Nasdaq ISE Files Rule Change for Non-Conforming Complex Option Ratios
The Securities and Exchange Commission published Nasdaq ISE’s immediately effective rule filing on 5 June for complex option orders with non-conforming ratios. The exchange said the change would permit complex orders to trade in both conforming and non-conforming ratios on the Complex Order Book and in various auctions.
Nasdaq ISE currently defines conforming ratios as option-component ratios from one-to-three through three-to-one, with separate limits for stock-option and stock-complex strategies. The filing adds a definition for non-conforming ratios, covering options-only complex orders outside the one-to-three and three-to-one range and stock-linked complex orders where the option-to-stock ratio exceeds eight-to-one.
The proposal also extends penny pricing treatment to complex strategies with non-conforming ratios. Bids and offers for options-only complex strategies may be expressed in one-cent increments, and stock-option or stock-complex strategies may use one-cent options-leg increments regardless of the minimum increments otherwise applicable to the individual legs.
Nasdaq ISE said the protections for single-leg interest remain important. Under the proposed rules, a non-conforming complex order may not execute at a net price that causes an option component to trade ahead of a Priority Customer order at the best bid or offer, or through the NBBO. Stock legs in non-conforming stock-option or stock-complex strategies also may not trade through the NBBO.
Why it matters
Complex-order ratio rules shape which multi-leg strategies can be entered natively on an options exchange rather than worked manually or routed elsewhere. More flexible ratios may help professional and active traders express hedges or spreads that do not fit legacy ratio limits.
What to watch next
Watch for comments on whether the guardrails are enough to prevent non-bona-fide strategies designed mainly to access penny increments, and whether other options exchanges harmonize their own ratio rules.