[Federal Register Volume 82, Number 117 (Tuesday, June 20, 2017)]
[Notices]
[Pages 28113-28125]
[FR Doc No: 2017-12887]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80937; File No. SR-MRX-2017-01]

Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 2 Thereto, To
Amend the Opening Process

June 15, 2017.
    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 May 31, 2017, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the Exchange. On June 14, 2017, the Exchange filed
Amendment No. 1 to the proposal. On June 14, 2017, the Exchange
withdrew Amendment No.1 and filed Amendment No. 2 to the proposal,
which replaced and superseded the original filing in its entirety. The
Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 2, from interested
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to mend the opening process. This Amendment
No. 2 supersedes the original filing in its entirety.
    The text of the proposed rule change is available on the Exchange's
Web site at www.ise.com, at the principal office of the Exchange, and
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of this rule change is to amend the MRX opening process
in connection with a technology migration to a Nasdaq, Inc.
(``Nasdaq'') supported architecture. INET is the proprietary core
technology utilized across Nasdaq's global markets and utilized on The
NASDAQ Options Market LLC (``NOM''), NASDAQ PHLX LLC (``Phlx'') and
NASDAQ BX, Inc. (``BX'') (collectively ``Nasdaq Exchanges''). The
migration of MRX to the Nasdaq INET architecture would result in higher
performance, scalability, and more robust architecture. With this
system migration, the Exchange intends to adopt the Phlx opening
process.
    The Exchange intends to begin implementation of the proposed rule
change in Q3 2017. The migration will be on a symbol by symbol basis,
and the Exchange will issue an alert to Members to provide notification
of the symbols that will migrate and the relevant dates.
Generally
    With the re-platform, the Exchange will now be built on the Nasdaq
INET architecture, which allows certain trading system functionality to
be performed in parallel. The Exchange believes that this architecture
change will improve the Member experience by reducing overall latency
compared to the current MRX system because of the manner in which the
system is segregated into component parts to handle processing.
Opening Rotation
    MRX will replace its current opening process at Rule 701 with
Phlx's Opening Process.\3\ The Exchange believes that the proposed
opening process will provide a similar experience for Members and
investors that trade on MRX to the experience that they receive on Phlx
today.
---------------------------------------------------------------------------

    \3\ See Phlx Rule 1017. See also Securities Exchange Act Release
No. 79274 (November 9, 2016), 81 FR 80694 (November 16, 2016) (SR-
Phlx-2017-79) (notice of Filing of Partial Amendment No. 2 and Order
Granting Approval of a Proposed Rule Change, as Modified by Partial
Amendment No. 2, to Amend PHLX Rule 1017, Openings in Options).
---------------------------------------------------------------------------

Current Opening Process
    Today, for each class of options that has been approved for
trading, the opening rotation is conducted by the Primary Market Maker
(``PMM'') appointed to such class of options pursuant to MRX Rule
701(b)(1). The Exchange may direct that one or more trading rotations
be employed on any business day to aid in producing a fair and orderly
market pursuant to MRX Rule 701(a)(1). For each rotation so employed,
except as the Exchange may direct, rotations are conducted in the order
and manner the PMM determines to be appropriate under the circumstances
pursuant to MRX Rule 701(a)(2). The PMM, with the approval of the
Exchange, has the authority to determine the rotation order and manner
and may also employ multiple trading rotations simultaneously pursuant
to MRX Rule 701(a)(3).
    Trading rotations are employed at the opening of the Exchange each
business day and during the reopening of the market after a trading
halt pursuant to MRX Rule 701(b). The opening rotation in each class of
options is held promptly following the opening of the market for the
underlying security.\4\ The opening rotation for options contracts in
an underlying security is delayed until the market for such underlying
security has opened unless the Exchange determines that the interests
of a fair and orderly market are best served by opening trading in the
options contracts pursuant to MRX Rule 701(b)(3).
---------------------------------------------------------------------------

    \4\ The ``market for the underlying security'' is either the
primary listing market, the primary volume market (defined as the
market with the most liquidity in that underlying security for the
previous two calendar months), or the first market to open the
underlying security, as determined by the Exchange on an issue-by-
issue basis. See MRX Rule 701(b)(2).
---------------------------------------------------------------------------

    Market Makers on MRX are held to quoting obligations as outlined in
MRX Rule 803. Further, Market Makers quotes prior to the opening
rotation, including PMM quotes, are permitted with spread differential
of no more than $0.25 between the bid and offer for each options
contract for which the bid is less than $2, no more than $0.40 where
the bid is at least $2 but does not exceed $5, no more than $0.50 where
the bid is more than $5 but does not exceed $10, no more than $0.80
where the bid is more than $10 but does not exceed $20, and no more
than $1 where the bid is $20 or greater, provided that the Exchange may
establish differences other than the above for one or more options
series, as specified in MRX Rule

803(b)(4). These differentials are defined as Valid Width Quotes for
purposes of this rule proposal.
    The PMM appointed to an option class can initiate the rotation
process by sending a rotation request to the Exchange or by authorizing
the Exchange to auto-rotate the class. In addition, there are instances
where the PMM is unable to initiate the rotation process. In such
instances the Exchange may initiate the rotation process by using the
Exchange's ``Delayed Opening Process,'' which provides an alternative
method for opening an option class when the PMM is unable to initiate
the rotation process.\5\ Once the PMM or Exchange initiates the opening
rotation, the Exchange will automatically process displayed quotes and
orders via a process that determines the price at which the maximum
number of contracts can trade within certain established boundary
prices. In order to protect interest from trading at bad prices, quotes
and orders are not executed outside of the established boundary prices.
If there are no quotes or orders that lock or cross each other, the
Exchange will open a series by disseminating the Exchange's best bid
and offer among quotes and orders under certain conditions.
---------------------------------------------------------------------------

    \5\ Certain conditions must be met for the Delayed Opening
Process to be used to initiate the opening process.
---------------------------------------------------------------------------

    The Exchange proposes to replace this process with an opening
process similar to a recently approved Phlx opening process as noted
above.\6\
---------------------------------------------------------------------------

    \6\ See note 3 above. Nasdaq ISE, LLC (``ISE'') and Nasdaq GEMX,
LLC (``GEMX'') have similar opening processes. See ISE and GEMX
Rules 701.
---------------------------------------------------------------------------

Opening Process
    The Exchange will adopt a ``Definitions'' section at proposed MRX
Rule 701(a), similar to Phlx Rule 1017(a), to define several terms that
are used throughout the opening rule. Similar to today, the Exchange
will conduct an electronic opening for all option series traded on the
Exchange using its trading system (hereinafter ``system'').
    The Exchange proposes to define the following terms, which are
described below: ``ABBO,'' ``market for the underlying security,''
``Opening Price,'' ``Opening Process,'' ``Pre-Market BBO,'' ``Potential
Opening Price,'' ``Quality Opening Market,'' ``Valid Width Quote,'' and
``Zero Bid Market.''
    The Exchange proposes to define ``Opening Process'' at proposed
Rule 701(a)(4) by cross-referencing proposed Rule 701(c). The Exchange
proposes to define ``Opening Price'' at proposed Rule 701(a)(3) by
cross-referencing proposed Rule 701(h) and (j). The Exchange proposes
to define ``Potential Opening Price'' at proposed Rule 701(a)(5) by
cross-referencing proposed Rule 701(g). The Exchange proposes to define
``ABBO'' at proposed Rule 701(a)(1) as the Away Best Bid or Offer. The
ABBO does not include MRX's market. The Exchange proposes to define
``market for the underlying security'' at proposed Rule 702(a)(2) as
either the primary listing market or the primary volume market (defined
as the market with the most liquidity in that underlying security for
the previous two calendar months), as determined by the Exchange by
underlying and announced to the membership on the Exchange's Web
site.\7\ The Exchange notes that the term ``Market Makers'' is
currently defined in MRX Rule 100(a)(25) as referring to Primary Market
Makers or ``PMMs'' and Competitive Market Makers or ``CMMs,''
collectively. The next definition is ``Pre-Market BBO'' defined at
proposed Rule 701(a)(6) as the highest bid and the lowest offer among
Valid Width Quotes.\8\ The Pre-Market BBO does not include orders. The
term ``Quality Opening Market'' is defined at proposed Rule 701(a)(7)
as 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 Web site.\9\ This 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 Pilot versus non-Penny Pilot 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. The Exchange utilizes its experience with
products to make this determination. Next, a ``Valid Width Quote'' is
defined at proposed Rule 701(a)(8) as a two-sided electronic quotation
submitted by a Market Maker that consists of a bid/ask differential
that is compliant with Rule 803(b)(4). The term ``Zero Bid Market'' is
defined at proposed Rule 701(a)(9) where the best bid for an options
series is zero. The Exchange believes that these definitions will bring
additional clarity to the proposed rule.
---------------------------------------------------------------------------

    \7\ Today, all are the primary listing market. The Exchange
would consider switching to primary volume market if a different
market begins to trade more volume than the primary listing market
and the primary volume market becomes a more reliable source of
prices with more liquidity.
    \8\ Valid Width Quotes is defined at proposed Rule 701(a)(8).
    \9\ Phlx maintains a table on its Web site with this
information. See http://www.nasdaqtrader.com/content/phlxxl/phlxiisys_overview.pdf. MRX will publish similar details on its Web
site.
---------------------------------------------------------------------------

Eligible Interest
    The first part of the Opening Process determines what constitutes
eligible interest. Eligible interest during the Opening Process
includes Valid Width Quotes, Opening Sweeps and orders. The Exchange
proposes to adopt in proposed paragraph (b) of Rule 701 a provision
that quotes,\10\ other than Valid Width Quotes, will not be included in
the Opening Process. All-or-None Orders that can be satisfied, and the
displayed and non-displayed portions of Reserve Orders are considered
for execution and in determining the Opening Price throughout the
Opening Process.
---------------------------------------------------------------------------

    \10\ The term quotes shall refer to a two-sided quote.
---------------------------------------------------------------------------

    The Exchange notes that only Public Customer interest is routable
during the Opening Process. All other non-Public Customer interest will
not be routed during the Opening Process. Unlike the regular session
where orders route if they cannot execute on MRX, the Opening Process
is a price discovery process which considers interest, both on MRX and
away markets, to determine the optimal bid and offer with which to open
the market. The Opening Process seeks the price point at which the most
number of contracts may be executed while protecting away market
interest. The Exchange only routes Public Customer interest at this
time rather than all interest because this type of interest always
receives priority on MRX and this process ensures that Public Customer
interest will be executed with priority during the Opening Process.
Other interest is not routable until after the Exchange has completed
the Opening Process.
    The Exchange notes that Opening Sweeps may be submitted through the
new Specialized Quote Feed or ``SQF'' protocol which permits one-sided
orders to be entered by a Market Maker. Today, orders are entered by
all participants through FIX and/or DTI on MRX. After the re-platform
the INET architecture, all participants will continue to be able to
submit orders through FIX, however, DTI will no longer be available. An
Opening Sweep is a Market Maker order submitted for execution against
eligible interest in the system during the Opening Process.\11\ It is
similar to an Opening Only Order \12\

that can be entered for the opening rotation only and any portion of
the order that is not executed during the opening rotation is
cancelled. However, it should also be noted that an Opening Sweep may
only be submitted by a Market Maker when he/she has a Valid Width Quote
in the affected series whereas, there is no such restriction on Opening
Only Orders. Since the protocol over which an Opening Sweep is
submitted is used for Market Maker quoting, the acceptance of an
Opening Sweep was structured to rely on the Valid Width Quote. If a
Market Maker does not want to submit or is unable to maintain a Valid
Width Quote, the Market Maker can submit Opening Only Order instead.
---------------------------------------------------------------------------

    \11\ See proposed MRX Rule 715(t).
    \12\ See MRX Rule 715(o).
---------------------------------------------------------------------------

Opening Sweep
    Proposed Rule 701(b)(1) provides that a Market Maker assigned in a
particular option may only submit an Opening Sweep if, at the time of
entry of the Opening Sweep, that Market Maker has already submitted and
maintains a Valid Width Quote. All Opening Sweeps in the affected
series entered by a Market Maker will be cancelled immediately if that
Market Maker fails to maintain a continuous quote with a Valid Width
Quote in the affected series. Opening Sweeps may be entered at any
price with a minimum price variation applicable to the affected series,
on either side of the market, at single or multiple price level(s), and
may be cancelled and re-entered. A single Market Maker may enter
multiple Opening Sweeps, with each Opening Sweep at a different price
level. If a Market Maker submits multiple Opening Sweeps, the system
will consider only the most recent Opening Sweep at each price level
submitted by such Market Maker in determining the Opening Price.
Unexecuted Opening Sweeps will be cancelled once the affected series is
open.\13\
---------------------------------------------------------------------------

    \13\ See proposed MRX Rule 701(b)(1)(ii). See also proposed MRX
Rule 715(t).
---------------------------------------------------------------------------

    Proposed Rule 701(b)(2) states that the system will aggregate the
size of all eligible interest for a particular participant category
\14\ at a particular price level for trade allocation purposes pursuant
to MRX Rule 713. Eligible interest may be submitted into MRX's system
and will be received starting at the times noted herein. Proposed Rule
701(c) provides that Market Maker Valid Width Quotes and Opening Sweeps
received starting at 9:25 a.m. Eastern Time will be included in the
Opening Process.\15\ Orders entered at any time before an option series
opens are included in the Opening Process. This proposed language adds
specificity to the rule regarding the submission of Valid Width Quotes
and Opening Sweeps. The 9:25 a.m. Eastern Time trigger is intended to
tie the option Opening Process to quoting in the majority of the
underlying securities; \16\ it presumes that option quotes submitted
before any indicative quotes have been disseminated for the underlying
security may not be reliable or intentional. Therefore, the Exchange
has chosen a reasonable timeframe at which to begin utilizing option
quotes, based on the Exchange's experience when underlying quotes start
becoming available.\17\
---------------------------------------------------------------------------

    \14\ MRX allocates first to Priority Customers and then to all
other Members by pro-rata. This is different from Phlx which
allocates to Customers first, then to market makers pro-rata and
then to all others pro-rata. See MRX Rule 713 and Phlx Rule
1014(g)(vii).
    \15\ The Opening Process for foreign currency options will also
include Market Maker Valid Width Quotes and Opening Sweeps received
starting at 9:25 a.m. Eastern Time.
    \16\ For purposes of this rule, the underlying security can also
be an index. With respect to foreign currency options, the Exchange
notes that those markets open prior to 9:30 a.m. Eastern Time. The
Exchange proposes to open the foreign currency options at the same
time as other options on the Exchange merely to conform the
timeframe for the open. Today, on Phlx, foreign currency options
trade similar to other options. With this proposal all products
would trade during the same session.
    \17\ Id.
---------------------------------------------------------------------------

    Proposed Rule 701(c)(1) describes when the Opening Process can
begin with specific time-related triggers. The proposed rule provides
that the Opening Process for an option series will be conducted
pursuant to proposed Rule 701(f) though (j) on or after 9:30 a.m.
Eastern Time if: The ABBO, if any is not crossed and the system has
received, within two minutes (or such shorter time as determined by the
Exchange and disseminated to membership on the Exchange's Web site) of
the opening trade or quote on the market for the underlying security in
the case of equity options or, in the case of index options, within two
minutes of the receipt of the opening price in the underlying index (or
such shorter time as determined by the Exchange and disseminated to
membership on the Exchange's Web site), or within two minutes of market
opening for the underlying security in the case of U.S. dollar-settled
foreign currency options (or such shorter time as determined by the
Exchange and disseminated to membership on the Exchange's Web site)
\18\ any of the following: (i) The PMM's Valid Width Quote; (ii) the
Valid Width Quotes of at least two CMMs; or (iii) if neither the PMM's
Valid Width Quote nor the Valid Width Quotes of two CMMs have been
submitted within such timeframe, one CMM has submitted a Valid Width
Quote.\19\ These three requirements are intended to tie the option
Opening Process to receipt of liquidity. If one of the above three
conditions are not met, the Exchange will not initiate the Opening
Process or continue an ongoing Opening Process if we do not have one of
the three conditions (i, ii or iii); thus, a Forced Opening pursuant to
proposed Rule 701(j)(5) could not occur.
---------------------------------------------------------------------------

    \18\ The Exchange anticipates initially setting the timeframe
during which a PMM Valid Width quote or the presence of at least two
CMM Valid Width Quotes will initiate the Opening Process at 30
seconds. The timeframe is consistent with the current timeframe
utilized on Phlx. The Exchange believes 30 seconds is the
appropriate amount of time as it provides time for the PMM and CMMs
to assess the underlying security or index price and submit Valid
Width Quotes as well as ample time for the underlying security or
index price to stabilize. After this 30 second period, the Exchange
will initiate the Opening Process provided one CMM has submitted a
Valid Width Quote since the market for the underlying security or
index has had opportunity to stability. The Exchange may reduce this
timeframe if it is determined that the Opening Process is taking
longer to initiate than the marketplace expects. The Exchange will
provide notice of the initial setting to Members. The Exchange will
provide notice of the shorter time period to Members if the Exchange
determines to reduce the timeframe.
    \19\ See proposed Rule 701(c)(1)(i)-(iii).
---------------------------------------------------------------------------

    The Exchange is proposing to state in proposed Rule 701(c)(2) that
for all options, the underlying security, including indexes, must be
open on the primary market for a certain time period to be determined
by the Exchange for the Opening Process to commence. The Exchange is
proposing that the time period be no less than 100 milliseconds and no
more than 5 seconds.\20\ This proposal is intended to permit the price
of the underlying security to settle down and not flicker back and
forth among prices after its opening. It is common for a stock to
fluctuate in price immediately upon opening; such volatility reflects a
natural uncertainty about the ultimate Opening Price, while the buy and
sell interest is matched. The Exchange is proposing a range of no less
than 100 milliseconds and no more than 5 seconds in order to ensure
that it has the ability to adjust the period for which the underlying
security must be open on the primary market. The Exchange may

determine that in periods of high/low volatility that allowing the
underlying to be open for a longer/shorter period of time may help to
ensure more stability in the marketplace prior to initiating the
Opening Process.
---------------------------------------------------------------------------

    \20\ The Phlx Opening Process is set at 100 milliseconds. The
Exchange believes that 100 milliseconds is the appropriate amount of
time given the experience with the Phlx market. The Exchange would
set the timer for MRX initially at 100 milliseconds. The Exchange
will issue a notice to provide the initial setting and would
thereafter issue a notice if it were to change the timing, which may
be between 100 milliseconds and 5 seconds. If the Exchange were to
select a time not between 100 milliseconds and 5 seconds it would be
required to file a rule proposal with the Commission.
---------------------------------------------------------------------------

    Proposed Rule 701(c)(3) states that the PMM assigned in a
particular equity or index option must enter a Valid Width Quote, in
90% of their assigned series, not later than one minute following the
dissemination of a quote or trade by the market for the underlying
security or, in the case of index options, following the receipt of the
opening price in the underlying index. The PMM assigned in a particular
U.S. dollar-settled foreign currency option must enter a Valid Width
Quote, in 90% of their assigned series, not later than one minute after
the announced market opening. PMMs are required to promptly enter a
Valid Width Quote in the remainder of their assigned series, which were
not open within one minute following the dissemination of a quote or
trade by the market for the underlying security or, in the case of
index options, following the receipt of the opening price. Furthermore,
a CMM that submits a quote pursuant to proposed Rule 701 in any option
series when the PMM's quote has not been submitted shall be required to
submit continuous, two-sided quotes \21\ in such option series until
such time as the PMM submits his/her quote, after which the Market
Maker that submitted such quote shall be obligated to submit quotations
pursuant to Rule 804(e). The Opening Process will stop and an option
series will not open if the ABBO becomes crossed or a Valid Width
Quote(s) pursuant to proposed Rule 701(c)(1) is no longer present. Once
each of these conditions no longer exists, the Opening Process in the
affected option series will start again pursuant to proposed Rule
701(e)-(j) as proposed in Rule 701(c)(5). All eligible opening interest
will continue to be considered during the Opening Process when the
process is re-started. The proposed rule reflects that the ABBO cannot
be crossed because it is indicative of uncertainty in the marketplace
of where the option series should be valued. In this case, the Exchange
will wait for the ABBO to become uncrossed before initiating the
Opening Process to ensure that there is stability in the marketplace in
order to assist the Exchange in determining the Opening Price.
---------------------------------------------------------------------------

    \21\ The Exchange has regulatory surveillances in place with
respect to Market Maker continuous quoting obligations both at the
opening and during the other trading sessions. See MRX Rule 804
regarding quoting obligations.
---------------------------------------------------------------------------

    The Exchange is requiring a PMM to enter a Valid Width Quote in 90%
of his or her assigned series not later than one minute following the
dissemination of a quote or trade by the market for the underlying
security or, in the case of index options, following the receipt of the
opening price in the underlying index. The PMM would be required to
enter a Valid Width Quote the remaining assigned series promptly.
Specifically, the PMMs must promptly enter a Valid Width Quote in the
remainder of their assigned series, which did not open within one
minute following the dissemination of a quote or trade by the market
for the underlying security or, in the case of index options, following
the receipt of the opening price or, with respect to U.S. dollar-
settled foreign currency options, following the announced market
opening. The Exchange notes that with the proposed rule change, the
Opening Process will be conducted with receipt, within the specified
timeframe, of either the PMM's Valid Width Quote, the Valid Width
Quotes of two CMMs or if neither the PMM or two CMM's have submitted
Valid Width Quotes within the specified time frame then one CMM Valid
Width Quote.\22\
---------------------------------------------------------------------------

    \22\ See proposed Rule 701(c)(1)(i)-(iii).
---------------------------------------------------------------------------

Reopening After a Trading Halt
    This section is intended to provide information regarding the
manner in which a trading halt would impact the Opening Process.
Proposed Rule 701(d) states that the procedure described in this Rule
may be used to reopen an option after a trading halt. The Exchange is
adding that if there is a trading halt or pause in the underlying
security, the Opening Process will start again irrespective of the
specific times listed in proposed Rule 701(c)(1). This is because these
times relate to the normal market opening in the morning.
Opening With a BBO
    This next section describes when the Exchange may open with a quote
on its market. Proposed Rule 701(e), ``Opening with a BBO (No Trade),''
provides that if there are no opening quotes or orders that lock or
cross each other and no routable orders locking or crossing the ABBO,
the system will open with an opening quote by disseminating the
Exchange's best bid and offer among quotes and orders (``BBO'') that
exist in the system at that time, unless all three of the following
conditions exist: (i) A Zero Bid Market; (ii) no ABBO; and (iii) no
Quality Opening Market. A Quality Opening Market is determined by
reviewing all Valid Width Quotes and determining if the difference of
the best bid of those Valid Width Quotes and the best offer of those
Valid Width Quotes are of no more than a certain width.\23\ The
Exchange utilizes the quotes to assist in determining a fair and
reasonable Opening Price. Quotes are utilized because Members are
obligated to provide both a bid and sell price, providing a reasonable
baseline of where the marketplace views fair value.
---------------------------------------------------------------------------

    \23\ Phlx maintains a table on its Web site with this
information. See http://www.nasdaqtrader.com/content/phlxxl/phlxiisys_overview.pdf. MRX will publish similar details on its Web
site.
---------------------------------------------------------------------------

    If all three of these conditions exist, the Exchange will calculate
an Opening Quote Range pursuant to paragraph (i) and conduct the Price
Discovery Mechanism or ``PDM'' pursuant to paragraph (j). The Exchange
believes that when all three of these conditions exist, further price
discovery is warranted to validate or perhaps update the Potential
Opening Price and to attract additional interest to perhaps render an
opening trade possible, because: (i) A Zero Bid Market reflects a lack
of buying interest that could benefit from price discovery; (ii) the
lack of an ABBO means there is no external check on the Exchange's
market for that options series; and (iii) the lack of a Quality Opening
Market indicates that the Exchange's market is wide. If no quotes or
orders lock/cross each other, nothing matches and there can be no
trade. The Exchange believes that when these conditions exist, it is
difficult to arrive at a reasonable and expected price. If the
provisions in proposed Rule 701(e)(i) through (iii) exist, an Opening
Quote Range is calculated pursuant to proposed Rule 701(i) and
thereafter, the PDM in proposed Rule 701(j) will initiate.\24\
---------------------------------------------------------------------------

    \24\ OQR and PDM processes may also initiate pursuant to
proposed Rule 701(h).
---------------------------------------------------------------------------

Further Opening Processes
    If an opening did not occur pursuant to proposed Rule 701(e) and
there are opening Valid Width Quotes, or orders, that lock or cross
each other, the system will calculate the Pre-Market BBO.\25\ The
Exchange notes that the Pre-Market BBO only uses quotes, which provide
both a bid and offer as compared to orders which are one sided.
---------------------------------------------------------------------------

    \25\ See proposed Rule 701(f).
---------------------------------------------------------------------------

    Proposed Rule 701(g) describes the general concept of how the
system calculates the Potential Opening Price under all circumstances
once the Opening Process is triggered. Specifically, the system will
take into consideration all Valid Width Quotes and orders (including
Opening Sweeps and displayed and non-displayed

portions of Reserve Orders), except All-or-None Orders that cannot be
satisfied, for the option series and identify the price at which the
maximum number of contracts can trade (``maximum quantity criterion'').
Proposed Rule 701(h)(3)(i) and proposed Rule 701(i) at paragraphs (5)
through (7) contain additional provisions related to Potential Opening
Price which are discussed in further detail herein. The proposal
attempts to maximize the number of contracts that can trade, and is
intended to find the most reasonable and suitable price, relying on the
maximization to reflect the best price.
    Proposed Rule 701(g)(1) presents the scenario for more than one
Potential Opening Price. 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.
    If two or more Potential Opening Prices for the affected series
would satisfy the maximum quantity criterion and leave contracts
unexecuted, the Opening Price will be either the lowest executable bid
or highest executable offer of the largest sized side.\26\ This, again,
bases the Potential Opening Price on the maximum quantity that is
executable. The Potential Opening Price calculation is bounded by the
better away market price that cannot be satisfied with the Exchange
routable interest.\27\ The Exchange does not open with a trade that
trades through another market. This process, importantly, breaks a tie
by considering the largest sized side and away markets, which are
relevant to determining a fair Opening Price.
---------------------------------------------------------------------------

    \26\ See proposed Rule 701(g)(2).
    \27\ See proposed Rule 701(g)(3).
---------------------------------------------------------------------------

    The system applies certain boundaries to the Potential Opening
Price to help ensure that the price is a reasonable one by identifying
the quality of that price; if a well-defined, fair price can be found
within these boundaries, the option series can open at that price
without going through a further PDM. Proposed Rule 701(h), ``Opening
with Trade,'' provides the Exchange will open the option series for
trading with a trade of Exchange interest only at the Opening Price, if
certain conditions described below take place. The first condition is
provided in proposed Rule 701(h)(1), the Potential Opening Price is at
or within the best of the Pre-Market BBO and the ABBO. The second
condition is provided for in Rule 701(h)(2), the Potential Opening
Price is at or within the non-zero bid ABBO if the Pre-Market BBO is
crossed. The third provision is provided for in proposed Rule
701(h)(3), where there is no ABBO, the Potential Opening Price is at or
within the Pre-Market BBO which is also a Quality Opening Market. For
the purposes of calculating the midpoint the Exchange will use the
better of the Pre-Market BBO or ABBO as a boundary price.
    These boundaries serve to validate the quality of the Opening
Price. Proposed Rule 701(h) provides that the Exchange will open the
option series for trading with an execution at the resulting Potential
Opening Price, as long as it is within the defined boundaries
regardless of any imbalance. The Exchange believes that since the
Opening Price can be determined within a well-defined boundary and not
trading through other markets, it is fair to open the market
immediately with a trade and to have the remaining interest available
to be executed in the displayed market. Using a boundary-based price
counterbalances opening faster at a less bounded and perhaps less
expected price and reduces the possibility of leaving an imbalance.
    Proposed Rule 701(h)(3)(i) provides that if there is more than one
Potential Opening Price which meets the conditions set forth in
proposed Rule 701(h)(1), (2) or (3), where (A) no contracts would be
left unexecuted and (B) any value used for the mid-point calculation
(which is described in proposed Rule 701(g)) would cross either: (I)
The Pre-Market BBO or (II) the ABBO, then the Exchange will open the
option series for trading with an execution and use the best price
which the Potential Opening Price crosses as a boundary price for the
purpose of the mid-point calculation. If these aforementioned
conditions are not met, an Opening Quote Range is calculated as
described in proposed Rule 701(i) and the PDM, described in proposed
Rule 701(j), would commence. The proposed rule explains the boundary as
well as the price basis for the mid-point calculation for immediate
opening with a trade, which improves the detail included in the rule.
The Exchange believes that this process is logical because it seeks to
select a fair and balanced price.
    Proposed Rule 701(i) provides that the system will calculate an
Opening Quote Range (``OQR'') for a particular option series that will
be utilized in the PDM if the Exchange has not opened subject to any of
the provisions described above. Provided the Exchange has been unable
to open the option series under Rule 701(e) or (h), the OQR would
broaden the range of prices at which the Exchange may open. This would
allow additional interest to be eligible for consideration in the
Opening Process. The OQR is an additional type of boundary beyond the
boundaries mentioned in proposed Rule 701(g) and (h). OQR is intended
to limit the Opening Price to a reasonable, middle ground price and
thus reduce the potential for erroneous trades during the Opening
Process. Although the Exchange applies other boundaries such as the
BBO, the OQR provides a range of prices that may be able to satisfy
additional contracts while still ensuring a reasonable Opening Price.
The Exchange seeks to execute as much volume as is possible at the
Opening Price.
    Specifically, to determine the minimum value for the OQR, an
amount, as defined in a table to be determined by the Exchange,\28\
will be subtracted from the highest quote bid among Valid Width Quotes
on the Exchange and on the away market(s), if any, except as provided
in proposed Rule 701(i) paragraphs (3) and (4). To determine the
maximum value for the OQR, an amount, as defined in a table to be
determined by the Exchange, will be added to the lowest quote offer
among Valid Width Quotes on the Exchange and on the away market(s), if
any, except as provided in proposed Rule 701(i) paragraphs (3) and
(4).\29\ However, if one or more away markets are collectively
disseminating a BBO that is not crossed, and there are Valid Width
Quotes on the Exchange that are executable against each other or that
cross the away market ABBO, then the minimum value for the OQR will be
the highest away bid.\30\ It should be noted that the Opening Process
would stop and an option series will not open if the ABBO becomes
crossed pursuant to proposed Rule 701(c)(5). In addition, the maximum
value for the OQR will be the lowest away offer.\31\ And if, however,
there are Valid Width Quotes on the Exchange that are executable
against each other, and there is no away market disseminating a BBO in
the affected

option series, the minimum value for the OQR will be the lowest quote
bid among Valid Width Quotes on the Exchange, and the maximum value for
the OQR will be the highest quote offer among Valid Width Quotes on the
Exchange.\32\
---------------------------------------------------------------------------

    \28\ See note 26 above.
    \29\ See proposed Rule 701(i)(2).
    \30\ See proposed Rule 701(i)(3)(i).
    \31\ See proposed Rule 701(i)(3)(ii).
    \32\ See proposed Rule 701(i)(4)(i) and (ii).
---------------------------------------------------------------------------

    If there is more than one Potential Opening Price possible where no
contracts would be left unexecuted, any price used for the mid-point
calculation (which is described in proposed Rule 701(g)(1)) that is
outside of the OQR will be restricted to the OQR price on that side of
the market for the purposes of the mid-point calculation. Rule
701(i)(5) continues the theme of relying on both maximizing executions
and looking at the correct side of the market to determine a fair
price.
    Proposed Rule 701(i)(6) deals with the situation where there is an
away market price involved. If there is more than one Potential Opening
Price possible where no contracts would be left unexecuted, pursuant to
proposed Rule 701(g)(3), when contracts will be routed, the system will
use the away market price as the Potential Opening Price. The Exchange
is seeking to execute the maximum amount of volume possible at the
Opening Price. The Exchange will enter into the Order Book any unfilled
interest at a price equal to or inferior to the Opening Price. It
should be noted, the Exchange will not trade through an away market.
    Finally, proposed Rule 701(i)(7) provides if the Exchange
determines that non-routable interest can execute the maximum number of
Exchange contracts against Exchange interest, after routable interest
has been determined by the system to satisfy the away market, then the
Potential Opening Price is the price at which the maximum number of
contracts can execute, excluding the interest which will be routed to
an away market, which may be executed on the Exchange as described in
proposed Rule 701(g). The system will route Public Customer interest in
price/time priority to satisfy the away market. This continues the
theme of trying to satisfy the maximum amount of interest during the
Opening Process.
Price Discovery Mechanism
    If the Exchange has not opened pursuant to proposed Rule 701(e) or
(h), and after the OQR is calculated pursuant to proposed Rule 701(i),
the Exchange will conduct a PDM pursuant to proposed Rule 701(j). The
PDM is the process by which the Exchange seeks to identify an Opening
Price having not been able to do so following the process outlined thus
far herein. The principles behind the PDM are, as described above, to
satisfy the maximum number of contracts possible by identifying a price
that may leave unexecuted contracts. However, the PDM applies a
proposed, wider boundary to identify the Opening Price and the PDM
involves seeking additional liquidity.
    The Exchange believes that conducting the price discovery process
in these situations protects opening orders from receiving a random
price that does not reflect the totality of what is happening in the
markets on the opening and also further protects opening interest from
receiving a potentially erroneous execution price on the opening.
Opening immediately has the benefit of speed and certainty, but that
benefit must be weighed against the quality of the execution price and
whether orders were left unexecuted. The Exchange believes that the
proposed rule strikes an appropriate balance.
    The proposed rule attempts to open using Exchange interest only to
determine an Opening Price, provided certain conditions contained in
proposed Rule 701(i) are present to ensure market participants receive
a quality execution in the opening. The proposed rule does not consider
away market liquidity for purposes of routing interest to other markets
until the PDM, rather the away market prices are considered for
purposes of avoiding trade-throughs. As a result, the Exchange might
open without routing if all of the conditions described above are met.
The Exchange believes that the benefit of this process is a more rapid
opening with quality execution prices.
    Specifically, proposed Rule 701(j)(1) provides that the system will
broadcast an Imbalance Message for the affected series (which includes
the symbol, side of the imbalance (unmatched contracts), size of
matched contracts, size of the imbalance, and Potential Opening Price
bounded by the Pre-Market BBO) to participants, and begin an
``Imbalance Timer,'' not to exceed three seconds. The Imbalance Timer
would initially be set 200 milliseconds.\33\ The Imbalance Message is
intended to attract additional liquidity, much like an auction, using
an auction message and timer.\34\ The Imbalance Timer would be for the
same number of seconds for all options traded on the Exchange. Pursuant
to this proposed rule, as described in more detail below, the Exchange
may have up to 4 Imbalance Messages which each run its own Imbalance
Timer.
---------------------------------------------------------------------------

    \33\ The Phlx timer is set at 200 milliseconds. The Exchange
will issue a notice to provide the initial setting and would
thereafter issue a notice if it were to change the timing. If the
Exchange were to select a time which exceeds 3 seconds it would be
required file a rule proposal with the Commission.
    \34\ For example, see COOP and COLA descriptions in Phlx Rule
1098.
---------------------------------------------------------------------------

    Proposed Rule 701(j)(2), states that any new interest received by
the system will update the Potential Opening Price. If during or at the
end of the Imbalance Timer, the Opening Price is at or within the OQR
the Imbalance Timer will end and the system will open with a trade at
the Opening Price if the executions consist of Exchange interest only
without trading through the ABBO and without trading through the limit
price(s) of interest within OQR which is unable to be fully executed at
the Opening Price. If no new interest comes in during the Imbalance
Timer and the Potential Opening Price is at or within OQR and does not
trade through the ABBO, the Exchange will open with a trade at the end
of the Imbalance Timer at the Potential Opening Price. This reflects
that the Exchange is seeking to identify a price on the Exchange
without routing away, yet which price may not trade through another
market and the quality of which is addressed by applying the OQR
boundary.
    Provided the option series has not opened pursuant to proposed Rule
701(j)(2),\35\ pursuant to proposed Rule 701(j)(3) the system will send
a second Imbalance Message with a Potential Opening Price that is
bounded by the OQR (and would not trade through the limit price(s) of
interest within OQR which is unable to be fully executed at the Opening
Price) and includes away market volume in the size of the imbalance to
participants; and concurrently initiate a Route Timer, not to exceed
one second.\36\ The Route Timer is intended to give Exchange users an
opportunity to respond to an Imbalance Message before any opening
interest is routed to away markets and, thereby, maximize trading on
the Exchange. If during the Route Timer, interest is received by the
system which

would allow the Opening Price to be within OQR without trading through
away markets and without trading through the limit price(s) of interest
within OQR which is unable to be fully executed at the Opening Price,
the system will open with a trade at the Opening Price and the Route
Timer will simultaneously end. The system will monitor quotes received
during the Route Timer period and make ongoing corresponding changes to
the permitted OQR and Potential Opening Price to reflect them.\37\ This
proposal serves to widen the boundary of available Opening Prices,
which should similarly increase the likelihood that an Opening Price
can be determined. The Route Timer, like the Imbalance Timer, is
intended to permit responses to be submitted and considered by the
system in calculating the Potential Opening Price. The system does not
route away until the Route Timer ends.
---------------------------------------------------------------------------

    \35\ The Exchange notes that the system would not open pursuant
to proposed Rule 701(j)(2) if the Potential Opening Price is outside
of the OQR or if the Potential Opening Price is at or within the
OQR, but would otherwise trade through the ABBO or through the limit
price(s) of interest within the OQR which is unable to be fully
executed at the Potential Opening Price.
    \36\ The Route Timer would be a brief timer that operates as a
pause before an order is routed to an away market. Currently, the
Phlx Route Timer is set to one second. The MRX Route Timer will also
be initially set to one second. The Exchange will issue a notice to
Members to provide the initial setting and would thereafter issue a
notice to Members if it were to change the timing within the range
of up to one second. If the Exchange were to select a time beyond
one second it would be required file a rule proposal with the
Commission.
    \37\ See proposed Rule 701(j)(3)(ii).
---------------------------------------------------------------------------

    Proposed Rule 701(j)(3)(iii) provides, if no trade occurred
pursuant to proposed Rule 701(j)(3)(ii), when the Route Timer expires,
if the Potential Opening Price is within OQR (and would not trade
through the limit price(s) of interest within OQR that is unable to be
fully executed at the Opening Price), the system will determine if the
total number of contracts displayed at better prices than the
Exchange's Potential Opening Price on away markets (``better priced
away contracts'') would satisfy the number of marketable contracts
available on the Exchange. This provision protects the unexecuted
interest and should result in a fairer price. The Exchange will open
the option series by routing and/or trading on the Exchange, pursuant
to proposed Rule 701(j)(3)(iii) paragraphs (A) through (C).
    Proposed Rule 701(j)(3)(iii)(A) provides if the total number of
better priced away contracts would satisfy the number of marketable
contracts available on the Exchange on either the buy or sell side, the
system will route all marketable contracts on the Exchange to such
better priced away markets as Intermarket Sweep Order (``ISO'')
designated as Immediate-or-Cancel (``IOC'') order(s), and determine an
opening Best Bid or Offer (``BBO'') that reflects the interest
remaining on the Exchange. The system will price any contracts routed
to away markets at the Exchange's Opening Price or pursuant to proposed
Rule 701(j)(3)(iii)(B) or (C) described hereinafter. Routing away at
the Exchange's Opening Price is intended to achieve the best possible
price available at the time the order is received by the away market.
    Proposed Rule 701(j)(3)(iii)(B) provides if the total number of
better priced away contracts would not satisfy the number of marketable
contracts the Exchange has, the system will determine how many
contracts it has available at the Exchange Opening Price. If the total
number of better priced away contracts plus the number of contracts
available at the Exchange Opening Price would satisfy the number of
marketable contracts on the Exchange on either the buy or sell side,
the system will contemporaneously route, based on price/time priority
of routable interest, a number of contracts that will satisfy interest
at away markets at prices better than the Exchange Opening Price, and
trade available contracts on the Exchange at the Exchange Opening
Price. The system will price any contracts routed to away markets at
the better of the Exchange Opening Price or the order's limit price
pursuant to Rule 701(j)(vi)(C)(3)(ii). This continues with the theme of
maximum possible execution of the interest on the Exchange or away
markets.
    Proposed Rule 701(j)(3)(iii)(C) provides if the total number of
better priced away contracts plus the number of contracts available at
the Exchange Opening Price plus the contracts available at away markets
at the Exchange Opening Price would satisfy the number of marketable
contracts the Exchange has on either the buy or sell side, the system
will contemporaneously route, based on price/time priority of routable
interest, a number of contracts that will satisfy interest at away
markets at prices better than the Exchange Opening Price (pricing any
contracts routed to away markets at the better of the Exchange Opening
Price or the order's limit price), trade available contracts on the
Exchange at the Exchange Opening Price, and route a number of contracts
that will satisfy interest at other markets at prices equal to the
Exchange Opening Price. This provision is intended to introduce routing
to away markets potentially both at a better price than the Exchange
Opening Price as well as at the Exchange Opening Price to access as
much liquidity as possible to maximize the number of contracts able to
be traded as part of the Opening Process. The Exchange routes at the
better of the Exchange's Opening Price or the order's limit price to
first ensure the order's limit price is not violated. Routing away at
the Exchange's Opening Price is intended to achieve the best possible
price available at the time the order is received by the away market.
    Proposed Rule 701(j)(4) provides that the system may send up to two
additional Imbalance Messages \38\ (which may occur while the Route
Timer is operating) bounded by OQR and reflecting away market interest
in the volume. These boundaries are intended to assist in determining a
reasonable price at which an option series might open.
---------------------------------------------------------------------------

    \38\ The first two Imbalance Messages always occur if there is
interest which will route to an away market. If the Exchange is
thereafter unable to open at a price without trading through the
ABBO, up to two more Imbalance Messages may occur based on whether
or not the Exchange has been able to open before repeating the
Imbalance Process. The Exchange may open prior to the end of the
first two Imbalance Messages provided routing is not necessary.
---------------------------------------------------------------------------

    This provision is proposed to further state that after the Route
Timer has expired, the processes in proposed Rule 701(j)(3) will repeat
(except no new Route Timer will be initiated). No new Route Timer is
initiated because the Exchange believes that after the Route Timer has
been initiated and subsequently expired, no further delay is needed
before routing contracts if at any point thereafter the Exchange is
able to satisfy the total number of marketable contracts the Exchange
has by executing on the Exchange and routing to other markets.
    Proposed Rule 701(j)(5), entitled ``Forced Opening,'' will describe
what happens as a last resort in order to open an options series when
the processes described above have not resulted in an opening of the
options series. Under this process, called a Forced Opening, after all
additional Imbalance Messages have occurred pursuant to proposed Rule
701(j)(4), the system will open the series executing as many contracts
as possible by routing to away markets at prices better than the
Exchange Opening Price for their disseminated size, trading available
contracts on the Exchange at the Exchange Opening Price bounded by OQR
(without trading through the limit price(s) of interest within OQR
which is unable to be fully executed at the Opening Price). The system
will also route contracts to away markets at prices equal to the
Exchange Opening Price at their disseminated size. In this situation,
the system will price any contracts routed to away markets at the
better of the Exchange Opening Price or the order's limit price. Any
unexecuted contracts from the imbalance not traded or routed will be
cancelled back to the entering participant if they remain unexecuted
and priced through the Opening Price, otherwise orders will remain in
the Order Book.

    The boundaries of OQR and limit prices within the OQR are intended
to ensure a quality Opening Price as well as protect the unexecutable
interest entered with a limit price which may not be able to be fully
executed. There is some language in the Phlx rule that is not
applicable to the MRX opening because MRX does not have automatic re-
pricing of orders resting in the Rulebook. Phlx's rule permits members
to provide instructions to re-enter the remaining size of an unexecuted
order for automatic submission as a new order, the MRX rule will not
permit this submission.
    Proposed Rule 701(j)(6) provides the system will execute orders at
the Opening Price that have contingencies (such as without limitation,
All-or-None and Reserve Orders) and non-routable orders such as ``Do-
Not-Route'' or ``DNR'' Orders,\39\ to the extent possible. The system
will only route non-contingency Public Customer orders, except that the
full volume of Public Customer Reserve Orders may route. The Exchange
is adding this detail to memorialize the manner in which the system
will execute orders at the opening. The Exchange desires to provide
certainty to market participants as to which contingency orders will
execute and which orders will route during the Opening Process.
---------------------------------------------------------------------------

    \39\ 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 Chapter 19
(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 Rule 715(m).
---------------------------------------------------------------------------

    Proposed Rule (j)(6)(i) provides 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 that is priced through the Opening Price. All other
interest will remain in the system and be eligible for trading after
opening. The Exchange cancels these orders since it lacks enough
liquidity to satisfy these orders on the opening yet their limit price
gives the appearance that they should have been executed. The Exchange
believes that participants would prefer to have these orders returned
to them for further assessment rather than have these orders
immediately entered onto the order book at a price which is more
aggressive than the price at which the Exchange opened.
    Proposed Rule 701(k) provides during the opening of the option
series, where there is an execution possible, the system will give
priority to Market Orders \40\ first, then to resting Limit Orders \41\
and quotes. The allocation provisions of MRX Rule 713 and the
Supplementary Material to that rule apply with respect to other orders
and quotes with the same price. The Exchange is providing certainty to
market participants as to the priority scheme during the Opening
Process. Market Orders will be immediately executed first because these
orders have no specified price and Limit Orders will be executed
thereafter in accordance with the prices specified.
---------------------------------------------------------------------------

    \40\ A Market Orders is defined as 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 MRX
Rule 715(a).
    \41\ A Limit Order is an order to buy or sell a stated number of
options contracts at a specified price or better. See MRX Rule
715(b).
---------------------------------------------------------------------------

    Finally, proposed Rule 701(l) provides upon opening of the option
series, regardless of an execution, the system disseminates the price
and size of the Exchange's best bid and offer (BBO).\42\ This provision
simply makes known the manner in which the Exchange establishes the BBO
for purposes of reference upon opening.
---------------------------------------------------------------------------

    \42\ See proposed Rule 701(j)(F).
---------------------------------------------------------------------------

    There are some differences between the Phlx and MRX rules. MRX has
a Reserve Order and Phlx does not have this order type. With Reserve
Orders, the displayed and non-displayed portions of Reserve Orders are
considered for execution and in determining the Opening Price
throughout the Opening Process. Today, MRX permits orders to route
during regular trading, however, the Exchange does not perform away
market routing during the opening rotation. With this proposal, routing
is considered during the Opening Process.
    With respect to the Opening Sweep, the Exchange proposes to adopt
an order type at new Rule 715(t) entitled ``Opening Sweep.'' This order
type is proposed to be a Market Maker order submitted for execution
against eligible interest in the system during the Opening Process
pursuant to Rule 701(b)(i). The Exchange believes that describing this
order type within Rule 715 will provide clarity to the introduction of
Opening Sweeps.
Opening Process Examples
    The following examples are intended to demonstrate the Opening
Process.
    Example 1. Proposed Rule 701(e) Opening with an Exchange BBO (No
Trade). Suppose the PMM in an option enters a quote, 2.00 (100) bid and
2.10 (100) offer and a buy order to pay 2.05 for 10 contracts is
present in the system. The System also observes an ABBO is present with
CBOE quoting a spread of 2.05 (100) and 2.15 (100). Given the Exchange
has no interest which locks or crosses each other and does not cross
the ABBO, the option opens for trading with an Exchange BBO of 2.05
(10) x 2.10 (100) and no trade. Since there is an ABBO and no Zero Bid
Market, the System does not conduct the PDM and the option opens
without delay.
    Example 2a. Proposed Rule 701(h) Opening with Trade. Suppose the
PMM enters the same quote in an option, 2.00 (100) bid and 2.10 (100)
offer. This quote defines the pre-market BBO. CBOE disseminates a quote
of 2.01 (100) by 2.09 (100), making up the ABBO. Firm A enters a buy
order at 2.04 for 50 contracts. Firm B enters a sell order at 2.04 for
50 contracts. The Exchange opens with the Firm A and Firm B orders
fully trading at an Opening Price of 2.04 which satisfies the condition
defined in proposed Rule 701(h)(i), the Potential Opening Price is at
or within the best of the Pre-Market BBO and the ABBO.
    Example 2b. Proposed Rule 701(h) Opening with Trade. Similarly,
suppose the PMM enters the same quote in an option, 2.00 (100) bid and
2.10 (100) offer. A Market Maker enters a quote of 2.00 (100) x 2.12
(100). The pre-market BBO is therefore 2.00 bid and 2.10 offer. CBOE
disseminates a quote of 2.05 (100) by 2.15 (100), making up the ABBO.
Firm A enters a buy order at 2.11 for 300 contracts. Firm B enters a
sell order at 2.11 for 100 contracts. The option does not open for
trading because the Potential Opening Price of 2.11 does not satisfy
the condition defined in proposed Rule 701(h)(i), as the Potential
Opening Price is outside the Pre-Market BBO. The System thereafter
calculates the OQR and initiates the PDM, as discussed in proposed Rule
701(j), to facilitate the Opening Process for the option.
    Example 3. Proposed Rule 701(j)(2) Price Discovery Mechanism and
first iteration. Assume the set up described in Example 2b and an
allowable OQR of 0.04. When the PDM is initiated, the System broadcasts
an Imbalance Message. At the end of the Imbalance Timer, the option
opens with an Opening Price of 2.11 because it is within OQR and the
ABBO. The maximum value for OQR is the lowest quote offer of 2.10 plus
0.04.
    Example 4. Proposed Rule 701(j)(3) Price Discovery Mechanism and
second iteration with routing. Suppose the PMM enters a quote, 2.00
(100) bid and 2.10 (100) offer and the defined allowable OQR is 0.04.
If CBOE disseminates a quote of 2.00 (100) by

2.09 (100), the away offer is better than the PMM quote. Customer A
enters a routable buy order at 2.10 for 150 contracts. The PDM
initiates because the Potential Opening Price (2.10) is equal to the
Pre-Market BBO but outside of the ABBO. The Potential Opening Price is
2.10 because there is both buy and sell interest at that price point.
The System is unable to open after the first iteration of Imbalance
since the Potential Opening Price is within the OQR but outside of the
ABBO. The System proceeds with the PDM and initiates a Route Timer and
broadcasts a second Imbalance Message (assume no additional interest is
received during the imbalance period). The System opens the option for
trading after the Route Timer has expired and the Imbalance Timer has
completed since the Potential Opening Price is within OQR. The System
routes 100 contracts of the Customer order to the better priced away
offer at CBOE. The Exchange would route to CBOE at an Opening Price of
2.10 to execute against the interest at 2.09 on CBOE. The 50 options
contracts open and execute on the Exchange with an Opening Price of
2.10. The Exchange routes to CBOE using the Exchange's Opening Price to
ensure, if there is market movement, that the routed order is able to
access any price point equal to or better than the Exchange's Opening
Price.
    Example 5. Proposed Rule 701(j)(5) Forced Opening. Suppose the PMM
enters a quote, 2.00 (100) bid and 2.10 (100) offer and the defined
allowable OQR is 0.04. A Market Maker enters a quote for 2.05 (100) x
2.14 (100). Firm A enters a buy order of 250 contracts for 2.15 which
is more aggressive than the expected OQR of 2.14. The PDM initiates
because the Potential Opening Price of 2.15 is outside the Pre-Market
BBO (2.05 x 2.10). Assume no additional interest is received during the
PDM. After the final Imbalance Timer, the System opens the option for
trading with an execution of 200 contracts at an Opening Price of 2.14,
which is the boundary of OQR. The residual 50 contracts from Firm A are
cancelled back to the participant because the limit order price of 2.15
is priced through the Opening Price of 2.14.
After-hours Trading Rotations
    The Exchange notes that no after-hours trading rotation will be
offered with the proposed Opening Process. The current MRX rule
describes a manual process related to after-hours trading rotations
that does not exist in the automated Opening Process described in the
proposed rule. Today, MRX Rule 701(c)(2)-(4) permits the Exchange to
employ a manual trading rotation if the conditions specified in MRX
Rule 701(c)(1) permit such a trading rotation and notice was provided
prior to such rotation for a non-expiring options contract. MRX has not
employed after-hours trading rotations for several years. With the
proposed opening rule, there will be no after-hours trading.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\43\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\44\ 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 for the reasons stated below.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78f(b).
    \44\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange's proposal to adopt the Phlx Opening Process is
consistent with the Act because the new rule seeks to find the best
price. The proposal permits the price of the underlying security to
settle down and not flicker back and forth among prices after its
opening. It is common for a stock to fluctuate in price immediately
upon opening; such volatility reflects a natural uncertainty about the
ultimate Opening Price, while the buy and sell interest is matched. The
proposed rule provides for a range of no less than 100 milliseconds and
no more than 5 seconds in order to ensure that it has the ability to
adjust the period for which the underlying security must be open on the
primary market. The Exchange may determine that in periods of high/low
volatility that allowing the underlying to be open for a longer/shorter
period of time may help to ensure more stability in the marketplace
prior to initiating the Opening Process.
Definitions
    The Exchange's proposal to adopt a ``Definitions'' section is
consistent with the Act because the terms will assist market
participants in understanding the meaning of terms used throughout the
proposed Rule. The Exchange added the definitions to provide clarity
and consistency throughout the proposed rule.
Eligible Interest
    The first part of the Opening Process determines what constitutes
eligible interest. The Exchange's proposal seeks to make clear what
type of eligible opening interest is included. The Exchange notes that
Valid Width Quotes; Opening Sweeps; and orders are included. The
Exchange further notes that Market Makers may submit quotes, Opening
Sweeps and orders, but quotes other than Valid Width Quotes will not be
included in the Opening Process. Finally, All-or-None Orders that can
be satisfied, and the displayed and non-displayed portions of Reserve
Orders are considered for execution and in determining the Opening
Price throughout the Opening Process. The Exchange believes that
defining what qualifies as eligible interest is consistent with the Act
because market participants will be provided with certainty when
submitting interest as to which type of interest will be considered in
the Opening Process.
    The system will only route Public Customer orders during the
Opening Process. Other non-Public Customer orders will not route.
Unlike the regular session where orders route if they cannot execute on
MRX, the Opening Process is a price discovery process which considers
interest, both on MRX and away markets, to determine the optimal bid
and offer with which to open the market. The Opening Process seeks the
price point at which the most number of contracts may be executed while
protecting away market interest. The Exchange only routes Public
Customer interest at this time rather than all interest because this
type of interest always receives priority on MRX and this process
ensures that Public Customer interest will be executed with priority
during the Opening Process. Other interest is not routable until after
the Exchange has completed the Opening Process.
Opening Sweep
    The Exchange believes that it is consistent with the Act to
introduce the concept of an Opening Sweep and memorialize this order
type within Rule 715(t). While the Opening Sweep is similar to an
Opening Only Order,\45\ it can be entered for the Opening Process only
and any portion of the order that is not executed during the Opening
Process is cancelled. An Opening Sweep may only be submitted by a
Market Maker when he/she has a Valid Width Quote in the affected series
\46\ whereas, there is no such restriction on Opening Only Orders. The
Exchange believes the addition of this order type is consistent

with the Act because it provides for a specific type of order that may
be entered during the Opening Process similar to Phlx for proposes of
qualifying as eligible interest. The Exchange notes that this order
type would be not valid outside of the opening in other trading
sessions. The Exchange is providing definitive rules that concern the
manner in which Opening Sweeps may be entered into the system. For
example, an Opening Sweep may be entered at any price with a minimum
price variation applicable to the affected series, on either side of
the market, at single or multiple price level(s), and may be cancelled
and re-entered. A single Market Maker may enter multiple Opening
Sweeps, with each Opening Sweep at a different price level. If a Market
Maker submits multiple Opening Sweeps, the system will consider only
the most recent Opening Sweep at each price level submitted by such
Market Maker. Unexecuted Opening Sweeps will be cancelled once the
affected series is open.\47\ The Exchange believes that the addition of
Opening Sweeps will also provide certainty to market participants as to
the manner in which the system will handle such interest.
---------------------------------------------------------------------------

    \45\ See MRX Rule 715(o).
    \46\ All Opening Sweeps in the affected series entered by a
Market Maker will be cancelled immediately if that Market Maker
fails to maintain a continuous quote with a Valid Width Quote in the
affected series.
    \47\ See proposed MRX Rule 701(b)(1)(ii). See also proposed MRX
Rule 715(t).
---------------------------------------------------------------------------

    With respect to trade allocation, the proposal notes at Rule
701(b)(2) that the system will aggregate the size of all eligible
interest for a particular participant category \48\ at a particular
price level for trade allocation purposes pursuant to MRX Rule 713. The
Exchange believes that this allocation is consistent with the Act
because it mirrors the current allocation process on MRX in other
trading sessions.
---------------------------------------------------------------------------

    \48\ MRX allocates first to Priority Customers and then to all
other Members by pro-rata. This is different from Phlx which
allocates to Customers first, then to market makers pro-rata and
then to all others pro-rata. See MRX Rule 713 and Phlx Rule
1014(g)(vii).
---------------------------------------------------------------------------

    The proposed rule notes the specific times that eligible interest
may be submitted into MRX's system. The Exchange's proposed time for
entering Market Maker Valid Width Quotes and Opening Sweeps (9:25 a.m.
Eastern Time) eligible to participate in the Opening Process, are
consistent with the Act because the times are intended to tie the
option Opening Process to quoting in certain underlying securities;
\49\ it presumes that option quotes submitted before any indicative
quotes have been disseminated for the underlying security may not be
reliable or intentional. The Exchange believes the time represents a
reasonable timeframe at which to begin utilizing option quotes, based
on the Exchange's experience when underlying quotes start becoming
available. With respect to foreign currency options, the Exchange notes
that those markets open prior to 9:30 a.m. Eastern Time. The Exchange
proposes to open the foreign currency options at the same time as other
options. The Exchange believes that conforming the Opening Process and
trading hours for foreign currency options to that of other options
will conform the trading rules so all products would trade during the
same session. Also, this proposed language adds specificity to the rule
regarding the submission of orders.
---------------------------------------------------------------------------

    \49\ For purposes of this rule, the underlying security can also
be an index.
---------------------------------------------------------------------------

    The Exchange's proposal at Rule 701(c)(1) describes when the
Opening Process can begin with specific time-related triggers. The
proposed rule, which provides that the Opening Process for an option
series will be conducted on or after 9:30 a.m. Eastern Time provided
the ABBO, if any, is not crossed and the system has received within
specified time periods certain specified interest,\50\ is consistent
with the Act because this requirement is intended to tie the option
Opening Process to receipt of liquidity. If one of the above three
conditions specified in proposed Rule 701(c)(1)(i)-(iii) is not met,
the Exchange will not initiate the Opening Process or continue an
ongoing Opening Process. The Exchange's proposed rule considers the
liquidity present on its market before initiating other processes to
obtain additional pricing information. The Exchange's proposal to adopt
the Phlx Opening Process is consistent with the Act because the new
rule seeks to find the best price.
---------------------------------------------------------------------------

    \50\ See proposed Rule 701(c)(1)(i)-(iii).
---------------------------------------------------------------------------

    The Exchange's proposed rule considers the underlying security,
including indexes, which must be open on the primary market for a
certain time period for all options to be determined by the Exchange
for the Opening Process to commence. The Exchange proposes a time
period be no less than 100 milliseconds and no more than 5 seconds to
permit the price of the underlying security to settle down and not
flicker back and forth among prices after its opening. Since it is
common for a stock to fluctuate in price immediately upon opening, the
Exchange accounts for such volatility in its process. The volatility
reflects a natural uncertainty about the ultimate Opening Price, while
the buy and sell interest is matched. The Exchange's proposed range is
consistent with the Act because it ensures that it has the ability to
adjust the period for which the underlying security must be open on the
primary market. The Exchange may determine that in periods of high/low
volatility that allowing the underlying to be open for a longer/shorter
period of time may help to ensure more stability in the marketplace
prior to initiating the Opening Process.
    The Exchange's proposal at Rule 701(c)(3) requires the PMM assigned
in a particular equity or index option to enter a Valid Width Quote, in
90% of their assigned series, not later than one minute following the
dissemination of a quote or trade by the market for the underlying
security or, in the case of index options, following the receipt of the
opening price in the underlying index. The PMM assigned in a particular
U.S. dollar-settled foreign currency option must enter a Valid Width
Quote, in 90% of their assigned series, also not later than one minute
after the announced market opening. The Exchange's proposal with
respect to a PMM's requirement to enter Valid Width Quotes is
consistent with the Act because the 90% requirement to provide a Valid
Width Quote in a series to which the PMM is assigned will continue to
ensure that options series are opened in a timely manner, while not
imposing an burdensome requirement on market participants. PMMs would
be required to promptly enter a Valid Width Quote in the remainder of
their assigned series, which did not open within one minute of the
dissemination of a quote or trade by the market for the underlying
security or in the case of index options, following the receipt of the
opening price or, with respect to U.S. dollar-settled foreign currency
options, following the announced market opening. The Exchange would
monitor PMMs to ensure that they promptly provided a Valid Width Quote
for the remainder of the series within a reasonable amount of time. The
Exchange notes that market conditions could cause a PMM to experience
circumstances where opening 100% of their assigned series within one
minute of the dissemination of a quote or trade by the market for the
underlying security or, in the case of index options, following the
receipt of the opening price in the underlying index or, with respect
to U.S. dollar-settled foreign currency options, following the
announced market opening is not possible. The Exchange believes that
the proposed 90% Valid Width Quoting obligation, not later than one
minute following the dissemination of a quote or trade by the market
for the underlying security or, in the case of

index options, following the receipt of the opening price in the
underlying index or, with respect to U.S. dollar-settled foreign
currency options, following the announced market opening, along with
the ``prompt'' standard for the remaining 10% will ensure all series
are opened in a timely manner. The Exchange believes that the time
frame for PMMs to provide a Valid Width Quote in 90% of their assigned
series not later than one minute following the dissemination of a quote
or trade by the market for the underlying security or, in the case of
index options, following the receipt of the opening price in the
underlying index or, with respect to U.S. dollar-settled foreign
currency options, following the announced market opening will ensure
liquidity on MRX during the Opening Process. The Exchange desires to
encourage PMMs to continue to make markets on MRX at the Opening. The
Exchange believes that requiring PMMs to provide a Valid Width Quote in
90% of their assigned options not later than one minute following the
dissemination of a quote or trade by the market for the underlying
security or, in the case of index options, following the receipt of the
opening price in the underlying index or, with respect to U.S. dollar-
settled foreign currency options, following the announced market
opening along with the ``prompt'' standard for the remaining 10% will
enhance the market making functions for PMMs and serve to maintain a
fair and orderly market thereby promoting the protection of investors
and the public interest.
    Furthermore, the Exchange proposes that a CMM that submits a quote
pursuant to proposed Rule 701 in any option series when the PMM's quote
has not been submitted shall be required to submit continuous, two-
sided quotes in such option series until such time as the PMM submits
his/her quote, after which the Market Maker that submitted such quote
shall be obligated to submit quotations pursuant to Rule 804(e). This
proposal is consistent with the Act because the Exchange will not open
if the ABBO becomes crossed or a Valid Width Quote(s) pursuant to
proposed Rule 701(c)(1) is no longer present. Instead the process would
restart and all eligible opening interest will continue to be
considered during the Opening Process when the process is re-started.
The Exchange's proposal is consistent with the Act and promotes just
and equitable principles of trade because the rule reflects that the
ABBO cannot be crossed because it is indicative of uncertainty in the
marketplace of where the option series should be valued. The Exchange
will wait for the ABBO to become uncrossed before initiating the
Opening Process to ensure that there is stability in the marketplace in
order to assist the Exchange in determining the Opening Price.
Reopening After a Trading Halt
    In order to provide certainty to market participants in the event
of a trading halt, the Exchange provides in its proposal information
regarding the manner in which a trading halt would impact the Opening
Process. Proposed Rule 701(d) provides if there is a trading halt or
pause in the underlying security, the Opening Process will start again
irrespective of the specific times listed in Rule 701(c)(1). The
Exchange's proposal to restart in the event of a trading halt is
consistent with the Act and promotes just and equitable principles of
trade because the proposed rule ensures that there is stability in the
marketplace in order to assist the Exchange in determining the Opening
Price.
Opening With a BBO
    The Exchange's proposed rule accounts for a situation where there
are no opening quotes or orders that lock or cross each other and no
routable orders locking or crossing the ABBO. In this situation, the
system will open with an opening quote by disseminating the Exchange's
best bid and offer among quotes and orders (``BBO'') that exist in the
system at that time, unless all three of the following conditions
exist: (i) A Zero Bid Market; (ii) no ABBO; and (iii) no Quality
Opening Market.\51\ The Exchange utilizes the quotes to assist in
determining a fair and reasonable Opening Price, which is consistent
with the Act because Members are obligated to provide both a bid and
sell price. The Exchange believes that this measure provides a
reasonable baseline of where the marketplace views fair value.
---------------------------------------------------------------------------

    \51\ The Exchange notes herein that a Quality Opening Market is
determined by reviewing all Valid Width Quotes and determining if
the difference of the best bid of those Valid Width Quotes and the
best offer of those Valid Width Quotes are of no more than a certain
width.
---------------------------------------------------------------------------

    If all three of these conditions exist, the Exchange will calculate
an OQR pursuant to paragraph (i) and conduct the PDM pursuant to
paragraph (j). This approach is consistent with the Act because the
[sic] when all three of these conditions exist, further price discovery
is warranted to validate or perhaps update the Exchange's BBO and to
attract additional interest to perhaps render an opening trade
possible. The Exchange notes that a Zero Bid Market reflects a lack of
buying interest to assist in validating a reasonable opening BBO, the
lack of an ABBO means there is no external check on the Exchange's
market for that options series; and the lack of a Quality Opening
Market indicates that the Exchange's market is wide. For these reasons,
the Exchange believes that when these conditions exist, it is difficult
to determine if the Exchange BBO is reasonable and therefore an OQR is
calculated pursuant to proposed Rule 701(i) and thereafter, the PDM in
proposed Rule 701(j) will initiate.
    The Exchange believes that proposed rule promotes just and
equitable principles of trade, because the proposed conditions
involving Zero Bid Markets, no ABBO and no Quality Opening Market
trigger the PDM rather than an immediate opening in order to validate
the Opening Price against away markets or by attracting additional
interest to address the specific condition. This is consistent with the
Act because it should avoid opening executions in very wide or unusual
markets where an opening execution price cannot be validated.
Further Opening Processes and Price Discovery Mechanism
    The proposed rule promotes just and equitable principles of trade
because in arriving at the Potential Opening Price the rule considers
the maximum number of contracts that can be executed, which results in
a price that is logical and reasonable in light of away markets and
other interest present in the system. As noted herein, the Exchange's
Opening Price is bounded by the OQR without trading through the limit
price(s) of interest within OQR which is unable to fully execute at the
Opening Price in order to provide participants with assurance that
their orders will not be traded through. Although the Exchange applies
other boundaries such as the BBO, the OQR provides a range of prices
that may be able to satisfy additional contracts while still ensuring a
reasonable Opening Price. The Exchange seeks to execute as much volume
as is possible at the Opening Price. When choosing between multiple
Opening Prices when some contracts would remain unexecuted, using the
lowest bid or highest offer of the largest sized side of the market
promotes just and equitable principles of trade because it uses size as
a tie breaker. The Exchange's method for determining the Potential
Opening Price and Opening Price is consistent with the Act because the
proposed process seeks to discover a reasonable price and considers
both interest present in MRX's

system as well as away market interest. The Exchange's method seeks to
validate the Opening Price and avoid opening at aberrant prices. The
rule provides for opening with a trade, which is consistent with the
Act because it enables an immediate opening to occur within a certain
boundary without need for the price discovery process. The boundary
provides protections while still ensuring a reasonable Opening Price.
    The proposed rule considers more than one Potential Opening Price,
which is consistent with the Act because it forces the Potential
Opening Price to fall within the OQR boundary, thereby providing price
protection. Specifically, the mid-point calculation balances the price
among interest participating in the Opening when there is more than one
price at which the maximum number of contracts could execute. Limiting
the mid-point calculation to the OQR when a price would otherwise fall
outside of the OQR ensures the final mid-point price will be within the
protective OQR boundary. If there is more than one Potential Opening
Price possible where no contracts would be left unexecuted and any
price used for the mid-point calculation is an away market price when
contracts will be routed, the system will use the away market price as
the Potential Opening Price.
    The PDM reflects what is generally known as an imbalance process
and is intended to attract liquidity to improve the price at which an
option series will open as well as to maximize the number of contracts
that can be executed on the opening. This process will only occur of
the Exchange has not been able to otherwise open an option series
utilizing the other processes available in proposed Rule 701. The
Exchange believes the process presented in the PDM is consistent with
just and equitable principles of trade because the process applies a
proposed, wider boundary to identify the Opening Price and seeks
additional liquidity. The PDM also promotes just and equitable
principles of trade by taking into account whether all interest can be
fully executed, which helps investors by including as much interest as
possible in the Opening Process. The Exchange believes that conducting
the price discovery process in these situations protects opening orders
from receiving a random price that does not reflect the totality of
what is happening in the markets on the opening and also further
protects opening interest from receiving a potentially erroneous
execution price on the opening. Opening immediately has the benefit of
speed and certainty, but that benefit must be weighed against the
quality of the execution price and whether orders were left unexecuted.
The Exchange believes that the proposed rule strikes an appropriate
balance.
    It is consistent with the Act to not consider away market
liquidity, i.e. away market volume, until the PDM occurs because this
proposed process provides for a swift, yet conservative opening. The
Exchange is bounded by the Pre-Market BBO when determining an Opening
Price. The away market prices would be considered, albeit not
immediately. It is consistent with the Act to consider interest on the
Exchange prior to routing to an away market because the Exchange is
utilizing the interest currently present on its market to determine a
quality Opening Price. The Exchange will attempt to match interest in
the system, which is within the OQR, and not leave interest unsatisfied
that was otherwise at that price. The Exchange will not trade-through
the away market interest in satisfying this interest at the Exchange.
The proposal attempts to maximize the number of contracts that can
trade, and is intended to find the most reasonable and suitable price,
relying on the maximization to reflect the best price.
    With respect to the manner in which the Exchange sends an Imbalance
Message as proposed within Rule 701(j)(1), the Imbalance Message is
intended to attract additional liquidity, much like an auction, using
an auction message and timer. The Imbalance Timer is consistent with
the Act because it would provide a reasonable time for participants to
respond to the Imbalance Message before any opening interest is routed
to away markets and, thereby, maximize trading on the Exchange. The
Imbalance Timer would be for the same number of seconds for all options
traded on the Exchange. This process will repeat, up to four
iterations, until the options series opens. The Exchange believes that
this process is consistent with the Act because the Exchange is seeking
to identify a price on the Exchange without routing away, yet which
price may not trade through another market and the quality of which is
addressed by applying the OQR boundary.
    Proposed Rule 701(j)(3)(iii)(C) provides if the total number of
better priced away contracts plus the number of contracts available at
the Exchange Opening Price plus the contracts available at away markets
at the Exchange Opening Price would satisfy the number of marketable
contracts the Exchange has on either the buy or sell side, the system
will contemporaneously route a number of contracts that will satisfy
interest at away markets at prices better than the Exchange Opening
Price (pricing any contracts routed to away markets at the better of
the Exchange Opening Price or the order's limit price), trade available
contracts on the Exchange at the Exchange Opening Price, and route a
number of contracts that will satisfy interest at other markets at
prices equal to the Exchange Opening Price. This provision is
consistent with the Act because it considers routing to away markets
potentially both at a better price than the Exchange Opening Price as
well as at the Exchange Opening Price to access as much liquidity as
possible to maximize the number of contracts able to be traded as part
of the Opening Process. The Exchange routes at the better of the
Exchange's Opening Price or the order's limit price to first ensure the
order's limit price is not violated. Routing away at the Exchange's
Opening Price is intended to achieve the best possible price available
at the time the order is received by the away market.
    Proposed Rule 701(j)(5), entitled ``Forced Opening,'' provides for
the situation where, as a last resort, in order to open an options
series when the processes described above have not resulted in an
opening of the options series. Under a Forced Opening, the system will
open the series executing as many contracts as possible by routing to
away markets at prices better than the Exchange Opening Price for their
disseminated size, trading available contracts on the Exchange at the
Exchange Opening Price bounded by OQR (without trading through the
limit price(s) of interest within OQR which is unable to be fully
executed at the Opening Price). The system will also route contracts to
away markets at prices equal to the Exchange Opening Price at their
disseminated size. In this situation, the system will price any
contracts routed to away markets at the better of the Exchange Opening
Price or the order's limit price. Any unexecuted contracts from the
imbalance not traded or routed will be cancelled back to the entering
participant if they remain unexecuted and priced through the Opening
Price, otherwise orders will remain in the Order Book. The Exchange
believes that this process is consistent with the Act because after
attempting to open by soliciting interest on MRX and considering other
away market interest and considering interest responding to Imbalance
Messages, the Exchange could not otherwise locate a fair and reasonable
price with which to open options series.

    The Exchange's proposal to memorialize the manner in which proposed
rule will cancel and prioritize interest provides certainty to market
participants as to the priority scheme during the Opening Process.\52\
The Exchange's proposal to execute Market Orders first and then Limit
Orders is consistent with the Act because these orders have no
specified price and Limit Orders will be executed thereafter in
accordance with the prices specified due to the nature of these order
types. This is consistent with the manner in which these orders execute
after the opening today.
---------------------------------------------------------------------------

    \52\ See proposed Rule 701(j)(6)(i) and (k).
---------------------------------------------------------------------------

    Finally, proposed Rule 701(l) provides upon opening of the option
series, regardless of an execution, the system dissemination of the
price and size of the Exchange's BBO is consistent with the Act because
it clarifies the manner in which the Exchange establishes the BBO for
purposes of reference upon opening.

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 proposal does not change
the intense competition that exists among the options markets for
options business including on the opening. Nor does the Exchange
believe that the proposal will impose any burden on intra-market
competition; the Opening Process involves many types of participants
and interest.
    The Exchange's proposal to require a PMM to enter a Valid Width
Quote in 90% of their assigned series not later than one minute time
following the dissemination of a quote or trade by the market for the
underlying security or, in the case of index options, following the
receipt of the opening price in the underlying index or, with respect
to U.S. dollar-settled foreign currency options, following the
announced market opening and promptly enter a Valid Width quote for the
remaining 10% their assigned series does not create an undue burden on
competition. The proposal will continue to ensure that options series
are opened in a timely manner, while not imposing a burdensome
requirement on market participants. PMMs would be required to promptly
enter a Valid Width Quote in the remainder of their assigned series
which were not open within one minute following the dissemination of a
quote or trade by the market for the underlying security or, in the
case of index options, following the receipt of the opening price in
the underlying index or, with respect to U.S. dollar-settled foreign
currency options, following the announced market opening. The Exchange
would monitor PMMs to ensure that they promptly entered a Valid Width
Quote for the remainder of their assigned series within a reasonable
amount of time. The Exchange notes that market conditions could cause a
PMM to experience circumstances where entering a Valid Width Quote for
100% of their assigned series within one minute following the
dissemination of a quote or trade by the market for the underlying
security or, in the case of index options, following the receipt of the
opening price in the underlying index or with respect to U.S. dollar-
settled foreign currency options within one minute after the announced
market opening is not possible. The Exchange believes that the proposed
90% timeframe to enter a Valid Width Quote not later than one minute
following the dissemination of a quote or trade by the market for the
underlying security or, in the case of index options, following the
receipt of the opening price in the underlying index or, with respect
to U.S. dollar-settled foreign currency options, following the
announced market opening for the underlying security along with the
``prompt'' standard for the remaining series will ensure all series are
opened in a timely manner.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be 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, as modified by Amendment No. 2, 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_ADDRESS>Please include
File Number SR-MRX-2017-01 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-MRX-2017-01. 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 Web site (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 Web site 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 the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MRX-2017-01 and should be
submitted on or before July 11, 2017.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\53\
---------------------------------------------------------------------------

    \53\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-12887 Filed 6-19-17; 8:45 am]
BILLING CODE 8011-01-P