Nasdaq Regulation is highlighting for members and member organizations that Options 9, Section 25 prohibits the unbundling, shredding, or splitting of an options order for improper purposes. The rule, which becomes effective on January 10, 2026, provides: “It shall be considered conduct inconsistent with just and equitable principles of trade for any member, member organization, or person associated with or employed by a member or member organization to split an order into multiple smaller orders for any purpose other than seeking the best execution of the entire order.” Splitting a parent order into multiple smaller orders for an improper purpose, such as to prevent other market participants from interacting with the order or to generate more commissions at the expense of one’s best execution obligations, violates just and equitable principles of trade.

In evaluating whether a member firm split a parent order in violation of the rule, Nasdaq Regulation may consider a variety of factors, including but not limited to:

• The firm’s stated rationale for splitting the parent order;
• Displayed interest in the marketplace, including the extent to which the displayed interest is fragmented across multiple market centers;
• The size of the parent and child orders;
• Customer order handling instructions;
• Customer considerations (e.g., price, speed and certainty of execution, anonymity, trading strategy, etc.);
• Expected and realized price improvement, if any, on the order;
• Expected market impact of the order;
• Primary/Lead Market Maker executions based on an entitlement for orders of 5 contracts or fewer, including whether the PMM/LMM would have had priority under the exchange’s execution priority but for the entitlement.

For orders handled algorithmically, firms should be prepared to describe in detail all algorithms responsible for order handling decisions, including any limitations on splitting and routing an order. Contemporaneous documents and communications about a firm’s rationale for splitting an order (or, for algorithmic orders, contemporaneous evidence bearing on the firm’s rationale in developing the algorithm’s parameters and any limitations on splitting orders) generally will be afforded more weight than documents and communications generated after-the-fact or in response to an inquiry.

When appropriate, Nasdaq Regulation will investigate and pursue disciplinary action against member firms, including for failing to establish and maintain a supervisory system (including Written Supervisory Procedures) reasonably designed to ensure compliance with the rule. Other Nasdaq rules related to the best execution obligation and the splitting of options orders include:

• Nasdaq Rule Options 9, Section 2 – Adherence to Law and Compliance with NOM Rules.
• Nasdaq Rule Options 9, Section 9 – Prevention of the Misuse of Material Nonpublic Information
• Nasdaq Rule General 9, Section 11 – Best Execution and Interpositioning
• Nasdaq Rule General 9, Section 1 – General Standards
• Nasdaq Rule General 9, Section 20 – Supervision
• Related rules of Nasdaq BX, Inc.; Nasdaq GEMX, LLC; Nasdaq ISE, LLC; Nasdaq MRX, LLC; and Nasdaq PHLX LLC.
• Rules prohibiting breaking up an order for the purpose of gaining a higher allocation in a price-improvement auction than the member otherwise would have received – Nasdaq PHLX LLC Rule Options 3, Section 13(e); Nasdaq BX, Inc., Rule Options 3, Section 13(v); Nasdaq GEMX, LLC and Nasdaq ISE, LLC Supplementary Material .01 to Options 3, Section 13

Member firms are encouraged to compete for order executions and to provide the best available prices for their customers, consistent with members’ best execution obligations. Member firms must put their best execution and other obligations for the orders entrusted to them above their own or their affiliates’ pecuniary interests.

Questions regarding this Regulatory Alert can be directed to the contacts below:

• Joseph Cusick, Head of Surveillance, Nasdaq Regulation
• Erik Wittman, Head of Enforcement, Nasdaq Regulation