diff --git a/lib/instana/trace/span_context.rb b/lib/instana/trace/span_context.rb
index b1032f60..00e96c40 100644
--- a/lib/instana/trace/span_context.rb
+++ b/lib/instana/trace/span_context.rb
@@ -42,7 +42,7 @@ def span_id_header
     def trace_parent_header
       trace = (@baggage[:external_trace_id] || trace_id_header).rjust(32, '0')
       parent = span_id_header.rjust(16, '0')
-      flags = @level == 1 ? "01" : "00"
+      flags = @level == 1 ? "03" : "02"
 
       "00-#{trace}-#{parent}-#{flags}"
     end
diff --git a/test/instrumentation/rack_test.rb b/test/instrumentation/rack_test.rb
index 42bd6023..adc68fd2 100644
--- a/test/instrumentation/rack_test.rb
+++ b/test/instrumentation/rack_test.rb
@@ -81,7 +81,7 @@ def test_basic_get
     assert last_response.headers["Server-Timing"] == "intid;desc=#{::Instana::Util.id_to_header(rack_span[:t])}"
 
     # W3C Trace Context
-    assert_equal "00-#{rack_span[:t].rjust(32, '0')}-#{rack_span[:s]}-01", last_response.headers["Traceparent"]
+    assert_equal "00-#{rack_span[:t].rjust(32, '0')}-#{rack_span[:s]}-03", last_response.headers["Traceparent"]
     assert_equal "in=#{rack_span[:t]};#{rack_span[:s]}", last_response.headers["Tracestate"]
 
     assert rack_span.key?(:data)
diff --git a/test/trace/span_context_test.rb b/test/trace/span_context_test.rb
index f275f5e3..129a332b 100644
--- a/test/trace/span_context_test.rb
+++ b/test/trace/span_context_test.rb
@@ -16,7 +16,13 @@ def test_invalid
 
   def test_flags_level_zero
     subject = Instana::SpanContext.new(trace_id: 'trace', span_id: 'span', level: 0, baggage: {external_state: 'cn=test'})
-    assert_equal '00-000000000000000000000000000trace-000000000000span-00', subject.trace_parent_header
+    assert_equal '00-000000000000000000000000000trace-000000000000span-02', subject.trace_parent_header
     assert_equal 'cn=test', subject.trace_state_header
   end
+
+  def test_flags_level_zero_with_random_flag
+    subject = Instana::SpanContext.new(trace_id: 'trace', span_id: 'span', level: 1, baggage: {external_state: 'cn=test'})
+    assert_equal '00-000000000000000000000000000trace-000000000000span-03', subject.trace_parent_header
+    assert_equal 'in=trace;span,cn=test', subject.trace_state_header
+  end
 end