[Federal Register Volume 88, Number 118 (Wednesday, June 21, 2023)]
[Notices]
[Pages 40344-40358]
[FR Doc No: 2023-13108]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97726; File No. SR-MRX-2023-10]

Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Complex
Order Rules

June 14, 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 June 6, 2023, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``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 Options 3, Section 7, Types of
Orders and Order and Quote Protocols; Options 3, Section 11, Auction
Mechanisms; Options 3, Section 12, Crossing Orders, Section 13, Price
Improvement Mechanisms for Crossing Transactions; Options 3, Section
14, Complex Orders; Options 3, Section 15, Simple Order Risk
Protections; and Options 3, Section 16, Complex Order Risk Protections.
    The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/mrx/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 an enhanced Nasdaq,
Inc. (``Nasdaq'') functionality, the Exchange intends to adopt certain
trading functionality currently utilized at Nasdaq affiliate exchanges.
Also, the Exchange intends to remove certain functionality.
Specifically, the following sections would be amended: Options 3,
Section 7, Types of Orders and Order and Quote Protocols; Options 3,
Section 11, Auction Mechanisms; Options 3, Section 12, Crossing Orders,
Section 13, Price Improvement Mechanisms for Crossing Transactions;
Options 3, Section 14, Complex Orders; Options 3, Section 15, Simple
Order Risk Protections; and Options 3, Section 16, Complex Order Risk
Protections. Each change will be described below.
Re-Introduction of Stock-Related Strategies and Elimination of Trade
Value
Allowance
    Before the migration of MRX to an enhanced technology platform,\3\
MRX Members were able to trade certain Stock-Option Orders as described
in MRX Options 3, Section 14(a)(2),\4\ Stock-Complex Orders as
described in MRX Options 3, Section 14(a)(3),\5\ Complex QCC with Stock
Orders as described in MRX Options 3, Section 14(b)(15),\6\ QCC with
Stock Orders \7\ as described in Options 3, Section 7(t) and 12(e), as
described in Supplementary Material .03 of MRX Options 3, Section 14
(``Delayed Functionalities'').\8\ Separately, prior to the MRX
migration, the Exchange offered a Trade Value Allowance,\9\ which was
also delayed.
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    \3\ See Securities Exchange Act Release No. 95854 (September 21,
2022), 87 FR 58571 (September 27, 2022) (Notice of Filing of
Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Its
Rules Relating to Single-Leg and Complex Orders in Connection With a
Technology Migration).
    \4\ The term ``Stock-Option Order'' refers to an order for a
Stock-Option Strategy as defined in Options 3, Section 14(a)(2). A
Stock-Option Strategy is the purchase or sale of a stated number of
units of an underlying stock or a security convertible into the
underlying stock (``convertible security'') coupled with the
purchase or sale of options contract(s) on the opposite side of the
market representing either (A) the same number of units of the
underlying stock or convertible security, or (B) the number of units
of the underlying stock necessary to create a delta neutral
position, but in no case in a ratio greater than eight-to-one
(8.00), where the ratio represents the total number of units of the
underlying stock or convertible security in the option leg to the
total number of units of the underlying stock or convertible
security in the stock leg. See MRX Options 3, Section 14(a)(2).
    \5\ The term ``Stock-Complex Order'' refers to an order for a
Stock-Complex Strategy as defined in Options 3, Section 14(a)(3). A
Stock-Complex Strategy is the purchase or sale of a stated number of
units of an underlying stock or a security convertible into the
underlying stock (``convertible security'') coupled with the
purchase or sale of a Complex Options Strategy on the opposite side
of the market representing either (A) the same number of units of
the underlying stock or convertible security, or (B) the number of
units of the underlying stock necessary to create a delta neutral
position, but in no case in a ratio greater than eight-to-one
(8.00), where the ratio represents the total number of units of the
underlying stock or convertible security in the option legs to the
total number of units of the underlying stock or convertible
security in the stock leg. Only those Stock-Complex Strategies with
no more than the applicable number of legs, as determined by the
Exchange on a class-by-class basis, are eligible for processing. See
MRX Options 3, Section 14(a)(3).
    \6\ A Complex QCC with Stock Order is a Qualified Contingent
Cross Complex Order, as defined in subparagraph (b)(6) of Options 3,
Section 14, entered with a stock component to be communicated to a
designated broker-dealer for execution pursuant to MRX Options 3,
Section 12(f).
    \7\ A QCC with Stock Order is a Qualified Contingent Cross
Order, as defined in Options 3, Section 7(j), entered with a stock
component to be communicated to a designated broker-dealer for
execution pursuant to Options 3, Section 12(e). See Options 3,
Section 7(t).
    \8\ See note 3 above.
    \9\ The Trade Value Allowance permits Stock-Option Strategies
and Stock-Complex Strategies at valid increments Options 3, Section
14(c)(1), Stock-Option Strategies and Stock-Complex Strategies to
trade outside of their expected notional trade value by a specified
amount, in order to facilitate the execution of the stock leg and
options leg(s). The Trade Value Allowance is the percentage
difference between the expected notional value of a trade and the
actual notional value of the trade. The amount of Trade Value
Allowance permitted may be determined by the Member, or a default
value determined by the Exchange and announced to Members; provided
that any amount of Trade Value Allowance is permitted in mechanisms
pursuant to Options 3, Sections 11 and 13 when auction orders do not
trade solely with their contra-side order. See Supplementary
Material .03 of MRX Options 3, Section 14.
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    At the time the Exchange issued an Options Trader Alert announcing
migration details, the Exchange noted that these Delayed
Functionalities would not be available for symbols that migrated to the
platform and thereafter, until such time as the Exchange recommenced
their availability by announcing a date in an Options Trader Alert,
which date would be prior to one year from the start of the migration
of the symbols to the platform.\10\ The Exchange further noted that it
was contemplating amendments to its stock-tied functionality and
desired additional time to draft and code those changes before
reintroducing stock-tied functionality on MRX.\11\ MRX's technology
migration commenced on November 7, 2022 and was completed on December
5, 2022.\12\ At this time, the Exchange proposes to re-introduce stock-
tied functionality and remove the delayed implementation language
within Options 3, Sections 7, 11, 12, 13, and 14.
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    \10\ See note 3 above.
    \11\ See note 3 above. MRX indicated that it would also need
time to file any related rule changes with the Commission prior to
reintroducing stock-tied functionality.
    \12\ See Options Trader Alert #2022-34.
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Stock-Tied Functionality
    MRX proposes to: (1) re-introduce stock-tied functionality; and (2)
amend the stock-tied functionality that was available before the
migration. Before the migration of MRX to an enhanced technology
platform when the Exchange was offering stock-tied functionality, MRX
Members desiring to execute an order with stock or an ETF component
were required to enter into a brokerage agreement with a broker-dealer
designated by the Exchange and were permitted to enter into such an
agreement with one or more other broker-dealers to which the Exchange
is able to route stock orders.\13\
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    \13\ See Supplementary Material .02 to Options 3, Section 14.
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    The Exchange proposes to amend its rules to instead require that a
Member desiring to execute a Stock-Option Order or a Stock-Complex
Order enter into a brokerage agreement with Nasdaq Execution Services,
LLC (``NES'') which will execute the stock or ETF component of the
order.\14\ The stock component of a Qualified Contingent Cross
(``QCC'') with Stock Order or a Complex QCC with Stock Order will
continue to be handled by a third-party broker as provided in Options
3, Sections 12(e) and (f).\15\ NES is a broker-dealer owned and
operated by Nasdaq, Inc. NES, an affiliate of the Exchange, has been
approved by the Commission to become a Member of the Exchange and
perform inbound routing on behalf of the Exchange.\16\ Additionally,
NES is permitted to route outbound orders either directly or indirectly
through a third party routing broker-dealer to other market centers and
perform other functions regarding the cancellation of

orders and the maintenance of a NES error account.\17\
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    \14\ Id.
    \15\ MRX members may also trade QCC Orders and complex [sic] QCC
Orders. See Options 3, Section 12(c) and (d). For those orders, the
parties to the trade will arrange for the execution of the stock
component of the order.
    \16\ See Securities Exchange Act Release No. 79995 (February 9,
2017), 82 FR 10811 (February 15, 2017) (SR-ISEMercury-2016-22)
(Order Granting Approval of Proposed Rule Changes, as Modified by
Amendment Nos. 1 and 2 Thereto, To Permit Nasdaq Execution Services,
LLC To Become an Affiliated Member of Each Exchange To Perform
Certain Routing and Other Functions).
    \17\ Id. MRX is subject to certain limitations and conditions
such as maintaining a Regulatory Services Agreement with FINRA, as
well as an agreement pursuant to Rule 17d-2 under the Act, among
other limitations and conditions.
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    NES currently acts as agent for orders to buy and sell the
underlying stock or ETF component of a Complex Order on Nasdaq Phlx LLC
(``Phlx'').\18\ The functions performed by NES on Phlx today are
identical to the functions that MRX proposes for NES to perform for MRX
Members.\19\ Identical to Phlx, after MRX's System determines that a
Complex Order execution is possible and identifies the prices for each
component of such Complex Order, MRX will electronically communicate
the stock or ETF component of the Complex Order to NES for
execution.\20\ NES, acting as agent for the orders to buy and sell the
underlying stock or ETF, will execute the orders in the over-the-
counter (``OTC'') market and will handle the orders pursuant to
applicable rules regarding equity trading, including the rules
governing trade reporting, trade-throughs, and short sales. Before the
migration of MRX to an enhanced technology platform when the Exchange
was offering stock-tied functionality, this function was performed by a
third-party broker-dealer.
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    \18\ See Phlx Options 3, Sections 13(b), 14(a) and 16(b).
    \19\ See Securities Exchange Act Release No. 63777 (January 26,
2011), 76 FR 5630 (February 1, 2011) (SR-Phlx-2010-157) (Order
Approving a Proposed Rule Change, as Modified by Amendment Nos. 1
and 2, Relating to Complex Orders) (``Phlx Complex Order
Approval''). NES assumed the stock execution functionalities that
were previously performed by NOS. Phlx subsequently filed to permit
both inbound and outbound orders to be routed through NES instead of
Nasdaq Options Services LLC (``NOS''). See Securities Exchange Act
Release No. 71417 (January 28, 2014), 79 FR 6253 (February 3, 2014)
(SR-Phlx-2014-04) (Notice of Filing and Immediate Effectiveness of
Proposed Rule Change to Outbound Routing) and 71416 (January 28,
2014), 79 FR 6244 (February 3, 2014) (SR-Phlx-2014-05) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to
Inbound Routing of Options Orders).
    \20\ See proposed Supplementary Material .08(b) to Options 3,
Section 11, proposed Options 3, Section 12(b)(2), proposed
Supplementary Material .09(b) to Options 3, Section 13, proposed
Supplementary Material .02 to Options 3, Section 14 and proposed
Options 3, Section 16(d). See also Phlx Options 3, Section
13(b)(10)(ii), Options 3, Section 16(b).
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    The proposed stock-tied functionality is identical to Phlx Options
3, Sections 13(b)(10)(ii) and 14(a)(i) with respect to utilizing NES to
process and report the stock or ETF component of a Complex Order.
However, there are two differences in the way Phlx and MRX handle
stock-tied option orders.
    First, while both Phlx and MRX have certain risk protections for
complex orders, they differ. With respect to MRX, the execution price
of the Complex Order must be within a certain price from the current
market, as determined by the Exchange pursuant to Options 3, Section
16(a). Specifically, today, MRX Options 3, Section 16(a) provides that
the System will not permit any leg of a complex strategy to trade-
through the NBBO for the series or any stock component by a
configurable amount calculated as the lesser of (i) an absolute amount
not to exceed $0.10, and (ii) a percentage of the NBBO not to exceed
500%, as determined by the Exchange on a class, series or underlying
basis. In contrast, Phlx Options 3, Section 16(b)(i) describes Phlx's
Acceptable Complex Execution (``ACE'') Parameter which defines a price
range outside of which a complex order will not be executed. On Phlx, a
complex order to sell is not executed at a price that is lower than the
cNBBO \21\ bid by more than the ACE Parameter. Conversely, on Phlx, a
complex order to buy will not be executed at a price that is higher
than the cNBBO offer by more than the ACE Parameter. While MRX's and
Phlx's price checks differ, both markets seek to prevent executions
from occurring at certain prices and at certain percentages from the
NBBO. MRX's proposal would require NES to apply the same price check
for stock-tied functionality that was being applied previously by a
third- party broker-dealer that executed the stock or ETF component of
a complex strategy on behalf of MRX Members prior to MRX's technology
migration. MRX Members would continue to be subject to the same price
check which is applied to all Complex Orders executed on MRX.
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    \21\ The term ``cNBBO'' means the best net debit or credit price
for a Complex Order Strategy based on the NBBO for the individual
options components of a Complex Order Strategy, and, where the
underlying security is a component of the Complex Order, the
National Best Bid and/or Offer for the underlying security. See Phlx
Options 3, Section 14(a)(vi).
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    Second, MRX and Phlx differ with respect to the manner in which
their systems handle Stock-Option Strategies and Stock-Complex
Strategies that would execute against interest on the Complex Order
Book at a price that does not meet the price checks in their respective
rules or do not meet Regulation SHO provisions as provided for in
proposed Options 3, Section 16(e) \22\ are handled by their respective
systems. As proposed, MRX will hold orders on the Complex Order book
that cannot be executed because of Regulation SHO or price check
restrictions, unless the Member requests the order to be cancelled. If
an MRX Member elects to have the order held on the Complex Order Book,
the order would await other matching opportunities, otherwise at the
Member's election the order would be returned to the Member. In
contrast, Phlx only provides for a cancellation of the order. MRX's
proposed approach would provide the Member with optionality as to the
handing of the order. The Exchange believes providing the choice to
have the order held on the Complex Order Book provides Members with an
opportunity for an execution.
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    \22\ As proposed, NES will only execute Stock-Option Strategies
and Stock-Complex Strategies if the underlying covered security
component is in accordance with Rule 201 of Regulation SHO.
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NES
    NES is a registered broker-dealer and member of various exchanges
and the Financial Industry Regulatory Authority (``FINRA''). NES will
be responsible for the proper execution, trade reporting, and
submission to clearing of the underlying stock or ETF component of a
Complex Order.\23\ Because these trades will occur off-exchange, the
principal regulator is FINRA. Furthermore, today, NES is responsible
for compliance with FINRA rules generally and is subject to examination
by FINRA. Specifically, NES is subject to FINRA Rule 3110, which
generally requires that the policies and procedures and supervisory
systems of a broker-dealer be reasonably designed to achieve compliance
with applicable securities laws and regulations and with applicable
FINRA rules, including those relating to the misuse of material non-
public information. To this end, today, NES has in place policies
related to confidentiality and the potential for informational
advantages relating to its affiliates, intended to protect against the
misuse of material nonpublic information.\24\ In particular, NES will

have in place policies and procedures designed to prevent the misuse of
material non-public information related to stock-tied executions. Of
note, NES only receives information about the stock or ETF portion of
the order from the Exchange. As mentioned herein, today, NES is
responsible for the proper execution, trade reporting, and submission
to clearing of the underlying stock or ETF component of a Complex Order
on Phlx. MRX will adopt identical policies and procedures for its
stock-tied functionality as are in place on Phlx today.
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    \23\ The Commission's approval order for Phlx stated that NOS
(now NES) ``. . . as a facility of the Phlx, NOS is subject to
oversight by the Commission and by the Phlx. In addition, NOS, a
member of FINRA, is responsible for compliance with applicable rules
regarding equity trading, including rules governing trade reporting,
trade-throughs and short sales, and is subject to examination by
FINRA. Because NOS will execute the stock or ETF component of a
Complex Order in the OTC market, the principal regulator of these
trades will be FINRA, rather than the Phlx or Nasdaq.'' See SR-Phlx-
2010-157 76 FR 5630 at 5625, footnote 20. Phlx originally set up its
affiliated broker-dealers as two separate entities, NES and NOS.
When Phlx replaced NOS with NES, it noted in the rule change that
NES will operate the same way as NOS operated, in terms of routing
options orders to destination options exchanges. See SR-Phlx-2014-
04, 79 FR 6253 at 6254.
    \24\ Similarly, the Exchange does establish and maintain
procedures and internal controls reasonably designed to adequately
restrict the flow of confidential and proprietary information
between the Exchange and NES. Additionally NES undertook all NOS'
responsibilities with respect to the execution and reporting of the
underlying security component of a Complex Order. See SR-Phlx-2014-
04 at note 20. Therefore, members of FINRA or the NASDAQ Stock
Market (``NASDAQ'') who were required to have a Uniform Service
Bureau/Executing Broker Agreement (``AGU'') with NOS in order to
trade Complex Orders containing a stock/ETF component and firms that
are not members of FINRA or NASDAQ who were required to have a
Qualified Special Representative (``QSR'') arrangement with NOS in
order to trade Complex Orders containing a stock/ETF component were
required to have such arrangements with NES. See Securities Exchange
Act Release No. 71417 (January 28, 2014), 79 FR 6253 (February 3,
2014) (SR-Phlx-2014-04) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to Outbound Routing) and 71416
(January 28, 2014), 79 FR 6244 (February 3, 2014) (SR-Phlx-2014-05)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change to Inbound Routing of Options Orders).
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    In addition, because the execution and reporting of the stock/ETF
piece will occur otherwise than on MRX or any other exchange, it will
be handled by NES pursuant to applicable rules regarding equity
trading,\25\ including the rules governing trade reporting, trade-
throughs and short sales. Specifically, NES will report the trades to
the Trade Reporting Facility.\26\ Firms that are members of FINRA are
required to have a Uniform Service Bureau/Executing Broker Agreement
(``AGU'') with NES in order to trade Complex Orders containing a stock/
ETF component. Firms that are not members of FINRA are required to have
a Qualified Special Representative (``QSR'') arrangement with NES in
order to trade Complex Orders containing a stock/ETF component. This
requirement is codified in proposed Supplementary Material .08 to
Options 3, Section 11, proposed Options 3, Section 12(b)(1), proposed
Supplementary Material .09 to Options 3, Section 13 and proposed
Supplementary Material .07 to Options 3, Section 14. Accordingly, this
process is available to all MRX Members and the stock/ETF component of
a Complex Order, once executed, will be properly processed for trade
reporting purposes. Phlx has identical requirements within its Options
3, Sections 13(b)(10) and 14(a)(i).
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    \25\ Once the orders are communicated to the broker-dealer for
execution, the broker-dealer has complete responsibility for
determining whether the orders may be executed in accordance with
all of the rules applicable to execution of equity orders.
    \26\ Specifically, the trades will be reported to the FINRA/
Nasdaq TRF which is a facility of FINRA that is operated by Nasdaq,
Inc. and utilizes Automated Confirmation Transaction (``ACT'')
Service technology.
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    With respect to trade-throughs, the Exchange believes that the
stock/ETF component of a Complex Order is eligible for the Qualified
Contingent Trade Exemption from Rule 611(a) of Regulation NMS. A
Qualified Contingent Trade is a transaction consisting of two or more
component orders, executed as agent or principal, that satisfy the six
elements in the Commission's order exempting Qualified Contingent
Trades (``QCTs'') from the requirements of Rule 611(a),\27\ which
requires trading centers to establish, maintain, and enforce written
policies and procedures that are reasonably designed to prevent trade-
throughs.\28\ The Exchange believes that the stock/ETF portion of a
Complex Order under this proposal complies with all six requirements.
Moreover, as explained below, MRX's System will validate compliance
with each requirement such that any matched order received by NES under
this proposal has been checked for compliance with the exemption, as
follows:
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    \27\ 17 CFR 242.611(a).
    \28\ See Securities Exchange Act Release Nos. 57620 (April 4,
2008), 73 FR 19271 (April 9, 2008) (``QCT Exemptive Order''). See
also Securities Exchange Act Release No. 54389 (August 31, 2006), 71
FR 52829 (September 7, 2006). The QCT Exemption applies to trade-
throughs caused by the execution of an order involving one or more
NMS stocks that are components of a ``qualified contingent trade.''
As described more fully in the QCT Exemptive Order, a qualified
contingent trade is a transaction consisting of two or more
component orders, executed as principal or agent, where: (1) At
least one component order is an NMS stock; (2) all components are
effected with a product or price contingency that either has been
agreed to by the respective counterparties or arranged for by a
broker-dealer as principal or agent; (3) the execution of one
component is contingent upon the execution of all other components
at or near the same time; (4) the specific relationship between the
component orders (e.g., the spread between the prices of the
component orders) is determined at the time the contingent order is
placed; (5) the component orders bear a derivative relationship to
one another, represent different classes of shares of the same
issuer, or involve the securities of participants in mergers or with
intentions to merge that have been announced or since cancelled; and
(6) the Exempted NMS Stock Transaction is fully hedged (without
regard to any prior existing position) as a result of the other
components of the contingent trade.

    (1) At least one component order is in an NMS stock: The stock/
ETF component must be an NMS stock, which is validated by the
System;
    (2) all components are effected with a product or price
contingency that either has been agreed to by the respective
counterparties or arranged for by a broker-dealer as principal or
agent: A Complex Order, by definition consists of a single net/debit
price and this price contingency applies to all the components of
the order, such that the stock price computed and sent to NES allows
the stock/ETF order to be executed at the proper net debit/credit
price based on the execution price of each of the option legs, which
is determined by the MRX System;
    (3) the execution of one component is contingent upon the
execution of all other components at or near the same time: Once a
Complex Order is accepted and validated by the System, the entire
package is processed as a single transaction and each of the option
leg and stock/ETF components are simultaneously processed;
    (4) the specific relationship between the component orders
(e.g., the spread between the prices of the component orders) is
determined at the time the contingent order is placed: Complex
Orders, upon entry, must have a size for each component and a net
debit/credit, which the System validates and processes to determine
the ratio between the components; an order is rejected if the net
debit/credit price and size are not provided on the order;
    (5) the component orders bear a derivative relationship to one
another, represent different classes of shares of the same issuer,
or involve the securities of participants in mergers or with
intentions to merge that have been announced or since cancelled:
under this proposal, the stock/ETF component must be the underlying
security respecting the option legs, which is validated by the
System; and
    (6) the transaction is fully hedged (without regard to any prior
existing position) as a result of the other components of the
contingent trade: Under this proposal, the ratio between the options
and stock/ETF must be a conforming ratio (8 contracts per 100
shares), which the System validates, and which under reasonable risk
valuation methodologies, means that the stock/ETF position is fully
hedged.\29\
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    \29\ A trading center may demonstrate that an Exempted NMS Stock
Transaction is fully hedged under the circumstances based on the use
of reasonable risk-valuation methodologies. The release approving
the original exemption stated: To effectively execute a contingent
trade, its component orders must be executed in full or in ratio at
its predetermined spread or ratio. ``In ratio'' clarifies that
component orders of a contingent trade do not necessarily have to be
executed in full, but any partial executions must be in a
predetermined ratio.

    Furthermore, proposed Supplementary Material .08 to Options 3,
Section 11, proposed Options 3, Section 12(b)(1), proposed
Supplementary Material .09 to Options 3, Section 13 and proposed
Supplementary Material .07 to Options 3, Section 14 provide that
Members may only submit Complex Orders with a stock/ETF component if
such orders

comply with the Qualified Contingent Trade Exemption. Members
submitting such Complex Orders with a stock/ETF component represent
that such orders comply with the Qualified Contingent Trade Exemption.
Thus, the Exchange believes that Complex Orders consisting of a stock/
ETF component will comply with the exemption and that MRX's System will
validate such compliance to assist NES in carrying out its
responsibilities as agent for these orders.
    With respect to short sale regulation, the proposed handling of the
stock/ETF component of a Complex Order under this proposal should not
raise any issues of compliance with the currently operative provisions
of Regulation SHO.\30\ When a Complex Order has a stock/ETF component,
Members must indicate, pursuant to Regulation SHO, whether that order
involves a long or short sale. The System will accept Complex Orders
with a stock/ETF component marked to reflect either a long or short
position; specifically, orders not marked as buy, sell or sell short
will be rejected by MRX's System.\31\ The System will electronically
deliver the stock/ETF component to NES for execution. Simultaneous to
the options execution on MRX's System, NES will execute and report the
stock/ETF component, which will contain the long or short indication as
it was delivered by the Member to MRX's System. Accordingly, NES, as a
trading center under Rule 201, will be compliant with the requirements
of Regulation SHO. Of course, broker-dealers, including both NES and
the Members submitting orders to MRX with a stock/ETF component, must
comply with Regulation SHO. NES' compliance team updates, reviews and
monitors NES' policies and procedures including those pertaining to
Regulation SHO on an annual basis.
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    \30\ 17 CFR 242.200 et seq.
    \31\ The Exchange also accepts short sell exempt orders as
described herein.
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    Further, proposed Supplementary Material .08(c) to Options 3,
Section 11, and proposed Options 3, Section 12(b)(3), proposed
Supplementary Material .09(c) to Options 3, Section 13, and proposed
Options 3, Section 16(e) provide that when the short sale price test in
Rule 201 of Regulation SHO \32\ is triggered for a covered security,
NES will not execute a short sale order in the underlying covered
security component \33\ of a Complex Order if the price is equal to or
below the current national best bid. However, NES will execute a short
sale order in the underlying covered security component of a Complex
Order if such order is marked ``short exempt,'' regardless of whether
it is at a price that is equal to or below the current national best
bid. If NES cannot execute the underlying covered security component of
a Complex Order in accordance with Rule 201 of Regulation SHO, the
Exchange will hold the Complex Order on the Complex Order Book, if
consistent with Member instructions (Members may always elect to cancel
the order).\34\ The order may execute at a price that is not equal to
or below the current national best bid.\35\ This proposed rule is
similar to Phlx Options 3, Section 16(b) except that unlike Phlx, MRX
will not cancel back the Complex Order to the entering Member unless
the Member requests that the order be cancelled. As noted above, MRX
and Phlx differ with respect to the manner in which their systems
handle Stock-Option Strategies and Stock-Complex Strategies that do not
meet requisite price checks in their respective rules or do not meet
the requirements of Regulation SHO. As proposed, MRX will hold orders
on the Complex Order book that cannot be executed pursuant to
Regulation SHO restrictions, unless the Member requests the order to be
cancelled.\36\ If an MRX Member elects to have the order held, the
order would await other matching opportunities, otherwise at the
Member's election the order would be returned to the Member. In
contrast, Phlx only provides for a cancellation of the order. MRX's
proposed approach would the Member with optionality as to the handing
of the order. The Exchange believes providing the choice to have the
order held provides Members with an opportunity for an execution.
---------------------------------------------------------------------------

    \32\ See Securities Exchange Act Release No. 61595 (February 26,
2010), 75 FR 11232 (March 10, 2010) (``Rule 201 Adopting Release'').
    \33\ For purposes of this paragraph, the term ``covered
security'' shall have the same meaning as in Rule 201(a)(1) of
Regulation SHO.
    \34\ See proposed Options 3, Section 16(e). In contrast, Complex
Orders in an auction mechanism that cannot be executed in accordance
with Regulation SHO will be cancelled back and will not rest on the
Complex Order Book as provided in Supplementary Material .08 to
Options 3, Section 11 and Supplementary Material .09 to Options 3,
Section 13.
    \35\ See proposed Options 3, Section 16(e).
    \36\ See proposed Options 3, Section 16(e).
---------------------------------------------------------------------------

    For these reasons, the processing of the stock/ETF component of a
Complex Order under this proposal will comply with applicable rules
regarding equity trading, including the rules governing trade
reporting, trade-throughs and short sales. NES's responsibilities
respecting these equity trading rules will be documented in NES's
written policies and procedures. NES' compliance team updates, reviews
and monitors NES' policies and procedures regarding equity trading
rules on an annual basis. NES is regulated by FINRA and as such, NES
policies and procedures are subject to review and examinations by
FINRA.
    As part of the execution of the stock/ETF component, NES will
ensure that the execution price is within the intra-day high-low range
for the day in that stock at the time the Complex Order is processed
and within a certain price range from the current market pursuant to
Options 3, Section 16(a),\37\ which the Exchange will establish in an
Options Trader Alert. If the stock price is not within these
parameters, the Complex Order is not executable and would be held on
the order book or cancelled, consistent with Member instructions.\38\
Before the migration of MRX to enhanced technology platform when the
Exchange was offering stock-tied functionality, the third-party broker-
dealer would ensure the execution price was within the intra-day high-
low range. With the transition to NES, the Exchange would commence
performing this check. Members who transact stock-tied functionality on
MRX would therefore continue to be subject to the same execution price
check with NES as they were before the migration.
---------------------------------------------------------------------------

    \37\ This intra-day high-low range check does not occur for
Complex PIM Orders, Complex Facilitation Orders and Complex SOM
Orders, and also does not occur for Complex Customer Cross Orders.
    \38\ See proposed Options 3, Section 16(d). In contrast, Complex
Orders in an auction mechanism that cannot be executed in accordance
with Regulation SHO will be cancelled back and will not rest on the
Complex Order Book as provided in Supplementary Material .08 to
Options 3, Section 11 and Supplementary Material .09 to Options 3,
Section 13.
---------------------------------------------------------------------------

    The Exchange believes that the continued electronic submission of
the stock/ETF piece of the Complex Order to NES for execution should
help ensure that the Complex Order, as a whole, is executed timely and
at the desired price. In addition, the Exchange's electronic
communication of the stock or ETF component to NES for execution
eliminates the need for each party to separately submit the stock
component to a broker-dealer for execution. The execution of the stock/
ETF portion of a Complex Order will be immediate; the Exchange's System
will calculate the stock price based on the net debit/credit price of
the Complex Order,\39\ while also calculating and determining the
appropriate options price(s), all electronically. The Exchange
continues to believe that this practice would not

require the Exchange to later nullify options trades if the stock price
cannot be achieved. Accordingly, like Phlx, the Exchange is not
proposing to adopt a rule permitting such option trade nullifications
because the trade would not occur at a price that later required
nullification due to the unavailability of the stock/ETF price. The
Exchange further believes that the certainty associated with such
electronic calculations and processing will continue to be an
attractive feature for Members transacting Complex Orders with a stock
or ETF component. Likewise, Phlx does not have a rule for options trade
nullification for similar transactions. Phlx reasoned in its proposal
to similarly use an affiliate to execute the stock or ETF component of
a Complex Order that because such execution would be immediate, with
Phlx's system calculating the stock or ETF price based on the net
debit/credit price of the Complex Order while also calculating and
determining the appropriate options price(s), that it believed that its
approach would not require Phlx to later nullify options trades if the
stock price cannot be achieved.\40\
---------------------------------------------------------------------------

    \39\ The stock/ETF price is, of course, included within the net
debit/credit price of the Complex Order.
    \40\ See Phlx Complex Order Approval supra at 5633.
---------------------------------------------------------------------------

    The Exchange also believes that it is appropriate to construct a
program wherein its affiliate, NES, is the exclusive conduit for the
execution of the stock/ETF component of a Complex Order under this
proposal, similar to Phlx.\41\ As a practical matter, complex order
programs on other exchanges involve specific arrangements with a
broker-dealer to facilitate prompt execution. NES does not intend to
charge a fee for the execution of the stock/ETF component of a Complex
Order.\42\ The Exchange believes that is consistent with the Act for
such an arrangement to involve one broker-dealer, even one that is an
affiliate, particularly to offer the aforementioned benefits of a
prompt, electronic execution for Complex Orders involving stock/ETFs.
Specifically, offering a seamless, automatic execution for both the
options and stock/ETF components of a Complex Order is an important
feature that should promote just and equitable principles of trade and
remove impediments to and perfect the mechanism of a free and open
market and a national market system by deeply enhancing the sort of
complex order processing available on options exchanges today.
Nevertheless, Members could, in lieu of this proposed arrangement with
NES, choose, instead, the following alternatives: (i) avoid using
Complex Orders that involve stock/ETFs, (ii) use a trading floor to
execute Complex Order with stock, or (iii) go to another options venue,
several of which offer a similar feature.\43\
---------------------------------------------------------------------------

    \41\ See MRX General 2, Section 4(b) which provides that Nasdaq,
Inc., which owns NASDAQ Execution Services, LLC and the Exchange,
shall establish and maintain procedures and internal controls
reasonably designed to ensure that NASDAQ Execution Services, LLC
does not develop or implement changes to its system on the basis of
non-public information regarding planned changes to the Exchange's
systems, obtained as a result of its affiliation with the Exchange,
until such information is available generally to similarly situated
Exchange Members in connection with the provision of inbound routing
to the Exchange.
    \42\ However, Trade Reporting Facility and clearing fees, not
charged by MRX or NES, may result. National Securities Clearing
Corporation (``NSCC'') and ACT will bill firms directly for their
use of the NSCC and ACT systems, respectively. To the extent that
NES is billed by NSCC or ACT, it will not pass through such fees to
firms for the stock/ETF portion of a Complex Order under this
proposal. MRX's fees applicable to Complex Orders appear in its Fee
Schedule and may change from time to time.
    \43\ Existing Complex Order mechanisms at Cboe, Inc. (``Cboe'')
offers a similar end result. See Cboe 5.33(l).
---------------------------------------------------------------------------

    In line with the proposed amendments, the Exchange proposes to
remove language within Supplementary Material .02 of Options 3, Section
14 which states,

    Members may also indicate preferred execution brokers, and such
preferences will determine order routing priority whenever possible.
A trade of a Stock-Option Order or a Stock-Complex Order will be
automatically cancelled if market conditions prevent the execution
of the stock or option leg(s) at the prices necessary to achieve the
agreed upon net price. When a Stock-Option Order or Stock-Complex
Order has been matched with another Stock-Option Order or Stock-
Complex Order that is for less than the full size of the Stock-
Option Order or Stock-Complex Order, the full size of the Stock-
Option Order or Stock Complex Order being processed by the stock
execution venue will be unavailable for trading while the order is
being processed.

    As noted herein, Members will no longer be able to indicate
preferred execution brokers which makes the first sentence within
Supplementary Material .02 of Options 3, Section 14 unnecessary. The
second sentence within Supplementary Material .02 of Options 3, Section
14 is being removed because the Exchange is replacing this rule text
with proposed Options 3, Section 16(d) and (e) which describes price
checks that will be performed for Stock-Option Orders or Stock-Complex
Orders by NES. The third sentence within Supplementary Material .02 of
Options 3, Section 14 is being removed because the Exchange's proposal
to replace the third-party broker with NES will remove a delay that
currently exists in the workflow to process a Stock-Option Order or
Stock-Complex Order. NES will perform the stock leg validations
proposed in Options 3, Sections 16(d) and (e) for Stock-Option Orders
or Stock-Complex Orders. Thereafter, NES would print the stock
components onto the Trade Reporting Facility and MRX would print the
option component executions. This new workflow in which the stock or
ETF component of the order will be routed to NES for execution instead
of a third-party broker-dealer will obviate the possibility that the
stock execution venue will be unavailable for trading while the order
is being processed because MRX would no longer be reliant on a third-
party broker-dealer to conduct the appropriate checks and, thereafter,
relay information to MRX. With the proposed change, NES, the Exchange's
affiliate, would conduct the necessary price checks and would make
Stock-Option Orders or Stock-Complex Orders available to MRX in the
same way that it does for Phlx. The Exchange believes that this new
workflow would increase the efficiency of the entire transaction,
including stock component validation and reporting.
Complex Opening Process
    Similarly, the Exchange proposes to amend Supplementary Material
.04 to Options 3, Section 14 to provide that Stock-Option Strategies
and Stock-Complex Strategies will open pursuant to the Complex Opening
Price Determination described in Supplementary Material .05 to Options
3, Section 14 instead of the Complex Uncrossing Process described in
Supplementary Material .06(b) to Options 3, Section 14. Similar to the
discussion above, the applicable price checks for the stock/ETF
component of a Stock-Option Strategy and Stock-Complex Strategy were
being performed by a third-party broker-dealer before the migration,
which caused a delay that prevented these strategies from participating
in the Complex Opening Process. With the proposed change to utilize NES
in lieu of a third-party broker-dealer, Stock-Option Strategies and
Stock-Complex Strategies would be able to participate in the Complex
Opening Process because there would be no delay as NES, the Exchange's
affiliate, would conduct the necessary checks (i.e., the price checks
Options 3, Section 16(d) and (e)). Thereafter, NES would make Stock-
Option Order or Stock-Complex Order available to participate in the
Complex Opening Process.
    For example, assume that an underlying equity is in a Regulation

SHO State, the underlying equity component is open on the primary
underlying market, and the following strategy is created prior to the
option leg being opened on MRX:

[ssquf] Assume Stock Option Strategy: Buy 8 puts and buy 100 shares
[ssquf] Stock Leg NBBO: 50.00 x 50.20
[ssquf] Option leg opens on MRX and the NBBO is 2.00 x 2.10
[ssquf] Stock-Option Strategy derived NBBO: 16.50 x 16.75 \44\
---------------------------------------------------------------------------

    \44\ The derived NBBO for the Stock Option Strategy was
calculated as follows: Stock Option Strategy Derived Bid = \1/
4\(2.00 x 8) + \1/4\(50) = 16.50 and Stock Option Strategy Derived
Offer = \1/4\(2.10 x 8) + \1/4\(50.20) = 16.75. The Stock Option
Strategy is normalized by MRX's System by dividing the legs by the
greatest common denominator of four (4). The normalized ratio was
applied to the option leg price and stock leg price to determine the
net price strategy.
---------------------------------------------------------------------------

[ssquf] Firm A Customer Stock-Option Order to buy 5 strategies for
16.50 arrives
[ssquf] Firm B Stock-Option Order to buy 5 strategies for 16.50 arrives
[ssquf] Firm C Stock-Option Order to sell 7 strategies for 16.50
arrives with instructions to short the stock component
[ssquf] Firm D Stock-Option Order to sell 3 strategies for 16.50
arrives with instructions to Sell the Stock component

    In the above scenario, only Firm A (buying 5 strategies) and Firm D
(not shorting 3 strategies) can actually trade at the Opening Price
despite it appearing there is a fully matched cross. Firm C (selling 7
strategies) cannot trade because the underlying is in a Regulation SHO
state and the only price the stock leg can be matched at, is on the
National Best Bid, which is not a permissible price to short sell for
an underlying in a Regulation SHO state.
    Prior to the migration, MRX did not attempt to match Stock-Option
Orders and Stock-Complex Orders during the Complex Opening Price
Determination because the Exchange could not ensure that all parties in
the cross would be able to match at the proposed stock leg price
because the checks were performed by a third party. If the third party
was unable to match part of the cross, executions on the options
components would need to be busted, therefore the Exchange did not
consider Stock-Option Orders and Stock-Complex Orders in the Complex
Opening prior to the migration.
    With this proposal, the price checks would be conducted by NES, an
affiliate of the Exchange. Once MRX determines the stock and option leg
prices, MRX will communicate the stock price and quantity to NES, who
will conduct the necessary price checks. The proposed workflow provides
efficiencies for the stock component execution as compared to the
current process which involves a third-party broker-dealer. With this
process, MRX would be able to process the option component and match
the strategies during the Complex Opening Price Determination without
the need for MRX to await a response from a third-party broker-dealer.
    The ability to attempt this match opportunity earlier in the
Complex Opening Price Determination is critical because the market can
move between the Complex Opening Price Determination and the Complex
Uncrossing Process \45\ in such a way that the trade could no longer be
possible. By way of example, prior to the migration, if the Stock
Component adjusts to 53.00 x 54.00 before this strategy can attempt a
Complex Uncrossing Process, the Stock Option Strategy derived NBBO
would be 17.25 x 17.70 and there would no longer be a match possible
for the interest willing to buy and sell at 16.50. If the System
instead had utilized the Opening Price Determination, the execution
would have occurred in this instance.
---------------------------------------------------------------------------

    \45\ See Supplementary Material .06 to MRX Options 3, Section
14.
---------------------------------------------------------------------------

Trade Value Allowance
    Trade Value Allowance is a functionality that allows Stock-Option
Strategies and Stock-Complex Strategies to trade outside of their
expected notional trade value by a specified amount (the ``Trade Value
Allowance'').\46\ After calculating the appropriate options match price
for a Stock-Option or Stock-Complex Order expressed in a valid one cent
increment, the System calculates the corresponding stock match price
rounded to the increment supported by the equity market.
---------------------------------------------------------------------------

    \46\ The Trade Value Allowance is the percentage difference
between the expected notional value of a trade and the actual
notional value of the trade. See Supplementary Material .03 of MRX
Options 3, Section 14.
---------------------------------------------------------------------------

    The Exchange no longer desires to offer the Trade Value Allowance.
The Exchange has issued an Options Trader Alert indicating its intent
to decommission this functionality to provide notice to Members.\47\
Very few Members have opted to utilize the Trade Value Allowance and
even a smaller percentage of trades were subject to the allowance. Phlx
does not have a similar allowance today. In an effort to harmonize its
complex order functionality across its Nasdaq affiliated markets, the
Exchange proposes to no longer offer the Trade Value Allowance
functionality. With the proposed change to utilize NES, the Exchange
would determine the stock leg prices, and NES would be able to execute
the stock leg at two different prices to ensure that the net price of
the execution is within the notional value of the original order, thus
eliminating the need for the allowance.
---------------------------------------------------------------------------

    \47\ See Options Trader Alert # 2023-3. No Member has expressed
concern with this functionality being eliminated.
---------------------------------------------------------------------------

Options 3, Section 7
    The Exchange proposes to make a clarifying change to MRX Options 3,
Section 7, Types of Orders and Order and Quote Protocols. The Exchange
proposes to amend MRX Options 3, Section 7(t) related to QCC with Stock
Orders to make clear that QCC with Stock Orders may only be entered
through FIX.\48\ MRX has 2 order entry protocols, FIX and OTTO.\49\
Members are required to have an order entry protocol to enter orders
onto MRX. MRX offers each Member one FIX port at no cost.\50\ All
Members would have the ability to enter QCC with Stock Orders. QCC with
Stock Orders may not be entered through OTTO.
---------------------------------------------------------------------------

    \48\ ``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.
    \49\ ``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 and complex
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.
    \50\ See Options 7, Section 6, Ports and Other Services.
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to amend Supplementary Material
.02(d) to Options 3, Section 7 related to Immediate-or-Cancel Orders.
The Exchange proposes to specifically amend Supplementary Material
.02(d)(3) to Options 3, Section 7 to add QCC with Stock Orders and
Complex QCC with Stock to the list of order types that have a Time in
Force or ``TIF'' of Immediate-or-Cancel or ``IOC''. Because QCC with
Stock Orders and Complex QCC with Stock have a TIF of IOC, these order
types will either execute on entry or cancel. Adding these order types
to Supplementary Material .02(d)(3) to Options 3, Section 7 will make
this clear.

Options 3, Section 12
    The Exchange proposes to amend Options 3, Section 12(e)(4) to
clarify the manner in which a Member may submit a QCC with Stock
Order.\51\ Today, Options 3, Section 12(e)(4) provides that, ``QCC with
Stock Orders can be entered with separate prices for the stock and
options components, or with a net price for both.'' The Exchange
proposes to amend this rule text to instead reflect the current manner
in which QCC with Stock Orders may be entered into MRX's System. The
proposed rule text would provide, ``QCC with Stock Orders must be
entered with a net price for the stock and options components through
FIX. The System will calculate the individual component prices.'' The
current language of Options 3, Section 12(e)(4) is not correct. The
Exchange proposes to amend this language to make clear the current
System functionality. The proposed language does not result in a change
to the Exchange's System. As noted above, QCC with Stock Orders may not
be entered through OTTO. The Exchange notes that requiring QCC with
Stock Orders to be submitted through FIX is consistent with proposed
Options 3, Section 7(t) which currently requires Members to enter QCC
Orders through FIX. Additionally, the Exchange is specifying the System
calculates the individual component prices.
---------------------------------------------------------------------------

    \51\ QCC with Stock Orders are processed in accordance with
Options 3, Section 12(e).
---------------------------------------------------------------------------

Options 3, Section 15
    The Exchange proposes to amend its Market Wide Risk Protection
within Options 3, Section 15(a)(1)(C) to add certain additional
information concerning the current Market Wide Risk Protection along
with new language that would apply as a result of the proposed changes
to stock-tied functionality.
    Today, the Exchange offers a Market Wide Risk Protection which is
comprised of an ``Order Entry Rate Protection'' which protects Members
against entering orders at a rate that exceeds predefined thresholds,
and an ``Order Execution Rate Protection,'' which protects Members
against executing orders at a rate that exceeds their predefined risk
settings. Both of these risk protections are detailed in the ``Market
Wide Risk Protection.'' Today, pursuant to the proposed Market Wide
Risk Protection rule, the Exchange's System maintains one or more
counting programs for each Member that count orders entered and
contracts traded on MRX. Members can use multiple counting programs to
separate risk protections for different groups established within the
Member.
    MRX Options 3, Section 15(a)(1)(C) currently states, that the
counting programs will maintain separate counts, over rolling time
periods specified by the Member for each count of: (1) the total number
of orders entered; (2) the total number of contracts traded. The
Exchange proposes to amend MRX Options 3, Section 15(a)(1)(C) to
instead provide,

[t]he counting programs will maintain separate counts, over rolling
time periods specified by the Member for each count, of: (1) the
total number of orders entered in the regular order book; (2) the
total number of orders entered in the complex order book with only
options legs; (3) the total number of Stock-Option Orders and Stock-
Complex Orders entered in the complex order book with both stock and
options legs ; (4) the total number of contracts traded in regular
orders; (5) the total number of contracts traded in complex orders
with only options legs; and (6) the total number of Stock-Option
Order and Stock-Complex Order contracts traded in complex orders
with both stock and option legs).

Today, the counting programs maintain separate counts over rolling time
period for the total number of orders entered in the regular order
book, complex order book with only options legs; and the complex order
book with both stock and options legs. Additionally, the risk
protection counts the total number of contracts traded in regular
orders and Complex Orders with only options legs.\52\ The current rule
text does not provide for each of these counts today.
---------------------------------------------------------------------------

    \52\ The Member's allowable order rate for the Order Entry Rate
Protection is comprised of the parameters defined in (1) to (3),
while the allowable contract execution rate for the Order Execution
Rate Protection is comprised of the parameters defined in (4) and
(5).
---------------------------------------------------------------------------

    The Exchange proposes a technical amendment to the first provision
of MRX Options 3, Section 15(a)(1)(C) to add ``in the regular order
book'' to the sentence to distinguish the single-leg order book from
the complex order book.
    At the time that MRX adopted Complex Order rules, those rules were
intended to be identical to Nasdaq ISE, LLC (``ISE'') complex order
rules.\53\ MRX should have amended MRX Options 3, Section 15(a)(1)(C)
to include the rule text within (2) through (5), as noted above, to
mirror the rules of ISE Options 3, Section 15(a)(1)(C) as it pertains
to Complex Orders. The Exchange proposes to mirror the rules of ISE
Options 3, Section 15(a)(1)(C) within (2) through (5) except that the
rules will use the defined terms Stock-Option Order, Stock-Complex
Order, and Complex Option Order.\54\ The Exchange notes that the stock
portion of QCC Orders, Complex Qualified QCC Orders, QCC with Stock
Orders, and Complex QCC with Stock Orders are not counted in (3)
because MRX's System does not handle the stock portion of these orders.
MRX would not represent the stock leg through NES as it would for other
Stock-Option Orders and Stock-Complex Orders as described herein. The
Exchange inadvertently did not amend its rules similar to ISE today.
Today, the Market Wide Risk Protection includes Complex Orders, where
applicable. At this time, MRX proposes to mirror ISE's rules related to
the counting functionality for Complex Orders to reflect the manner in
which the System operates. The Exchange notes that QCC Orders, Complex
Qualified QCC Orders, QCC with Stock Orders, and Complex QCC with Stock
Orders are considered, where applicable, in Options 3, Section
15(a)(1)(C)(1), (2), (4) and (5).
---------------------------------------------------------------------------

    \53\ See Securities Exchange Act Release No. 86326 (July 8,
2019), 84 FR 33300 (July 12, 2019) (SR-MRX-2019014) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Adopt Complex Order Pricing).
    \54\ A similar change will be made to ISE to utilize the defined
terms ``Stock-Option Order,'' ``Stock-Complex Order'' and ``Complex
Option Order.''
---------------------------------------------------------------------------

    Today, the Exchange does not include a complex execution count for
Complex Orders with a stock component as the execution counts
maintained by the Order Execution Rate Protection are based solely on
options contracts traded. At this time, as a result of amending the
stock-tied functionality, the Exchange proposes to add a new number (6)
to MRX Options 3, Section 15(a)(1)(C) to note that the counting
programs will maintain separate counts, over rolling time periods
specified by the Member for each count, of the total number of Stock-
Option Order and Stock-Complex Order contracts traded in Complex Order
with both stock and option legs. The Exchange is adding new number (6)
because it is introducing NES in place of a third-party broker-dealer.
As a result, the Exchange will guarantee a stock-tied execution. Before
the migration, the stock-tied execution was not guaranteed by the
third-party broker-dealer. Because of the ability to guarantee the
execution, the Exchange is amending Options 3, Section 15(a)(1)(C) to
add (6) to the list of contracts counted by the Market Wide Risk
Protection because the Exchange is able to perform the risk check since
NES will be handling the stock for Stock-Option Orders and Stock-
Complex Orders. This risk protection will reduce risk associated with
system errors or market events that

may cause Members to send a large number of orders, or receive
multiple, automatic executions, before they can adjust their exposure
in the market. Without adequate risk management tools, such as those
proposed in this filing, Members could reduce the amount of order flow
and liquidity that they provide on MRX. As a result, the functionality
promotes just and equitable principles of trade.
    Finally, the Exchange proposes to add the defined term ``DNTT'' to
the end of Options 3, Section 16(a) to define the instruction on a
Complex Order to price each leg of the Complex Order to be executed
equal to or better than the NBBO for the options series or any stock
component, as applicable as a ``Do-Not-Trade-Through'' or ``DNTT.''
This is not a substantive amendment, rather this change is meant to
assist Members in locating this functionality within MRX's rules.
Implementation
    The Exchange will issue an Options Trader Alert to Members to
provide notification of the implementation date for MRX's Delayed
Functionalities, except Trade Value Allowance. MRX will announce the
day it will recommence the Delayed Functionalities, except Trade Value
Allowance, before November 7, 2023, which is one year from the day
MRX's technology migration commenced. Separately, MRX informed Members
that it will not recommence the Trade Value Allowance functionality in
a separate Options Trader Alert.\55\ As discussed above, the Trade
Value Allowance will no longer be necessary.
---------------------------------------------------------------------------

    \55\ See supra note 12.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\56\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\57\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest for the reasons discussed below.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78f(b).
    \57\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Re-Introduction of Stock-Related Strategies and Elimination of Trade
Value Allowance
Stock-Tied Functionality
    The Exchange's proposal to amend its stock-tied functionality that
the Exchange used prior to the technology migration and recommence
offering this functionality as described above promotes just and
equitable principles of trade and removes impediments to and perfect
the mechanism of a free and open market and a national market system
because it will permit the Exchange to streamline its stock-tied
processes as discussed more fully below. Further, the amendments to
require that a Member desiring to execute an order with stock or an ETF
component enter into a brokerage agreement with NES, a broker-dealer
owned and operated by Nasdaq, Inc., protects investors and the general
public because Members will be required to comply with NES'
requirements and those requirements will be uniform for all MRX
Members.
    The proposed stock-tied functionality is identical to Phlx Options
3, Sections 13(b)(10)(ii) and 14(a)(i) with respect to utilizing NES to
process and report stock-tied functionality with two differences.
    First, while both Phlx and MRX have certain risk protections for
complex orders, they differ. With respect to MRX, the execution price
of the Complex Order must be within a certain price from the current
market, as determined by the Exchange pursuant to Options 3, Section
16(a). Specifically, today, MRX Options 3, Section 16(a) provides that
the System will not permit any leg of a complex strategy to trade-
through the NBBO for the series or any stock component by a
configurable amount calculated as the lesser of (i) an absolute amount
not to exceed $0.10, and (ii) a percentage of the NBBO not to exceed
500%, as determined by the Exchange on a class, series or underlying
basis. Phlx Options 3, Section 16(b)(i) describes Phlx's ACE Parameter
which defines a price range outside of which a complex order will not
be executed. On Phlx, a complex order to sell is not executed at a
price that is lower than the cNBBO bid by more than the ACE Parameter.
Conversely, on Phlx, a complex order to buy will not be executed at a
price that is higher than the cNBBO offer by more than the ACE
Parameter. While MRX's and Phlx's price checks differ, both markets
seek to prevent executions from occurring at certain prices and at
certain percentages from the NBBO. The Exchange believes that this
proposal promotes just and equitable principles of trade because NES
would apply the same price check for stock-tied functionality that was
being applied previously by a third party that executed the stock or
ETF component of a complex strategy on behalf of MRX Members.
Additionally, MRX Members would continue to be subject to the same
price check which is applied to all Complex Orders executed on MRX.
    Second, MRX and Phlx differ with respect to the manner in which
their systems handle Stock-Option Strategies and Stock-Complex
Strategies that would execute against interest on the Complex Order
Book at a price that do not meet price checks as provided for in
proposed Options 3, Section 16(d) \58\ or do not meet Regulation SHO
provisions as provided for in proposed Options 3, Section 16(e) \59\
are handled by their respective systems. As proposed, MRX will hold
orders on the Complex Order book that cannot be executed because of
Regulation SHO or price check restrictions, unless the Member requests
the order to be cancelled. If an MRX Member elects to have the order
held on the Complex Order Book, the order would await other matching
opportunities, otherwise at the Member's election the order would be
returned to the Member. In contrast, Phlx only provides for a
cancellation of the order. The Exchange believes that this proposal
promotes just and equitable principles of trade because MRX's proposed
approach would provide the Member with optionality as to the handing of
the order. The Exchange believes providing the choice to have the order
held on the Complex Order Book provides Members with an opportunity for
an execution.
---------------------------------------------------------------------------

    \58\ As proposed, the execution price of Stock-Option Strategies
and Stock-Complex Strategies must be within the high-low range for
the day in that stock at the time the Complex Order is processed and
within a certain price from the current market pursuant to Options
3, Section 16(a), as determined by the Exchange.
    \59\ See supra note 22.
---------------------------------------------------------------------------

    NES, an affiliate of the Exchange and a registered broker-dealer,
has been approved by the Commission to become a Member of the Exchange
and perform inbound routing on behalf of the Exchange.\60\
Additionally, NES is permitted to route outbound orders either directly
or indirectly through a third party routing broker-dealer to other
market centers and perform other functions regarding the cancellation
of orders and the maintenance of a NES error account.\61\ The functions
performed by NES on Phlx today are identical to the functions that MRX
proposes for NES to perform for MRX Members.\62\ Identical to Phlx,
after

MRX's System determines that a Complex Order is possible and identifies
the prices for each component of such Complex Order, MRX will
electronically communicate the stock or ETF component of the Complex
Order to NES for execution.\63\
---------------------------------------------------------------------------

    \60\ See supra note 16.
    \61\ See supra note 17.
    \62\ See Securities Exchange Act Release No. 63777 (January 26,
2011), 76 FR 5630 (February 1, 2011) (SR-Phlx-2010-157) (Order
Approving a Proposed Rule Change, as Modified by Amendment Nos. 1
and 2, Relating to Complex Orders) (``Phlx Complex Order
Approval''). NES assumed the stock execution functionalities that
were previously performed by NOS. Phlx subsequently filed to permit
both inbound and outbound orders to be routed through NES instead of
Nasdaq Options Services LLC (``NOS''). See Securities Exchange Act
Release No. 71417 (January 28, 2014), 79 FR 6253 (February 3, 2014)
(SR-Phlx-2014-04) (Notice of Filing and Immediate Effectiveness of
Proposed Rule Change to Outbound Routing) and 71416 (January 28,
2014), 79 FR 6244 (February 3, 2014) (SR-Phlx-2014-05) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to
Inbound Routing of Options Orders).
    \63\ See proposed Supplementary Material .08(b) to Options 3,
Section 11, proposed Options 3, Section 12(b)(2), proposed
Supplementary Material .09(b) to Options 3, Section 13, proposed
Supplementary Material .02 to Options 3, Section 14 and proposed
Options 3, Section 16(d). See also Phlx Options 3, Section
13(b)(10)(ii), Options 3, Section 16(b).
---------------------------------------------------------------------------

    NES, acting as agent for the orders to buy and sell the underlying
stock or ETF, will execute the orders in the OTC market and will handle
the orders pursuant to applicable rules regarding equity trading,
including the rules governing trade reporting, trade-throughs, and
short sales. Before the migration, this function was performed by a
third-party broker-dealer that executed the stock or ETF component of a
complex strategy on behalf of MRX Members. As proposed, this structure
will promote just and equitable principles of trade because NES will be
responsible for the proper execution, trade reporting, and submission
to clearing of the underlying stock or ETF component of a Complex
Order.\64\ Furthermore, today, NES is responsible for compliance with
FINRA rules generally and is subject to examination by FINRA.\65\
Finally, today, NES has in place policies related to confidentiality
and the potential for informational advantages relating to its
affiliates, intended to protect against the misuse of material
nonpublic information.\66\ In particular, NES will have in place
policies and procedures designed to prevent the misuse of material non-
public information related to stock-tied executions which will protect
investors and the public interest. NES only receives information about
the stock or ETF portion of the order from the Exchange. As mentioned
herein, today, NES is responsible for the proper execution, trade
reporting, and submission to clearing of the underlying stock or ETF
component of a Complex Order on Phlx. MRX will adopt identical policies
and procedures for its stock-tied functionality as are in place on Phlx
today.
---------------------------------------------------------------------------

    \64\ See supra note 23.
    \65\ NES is subject to FINRA Rule 3110, which generally requires
that the policies and procedures and supervisory systems be
reasonably designed to achieve compliance with applicable securities
laws and regulations and with applicable FINRA rules, including
those relating to the misuse of material non-public information.
    \66\ See supra note 24.
---------------------------------------------------------------------------

    In addition, the execution and reporting of the stock/ETF piece
will occur otherwise than on MRX or any other exchange, and will be
handled by NES pursuant to applicable rules regarding equity
trading,\67\ including the rules governing trade reporting, trade-
throughs and short sales. The Exchange's proposal also promotes just
and equitable principles of trade as NES will report the trades to the
Trade Reporting Facility.\68\ Further, all MRX Members may execute
stock-tied transactions. All stock-tied transactions will have the
stock/ETF component of a Complex Order, once executed, properly
processed for trade reporting purposes. Phlx has identical rules for
processing and reporting.\69\
---------------------------------------------------------------------------

    \67\ See supra note 25.
    \68\ See supra note 26.
    \69\ See Phlx Options 3, Sections 13(b)(10) and 14(a)(i).
---------------------------------------------------------------------------

    With respect to trade-throughs, the Exchange believes that the
stock/ETF component of a Complex Order is eligible for the Qualified
Contingent Trade Exemption from Rule 611(a) of Regulation NMS. The
Exchange believes that the stock/ETF portion of a Complex Order under
this proposal complies with all six requirements of the Qualified
Contingent Trade Exemption.\70\ In order to promote just and equitable
principles of trade, MRX's System will validate compliance with each
requirement such that any matched order received by NES under this
proposal has been checked for compliance with the exemption. Members
may only submit Complex Orders with a stock/ETF component if such
orders comply with the Qualified Contingent Trade Exemption.\71\
Members submitting such Complex Orders with a stock/ETF component
represent that such orders comply with the Qualified Contingent Trade
Exemption. Thus, the Exchange believes that Complex Orders consisting
of a stock/ETF component will comply with the exemption and that MRX's
System will validate such compliance to assist NES in carrying out its
responsibilities as agent for these orders.
---------------------------------------------------------------------------

    \70\ The six requirements include: (1) At least one component
order is in an NMS stock: The stock/ETF component must be an NMS
stock, which is validated by the System; (2) all components are
effected with a product or price contingency that either has been
agreed to by the respective counterparties or arranged for by a
broker-dealer as principal or agent: A Complex Order, by definition
consists of a single net/debit price and this price contingency
applies to all the components of the order, such that the stock
price computed and sent to NES allows the stock/ETF order to be
executed at the proper net debit/credit price based on the execution
price of each of the option legs, which is determined by the MRX
System; (3) the execution of one component is contingent upon the
execution of all other components at or near the same time: Once a
Complex Order is accepted and validated by the System, the entire
package is processed as a single transaction and each of the option
leg and stock/ETF components are simultaneously processed; (4) the
specific relationship between the component orders (e.g., the spread
between the prices of the component orders) is determined at the
time the contingent order is placed: Complex Orders, upon entry,
must have a size for each component and a net debit/credit, which
the System validates and processes to determine the ratio between
the components; an order is rejected if the net debit/credit price
and size are not provided on the order; (5) the component orders
bear a derivative relationship to one another, represent different
classes of shares of the same issuer, or involve the securities of
participants in mergers or with intentions to merge that have been
announced or since cancelled: under this proposal, the stock/ETF
component must be the underlying security respecting the option
legs, which is validated by the System; and (6) the transaction is
fully hedged (without regard to any prior existing position) as a
result of the other components of the contingent trade: Under this
proposal, the ratio between the options and stock/ETF must be a
conforming ratio (8 contracts per 100 shares), which the System
validates, and which under reasonable risk valuation methodologies,
means that the stock/ETF position is fully hedged.
    \71\ See Supplementary Material .07 to Options 3, Section 14.
---------------------------------------------------------------------------

    With respect to short sale regulation, the proposed handling of the
stock/ETF component of a Complex Order under this proposal should not
raise any issues of compliance with the currently operative provisions
of Regulation SHO \72\ and therefore promote just and equitable
principles of trade. When a Complex Order has a stock/ETF component,
Members must indicate, pursuant to Regulation SHO, whether that order
involves a long or short sale. The System will accept Complex Orders
with a stock/ETF component marked to reflect either a long or short
position; specifically, orders not marked as buy, sell or sell short
will be rejected by MRX's System.\73\ The System will electronically
deliver the stock/ETF component to NES for execution. Simultaneous to
the options execution on MRX's System, NES will execute and report the
stock/ETF component, which will contain the long or short indication as
it was delivered by the Member to MRX's System. Accordingly, NES, as a
trading center under Rule 201, will be compliant with the requirements
of Regulation SHO. Of course, broker-dealers, including both NES and
the Members submitting orders to MRX with a stock/ETF component, must
comply with Regulation SHO. NES'

compliance team updates, reviews and monitors NES' policies and
procedures including those pertaining to Regulation SHO on an annual
basis.
---------------------------------------------------------------------------

    \72\ 17 CFR 242.200 et seq.
    \73\ The Exchange also accept short sell exempt orders as
described herein.
---------------------------------------------------------------------------

    Further, proposed Options 3, Section 16(e) provides that when the
short sale price test in Rule 201 of Regulation SHO \74\ is triggered
for a covered security, NES will not execute a short sale order in the
underlying covered security component of a Complex Order if the price
is equal to or below the current national best bid. However, NES will
execute a short sale order in the underlying covered security component
of a Complex Order if such order is marked ``short exempt,'' regardless
of whether it is at a price that is equal to or below the current
national best bid. If NES cannot execute the underlying covered
security component of a Complex Order in accordance with Rule 201 of
Regulation SHO, the Exchange will hold the Complex Order on the Complex
Order Book, if consistent with Member instructions (Members may always
elect to cancel the order).\75\ The order may execute at a price that
is not equal to or below the current national best bid. This proposed
rule is similar to Phlx Options 3, Section 16(b) except that unlike
Phlx, MRX will not cancel back the Complex Order to the entering Member
unless the Member requests that the order be cancelled back.
---------------------------------------------------------------------------

    \74\ See supra note 32.
    \75\ See proposed Options 3, Section 16(e). In contrast, Complex
Orders in an auction mechanism that cannot be executed in accordance
with Regulation SHO will be cancelled back and will not rest on the
Complex Order Book as provided in Supplementary Material .08 to
Options 3, Section 11 and Supplementary Material .09 to Options 3,
Section 13.
---------------------------------------------------------------------------

    For these reasons, the processing of the stock/ETF component of a
Complex Order under this proposal will comply with applicable rules
regarding equity trading, including the rules governing trade
reporting, trade-throughs and short sales and is consistent with the
Act. NES's responsibilities respecting these equity trading rules will
be documented in NES's written policies and procedures. NES' compliance
team updates, reviews and monitors NES' policies and procedures. NES is
regulated by FINRA and as such, NES policies and procedures are subject
to review and examinations by FINRA.
    Further, as part of the execution of the stock/ETF component, the
Exchange will ensure that the execution price is within the intra-day
high-low range for the day in that stock at the time the Complex Order
is processed and within a certain price range from the current market
pursuant to Options 3, Section 16(a) which will protect investors and
the general public.\76\ If the stock price is not within these
parameters, the Complex Order is not executable and would be held on
the order book or cancelled, consistent with Member instructions.\77\
Before the migration of MRX to enhanced technology platform when the
Exchange was offering stock-tied functionality, the third-party broker-
dealer would ensure the execution price was within the intra-day high-
low range. With the transition to NES, the Exchange would commence
performing this check. Members who transact stock-tied functionality on
MRX would therefore continue to be subject to the same execution price
check with NES as they were before the migration. This intra-day high-
low range check does not occur for certain Complex Orders auctions
(e.g. Complex PIM Orders,\78\ Complex Facilitation Orders \79\ and
Complex SOM Orders \80\) and also does not occur for Complex Customer
Cross Orders \81\ or Complex QCC Orders.\82\ The Exchange believes that
this exception for auctions is consistent with the Act because these
auctions have their own rules for auction eligibility, entry checks,
and offer price improvement all of which are distinguishable from
execution of orders on the Complex Order Book. Complex Customer Cross
Orders are automatically executed upon entry so long as: (i) the price
of the transaction is at or within the best bid and offer for the same
complex strategy on the Complex Order Book; (ii) there are no Priority
Customer Complex Orders for the same strategy at the same price on the
Complex Order Book; and (iii) the options legs can be executed at
prices that comply with the provisions of Options 3, Section 14(c)(2).
Complex Customer Cross Orders will be rejected if they cannot be
executed.\83\
---------------------------------------------------------------------------

    \76\ See supra note 37.
    \77\ Similar to other order types, the Member may elect to enter
the order as an Immediate-or-Cancel to avoid resting on the order
book or as Day order which could rest on the order book.
    \78\ A Complex PIM Order is an order entered into the Complex
Price Improvement Mechanism as described in Options 3, Section
13(e). See MRX Options 3, Section 14(b)(18).
    \79\ A Complex Facilitation Order is an order entered into the
Complex Facilitation Mechanism as described in Options 3, Section
11(c). See MRX Options 3, Section 14(b)(16).
    \80\ A Complex SOM Order is an order entered into the Complex
Solicited Order Mechanism as described in Options 3, Section 11(e).
See MRX Options 3, Section 14(b)(17).
    \81\ See Options 3, Section 12(b).
    \82\ See Options 3, Section 12(d).
    \83\ Supplementary Material .01 to Options 3, Section 22 applies
to Complex Customer Cross Orders.
---------------------------------------------------------------------------

    Finally, the Exchange also believes that it is appropriate to
construct a program wherein its affiliate, NES, is the exclusive
conduit for the execution of the stock/ETF component of a Complex Order
under this proposal, identical to Phlx.\84\ As a practical matter,
complex order programs on other exchanges involve specific arrangements
with a broker-dealer to facilitate prompt execution. NES does not
intend to charge a fee for the execution of the stock/ETF component of
a Complex Order.\85\ The Exchange believes that is consistent with the
Act for such an arrangement to involve one broker-dealer, even one that
is an affiliate, particularly to offer the aforementioned benefits of a
prompt, electronic execution for Complex Orders involving stock/ETFs.
Specifically, offering a seamless, automatic execution for both the
options and stock/ETF components of a Complex Order is an important
feature that should promote just and equitable principles of trade and
remove impediments to and perfect the mechanism of a free and open
market and a national market system by deeply enhancing the sort of
complex order processing available on options exchanges today.
Nevertheless, Members could, in lieu of this proposed arrangement with
NES, choose, instead, the following alternatives: (i) avoid using
Complex Orders that involve stock/ETFs, (ii) use a trading floor to
execute Complex Order with stock, or (iii) go to another options venue,
several of which offer a similar feature.\86\
---------------------------------------------------------------------------

    \84\ See supra note 41. See proposed Supplementary Material .02
to MRX Options 3, Section 14. In addition to amending Supplementary
Material .02 to MRX Options 3, Section 14 to require Members to
enter into a brokerage agreement, the Exchange proposes to make
conforming changes to Supplementary Material .02 to MRX Options 3,
Section 14 to delete provisions that allow Members to enter into a
brokerage agreement with one or more brokers to route stock orders.
    \85\ See supra note 42.
    \86\ See supra note 43.
---------------------------------------------------------------------------

    The Exchange's proposal to remove the second and third sentences
within Supplementary Material .02 of Options 3, Section 14 \87\ is
consistent with the Act in that it protects investors and the general
public because this new workflow in which the stock or ETF

component of the order will be routed to NES for execution instead of a
third-party broker-dealer will obviate the possibility that the stock
execution venue will be unavailable for trading while the order is
being processed because of the efficiency created in executing the
entire transaction, including stock component validation and reporting,
without the need for MRX to utilize a third-party broker-dealer and
await a response from the third-party broker-dealer. MRX would no
longer be reliant on a third-party broker-dealer to conduct the
appropriate checks and, thereafter, relay information to MRX. With the
proposed change, NES, the Exchange's affiliate, would conduct the
necessary checks and thereafter the Stock-Option Order or Stock-Complex
Order would be available for execution. Proposed Options 3, Sections
16(d) and (e) describe the System price checks that will be performed
for Stock-Option Orders or Stock-Complex Orders by NES.
---------------------------------------------------------------------------

    \87\ The second and third sentences of Supplementary Material
.02 of MRX Options 3, Section 14 states, ``A trade of a Stock-Option
Order or a Stock-Complex Order will be automatically cancelled if
market conditions prevent the execution of the stock or option
leg(s) at the prices necessary to achieve the agreed upon net price.
When a Stock-Option Order or Stock-Complex Order has been matched
with another Stock-Option Order or Stock-Complex Order that is for
less than the full size of the Stock-Option Order or Stock-Complex
Order, the full size of the Stock-Option Order or Stock Complex
Order being processed by the stock execution venue will be
unavailable for trading while the order is being processed.''
---------------------------------------------------------------------------

    Similarly, the Exchange's proposal to amend Supplementary Material
.04 to Options 3, Section 14 to provide that Stock-Option Strategies
and Stock-Complex Strategies will open pursuant to the Complex Opening
Price Determination described in Supplementary Material .05 to Options
3, Section 14, instead of the Complex Uncrossing Process described in
Supplementary Material .06(b) to Options 3, Section 14, is consistent
with the Act. Similar to the discussion above, previously the
applicable checks for the stock/ETF component of a Stock-Option
Strategy and Stock-Complex Strategy were being performed by a third-
party broker-dealer before the migration, which caused a delay that
prevented these strategies from participating in the Complex Opening
Process. With the proposed change to utilize NES, in lieu of a third-
party broker-dealer, Stock-Option Strategies and Stock-Complex
Strategies would be able to participate in the Complex Opening Process
as NES, the Exchange's affiliate, would conduct the necessary price
checks and would be able to make Stock-Option Order or Stock-Complex
Order available to participate in the Complex Opening Process without
the need for MRX to await a response from a third-party broker-dealer.
This amendment is consistent with the Act as it serves to protect
investors and the general public by improving the Exchange's processes
to make Stock-Option Strategies and Stock-Complex Strategies subject to
the Complex Opening Price Determination similar to other order types.
The Complex Opening Process seeks to maximize the interest which is
traded during the Complex Opening Price Determination process and
deliver a rational price for the available interest at the opening. The
Complex Opening Price Determination process maximizes the number of
contracts executed during the Complex Opening Process and ensures that
residual contracts of partially executed orders or quotes are at a
price equal to or inferior to the Opening Price.
Trade Value Allowance
    The Exchange's proposal to no longer offer Trade Value Allowance is
consistent with the Act because very few Members have opted to utilize
the Trade Value Allowance and even a smaller percentage of trades were
subject to the allowance. Phlx does not have a similar allowance today.
In an effort to harmonize its complex order functionality across its
Nasdaq affiliated markets, the Exchange proposes to no longer offer the
Trade Value Allowance functionality. In addition, the Exchange believes
that this proposal removes impediments to and perfect the mechanism of
a free and open market and a national market system because the
proposal removes an allowance that is no longer necessary; other
options exchanges, like Phlx, do not offer such an allowance. With the
proposed change to utilize NES, the Exchange would be able to determine
stock leg prices, and NES would be able to execute the stock leg at two
different prices to ensure that the net price of the execution is
within the notional value of the original order, thus eliminating the
need for the allowance.
Options 3, Section 7
    The Exchange's proposal to make a clarifying change to MRX Options
3, Section 7, Types of Orders and Order and Quote Protocols is
consistent with the Act. The Exchange proposes to amend MRX Options 3,
Section 7(t) related to QCC with Stock Orders to make clear that QCC
with Stock Orders may only be entered through FIX. MRX has 2 order
entry protocols, FIX and OTTO. QCC with Stock Orders may not be entered
through OTTO. Members are required to have an order entry protocol to
enter orders onto MRX.\88\ The Exchange's proposal to add rule text to
Options 3, Section 7(t) will clarify the functionality, thereby
protecting investors and the general public.
---------------------------------------------------------------------------

    \88\ MRX offers each Member one FIX port at no cost. See Options
7, Section 6.
---------------------------------------------------------------------------

    Additionally, the Exchange's proposal to amend Supplementary
Material .02(d) to Options 3, Section 7 related to Immediate-or-Cancel
Orders is consistent with the Act. The Exchange proposes to
specifically amend Supplementary Material .02(d)(3) to Options 3,
Section 7 to add QCC with Stock Orders and Complex QCC with Stock to
the list of order types that have a Time in Force or ``TIF'' of
Immediate-or-Cancel or ``IOC.'' Because QCC with Stock Orders and
Complex QCC with Stock have a TIF of IOC, these order types will
execute either execute on entry or cancel. This amendment will make
clear the manner in which the aforementioned order types trade, thereby
protecting investors and the general public.
Options 3, Section 12
    The Exchange's proposal to amend Options 3, Section 12(e)(4) to
clarify that a Member may submit a QCC with Stock Order with a net
price for the stock and options components through FIX and may not
submit QCC with Stock Orders with separate prices for the stock and
options components and that the System will perform the calculation is
consistent with the Act because the amended rule text makes clear the
format in which these orders may be submitted to the System. Today, the
Exchange does not allow FIX to accept QCC with Stock Orders with
separate prices for the stock and options components. Each exchange may
specify the manner in which certain order types may be submitted to an
exchange and the format for submitting those orders. The proposal
protects investors and the general public by clarifying the manner in
which Members may submit QCC with Stock Orders. The proposed language
does not result in a change to the Exchange's System. As noted above,
QCC with Stock Orders may not be entered through OTTO. The Exchange
notes that requiring QCC with Stock Orders to be submitted through FIX
is consistent with proposed Options 3, Section 7(t) which requires
Members to enter QCC Orders through FIX.
Options 3, Section 15
    The Exchange's proposal to amend its Market Wide Risk Protection
within Options 3, Section 15(a)(1)(C) to add certain additional
information concerning the current Market Wide Risk Protection along
with new language that would apply as a result of the proposed changes
to stock-tied functionality is consistent with the Act. The first
provision, the total number of orders entered is being amended to
simply add ``in the regular order book'' to distinguish the single-leg
order book

from the complex order book. This amendment is non-substantive and
would serve to clarify which order book is impacted.
    The proposed changes to MRX Options 3, Section 15(a)(1)(C) protect
investors and the public interest by clearly describing the operation
of the Market Wide Risk Protection. As discussed above, the
functionality of proposed MRX Options 3, Section 15(a)(1)(C)(2) through
(5) is consistent with functionality that currently exists on ISE.\89\
Proposed MRX Options 3, Section 15(a)(1)(C)(6) adds the total number of
contracts traded in Stock-Option Orders and Stock-Complex Orders to the
Market Wide Risk Protection. This change protects investors and the
general public because this risk protection by expanding the scope of
the Market Wide Risk Protection to include additional contracts which
will reduce risk associated with system errors or market events that
may cause Members to send a large number of orders, or receive
multiple, automatic executions, before they can adjust their exposure
in the market. The Exchange notes that QCC Orders, Complex Qualified
QCC Orders, QCC with Stock Orders, and Complex QCC with Stock Orders
are considered, where applicable, in Options 3, Section 15(a)(1)(C)(1),
(2), (4) and (5). Members will continue to be provided with the
flexibility needed to appropriately tailor the Market Wide Risk
Protection to their respective risk management needs.
---------------------------------------------------------------------------

    \89\ See ISE Options 3, Section 15(a)(1)(C)(2) through (5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Re-Introduction of Stock-Related Strategies and Elimination of Trade
Value Allowance
Stock-Tied Functionality
    The Exchange's proposal to amend its stock-tied functionality and
recommence offering this functionality does not impose an intra-market
undue burden on competition as all Members may utilize the stock-tied
functionality and would be uniformly subject to the requirements
associated with executing a stock-tied transaction. Also, in lieu of
this proposed arrangement with NES, Members could choose, instead, the
following alternatives: (i) avoid using Complex Orders that involve
stock/ETFs, (ii) use a trading floor to execute Complex Order with
stock, or (iii) go to another options venue, several of which offer a
similar feature.\90\ The Exchange's proposal to amend its stock-tied
functionality and recommence offering this functionality does not
impose an inter-market undue burden on competition as other options
exchanges today may offer a similar process for handling stock-tied
transactions. Today, Phlx offers an identical process for handling
stock-tied transactions.\91\
---------------------------------------------------------------------------

    \90\ See supra note 43.
    \91\ See Phlx Options 3, Sections 13(b)(10) and 14(a)(i).
---------------------------------------------------------------------------

    The Exchange's proposal to remove rule text from Options 3, Section
14 that states, ``When a Stock-Option Order or Stock-Complex Order has
been matched with another Stock-Option Order or Stock-Complex Order
that is for less than the full size of the Stock-Option Order or Stock-
Complex Order, the full size of the Stock-Option Order or Stock Complex
Order being processed by the stock execution venue will be unavailable
for trading while the order is being processed,'' does not impose an
undue burden on intra-market competition because the proposed new
functionality will apply equally to all Members transacting Complex
Orders on MRX. All Stock-Option Orders and Stock-Complex Orders will be
handled in the same manner by the System. The Exchange's proposal to
remove rule text from Options 3, Section 14 does not impose an undue
burden on inter-market competition as the scope of this change is
limited to MRX and its relationship with a broker-dealer handling the
stock component of the order.
    The Exchange's proposal to remove the rule text within
Supplementary Material .02 of Options 3, Section 14 \92\ does not
impose an undue burden on intra-market competition because all Members
will have the ability to use the new workflow in which the stock or ETF
component of the order will be routed to NES for execution instead of a
third-party broker-dealer. The proposed new functionality will apply
equally to all Members transacting Complex Orders on MRX. All Stock-
Option Orders and Stock-Complex Orders will be handled in the same
manner by the System. Additionally, this proposed amendment will not
impose an undue burden on inter-market competition because all market
participants that direct orders to MRX will have their orders handled
in a similar manner. The proposed stock-tied functionality is identical
to Phlx Options 3, Sections 13(b)(10)(ii) and 14(a)(i) with respect to
utilizing NES to process and report the stock or ETF component of a
Complex Order.
---------------------------------------------------------------------------

    \92\ Supplementary Material .02 of Options 3, Section 14 states
that, ``Members may also indicate preferred execution brokers, and
such preferences will determine order routing priority whenever
possible. A trade of a Stock-Option Order or a Stock-Complex Order
will be automatically cancelled if market conditions prevent the
execution of the stock or option leg(s) at the prices necessary to
achieve the agreed upon net price. When a Stock-Option Order or
Stock-Complex Order has been matched with another Stock-Option Order
or Stock-Complex Order that is for less than the full size of the
Stock-Option Order or Stock-Complex Order, the full size of the
Stock-Option Order or Stock Complex Order being processed by the
stock execution venue will be unavailable for trading while the
order is being processed.''
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    Similarly, the Exchange's proposal to amend Supplementary Material
.04 to Options 3, Section 14 to provide that Stock-Option Strategies
and Stock-Complex Strategies will open pursuant to the Complex Opening
Price Determination described in Supplementary Material .05 to Options
3, Section 14, instead of the Complex Uncrossing Process described in
Supplementary Material .06(b) to Options 3, Section 14, does not impose
an undue burden on intra-market competition because all Stock-Option
Strategies and Stock-Complex Strategies will be subject to the same
process. All Stock-Option Orders and Stock-Complex Orders will be
transacted in the Complex Opening by the System. The Exchange's
proposal to amend Supplementary Material .04 to Options 3, Section 14
to provide that Stock-Option Strategies and Stock-Complex Strategies
will open pursuant to the Complex Opening Price Determination described
in Supplementary Material .05 to Options 3, Section 14, instead of the
Complex Uncrossing Process described in Supplementary Material .06(b)
to Options 3, Section 14 does not impose an undue burden on inter-
market competition because other options markets may also elect to
permit similar order types to trade in their complex opening process.
Trade Value Allowance
    The Exchange's proposal to no longer offer Trade Value Allowance
does not impose an undue burden on intra-market competition because no
Member would be able to utilize the Trade Value Allowance. The proposed
stock-tied functionality is identical to Phlx Options 3, Sections
13(b)(10)(ii) and 14(a)(i) with respect to utilizing NES to process and
report the stock or ETF component of a Complex Order.
    The Exchange's proposal to no longer offer Trade Value Allowance
does not impose an undue burden on inter-market competition because
other

options exchanges could choose to offer a similar functionality.
Options 3, Section 7
    The Exchange's proposal to make a clarifying change to MRX Options
3, Section 7, Types of Orders and Order and Quote Protocols does not
impose an undue burden on intra-market competition because all Members
may enter QCC with Stock Orders through FIX and the Exchange provides
each Member with one FIX Port at no cost.
    The Exchange's proposal to make a clarifying change to MRX Options
3, Section 7, Types of Orders and Order and Quote Protocols does not
impose an undue burden on inter-market competition because other
options exchanges may also create order entry protocols for their
markets.
    Additionally, the Exchange's proposal to amend Supplementary
Material .02(d) to Options 3, Section 7 to add QCC with Stock Orders
and Complex QCC with Stock to the list of order types that have a Time
in Force or ``TIF'' of Immediate-or-Cancel or ``IOC'' does not impose
an undue burden on intra-market competition because this amendment
reflects the description of these particular order types which will
either execute on entry or cancel. All QCC with Stock Orders and
Complex QCC with Stock that are entered on MRX will be handled in the
same manner. Further, all Members may trade QCC with Stock Orders and
Complex QCC with Stock Orders. Additionally, the Exchange's proposal to
amend Supplementary Material .02(d) to Options 3, Section 7 related to
Immediate-or-Cancel Orders does not impose an undue burden on inter-
market competition because other options markets may adopt a similar
requirement for such orders.
Options 3, Section 12
    The Exchange's proposal to amend Options 3, Section 12(e)(4) to
clarify that a Member may submit a QCC with Stock Order with a net
price for the stock and options components through FIX and may not
submit QCC with Stock Orders with separate prices for the stock and
options components and the System will calculate the individual
component prices does not impose an intra-market burden on competition
because all Members are required to uniformly submit QCC with Stock
Orders in this fashion.
    The Exchange's proposal to amend Options 3, Section 12(e)(4) to
clarify that a Member may submit a QCC with Stock Order with a net
price for the stock and options components through FIX and may not
submit QCC with Stock Orders with separate prices for the stock and
options components and the System will calculate the individual
component prices does not impose an inter-market burden on competition
because each exchange may specify the manner in which certain order
types may be submitted to an exchange and the format for submitting
those orders. Also, requiring QCC with Stock Orders to be submitted
through FIX is consistent with proposed Options 3, Section 7(t) which
requires Members to enter QCC Orders through FIX.
Options 3, Section 15
    The Exchange's proposal to amend its Market Wide Risk Protection
within Options 3, Section 15(a)(1)(C) to add certain additional
information concerning the current Market Wide Risk Protection along
with new language does not impose an undue burden on intra-market
competition because the counting programs within the Market Wide Risk
Protections will apply equally to all Members. The proposal to amend
the Market Wide Risk Protection does not impose an undue burden on
inter-market competition because other options exchanges may adopt
similar risk protections for their members.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \93\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\94\
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    \93\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \94\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
file number SR-MRX-2023-10 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-MRX-2023-10. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number

SR-MRX-2023-10 and should be submitted on or before July 12, 2023.
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    \95\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\95\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-13108 Filed 6-20-23; 8:45 am]
BILLING CODE 8011-01-P