally, IEX stated that the ORP is intended to “counteract orders sent as part of latency arbitrage strategies and is designed not to impact other orders seeking to access market maker quotes.” ^[283] Finally, IEX stated that “participants can easily account for the speed bump in routing to IEX's equities market” so “there is no reason to expect they would have any greater difficulty accounting for the identical speed bump when routing to the IEX Options market.” ^[284]

The proposal, including the ORP and the access delay that effectuates it, does not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.^[285] Consistent with the Commission's approval of IEX's exchange registration, the proposed access delay for options “is designed to ensure that [quotes] on IEX operate as designed and as reflected in IEX's rules” and that Market Makers on IEX can better achieve their goals when their quotes operate efficiently.^[286] Similarly, options market participants will not necessarily need to interact with IEX first to avoid triggering the ORP (which reacts to changes in the underlying security). As with the IEX equities market, order routing that seeks “to achieve simultaneous arrival and executions across multiple exchanges in a coordinated manner” does not require a broker-dealer to preference any particular exchange over another because broker-dealers can and generally do account for geographic differences when routing and these “routing adjustments do not constitute `preferencing' of IEX because the adjustments do not mean a market participant has to arrive and trade first on IEX.” ^[287]

Further, the Exchange's proposal does not impede the ability of other exchanges to compete through functionality, fees, or otherwise. As occurred following the adoption of the access delay on the IEX equities market, at least one other exchange adopted its own access delay.^[288] IEX's equities exchange market share is around 3%, indicating that other exchanges are successfully competing for volume.^[289] Given the identical access delay on both the IEX equities and options markets, and the similar functionality that utilizes it to cancel or update quotes as a protection against latency arbitrage on both markets, the ORP and options access delay will not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act as this same structure has not done so in the case of the IEX equities market.

In denying a petition challenging the Commission's approval of IEX's D-Limit order type for equities, the United States Court of Appeals for the District of Columbia Circuit summarized the core issue as whether the Commission “may allow IEX to innovate . . . in a way that offers new opportunities to long-term investors.” ^[290] IEX Options presents that same core issue. The ORP and access delay that effectuates it are narrowly tailored to address latency arbitrage when options reprice based on changes in the underlying stock price. The ORP will only infrequently cancel or reprice quotes so market participants not engaged in latency arbitrage will rarely be impacted by it.^[291] All market participants may benefit if IEX Options attracts more firms to become Options Market Makers and provide more liquidity, potentially at improved prices, and investors will have fair and efficient access to those quotes.^[292] Because IEX Options presents the same issues that the Commission and the United States Court of Appeals for the District of Columbia Circuit addressed in the IEX D-Limit matter, and because the ORP and access delay for IEX Options addresses those same issues in the same narrowly tailored manner, there is substantial evidence to find that IEX's proposal does not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.

g. Length of the Delay

One commenter objected to the length of the proposed access delay, explaining that, although the Commission approved a 350-microsecond delay for IEX's equities market in 2016, applying the same length delay today for options is inappropriate, unfairly discriminatory, and inconsistent with the Act, because the markets operate faster now due to changes in market technology and options market structure.^[293]

Other commenters stated that a 350 microsecond delay is still presently de minimis and within or less than other technical and geographic latencies experienced today.^[294] One commenter stated that “geographical latencies have not changed. . . .” ^[295] That commenter also stated that “ `jitter' or random noise in exchange matching engines and market data technology routinely exceeds the duration of the proposed speedbump” and mentioned as an example “the difference between reported OPRA 10th and 99th percentile latencies has ranged from hundreds of microseconds to over 2,870 microseconds since 2021.” ^[296] The commenter also stated that “the OPRA NBBO is already stale by more than 350 microseconds” and that “the aggregation, calculation, and round-trip transmission times to (for example) Nasdaq's data center” are approximately 500 microseconds.^[297]

Another commenter stated that it “observe[s] similar delays and quote inaccessibility resulting from the current market structure.” ^[298] The commenter provided an example of a quote from an exchange located in Carteret disseminating through OPRA with “a total latency of about 525 microseconds (albeit this is often exceeded significantly in practice).” ^[299] ( printed page 45880) The commenter further stated that its “observations suggest retail brokers take well beyond 100 times more time than the speedbump to process and route a retail order instruction.” ^[300] Another commenter stated that “[r]etail investors simply do not trade within the microsecond timeframes during which IEX's protections operate.” ^[301] One commenter stated that “[t]his 0.000350 second window is big enough to prevent predatory latency arbitrage, and yet small enough to minimise the chance that a real end user's order arrives at the exchange within the same window” ^[302] and that “[t]he latency overhead of an end user without direct market access sending their order via a broker's systems is usually measured in milliseconds, a few orders of magnitude larger than the 350 microsecond de minimis delay . . . the extra de minimis delay should have no impact on any real end user's order, but it will have a big impact on the market-maker's ability to provide liquidity.” ^[303]

Responding to the comment about the length of the access delay, IEX stated that “[c]ertain tools—microwave technology, for example—in combination with the fastest proprietary data, can reduce transmission and reaction time, but they can't overcome the laws of physics,” and that such “tools have long been available to some but are not available to many participants.” ^[304] Further, IEX stated that participants have no trouble accounting for the same speed bump in IEX's equities market, so they should not have any problems accounting for it when routing to IEX Options, “especially so because options participants are already accustomed to the potential for mass cancelation of market maker quotes in circumstances that are not related to observable differences in equities prices.” ^[305] IEX stated that the length of the delay is “well within the geographic delays that exist among and between the data centers that IEX Options Members and other options exchanges use and is consistent with the naturally occurring time indeterminism that exists in order processing.” ^[306] IEX also stated that the latency between and among the data centers located in New Jersey is similar.^[307]

The Commission has considered the comments stating that a 350-microsecond access delay is unsuitable in the current trading environment,^[308] as well as those comments that consider it to still be de minimis.^[309] The commenters that supported the length of the delay stated that it was within or shorter than delays currently experienced by market participants as a result of exchange matching engine “noise” and OPRA aggregation, calculation, and dissemination latencies,^[310] as well as vastly shorter than the time it takes retail brokers, retail investors, and market participants without direct market access to transmit an order.^[311] The commenter that objected to the length of the access delay stated that the delay “is not within geographic and technological latencies experienced today for options” and stated that it has observed a “50% improvement in end to end quote message roundtrip time between 2016 and 2024 within its system” and linked to its study on transmission times between exchanges.^[312] The Commission examined data showing OPRA's metrics from June 2025 which stated that its average message latency was 36.9 microseconds, its 10th percentile latency was 14 microseconds and its 99th percentile latency was 479 microseconds.^[313] These latencies do not include the time to transmit a quote from an exchange to OPRA for consolidation and back, which, according to available public data, would take between approximately 185 microseconds and 341 microseconds in one direction, based on travel times between data centers used by exchanges and the Mahwah data center used by OPRA: between Secaucus and Mahwah and between Carteret and Mahwah, respectively.^[314] Using OPRA processing times as a reference, which will be in addition to the time it takes market participants to receive that OPRA market data, process it, make a trading decision, and then route an order to an exchange, the proposed 350-microsecond access delay appears to be within or less than geographic and technological latencies that options market participants experience today, consistent with the Commission's approval of the IEX exchange in 2016 in which the Commission explained that IEX's speed bump is “well within the range of geographic and technological latencies that market participants experience today” such that “latency to and from IEX will be comparable to—and even less than—delays attributable to other markets that currently are included in the NBBO.” ^[315] Though the commenter observed a 50% improvement in roundtrip message time within its system, additional latencies also exist and need to be accounted for when trading, including the time associated with the aggregation and dissemination of market data and order processing times. Because of the vastly larger number of classes and series for options compared to equities, faster communication infrastructure may be impractical and prohibitively expensive ( printed page 45881) for wider use. Accordingly, the latencies experienced as a result of the geographic distance between data centers, between brokers and customers, and within consolidated options market data processing and the technology that handles voluminous amounts of options market data still exceed for the average market participant the proposed 350 microsecond delay such that IEX's proposed options delay will be de minimis and will not impair fair and efficient access to options quotes on IEX.

Further, one commenter stated that “[i]t is not only the length of the intentional delay that matters, but also what is permitted to happen during the delay ( i.e., IEX uses the latest market data to determine, on behalf of its market makers, whether to remain firm or cancel a displayed quote—in essence a `last look' mechanism).” ^[316] This is not a novel regulatory issue because the access delay proposed for IEX Options is identical to the access delay currently in place for IEX's equities marketplace, where IEX uses the delay to take in current market data to inform whether to reprice or cancel D-Limit orders and manage other types of midpoint orders.^[317] The access delay allows IEX to give effect to the protections it offers against latency arbitrage without which those protections might be ineffective because IEX would not have sufficient time to take in data, perform the necessary calculations, and take the actions required by its rules before high-speed traders are able to remove that liquidity.

h. Rule Change Required

Two commenters expressed concern that the proposal would allow IEX the discretion to set and modify parameters in the ORP calculation without the need to file proposed rule changes under Section 19 of the Act.^[318] One commenter, noting that “several key parameters used in the ORP calculation are not provided in the filing,” questioned whether IEX knows how ORP will operate in practice given those missing values and criticized how those parameters would be communicated in a Trading Alert and not be subject to Commission review when changed.^[319] Another commenter cautioned that the proposal would give IEX control over “parameters that could vastly amend the operation of the ORP” without requiring a proposed rule change filing.^[320]

Responding to the comments about the need for proposed rule change filings to amend the rule, IEX amended its proposal in Amendment No. 3 to require it to submit a proposed rule change filing whenever it proposes to change the Delta Bound Band, the Quote Instability Threshold, and the frequency of the calculation of implied volatility in the ORP formula. Accordingly, IEX has fully addressed the commenters' concern by ensuring full and complete transparency in the rules of IEX concerning those material terms of the ORP formula and committing to follow the proposed rule change filing process under Section 19 of the Act.^[321]

i. Lack of Data

Several commenters criticized IEX for not providing sufficient data in its initial filing to support its proposal.^[322] One commenter stated that IEX should provide more data to show how often the ORP would be expected to cancel or change quotes ^[323] such as the “volume and depth” of Market Maker quotes cancelled or repriced and the “impact on fill rates as a result of those cancellations or repricings.” ^[324] Another commenter stated that “IEX does not provide data demonstrating that the delay will not cause market participants to miss favorable pricing opportunities” or otherwise assess the impact on market participants and questioned whether IEX “has the ability to incorporate real-time, intra-day events and news that drive the theoretical implied volatility surfaces of all optionable underlying instruments.” ^[325] One commenter stated that “IEX's filing would introduce a novel exchange with no data whatsoever that would allow the Commission to evaluate whether its purportedly firm quotations would in fact be firm.” ^[326]

In Amendment No. 3, IEX provided “data analysis estimating that the ORP would only have a de minimis impact on market maker quotes on IEX thus evidencing that its benefit is designed to be narrowly tailored to protect against latency arbitrage strategies.” ^[327] Specifically, “IEX conducted data analysis on the expected frequency with which it estimates that the ORP would impact a quote on IEX” using OPRA data “for all series of over a thousand options classes of varying levels of volume and activity for various dates in February 2025.” ^[328] In selecting dates for its analysis, IEX chose: “the day with the highest volume, the day with the lowest volume, the day with the highest CBOE Volatility Index (‘VIX’) level, the two days with the largest interday change in VIX, and Fridays with monthly and non-monthly settlements.” ^[329] Significantly, IEX set the ORP parameters ^[330] for its analysis at their most aggressive to assume facts that would trigger the ORP as often as possible, which resulted in the Exchange estimating the maximum possible impact of the ORP, and which, in a real world live environment, would have less of an effect because the parameters would not be as extreme.^[331]

Based on this analysis, IEX “estimates that the ORP would impact IEX Market Maker quotes on average per series significantly less than 0.001% of the trading day during regular trading hours.” ^[332] For Penny Interval Program classes (that quote in pennies instead of larger increments) IEX estimated an impact of “on average less than 0.01%” and for classes not in the Penny Interval Program the estimate was 0.0005%.^[333] For “the most active options class, the SPDR S&P 500 ETF Trust (“SPY”), the ORP would impact an IEX Market Maker's quote for less than 0.2% of the trading day.” ^[334] In light of these results, IEX concluded that the ORP “is designed to be nearly imperceptible to all market participants who are not specifically seeking to engage in latency arbitrage to execute against a market maker's quote at a stale price, based on its speed-based advantage that enables the most technologically low-latency view of market prices.” ^[335] In a response to comments, IEX stated that “[t]o further validate [its] analysis,” it ( printed page 45882) repeated that analysis for “the last full week of July 2025 (July 21 through July 25), using the same parameters and assumptions used in the earlier evaluation,” which analysis “confirmed the Exchange's evaluation from February, as the July results were within all of the previously stated values for each category outlined in the February analysis.” ^[336]

Responding to comments about its ability to perform the ORP calculations, IEX stated that “IEX is not proposing to take over the market maker's role or to take account of all the factors a market maker may consider in performing it” but rather has the limited purpose to “(i) use the specific elements specified in the ORP formula to judge when option quote and underlying prices are fundamentally misaligned; and (ii) when they are, to take specific actions specified by the market maker.” ^[337]

The data contained in Amendment No. 3 is relevant and persuasive. Time-based data is most relevant to analyze the ORP because it shows the impact on investors of the ORP, which is a tool designed to target latency arbitrage conditions that are infrequent. Volume of incoming orders affected, fill rates, and the number of market maker quotes repriced or cancelled would be misleading to evaluate the impact of a risk protection mechanism that targets latency arbitrage because higher impacted volume and lower fill rates would be evidence that a tool designed to protect liquidity providers against latency arbitrage is working exactly as intended. It would not provide evidence that firms not engaged in latency arbitrage are impacted and unable to access quotes on IEX during regular trading hours. The tool is reasonably designed to target firms engaged in latency arbitrage. IEX's analysis clearly shows that the ORP will not be overbroad in its application and, as explained above, generally should not affect market participants not engaged in latency arbitrage or adversely affect the functioning of the options market but rather will 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.

C. Other Rules

IEX will list and trade options already listed on other options exchanges.^[338] The Exchange has represented that it will join the OLPP ^[339] and will become an exchange member of OCC.^[340] IEX's listing standards for options trading on IEX Options are substantively similar to those utilized by other exchanges including MEMX Options.^[341] For the same reasons the Commission provided in its order approving rules governing MEMX Options, the Exchange's proposed listing standards are designed to protect investors and the public interest and promote just and equitable principles of trade.^[342]

Further, IEX proposes operational rules that are substantively identical to the rules of other options exchanges, such as MEMX Options, including rules applicable to exercise and deliveries.^[343] Those rules adopt the common set of options exchange requirements applicable to exercise notices and applicable cut-off times for submission of exercise-related notices, the assignment of exercise notices, and delivery and payment requirements. For the same reasons the Commission provided in its order approving MEMX Options, these rules are 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 regulating, clearing, settling, processing information with respect to, and 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, and are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.^[344]

Based on the foregoing, the proposed functionalities and features of IEX Options' overall structure and trading operations are 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, and are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.

D. Options Order Protection, Locked/Crossed Market Plan, and Outbound Routing Risk Monitoring and Protection

The IEX Options rules are designed to comply with applicable federal securities laws and regulations and the obligations of the Options Order Protection and Locked/Crossed Market Plan. Specifically, the rules are designed to ensure that an order is not executed at a price that would trade through another options exchange. In this regard, IEX Options will be required under Rule 608(c) of Regulation NMS ^[345] to comply with and enforce compliance by its Options Members with the Options Order Protection and Locked/Crossed Market Plan once it joins that plan, including the requirement to avoid trading through better prices available on other markets. Any order designated by an Options Member as routable will be routed by IEX in compliance with applicable trade-through restrictions, and any order entered with a price that would lock or cross a Protected Quotation that is not eligible for either routing or the Price Adjust process in Rule 22.100(i) will be cancelled. Additionally, as discussed above, IEX Options will route orders in options via IEX Services, the Outbound Router of the Exchange, to routing brokers that are not affiliated with the Exchange to other options exchanges.^[346] Furthermore, IEX Services has, pursuant to Rule 15c3-5 under the Act,^[347] implemented certain tests designed to mitigate the financial and regulatory risks associated with providing the Exchange's Users with access to such away options exchanges.^[348] Pursuant to the policies and procedures developed by IEX Services to comply with Rule 15c3-5, if an order or series of orders are deemed to be erroneous or duplicative, would cause the entering User's credit exposure to exceed a preset credit threshold, or are non-compliant with applicable pre-trade regulatory requirements (as defined in Rule 15c3-5), IEX Services will reject such orders prior to routing and/or seek to cancel any orders that have been routed. This is consistent with the routing implementation of other options exchanges.^[349] For the same reasons the Commission provided in its order approving rules governing MEMX ( printed page 45883) Options, the Exchange's proposed order protection rules and outbound routing rules are 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, protect investors and the public interest.^[350]

Before commencing operations, IEX represents that it will join the Options Order Protection and Locked/Crossed Market Plan. To meet their regulatory responsibilities under the Options Order Protection and Locked/Crossed Market Plan, including the requirement to avoid trading through better-priced protected quotations available on other markets, other options exchanges that are participants of the Options Order Protection and Locked/Crossed Market Plan must have sufficient notice of new protected quotations, as well as all necessary information (such as final technical specifications). Therefore, it would be a reasonable policy and procedure under the Options Order Protection and Locked/Crossed Market Plan for industry participants to begin treating IEX Options' best bid and best offer as a protected quotation no later than 60 days after the date of this order or such later date as IEX Options begins operation.

E. Risk Controls and Price Protection Mechanisms

In addition to the ORP discussed above, IEX Options will offer several optional types of risk controls used by other exchanges that are designed to offer protection from entering orders outside of certain size and price parameters, as well as certain standard or Exchange-established parameters based on order type and market conditions. These include pre-trade risk controls, activity-based risk controls, and global risk controls.^[351] The Exchange will apply certain automated breach actions if the proposed risk controls are breached,^[352] and will allow Options Members to direct the Exchange to engage in “Kill Switch Actions” to either cancel all unexecuted orders and quotes on the Exchange's order book, or block new orders and quote messages from being entered, or both.^[353]

The Exchange also will offer price protection mechanisms that are based on the rules of NYSE Arca and Cboe, such as Limit Order Price Protection—in which the System will reject an order or quote upon entry, or cancel at the conclusion of an auction, if its price exceeds a pre-established, Exchange-defined “specified threshold” amount above or below a reference price ^[354] —and drill-through protection, which will prevent an order from executing beyond a “buffer amount” determined based on a drill-through price.^[355] The Exchange also will apply price reasonability checks that are based on the rules of NYSE Arca to most limit orders and quotes, which will reject order or quote messages if the price of an order meets certain parameters.^[356]

The proposed risk protections for IEX Options are reasonably designed to provide liquidity providers with protections to help them manage risk and efficiently use capital when trading options. These protections are in addition to, and do not take the place of, members' required market access controls, vigilant oversight of trading and algorithms, and overall risk management. For example, these mechanisms are intended to provide Market Makers with optional supplemental tools as an additional layer of protection to assist them in managing risk and utilize available capital in leveraged options securities. To the extent they achieve that intended objective, liquidity providers would be incentivized to quote more contracts at potentially better prices, thus benefitting investors through the availability of that liquidity. Accordingly, the proposed risk protections for IEX Options are designed to, among other things, promote just and equitable principles of trade and protect investors and the public interest.

F. Participation in Multiparty Options-Related Plans

The Exchange represents that it will become a participant in the various applicable multiparty plans for options trading. Specifically, the Exchange represents that IEX Options will become a member of OPRA, the Options Order Protection and Locked/Crossed Market Plan, the ORSA, and the OLPP prior to commencing operations.^[357] Doing so will integrate IEX Options into the national market system for standardized listed options.

G. Regulation

The Exchange represents that it will leverage many of the structures it established to operate its equities market, which involve the following three elements: (i) the Exchange will join the existing options industry agreements pursuant to Section 17(d) of the Exchange Act,^[358] as it did with respect to equities; (ii) the Exchange's Regulatory Services Agreement (“RSA”) with FINRA will be amended to govern many aspects of the regulation and discipline of Options Members, just as it does for equities; ^[359] and (iii) the Exchange will perform options listing regulation, as well as authorize Options Members to trade on IEX Options, and will monitor trading on IEX Options, both through internal reports and FINRA surveillances. Furthermore, IEX proposes to amend its MRVP to encompass IEX Options in a manner that is substantially similar to and ( printed page 45884) consistent with the analogous rules and plans on other options exchanges.

Also, as explained above, consistent with the Exchange's existing regulatory structure, the Exchange's Chief Regulatory Officer will have general supervision of the regulatory operations of IEX Options, including responsibility for overseeing the surveillance, examination, and enforcement functions and for administering all regulatory services agreements applicable to IEX Options. Similarly, the Exchange's existing Regulatory Oversight Committee will be responsible for overseeing the adequacy and effectiveness of the Exchange's regulatory and self-regulatory organization responsibilities, including those applicable to IEX Options.

As it does with its equities market, the Exchange will monitor trading on IEX Options, both through internal reports and FINRA surveillances for the purpose of maintaining a fair and orderly market. Also, as it does with its equities market, the Exchange will monitor IEX Options to identify unusual trading patterns and determine whether particular trading activity requires further regulatory investigation by FINRA.

In addition, the Exchange will oversee the process for determining and implementing trade halts, identifying and responding to unusual market conditions, and administering the Exchange's process for identifying and remediating “obvious errors” by and among its Options Members. The proposed rules in Chapter 21 (Regulation of Trading on IEX Options) regarding halts,^[360] unusual market conditions, extraordinary market volatility, obvious errors, audit trail, and rules regarding prohibited and permissible transfers of options positions off the Exchange are substantively identical to the approved rules of MEMX Options.^[361]

Based on the foregoing, the Exchange's proposed rules and regulatory structure with respect to IEX Options provide that the Exchange will be so organized and have the capacity to be able to carry out the purposes of the Act and to comply and to enforce compliance by its members and persons associated with its members with the Act, the rules and regulations thereunder, and the rules of the Exchange, and will provide fair procedures for the discipline of members and persons associated with members. Further, it is consistent with the Act to allow the Exchange to contract with FINRA to perform functions relating to the regulation and discipline of members and the regulation of IEX Options.^[362] These functions are fundamental elements to a regulatory program and constitute core self-regulatory functions. FINRA has the expertise and experience to perform these functions on behalf of the Exchange.^[363]

The amended MRVP will provide the Exchange with the capacity to enforce compliance with, and provide appropriate discipline for, violations of the rules of the Exchange and the federal securities laws. As existing IEX Rule 9.216(b) will continue to offer procedural rights to a person sanctioned for a violation listed in proposed Rule 26.120, the Exchange's rules provide a fair procedure for the disciplining of members and associated persons.^[364] For the same reasons provided by the Commission in its order approving MEMX Options, the MRVP changes should strengthen the Exchange's ability to carry out its oversight and enforcement responsibilities as an SRO in cases where full disciplinary proceedings are unsuitable in view of the minor nature of the particular violation.^[365]

In approving the proposed change to the Exchange's MRVP, the Commission in no way minimizes the importance of compliance with the Exchange's rules and all other rules subject to the imposition of fines under the Exchange's MRVP. The violation of any SRO rules, as well as the federal securities laws, is a serious matter. However, the Exchange's MRVP provides a reasonable means of addressing rule violations that do not rise to the level of requiring formal disciplinary proceedings, while providing flexibility in handling certain violations. The Exchange represents that it will continue to conduct surveillance with due diligence and make a determination based on its findings, on a case-by-case basis, whether a fine of more or less than the recommended amount is appropriate for a violation under the Exchange's MRVP or whether a violation requires a formal disciplinary action.^[366]

H. Section 11(a) of the Act

Section 11(a)(1) of the Act ^[367] prohibits a member of a national securities exchange from effecting transactions on that exchange for its own account, the account of an associated person, or an account over which it or its associated person exercises investment discretion (collectively, “covered accounts”), unless an exception applies. Rule 11a2-2(T) under the Act,^[368] known as the “effect versus execute” rule, provides exchange members with an exemption from the Section 11(a)(1) prohibition. Rule 11a2-2(T) permits an exchange member, subject to certain conditions, to effect transactions for covered accounts by arranging for an unaffiliated member to execute transactions on the exchange. To comply with Rule 11a2-2(T)'s conditions, a member: (i) must transmit the order from off the exchange floor; (ii) may not participate in the execution of the transaction once it has been transmitted to the member performing the execution; ^[369] (iii) may not be affiliated with the executing member; and (iv) with respect to an account over which the member or an associated person has investment discretion, neither the member nor its associated person may retain any compensation in connection with effecting the transaction except as provided in the Rule.

In a letter to the Commission, the Exchange requests that the Commission concur with the Exchange's conclusion that Options Members that enter orders into the proposed System satisfy the requirements of Rule 11a2-2(T).^[370] For the reasons set forth below, orders entered into the System could satisfy the requirements of Rule 11a2-2(T).

The Rule's first requirement is that orders for covered accounts be ( printed page 45885) transmitted from off the exchange floor. In the context of automated trading systems, the Commission has found that the off-floor transmission requirement is met if a covered account order is transmitted from a remote location directly to an exchange's floor by electronic means.^[371] IEX has represented that it does not have a physical trading floor, and the System will receive orders from Options Members electronically through remote terminals or computer-to-computer interfaces.^[372] The System satisfies this off-floor transmission requirement.

Second, the Rule requires that the member and any associated person not participate in the execution of its order after the order has been transmitted. IEX represented that at no time following the submission of an order is an Options Member or an associated person of the Options Member allowed to acquire control or influence over the result or timing of the order's execution.^[373] According to the Exchange, the execution of an Options Member's order is determined solely by what quotes and orders are present in the System at the time the Options Member submits the order, and the order priority based on IEX rules.^[374] Accordingly, an Options Member and its associated persons do not participate in the execution of an order submitted to the System.^[375]

Third, Rule 11a2-2(T) requires that the order be executed by an exchange member who is unaffiliated with the member initiating the order. The Commission has stated that this requirement is satisfied when automated exchange facilities, such as the System, are used as long as the design of these systems ensures that members do not possess any special or unique trading advantages in handling their orders after transmitting them to the exchange.^[376] The Exchange has represented that the design of the System ensures that no Options Member has any special or unique trading advantages in the handling of its orders after transmitting its orders to the Exchange.^[377] Based on the Exchange's representation, the System satisfies this condition.

Fourth, in the case of a transaction effected for an account with respect to which the initiating member or an associated person thereof exercises investment discretion, neither the initiating member nor any associated person thereof may retain any compensation in connection with effecting the transaction, unless the person authorized to transact business for the account has expressly provided otherwise by written contract referring to Section 11(a) of the Act and Rule 11a2-2(T) thereunder.^[378] Options Members trading for covered accounts over which they exercise investment discretion must comply with this condition in order to rely on the rule's exemption.^[379]

IV. Exemption From Section 19(b) of the Act With Regard to Cboe, NYSE, and FINRA Rules Incorporated by Reference

The Exchange proposes to incorporate by reference as IEX Options rules certain rules of Cboe, the New York Stock Exchange (“NYSE”), and FINRA.^[380] Thus, for certain IEX Options rules, Exchange members will comply with a IEX Options rule by complying with the Cboe, NYSE, or FINRA rule referenced. In connection with its proposal to incorporate Cboe, NYSE and FINRA rules by reference, the Exchange requests, pursuant to Rule 240.0-12 under the Act,^[381] an exemption under Section 36 of the Act ^[382] from the rule filing requirements of Section 19(b) of the Act for changes to those IEX Options rules that are effected solely by virtue of a change to a cross-referenced Cboe, NYSE, or FINRA rule.^[383] The Exchange proposes to incorporate by reference categories of rules (rather than individual rules within a category) that are not trading rules. The Exchange agrees to provide written notice to Options Members prior to the launch of IEX Options of the specific Cboe, NYSE, and FINRA rules that it will incorporate ( printed page 45886) by reference.^[384] In addition, the Exchange will notify Options Members whenever Cboe, NYSE, or FINRA proposes a change to a cross-referenced Cboe, NYSE, or FINRA rule.^[385]

Using its authority under Section 36 of the Act, the Commission previously exempted certain SROs from the requirement to file proposed rule changes under Section 19(b) of the Act.^[386] Each such exempt SRO agreed to be governed by the incorporated rules, as amended from time to time, but has not been required to file a separate proposed rule change with the Commission each time the SRO whose rules are incorporated by reference seeks to modify its rules. Each exempt SRO had procedures in place to provide written notice to its members each time a change is proposed to the incorporated rules of another SRO in order to provide its members with notice of a proposed rule change that affects their interests, so that they would have an opportunity to comment on it.

The Commission is granting the Exchange's request for an exemption, pursuant to Section 36 of the Act, from the rule filing requirements of Section 19(b) of the Act with respect to the rules that the Exchange proposes to incorporate by reference into the rules of IEX Options. This exemption is appropriate in the public interest and consistent with the protection of investors because it will promote more efficient use of Commission and SRO resources by avoiding duplicative rule filings based on simultaneous changes to identical rule text sought by more than one SRO. Consequently, the Commission grants the Exchange's exemption request for IEX Options. This exemption is conditioned upon the Exchange providing written notice to Options Members whenever Cboe, NYSE or FINRA proposes to change a rule that IEX Options has incorporated by reference.

V. Conclusion

For the foregoing reasons, the Commission finds that the proposal, as modified by Amendment No. 3, is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change, as modified by Amendment No. 3 (SR-IEX-2025-02) be, and it hereby is, approved.

It is further ordered, pursuant to Section 36 of the Act,^[387] that IEX shall be exempted from the rule filing requirements of Section 19(b) of the Act ^[388] with respect to the Cboe, FINRA, and NYSE rules that IEX proposes to incorporate by reference in IEX Rules 27.250 and 29.120, subject to the conditions specified in this order.