[Federal Register Volume 84, Number 194 (Monday, October 7, 2019)]
[Notices]
[Pages 53497-53503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21737]



[[Page 53497]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87180; File No. SR-GEMX-2019-13]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to the 
Submission of Quotes and Orders

October 1, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 17, 2019, Nasdaq GEMX, LLC (``GEMX'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Options 3 at Section 4, ``Acceptance 
of Quotes and Orders,'' adopt a new Section 5, ``Entry and Display of 
Orders,'' Section 7, ``Types of Order,'' at Supplementary Material .03 
and Section 22 titled ``Limitations on Orders.'' The Exchange proposes 
to amend Options 3, Section 15, ``Simple Order Risk Protections.''
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqgemx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend Options 3 at Section 4, ``Acceptance 
of Quotes and Orders,'' adopt a new Section 5, ``Entry and Display of 
Orders,'' Section 7, ``Types of Order,'' at Supplementary Material .03 
and Section 22 titled ``Limitations on Orders.'' The Exchange proposes 
to amend Options 3, Section 15, ``Simple Order Risk Protections.'' Each 
rule change will be discussed in greater detail below.
Options 3, Section 4, Acceptance of Orders and Quotes
    Currently, Options 3, Section 4 is titled ``Acceptance of Quotes or 
Orders.'' The Exchange proposes to retitle Options 3, Section 4 as 
``Entry and Display of Quotes.'' The Exchange proposes to add a new 
section (b) to Options 3, Section 4 to describe the current 
requirements and conditions for submitting quotes. These requirements 
reflect the current System operation today. The Exchange proposes to 
memorialize the various requirements for the submission of quotes into 
the System for greater transparency. The Exchange proposes to provide 
at new Options 3, Section 4(b), ``Quotes are subject to the following 
requirements and conditions:''. The Exchange proposes to add at Options 
3, Section 4(b)(1) that ``Market Makers may generate and submit option 
quotations.'' Current Options 2, Section 5 makes clear that Market 
Makers may submit quotes.\4\ The Exchange proposes to create a list of 
rules related to quote submission within this rule for ease of 
reference. The Exchange proposes to provide at proposed new Options 3, 
Section 4(b)(2) that ``The System shall time-stamp a quote which shall 
determine the time ranking of the quote for purposes of processing the 
quote.'' The Exchange notes that all quotes today are time-stamped for 
purposes of processing quotes. Proposed Options 3, Section 4(b)(3) 
states that ``Market Makers may enter bids and/or offers in the form of 
a two-sided quote. Only one quote may be submitted at a time for an 
option series.'' The Exchange believes that this information will 
provide Market Makers with information on submitting a quote. The 
Exchange notes that bid or offer may be a ``0,'' however a price is 
required to be entered for both the bid and offer to be entered into 
the System. Further, the Exchange proposes at Options 3, Section 
4(b)(4) to provide clarity for entering quotes and proposes to specify, 
``The System accepts quotes for the Opening Process as specified in 
Options 3, Section 8.'' \5\ The Exchange believes that this information 
will bring greater transparency to the Rulebook with respect to 
limitations for submitting quotations into the System.
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    \4\ Options 2, Section 5(a) provides, ``Options Classes. A 
quotation only may be entered by a Market Maker, and only in the 
options classes to which the market maker is appointed under Options 
2, Section 3.'' Options 2, Section 5(d) provides for Firm Quotes.
    \5\ Options 3, Section 8(c) provides, ``Market Maker Valid Width 
Quotes and Opening Sweeps received starting at 9:25 a.m. Eastern 
Time are included in the Opening Process. Orders entered at any time 
before an option series opens are included in the Opening Process.''
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    The Exchange proposes a provision regarding firm quote within 
proposed Options 3, Section 4(b)(5):

    Firm Quote. Where quotes in options on another market or markets 
are subject to relief from the firm quote requirement set forth in 
the Rule 602 of Regulation NMS under the Exchange Act orders and 
quotes will receive an automatic execution at or better than the 
NBBO based on the best bid or offer in markets whose quotes are not 
subject to such relief. Such determination may be made by way of 
notification from another market that its quotes are not firm or are 
unreliable; administrative message from the Option Price Reporting 
Authority (``OPRA''); quotes received from another market designated 
as ``not firm'' using the appropriate indicator; and/or telephonic 
or electronic inquiry to, and verification from, another market that 
its quotes are not firm. The Exchange shall maintain a record of 
each instance in which another exchange's quotes are excluded from 
the Exchange's calculation of NBBO, and shall notify such other 
exchange that its quotes have been so excluded. Where quotes in 
options on another market or markets previously subject to relief 
from the firm quote requirement set forth in the Quote Rule are no 
longer subject to such relief, such quotations will be included in 
the calculation of NBBO for such options. Such determination may be 
made by way of notification from another market that its quotes are 
firm; administrative message from OPRA; and/or telephonic or 
electronic inquiry to, and verification from, another market that 
its quotes are firm.

    GEMX's Options 2, Section 5(d) describes Firm Quote for purposes of 
Market Maker quote submission. The Exchange proposes to memorialize 
within its Rules the requirement for the dissemination of quotations 
pursuant to Reg NMS.\6\ The Exchange is proposing to add the above rule 
text to provide context as to this restriction for submitting quotes. 
The Exchange proposes to make clear the manner in which quote relief 
will occur. Specifically, this proposed rule text indicates the manner 
in which a

[[Page 53498]]

determination for quote relief is made. Further, the rule notes the 
Exchange shall maintain a record of each instance in which another 
exchange's quotes are excluded from the Exchange's calculation of NBBO, 
and shall notify such other exchange that its quotes have been so 
excluded. Also, when relief is no longer available, such quotations 
will be included in the calculation of NBBO for such options. The 
Exchange notes how the determination is made that relief is no longer 
available. The proposed rule text adds greater context to the manner in 
which Firm Quote relief is applied. This rule text represents the 
current practice.
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    \6\ 17 CFR 242.602.
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    Similarly, the Exchange proposes to provide the following at 
proposed new Options 3, Section 4(b)(6):

    Trade-Through Compliance and Locked or Crossed Markets. A quote 
will not be executed at a price that trades through another market 
or displayed at a price that would lock or cross another market. If, 
at the time of entry, a quote would cause a locked or crossed market 
violation or would cause a trade-through violation, it will either 
re-priced and displayed at one minimum price variance above (for 
offers) or below (for bids) the national best price or immediately 
cancelled, as configured by the Member.

    Today, quotations may not be executed against at prices that trade-
through an away market as provided for in the Options Order Protection 
and Locked/Crossed Market Plan which is described within Options 5. 
Also, quotations may not lock or cross an away market. By stating this 
limitation in the rule, Market Makers will have greater clarity as to 
this limitation. Further, the Exchange is making clear that a quote 
that would cause a locked or crossed market violation or would cause a 
trade-through violation will be re-priced. The Exchange would display 
the quote at one minimum price variation (``MPV'') above (for offers) 
or below (for bids) the national best price or the quote would be 
immediately cancelled if requested by the Member. Repricing quotes is 
consistent with the Act because the Exchange is not permitted to lock 
or cross an away market's quote or order. The Exchange reprices the 
quotes one MPV inferior to cause the displayed price to reflect the 
available market on the Exchange.
    Finally, the Exchange proposes at Options 3, Section 4(b)(7) to 
provide, ``Quotes submitted to the System are subject to the following: 
minimum increments provided for in Options 3, Section 3 and risk 
protections provided for in Options 3, Section 15.'' If the Market 
Maker does not submit a quotation compliant with Options 3, Section 3, 
the quote will not be accepted by the System. The Exchange is noting 
herein the manner in which a quote may be rejected by the System to 
provide market participants with expectations as to the interplay among 
the various Exchange Rules. Specifically, if the Market Maker does not 
submit a quotation compliant with Options 3, Section 3, the quote will 
not be accepted by the System because market participants are required 
to abide by Options 3, Section 3 which describes the increments with 
which options series are to be quoted. Options 3, Section 15 provides a 
list of all protections applicable to quotes that may be rejected. The 
Exchange believes that this rule will provide Members with requirements 
and conditions for submitting quotations and provide transparency as to 
limitations that cause a quote to be rejected.
    The Exchange proposes to provide at Options 3, Section 4(c), 
``Quotes will be displayed in the System as described in Options 3, 
Section 23.'' Options 3, Section 23, titled ``Data Fees and Trade 
Information'' provides for the available feeds that Members may access 
on the Exchange. This list represents the available data feeds and the 
content of those data feeds which are offered today by the Exchange.
    As discussed in more detail below, the Exchange proposes to 
relocate current Options 3, Section 4(b) \7\ to new Options 3, Section 
5(a)(5) as described below in greater detail.
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    \7\ Current Options 3, Section 4(b) provides, ``A trade may be 
nullified if all parties participating in the trade agree to the 
nullification. In such case, one party must notify the Exchange and 
the Exchange promptly will disseminate the nullification to OPRA.''
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    The amendment to Options 3, Section 4 to create a list of all the 
requirements and conditions for submitting quotes on the Exchange 
within one rule is consistent with the Act because it will provide 
greater transparency to market participants of the applicable 
requirements. Further, this proposal will make the current rule clear 
and understandable for market participants thereby protecting investors 
and the general public. The Exchange notes that while some of these 
requirements appear in other rules, for ease of reference the 
requirements are located within a single rule with this proposal. The 
proposal reflects the Exchange's current practice with respect to 
quoting requirements. This proposal will conform this Rule to other 
Nasdaq affiliated markets filing similar rules.\8\ The Exchange's 
proposal is intended to provide greater information with respect to 
Firm Quote within new Options 3, Section 4(b)(5) and regarding trade-
through and locked and crossed markets Options 3, Section 4(b)(6). The 
addition rule text is consistent with the Act because the Exchange is 
adding detail regarding the method in which orders which are firm or 
locked and crossed will be handled in the System. The notifications for 
Firm Quote are made clear with the proposed rule text. The Exchange 
believes that it is consistent with the Act to specify when quotes are 
firm and the handling of such quotes by the System for the protection 
of investors and the general public. The clarity is designed to promote 
just and equitable principles of trade by notifying all participants 
engaged in market making of potential outcomes. Today, quotations may 
not be executed against at prices that trade-through an away market. 
Also, quotations may not lock or cross an away market. The repricing of 
quotations is consistent with the Act because repricing prevents the 
Exchange from disseminating a price which locks or crosses another 
market. The Exchange is required avoiding displaying a quotation that 
would lock or cross a quotation of another market center at the time it 
is displayed. Preventing inferior prices from displaying perfects the 
mechanism of a free and open market and a national market system, and, 
in general to protect investors and the public interest.
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    \8\ See Phlx Rule 1019. Nasdaq BX, Inc. and Nasdaq Stock Market 
LLC intend to file similar rules. Phlx Rule 1019 is similar to GEMX 
Options 3, Section 4 except that Phlx displays and reprices quotes 
differently than GEMX for purposes of trade-through. Phlx re-prices 
to the current national best offer (for bids) or the current 
national best bid (for offers) but displays at one minimum price 
variance above (for offers) or below (for bids) the national best 
price. GEMX re-prices and displays quotes at one minimum price 
variance above (for offers) or below (for bids) the national best 
price, or, in the alternative if elected by the Member, the quote is 
otherwise immediately cancelled if it would cause a locked or 
crossed market. Further, while Phlx has a Quote Exhaust feature as 
described in Phlx Rule 1082, GEMX has no similar feature.
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Options 3, Section 5, Entry and Display of Orders
    Similar to Options 3, Section 4, which describes requirements for 
quotes, the Exchange proposes to adopt a new Options 3, Section 5, 
``Entry and Display of Orders'' and describe the current requirements 
and conditions for entering orders. The Exchange notes that the 
requirements provided for within this rule represent the current 
practice. The purpose of Options 3, Section 5 is to memorialize this 
information within a single rule.
    The Exchange proposes to state within new Options 3, Section 5(a), 
``Members can enter orders into the

[[Page 53499]]

System, subject to the following requirements and conditions:''. The 
Exchange proposes within new Options 3, Section 5(a)(1), ``Members 
shall be permitted to transmit to the System multiple orders at a 
single as well as multiple price levels.'' The Exchange's new rule text 
at Options 3, Section 5(a) proposes to make clear that multiple orders 
may be transmitted to the System as single or multiple price levels. 
This is the case today. The Exchange proposes to memorialize the manner 
in which orders may be submitted to the System to add more detail to 
its rules. The Exchange proposes at new Options 3, Section 5(a)(2), 
``The System accepts orders beginning at a time specified by the 
Exchange and communicated on the Exchange's website.'' The System 
accepts orders beginning at a time specified by the Exchange and 
communicated on the Exchange's website.\9\
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    \9\ The Exchange's website makes the timeframes in which orders 
may be submitted to the System: https://business.nasdaq.com/media/GEMXSystemSetting_tcm5044-41351.pdf.
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    The Exchange proposes at new Options 3, Section 5(a)(3), ``The 
System shall time-stamp an order which shall determine the time ranking 
of the order for purposes of processing the order.'' Further, all 
orders are time-stamped to determine the time ranking of the order for 
purposes of processing the order within the System. This is also the 
case today and the Exchange is adding this detail to its rules to 
describe the time-stamp.
    The Exchange proposes to add at new Options 3, Section 5(a)(4), 
``Orders submitted to the System are subject to the following: Minimum 
increments provided for in Options 3, Section 3, risk protections 
provided for in Options 3, Section 15, and the restrictions of any 
order type as provided for in Options 3, Section 7. Orders may execute 
at multiple prices.'' All orders must adhere to other rule requirements 
such as minimum increments, risk protection rules and order types. 
Similar to the rule text for quotes, order are currently subject the 
minimum increment requirements in Options 3, Section 3 and also the 
risk protections for orders which are listed within current Options 3, 
Section 15. This rule provides a list of other requirements which may 
impact the execution of an order. Finally, orders may execute at 
multiple prices.
    The Exchange proposes to add to new Options 3, Section 5(a)(5) the 
following, ``Nullification by Mutual Agreement. Trades may be nullified 
if all parties participating in the trade agree to the nullification. 
In such case, one party must notify the Exchange and the Exchange 
promptly will disseminate the nullification to OPRA. It is considered 
conduct inconsistent with just and equitable principles of trade for a 
party to use the mutual adjustment process to circumvent any applicable 
Exchange rule, the Act or any of the rules and regulations 
thereunder.'' The rule text of new Options 3, Section 5(a)(5) is 
relocated from Options 3, Section 4(b) because it related to orders. 
The Exchange proposes to caption proposed Options 3, Section 5(a)(5) as 
``Nullification by Mutual Agreement'' and add the following sentence to 
this provision, ``It is considered conduct inconsistent with just and 
equitable principles of trade for a party to use the mutual adjustment 
process to circumvent any applicable Exchange rule, the Act or any of 
the rules and regulations thereunder.'' The Exchange believes that it 
is consistent with the Act to permit parties to agree to a 
nullification provided the nullification does not violate other 
exchange rules. The Exchange notes that parties may not agree to a 
mutual agreement for purposes that would cause another rule to be 
violated. The Exchange believes that it is consistent with the Act and 
protection of investors and general public to make clear the expected 
behavior with respect to nullifications.
    The rule text at proposed Options 3, Section 5(b) is relocated from 
Options 3, Section 15(a). The Exchange notes that this NBBO Protection 
applies to orders and therefore is being discussed within proposed 
Options 3, Section 5, which applies to all market participants. In 
contrast, Options 3, Section 4, which applies to quotes entered by 
Market Makers, describes the Firm Quote protections and the interplay 
of NBBO with respect to quotes. Trade-Through is described in both 
Options 3, Sections 4 and 5. The Exchange proposes to change the word 
``rejected'' to ``cancelled'' within new Options 3, Section 5(b) 
because an order may be accepted by the System and then immediately 
cancelled. New Options 3, Section 5(c) seeks to define the Exchange's 
best bid and offer as the ``BBO.'' The Exchange provides, ``The System 
automatically executes eligible orders using the Exchange's displayed 
best bid and offer (``BBO'').''
    Similar to Options 3, Section 4(b)(6), the Exchange proposes to 
note at new Options 3, Section 5(d),

    Trade-Through Compliance and Locked or Crossed Markets. An order 
will not be executed at a price that trades through another market 
or displayed at a price that would lock or cross another market. An 
order that is designated by the Member as routable will be routed in 
compliance with applicable Trade-Through and Locked and Crossed 
Markets restrictions. Orders that are not automatically executed 
will be handled as provided in Supplementary Material .02 to Options 
5, Section 2; provided that Members may specify that a Non-Customer 
order should instead be cancelled automatically by the System at the 
time of receipt.

    Today, orders may not be executed at a price that trades through an 
away market. Also, orders may not lock or cross an away market. 
Routable orders must comply with Trade-Through and Locked and Crossed 
Markets restrictions. Finally, the Exchange proposes to cross-reference 
Supplementary Material .02 to Options 5, Section 2 to describe the 
manner in which orders that are not automatically executed are handled. 
Today, Members may specify that a Non-Customer order should instead be 
cancelled automatically by the System at the time of receipt. By 
including this information within this rule, the Exchange proposes to 
provide Members with information related to trade-through in one 
location with cross-references to provide transparency. This rule text 
is similar to rule text within BX Chapter VI, Section 7(b)(3)(C). 
Noting these limitations within the rule is consistent with the Act 
because Members will have greater clarity as to limitations.
    Finally, the Exchange proposes to add rule text at new Options 3, 
Section 5(e), similar to Options 3, Section 4(c) which states, ``Orders 
will be displayed in the System as described in Options 3, Section 
23.''
    The Exchange's proposal to adopt a new Options 3, Section 5, 
``Entry and Display of Orders'' and describe the current requirements 
and conditions for entering orders, similar to proposed changes to 
Options 3, Section 4 for quotes is consistent with the Act because it 
will provide transparency as to manner in which orders may be submitted 
to the System. The Exchange's new rule reflects the current 
requirements for submitting orders into the System. Similar to proposed 
Options 3, Section 4, the Exchange proposes to memorialize requirements 
and limitations within one rule for ease of reference.\10\
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    \10\ Phlx Rule 1096 is similar to GEMX Options 3, Section 5. 
With respect to NBBO Protection, unlike Phlx, GEMX Orders that are 
not automatically executed will be handled as provided in 
Supplementary Material .02 to Options 5, Section 2; provided that 
Members may specify that a Non-Customer order should instead be 
accepted and immediately cancelled automatically by the System at 
the time of receipt. Phlx does not have a similar exposure 
mechanism. Also, with respect to trade-through, Phlx re-prices an 
order that would cause a locked or crossed market violation or would 
cause a trade-through violation to the current national best offer 
(for bids) or the current national best bid (for offers) and 
displayed at one minimum price variance above (for offers) or below 
(for bids) the national best price. While GEMX will not execute an 
order at a price that trades through another market or display an 
order at a price that would lock or cross another market, GEMX does 
not re-price orders. GEMX Members may specify that a Non-Customer 
order should instead be cancelled automatically by the System at the 
time of receipt.

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[[Page 53500]]

Options 3, Section 7, Types of Orders
    The Exchange proposes to amend Supplementary Material .03(c) to 
Options 3, Section 7 to add the following sentence to Specialized Quote 
Feed (``SQF''), ``Market Makers may only enter interest into SQF in 
their assigned options series.'' The Exchange notes that today Market 
Makers may utilize SQF to quote only in their assigned options series 
as provided for in Options 2, Section 3, Appointment of Market Makers. 
Adding this information to the SQF protocol is consistent with the Act 
because the Exchange desires to make clear the manner in which Market 
Makers may submit quotes through the protocol. Market Makers are 
obligated to provide liquidity on GEMX in the options series to which 
they are assigned, which liquidity benefits all market participants. 
This amendment is similar to language currently within Phlx Rule 
1080(a)(i)(B).
Options 3, Section 15 Simple Order Risk Protections
    The Exchange proposes to delete the first sentence introductory 
sentence of Options 3, Section 15 which provides, ``Incoming orders 
that are executable against orders and quotes in the System will be 
executed automatically by the System subject to the following:'' and 
relocate the rule text to Options 3, Section 5 as described herein as 
well as Section 15(a)(1) and (a)(2), into proposed new Options 3, 
Section 5(b) and renumber Options 3, Section 15(b) as new ``a.'' The 
Exchange proposes to relocate current Options 3, Section 15(b)(1)(C) to 
Options 3, Section 15(b)(2)(B). Current Options 3, Section 15(b)(1)(D) 
will be re-lettered as ``C''. Options 3, Section 15(b)(1) provides for 
order risk protections. The Exchange proposes to relocate the Size 
Limitation protection to Options 3, Section 15(b)(2) because this 
section applies to order and quote risk protections. Size Limitation 
protection applies to both orders and quotes and is therefore properly 
placed within this section. The Exchange proposes to add the words ``or 
quote'' to the description to make clear that this protection applies 
to both orders and quotes. The Exchange believes that relocating this 
rule and adding ``or quotes'' is consistent with the Act because the 
Exchange will make clear that the Size Limitation risk protection would 
apply to all interest on the Exchange.
Options 3, Section 22, Limitation on Orders
    The Exchange proposes to amend Options 3, Section 22 to retitle the 
Section from ``Limitations on Orders'' to ``Limitations on Order 
Entry.'' The Exchange believes that this title is more appropriate for 
these rules.
    The Exchange proposes to amend Options 3, Section 22(b) to amend 
the title of the section from ``Principal Transactions'' to 
``Limitations on Principal Transactions.'' This rule provides for the 
exposure of orders entered on the Exchange. Specifically, with respect 
to orders entered when a Member is acting as agent and principal on an 
order, the order must be exposed for one second prior to execution to 
allow an opportunity for price improvement. The Exchange has filed for 
certain functionalities which are exceptions to the general standard of 
one second exposure. These functionalities have provisions which 
describe the manner in which orders can be entered into the 
Facilitation Mechanism,\11\ Price Improvement Mechanism,\12\ Qualified 
Contingent Cross Orders,\13\ and Customer Cross Orders.\14\ The 
Exchange proposes to separately note that with respect to the 
Solicitation Mechanism,\15\ that an Options Member may electronically 
submit for execution an order it represents as agent against solicited 
order(s). Options 3, Section 11(d) and (e) provide that an Agency Order 
must be for at least the minimum size designated by the Exchange, which 
may not be less than 500 standard option contracts, and the order be 
entered into the Solicited Order Mechanism shall be designated as all-
or-none. Because a Member may not execute as principal on the order, 
there must be an Agency Order which executes against the solicited 
order; therefore, the Solicitation Mechanism is explicitly carved out 
from proposed Options 3, Section 22(b), whereas the other auctions 
noted are exceptions to the general one second rule. The Exchange 
believes it is consistent with the Act and the protection of investors 
and the general public to describe the functionalities available on the 
Exchange into which a Member may enter principal orders they represent 
as agent. Options 3, Section 22 is intended to encourage price 
discovery and price improvement of all orders entered on the Exchange.
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    \11\ See Options 3, Section 11(b) and (c).
    \12\ See Options 3, Section 13.
    \13\ See Options 3, Section 12(c) and (d).
    \14\ See Options 3, Section 12(a) and (b).
    \15\ See Options 3, Section 11(d) and (e).
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    The Exchange proposes to relocate Supplementary Material .01 to 
Options 3, Section 22 to new Section 22(b)(i) and state ``This Rule'' 
instead of ``Options 3, Section 22(d).'' The Exchange notes that the 
references to ``d'' should refer to ``b'' and those cross-references 
are being updated.
    The Exchange proposes to amend the title of Options 3, Section 
22(c), from ``Solicitation Orders'' to ``Limitation on Solicitation 
Orders.'' The Exchange proposes to add exceptions for Qualified 
Contingent Cross Orders pursuant to Options 3, Section 12(c) and (d) 
and Customer Cross Order pursuant to Options 3, Sections 12(a) or (b) 
similar to proposed Options 3, Section 22(b).
    The Exchange proposes to re-letter current ``d'' as ``e'' as the 
Exchange proposes new rule text at proposed Options 3, Section 22(d) 
which provides, ``Prior to or after submitting an order to GEMX, a 
Member cannot inform another Member or any other third party of any of 
the terms of the order for purposes of violating this Rule.'' Similar 
rule text is contained in The Nasdaq Options Market LLC (``NOM'') 
Rules.\16\ The Exchange believes that adding this language will better 
information participants that Options 3, Section 22 prohibits such 
behavior. The Exchange desires to conform the language in this rule to 
that of affiliated Nasdaq markets. The Exchange notes that similar 
language is currently contained within Supplementary Material .02 to 
Options 3, Section 22 which provides,
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    \16\ See NOM Rules at Chapter VII, Section 12 at Commentary .04.

    It will be a violation of Options 3, Section 22(e) for an 
Electronic Access Member to cause the execution of an order it 
represents as agent on the Exchange by orders it solicited from 
Members and non-Member broker-dealers to transact with such orders, 
whether such solicited orders are entered into the System directly 
by the Electronic Access Member or by the solicited party (either 
directly or through another Member), if the Member fails to expose 
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orders on the Exchange as required by Options 3, Section 22(e).

    This rule text is repetitive of the provisions within current 
Options 3, Section 22(c). The Exchange is clearly providing within 
Options 3, Section 22(c) that a Member must expose an order for one 
second. Further, the

[[Page 53501]]

Member cannot inform another Member or third party of the terms of the 
order, which would be a violation of the rule pursuant to proposed 
Options 3, Section 22(c). The Exchange does not believe that the rule 
text within Supplementary Material .02 to Options 3, Section 22 
provides additional information, but rather is repetitive of the 
prohibitions within the rule, as proposed.
    The Exchange proposes to update the rule citations in Supplementary 
Material .01 to Options 3, Section 22 to refer to paragraph ``b'' 
instead of ``d''. The Exchange proposes to update the rule numbers for 
the remainder of the Rule and also update the cross-reference in 
Supplementary Material .04 to Options 3, Section 22.
    The Exchange proposes to make clear with this Rule that Members may 
not gain by failing to expose orders submitted on an agency basis. The 
Exchange is promoting transparency of orders to prevent Members from 
seeking price discovery and potentially preventing price improvement, 
which may result from exposing an order. The Exchange's proposal to 
amend Options 3, Section 22 will conform this Rule to other Nasdaq 
affiliated markets filing similar rules.\17\ The Exchange's proposal to 
add rule text to describe potential violations of this Rule will bring 
greater clarity to current limitations that exist when entering orders. 
The amendments to Options 3, Section 22 are consistent with the Act 
because the Rule provides a list of limitations when entering order on 
the Exchange. The Exchange believes the proposed rule will promote just 
and equitable principles of trade and remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
because it will continue to make clear the requirement to expose orders 
as well as present more specific limitations on order entry which would 
violate Exchange Rules. Providing Members with more information as to 
the type of behavior that is violative with respect to order exposure 
will prevent inadvertent violations of Exchange rules and ensure that 
orders are subject to appropriate price discovery.
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    \17\ Nasdaq BX, Inc. and Nasdaq Stock Market LLC are also 
adopting similar rules to Phlx Rule 1097.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\18\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\19\ in particular, in that it 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.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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Options 3, Section 4, Acceptance of Quote and Orders
    The Exchange's proposal to add a new section (b) to Options 3, 
Section 4 to describe the current requirements and conditions for 
submitting quotes are consistent with the Act. The Exchange is 
memorializing its current practice by reflecting the various 
requirements and limitations for quote entry in one rule for ease of 
reference and clarity. The Exchange is also proposing to conform this 
rule to similar rules across other Nasdaq affiliated exchanges. Making 
clear the manner in which Market Makers may generate and submit option 
quotations will provide these market participants with clear guidance 
within the rules. The Exchange notes that other rules already limit the 
use of quotations on the Exchange. Options 2, Section 5 makes clear 
that Market Makers may submit quotes.\20\ Supplementary Material .03(c) 
to Options 3, Section 7 describes the SQF interface.\21\ Options 2, 
Section 4(b)(4) provides the allowable spread for entering bids and 
offers on the Exchange. Further, the Exchange is making clear that only 
one quote may be submitted at a time for a series. The Exchange 
believes that memorializing these restrictions will bring greater 
clarity to the Exchange's rules. Also, the Exchange believes that 
making clear that quotes may be entered as specified by the Exchange 
makes clear that all Market Makers are subject to uniform requirements 
for quoting.
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    \20\ Options 2, Section 5(a) provides, ``Options Classes. A 
quotation only may be entered by a market maker, and only in the 
options classes to which the market maker is appointed under Options 
2, Section 3.'' Options 2, Section 5(d) provides for Firm Quote.
    \21\ Supplementary Material .03(c) to Options 3, Section 7 
provides ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows market makers to connect, send, and receive messages related 
to quotes, Immediate-or-Cancel Orders, and auction responses to the 
Exchange. Market Makers on GEMX can only submit quotes and orders 
through SQF in their assigned options series.
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    The Exchange's proposal to add a provision regarding Firm Quote 
within new Options 3, Section 4(b)(5) will bring greater transparency 
to the limitations that Market Makers have today with respect to firm 
quote. GEMX's Options 2, Section 5(d) describes firm quote for purposes 
of Market Maker quote submission. The Exchange is proposing to add rule 
text to provide context as to this restriction for submitting quotes. 
The proposed rule text makes clear the manner in which Firm Quote 
relief is applied. The Exchange believes it is consistent with the Act 
to provide greater detail as to the current obligations for Market 
Makers with respect to firm quote. The addition rule text is consistent 
with the Act because the Exchange is adding detail regarding the method 
in which orders which are firm or locked and crossed will be handled in 
the System. The notifications for Firm Quote are made clear with the 
proposed rule text. The Exchange believes that it is consistent with 
the Act to specify when quotes are firm and the handling of such quotes 
by the System for the protection of investors and the general public. 
The clarity is designed to promote just and equitable principles of 
trade by notifying all participants engaged in market making of 
potential outcomes. Further, the Exchange's proposal to add more detail 
at proposed new Options 3, Section 4(b)(6) regarding trade-through and 
locked and crossed markets is consistent with the Act. Today, 
quotations may not be executed against at prices that trade-through an 
away market. Also, quotations may not lock or cross an away market. 
Also, quotations may not lock or cross an away market. By stating this 
limitation in the rule, Members will have greater clarity as to this 
limitation. The repricing of quotations is consistent with the Act 
because repricing prevents the Exchange from disseminating a price 
which locks or crosses another market. The Exchange's proposal to note 
that quotes are subject to minimum increments provided for in Options 
3, Section 3 and risk protections provided for in Options 3, Section 15 
is consistent with the Act because this rule brings greater 
transparency to these requirements which are already noted in the 
aforementioned rules. Options 2, Section 5(b)(1) similarly requires a 
Market Maker to quote in the minimum increments specified in Options 3, 
Section 3. Options 3, Section 15, titled ``Simple Order Risk 
Protections'' provides a list of all protections applicable to quotes 
that may cause an order to be rejected. The Exchange believes that this 
rule will provide Market Makers with requirements and conditions for 
submitting quotations and provide transparency as to limitations that 
cause a quote to be rejected.
    The Exchange's proposal to make clear that quotes will be displayed 
in the System as described in Options 3, Section 23 is intended to 
bring greater transparency as to the data available on the Exchange. 
Options 3, Section 23,

[[Page 53502]]

titled ``Data Fees and Trade Information'' provides for the available 
feeds that Members may access on the Exchange.
Options 3, Section 5, Entry and Display of Orders
    The Exchange proposes to retitle Options 3, Section 5 as ``Entry 
and Display of Orders'' to describe the current requirements and 
conditions for entering orders, similar to proposed changes to Options 
3, Section 5 for quotes is consistent with the Act because it will 
provide transparency as to manner in which orders may be submitted to 
the System. The Exchange's new rule text memorializes the current 
requirements for submitting orders into the System. Similar to proposed 
Options 3, Section 4, the Exchange proposes to memorialize requirements 
and limitations within one rule for ease of reference.
    The Exchange's new rule text at Options 3, Section 5(a) proposes to 
make clear that multiple orders may be transmitted to the System as 
single or multiple price levels to add greater transparency to the 
Exchange's rules. The Exchange proposes to memorialize the manner in 
which orders may be submitted to the System to add more detail to its 
rules. For example, the time the System begins accepting orders, 
information concerning the time-stamp, which determines the time 
ranking of the order, as well as restrictions to order entry. Orders 
submitted to the System are subject to minimum increments specified in 
Options 3, Section 3 risk protections provided for in Options 3, 
Section 15, and the restrictions of any order type as provided for in 
Options 3, Section 7. The Exchange believes that listing the 
requirements and limitations is consistent with the Act because it will 
provide Members with the information necessary to process orders on 
GEMX. In addition, noting that parties may not agree to a mutual 
agreement for purposes that would cause another rule to be violated is 
consistent with the Act because it provides transparency to Members 
that certain behavior would cause a rule violation. The Exchange 
believes that this provision protects investors and the public interest 
because it specifically prohibits market manipulation within propose 
new rule. The Exchange's proposal to define both the Exchange's best 
bid and offer as the ``BBO'' is consistent with the Act because it 
provides context to the usage of these terms in the Rulebook. The 
Exchange notes, within Options 3, Section 7, the orders are displayed 
and non-displayed.
    Further, the Exchange's proposal to add more detail at proposed new 
Options 3, Section 5(d) regarding trade-through and locked and crossed 
markets is consistent with the Act. Today, orders may not be executed 
against at prices that trade-through an away market. Also, orders may 
not lock or cross an away market. Routable orders must comply with 
Trade-Through and Locked and Crossed Markets restrictions. By stating 
this limitation in the rule, Members will have greater clarity as to 
this limitation. The rule also seeks to aggregate information relating 
to trading-through so as to provide Members with clear guidelines for 
submitting orders.
    The Exchange's proposal to make clear that orders will be displayed 
in the System as described in Options 3, Section 23 is intended to 
bring greater transparency as to the data available on the Exchange. 
Options 3, Section 23 titled ``Data Fees and Trade Information'' 
provides for the available feeds that Members may access on the 
Exchange.
Options 3, Section 7, Types of Orders
    The Exchange's proposal to amend Supplementary Material .03(c) to 
Options 3, Section 7 to make clear that Market Makers may only enter 
interest into SQF in their assigned options series is consistent with 
the Act. Options 2, Section 3, Appointment of Market Makers, describes 
the manner in which Market Makers are appointed in options series. This 
sentence simply provides that SQF may only be utilized for quoting in 
assigned options series.
Options 3, Section 15, Simple Order Risk Protections
    The Exchange's proposal to relocate Options 3, Section 15(a) \22\ 
into proposed new Options 3, Section 5(b) is consistent with the Act 
because this rule text relates to orders, which topic is described 
within new Options 3, Section 5. The proposal to relocate Size 
Limitation to make clear that this risk protection impacts orders and 
quotes will bring greater transparency to this risk protection.
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    \22\ Options 5, Section 15(a) provides, ``NBBO Price Protection. 
Orders, other than Intermarket Sweep Orders (as defined in Options 
5, Section 1(h)), will not be automatically executed by the System 
at prices inferior to the NBBO (as defined in Options 5, Section 
1(j)). (1) Orders that are not automatically executed will be 
handled as provided in Supplementary Material .02 to Options 5, 
Section 3; provided that Members may specify that a Non-Customer 
order should instead be rejected automatically by the System at the 
time of receipt. (2) There is no NBBO price protection with respect 
to any other market whose quotations are Non-Firm (as defined in 
Options 5, Section 1(k)).''
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Options 3, Section 22, Limitation on Orders
    The Exchange's proposal to amend Options 3, Section 22 to list all 
the exceptions to the exposure requirement is consistent with the Act 
because this rule change will bring greater clarity to the Rulebook. 
The Exchange is adding rule text currently contained in a NOM rule to 
describe the required period that orders are to be exposed.\23\ The 
Exchange believes the additional language provided context and further 
explains the exceptions. The Exchange believes that this rule is 
consistent with the Act because with the addition of this language the 
rule more specifically describes the limitations to behavior on the 
Exchange with respect to order exposure and the necessity to conduct 
price discovery. The rule also describes behavior that would violate 
Options 3, Section 22 depending on the relationship of the parties and 
exchange of information. Listing all of the relevant mechanisms 
available on the Exchange will make clear the manner in which a Member 
may execute as principal orders they represent as agent. Further, 
explicitly excluding the Solicitation Mechanism will make clear that 
the particular auction is not an exception to the one second rule. The 
Exchange's proposal to relocate rule text to create topic headings and 
discuss each topic discretely will bring greater clarity to this rule 
text. The Exchange's proposal to add a new Options 3, Section 22(c) 
will make clear that a Member cannot inform another Member or any other 
third party of any of the terms of the order in violation of this rule. 
Options 9, Section 9, titled ``Prevention of the Misuse of Material 
Nonpublic Information,'' prohibits such activity today. This rule text 
is contained in NOM Rules.\24\ The Exchange desires to conform the 
language in this rule to that of affiliated Nasdaq markets. Finally, 
updating the cross-references will make clear the manner in which a 
Member may enter orders on the Exchange.
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    \23\ See Chapter VII, Section 12.
    \24\ See Chapter VII, Section 12 at Commentary .04.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
Options 3, Section 4, Acceptance of Quote and Orders
    The Exchange's proposal to add a new section (b) to Options 3, 
Section 4 to describe the current requirements and

[[Page 53503]]

conditions for submitting quotes does not impose an undue burden on 
competition because the Exchange is memorializing its current practice 
by reflecting the various requirements and limitations in one rule for 
ease of reference and clarity and all Market Makers are subject to the 
these requirements today. The Exchange is memorializing its current 
practice by reflecting the various requirements and limitations for 
quote entry in one rule for ease of reference and clarity. The Exchange 
is also proposing to conform this rule to similar rules across other 
Nasdaq affiliated exchanges.
Options 3, Section 5, Entry and Display of Orders
    The Exchange's proposed new Options 3, Section 5 describes the 
requirements and conditions pursuant to which Members can enter orders 
into the System. The Exchange's proposal does not impose an undue 
burden on competition because it applies uniformly to all Members. This 
rule memorializes the manner in which orders may be submitted to the 
System and provides transparency as to manner in which orders may be 
submitted to the System. The Exchange is also proposing to conform this 
rule to similar rules across other Nasdaq affiliated exchanges.
Options 3, Section 7, Types of Order
    The Exchange's proposal to amend Supplementary Material .03(c) to 
Options 3, Section 7 to make clear that Market Makers may only enter 
interest into SQF in their assigned options series does not impose an 
undue burden on competition, rather it makes clear that SQF may only be 
utilized for quoting in assigned options series. This rule is 
applicable to all Market Makers.
Options 3, Section 15, Simple Order Risk Protections
    The Exchange's proposal to relocate Options 3, Section 15(a) into 
proposed new Options 3, Section 5(b) does not impose an undue burden on 
competition because this rule text relates to orders, which topic is 
described within new Options 3, Section 5. Relocating the Size 
Limitation protection to another section of the rule to make clear it 
applies to quotes and orders will bring greater transparency to this 
rule.
Options 3, Section 22, Limitation on Orders
    The Exchange's proposal to amend Options 3, Section 22 to list all 
the exceptions to the exposure requirement does not impose an undue 
burden on competition because this rule change will bring greater 
clarity to the Rulebook. The Exchange's proposal to relocate rule text 
to create topic headings and discuss each topic discretely will bring 
greater clarity to this rule text. The Exchange's proposal to add a new 
Options 3, Section (c) will make clear the type of behavior that would 
cause a Member to violate Options 3, Section 22 when disclosing 
information to another Member or any other third party with respect to 
the terms of the order.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \25\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\26\
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    \25\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-GEMX-2019-13 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-GEMX-2019-13. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-GEMX-2019-13, and should be submitted on 
or before October 28, 2019.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21737 Filed 10-4-19; 8:45 am]
 BILLING CODE 8011-01-P


