[Federal Register Volume 88, Number 28 (Friday, February 10, 2023)]
[Notices]
[Pages 8922-8945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-02821]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96817; File No. SR-GEMX-2023-02]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rules in 
Connection with the Technology Migration to Enhanced Nasdaq 
Functionality

February 6, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 23, 2023, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule

[[Page 8923]]

change as described in Items I, II, and III 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\ 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 its rules in connection with a 
technology migration to enhanced Nasdaq, Inc. (``Nasdaq'') 
functionality.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/gemx/rules, 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
    In connection with a technology migration to enhanced Nasdaq 
functionality that will result in higher performance, scalability, and 
more robust architecture, the Exchange proposes to amend its rules to 
adopt certain trading functionality currently utilized at Nasdaq 
affiliate options exchanges. As further discussed below, the Exchange 
is proposing to adopt such functionality substantially in the same form 
as currently on the Nasdaq affiliated options exchanges, while 
retaining certain intended differences between it and its affiliates. 
The Exchange also proposes a number of changes to memorialize existing 
functionality, add more granularity in its rules to describe how 
existing functionality operates today, and to harmonize the Exchange's 
rules where appropriate with the rules of its affiliated options 
exchanges by using consistent language to describe identical 
functionality.
    The Exchange intends to begin implementation of the proposed rule 
change by Q3 2023. The Exchange would commence its implementation with 
a limited symbol migration and continue to migrate symbols over several 
weeks. The Exchange will issue an Options Trader Alert to Members to 
provide notification of the symbols that will migrate and the relevant 
dates.
Routing Changes
    In connection with the technology migration to enhanced Nasdaq 
functionality, the Exchange recently amended Options 5 (Order 
Protections and Locked and Crossed Markets) in order to harmonize its 
routing functionality to that of Nasdaq BX, Inc. (``BX'').\3\ As part 
of this harmonization, the Routing Filing included proposals to adopt 
or harmonize routing strategies on the Exchange that are substantially 
identical to BX, (i.e., DNR, FIND, and SRCH), and eliminate existing 
Exchange routing functionality that BX does not offer today (e.g., 
flash functionality,\4\ and Sweep Orders.\5\)
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    \3\ Specifically, the Exchange's affiliate, Nasdaq ISE, LLC 
(``ISE'') amended ISE Options 5, which GEMX Options 5 incorporates 
by reference. See Securities Exchange Act Release No. 94897 (May 12, 
2022), 87 FR 30294 (May 18, 2022) (SR-ISE-2022-11) (``Routing 
Filing''). As a result, the amendments to ISE Options 5 in the 
Routing Filing also amended GEMX Options 5.
    \4\ Today, the Exchange's flash functionality permits certain 
eligible incoming orders to first be exposed at the National Best 
Bid or Offer (``NBBO'') to all Members for execution at the NBBO 
price before that order is routed to another market for execution. 
See Supplementary Material .02 to Options 5, Section 2.
    \5\ A Sweep Order is a limit order that is to be executed in 
whole or in part on the Exchange and the portion not so executed 
shall be routed pursuant to Supplementary Material .05 to Options 5, 
Section 2 to Eligible Exchange(s) for immediate execution as soon as 
the order is received by the Eligible Exchange(s). Any portion not 
immediately executed by the Eligible Exchange(s) shall be canceled. 
If a Sweep Order is not marketable when it is submitted to the 
Exchange, it shall be canceled. See Options 3, Section 7(s).
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    In connection with the proposed changes in the Routing Filing, the 
Exchange now proposes to make corresponding changes to the following 
Rules within Options 3 to account for the proposed amendments to 
Options 5: Section 5 (Entry and Display of Orders), Section 7 (Types of 
Orders and Orders and Quote Protocols), Section 9 (Trading Halts), and 
Section 10 (Priority of Quotes and Orders).\6\ First, the Exchange 
proposes to remove the following rule text in Options 3, Section 
5(b)(1) relating to flash functionality and Non-Customer order handling 
in lieu of using flash functionality: ``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 \7\ at the time of receipt.'' 
With the removal of flash functionality in the Routing Filing, the 
foregoing rule text would no longer be necessary. In connection with 
this change, the Exchange will renumber current Section 5(b)(2) as 
(b)(1). Second, the Exchange proposes to delete similar flash-related 
language in Options 3, Section 5(d) that currently provides: ``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.''
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    \6\ The Exchange notes that ISE proposed substantially similar 
amendments in ISE Options 3 as part of the Routing Filing.
    \7\ The term ``System'' means the electronic system operated by 
the Exchange that receives and disseminates quotes, executes orders 
and reports transactions. See Options 1, Section (a)(49).
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    Third, the Exchange proposes to delete references to do-not-route 
orders \8\ and Sweep Orders in Options 3, Section 7(m) and (s), 
respectively, and reserve those Rules. As discussed in the Routing 
Filing, the Exchange is eliminating these order types (and for do-not-
route orders, eliminating as an order type and describing these instead 
as a routing strategy) in order to align with BX's current offerings. 
Fourth, the Exchange proposes to add a new Supplementary Material .04 
to Options 3, Section 7, which would set forth the new routing 
strategies that are substantially identical to BX's current routing 
strategies, as further discussed in the Routing Filing. Specifically, 
new Supplementary Material .04 would provide: ``Routing Strategies. 
Orders may be entered on the Exchange with a routing strategy of FIND 
or SRCH, or, in the alternative, an order may be marked Do-Not-Route 
(``DNR'') as provided in Options 5,

[[Page 8924]]

Section 4 through FIX \9\ or Precise \10\ only.'' The addition of this 
sentence will make clear which routing strategies may be utilized when 
submitting an order type and will provide a citation to the routing 
rule in Options 5, Section 4 for ease of reference.\11\
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    \8\ A do-not-route order is a market or limit order that is to 
be executed in whole or in part on the Exchange only. Due to prices 
available on another options exchange (as provided in Options 5 
(Order Protection; Locked and Crossed Markets)), any balance of a 
do-not-route order that cannot be executed upon entry, or placed on 
the Exchange's limit order book, will be automatically cancelled. 
See Options 3, Section 7(m).
    \9\ ``Financial Information eXchange'' or ``FIX'' is an 
interface that allows Members and their Sponsored Customers to 
connect, send, and receive messages related to orders and auction 
orders to the Exchange. Features include the following: (1) 
execution messages; (2) order messages; (3) risk protection triggers 
and cancel notifications; and (4) post trade allocation messages. 
See Supplementary Material .03(a) to Options 3, Section 7.
    \10\ ``Nasdaq Precise'' or ``Precise'' is a front-end interface 
that allows Electronic Access Members and their Sponsored Customers 
to send orders to the Exchange and perform other related functions. 
Features include the following: (1) order and execution management: 
enter, modify, and cancel orders on the Exchange, and manage 
executions (e.g., parent/child orders, inactive orders, and post-
trade allocations); (2) market data: access to real-time market data 
(e.g., NBBO and Exchange BBO); (3) risk management: set customizable 
risk parameters (e.g., kill switch); and (4) book keeping and 
reporting: comprehensive audit trail of orders and trades (e.g., 
order history and done away trade reports. See Supplementary 
Material .03(d) to Options 3, Section 7. The Exchange notes that FIX 
and Precise are the only order entry protocols on the Exchange that 
permit routing today.
    \11\ Routing options may be combined with all available order 
types and times-in-force (``TIFs''), with the exception of orders 
and TIFs whose terms are inconsistent with the terms of a particular 
routing option.
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    Fifth, the Exchange proposes to amend subparagraph (d)(2) of 
Options 3, Section 9. Among other things, this Rule describes the 
processing of Market Orders exposed at the NBBO pursuant to 
Supplementary Material .02 to Options 5, Section 2 after a trading 
halt. This rule text is no longer necessary with the elimination of 
flash functionality in the Routing Filing. Sixth, the Exchange proposes 
to amend Options 3, Section 10(a)(ii) \12\ to remove a reference to 
flash functionality that will no longer exist with the proposed changes 
in the Routing Filing. The Exchange also proposes to renumber Options 
3, Section 10(a)(i) and (ii) as Options 3, Section 10(a)(1) and (2) to 
conform the numbering in that Rule.
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    \12\ Options 3, Section 10(a)(ii) currently provides that this 
rule does not apply to the Block Order Mechanism described within 
Options 3, Section 11(a), the Facilitation Mechanism described 
within Options 3, Section 11(b), the Solicited Order Mechanism 
described within Options 3, Section 11(d), the Price Improvement 
Mechanism described within Options 3, Section 13, orders described 
within Options 3, Section 12 or an exposure period as provided in 
Options 5, Section 2 at Supplementary Material .02, unless Options 
3, Section 10 is specifically referenced within GEMX Rules 
applicable to the aforementioned functionality.
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    Seventh, the Exchange proposes to amend its Pricing Schedule at 
Options 7 to remove all references to pricing related to the flash 
functionality. In particular, the Exchange proposes to delete the 
definition of Flash Order in Options 7, Section 1.
Bulk Message
    The Exchange proposes to codify existing functionality that allows 
Market Makers to submit their quotes to the Exchange in block 
quantities as a single bulk message. In other words, a Market Maker may 
submit a single message to the Exchange, which may contain bids and 
offers in multiple series. The Exchange does not permit bulk messaging 
for orders today. The Exchange has historically provided Market Makers 
with information regarding bulk messaging in its publicly available 
technical specifications.\13\ To promote greater transparency, the 
Exchange is seeking to codify this functionality in its Rulebook. 
Specifically, the Exchange proposes to amend Options 3, Section 4(b)(3) 
to memorialize that quotes may be submitted as a bulk message. The 
Exchange also proposes to add a definition of ``bulk message'' in new 
subparagraph (i) of Options 3, Section 4(b)(3), which will provide that 
a bulk message means a single electronic message submitted by a Market 
Maker to the Exchange which may contain a specified number of 
quotations as designated by the Exchange.\14\ The bulk message, 
submitted via SQF,\15\ may enter, modify, or cancel quotes. Bulk 
messages are handled by the System in the same manner as it handles a 
single quote message.
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    \13\ See https://www.nasdaq.com/docs/2022/05/17/SQF_8.2b.pdf 
(specifying for bulk quoting of up to 200 quotes per quote block 
message). The specifications note in other places the manner in 
which a Member can send such quote block messages.
    \14\ See id. As noted above, quote bulk messages can presently 
contain up to 200 quotes per message. This is the maximum amount 
that is permitted in a bulk message. The Exchange would announce any 
change to these specifications in an Options Technical Update 
distributed to all Members.
    \15\ ``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. Features include the following: (1) options symbol 
directory messages (e.g., underlying instruments); (2) System event 
messages (e.g., start of trading hours messages and start of 
opening); (3) trading action messages (e.g., halts and resumes); (4) 
execution messages; (5) quote messages; (6) Immediate-or-Cancel 
Order messages; (7) risk protection triggers and purge 
notifications; (8) opening imbalance messages; (9) auction 
notifications; and (10) auction responses. The SQF Purge Interface 
only receives and notifies of purge requests from the Market Maker. 
Market Makers may only enter interest into SQF in their assigned 
options series. See Supplementary Material .03(c) to Options 3, 
Section 7.
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    The Exchange notes that other exchanges like Cboe Options Exchange 
(``Cboe'') currently offer similar bulk messaging functionality that 
allow their market participants to submit block quantity quotes in a 
single electronic message.\16\
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    \16\ See definition of ``bulk message'' in Cboe Rule 1.1. Unlike 
Cboe, which also allows bulk messaging for orders, the Exchange's 
bulk message functionality only applies to quotes as discussed 
above.
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Order Types
    The Exchange proposes to make several enhancements to certain order 
types in Options 3, Section 7 in connection with the technology 
migration to Nasdaq enhanced functionality. Specifically in connection 
with the migration, the Exchange proposes to: (1) introduce an intra-
day cancel timer feature for Market Orders,\17\ (2) eliminate non-
Immediate-or-Cancel (``IOC'') \18\ Intermarket Sweep Orders 
(``ISOs''),\19\ (3) introduce BX-like re-pricing to Add Liquidity 
Orders (``ALOs''),\20\ and (4) allow Market Orders to be entered as 
Opening Only (``OPG'') \21\ orders (currently only allowed for Limit 
Orders).\22\ As discussed below, the proposed enhancements are intended 
to align

[[Page 8925]]

with existing BX functionality. The Exchange also proposes to add more 
granularity on how certain order types currently operate on the 
Exchange today, codify existing order type functionality, and to 
relocate related rule text within Options 3, Section 7 for better 
readability. Except with respect to the order type enhancements 
specified above, none of the proposed order type rule changes will 
amend current functionality. Rather, these changes are designed to 
bring greater transparency as to the applicability of certain order 
types currently available on the Exchange, and to provide greater 
consistency between the rules of the Exchange and its affiliates.
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    \17\ A market order is an order to buy or sell a stated number 
of options contracts that is to be executed at the best price 
obtainable when the order reaches the Exchange. See Options 3, 
Section 7(a).
    \18\ An IOC order must be executed in whole or in part upon 
receipt. Any portion not so executed is to be treated as cancelled. 
See Options 3, Section 7(b)(3). As discussed later in this filing, 
the Exchange will relocate the IOC rule into Supplementary Material 
.02 to Options 3, Section 7.
    \19\ An ISO is a limit order that meets the requirements of 
Options 5, Section 1(h). See Options 3, Section 7(b)(5).
    \20\ An Add Liquidity Order is a limit order that is to be 
executed in whole or in part on the Exchange (i) only after being 
displayed on the Exchange's limit order book; and (ii) without 
routing any portion of the order to another market center. Members 
may specify whether an Add Liquidity Order shall be cancelled or re-
priced to the minimum price variation above the national best bid 
price (for sell orders) or below the national best offer price (for 
buy orders) if, at the time of entry, the order (i) is executable on 
the Exchange; or (ii) the order is not executable on the Exchange, 
but would lock or cross the national best bid or offer. If at the 
time of entry, an Add Liquidity Order would lock or cross one or 
more non-displayed orders on the Exchange, the Add Liquidity Order 
shall be cancelled or re-priced to the minimum price variation above 
the best non-displayed bid price (for sell orders) or below the best 
non-displayed offer price (for buy orders). An Add Liquidity Order 
will only be re-priced once and will be executed at the re-priced 
price. An Add Liquidity Order will be ranked in the Exchange's limit 
order book in accordance with Options 3, Section 10. See Options 3, 
Section 7(n).
    \21\ An OPG order is a Limit Order that can be entered for the 
opening rotation only. See Options 3, Section 7(o). As discussed 
later in this filing, the Exchange will relocate the OPG rule into 
Supplementary Material .02 to Options 3, Section 7.
    \22\ A Limit Order is an order to buy or sell a stated number of 
options contracts at a specified price or better. See Options 3, 
Section 7(b).
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Market Orders
    The Exchange proposes to amend the definition of Market Orders in 
Options 3, Section 7(a) to introduce a cancel timer feature, which will 
allow Members to designate Market Orders that do not execute after a 
certain period of time to be cancelled back to the Member. 
Specifically, the Exchange proposes to add that Members can designate 
their Market Orders not executed after a pre-established period of 
time, as established by the Exchange,\23\ will be cancelled back to the 
Member, once an options series has opened for trading. BX currently has 
an identical timer feature for BX Market Orders.\24\ Similar to BX, the 
proposed timer would be available once the intra-day trading session 
begins for an options series, as the Exchange already has a separate 
opening delay timer that provides protection to the market during the 
Opening Process. In particular, the Exchange would cancel or route 
orders (consistent with the Member's instructions) if an options series 
has not opened before the conclusion of the opening delay timer.\25\ As 
such, the Exchange is proposing that the pre-established period of time 
for the proposed timer feature would commence once the intra-day 
trading session begins for that options series. In other words, while 
the opening process is on-going, and the intra-day trading session has 
not commenced, the pre-established period of time for the proposed 
timer feature would not commence. Further, the Exchange proposes to 
note that Market Orders on the order book would be immediately 
cancelled if an options series is halted, provided the Member 
designated the cancellation of Market Orders.\26\ The proposed changes 
are intended to make clear that in the event there is a Market Order in 
a zero bid market with the Market Order was resting on the order book, 
the Member has an option to designate the cancellation of that Market 
Order pursuant to the proposed cancel timer feature. In this case, 
those Market Orders to sell, which were resting on the order book, 
would immediately cancel upon a trading halt instead of waiting until 
the end of the pre-established timer period. BX has identical language 
governing its Market Orders today.\27\ Like BX, the Exchange believes 
that the proposed intra-day timer feature will provide additional 
flexibility for Members that wish to cancel unexecuted Market Orders 
after a certain period of time. Lastly, the Exchange proposes a non-
substantive change to capitalize the term ``market orders'' in the 
first sentence of Options 3, Section 7(a) for consistency with the 
proposed rule text.
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    \23\ The Exchange will initially set the pre-established period 
of time at 4 seconds, identical to BX. This specification will be 
set out in the GEMX System settings document on a publicly available 
website. The Exchange would issue an Options Trader Alert notifying 
all Members if it determined to amend that timeframe.
    \24\ See BX Options 3, Section 7(a)(5).
    \25\ See Options 3, Section 8(k).
    \26\ Members may make the designation to cancel their Market 
Orders through their FIX, OTTO, and Precise port settings.
    \27\ See BX Options 3, Section 7(a)(5).
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Intermarket Sweep Orders
    The Exchange proposes to amend the ISO rule in Options 3, Section 
7(b)(5), which currently provides that an ISO is limit order that meets 
the requirements of Options 5, Section 1(h).\28\ As amended, the ISO 
rule will provide:
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    \28\ Options 5, Section 1(h) provides that an ISO is a limit 
order for an options series that, simultaneously with the routing of 
the ISO, one or more additional ISOs, as necessary, are routed to 
execute against the full displayed size of any Protected Bid, in the 
case of a limit order to sell, or any Protected Offer, in the case 
of a limit order to buy, for the options series with a price that is 
superior to the limit price of the ISO. A Member may submit an 
Intermarket Sweep Order to the Exchange only if it has 
simultaneously routed one or more additional Intermarket Sweep 
Orders to execute against the full displayed size of any Protected 
Bid, in the case of a limit order to sell, or Protected Offer, in 
the case of a limit order to buy, for an options series with a price 
that is superior to the limit price of the Intermarket Sweep Order. 
An ISO may be either an Immediate-Or-Cancel Order or an order that 
expires on the day it is entered.

    An Intermarket Sweep Order (``ISO'') is a limit order that meets 
the requirements of Options 5, Section 1(h). Orders submitted to the 
Exchange as ISO are not routable and will ignore the ABBO and trade 
at allowable prices on the Exchange. ISOs must have a TIF 
designation of IOC. ISOs may not be submitted during the Opening 
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Process.

    The proposed rule text is substantially similar to BX's ISO rule in 
BX Options 3, Section 7(a)(6).\29\ The Exchange is also proposing to 
add that ISOs may not be submitted during the Opening Process to 
reflect current System handling. The Exchange notes that BX similarly 
prohibits the submission of ISOs before the market opens and therefore 
proposes to add a similar level of detail in the Exchange's ISO rule.
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    \29\ BX's ISO rule also currently states that ``ISOs may be 
entered on the Order Book or into the PRISM Mechanism pursuant to 
Options 3, Section 13(ii)(K).'' See BX Options 3, Section 7(a)(6). 
The Exchange notes that it intends to file a separate rule filing to 
add similar language as BX relating to how ISOs may be entered on 
the Exchange.
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    Other than the stipulation that ISOs must have a TIF \30\ 
designation of IOC, the proposed language does not amend the current 
ISO functionality but rather is intended to add more granularity and 
more closely align the ISO rule with BX's ISO rule. The Exchange does 
note that in connection with the System migration, the Exchange 
proposes to amend the current ISO functionality to only allow ISOs to 
be entered as IOC. Today, Options 5, Section 1(h) provides that an ISO 
may either be an IOC or an order that expires on the day it is 
entered.\31\ The Exchange is proposing to require ISOs to be entered as 
IOC, which would cause an ISO to cancel in whole or in part upon 
receipt if the ISO does not execute or does not entirely execute, 
because an ISO is generally used when trying to sweep a price level 
across multiple exchanges in an effort to post the balance of an order 
without locking an away market. The Exchange therefore believes that 
ISOs have a limited purpose and should be cancelled if they do not 
execute or do not entirely execute. As noted above, the proposal will 
align to current BX functionality that similarly only allows ISOs to be 
entered as IOC on BX.
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    \30\ As discussed later in this filing, the Exchange is 
proposing to codify the definition of ``Time in Force'' or ``TIF'' 
to mean the period of time that the System will hold an order for 
potential execution. See proposed Supplementary Material .02 to 
Options 3, Section 7.
    \31\ Because GEMX Options 5 incorporates ISE Options 5 by 
reference, ISE will file a subsequent ISE rule filing to amend 
Options 5 to remove the language in Options 5, Section 1(h) that 
currently allows ISOs to be entered as an order that expires on the 
day it is entered.
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All-or-None Orders
    The Exchange proposes to amend the All-Or-None (``AON'') Order rule 
in Options 3, Section 7(c), which currently provides that an AON Order 
is a limit or market order that is to be executed in its entirety or 
not at all, and that an AON Order may only be entered as an IOC Order. 
As amended, the AON rule will provide:


[[Page 8926]]


    An All-Or-None (``AON'') Order is a limit or market order that 
is to be executed in its entirety or not at all. An AON Order may 
only be entered as an Immediate-or-Cancel Order. AON Orders will 
only execute against multiple, aggregated orders if the executions 
would occur simultaneously. AON Orders may not be submitted during 
the Opening Process.

    With the proposed changes, the Exchange is not amending current AON 
functionality; rather, it is memorializing current System behavior in a 
manner consistent with its affiliates. Today, AON Orders have a size 
contingency (i.e., executed in its entirety at the entered size or not 
at all) and must be IOC. The Exchange is specifying that AON Orders 
will execute against multiple, aggregated orders only if the executions 
would occur simultaneously to ensure that AON Orders are executed at 
the specified size while also honoring the priority of all other orders 
on the order book. The Exchange is adopting this rule text for AON 
orders to align to substantially similar language on BX.\32\
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    \32\ See BX Options 3, Section 7(a)(4)(A) (describing Minimum 
Quantity Orders and AON Orders as Contingency Orders). Unlike BX, 
the Exchange does not currently offer Minimum Quantity Orders.
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    The Exchange notes that the handling of AONs as described in the 
proposed rule text in Options 3, Section 7(c) is consistent with the 
Exchange's allocation methodology in Options 3, Section 10. The 
additional detail makes clear that because of the size contingency of 
AON Orders, those orders must be satisfied simultaneously to avoid any 
priority conflict on the order book, which considers current displayed 
NBBO prices to avoid locked and crossed markets as well as trade-
throughs.
    The Exchange is also proposing to add that AON orders may not be 
submitted during the Opening Process to reflect current System 
handling. The Exchange notes that BX similarly prohibits the submission 
of AON orders before the market opens and therefore proposes to add a 
similar level of detail in the Exchange's AON rule.\33\
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    \33\ See BX Options 3, Section 7(a)(7).
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Stop Orders
    The Exchange proposes to amend its Stop Order rule in Options 3, 
Section 7(d), which presently provides that a stop order is an order 
that becomes a market order when the stop price is elected. A stop 
order to buy is elected when the option is bid or trades on the 
Exchange at, or above, the specified stop price. A stop order to sell 
is elected when the option is offered or trades on the Exchange at, or 
below, the specified stop price. The Exchange now proposes to add that 
a Stop Order shall be cancelled if it is immediately electable upon 
receipt. Stop Orders allow Members increased control and flexibility 
over their transactions and the prices at which they are willing to 
execute an order. The purpose of a Stop Order is to not execute upon 
entry, and instead rest in the System until the market reaches a 
certain price level, at which time the order could be executed. A Stop 
Order that is immediately electable upon receipt would therefore negate 
the purpose of the Stop Order, so the Exchange would cancel such orders 
today. The Exchange believes that this ensures Members are able to use 
Stop Orders to achieve their intended purpose. The proposed changes 
codify current Stop Order handling and are intended to better align the 
Exchange's Stop Order rule with that of its affiliate, Phlx.\34\
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    \34\ See Phlx Options 3, Section 7(b)(4).
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    The Exchange also proposes to specify that Stop Orders may only be 
entered through FIX or Precise. This is how Stop Orders are handled 
today. Because the Exchange offers three order entry protocols today 
(FIX, Precise, and OTTO),\35\ the Exchange believes that adding this 
detail will make clear that Stop Orders are only available to be 
entered through two of these order entry protocols and reduce any 
potential confusion.
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    \35\ ``Ouch to Trade Options'' or ``OTTO'' is an interface that 
allows Members and their Sponsored Customers to connect, send, and 
receive messages related to orders, auction orders, and auction 
responses to the Exchange. Features include the following: (1) 
options symbol directory messages (e.g., underlying instruments); 
(2) System event messages (e.g., start of trading hours messages and 
start of opening); (3) trading action messages (e.g., halts and 
resumes); (4) execution messages; (5) order messages; (6) risk 
protection triggers and cancel notifications; (7) auction 
notifications; (8) auction responses; and (9) post trade allocation 
messages. See Supplementary Material .03(b) to Options 3, Section 7.
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Stop Limit Orders
    The Exchange proposes to amend its Stop Limit Order rule in Options 
3, Section 7(e), which presently provides that a stop limit order is an 
order that becomes a limit order when the stop price is elected. A stop 
limit order to buy is elected when the option is bid or trades on the 
Exchange at, or above, the specified stop price. A stop limit order to 
sell is elected when the option is offered or trades on the Exchange 
at, or below, the specified stop price. The Exchange now proposes to 
add that a Stop Limit Order shall be cancelled if it is immediately 
electable upon receipt. The Exchange would cancel these orders today 
for the same reasons discussed above for Stop Orders. The proposed 
changes codify current Stop Limit Order handling and are intended to 
better align the Exchange's Stop Limit Order rule with that of 
Phlx.\36\
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    \36\ See Phlx Options 3, Section 7(b)(4)(A).
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    The Exchange also proposes to specify that Stop Limit Orders may 
only be entered through FIX or Precise. This is how Stop Limit Orders 
are handled today. For the same reasons discussed above for Stop 
Orders, the Exchange believes that adding this detail will make clear 
that Stop Limit Orders are only available to be entered through the 
specified order entry protocols and reduce any potential confusion. 
Lastly, the Exchange proposes a non-substantive change to correct a 
punctuation error in the paragraph header.
Cancel and Replace Orders
    The Exchange proposes to relocate the rule text governing Cancel 
and Replace Orders from Supplementary Material .02 to Options 3, 
Section 7 into Options 3, Section 7(f). The Exchange also proposes non-
substantive, clarifying changes to the relocated rule text to update 
the incorrect cross-cites therein to the System's price or other 
reasonability checks. The Exchange also proposes to amend the following 
portion of the rule, which currently provides: ``The replacement order 
will retain the priority of the cancelled order, if the order posts to 
the Order Book, provided the price is not amended, size is not 
increased, or in the case of Reserve Orders,\37\ size is not changed.'' 
The Exchange proposes to make clear that in the case of Reserve Orders, 
a change in price will also result in a change of priority for the 
replacement order. The Exchange also proposes to clarify that the 
reference to the Reserve Order's size in this Rule is referring to both 
displayed and non-displayed size. As amended, the rule will provide: 
``The replacement order will retain the priority of the cancelled 
order, if the order posts to the Order Book, provided the price is not 
amended, or size is not increased. In the case of Reserve Orders, the 
replacement order will retain the priority of the cancelled order, if 
the order posts to the Order Book, provided the price is not amended or 
size (displayed and non-displayed) is not changed.'' The proposed 
changes will aid market participants in locating this order type in the 
main body of the rule, and add more granularity around how the

[[Page 8927]]

Exchange will treat the cancellation and replacement of Reserve Orders.
---------------------------------------------------------------------------

    \37\ As discussed later in this filing, a Reserve Order is 
defined in Options 3, Section 7(g) as a Limit Order that contains 
both a displayed portion and a non-displayed portion.
---------------------------------------------------------------------------

Reserve Orders
    As described in Options 3, Section 7(g), the Exchange offers 
Members a Reserve Order, which is a Limit Order that contains both a 
displayed portion and a non-displayed portion. Both the displayed and 
non-displayed portions of a Reserve Order are available for potential 
execution against incoming marketable orders. A non-marketable Reserve 
Order will rest on the order book. The non-displayed portion of a 
Reserve Order will be available for execution only after all displayed 
interest at that price has been executed. Both the displayed and the 
non-displayed portions of a Reserve Order will be ranked initially by 
the specified limit price and time of entry, and both the displayed and 
non-displayed portions of a Reserve Order will trade in accordance with 
the priority and allocation provisions in Options 3, Section 10.
    When the displayed portion of a Reserve Order has been decremented, 
in whole or in part, it will be refreshed from the non-displayed 
portion of the resting Reserve Order. If the displayed portion is 
refreshed in part, the new displayed portion will include the 
previously displayed portion. Upon any refresh, the entire displayed 
portion of the order will be ranked at the specified limit price, 
assigned a new entry time (i.e., the time that the newly displayed 
portion of the order was refreshed), and given priority in accordance 
with Options 3, Section 10. Any remaining non-displayed portion of the 
order will receive the same time stamp as the newly displayed portion 
of the order.
    The Exchange now proposes to enhance the Reserve Order rule by 
providing more granularity in how Members may elect to refresh the 
display quantity for the Reserve Order. The Exchange is not proposing 
to modify the current functionality of Reserve Orders, but rather 
proposes to augment the definition to clarify current System behavior. 
Specifically, the Exchange proposes to make clear that Reserve Orders 
may be entered with an instruction for the displayed portion of the 
order to be refreshed: (A) upon full execution of the displayed portion 
or upon any partial execution; and (B) up to the initial size of the 
displayed portion or with a random refresh quantity within a range 
determined by the Member.\38\ The Exchange believes that this refresh 
feature for Reserve Orders provides more flexibility and opportunities 
for Members to add displayed liquidity to the Exchange. The Exchange 
believes that the proposed changes would add transparency to the 
operation of Reserve Orders, without altering current functionality. 
The Exchange notes that other options exchanges like Cboe currently 
offer similar refresh features on their Reserve Order 
functionality.\39\
---------------------------------------------------------------------------

    \38\ See proposed Options 3, Section 7(g)(4). The Exchange will 
also renumber the paragraphs within this rule accordingly. As it 
relates to the refresh quantity range, Members must designate a 
range for the random refresh election when they submit the Reserve 
Order if they elect a random refresh, otherwise the Reserve Order 
would be refreshed at a quantity equal to the initial size of the 
displayed portion. The range must be set at a number between 1 and 
the initial displayed quantity.
    \39\ See Cboe Rule 5.6(c) (setting forth the random 
replenishment and fixed replenishment features for Reserve Orders).
---------------------------------------------------------------------------

    Finally, the Exchange proposes non-substantive, technical changes 
in Options 3, Section 7(g) to reformat the paragraph numbering, correct 
a punctuation error in paragraph (3), and update a cross-cite in 
proposed paragraph (6).
Attributable Orders
    As described in Options 3, Section 7(h), the Exchange currently 
offers Attributable Orders, which allow Members to voluntarily display 
their firm IDs on the orders. The rule also provides the Exchange with 
flexibility to announce which Exchange Systems and class of securities 
for which the Attributable Order would be available.\40\
---------------------------------------------------------------------------

    \40\ Today, Attributable Orders are not available for the 
Facilitation, Solicited Order, and Price Improvement Mechanisms.
---------------------------------------------------------------------------

    The Exchange now proposes to delete existing text that refers to 
class of securities in Options 3, Section 7(h). Attributable Orders are 
available for all classes of securities today. The Exchange is 
therefore deleting this language as inaccurate. The Exchange also 
proposes a corrective change herein to ``an Option Trader Alert.''
Customer Cross Orders
    Customer Cross Orders are currently defined in Options 3, Section 
7(i). The Exchange proposes to add that such orders will trade in 
accordance with Options 3, Section 12(a). This is a non-substantive 
amendment to add a cross-reference to Section 12(a), which currently 
describes in detail how a Customer Cross Order would execute on the 
Exchange.
Qualified Contingent Cross Orders
    Qualified Contingent Cross (``QCC'') Orders are currently defined 
in Options 3, Section 7(j). The Exchange proposes a non-substantive, 
technical change to add a reference to ``QCC'' in the first sentence of 
this rule. The Exchange also proposes to add that QCC Orders will trade 
in accordance with Options 3, Section 12(c). This is a non-substantive 
amendment to add a cross-reference to Section 12(c), which currently 
describes in detail how a QCC Order would execute on the Exchange.
    The Exchange further proposes to specify that QCC Orders may only 
be entered through FIX or Precise. This is how QCC Orders are handled 
today. Because the Exchange offers three order entry protocols today 
(FIX, Precise, and OTTO), the Exchange believes that adding this detail 
will make clear that QCC Orders are only available to be entered 
through two of these order entry protocols and reduce any potential 
confusion.
Preferenced Orders
    The Exchange proposes to include the following definition of a 
Preferenced Order in Options 3, Section 7(l) for ease of reference: ``A 
Preferenced Order is as described in Options 2, Section 10.'' This is 
not a new order type, as Preferenced Orders are currently described in 
Options 2, Section 10. While this order type is not currently listed in 
the order type rule in Options 3, Section 7, the Exchange believes that 
it will be useful to market participants to have order types 
centralized within one rule. Phlx similarly lists out Directed Orders 
(akin to Preferenced Orders) in its order type rule in Phlx Options 3, 
Section 7(b)(11).
Add Liquidity Orders
    Add Liquidity Orders (``ALOs'') are currently defined in Options 3, 
Section 7(n). Today, the Exchange offers ALOs to provide market 
participants with greater control over the circumstances in which their 
orders are executed. ALOs are Limit Orders that will only be executed 
as a ``maker'' on the Exchange (i.e., when the Member is providing 
liquidity). Members can choose whether an ALO that is executable on the 
Exchange upon entry (or that is not executable on the Exchange upon 
entry, but locks or crosses the NBBO) will be cancelled or re-priced to 
one MPV above the national best bid (for sell orders) or below the 
national best offer (for buy orders).

[[Page 8928]]

If at the time of entry, an ALO would lock or cross one or more non-
displayed orders on the Exchange, the ALO will be cancelled or re-
priced to one MPV above the best non-displayed bid price (for sell 
orders) or below the best non-displayed offer price (for buy 
orders).\41\ Today, an ALO will only be re-priced once and will be 
executed at the re-priced price. The Exchange notes that without the 
ability to re-price an ALO in the foregoing manner, under certain 
circumstances, an incoming ALO could execute against a displayed or 
non-displayed order resting on the Exchange's limit order book, which 
would be in direct contravention with the purpose of an ALO (to provide 
liquidity, not take liquidity).
---------------------------------------------------------------------------

    \41\ As discussed in more detail below, the Exchange will amend 
this sentence to say ``orders or quotes'' to codify existing ALO 
behavior.
---------------------------------------------------------------------------

    As part of a concurrent rule filing, the Exchange is proposing to 
adopt a re-pricing mechanism identical to current BX re-pricing 
functionality \42\ to avoid certain orders from locking or crossing an 
away market's price.\43\ In connection with the proposed adoption of 
the BX-like re-pricing mechanism in Options 3, Section 5(d) in the Re-
Pricing Filing, the Exchange now proposes to make related changes to 
the ALO rule in Options 3, Section 7(n). In particular, the Exchange 
proposes that if an ALO would not lock or cross an order or quote on 
the System but would lock or cross the NBBO, the order will be handled 
pursuant to Options 3, Section 5(d), which will set forth the new BX-
like re-pricing mechanism for non-routable orders.\44\ As noted in 
Options 3, Section 7(n), ALOs are inherently non-routable. Accordingly, 
the Exchange is proposing to handle ALOs in a consistent manner with 
the new re-pricing mechanism. Because the new mechanism will allow for 
continuous re-pricing as discussed above, the Exchange also proposes to 
remove the current limitation in the ALO rule stipulating that these 
orders will only be re-priced once and executed at the re-priced price. 
The proposed order handling for ALOs will be functionally identical to 
ALO handling on BX today.\45\
---------------------------------------------------------------------------

    \42\ Today, BX re-prices certain orders to avoid locking and 
crossing away markets, consistent with its Trade-Through compliance 
and Locked or Crossed Markets obligations. See BX Options 3, Section 
5(d). See also Securities Exchange Act Release No. 89476 (August 4, 
2020), 85 FR 48274 (August 10, 2020) (SR-BX-2020-017) (describing BX 
re-pricing mechanism in BX Options 3, Section 5).
    \43\ See Securities Exchange Act Release No. 96363 (November 18, 
2022) (SR-GEMX-2022-10) (``Re-Pricing Filing''). Specifically in the 
Re-Pricing Filing, the Exchange is proposing to adopt the following 
language in Options 3, Section 5(d), which will be identical to BX 
Options 3, Section 5(d): An order that is designated by a Member as 
non-routable will be re-priced in order to comply with applicable 
Trade-Through and Locked and Crossed Markets restrictions. If, at 
the time of entry, an order that the entering party has elected not 
to make eligible for routing would cause a locked or crossed market 
violation or would cause a trade-through violation, it will be re-
priced 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.
    \44\ Id.
    \45\ See BX Options 3, Section 7(a)(12). See also Securities 
Exchange Act Release No. 93896 (January 4, 2022), 87 FR 1231 
(January 10, 2022) (SR-BX-2021-054), which introduced ALOs on BX.
---------------------------------------------------------------------------

    The Exchange further proposes a clarifying change in the ALO rule 
that would not amend current System behavior. The Exchange proposes to 
add ``or quotes'' to make clear that if at the time of entry, an ALO 
would lock or cross one or more non-displayed orders or quotes on the 
Exchange, the ALO will be cancelled or re-priced to one MPV above the 
best non-displayed bid price (for sell orders) or below the best non-
displayed offer price (for buy orders).
    Finally, the Exchange proposes to add that ALOs may only be 
submitted when an options series is open for trading to make clear that 
an ALO would not be accepted during the Opening Process when the order 
book is not available. The proposed rule text is consistent with 
current functionality, so the Exchange is codifying current ALO 
behavior with this change and adding the same level of detail currently 
in BX's ALO rule.\46\
---------------------------------------------------------------------------

    \46\ Id.
---------------------------------------------------------------------------

    As amended, Options 3, Section 7(n) will provide:

    An Add Liquidity Order is a limit order that is to be executed 
in whole or in part on the Exchange (i) only after being displayed 
on the Exchange's limit order book; and (ii) without routing any 
portion of the order to another market center. Members may specify 
whether an Add Liquidity Order shall be cancelled or re-priced to 
the minimum price variation above the national best bid price (for 
sell orders) or below the national best offer price (for buy orders) 
if, at the time of entry, the order (i) is executable on the 
Exchange; or (ii) the order is not executable on the Exchange, but 
would lock or cross the national best bid or offer. If at the time 
of entry, an Add Liquidity Order would lock or cross one or more 
non-displayed orders or quotes on the Exchange, the Add Liquidity 
Order shall be cancelled or re-priced to the minimum price variation 
above the best non-displayed bid price (for sell orders) or below 
the best non-displayed offer price (for buy orders). Notwithstanding 
the aforementioned, if an Add Liquidity Order would not lock or 
cross an order or quote on the System but would lock or cross the 
NBBO, the order will be handled pursuant to Options 3, Section 5(d). 
An Add Liquidity Order will be ranked in the Exchange's limit order 
book in accordance with Options 3, Section 10. Add Liquidity Orders 
may only be submitted when an options series is open for trading.

Opening Sweep
    Opening Sweeps are currently defined in Options 3, Section 7(t) as 
a Market Maker order submitted for execution against eligible interest 
in the System during the Opening Process pursuant to Options 3, Section 
8(b)(1). The Exchange proposes to replace the current definition with 
the following: ``An Opening Sweep is a one-sided order entered by a 
Market Maker through SQF for execution against eligible interest in the 
System during the Opening Process. This order type is not subject to 
any protections listed in Options 3, Section 15, except for Automated 
Quotation Adjustments. The Opening Sweep will only participate in the 
Opening Process pursuant to Options 3, Section 8(b)(1) and will be 
cancelled upon the open if not executed.''
---------------------------------------------------------------------------

    \47\ See Supplementary Material .03(c) of Options 3, Section 7, 
which notes that SQF is an interface that allows Market Makers to 
submit IOC orders.
    \48\ A ``Quality Opening Market'' is a bid/ask differential 
applicable to the best bid and offer from all Valid Width Quotes 
defined in a table to be determined by the Exchange and published on 
the Exchange's website. The calculation of Quality Opening Market is 
based on the best bid and offer of Valid Width Quotes. The 
differential between the best bid and offer are compared to reach 
this determination. The allowable differential, as determined by the 
Exchange, takes into account the type of security (for example, 
Penny versus non-Penny Interval Program issue), volatility, option 
premium, and liquidity. The Quality Opening Market differential is 
intended to ensure the price at which the Exchange opens reflects 
current market conditions. See Options 3, Section 8(a)(7).
---------------------------------------------------------------------------

    The proposed rule text is consistent with current functionality, so 
the Exchange is providing additional context to the Opening Sweep as 
currently described in Options 3, Section 8(b) and codifying current 
Opening Sweep behavior with this change. Specifically, because an 
Opening Sweep is an IOC order submitted by a Market Maker during the 
Opening Process, the Exchange is making clear in the proposed rule text 
that this order type is entered through SQF.\47\ The Exchange is also 
specifying that Opening Sweeps are not subject to any risk protections 
in Options 3, Section 15 (except Automated Quotation Adjustments) 
because the Opening Process itself has boundaries (notably, the Quality 
Opening Market \48\

[[Page 8929]]

and the Opening Quote Range \49\) within which orders will be executed. 
As it relates to the proposed language relating to Opening Sweep 
participation in the Opening Process and cancellation upon the open, 
the Exchange notes that this concept is not new as Opening Sweeps are 
already described in Options 3, Section 8 today and apply only during 
the Opening Process. The language merely provides additional context to 
the order type.
---------------------------------------------------------------------------

    \49\ The Opening Quote Range represents the outer boundaries at 
which the Exchange may open. See Options 3, Section 8(i).
---------------------------------------------------------------------------

    The Exchange notes that the Opening Sweep is functionally identical 
to the Opening Sweep on Phlx,\50\ so the proposed language will 
harmonize the Exchange's rule with the current Phlx rule.
---------------------------------------------------------------------------

    \50\ See Phlx Options 3, Section 7(b)(6).
---------------------------------------------------------------------------

Time in Force
    Today, the Exchange notes that certain functionality is described 
as an ``order type'' in Options 3, Section 7, but would be more 
precisely described as a TIF attribute that may be added to a 
particular order type. Accordingly, the Exchange proposes to codify the 
term ``TIF'' in proposed Supplementary Material .02 to Options 3, 
Section 7. The proposed TIF definition will be identical to the TIF 
definition in BX Options 3, Section 7(b). The Exchange also proposes to 
relocate various rules into Supplementary Material .02 to centralize 
the TIFs that are available on the Exchange today. As proposed, the 
rule text will provide:

    .02 Time in Force. The term ``Time in Force'' or ``TIF'' shall 
mean the period of time that the System will hold an order for 
potential execution, and shall include:
    (a) Day. An order to buy or sell entered with a TIF of ``DAY,'' 
which, if not executed, expires at the end of the day on which it 
was entered. All orders by their terms are Day orders unless 
otherwise specified. Day orders may be entered through FIX, OTTO, or 
Precise.
    (b) Good-Till-Canceled. An order to buy or sell entered with a 
TIF of ``GTC'' that remains in force until the order is filled, 
canceled or the option contract expires; provided, however, that GTC 
orders will be canceled in the event of a corporate action that 
results in an adjustment to the terms of an option contract. GTC 
orders may be entered through FIX or Precise.
    (c) Good-Till-Date. An order to buy or sell entered with a TIF 
of ``GTD,'' which, if not executed, will be cancelled at the sooner 
of the end of the expiration date assigned to the order, or the 
expiration of the series; provided, however, that GTD orders will be 
canceled in the event of a corporate action that results in an 
adjustment to the terms of an option contract. GTD orders may be 
entered through FIX or Precise.
    (d) Immediate-or-Cancel. An order entered with a TIF of ``IOC'' 
that is to be executed in whole or in part upon receipt. Any portion 
not so executed is to be treated as cancelled.
    (1) Orders entered with a TIF of IOC are not eligible for 
routing.
    (2) IOC orders may be entered through FIX, OTTO, Precise, or 
SQF, provided that an IOC order entered by a Market Maker through 
the SQF protocol will not be subject to the Order Price Protection, 
Market Order Spread Protection, and Size Limitation Protection as 
defined in Options 3, Section 15(a)(1)(A), (1)(B), and (2)(B) 
respectively.
    (3) Block Orders, Facilitation Orders, SOM Orders, PIM Orders, 
QCC Orders, and Customer Cross Orders are considered to have a TIF 
of IOC. By their terms, these orders will be: (1) executed either on 
entry or after an exposure period, or (2) cancelled.
    (e) Opening Only. An Opening Only (``OPG'') order is entered 
with a TIF of ``OPG.'' This order can only be executed in the 
Opening Process pursuant to Options 3, Section 8. Any portion of the 
order that is not executed during the Opening Process is cancelled. 
OPG orders may not route. This order type is not subject to any 
protections listed in Options 3, Section 15, except Size Limitation.

    The Exchange is relocating rule text governing Day orders from 
Options 3, Section 7(l) into Supplementary Material .02(a) to specify 
that orders may be entered with a TIF of DAY. The Exchange also 
proposes to include additional detail that Day orders may be entered 
through FIX, OTTO, or Precise. This is how Day orders operate today, 
and the proposed rule text merely adds the same level of detail 
currently in BX's Day order rule.\51\
---------------------------------------------------------------------------

    \51\ See BX Options 3, Section 7(b)(3). BX's rule does not refer 
to OTTO or Precise because BX does not offer these order entry ports 
today.
---------------------------------------------------------------------------

    The Exchange is relocating rule text governing Good-Till-Canceled 
(``GTC'') orders from Options 3, Section 7(r) into Supplementary 
Material .02(b) to specify that orders may be entered with a TIF of 
GTC. The Exchange also proposes to include additional detail that GTC 
orders may be entered through FIX or Precise. This articulates current 
GTC behavior.
    The Exchange is relocating rule text governing Good-Till-Date 
(``GTD'') orders from Options 3, Section 7(p) into Supplementary 
Material .02(c) to specify that orders may be entered with a TIF of 
GTD. The Exchange also proposes a number of changes that do not modify 
current GTD functionality, but are intended to align to the GTC rule 
described above. Today, GTC and GTD orders are intended to be 
functionally similar except GTC generally persists until it is 
cancelled by the Member and GTD generally persists until the assigned 
date. Accordingly, the Exchange seeks to add a similar level of detail 
to the GTD rule as it is proposing in the GTC rule above. First, the 
Exchange proposes to remove the word ``limit'' from the relocated GTD 
rule text. Similar to GTC orders, GTD orders can also be sent as Market 
Orders (in addition to Limit Orders) today. The proposed changes will 
therefore align the rule text with current functionality. Second, the 
Exchange proposes to add that GTD orders will be canceled in the event 
of a corporate action that results in an adjustment to the terms of an 
option contract. This language is copied from current GTC rule text and 
articulates current GTD behavior. Third, the Exchange proposes to 
include additional detail that GTD orders may be entered through FIX or 
Precise. This mirrors the proposed changes for GTC orders and 
articulates current GTD behavior.
    The Exchange is relocating rule text governing IOC orders from 
Options 3, Section 7(b)(3) into Supplementary Material .02(d) to 
Options 3, Section 7 to specify that orders may be entered with a TIF 
of IOC. The Exchange also proposes a number of changes to conform the 
Exchange's IOC rule with that of BX. None of the proposed changes 
modify current Exchange IOC functionality. First, the Exchange proposes 
to remove the word ``limit'' from the relocated IOC rule text in 
Supplementary Material .02(d). Today, IOC orders may be sent as either 
a Market Order or Limit Order. Eliminating the word ``limit'' from the 
proposed IOC rule will therefore align the rule text with current 
functionality.\52\ Second, the Exchange proposes to memorialize current 
IOC behavior in Supplementary Material .02(d)(1) by stating that orders 
entered with a TIF of IOC are not eligible for routing.\53\ Third, the 
Exchange proposes to codify current IOC behavior in

[[Page 8930]]

Supplementary Material .02(d)(2) by stating that IOC orders may be 
entered through FIX, OTTO, Precise, or SQF.\54\
---------------------------------------------------------------------------

    \52\ BX similarly allows both Market Orders and Limit Orders to 
be entered as IOC. See BX Options 3, Section 7(b)(2). The Exchange 
is not specifying Market and Limit Orders in the relocated IOC rule 
text for consistency with the other TIFs in proposed Supplementary 
Material .02 to Options 3, Section 7.
    \53\ See BX Options 3, Section 7(b)(2)(A) for identical 
language.
    \54\ See BX Options 3, Section 7(b)(2)(B) for substantially 
similar language. BX's rule does not refer to OTTO or Precise 
because BX does not offer these ports today.
---------------------------------------------------------------------------

    Fourth, the Exchange proposes to note in the same section that an 
IOC order entered by a Market Maker through SQF will not be subject to 
the Order Price Protection,\55\ Market Order Spread Protection,\56\ and 
Size Limitation Protection \57\ as defined in Options 3, Section 
15(a)(1)(A), (1)(B), and (2)(B), respectively.\58\ Today, the IOC rule 
explicitly excludes the Limit Order Price Protection and Size 
Limitation Protection from applying to IOC orders entered through SQF. 
As discussed later in this filing, the current Limit Order Price 
Protection will be replaced by a similar risk management tool called 
the Order Price Protection that will be identical to BX, so the 
Exchange will likewise reflect that change in the proposed IOC rule. 
The proposed change to exclude the Market Order Spread Protection from 
applying to IOC orders entered through SQF is not a change to IOC 
current functionality, but rather, a change to align the rule with 
current System behavior and with BX IOC rule.\59\
---------------------------------------------------------------------------

    \55\ The current IOC rule references the Limit Order Price 
Protection as set forth in Options 3, Section 15(a)(1)(A). As 
discussed later in this filing, the Exchange is proposing to replace 
the existing Limit Order Price Protection with a similar risk 
management tool called Order Price Protection. See proposed Options 
3, Section 15(a)(1)(A).
    \56\ Market Orders will be rejected if the NBBO is wider than a 
preset threshold at the time the order is received by the System. 
Market Order Spread Protection shall not apply to the Opening 
Process or during a trading halt. The Exchange may establish 
different thresholds for one or more series or classes of options. 
See Options 3, Section 15(a)(1)(B).
    \57\ There is a limit on the number of contracts an incoming 
order or quote may specify. Orders or quotes that exceed the maximum 
number of contracts are rejected. The maximum number of contracts, 
which shall not be less than 10,000, is established by the Exchange 
from time-to-time. See Options 3, Section 15(a)(2)(B).
    \58\ See BX Options 3, Section 7(b)(2)(B) for substantially 
similar language.
    \59\ See BX Options 3, Section 7(b)(2)(B).
---------------------------------------------------------------------------

    The Exchange notes while it generally only permits orders 
(including IOC orders) to be entered into its three order entry 
protocols, FIX, OTTO, and Precise, it does permit the entry of IOC 
orders by Market Makers into its quote protocol, SQF. The Exchange has 
elected not to apply the specified risk protections on IOC orders 
entered through SQF as it does for IOC orders entered through FIX, 
OTTO, and Precise because only Market Makers utilize SQF to enter IOC 
orders. Market Makers are professional traders with their own risk 
settings. FIX, OTTO, and Precise, on the other hand, are utilized by 
all market participants who may not have their own risk settings, 
unlike Market Makers. Market Makers utilize IOC orders to trade out of 
accumulated positions and manage their risk when providing liquidity on 
the Exchange. The Exchange understands that proper risk management, 
including using these IOC orders to offload risk, is vital for Market 
Makers, and allows them to maintain tight markets and meet their 
quoting and other obligations to the market. Market Makers handle a 
large amount of risk when quoting and in addition to the risk 
protections required by the Exchange, Market Makers utilize their own 
risk management parameters when entering orders, minimizing the 
likelihood of a Market Maker's erroneous order from being entered. The 
Exchange believes that Market Makers, unlike other market participants, 
have the ability to manage their risk when submitting IOC orders 
through SQF and should be permitted to elect this method of order entry 
to obtain efficiency and speed of order entry, particularly in light of 
the quoting obligations that the Exchange imposes on these 
participants, unlike other market participants.\60\ The Exchange 
believes that allowing Market Makers to submit IOC orders through their 
preferred protocol increases their efficiency in submitting such orders 
and thereby allows them to maintain quality markets to the benefit of 
all market participants that trade on the Exchange. For the foregoing 
reasons, the Exchange has opted to not offer the Order Price 
Protection, Market Order Spread Protection, and Size Limitation for IOC 
orders entered through SQF because Market Makers have more 
sophisticated infrastructures than other market participants and are 
able to manage their risk.
---------------------------------------------------------------------------

    \60\ See Options 2, Section 5(e).
---------------------------------------------------------------------------

    The Exchange also proposes to add substantially similar language in 
Supplementary Material .03(c), which governs the SQF protocol. 
Specifically, the Exchange proposes to add: ``Immediate-or-Cancel 
Orders entered into SQF are not subject to the Order Price Protection, 
Market Order Spread Protection, and Size Limitation Protection in 
Options 3, Section 15(a)(1)(A), (1)(B), and (2)(B) respectively.'' 
Adding these exceptions to the SQF rule as well as the IOC rule will 
make clear that these order protections will not apply to IOC orders 
entered through SQF.
    The Exchange further proposes to specify in Supplementary Material 
.02(d)(3) that Block Orders, Facilitation Orders, SOM Orders, PIM 
Orders, QCC Orders, and Customer Cross Orders are considered to have a 
TIF of IOC. By their terms, these orders will be: (1) executed either 
on entry or after an exposure period, or (2) cancelled.\61\ The 
proposed changes in Supplementary Material .02(d)(3) memorialize 
current System behavior and are intended to bring greater transparency 
in how these order types operate today.
---------------------------------------------------------------------------

    \61\ See BX Options 3, Section 7(b)(2)(C) for substantially 
similar language for PRISM orders.
---------------------------------------------------------------------------

    The Exchange is relocating rule text governing OPG orders from 
Options 3, Section 7(o) into Supplementary Material .02(e) to specify 
that orders may be entered with a TIF of OPG. The Exchange also 
proposes a number of changes to conform the Exchange's OPG rule with 
that of BX. Other than as specified below, the proposed changes do not 
modify current Exchange OPG functionality. The Exchange proposes to 
remove the word ``limit'' from the relocated OPG rule text in 
Supplementary Material .02(e) in order to reflect that the Exchange 
will now allow both Market and Limit OPG Orders. As noted above, this 
is a proposed functionality change to align with current BX OPG 
functionality.\62\ The Exchange also proposes non-substantive changes 
to replace the current references to the opening rotation with the term 
``Opening Process'' as defined in Options 3, Section 8. The Exchange 
further proposes to codify current OPG behavior by stating that OPG 
orders may not route.\63\ Lastly, the Exchange proposes to memorialize 
current OPG behavior by indicating that OPG orders are not subject to 
any protections listed in Options 3, Section 15, except Size 
Limitation.\64\ Today, the Exchange does not apply any of the risk 
protections in Options 3, Section 15 (except Size Limitation) because 
the Opening Process itself has boundaries within which orders will be 
executed.\65\
---------------------------------------------------------------------------

    \62\ See BX Options 3, Section 7(b)(1).
    \63\ See BX Options 3, Section 7(b)(1) for identical language.
    \64\ Id.
    \65\ See Options 3, Section 8.
---------------------------------------------------------------------------

Opening Process
    In connection with the technology migration, the Exchange proposes 
several enhancements to its Opening Process in Options 3, Section 8. 
The Exchange first proposes to remove the current limitation that only 
allows routable Public Customer \66\ interest to route during the 
Opening Process.

[[Page 8931]]

Instead, all routable market participant interest will be allowed to 
route to align the Exchange's opening functionality with BX.\67\ Like 
BX, the Exchange believes that it will be beneficial to provide all 
market participants with the opportunity to have their interest 
executed on away markets during the Opening Process. To effectuate the 
foregoing, the Exchange proposes to amend Options 3, Section 8(b) to 
remove the sentence providing that only Public Customer interest is 
routable during the Opening Process. The Exchange further proposes to 
make a related change in Options 3, Section 8(i)(7), which currently 
provides that the System will route routable Public Customer interest 
pursuant to Options 3, Section 10(c)(1)(A). Specifically, the Exchange 
proposes to remove the reference to Public Customer to indicate all 
routable interest will route in accordance with the Exchange's priority 
rule. The Exchange will also update the cross-cite to Options 3, 
Section 10(c)(1)(A), currently pointing to the Priority Customer 
priority overlay, to the more general priority rule in Options 3, 
Section 10(c). The Exchange further proposes to amend Options 3, 
Section 8(j)(6) to remove the references to ``Public Customer.'' As 
amended, Section 8(j)(6) will provide: ``The System will execute orders 
at the Opening Price that have contingencies (such as, without 
limitation, Reserve Orders) and non-routable orders, such as ``Do-Not-
Route'' or ``DNR'' Orders, to the extent possible. The System will only 
route non-contingency orders, except that Reserve Orders may route up 
to their full volume.''
---------------------------------------------------------------------------

    \66\ The term ``Public Customer'' means a person or entity that 
is not a broker or dealer in securities. See Option 1, Section 
1(a)(41).
    \67\ See BX Options 3, Section 8. See also Securities Exchange 
Act Release No. 89731 (September 1, 2020), 85 FR 55524 (September 8, 
2020) (SR-BX-2020-016) (noting throughout that BX permits all market 
participants to route during its Opening Process). At the end of the 
Opening Process, pursuant to GEMX Options 3, Section 8(j)(6) and 
subsection (i), the System will execute orders at the Opening Price 
that have contingencies (such as, without limitation, Reserve 
Orders) and non-routable orders, such as a `Do-Not-Route' or `DNR' 
Orders, to the extent possible. The System will only route non-
contingency Public Customer orders, except that Public Customer 
Reserve Orders may route up to their full volume. For contracts that 
are not routable, pursuant to GEMX Options 3, Section 8(j)(6), such 
as DNR Orders and orders priced through the Opening Price, the 
System will cancel (1) any portion of a Do-Not-Route order that 
would otherwise have to be routed to the exchange(s) disseminating 
the ABBO for an opening to occur, or (2) any order or quote that is 
priced through the Opening Price. All other interest will be 
eligible for trading after opening.
---------------------------------------------------------------------------

    In addition, the Exchange proposes to amend Options 3, Section 
8(g)(1), which currently describes how the Potential Opening Price 
would be calculated when there is more than one Potential Opening 
Price.\68\ Today, Section 8(g)(1) provides that when two or more 
Potential Opening Prices would satisfy the maximum quantity criterion 
and leave no contracts unexecuted, the System takes the highest and 
lowest of those prices and takes the mid-point; if such mid-point is 
not expressed as a permitted minimum price variation, it will be 
rounded to the minimum price variation that is closest to the closing 
price for the affected series from the immediately prior trading 
session. If there is no closing price from the immediately prior 
trading session, the System will round up to the minimum price 
variation to determine the Opening Price. The Exchange now proposes to 
no longer round in the direction of the previous trading day's closing 
price and simply round up to the minimum price variation if the mid-
point of the high/low is not expressed as a permitted minimum price 
variation. The proposed changes are intended to simplify and bring 
greater transparency to the Opening Process, as market participants can 
now have a better sense of how the Potential Opening Price will be 
calculated without having to account for the closing price of each 
options series.
---------------------------------------------------------------------------

    \68\ The Potential Opening Price indicates a price where the 
System may open once all other Opening Process criteria is met.
---------------------------------------------------------------------------

    The Exchange further proposes to amend Options 3, Section 8(i)(3), 
which currently describes the determination of Opening Quote Range 
(``OQR'') boundaries in certain scenarios.\69\ Specifically, the 
Exchange proposes to replace ``are marketable against the ABBO'' with 
``cross the ABBO'' to more precisely describe the specified scenario 
within in this rule. The Exchange notes that this is not a System 
change, but rather a clarifying change around the applicability of the 
rule text. Lastly, the Exchange proposes a non-substantive change in 
paragraph (a)(1)(2) of Options 3, Section 8 to remove the extra 
instance of ``market'' from the first sentence.
---------------------------------------------------------------------------

    \69\ OQR is an additional type of boundary used in the Opening 
Process, and is intended to limit the opening price to a reasonable, 
middle ground price, thus reducing the potential for erroneous 
trades during the Opening Process.
---------------------------------------------------------------------------

Auction and Crossing Mechanisms
Facilitation and Solicited Order Mechanisms
    The Exchange first proposes to make clarifying changes in Options 
3, Section 11 (Auction Mechanisms). Today, Supplementary Material .02 
to Options 3, Section 11 states that Responses \70\ represent non-firm 
interest that can be canceled at any time prior to execution, and that 
Responses are not displayed to any market participants. The Exchange 
now proposes a non-substantive change to relocate this language into 
the introductory paragraph of Options 3, Section 11 after the 
definition of ``Response'' for better readability. The Exchange also 
proposes to add ``or modified'' after the ``canceled'' to indicate that 
auction Responses may be canceled or modified at any time prior to 
execution. This is not a change to current System behavior, but rather 
a clarification that better aligns the rule text to existing 
functionality.
---------------------------------------------------------------------------

    \70\ For purposes of Options 3, Section 11, a ``Response'' means 
an electronic message that is sent by Members in response to a 
broadcast message. A ``broadcast message'' is an electronic message 
sent by the Exchange to all Members upon entry of an order into one 
of the auction mechanisms listed within Options 3, Section 11 (i.e., 
Block, Facilitation, or Solicited Order Mechanisms).
---------------------------------------------------------------------------

Crossing Orders
    The Exchange proposes a non-substantive change to the description 
of QCC Orders in Options 3, Section 12(c)(2) by removing ``in'' for 
better readability.
Price Improvement Mechanism
    The Exchange proposes a number of changes to Options 3, Section 13 
(Price Improvement Mechanism for Crossing Transactions), some of which 
are System changes to align with existing BX Price Improvement 
Mechanism (``BX PRISM'') functionality and others that are non-System 
changes that add greater clarity to current PIM behavior. The Exchange 
proposes to amend Options 3, Section 13(b)(4) to add clarifying rule 
text to the current sentence, which states, ``The Crossing Transaction 
\71\ may not be canceled, but the price of the Counter-Side Order may 
be improved during the exposure period.'' The Exchange proposes to add 
``or modified'' after the word ``canceled'' to make clear that the 
Crossing Transaction may not be canceled or modified, but the Counter-
Side Order may be improved during the exposure period. This proposed 
change would not amend the current System, rather it would bring 
greater clarity to the rule text that modifications are not permitted 
unless the Counter-Side Order is being improved during the exposure 
period.
---------------------------------------------------------------------------

    \71\ A ``Crossing Transaction'' is comprised of the order the 
Electronic Access Member represents as agent (the ``Agency Order'') 
and a counter-side order for the full size of the Agency Order (the 
``Counter-Side Order''). See Options 3, Section 13(b).
---------------------------------------------------------------------------

    The Exchange proposes to add rule text within Options 3, Section 
13(b)(5) which states, ``Crossing Transactions submitted at or before 
the opening of

[[Page 8932]]

trading are not eligible to initiate an auction and will be rejected.'' 
The Exchange notes that this rule text represents current System 
behavior. BX has a similar provision within BX Options 3, Section 
13(i)(E). The Exchange notes that this rule text will bring greater 
clarity to when a Crossing Transaction would be eligible to initiate a 
PIM.
    The Exchange proposes to amend the current PIM functionality within 
Options 3, Section 13(c)(3). Today, during the exposure period, 
Improvement Orders \72\ may not be canceled, however, Improvement 
Orders may be modified to (i) increase the size at the same price, or 
(ii) improve the price of the Improvement Order for any size up to the 
size of the Agency Order. The Exchange proposes to amend this 
functionality so that Improvement Orders may be canceled or modified 
similar to functionality on BX PRISM today within BX Options 3, Section 
13(ii)(A)(8). The modification and cancellation of an Improvement Order 
through OTTO will be similar to the manner in which a Cancel and 
Replace Order \73\ would be handled outside of the auction process. For 
Improvement Orders through SQF, the modification and cancellation of 
such orders will be handled by sending new Improvement Orders that 
overwrite the existing Improvement Order with updated price/quantity 
instructions.
---------------------------------------------------------------------------

    \72\ Improvement Orders are responses entered by Members to 
indicate the size and price at which they want to participate in the 
execution of the Agency Order. See Options 3, Section 13(c)(1).
    \73\ Cancel and Replace Orders shall mean a single message for 
the immediate cancellation of a previously received order and the 
replacement of that order with a new order. If the previously placed 
order is already filled partially or in its entirety, the 
replacement order is automatically canceled or reduced by the number 
of contracts that were executed. The replacement order will retain 
the priority of the cancelled order, if the order posts to the Order 
Book, provided the price is not amended, size is not increased, or 
in the case of Reserve Orders, size is not changed. If the 
replacement portion of a Cancel and Replace Order does not satisfy 
the System's price or other reasonability checks (e.g., Options 3, 
Section 15(b)(1)(A) and Options 3, Section 15(b)(1)(B)) the existing 
order shall be cancelled and not replaced. See Supplementary 
Material .02 to Options 3, Section 7 (as described above, the 
current definition will be moved to proposed Options 3, Section 7(f) 
with no substantive changes).
---------------------------------------------------------------------------

    Next, the Exchange proposes to amend Options 3, Section 13(d)(5), 
which currently states, ``If a trading halt is initiated after an order 
is entered into the Price Improvement Mechanism, such auction will be 
automatically terminated without execution.'' The Exchange proposes to 
instead provide, ``If a trading halt is initiated after an order is 
entered into the Price Improvement Mechanism, such auction will be 
automatically terminated with execution solely with the Counter-Side 
Order.'' In the event of a trading halt, since the Counter-Side Order 
has guaranteed that an execution will occur at the same price as the 
Crossing Transaction or better, and Improvement Orders offer no such 
guarantee, the Counter-Side Order is the only valid price at which to 
execute the Crossing Transaction. This is similar to functionality on 
BX PRISM at BX Options 3, Section 13(ii)(C).\74\
---------------------------------------------------------------------------

    \74\ BX Options 3, Section 13(ii)(C) provides that if the 
situations described in sub-paragraphs (B)(2) or (3) above occur, 
the entire PRISM Order will be executed at: (1) in the case of the 
BX BBO crossing the PRISM Order stop price, the best response 
price(s) or, if the stop price is the best price in the Auction, at 
the stop price, unless the best response price is equal to or better 
than the price of a limit order resting on the Order Book on the 
same side of the market as the PRISM Order, in which case the PRISM 
Order will be executed against that response, but at a price that is 
at least $0.01 better than the price of such limit order at the time 
of the conclusion of the Auction; or (2) in the case of a trading 
halt on the Exchange in the affected series, the stop price, in 
which case the PRISM Order will be executed solely against the 
Initiating Order. Any unexecuted PAN responses will be cancelled.
---------------------------------------------------------------------------

    The Exchange also proposes a System change to adopt a new same side 
execution price check for PIM, which will be described in new 
subsection (d)(6) of Options 3, Section 13 and will be functionally 
identical to BX PRISM. As proposed, Options 3, Section 13(d)(6) will 
provide that if the PIM execution price would be the same or better 
than an order on the limit order book on the same side of the market as 
the Agency Order, the Agency Order may only be executed at a price that 
is at least $0.01 better than the resting order's limit price. If such 
resting order's limit price is equal to or crosses the initiating 
Crossing Transaction price, then the entire Agency Order will trade at 
the initiating Crossing Transaction price with all better priced 
counter-side interest being considered for execution at the initiating 
Crossing Transaction price. As noted above, this price check will be 
functionally identical to the same side execution price check on BX 
PRISM today.\75\ Like BX, the proposed price check is designed to 
ensure that the Exchange would not trade at prices that would lock or 
cross interest on the same side of the market as the Agency Order where 
limit orders have rested and obtained priority to execute at that 
price. In the event where a limit order arrives on the same side of the 
market as the Agency Order and is at the same or better price than the 
initiating Crossing Transaction price, the Exchange would execute the 
entire PIM order at the initiating Crossing Transaction price. The 
execution takes place at this price because the PIM is guaranteed an 
execution and the PIM agency side instructions would not allow an 
execution to take place at a higher (lower) price than submitted for a 
buying (selling) agency side PIM order. Considering that the limit 
order has arrived either at or better on the same side as the Agency 
Order than the agency side price, the initiating Crossing Transaction 
price is the only price at which the guaranteed execution can take 
place.
---------------------------------------------------------------------------

    \75\ BX Options 3, Section 13(ii)(I) provides that if the 
execution price of the PRISM Auction would be the same or better 
than an order on the limit order book on the same side of the market 
as the PRISM Order, the PRISM Order may only be executed at a price 
that is at least $0.01 better than the resting order's limit price. 
If such resting order's limit price is equal to or crosses the stop 
price, then the entire PRISM Order will trade at the stop price with 
all better priced interest being considered for execution at the 
stop price.
---------------------------------------------------------------------------

    The following examples illustrate how the proposed PIM execution 
price check would work:
    Example: PIM executes with Improvement Order at $0.01 better than a 
limit order on the same side of the market as the Agency Order.
    Firm Limit order to buy @1.40 arrives prior to the PIM auction 
beginning.
    GEMX BBO: 1.40 x 2.00.
    PIM Agency Order to buy 20 @1.50 arrives with an auto-match price 
of 1.50 indicated.
    PIM Improvement Order \76\ to sell 20 @ 1.40 arrives.
---------------------------------------------------------------------------

    \76\ ``Improvement Orders'' are responses sent by Members during 
the PIM's exposure period in response to the PIM that indicate the 
size and price at which they want to participate in the execution of 
the Agency Order. See Options 3, Section 13(c)(1).
---------------------------------------------------------------------------

    Auction concludes after timer and PIM Agency Order trades 20 with 
PIM Improvement Order @1.41; the Counter-Side Order \77\ cancels.
---------------------------------------------------------------------------

    \77\ The ``Counter-Side Order'' is the counter-side order for 
the full size of the Agency Order that is entered into the PIM by 
the initiating Electronic Access Member. See Options 3, Section 
13(b).
---------------------------------------------------------------------------

    Example: PIM executes at Agency Price with all better priced 
interest when limit order on same side equals or crosses the initiating 
Crossing Transaction price.
    Assume GEMX BBO: 1.00 x 2.00.
    PIM Agency Order to buy 20 @1.50 arrives with an auto-match price 
of 1.50 indicated.
    PIM Improvement Order to sell 20 @1.40 arrives.
    During the exposure period, Firm Limit order to buy @1.50 arrives.
    Auction concludes after timer and PIM Agency Order trades 12 with 
PIM Improvement Order @1.50 and 8 with

[[Page 8933]]

the Counter-Side Order @1.50 (i.e., the guaranteed execution price) 
because all better priced interest must trade at the initiating 
Crossing Transaction price when the limit order on the same side equals 
or crosses the initiating Crossing Transaction price.\78\ The remainder 
of the Counter-Side Order and the remainder of the PIM Improvement 
Order cancel. The execution takes place at 1.50 because the PIM is 
guaranteed an execution, and the PIM agency side instructions would not 
allow an execution to take place at a higher price than the submitted 
1.50 buying price for the agency side PIM order.
---------------------------------------------------------------------------

    \78\ The order is allocated pursuant to Options 3, Section 
13(d)(3) where the Counter-Side Order will be allocated the greater 
of 1 contract or 40%, which, in this case, equates to 8 contracts 
out of the 20 contracts. Thus, in this case, the Improvement Order 
is allocated 12 contracts to fully execute the 20 contracts of the 
original PIM Agency Order.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to amend Supplementary Material .02 
to Options 3, Section 13 to add the following sentence: ``It will be 
considered a violation of this Rule and will be deemed conduct 
inconsistent with just and equitable principles of trade and a 
violation of Options 9, Section 1 if an Electronic Access Member 
submits a PIM Order (initiating an auction) and also submits its own 
Improvement Order in the same auction.'' BX has a similar prohibition 
within BX Options 3, Section 13(iii). The proposed new rule is intended 
to provide guidance to Members where certain behavior within a PIM will 
not be considered a bona fide transaction.
Order Price Protection
    The Exchange currently has a Limit Order Price Protection in 
Options 3, Section 15(a)(1)(A), which is a ``fat finger'' check 
designed to address risks to market participants of human error in 
entering certain orders at unintended prices. Specifically, there is a 
limit on the amount by which incoming limit orders to buy may be priced 
above the Exchange's best offer and by which incoming limit orders to 
sell may be priced below the Exchange's best bid. Limit orders that 
exceed the pricing limit are rejected. The limit is established by the 
Exchange from time-to-time for orders to buy (sell) as the greater of 
the Exchange's best offer (bid) plus (minus): (i) an absolute amount 
not to exceed $2.00, or (ii) a percentage of the Exchange's best bid/
offer not to exceed 10%.

    The Exchange proposes to replace the existing risk protection 
with an Order Price Protection (``OPP'') that would similarly 
prevent the execution of limit orders at prices outside pre-set 
parameters. The proposed OPP will be functionally similar to the OPP 
functionality currently offered by BX.\79\ In particular, proposed 
Options 3, Section 15(a)(1)(A) will provide that OPP is a feature of 
the System that prevents limit orders at prices outside of pre-set 
standard limits from being accepted by the System. Further, OPP will 
reject incoming orders that exceed certain parameters according to 
the following algorithm set forth in proposed Options 3, Section 
15(a)(1)(A)(ii):
---------------------------------------------------------------------------

    \79\ BX's OPP is currently memorialized in BX Options 3, Section 
15(a)(1), which provides that OPP is a feature of the System that 
prevents certain day limit, good til cancelled, and immediate or 
cancel orders at prices outside of pre-set standard limits from 
being accepted by the System. BX's rule also provides that OPP 
applies to all options but does not apply to market orders. As 
described above, the Exchange is proposing to adopt an OPP rule that 
more accurately describes this functionality than BX's current OPP 
rule. BX will file a separate rule change to conform its OPP rule 
with the Exchange's proposed rule text.

    (a) If the better of the NBBO or the internal market BBO (the 
``Reference BBO'') on the contra-side of an incoming order is 
greater than $1.00, orders with a limit more than the greater of the 
below will cause the order to be rejected by the System upon 
receipt.
    (1) 50% less (greater) than such contra-side Reference Best Bid 
(Offer); or
    (2) a configurable dollar amount not to exceed $1.00 less 
(greater) than such contra-side Reference Best Bid (Offer) as 
specified by the Exchange announced via an Options Trader Alert.
    (b) If the Reference BBO on the contra-side of an incoming order 
is less than or equal to $1.00, orders with a limit more than the 
greater of the below will cause the order to be rejected by the 
System upon receipt.
    (1) 100% less (greater) than such contra-side Reference Best Bid 
(Offer); or
    (2) a configurable dollar amount not to exceed $1.00 less 
(greater) than such contra-side Reference Best Bid (Offer) as 
specified by the Exchange announced via an Options Trader Alert.

    The proposed OPP will be calculated using the better of the NBBO or 
the internal market BBO (i.e., the Reference BBO) instead of the 
Exchange BBO as currently used today, which will align to current BX 
functionality.\80\ Like BX, the Exchange believes that calculating OPP 
on the basis of the better of the NBBO or the internal market BBO 
protects investors and the public interest where the internal market 
BBO is better than the NBBO. In addition, the proposed OPP parameters 
will be the greater of a percentage threshold or fixed dollar amount, 
similar to today's limit order price protection that uses the greater 
of a percentage or fixed dollar threshold. The proposed parameters are 
identical to BX's OPP.\81\ The Exchange believes that the proposed 
algorithm for OPP would continue to provide a reasonable limit to the 
range where orders will be accepted.
---------------------------------------------------------------------------

    \80\ See BX Options 3, Section 15(a)(1)(B).
    \81\ Id. The Exchange will initially set the fixed dollar 
configuration at $0.05, identical to BX.
---------------------------------------------------------------------------

    As set forth in proposed Options 3, Section 15(a)(1)(A)(i), OPP 
will be operational each trading day after the opening until the close 
of trading, except during trading halts, which will be identical to 
current functionality.\82\ The Exchange also proposes in this paragraph 
to add identical language as BX, which will provide the Exchange with 
discretion to temporarily deactivate OPP from time to time on an intra-
day basis if it is determined that unusual market conditions warranted 
deactivation in the interest of a fair and orderly market. Like BX, the 
Exchange believes that it will be useful to have the flexibility to 
temporarily disable OPP intra-day in response to an unusual market 
event (for example, if dissemination of data was delayed and resulted 
in unreliable underlying values needed for the Reference BBO). Members 
would be notified of intra-day OPP deactivation and any subsequent 
reactivation by the Exchange through the issuance of System status 
messages. Specifically, the Exchange proposes to add in Options 3, 
Section 15(a)(1)(A)(i) that OPP may be temporarily deactivated on an 
intra-day basis at the Exchange's discretion.
---------------------------------------------------------------------------

    \82\ See Options 3, Section 15(a)(1)(A) (currently providing 
that the limit order price protection does not apply to the opening 
process or during a trading halt).
---------------------------------------------------------------------------

    The following examples illustrate the application of the proposed 
OPP thresholds:
    Example: An option priced less than or equal to $1.00.
    For a penny MPV option with a BBO on GEMX of $0.01 x $0.02, 
consider that the configurable dollar amount is set to $0.05.
    If the incoming order was less than $1.00, and the Reference BBO is 
the internal market BBO, the System will reject buy orders priced 
higher than the greater of (i) $0.04 (100% greater than the contra-side 
Reference Best Offer of $0.02) or (ii) $0.07 ($0.02 offer + $0.05 
configuration).
    Example: An option priced greater than $1.00.
    For a penny MPV option with a BBO on GEMX of $1.01 x $1.02, 
consider that the configurable dollar amount is set to $0.05.
    If the incoming order was more than $1.00, and the Reference BBO is 
the internal market BBO, the System will reject buy orders priced 
higher than the greater of (i) $1.53 (50% greater than the contra-side 
Reference Best Offer of $1.02) or (ii) $1.07 ($1.02 offer + $0.05 
configuration).

[[Page 8934]]

Post-Only Quoting Protection
    The Exchange proposes to adopt an optional quoting protection for 
Market Makers that will be identical to current BX functionality.\83\ 
This optional risk protection would allow Market Makers to prevent 
their quotes from removing liquidity from the Exchange's order book 
upon entry.
---------------------------------------------------------------------------

    \83\ See BX Options 3, Section 15(c)(3).
---------------------------------------------------------------------------

    Specifically, the Exchange proposes to adopt the new risk 
protection in Options 3, Section 15(a)(3)(C). As proposed, Market 
Makers may elect to configure their SQF protocols to prevent their 
quotes from removing liquidity (``Post-Only Quote Configuration''). A 
Post-Only Quote Configuration would re-price or cancel a Market Maker's 
quote that would otherwise lock or cross any resting order or quote 
\84\ on the order book upon entry. Market Makers may elect whether to 
re-price or cancel their quotes with this functionality. When 
configured for re-price, quotes would be re-priced and displayed by the 
System to one MPV below the current best offer (for bids) or above the 
current best bid (for offers). Notwithstanding the aforementioned, if a 
quote with a Post-Only Quote Configuration would not lock or cross an 
order or quote on the System but would lock or cross the NBBO, the 
quote will be handled pursuant to Options 3, Section 4(b)(6).\85\ When 
configured for cancel, Market Makers will have their quotes cancelled 
whenever the quote would lock or cross the NBBO or be placed on the 
book at a price other than its limit price. Finally, the Exchange notes 
that similar to BX, this risk protection will not apply during an 
Opening Process because the order book is established once options 
series are open for trading.
---------------------------------------------------------------------------

    \84\ This would include any re-priced orders as described in the 
Re-Pricing Filing as proposed Options 3, Section 5(d), ALOs as 
described in proposed Options 3, Section 7(n), and any re-priced 
quotes as described in Options 3, Section 4(b)(6). As described 
above, ALOs may re-price.
    \85\ Options 3, Section 4(b)(6) provides that 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 
be 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.
---------------------------------------------------------------------------

    Below are some examples of the Post-Only Quote Configuration 
functionality.
Re-Priced Post-Only Quote Configuration--Penny Interval Program Display 
and Execution Example
     Penny Interval Program MPV in open trading state.
     Market Makers A and C do not have Post-Only Quote 
Configuration risk protection configured.
     Market Maker B is configured for Post-Only Quote 
Configuration re-price.
     Market Maker A quote $0.98 (10) x $1.00 (10).
     ABBO $0.96 x $1.03.
     Market Maker B quote $1.00 (10) x $1.01 (10) arrives.
    [cir] Bid side of quote re-prices onto order book @ 0.99 and sets 
displayed NBBO to 10 quantity.
    [cir] Offer side rests at 1.01 without issue.
     Market Maker C quote $0.97 (20) x $0.98 (20) arrives.
    Trades 10 with Market Maker B @ $0.99 and 10 with Market Maker A @ 
$0.98.
    Market Maker B avoids taking liquidity while Market Maker C, who 
chose not to be configured for such, removes liquidity by interacting 
with re-priced interest on the Exchange's order book.
Re-Priced Post-Only Quote Configuration--Non-Penny Interval Program 
Display and Execution Example
     Non-Penny Interval Program MPV in open trading state.
     Market Maker A quote $0.95 (10) x $1.00 (10).
     ABBO $0.85 x $1.05.
     Market Maker B (configured for Post-Only Quote 
Configuration and selection of re-price upon quote) quote arrives $1.00 
(5) x $1.05 (5).
    [cir] Bid side quote re-prices on order book to $0.95.
    [cir] Displays on order book @ $0.95 (bid), which now shows (15 
quantity).
    [cir] Offer side quote books and displays in Depth of Market Fe.ed 
at $1.05
     Order to sell 10 contracts arrives @ $0.95.
    [cir] 7 contracts execute with Market Maker A @ $0.95.
    [cir] 3 contracts execute with Market Maker B @ $0.95.
    In this example, the Market Maker avoided taking liquidity by 
deploying the Post-Only Quote Configuration with re-price.
Kill Switch
    As set forth in Options 3, Section 17, the Exchange offers an order 
cancellation Kill Switch, which is an optional tool that allows Members 
to initiate a message to the System to promptly cancel and restrict 
their order activity on the Exchange, or across both the Exchange and 
its affiliate, ISE. Members may submit a Kill Switch request to the 
System for certain identifier(s) (``Identifier'') on either a user or 
group level.\86\ Today, Members can log in through a graphical user 
interface (``GUI'') to send a message to the Exchange to initiate the 
order cancellation Kill Switch.\87\ As an alternative to the GUI Kill 
Switch, Members may also send a message through one of the Exchange's 
order entry ports (i.e., FIX, Precise, and OTTO) to initiate the order 
cancellation Kill Switch.\88\ Once a Member initiates the Kill Switch 
(either through the GUI or an order entry port), it will result in the 
cancellation of all existing orders for the requested Identifier(s). 
The Member will be unable to enter any additional orders for the 
affected Identifier(s) until the Member sends a re-entry request to the 
Exchange.\89\
---------------------------------------------------------------------------

    \86\ Identifiers include Exchange accounts, ports, and/or 
mnemonics. Thus, a Member using Kill Switch may elect to cancel 
orders for an individual Identifier (e.g., mnemonic) or any group of 
Identifiers (e.g., all mnemonics within one Member firm). 
Permissible groups must reside within a single Member firm. See 
Options 3, Section 17(a).
    \87\ See Options 3, Section 17(a)(2).
    \88\ See Options 3, Section 17(a)(1).
    \89\ See Options 3, Section 17(a)(3).
---------------------------------------------------------------------------

    Due to the lack of demand for the GUI Kill Switch by Members, the 
Exchange proposes to decommission this optional tool with the planned 
technology migration.\90\ With the proposed changes, the Exchange seeks 
to streamline its product offerings and to reallocate Exchange 
resources to other business and risk management initiatives. While the 
Exchange will no longer offer this optional risk protection to Members 
through the GUI, it will continue to offer this functionality through 
FIX, Precise, and OTTO.
---------------------------------------------------------------------------

    \90\ No Members have used the GUI Kill Switch for order 
cancellation in 2022. The Exchange will provide prior notice of the 
decommission to Members via Options Trader Alert.
---------------------------------------------------------------------------

    In addition, all Members may contact the Exchange's market 
operations staff to request that the Exchange cancel any of their 
existing bids, offers, or orders in any series of options.\91\ 
Furthermore, the Exchange will continue to have System-enforced risk 
mechanisms that automatically remove orders for the Member once certain 
pre-set thresholds or conditions are met. This includes risk 
protections such as the market wide risk protection \92\ and cancel on 
disconnect.\93\
---------------------------------------------------------------------------

    \91\ See Options 3, Section 19.
    \92\ The market wide risk protection automatically removes 
Member orders on the Exchange, or across both the Exchange and ISE, 
in either case as set by the Member, when certain firm-set 
thresholds are met. Once the thresholds are triggered, the Member 
must send a re-entry indicator to re-enter the System. See Options 
3, Section 15(a)(1)(C).
    \93\ When the OTTO or FIX Port detects the loss of communication 
with a Member's Client Application because the Exchange's server 
does not receive a Heartbeat message for a certain time period 
(``nn'' seconds), the Exchange will automatically logoff the 
Member's affected Client Application and if the Member has elected 
to have its orders cancelled pursuant to Section 18(f) (for OTTO) or 
Section 18(g) (for FIX) automatically cancel all orders. See Options 
3, Section 18(c) and (d).

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[[Page 8935]]

    To effect the proposed decommission of the GUI Kill Switch for 
order cancellation, the Exchange proposes to amend Options 3, Section 
17 by eliminating paragraph (a)(2) and related cross-cites within this 
rule. The Exchange will also renumber the paragraphs in this rule 
accordingly.
    The Exchange notes that it previously amended its rules to 
decommission the quote removal Kill Switch that was available to Market 
Makers through the GUI.\94\ The Exchange noted in SR-GEMX-2021-09 that 
Market Makers did not use the GUI Kill Switch to remove their quotes, 
but rather, utilized other means such as the mass purge request through 
SQF. In this case, the Exchange similarly notes that no Members use the 
GUI Kill Switch to cancel their orders but rather, utilize other means 
like the port Kill Switch through FIX, Precise, and OTTO to purge their 
existing orders from the System. As such, the Exchange believes that 
eliminating the GUI Kill Switch all together (including for orders as 
proposed herein) will streamline the Exchange's risk protection 
offerings in a manner that reflects Member use.
---------------------------------------------------------------------------

    \94\ See Securities Exchange Act Release No. 93010 (September 
15, 2021), 86 FR 52518 (September 21, 2021) (SR-GEMX-2021-09).
---------------------------------------------------------------------------

Data Feeds and TradeInfo
    In connection with the technology migration, the Exchange proposes 
a number of enhancements to its current data feed offerings in Options 
3, Section 23(a), many of which are intended to conform with current BX 
functionality, as specified below.
    As set forth in Options 3, Section 23(a)(1), the Exchange offers 
the Nasdaq GEMX Depth of Market Data Feed (``Depth of Market Feed''), 
which currently provides aggregate quotes and orders at the top five 
price levels on GEMX, and provides subscribers with a consolidated view 
of tradable prices beyond the BBO, showing additional liquidity and 
enhancing transparency for GEMX traded options. The data provided for 
each option series includes the symbols (series and underlying 
security), put or call indicator, expiration date, the strike price of 
the series, and whether the option series is available for trading on 
the Exchange and identifies if the series is available for closing 
transactions only. In addition, subscribers are provided with total 
aggregate quantity, Public Customer aggregate quantity, Priority 
Customer aggregate quantity, price, and side (i.e., bid/ask). This 
information is provided for each of the top five price levels on the 
Depth Feed. The feed also provides order imbalances on opening/
reopening.
    The Exchange now proposes to no longer provide book information for 
the top five price levels, and instead provide full depth-of-book 
information. As such, the Exchange will delete language that relates to 
top five price level information in the rule text. The Exchange also 
proposes to add more specificity around what would be provided in the 
opening/reopening order imbalance information (namely, the size of 
matched contracts and size of the imbalance). The Exchange further 
proposes a technical change to correct an erroneous reference to 
``ISE'' within the rule text. The proposed changes will closely align 
the information provided on the Exchange's Depth of Market Feed with 
that of BX's Depth of Market Feed, except the Exchange will not offer 
auction and exposure notifications on its Depth of Market Feed like BX 
does today.\95\ The Exchange already offers auction and exposure 
notifications on the Nasdaq GEMX Order Feed as described below.\96\ As 
amended, Options 3, Section 23(a)(1) would provide:
---------------------------------------------------------------------------

    \95\ See BX Options 3, Section 23(a)(1). As discussed below, the 
Exchange is instead proposing to offer these notifications on the 
Nasdaq GEMX Order Feed. BX does not have a comparable order feed 
today.
    \96\ BX does not have a comparable order feed today. However, 
the proposed data elements in the GEMX Order Feed already exist in 
the rules or technical specifications (for the Attributable Order 
content) of other options exchanges, as described below.

    Nasdaq GEMX Depth of Market Data Feed (``Depth of Market Feed'') 
is a data feed that provides full order and quote depth information 
for individual orders and quotes on the Exchange book and last sale 
information for trades executed on the Exchange. The data provided 
for each option series includes the symbols (series and underlying 
security), put or call indicator, expiration date, the strike price 
of the series, and whether the option series is available for 
trading on the Exchange and identifies if the series is available 
for closing transactions only. The feed also provides order 
imbalances on opening/reopening (size of matched contracts and size 
---------------------------------------------------------------------------
of the imbalance).

    As set forth in Options 3, Section 23(a)(2), the Exchange offers 
the Nasdaq GEMX Order Feed (``Order Feed''), which currently provides 
information on new orders resting on the book (e.g. price, quantity and 
market participant capacity). In addition, the feed also announces all 
auctions. The data provided for each option series includes the symbols 
(series and underlying security), put or call indicator, expiration 
date, the strike price of the series, and whether the option series is 
available for trading on GEMX and identifies if the series is available 
for closing transactions only. The feed also provides order imbalances 
on opening/reopening.
    The Exchange now proposes to update the information that would be 
available on the Order Feed. In particular, the Exchange would include 
Attributable Order tags \97\ (as provided by the Member) and related 
data content around displayed order types and specified order 
attributes (e.g., OCC account number, give-up information, CMTA 
information).\98\ The Exchange also proposes to add more specificity 
around what would be provided in the opening/reopening order imbalance 
information (namely, the size of matched contracts and size of the 
imbalance). This specifically aligns to the data elements in both BX's 
Depth of Market Feed in BX Options 3, Section 23(a)(1) and the 
Exchange's proposed Depth of Market Feed in proposed Options 3, Section 
23(a)(1). The Exchange will continue to provide auction notifications 
on the Order Feed, but will relocate the existing language to the end 
of the rule and adopt new content by providing that the proposed Order 
Feed will provide exposure notifications as well.\99\ As amended, 
Options 3, Section 23(a)(2) would provide:
---------------------------------------------------------------------------

    \97\ As discussed above, an Attributable Order is a market or 
limit order which displays the user firm ID for purposes of 
electronic trading on the Exchange. See Options 3, Section 7(h).
    \98\ The Exchange notes that Cboe has similar attributable order 
functionality in Cboe Rule 5.6(c) as an order a user designates for 
display (price and size) that includes the user's executing firm ID 
or other unique identifier. While Cboe does not have a comparable 
data feed rule, Cboe's technical specifications indicate that it 
currently has Participant ID and Client ID tags available on its 
Multicast PITCH data feed. See Section 4.6 in https://cdn.cboe.com/resources/membership/US_EQUITIES_OPTIONS_MULTICAST_PITCH_SPECIFICATION.pdf (relating to 
Participant ID or Client ID as optionally specified values).
    \99\ BX's Depth of Market Feed currently has identical content 
relating to auction and exposure notifications in BX Options 3, 
Section 23(a)(1). Exposure notifications are new with the 
introduction of routing and the removal of flash functionality in 
the Routing Filing. An exposure notification informs the market of 
an order that has arrived marketable against an ABBO and has a 
routing timer pursuant to the changes introduced to Options 5, 
Section 4 in the Routing Filing, while an auction notification is 
the notification of an auction for a Block, Facilitation, Solicited 
Order, or PIM auction.

    Nasdaq GEMX Order Feed (``Order Feed'') provides information on 
new orders resting on the book (e.g. price, quantity, market 
participant capacity and Attributable Order

[[Page 8936]]

tags when provided by a Member). The data provided for each option 
series includes the symbols (series and underlying security), 
displayed order types, order attributes (e.g., OCC account number, 
give-up information, CMTA information), put or call indicator, 
expiration date, the strike price of the series, and whether the 
option series is available for trading on GEMX and identifies if the 
series is available for closing transactions only. The feed also 
provides order imbalances on opening/reopening (size of matched 
contracts and size of the imbalance), auction and exposure 
---------------------------------------------------------------------------
notifications.

    As set forth in Options 3, Section 23(a)(3), the Exchange offers 
the Nasdaq GEMX Top Quote Feed, which currently calculates and 
disseminates GEMX's best bid and offer position, with aggregated size 
(including total size in aggregate, for Professional Order size in the 
aggregate and Priority Customer Order size in the aggregate), based on 
displayable order and quote interest in the System. The feed also 
provides last trade information along with opening price, daily trading 
volume, high and low prices for the day. The data provided for each 
option series includes the symbols (series and underlying security), 
put or call indicator, expiration date, the strike price of the series, 
and whether the option series is available for trading on GEMX and 
identifies if the series is available for closing transactions only. 
The feed also provides order imbalances on opening/reopening.
    The Exchange now proposes to harmonize certain features of this 
feed with BX's Top of Market Feed while retaining certain intended 
differences as specified below.\100\ The Exchange first proposes to 
rename the Nasdaq GEMX Top Quote Feed to the Nasdaq GEMX Top of Market 
Feed (``Top Feed'') to match the BX feed name. In addition, the 
Exchange proposes to make conforming changes to rename the Top Feed 
throughout Options 7, Section 6.C(iii) and Section 7.B. The Exchange 
further proposes to no longer provide information for opening price, 
daily trading volume, high and low prices for the day. These are 
conforming changes that would align the information provided on the 
Exchange's Top Feed with information on BX's Top Feed.\101\ The 
Exchange will continue to provide aggregated size information as a 
legacy holdover, which will be different than current BX functionality. 
Similarly, the Exchange will continue to provide opening/reopening 
order imbalance information on its Top Feed unlike BX. As amended, 
Options 3, Section 23(a)(3) will provide:
---------------------------------------------------------------------------

    \100\ See BX Options 3, Section 23(a)(2).
    \101\ Id.

    Nasdaq GEMX Top of Market Feed (``Top Feed'') calculates and 
disseminates GEMX's best bid and offer position, with aggregated 
size (including total size in aggregate, for Professional Order size 
in the aggregate and Priority Customer Order size in the aggregate), 
based on displayable order and quote interest in the System. The 
feed also provides last trade information and for each option series 
includes the symbols (series and underlying security), put or call 
indicator, expiration date, the strike price of the series, and 
whether the option series is available for trading on GEMX and 
identifies if the series is available for closing transactions only. 
---------------------------------------------------------------------------
The feed also provides order imbalances on opening/reopening.

    As set forth in Options 3, Section 23(a)(4), the Exchange offers 
the Nasdaq GEMX Trades Feed (``Trades Feed''), which currently displays 
last trade information along with opening price, daily trading volume, 
high and low prices for the day. The data provided for each option 
series includes the symbols (series and underlying security), put or 
call indicator, expiration date, the strike price of the series, and 
whether the option series is available for trading on GEMX and 
identifies if the series is available for closing transactions only. 
The Exchange proposes to no longer provide information for opening 
price, daily trading volume, high and low prices for the day to align 
to the changes proposed for the Top Feed described above. As amended, 
Options 3, Section 23(a)(4) will provide:

    Nasdaq GEMX Trades Feed (``Trades Feed'') displays last trade 
information. The data provided for each option series includes the 
symbols (series and underlying security), put or call indicator, 
expiration date, the strike price of the series, and whether the 
option series is available for trading on GEMX and identifies if the 
series is available for closing transactions only.

    In addition, the Exchange proposes to no longer offer TradeInfo, 
which is a user interface set forth in Options 3, Section 23(b)(2) that 
permits Members to: (i) search all orders submitted in a particular 
security or all orders of a particular type, regardless of their status 
(open, canceled, executed, etc.); (ii) view orders and executions; and 
(iii) download orders and executions for recordkeeping purposes. 
TradeInfo users may also cancel open orders at the order, port or firm 
mnemonic level through TradeInfo. Due to the lack of demand for this 
interface by Members,\102\ the Exchange seeks to decommission the 
TradeInfo interface when the Exchange migrates over to the enhanced 
Nasdaq platform with the technology migration.\103\ The Exchange notes 
that FIX, FIX DROP,\104\ and the Clearing Trade Interface 
(``CTI''),\105\ which are available to all Members, can be used today 
to obtain order information that is currently available within 
TradeInfo, and FIX can be used to cancel orders today.
---------------------------------------------------------------------------

    \102\ No Members logged into TradeInfo in 2022.
    \103\ The Exchange will provide prior notice of the decommission 
to all Members through an Options Trader Alert.
    \104\ FIX DROP is a real-time order and execution update message 
that is sent to a Member after an order been received/modified or an 
execution has occurred and contains trade details specific to that 
Member. The information includes, among other things, the following: 
(i) executions; (ii) cancellations; (iii) modifications to an 
existing order; and (iv) busts or post-trade corrections. See 
Options 3, Section 23(b)(3).
    \105\ CTI is a real-time cleared trade update message that is 
sent to a Member after an execution has occurred and contains trade 
details specific to that Member. The information includes, among 
other things, the following: (i) The Clearing Member Trade Agreement 
(``CMTA'') or The Options Clearing Corporation (``OCC'') number; 
(ii) badge or mnemonic; (iii) account number; (iv) information which 
identifies the transaction type (e.g., auction type) for billing 
purposes; and (v) market participant capacity. See Options 3, 
Section 23(b)(1).
---------------------------------------------------------------------------

    In connection with its proposal to retire TradeInfo, the Exchange 
also proposes to eliminate all references to TradeInfo in Options 7 
(Pricing Schedule). Today, as set forth in Options 7, Section 
6.C(ii)(3), the Exchange does not charge any fees for TradeInfo. With 
the proposed changes, the Exchange will amend Options 7 to delete 
Section 6.C(ii)(3) in its entirety.
Optional Risk Protections
    The Exchange proposes to introduce optional quantity and notional 
value checks in new Options 3, Section 28, entitled ``Optional Risk 
Protections.'' The proposed optional order risk protections will be 
functionally identical to the protections currently offered by BX.\106\ 
Members may use this voluntary functionality through their FIX or 
Precise protocols to limit the quantity and notional value they can 
send per order and on aggregate for the day. Specifically, Members may 
establish limits for the following parameters, as set forth in proposed 
subparagraphs (a)(1)-(4):
---------------------------------------------------------------------------

    \106\ See BX Options 3, Section 28. While BX's rule does not 
contain the level of granularity as proposed in the Exchange's rule, 
including how orders are rejected if any of the optional risk 
protection values are exceeded, the Exchange understands that BX's 
optional risk protections operate in the same manner. In addition, 
BX's rule does not include Precise as this order entry port is not 
available on BX today.
---------------------------------------------------------------------------

    (1) Notional dollar value per order, which will be calculated as 
quantity multiplied by limit price multiplied by number of underlying 
shares;

[[Page 8937]]

    (2) Daily aggregate notional dollar value;
    (3) Quantity per order; and
    (4) Daily aggregate quantity
    Proposed paragraph (b) will provide that Members may elect one or 
more of the above optional risk protections by contacting Market 
Operations and providing a per order value (for (a)(1) and (a)(3)) or 
daily aggregate value (for (a)(2) and (a)(4)) for each order 
protection. Members may modify their settings through Market 
Operations. Proposed paragraph (c) will provide that the System will 
reject all incoming aggregated Member orders for any of the (a)(2) and 
(a)(4) risk protections after the value configured by the Member is 
exceeded. Proposed paragraph (d) will provide that the System will 
reject all incoming Member orders for any of the (a)(1) and (a)(3) risk 
protections upon arrival if the value configured by the Member is 
exceeded by the incoming order. The Exchange notes that the difference 
in handling between aggregate and individual order protections is 
necessary to allow for complete processing of the final order that puts 
a Member's configured value over the aggregate values configured. While 
individual orders can be directly measured against the configured 
values for (a)(1) and (a)(3), the aggregate values must be calculated 
after complete processing of an order and thus the rejection of orders 
begins upon the arrival of the next order after the aggregate values in 
(a)(2) or (a)(4) have been exceeded.
    The following example shows how the System will reject all 
subsequent incoming aggregated orders after the (a)(2) or (a)(4) values 
configured by the Member have been exceeded:
    Aggregate Quantity Limit = 800.
    1. Member enters an Order to Buy 500--Accepted.
    2. Member enters an Order to Buy 400--Accepted (Member did not meet 
the configured limit of 800 with the first order of 500 at the time 
Member entered the second order).
    3. Member enters an Order to Buy 1--Rejected (Member already 
exceeded the configured limit of 800 with the second order of 400).
    The following example shows how the System will reject all incoming 
orders upon arrival if the (a)(1) or (a)(3) values configured by the 
Member have been exceeded by the arriving order:
    Quantity Per Order Limit = 800.
    1. Member enters an Order to Buy 801--Rejected (Member exceeded the 
Quantity per order limit upon arrival with the order to buy 801 
contracts).
    Proposed paragraph (e) will provide that if a Member sets a 
notional dollar value, a Market Order would not be accepted from that 
Member. This is because notional dollar value is calculated by using an 
order's specified limit price, and Market Orders by definition are 
priced at the best available price upon execution. Lastly, proposed 
paragraph (f) will provide that the proposed risk protections are only 
available for orders entered through FIX or Precise. Additionally, all 
of the proposed settings will be firm-level.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\107\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\108\ 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. As it relates to the elimination of fees for flash 
functionality and TradeInfo, the Exchange believes that its proposal is 
consistent with Section 6(b) of the Act,\109\ in general, and furthers 
the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\110\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees, and other charges among members and issuers and 
other persons using any facility, and is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \107\ 15 U.S.C. 78f(b).
    \108\ 15 U.S.C. 78f(b)(5).
    \109\ 15 U.S.C. 78f(b).
    \110\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    Generally, the Exchange's proposal is intended to add or align 
certain System functionality with functionality currently offered on BX 
in order to provide a more consistent technology offering across 
affiliated Nasdaq options exchanges. A more harmonized technology 
offering, in turn, will simplify technology implementation, changes, 
and maintenance by market participants of the Exchange that are also 
participants on Nasdaq affiliated options exchanges. The Exchange's 
proposal also seeks to provide greater harmonization between the rules 
of the Exchange and its affiliates, which would result in greater 
uniformity, and less burdensome and more efficient regulatory 
compliance by market participants. As such, the proposal would foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and would remove impediments to and perfect 
the mechanism of a free and open market and a national market system. 
The Exchange believes that more consistent rules will increase the 
understanding of the Exchange's operations for market participants that 
are also participants on the Nasdaq affiliated options exchanges, 
thereby contributing to the protection of investors and the public 
interest. The proposal also seeks to memorialize existing functionality 
and add more granularity in the Exchange's rules to describe how 
existing functionality operates today. The Exchange believes that such 
changes would remove impediments to and perfect the mechanism of a free 
and open market and a national market system because the proposed 
changes would promote transparency in Exchange rules and reducing 
potential confusion, thereby ensuring that Members, regulators, and the 
public can more easily navigate the Exchange's Rulebook and better 
understand how options trading is conducted on the Exchange.
Routing Changes
    The Exchange believes that the proposed amendments throughout 
Options 3 and Options 7 to conform to the Routing Filing is consistent 
with the Act. As discussed above, the Routing Filing harmonizes the 
Exchange's routing functionality with that of BX.\111\ As part of this 
harmonization, the Routing Filing adopts or harmonizes routing 
strategies on the Exchange that are substantially identical to BX, 
(DNR, FIND, and SRCH), and eliminates existing Exchange routing 
functionality that BX does not offer today (flash functionality and 
Sweep Orders). The proposed changes to Options 3 and Options 7 herein 
will therefore ensure that the Rules conform to the amendments in the 
Routing Filing by removing references to flash functionality and Sweep 
Orders, eliminating do-not-route orders as an order type and describing 
it instead as a DNR routing strategy to harmonize with BX, and also 
making clear which routing strategies may now be utilized when 
submitting an order type. The Exchange believes that the proposed 
changes will bring greater clarity to the Rulebook, which would benefit 
market participants and investors by reducing potential confusion.
---------------------------------------------------------------------------

    \111\ As discussed above, the Routing Filing was filed by ISE to 
amend ISE Options 5. Because GEMX Options 5 incorporates ISE Options 
5 by reference, amendments to ISE Options 5 are accordingly 
integrated as amendments to GEMX Options 5. See supra note 3.
---------------------------------------------------------------------------

    The Exchange's proposal to remove pricing related to flash 
functionality

[[Page 8938]]

from Options 7 is reasonable, equitable, and not unfairly 
discriminatory because flash functionality would no longer be available 
to any Member. It is reasonable to remove the fees related to flash 
orders and the references to flash orders from the Exchange's Pricing 
Schedule as the Exchange is removing this functionality from its 
Rulebook. Additionally, it is equitable and not unfairly discriminatory 
to remove the fees related to flash orders and the references to flash 
orders from the Pricing Schedule because no Member would be able to 
utilize the flash functionality once it is removed from the System.
Bulk Message
    The Exchange believes that its proposal to memorialize its bulk 
message functionality is consistent with the Act as it will codify 
existing functionality, thereby promoting transparency in the 
Exchange's rules and reducing any potential confusion.\112\ This 
functionality provides Market Makers with an additional tool to meet 
their various quoting obligations in a manner they deem appropriate, 
consistent with the purpose of the bulk message functionality to 
facilitate Market Makers' provision of liquidity. By providing Market 
Makers with additional control over the quotes they use to provide 
liquidity to the Exchange, this tool may benefit all investors through 
additional execution opportunities at potentially improved prices. As 
noted above, other options exchanges like Cboe currently offer similar 
bulk messaging functionality that allow their market participants to 
submit block quantity quotes in a single electronic message.\113\
---------------------------------------------------------------------------

    \112\ As discussed above, this existing functionality is 
currently described in the Exchange's publicly available technical 
specifications. See supra note 13.
    \113\ See supra note 16.
---------------------------------------------------------------------------

    The Exchange does not believe that the offering the bulk message 
functionality to only Market Makers would permit unfair discrimination. 
Market Makers play a unique and critical role in the options market by 
providing liquidity and active markets, and are subject to various 
quoting obligations (which other market participants are not, including 
obligations to maintain active markets, update quotes in response to 
changed market conditions, to compete with other Market Makers in its 
appointed classes, and to provide intra-day quotes in its appointed 
classes.\114\ Bulk message functionality provides Market Makers with a 
means to help them satisfy these obligations.
---------------------------------------------------------------------------

    \114\ See Options 2, Sections 4 and 5.
---------------------------------------------------------------------------

Order Types
    The Exchange believes that the proposed changes to the rules 
governing Exchange order types are consistent with the Act. As 
discussed above, the proposed changes consist of several functional 
enhancements to align the Exchange's order types to existing BX order 
types, and rule adjustments that add more specificity and clarity to 
existing order types.
Market Orders
    The Exchange believes that the proposed changes to the definition 
of Market Orders in Options 3, Section 7(a) are consistent with the 
Act. The proposed intra-day cancel timer feature mirrors existing BX 
functionality in BX Options 3, Section 7(a)(5), and would provide 
Members with additional flexibility and control to bring the Market 
Order back to the Member so they can get an execution on another venue 
by canceling unexecuted Market Orders after a certain period of time. 
The Exchange believes it is appropriate to offer this feature intra-day 
because the Exchange already has a separate opening delay timer that 
provides protection to the market during the Opening Process as 
discussed above.
Intermarket Sweep Orders
    The Exchange believes that the proposed changes to the definition 
of ISOs in Options 3, Section 7(b)(5) are consistent with the Act. As 
discussed above, the proposed changes are intended to add more 
granularity and more closely align the level of detail in the ISO rule 
with BX's ISO rule in BX Options 3, Section 7(a)(6) by specifying how 
the Exchange would handle ISOs, including how ISOs may be submitted and 
when. As such, the Exchange believes that its proposal will promote 
transparency in the Exchange's rules and consistency across the rules 
of the Nasdaq affiliated options exchanges.\115\
---------------------------------------------------------------------------

    \115\ As noted above, BX's ISO rule also currently states that 
``ISOs may be entered on the Order Book or into the PRISM Mechanism 
pursuant to Options 3, Section 13(ii)(K).'' The Exchange will file a 
separate rule change to add similar language as BX relating to how 
ISOs may be entered on the Exchange.
---------------------------------------------------------------------------

    Furthermore, the proposed changes do not amend current ISO 
functionality except for the proposed stipulation that ISOs must have a 
TIF designation of IOC. Today, Options 5, Section 1(h) provides that 
ISOs may be either an IOC or an order that expires on the day it is 
entered. The Exchange believes it is appropriate to no longer allow 
non-IOC ISOs, as an ISO is generally used when trying to sweep a price 
level across multiple exchanges in an effort to post the balance of an 
order without locking an away market. The Exchange therefore believes 
that ISOs have a limited purpose and should be cancelled if they do not 
execute or do not entirely execute. This is also consistent with how BX 
currently handles ISOs in that BX only allows ISOs to be entered as 
IOC.
All-or-None Orders
    The Exchange believes that the proposed changes to the definition 
of AON Orders in Options 3, Section 7(c) are consistent with the Act. 
As discussed above, the Exchange is memorializing current System 
behavior by specifying how AON Orders will execute against multiple, 
aggregated orders to align with the level of detail in BX Options 3, 
Section 7(a)(4)(A). The proposed description of the handling of AON 
Orders is consistent with the Exchange's allocation methodology in 
Options 3, Section 10 by making clear that because of the size 
contingency of the AON Order (i.e., executed in its entirety or not at 
all), those orders must be satisfied simultaneously to avoid any 
priority conflict on the order book, which considers current displayed 
NBBO prices to avoid locked and crossed markets as well as trade-
throughs. Finally, the proposed changes to add that AON Orders may not 
be submitted during the Opening Process will better articulate current 
System behavior, and aligns to the level of detail currently in BX's 
AON rule at BX Options 3, Section 7(a)(7).
Stop and Stop Limit Orders
    The Exchange believes that the proposed changes to the definition 
of Stop Orders and Stop Limit Orders in Options 3, Sections 7(d) and 
7(e), respectively, are consistent with the Act. The Exchange is 
proposing to codify current System behavior by adding that Stop Orders 
and Stop Limit Orders will be cancelled if they are immediately 
electable upon receipt. As discussed above, the purpose of each of 
these order types is to not execute upon entry, and instead rest in the 
System until the market reaches a certain price level, at which time 
the order could be executed. A Stop Order or Stop Limit Order that is 
immediately electable upon receipt would therefore negate the purpose 
of this order type, so the Exchange believes it is appropriate to 
cancel such orders to ensure that Members are able to use these order 
types to achieve their intended purpose. As noted above, the proposed 
changes

[[Page 8939]]

to codify current Stop and Stop Limit Order handling will align the 
Exchange's rules with Phlx's Stop and Stop Limit Order rules.\116\
---------------------------------------------------------------------------

    \116\ See supra notes 34 and 36.
---------------------------------------------------------------------------

    The Exchange believes that the proposed changes to specify current 
System functionality that Stop and Stop Limit Orders may only be 
entered into FIX or Precise will make clear that these order types are 
only available to be entered through two of the three order entry 
protocols offered by the Exchange (i.e., FIX, Precise, and OTTO). As 
such, the proposed changes will promote transparency in the Exchange's 
rules and reduce any potential confusion.
Cancel and Replace Orders
    The Exchange believes that the proposed changes to the rule 
governing Cancel and Replace Orders would promote clarity and make the 
rules easier to navigate. As discussed above, these are non-substantive 
changes to relocate the rule from Supplementary Material .02 to Options 
3, Section 7 into the main body of the order types rule at Options 3, 
Section 7(f), updating incorrect cross-cites therein, and adding more 
granularity around how the Exchange will treat the cancellation and 
replacement of Reserve Orders.
Reserve Orders
    The Exchange believes that the proposed changes to the Reserve 
Order rule at Options 3, Section 7(g) are consistent with the Act. The 
Exchange is proposing to add more granularity around how Members may 
elect to refresh the display quantity for the Reserve Order. The 
Exchange notes that the new rule text does not have any impact on the 
priority rules of the displayed or non-displayed portion of the Reserve 
Order. This refresh feature for Reserve Orders is intended to provide 
more flexibility and opportunities for Members to add displayed 
liquidity to the Exchange, which, in turn, benefits all market 
participants through more trading opportunities and enhanced price 
discovery. As discussed above, the proposed changes do not amend 
current functionality, but rather is intended to promote transparency 
around the current operation of Reserve Orders. Further, the Exchange 
believes that the non-substantive changes in the Reserve Order rule to 
renumber and reformat the paragraphs therein, and make corrective 
changes as described above, are consistent with the protection of 
investors and the public interest because they will simply make the 
Exchange's rules easier to navigate, thereby reducing any potential 
confusion. As noted above, other options exchanges like Cboe currently 
offer Reserve Orders that have similar refresh features.\117\
---------------------------------------------------------------------------

    \117\ See supra note 39.
---------------------------------------------------------------------------

Attributable Orders
    The Exchange believes that it is consistent with the Act to delete 
existing rule text in Options 3, Section 7(h), which currently 
indicates that Attributable Orders may be available for specified 
classes of securities, and to make a corrective change to ``an Options 
Trader Alert.'' Because Attributable Orders are available for all 
classes of securities today, the Exchange is deleting this language as 
inaccurate. The Exchange believes that the proposed changes will 
promote transparency in the Exchange's rules.
Customer Cross Orders
    The Exchange believes that the non-substantive amendment in Options 
3, Section 7(i) to add that Customer Cross Orders may trade in 
accordance with Options 3, Section 12(a) is consistent with the 
protection of investors and the public interest because the proposal 
will simply add a cross reference in the Customer Cross Order rule to 
Section 12(a), which currently describes in detail how this order type 
would execute on the Exchange, thereby adding clarity to how Customer 
Cross Orders function today.
Qualified Contingent Cross Orders
    The Exchange believes that the proposed changes to the QCC Order 
rule in Options 3, Section 7(j) to add a reference to ``QCC'' and to 
provide that QCC Orders will trade in accordance with Options 3, 
Section 12(c) are consistent with the Act because the changes are 
merely intended to add greater clarity to how QCC Orders function 
today. The Exchange further believes that specifying that QCC Orders 
may only be entered through FIX or Precise will better articulate 
current System behavior, and will make clear that QCC Orders are 
available to be entered through only two of the three order entry 
protocols currently offered by the Exchange (i.e., FIX, Precise, and 
OTTO), thereby reducing any potential confusion.
Preferenced Orders
    The Exchange believes that its proposal to add a definition of 
Preferenced Orders in Options 3, Section 7(l) is consistent with the 
Act. While Preferenced Orders are currently described in Options 2, 
Section 10, the Exchange believes that it would be useful to have order 
types centralized within one rule to make the Rulebook easier to 
navigate for market participants. As noted above, Phlx similarly lists 
out Directed Orders (akin to Preferenced Orders) in its order types 
rule at Phlx Options 3, Section 7(b)(11).
Add Liquidity Orders
    The Exchange believes that the proposed changes to the ALO rule in 
Options 3, Section 7(n) are consistent with the Act. As discussed 
above, the Exchange is enhancing current ALO functionality to reflect 
that the Exchange will handle ALOs in a consistent manner with the new 
continuous re-pricing mechanism that is being proposed concurrently in 
the Re-Pricing Filing as proposed Options 3, Section 5(d) in situations 
where the ALO would not lock or cross an order or quote on the System, 
but would lock or cross the NBBO.\118\ The Exchange therefore believes 
that the proposed changes will make clear how the Exchange will handle 
ALOs under the new re-pricing mechanism. The ALO order type was adopted 
to provide market participants greater control over the circumstances 
in which their orders are executed. As noted above, the purpose of an 
ALO is to provide liquidity. For investors and market participants that 
elect only to provide liquidity in certain circumstances, such as to 
receive a maker fee (or rebate) upon execution of an order, the 
Exchange continues to believe that ALOs, as amended under this 
proposal, will continue to accommodate this strategy. The proposed 
order handling for ALOs is consistent with how ALOs are handled on BX 
today.\119\
---------------------------------------------------------------------------

    \118\ See supra note 43.
    \119\ See BX Options 3, Section 7(a)(12).
---------------------------------------------------------------------------

    The Exchange also believes that adding ``or quotes'' in the ALO 
rule at Options 3, Section 7(n) is consistent with the Act. Today, if 
at the time of entry, an ALO would lock or cross one or more non-
displayed orders or quotes on the Exchange, the ALO will be cancelled 
or re-priced in the manner specified within the ALO rule. Adding this 
rule text will bring greater clarity around current ALO behavior.
    The Exchange further believes that the proposed addition that ALOs 
may only be submitted when an options series is open for trading will 
make clear ALOs will not be accepted during the Opening Process as the 
order book is not available. The proposed changes codify existing 
System behavior, and will therefore promote transparency in the 
Exchange's rules.

[[Page 8940]]

Opening Sweep
    The Exchange believes that the proposed changes to the Opening 
Sweep rule in Options 3, Section 7(t) are consistent with the Act. As 
discussed above, the Exchange is codifying current System behavior and 
providing additional context to the rule in a manner that is consistent 
with Phlx's Opening Sweep rule in Phlx Options 3, Section 7(b)(6). The 
Exchange therefore believes that the proposed changes promote greater 
transparency in the Exchange's rules and consistency across the rules 
of the Nasdaq affiliated options exchanges. Specifically, because an 
Opening Sweep is an IOC order submitted by a Market Maker during the 
Opening Process, the Exchange is making clear that Opening Sweeps are 
entered though SQF in the proposed rule text. The Exchange also 
believes that it is appropriate to specify that Opening Sweeps are not 
subject to any risk protections in Options 3, Section 15 (except 
Automated Quotation Adjustments) because the Opening Process itself has 
boundaries (notably, the Quality Opening Market and the Opening Quote 
Range) within which orders will be executed. Finally, the proposed 
language relating to Opening Sweep participation in the Opening Process 
and cancellation upon the open merely provides additional context in 
the order type rule. As noted above, Opening Sweeps are already 
described in the opening rule today in Options 3, Section 8, and apply 
only during the Opening Process.
Time in Force
    The Exchange believes that the proposed changes to the TIF rules 
are consistent with the Act. As discussed above, the Exchange believes 
that certain existing functionality currently described as an ``order 
type'' in Options 3, Section 7 would be more precisely described as a 
TIF attribute that designates the basic parameters of an order type. 
Relocating and centralizing the existing TIF rules into proposed 
Supplementary Material .02 to Options 3, Section 7 will therefore 
clearly delineate these order attributes and make the proposed rules 
easier to navigate. Codifying the definition of ``TIF'' in proposed 
Supplementary Material .02 will add greater clarity and transparency to 
the Exchange's rules in a manner consistent with BX Options 3, Section 
7(b).
    The Exchange believes that the adjustments in proposed 
Supplementary Material .02(a) to Options 3, Section 7 to add that Day 
orders may be entered through FIX, OTTO, or Precise will add further 
granularity and clarity to the Exchange's rules. The proposed changes 
provide additional detail about current functionality in a manner that 
is consistent with the level of detail in BX's Day order.\120\
---------------------------------------------------------------------------

    \120\ See supra note 51.
---------------------------------------------------------------------------

    The Exchange believes that the adjustments to the relocated GTC and 
GTD rules in proposed Supplementary Material .02(b) and (c) will add 
further granularity and clarity to how these TIFs operate today. The 
Exchange further believes that aligning the level of detail in the GTD 
rule to the GTC rule, as described above, is appropriate because these 
two TIFs are meant to be functionally similar except the manner in 
which they persist in the System.
    The Exchange believes that the proposed changes to the relocated 
IOC rule in proposed Supplementary Material .02(d) will promote greater 
transparency in the Exchange's rules by providing more granularity to 
current IOC functionality. Further, the changes conform the Exchange's 
IOC rule to BX's IOC rule, thereby promoting consistency across the 
rules of the Nasdaq affiliated options exchanges. Specifically, the 
proposed changes to remove the word ``limit'' will make clear that IOC 
orders may be sent as either a Market or Limit Order today, identical 
to BX IOC orders.\121\ The proposed changes to state that IOC orders 
are not eligible for routing, and that IOC orders may be entered 
through FIX, OTTO, Precise, or SQF, will codify current IOC behavior in 
a manner that is consistent with BX's IOC rule.\122\
---------------------------------------------------------------------------

    \121\ See supra note 52.
    \122\ See supra notes 53-54.
---------------------------------------------------------------------------

    As it relates to the proposed changes to memorialize the various 
risk protections that are excluded from applying to Market Maker IOC 
orders entered through SQF, the Exchange believes this is appropriate 
because only Market Makers utilize SQF to enter IOC orders. As 
discussed above, Market Makers are professional traders with more 
sophisticated infrastructures than other market participants, and are 
able to manage their risk through their own risk settings in addition 
to the risk protections required by the Exchange. The Exchange will 
continue to apply the specified risk protections on IOC orders entered 
through FIX, OTTO, and Precise, which are used by the other market 
participants. The proposed changes will harmonize the Exchange's IOC 
rule with BX's IOC rule.\123\ Further, the proposal to add 
substantially similar exclusionary language into the SQF rule itself at 
Supplementary Material .03(c) to Options 3, Section 7 will make clear 
that these risk protections will not apply to IOC orders entered 
through SQF.
---------------------------------------------------------------------------

    \123\ See supra notes 58-59.
---------------------------------------------------------------------------

    Specifying in the proposed IOC rule that orders entered into the 
Exchange's various auction and crossing mechanisms are considered to 
have a TIF of IOC memorializes current System behavior, and is intended 
to bring greater transparency in how these order types are handled 
today. As noted above, BX currently has substantially similar language 
in its IOC rule for BX PRISM orders in BX Options 3, Section 7(b)(2).
    Lastly, the Exchange believes that the adjustments to the relocated 
OPG rule in proposed Supplementary Material .02(e) to Options 3, 
Section 7 will add granularity and clarity to how OPG orders operate, 
and will conform the OPG rule with the level of detail currently in 
BX's OPG rule in BX Options 3, Section 7(b)(1). As discussed above, the 
Exchange is proposing to enhance OPG functionality to allow both Market 
and Limit OPG orders whereas today, only Limit OPG orders are allowed. 
This harmonizes OPG functionality with BX OPG functionality. The other 
modifications to replace ``opening rotation'' with ``Opening Process,'' 
stating OPG orders may not route, and indicating that OPG orders are 
not subject to the protections listed in Options 3, Section 15 (except 
Size Limitation) all memorialize current OPG behavior, and align to the 
current BX OPG rule. As discussed above, the Exchange does not apply 
any of the risk protections in Options 3, Section 15 (except Size 
Limitation) because the Opening Process itself has boundaries within 
which orders will be executed.
Opening Process
    The Exchange believes that the proposed changes to the Opening 
Process in Options 3, Section 8 are consistent with the Act. As 
discussed above, the Exchange is proposing to remove the current 
limitation that only allows Public Customers interest to route during 
the opening, and will instead allow all market participant interest to 
route. The proposed changes will serve to more closely align the 
Exchange's Opening Process with BX's Opening Process. Like BX, the 
Exchange believes that it will be beneficial to provide all market 
participants with the opportunity to have their interest executed on 
away markets during the Opening Process. The Exchange further believes 
that the related changes to remove references to ``Public Customer'' 
throughout Options 3, Section 8, and to update the cross-cite currently 
pointing to the Priority Customer priority overlay

[[Page 8941]]

to the more general priority rule, will add clarity, transparency, and 
internal consistency to Exchange rules regarding the proposed handling 
of routable interest during the Opening Process.
    The Exchange believes that its proposal to no longer round in the 
direction of the previous trading day's closing price and simply round 
up to the MPV, if the mid-point of the highest and lowest of the 
Potential Opening Prices is not expressed as a permitted MPV, will 
simplify and bring greater transparency to the Opening Process, to the 
benefit of investors. Market participants can now have a better sense 
of how the Potential Opening Price will be calculated without having to 
account for the closing price of each options series. The Exchange 
believes this may promote greater efficiency in the marketplace 
especially in view of the continued growth in the number of options 
today.
    The Exchange further believes that the proposed changes to replace 
``are marketable against the ABBO'' with ``cross the ABBO'' will better 
articulate how the Exchange currently determines the OQR boundaries in 
the scenario specified in Options 3, Section 8(i)(3). Lastly, the 
Exchange believes that the non-substantive change in paragraph 
(a)(1)(2) of Options 3, Section 8 will bring greater clarity to the 
Rulebook.
Auction and Crossing Mechanisms
Facilitation and Solicited Order Mechanisms
    The Exchange believes that its proposal to relocate the rule text 
relating to Responses from Supplementary Material .02 to Options 3, 
Section 11 into the introductory paragraph of Options 3, Section 11, 
and adding that Responses can be modified, is consistent with the Act. 
The Exchange is relocating this language into the introductory 
paragraph of Options 3, Section 11 after the definition of ``Response'' 
for better readability. The proposed change to add ``or modified'' to 
indicate that Responses may be canceled or modified any time prior to 
execution better aligns the rule text to current System behavior.
Crossing Orders
    The Exchange believes that the non-substantive change to the 
description of QCC Orders in Options 3, Section 12(c)(2) will bring 
greater clarity to the Rulebook.
Price Improvement Mechanism
    The Exchange's proposal to amend Options 3, Section 13(b)(4) to 
clarify the current rule text by adding the words ``or modified'' after 
``canceled'' is consistent with the Act because the additional text 
will make clear that a Crossing Transaction may not be modified unless 
the Counter-Side Order is being improved during the exposure period.
    The Exchange's proposal to add clarifying rule text within Options 
3, Section 13(b)(5) which states, ``Crossing Transactions submitted at 
or before the opening of trading are not eligible to initiate an 
Auction and will be rejected'' is consistent with the Act because it 
will bring greater clarity to when a Crossing Transaction is currently 
eligible to initiate a PIM. The PIM considers both the NBBO and local 
book for its entry price validation and therefore requires an opening 
for the PIM to begin.
    The Exchange's proposal to amend the current PIM functionality 
within Options 3, Section 13(c)(3) to permit Improvement Orders to be 
canceled or modified is consistent with the Act. The Exchange proposes 
to amend this functionality so that Improvement Orders may be canceled 
or modified similar to functionality on BX today within Options 3, 
Section 13(ii)(a)(8). Today, during the exposure period, Improvement 
Orders may not be canceled and Improvement Orders may be modified to 
(i) increase the size at the same price, or (ii) improve the price of 
the Improvement Order for any size up to the size of the Agency Order. 
The modification and cancellation of an Improvement Order through OTTO 
will be similar to the manner in which a Cancel and Replace Order would 
be handled outside of the auction process. For Improvement Orders 
through SQF, the modification and cancellation of such orders will be 
handled by sending new Improvement Orders that overwrite the existing 
Improvement Order with updated price/quantity instructions. Improvement 
Orders are not visible to other auction participants, including the 
Agency Order. The Exchange believes that providing responders with 
flexibility to cancel or modify their Improvement Orders may encourage 
market participants to respond to more auctions, including PIM.
    The proposal to amend Options 3, Section 13(d)(5) to permit an 
auction to automatically terminate upon the occurrence of a trading 
halt with execution solely with the Counter-Side Order is consistent 
with the Act. This functionality would be similar to rule text within 
BX Options 3, Section 13(ii)(C). The Exchange believes that utilizing 
the price of the Counter-Side Order to execute the Crossing Transaction 
promotes just and equitable principles of trade, and fosters 
cooperation and coordination with persons engaged in facilitating 
transactions in securities since the Counter-Side Order has guaranteed 
that an execution will occur at the same price as the Crossing 
Transaction, or better, prior to the trading halt, and Improvement 
Orders offer no such guarantee, the Counter-Side Order is the only 
valid price at which to execute the Crossing Transactions, and the 
Counter-Side Order is the appropriate contra-side.\124\
---------------------------------------------------------------------------

    \124\ The Exchange notes that trading on the Exchange in any 
option contract will be halted whenever trading in the underlying 
security has been paused or halted by the primary listing market.
---------------------------------------------------------------------------

    The Exchange believes that the proposed System change to adopt a 
new same side execution price check for PIM in new subsection (d)(6) of 
Options 3, Section 13 is consistent with the Act. As discussed above, 
this feature would be functionally identical to BX PRISM in BX Options 
3, Section 13(ii)(I). Like BX, the proposed price check is designed to 
ensure that the Exchange would not trade at prices that would lock or 
cross interest on the same side of the market as the Agency Order where 
limit orders have rested and obtained priority to execute at that 
price. In the event where a limit order arrives on the same side of the 
market as the Agency Order and is at the same or better price than the 
initiating Crossing Transaction price, the Exchange would execute the 
entire PIM transaction at the initiating Crossing Transaction price. 
The execution takes place at this price because the PIM is guaranteed 
an execution and the PIM agency side instructions would not allow an 
execution to take place at a higher (lower) price than submitted for a 
buying (selling) agency side PIM order. Considering that the limit 
order has arrived either at or better on the same side as the Agency 
Order than the agency side price, the initiating Crossing Transaction 
price is the only price at which the guaranteed execution can take 
place.
    Finally, the proposal to amend Supplementary Material .02 to 
Options 3, Section 15 to add a sentence which provides, ``It will be 
considered a violation of this Rule and will be deemed conduct 
inconsistent with just and equitable principles of trade and a 
violation of Options 9, Section 1 if an Electronic Access Member 
submits a PIM Order (initiating an auction) and also submits its own 
Improvement Order in the same auction,'' is consistent with the Act. BX 
has a similar prohibition within Options 3, Section 13(iii). The 
proposed new rule is designed to prevent fraudulent and

[[Page 8942]]

manipulative acts and practices, to promote just and equitable 
principles of trade, by providing guidance to Members where certain 
behavior within a PIM will not be considered a bona fide transaction.
Order Price Protection
    The Exchange believes that its proposal to replace its current 
Limit Order Price Protection with a similar ``fat finger'' check called 
Order Price Protection in Options 3, Section 15(a)(1)(A) is consistent 
with the Act. The proposed OPP would similarly prevent the execution of 
limit orders at prices outside pre-set numerical or percentage 
parameters, and is designed to prevent limit orders entered at clearly 
unintended prices from executing in the System to the detriment of 
market participants. The proposed risk protection is also functionally 
similar to BX's OPP in BX Options 3, Section 15(a)(1), and therefore is 
not novel.\125\ Similar to BX, the Exchange believes that the proposed 
fixed dollar amount and percentage parameters will protect against 
erroneous executions, while also allowing orders to execute within a 
reasonable range.
---------------------------------------------------------------------------

    \125\ As noted above, the Exchange is proposing to adopt an OPP 
rule that more accurately describes the proposed functionality than 
BX's current OPP rule, so BX will align its current OPP rule to the 
Exchange's proposed rule text in a separate rule filing.
---------------------------------------------------------------------------

    The Exchange believes that using the Reference BBO (i.e., better of 
the NBBO or the internal market BBO) to calculate the proposed OPP, 
identical to current BX OPP functionality, will similarly protect 
investors and the public interest where the internal market BBO is 
better than the NBBO.
    The Exchange further believes that its proposal to add language 
allowing Exchange discretion to temporarily deactivate OPP on an intra-
day basis is consistent with the Act. BX has identical language today 
in BX Options 3, Section 15(a)(1)(A)(i), and similar to BX, the 
Exchange believes that having this discretion will be useful if the 
Exchange determined that unusual market conditions warranted 
deactivation in the interest of a fair and orderly market. Like BX, the 
Exchange believes that it will be useful to have the flexibility to 
temporarily disable OPP intra-day in response to an unusual market 
event (e.g., if dissemination of data was delayed and resulted in 
unreliable underlying values needed for the Reference BBO) to maintain 
a fair and orderly market. This will promote just and equitable 
principles of trade and ultimately protect investors.
Post-Only Quoting Protection
    The Exchange's proposal to adopt a new Post-Only Quote 
Configuration in Options 3, Section 15(a)(3)(C) to permit Market Makers 
to prevent their quotes from removing liquidity from the Exchange's 
order book promotes equitable principles of trade and protects 
investors and the public interest by enhancing the risk protections 
available to Market Makers. This optional risk protection would enable 
Market Maker to better manage their risk when quoting on the Exchange. 
As noted above, BX offers identical functionality today in BX Options 
3, Section 15(c)(3).
    The proposed risk protection allows Market Makers the ability to 
avoid removing liquidity from the Exchange's order book if their quote 
would otherwise lock or cross any resting order or quote on the 
Exchange's order book upon entry, thereby protecting investors and the 
general public as Market Makers transact a large number of orders on 
the Exchange and bring liquidity to the marketplace. Market Makers 
would utilize the proposed risk protection to avoid unintentionally 
taking liquidity with resting interest \126\ on the order book. As a 
result of taking liquidity, Market Makers would incur a taker fee that 
may impact the Market Maker's ability to provide liquidity and meet 
quoting obligations. Market Makers are required to add liquidity on the 
Exchange and, in turn, are rewarded with lower pricing \127\ and 
enhanced allocations.\128\ Specifically, the risk protection would 
permit Market Makers to add liquidity only and avoid removing resting 
interest on the order book, which will lead to enhanced liquidity on 
the Exchange and in turn will benefit and protect investors and the 
public interest through the potential for greater volumes of orders and 
executions on the Exchange.
---------------------------------------------------------------------------

    \126\ As noted above, this would include any re-priced orders as 
described in the Re-Pricing Filing as proposed Options 3, Section 
5(d), ALOs as described in proposed Options 3, Section 7(n), and any 
re-priced quotes as described in Options 3, Section 4(b)(6). As 
discussed above, ALOs may re-price.
    \127\ See Options 7, Section 3.
    \128\ See Options 3, Section 10.
---------------------------------------------------------------------------

    The Exchange does not believe that introducing this Post-Only Quote 
Configuration will unfairly discriminate among market participants. 
Today, all Members may utilize the existing Add Liquidity Order type to 
prevent orders from removing liquidity from the Exchange's order book 
upon entry. The Post-Only Quote Configuration is available to Market 
Makers only as a risk protection. Unlike other market participants, 
Market Makers have certain obligations on the market, such as 
requirements to provide continuous two-sided quotes on a daily basis 
\129\ and are subject to various obligations associated with providing 
liquidity on the market.\130\ Market Makers are liquidity providers on 
the Exchange and, therefore, are offered certain quote risk protections 
noted to allow them to manage their risk more effectively.\131\ The 
proposed Post-Only Quote Configuration is another risk protection 
afforded to Market Makers to assist them in managing their risk while 
continuing to comply with their obligations. The Exchange notes that 
enhancing the ability of Market Makers to add liquidity and avoid 
taking liquidity from the order book promotes just and equitable 
principles of trade on the Exchange and protects investors and the 
public interest, thereby enhancing market structure by allowing Market 
Makers to add liquidity only. Greater liquidity benefits all market 
participants by providing more trading opportunities and attracting 
greater participation by Market Makers. Also, an increase in the 
activity of Market Makers in turn facilitates tighter spreads.
---------------------------------------------------------------------------

    \129\ See Options 2, Section 5(e).
    \130\ See Options 2, Section 4.
    \131\ Options 3, Section 15(a)(3) currently sets forth the Anti-
Internalization and Quotation Adjustments Protections that are 
available today to Market Makers.
---------------------------------------------------------------------------

Kill Switch
    The Exchange does not believe that the proposed decommission of the 
GUI Kill Switch for order cancellation will affect the protection of 
investors or the public interest or the maintenance of a fair and 
orderly market because no Members have used the GUI Kill Switch risk 
protection in 2022.\132\ The Exchange does not charge any fees for the 
GUI Kill Switch. In addition, the Exchange notes that the use of this 
tool is completely optional, and the Exchange will continue to offer 
substantially similar Kill Switch functionality through FIX, Precise, 
and OTTO. As set forth in the Kill Switch rule, the GUI Kill Switch 
allows for the cancellation and restriction of orders for the requested 
Identifier(s) on a user or group level, whereas the port Kill Switch 
allows for cancellation and restriction of orders for the requested 
Identifier(s) on a user level.\133\ While the GUI Kill Switch had more 
optionality around how Members may combine the Kill Switch request by 
Identifier(s), no

[[Page 8943]]

Members have used the GUI Kill Switch risk protection this year. 
Furthermore, Members will retain the ability to contact market 
operations staff to manually purge their orders from the market. In 
addition, the Exchange will continue to implement System-enforced risk 
mechanisms that automatically remove orders for the Member once certain 
pre-set thresholds or conditions are met (i.e., market wide risk 
protection and cancel on disconnect).
---------------------------------------------------------------------------

    \132\ As noted above, the Exchange will provide prior notice of 
the decommission to all Members via Options Trader Alert.
    \133\ See Options 3, Section 17(a)(1) and (2).
---------------------------------------------------------------------------

    Also, the Exchange believes that the low usage rate for the GUI 
Kill Switch does not warrant the continuous resources necessary for 
System support of such tools. As a result, the Exchange believes that 
the proposal will remove impediments to and perfect the mechanism of a 
free and open market and a national market system by allowing the 
Exchange to reallocate System capacity and resources currently used to 
maintain this functionality to the development and maintenance of other 
business initiatives and risk management products.
    As noted above, the Exchange previously amended its rules to 
decommission the quote removal Kill Switch that was available to Market 
Makers through the GUI.\134\ Similar to the GUI Kill Switch for quote 
removal, the Exchange has found that no Members use the GUI Kill Switch 
to cancel their orders, but rather, utilize other means to purge their 
existing orders from the System. The Exchange therefore believes that 
eliminating the GUI Kill Switch all together (including for orders as 
proposed herein) will streamline the Exchange's risk protection 
offerings in a manner that reflects Member use.
---------------------------------------------------------------------------

    \134\ See supra note 94.
---------------------------------------------------------------------------

Data Feeds and Trade Information
    The Exchange believes that the proposed changes to the current data 
feed offerings in Options 3, Section 23(a) are consistent with the Act. 
Specifically, the Exchange believes that the proposed changes to its 
Depth of Market Feed to provide full depth-of-market information will 
serve to more closely align the information provided on the Exchange's 
Depth of Market Feed with that of BX's Depth of Market Feed in BX 
Options 3, Section 23(a)(1), thereby ensuring a more consistent 
technology offering across the Nasdaq affiliated options exchanges. The 
Exchange also believes that the modified Depth of Market Feed will help 
to protect a free and open market by providing additional data to the 
marketplace. The Exchange further believes that the proposed changes to 
add more specificity around what would be provided in the opening/
reopening order imbalance information, and to correct an erroneous 
reference to ``ISE'' in the Depth of Market Feed rule will promote 
transparency and clarity in the Exchange's rules.
    The Exchange believes that the proposed changes to the Order Feed 
around what type of information would be available on this data feed 
offering, as further described above, will promote clarity and 
transparency in the Exchange's rules. Furthermore, the proposed data 
elements in the Order Feed are based on data elements that currently 
exist on other markets. For instance, the specificity around what would 
be provided in the opening/reopening order imbalance information, as 
well as the auction and exposure notifications are identical to the 
content within BX's Depth of Market Feed in BX Options 3, Section 
23(a)(1). As noted above, the Attributable Order content is similar to 
the data elements on Cboe's current multicast PITCH feed.\135\
---------------------------------------------------------------------------

    \135\ See supra note 98.
---------------------------------------------------------------------------

    The Exchange believes that the proposed changes to the existing Top 
Quote Feed to rebrand into the Top Feed, to no longer provide 
information for opening price, daily trading volume, and high and low 
prices for the day, will serve to further align the Exchange's Top Feed 
with BX's Top Feed in BX Options 3, Section 23(a)(2), thereby ensuring 
a more consistent technology offering across the Nasdaq affiliated 
options exchanges.
    The proposed changes to the Trades Feed to no longer provide 
information for opening price, daily trading volume, and high and low 
prices for the day are intended to align to the proposed changes to the 
Top Feed described above. The Exchange believes that removing this 
language will promote clarity and transparency in the Exchange's rules.
    The Exchange believes that it is consistent with the Act to no 
longer offer TradeInfo when the Exchange migrates over the enhanced 
Nasdaq functionality, as there is a lack of demand from Members.\136\ 
The Exchange does not assess a fee for TradeInfo. As noted above, 
Members use FIX, FIX DROP, and CTI to obtain order information 
currently available in TradeInfo, and to cancel orders through FIX. The 
Exchange further believes that the proposed decommission of TradeInfo 
will remove impediments to and perfect the mechanism of a free and open 
market and a national market system by allowing the Exchange to 
reallocate System capacity and resources currently used to maintain 
this functionality to the development and maintenance of other business 
initiatives and risk management products.
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    \136\ As noted above, the Exchange provided notice of the 
decommission to all Members through an Options Trader Alert. See 
Options Trader Alert #2022-29.
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    The Exchange's proposal to eliminate TradeInfo pricing from Options 
7, Section 6.C(ii)(3) in its entirety is reasonable, equitable, and not 
unfairly discriminatory because TradeInfo would no longer be available 
to any Member. It is reasonable to remove all references to TradeInfo 
pricing from the Exchange's Pricing Schedule as the Exchange is 
removing this functionality from its Rulebook. As discussed above, the 
Exchange does not assess a fee for TradeInfo today. Additionally, it is 
equitable and not unfairly discriminatory to remove the references to 
TradeInfo pricing from the Pricing Schedule because no Member would be 
able to utilize this functionality once it is removed from the System.
Optional Risk Protections
    The Exchange believes that introducing the optional quantity and 
notional value risk protections as described above will protect 
investors and the public interest, and maintain fair and orderly 
markets, by providing market participants with another tool to manage 
their order risk. As noted above, BX offers functionally identical 
optional risk protections in BX Options 3, Section 28.\137\ In 
addition, providing Members with more tools for managing risk will 
facilitate transactions in securities because Members will have more 
confidence that risk protections are in place. As a result, the new 
functionality has the potential to promote just and equitable 
principles of trade.
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    \137\ As noted above, while the proposed rule text in Options 3, 
Section 28 adds more granularity, including around how orders are 
rejected when the value thresholds for the options risk protections 
are exceeded, the Exchange understands that the BX optional risk 
protections operate in the same manner. In addition, BX's rule does 
not include Precise as this order entry port is not available on BX 
today.
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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 not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange operates in a 
competitive market and regularly competes with other options exchanges 
for order flow. As discussed above, the Exchange is re-

[[Page 8944]]

platforming its System in connection with the technology migration to 
enhanced Nasdaq functionality, which the Exchange believes would 
promote competition among options exchanges by potentially attracting 
additional order flow to the Exchange with the enhanced trading 
platform.
    As it relates to the elimination of fees for flash functionality 
and TradeInfo from Options 7, the Exchange believes that its proposal 
does not impose an undue burden on competition because the flash 
functionality and TradeInfo would no longer be available to any 
Members.
    The basis for the majority of the proposed rule changes are the 
rules of the Nasdaq affiliated options exchanges, which have been 
previously filed with the Commission as consistent with the Act. As it 
relates to bulk messaging for quotes as proposed in Options 3, Section 
4(b)(3), the Exchange notes that Cboe similarly allows for bulk 
messaging in Cboe Rule 1.1, except Cboe also allows bulk messaging for 
orders, unlike the Exchange. As it relates to the proposal in Options 
3, Section 7(g)(4) to codify the refresh features into the Exchange's 
Reserve Order rule, the Exchange notes that Cboe's Reserve Order 
functionality has similar refresh features in Cboe Rule 5.6(c). As it 
relates to the proposal in Options 3, Section 23(a) to add Attributable 
Order content in the Order Feed, Cboe currently has similar data 
elements available on its Multicast PITCH feed.\138\
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    \138\ See supra note 98.
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    The proposed rule changes are based on the following rules of the 
Nasdaq affiliated exchanges:
     The Market Order proposal in Options 3, Section 7(a) will 
be materially identical to BX's Market Orders in BX Options 3, Section 
7(a)(5).
     The ISO proposal in Options 3, Section 7(b)(5) will be 
substantially similar to BX's ISO in BX Option 3, Section 7(a)(6). 
Unlike BX, the Exchange's ISO proposal will not refer to how ISOs may 
be entered on the Exchange as the Exchange intends address that in a 
separate rule filing.
     The Exchange's AON proposal will be substantially similar 
to BX's Contingency Order rule in BX Options 3, Section 7(a)(4)(A) 
(except BX's rule also describes Minimum Quantity Orders, which the 
Exchange does not offer today) and BX's AON rule in BX Options 3, 
Section 7(a)(7).
     The Stop Order proposal in Options 3, Section 7(d) will be 
substantially similar to Phlx Options 3, Section 7(b)(4), except Phlx 
does not currently explicitly state that Phlx Stop Orders may only be 
entered through FIX or Precise because Phlx only offers one order entry 
protocol (FIX), unlike the Exchange, which offers three (FIX, Precise, 
and OTTO).
     The Stop Limit Order proposal in Options 3, Section 7(e) 
will be substantially similar to Phlx Options 3, Section 7(b)(4)(A), 
except Phlx does not currently explicitly state that Phlx Stop Limit 
Orders may only be entered through FIX or Precise for the same reasons 
stated for Stop Orders above.
     The Preferenced Order proposal in Options 3, Section 7(l) 
will be materially identical to Phlx's Directed Order rule in Phlx 
Options 3, Section 7(b)(11).
     The ALO proposal in Options 3, Section 7(n) will be 
materially identical to BX ALOs in BX Options 3, Section 7(a)(12).
     The Opening Sweep proposal in Options 3, Section 7(t) will 
be materially identical to the Phlx Opening Sweep in Phlx Options 3, 
Section 7(b)(6).
     The Day order proposal in Supplementary Material .02(a) to 
Options 3, Section 7 will be substantially similar to BX Options 3, 
Section 7(b)(3), except BX's rule does not refer to OTTO or Precise 
because BX does not offer OTTO or Precise functionality today.
     The IOC proposal in Supplementary Material .02(d) to 
Options 3, Section 7 will be substantially similar to BX's IOC in BX 
Options 3, Section 7(b)(2), except the BX rule does not refer to OTTO 
or Precise as BX does not offer these features today.
     The OPG proposal in Supplementary Material .02(e) to 
Options 3, Section 7 will be materially identical to BX's OPG in BX 
Options 3, Section 7(b)(1).
     The Opening Process proposal in Options 3, Section 8 to 
allow all market participant interest to route will be identical to 
BX's Opening Process in BX Options 3, Section 8.
     The following proposed changes to PIM are based on BX 
PRISM: (1) proposed Options 3, Section 13(b)(5) will be materially 
identical to BX Options 3, Section 13(i)(E); (2) proposed Options 3, 
Section 13(c)(3) will be materially identical to BX Options 3, Section 
13(ii)(A)(8); (3) proposed Options 3, Section 13(d)(5) will be 
functionally similar to BX Options 3, Section 13(ii)(C); (4) proposed 
Options 3, Section 13(d)(6) will be functionally similar to BX Options 
3, Section 13(ii)(I); and (5) proposed Supplementary Material .02 to 
Options 3, Section 13 will be materially identical to BX Options 3, 
Section 13(iii).
     The proposed OPP risk protection in Options 3, Section 
15(a)(1)(A) will be functionally similar to BX OPP in BX Options 3, 
Section 15(a)(1).\139\
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    \139\ As noted above, BX will file a separate rule change to 
conform its OPP rule to the Exchange's proposed rule.
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     The proposed Post-Only Quote Configuration in Options 3, 
Section 15(a)(3)(C) will be functionally identical to the BX Post-Only 
Quote Configuration in BX Options 3, Section 15(c)(3).
     The Depth of Market Feed proposal in Option 3, Section 
23(a)(1) will be substantially similar to the BX Depth of Market Feed 
in BX Options 3, Section 23(a)(1), except the Exchange will not offer 
auction and exposure notifications on its Depth of Market Feed like BX 
does today.
     The Order Feed proposal in Options 3, Section 23(a)(2) 
will contain data elements that are identical to those on BX's Depth of 
Market Feed in BX Options 3, Section 23(a)(1), specifically around what 
would be provided in the opening/reopening order imbalance information 
(i.e., the size of matched contracts and size of the imbalance), and 
auction and exposure notifications.
     The Top Feed proposal in Options 3, Section 23(a)(3) will 
be substantially similar to the BX Top Feed in BX Options 3, Section 
23(a)(2), except the Exchange will continue to provide aggregated size 
information unlike BX.
     The proposed optional quantity and notional value risk 
protections in Options 3, Section 28 will be functionally identical to 
the protections in BX Options 3, Section 28.\140\
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    \140\ As noted above, while the proposed rule text in Options 3, 
Section 28 adds more granularity, including around how orders are 
rejected when the value thresholds for the options risk protections 
are exceeded, the Exchange understands that the BX optional risk 
protections operate in the same manner. In addition, BX's rule does 
not include Precise as this order entry port is not available on BX 
today.
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    The Exchange reiterates that the proposed rule change is being 
proposed in the context of the technology migration to enhanced Nasdaq 
functionality. The Exchange further believes the proposed rule change 
will benefit Members by providing a more consistent technology 
offering, as well as consistent rules, for market participants on the 
Nasdaq affiliated options exchanges. In addition, the proposed rule 
change relates to adding clarity and consistency in the Exchange's 
Rulebook, and are designed to reduce any potential investor confusion 
as to the features and applicability of certain functionality presently 
available on the Exchange.

[[Page 8945]]

    The Exchange does not believe that the proposed rule change will 
impose any burden on intra-market competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as the majority 
of the proposed changes will apply to all Members. As it relates to the 
proposed rule change relating to bulk message functionality, while the 
Exchange currently offers this functionality to Market Makers only, 
bulk messaging is intended to provide Market Makers with an additional 
tool to meet their various quoting obligations in a manner they deem 
appropriate. As such, the Exchange believes that this functionality may 
facilitate Market Makers' provision of liquidity, thereby benefiting 
all market participants through additional execution opportunities at 
potentially improved prices. Furthermore, while the Exchange will offer 
the proposed Post-Only Quote Configuration to Market Makers only, the 
proposed risk protection will enhance the ability of Market Makers to 
add liquidity and avoid removing liquidity from the Exchange's order 
book in the manner described above. Greater liquidity benefits all 
market participants by providing more trading opportunities and 
attracting greater participation by Market Makers. The Exchange also 
does not believe that the proposed decommission of the GUI Kill Switch 
for order cancellation will impose any burden on intra-market 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. As discussed above, the Exchange previously 
amended its rules to decommission the quote removal Kill Switch that 
was available to Market Makers through the GUI.\141\ The Exchange 
therefore believes that eliminating the GUI Kill Switch for order 
cancellation will streamline the Exchange's risk protection offerings 
in a manner that reflects Member use. The Exchange will continue to 
offer substantially similar Kill Switch functionality through FIX, 
Precise and OTTO.
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    \141\ See supra note 94.
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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 \142\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\143\
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    \142\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \143\ 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 [email protected]. Please include 
File Number SR-GEMX-2023-02 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-2023-02. 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-2023-02 and should be submitted on 
or before March 3, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\144\
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    \144\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-02821 Filed 2-9-23; 8:45 am]
BILLING CODE 8011-01-P


