[Federal Register Volume 88, Number 28 (Friday, February 10, 2023)]
[Notices]
[Pages 8922-8945]
[FR Doc No: 2023-02821]

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SECURITIES AND EXCHANGE COMMISSION

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

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

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

change as described in Items I, II, and III below, which Items have
been prepared by the Exchange. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend its rules in connection with a
technology migration to enhanced Nasdaq, Inc. (``Nasdaq'')
functionality.
    The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/gemx/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    \84\ This would include any re-priced orders as described in the
Re-Pricing Filing as proposed Options 3, Section 5(d), ALOs as
described in proposed Options 3, Section 7(n), and any re-priced
quotes as described in Options 3, Section 4(b)(6). As described
above, ALOs may re-price.
    \85\ Options 3, Section 4(b)(6) provides that a quote will not
be executed at a price that trades through another market or
displayed at a price that would lock or cross another market. If, at
the time of entry, a quote would cause a locked or crossed market
violation or would cause a trade-through violation, it will either
be re-priced and displayed at one minimum price variance above (for
offers) or below (for bids) the national best price, or immediately
cancelled, as configured by the Member.
---------------------------------------------------------------------------

    Below are some examples of the Post-Only Quote Configuration
functionality.
Re-Priced Post-Only Quote Configuration--Penny Interval Program Display
and Execution Example
     Penny Interval Program MPV in open trading state.
     Market Makers A and C do not have Post-Only Quote
Configuration risk protection configured.
     Market Maker B is configured for Post-Only Quote
Configuration re-price.
     Market Maker A quote $0.98 (10) x $1.00 (10).
     ABBO $0.96 x $1.03.
     Market Maker B quote $1.00 (10) x $1.01 (10) arrives.
    [cir] Bid side of quote re-prices onto order book @ 0.99 and sets
displayed NBBO to 10 quantity.
    [cir] Offer side rests at 1.01 without issue.
     Market Maker C quote $0.97 (20) x $0.98 (20) arrives.
    Trades 10 with Market Maker B @ $0.99 and 10 with Market Maker A @
$0.98.
    Market Maker B avoids taking liquidity while Market Maker C, who
chose not to be configured for such, removes liquidity by interacting
with re-priced interest on the Exchange's order book.
Re-Priced Post-Only Quote Configuration--Non-Penny Interval Program
Display and Execution Example
     Non-Penny Interval Program MPV in open trading state.
     Market Maker A quote $0.95 (10) x $1.00 (10).
     ABBO $0.85 x $1.05.
     Market Maker B (configured for Post-Only Quote
Configuration and selection of re-price upon quote) quote arrives $1.00
(5) x $1.05 (5).
    [cir] Bid side quote re-prices on order book to $0.95.
    [cir] Displays on order book @ $0.95 (bid), which now shows (15
quantity).
    [cir] Offer side quote books and displays in Depth of Market Fe.ed
at $1.05
     Order to sell 10 contracts arrives @ $0.95.
    [cir] 7 contracts execute with Market Maker A @ $0.95.
    [cir] 3 contracts execute with Market Maker B @ $0.95.
    In this example, the Market Maker avoided taking liquidity by
deploying the Post-Only Quote Configuration with re-price.
Kill Switch
    As set forth in Options 3, Section 17, the Exchange offers an order
cancellation Kill Switch, which is an optional tool that allows Members
to initiate a message to the System to promptly cancel and restrict
their order activity on the Exchange, or across both the Exchange and
its affiliate, ISE. Members may submit a Kill Switch request to the
System for certain identifier(s) (``Identifier'') on either a user or
group level.\86\ Today, Members can log in through a graphical user
interface (``GUI'') to send a message to the Exchange to initiate the
order cancellation Kill Switch.\87\ As an alternative to the GUI Kill
Switch, Members may also send a message through one of the Exchange's
order entry ports (i.e., FIX, Precise, and OTTO) to initiate the order
cancellation Kill Switch.\88\ Once a Member initiates the Kill Switch
(either through the GUI or an order entry port), it will result in the
cancellation of all existing orders for the requested Identifier(s).
The Member will be unable to enter any additional orders for the
affected Identifier(s) until the Member sends a re-entry request to the
Exchange.\89\
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    \86\ Identifiers include Exchange accounts, ports, and/or
mnemonics. Thus, a Member using Kill Switch may elect to cancel
orders for an individual Identifier (e.g., mnemonic) or any group of
Identifiers (e.g., all mnemonics within one Member firm).
Permissible groups must reside within a single Member firm. See
Options 3, Section 17(a).
    \87\ See Options 3, Section 17(a)(2).
    \88\ See Options 3, Section 17(a)(1).
    \89\ See Options 3, Section 17(a)(3).
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    Due to the lack of demand for the GUI Kill Switch by Members, the
Exchange proposes to decommission this optional tool with the planned
technology migration.\90\ With the proposed changes, the Exchange seeks
to streamline its product offerings and to reallocate Exchange
resources to other business and risk management initiatives. While the
Exchange will no longer offer this optional risk protection to Members
through the GUI, it will continue to offer this functionality through
FIX, Precise, and OTTO.
---------------------------------------------------------------------------

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

    In addition, all Members may contact the Exchange's market
operations staff to request that the Exchange cancel any of their
existing bids, offers, or orders in any series of options.\91\
Furthermore, the Exchange will continue to have System-enforced risk
mechanisms that automatically remove orders for the Member once certain
pre-set thresholds or conditions are met. This includes risk
protections such as the market wide risk protection \92\ and cancel on
disconnect.\93\
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    \91\ See Options 3, Section 19.
    \92\ The market wide risk protection automatically removes
Member orders on the Exchange, or across both the Exchange and ISE,
in either case as set by the Member, when certain firm-set
thresholds are met. Once the thresholds are triggered, the Member
must send a re-entry indicator to re-enter the System. See Options
3, Section 15(a)(1)(C).
    \93\ When the OTTO or FIX Port detects the loss of communication
with a Member's Client Application because the Exchange's server
does not receive a Heartbeat message for a certain time period
(``nn'' seconds), the Exchange will automatically logoff the
Member's affected Client Application and if the Member has elected
to have its orders cancelled pursuant to Section 18(f) (for OTTO) or
Section 18(g) (for FIX) automatically cancel all orders. See Options
3, Section 18(c) and (d).

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

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

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

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

    As set forth in Options 3, Section 23(a)(2), the Exchange offers
the Nasdaq GEMX Order Feed (``Order Feed''), which currently provides
information on new orders resting on the book (e.g. price, quantity and
market participant capacity). In addition, the feed also announces all
auctions. The data provided for each option series includes the symbols
(series and underlying security), put or call indicator, expiration
date, the strike price of the series, and whether the option series is
available for trading on GEMX and identifies if the series is available
for closing transactions only. The feed also provides order imbalances
on opening/reopening.
    The Exchange now proposes to update the information that would be
available on the Order Feed. In particular, the Exchange would include
Attributable Order tags \97\ (as provided by the Member) and related
data content around displayed order types and specified order
attributes (e.g., OCC account number, give-up information, CMTA
information).\98\ The Exchange also proposes to add more specificity
around what would be provided in the opening/reopening order imbalance
information (namely, the size of matched contracts and size of the
imbalance). This specifically aligns to the data elements in both BX's
Depth of Market Feed in BX Options 3, Section 23(a)(1) and the
Exchange's proposed Depth of Market Feed in proposed Options 3, Section
23(a)(1). The Exchange will continue to provide auction notifications
on the Order Feed, but will relocate the existing language to the end
of the rule and adopt new content by providing that the proposed Order
Feed will provide exposure notifications as well.\99\ As amended,
Options 3, Section 23(a)(2) would provide:
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    \97\ As discussed above, an Attributable Order is a market or
limit order which displays the user firm ID for purposes of
electronic trading on the Exchange. See Options 3, Section 7(h).
    \98\ The Exchange notes that Cboe has similar attributable order
functionality in Cboe Rule 5.6(c) as an order a user designates for
display (price and size) that includes the user's executing firm ID
or other unique identifier. While Cboe does not have a comparable
data feed rule, Cboe's technical specifications indicate that it
currently has Participant ID and Client ID tags available on its
Multicast PITCH data feed. See Section 4.6 in https://cdn.cboe.com/resources/membership/US_EQUITIES_OPTIONS_MULTICAST_PITCH_SPECIFICATION.pdf (relating to
Participant ID or Client ID as optionally specified values).
    \99\ BX's Depth of Market Feed currently has identical content
relating to auction and exposure notifications in BX Options 3,
Section 23(a)(1). Exposure notifications are new with the
introduction of routing and the removal of flash functionality in
the Routing Filing. An exposure notification informs the market of
an order that has arrived marketable against an ABBO and has a
routing timer pursuant to the changes introduced to Options 5,
Section 4 in the Routing Filing, while an auction notification is
the notification of an auction for a Block, Facilitation, Solicited
Order, or PIM auction.

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

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

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

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

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

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

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

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

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

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

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

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

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