Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing of a Proposed Rule Change To Adopt Complex Order Functionality, 16907-16911 [2019-08103]
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Federal Register / Vol. 84, No. 78 / Tuesday, April 23, 2019 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85671; File No. SR–MRX–
2019–08]
Self-Regulatory Organizations; Nasdaq
MRX, LLC; Notice of Filing of a
Proposed Rule Change To Adopt
Complex Order Functionality
April 17, 2019.
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 April 12,
2019, Nasdaq MRX, LLC (‘‘MRX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt
Complex Order Functionality.3 The
proposed amendments to adopt
Complex Order Functionality are
identical to corresponding Nasdaq ISE,
LLC (‘‘ISE’’) Rules.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqmrx.cchwallstreet.com/, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
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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.
1 15
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 MRX proposes to amend the Complex Order
functionality within Rules 100(a)(54) and (54A);
702, 710, 714, 715, 716, 718, 720, 721, 722, 723, and
724 (collectively ‘‘Complex Order Functionality’’).
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to introduce
Complex Order Functionality on MRX
that is identical to the Complex Order
Functionality offered today on ISE. The
Exchange specifically proposes to: (1)
Adopt a new Rule 722, titled ‘‘Complex
Orders’’ to describe the functionality; (2)
amend the definition of Professional
Order within Section 100 (a)(54) to
account for Complex Orders and add a
definition for Professional Customer
within Section 100 (a)(54A); (3) amend
Rule 702, ‘‘Trading Halts,’’ to account
for Complex Orders; (4) amend Rule
710, ‘‘Minimum Trading Increments,’’ to
account for Complex Orders; (5) amend
Rule 714, ‘‘Automatic Execution of
Orders’’ to note a limitation with respect
to the Anti-Internalization protection;
(6) amend Rule 715, ‘‘Order Types,’’ to
define two new order types, ‘‘legging
orders’’ and ‘‘QCC with Stock Orders,’’
and amend the Ouch to Trade Options
and Specialized Quote Feed protocols;
(7) amend the title of Rule 716 from
‘‘Block Trades’’ to ‘‘Auction
Mechanisms’’ and introduce a new
Complex Facilitation Mechanism and
Complex Solicited Order Mechanism;
(8) adopt a new Nasdaq MRX Spread
Feed within Rule 718(a)(5); (9) amend
Rule 720, ‘‘Nullification and
Adjustment of Options Transactions
including Obvious Errors’’ to account
for Complex Orders; (10) amend Rule
721, ‘‘Crossing Orders,’’ to adopt new
Complex Customer Cross Orders,
Complex Qualified Contingent Cross
Orders, Qualified Contingent Cross
Orders with Stock and Complex
Qualified Contingent Cross with Stock
Orders; (11) amend Rule 723 to adopt a
new Complex Price Improvement
Mechanism; (12) adopt new Rule 724,
entitled ‘‘Complex Order Risk
Protections’’ to adopt various Complex
Order risk protections; (13) amend the
Pricing Schedule within Options 7,
Sections 6 and 7 to reflect the new MRX
data feed at no cost; and (14) and other
universal changes. Each change will be
discussed below in detail.
Universal Changes
In addition to the amendments
described below, the Exchange proposes
to make several changes throughout its
rules. In particular, the Exchange
proposes to capitalize references to
‘‘member’’ to reflect the defined term
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16907
‘‘Member’’ 4 and capitalize references to
‘‘system’’ to reflect the defined term
‘‘System.’’ 5 Finally, cross-references to
rule numbers will be updated where
appropriate.
Rule 722
The Exchange proposes to adopt a
new Rule 722, titled ‘‘Complex Orders.’’
This proposed new rule will: (1) Define
various terms related to Complex
Orders; (2) indicate the types of
Complex Orders that may be entered
into the System; (3) describe the
applicability of various rules (e.g.,
minimum increments, complex
strategies and rules regarding
internalization); (4) describe the manner
in which complex strategies are
executed; (5) describe complex
exposure; (6) describe the manner in
which Stock Option and Stock-Complex
Orders will be handled; (7) describe
Trade Value Allowance; (8) describe
various aspects of the Complex Opening
Process; and (9) describe the trading of
Qualified Contingent Cross and
Complex Qualified Contingent Cross
Orders. Proposed MRX Rule 722 is
identical to ISE Rule 722.
Complex Exposure
Proposed Supplementary Material .01
to MRX Rule 722 provides that Members
may elect to have their Complex Orders
that are marketable upon entry exposed
for up to one second before those orders
are automatically executed. Specifically,
the proposed rule describes an auction
process whereby Complex Orders that
improve upon the best price for the
same complex strategy on the Complex
Order Book upon entry may be exposed
for up to one second.6
Stock Option and Stock-Complex
Orders
Proposed Supplementary Material .02
to MRX Rule 722 describes an
automated process for the
communication of stock-option orders
by electronically transmitting the orders
related to the stock leg(s) for execution
on behalf of the parties to the trade.
4 The term ‘‘Member’’ means an organization that
has been approved to exercise trading rights
associated with Exchange Rights. See Rule
100(a)(30).
5 The term ‘‘System’’ means the electronic system
operated by the Exchange that receives and
disseminates quotes, executes orders and reports
transactions. See Rule 100(a)(63).
6 A Complex Order improves upon the best price
for the same complex strategy on the Complex
Order Book if it is a Limit Order to buy priced
higher than the best bid, a Limit Order to sell priced
lower than the best offer, or a Market Order to buy
or sell.
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Trade Value Allowance
Proposed Supplementary Material .03
to MRX Rule 722 describes the manner
in which Stock-Option Strategies and
Stock Complex Strategies would be
handled when different minimum
trading increments are allowed for the
stock and options legs of such trades.
Complex Opening Process
A Complex Opening Process is
proposed at Supplementary Material .04
to MRX Rule 722. The rule provides that
after each of the individual component
legs have opened, or reopened following
a trading halt, Complex Options
Strategies would be opened pursuant to
the Complex Opening Price
Determination described in proposed
Supplementary Material .05 to MRX
Rule 722, and Stock-Option Strategies
and Stock-Complex Strategies will be
opened pursuant to the Complex
Uncrossing Process described in
proposed Supplementary Material .06(b)
to MRX Rule 722.7
Complex Options Strategies are
opened pursuant to an Opening Process
that attempts to execute Complex
Orders on the Complex Order Book at a
single price that is within Boundary
Prices that are constrained by the NBBO
for the individual legs, thereby serving
an important price discovery function.
Proposed Supplementary Material
.06(b) to Rule 722 describes the
Exchange’s process for uncrossing the
Complex Order Book when a resting
Complex Order that is locked or crossed
with other interest becomes executable
during regular trading or as part of the
Complex Opening Process. The
Complex Uncrossing Process applies to
Complex Options Strategies, StockOption Strategies, and Stock-Complex
Strategies.
Minimum Increments
The Exchange proposes to amend
MRX Rule 710, ‘‘Minimum Increments,’’
to provide the increments for trading in
complex strategies. Additionally, the
Exchange proposes a minor technical
amendment to spell out ‘‘one cent.’’
Proposed MRX Rule 710 is identical to
ISE Rule 710.
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Auction Mechanisms
Block Order Mechanism
The Exchange proposes to retitle MRX
Rule 716, currently titled ‘‘Block
Trades,’’ as ‘‘Auction Mechanisms,’’
because the new title more accurately
describes the rule text contained in this
7 The Complex Uncrossing Process is also used
during regular trading when a resting Complex
Order that is locked or crossed with other interest
becomes executable.
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rule. The Exchange proposes to relocate
the text of Rule 716(a) within current
Rule 716(c) and re-letter that Rule as
716(a). The Exchange also proposes to
make clear that the Block Order
Mechanism applies only to single-leg
transactions and therefore does not
apply to Complex Orders. The Exchange
proposes to remove the ‘‘(b)’’ from Rule
716 so that the following text will apply
to the entirety of Rule 716 and all
mechanisms within the rule, including
proposed relocated text, ‘‘For purposes
of this Rule, a ‘‘broadcast message’’
means an electronic message that is sent
by the Exchange to all Members, and a
‘‘Response’’ means an electronic
message that is sent by Members in
response to a broadcast message.’’ This
rule text, as written, is being amended
so that it is clear that the rule text
applies to all mechanisms within this
rule, including the Complex Facilitation
and Solicited Order Mechanisms which
are proposed to be added in Rule 716(b)
and (e), respectively, as proposed below.
In addition, the Exchange proposes to
relocate and expand rule text within
Supplementary Material .04 to Rule
716 8 to this introductory paragraph so
that with the relocation it also will
apply to the entire rule. The Exchange
proposes to provide, ‘‘Also for purposes
of this rule, the time given to Members
to enter Responses for any of the below
auction mechanisms shall be designated
by the Exchange via circular, but no less
than 100 milliseconds and no more than
1 second.’’ Today, this rule text applies
to all mechanisms within the rule, the
Block Order Mechanism, Facilitation
Mechanism and Solicited Order
Mechanisms. As amended, the rule text
will apply to the proposed Complex
Facilitation and Solicited Order
Mechanisms as well. Proposed MRX
Rule 716(a) and (b) are identical to ISE
Rule 716(a) and (b).
Complex Facilitation Mechanism
The Exchange proposes to amend
MRX Rule 716 to re-letter the
Facilitation Mechanism from ‘‘(d)’’ to
‘‘(b).’’ In addition, the Exchange
proposes to adopt a new Complex
Facilitation Mechanism in new MRX
Rule 716(c). With this proposal,
Electronic Access Members may use the
Complex Facilitation Mechanism in
new rule Rule 716(c) above to execute
block-size Complex Orders at a net
price. The Complex Facilitation
Mechanism is a process by which an
8 Supplementary Material .04 to Rule 716
provides, ‘‘The time given to Members to enter
Responses under paragraphs (c)(1), (d)(1) and (e)(1)
shall be designated by the Exchange via circular,
but no less than 100 milliseconds and no more than
1 second.’’
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Electronic Access Member can execute
a transaction wherein the Electronic
Access Member seeks to facilitate a
block-size Complex Order it represents
as agent, and/or a transaction wherein
the Electronic Access Member solicited
interest to execute against a block-size
Complex Order it represents as agent.
Proposed MRX Rule 716(c) is identical
to ISE Rule 716(c).
Complex Solicited Order Mechanism
MRX proposes to adopt a new
Complex Solicited Order Mechanism at
proposed MRX Rule 716(e). The
Complex Solicited Order Mechanism is
a process by which an Electronic Access
Member can attempt to execute
Complex Orders it represents as agent
against contra orders that it solicited
according to Rule 716(d). Proposed
MRX Rule 716(e) is identical to ISE Rule
716(e). Additionally, the Exchange
proposes to eliminate Supplementary
Material .03, which is currently
reserved, and .04 to Rule 716, which is
being relocated as discussed above. The
Exchange proposes to amend
Supplementary Material .05 9 to Rule
716 to renumber it .03. The Exchange
proposes to renumber Supplementary
Material .06 10 to Rule 716 as .04. The
Exchange proposes to eliminate
references to Supplementary Material
.07 and .08 to Rule 716, which are
currently reserved. The Exchange
proposes to renumber Supplementary
Material .09 11 to Rule 716 as .07. As
proposed to be amended, the entirety of
the MRX Supplementary Material to
Rule 716 will be identical to the entirety
of the Supplementary Material of ISE
Rule 716.
Concurrent Auctions
The Exchange proposes to adopt new
MRX Rules 716(f) and (g) regarding the
processing of concurrent auctions. The
Exchange will not operate multiple
concurrent auctions for a complex
strategy. Specifically, proposed MRX
Rule 716(f) provides that only one
Exposure Auction, Complex Price
Improvement Mechanism auction,
Complex Facilitation Mechanism
auction, or Complex Solicited Order
9 Supplementary .05 to Rule 716 prohibits
Members from utilizing the Solicited Order
Mechanism to circumvent MRX Rule 717(d)
limiting principal transactions.
10 Supplementary .06 to Rule 716 permits orders
and responses entered into the Facilitation and
Solicited Order Mechanisms to receive executions
at the mid-price between the standard minimum
trading increments for the option series (‘‘Split
Prices’’).
11 Supplementary Material .09 to Rule 716 allows
orders and responses to be entered into the Block
Mechanism and receive executions at penny
increments.
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Mechanism auction, pursuant to
proposed Rule 722, Supplementary
Material .01 or proposed Rule 723(e) or
proposed Rule 716(c) and (e),
respectively, will be ongoing at any
given time in a Complex Strategy, and
such auctions will not queue or overlap
in any manner. Proposed MRX Rule
716(g) describes concurrent complex
and single leg auctions. Proposed MRX
Rule 716(f) and (g) are identical to ISE
Rule 716(f) and (g).
Complex Price Improvement
Mechanism
The Exchange proposes to amend
MRX Rule 723 to adopt a new Complex
Price Improvement Mechanism at
proposed MRX Rule 723(e). The Price
Improvement Mechanism exposes
paired orders to all Members for a
specified period of time 12 to provide an
opportunity for price improvement. The
Exchange proposes to make the Price
Improvement Mechanism available for
the execution of Complex Orders.
Proposed MRX Rule 723(e) is identical
to ISE Rule 723(e).
Complex Customer Cross Order
The Exchange proposes to amend
MRX Rule 721, Crossing Orders. The
Exchange proposes to add a title within
Rule 721(a), ‘‘Customer Cross Orders.’’
This will distinguish this paragraph
from new proposed Rule 721(b), titled
‘‘Complex Customer Cross Order.’’ The
Exchange proposes to adopt a new
Customer Complex Cross Orders at
proposed MRX Rule 721(b). With this
proposal, Complex Orders may be
entered as Customer Cross Orders,
which are currently defined in MRX
Rule 715(i). MRX Rule 721(a), as
proposed to be amended, and proposed
MRX Rule 721(b) are identical to ISE
Rules 721(a) and (d) respectively.
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Complex Qualified Contingent Cross
Orders
The Exchange proposes to re-letter
MRX 721(b) as 721(c) and to add a title
‘‘Qualified Contingent Cross Orders’’ to
the rule. The Exchange proposes to
adopt a new Complex Qualified
Contingent Cross Orders (‘‘Complex
QCC’’) at proposed MRX Rule 721(d).
Proposed MRX Rule 721(d) describes
Complex QCC Orders which are
automatically executed upon entry as
long as certain conditions are satisfied.
Pursuant to current Rule 715(j),
Qualified Contingent Cross Orders are
orders to buy or sell at least 1,000
contracts that are identified as being
12 The exposure period shall be no less than 100
milliseconds and no more than 1 second. See MRX
Rule 723(c).
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part of a qualified contingent trade, as
that term is defined in Supplementary
Material .01 to MRX Rule 715.13
Proposed MRX Rule 721(c), as proposed
to be amended, and proposed Rule
721(d) are identical to ISE Rules 721(c)
and (d) respectively.
Qualified Contingent Cross With Stock
The Exchange proposes to adopt
Qualified Contingent Cross (‘‘QCC’’)
Orders with Stock at proposed MRX
Rule 721(e). The proposal adopts a
definition of QCC with Stock Orders.14
The proposed definition is identical to
ISE Rule 722(b)(15). The proposed QCC
with Stock Order facilitates the
execution of the stock component of
qualified contingent trades.15 The
Exchange proposes to adopt rule text at
proposed MRX Rule 721(e) to provide
detail explaining how a QCC with Stock
Order is processed. Proposed MRX Rule
721(e) is identical to ISE Rule 721(e).
Additionally, the Exchange proposes to
define QCC with Stock within proposed
new Rule 715(t). This defined term is
identical to ISE Rule 715(t). Finally, the
Exchange proposes to re-letter the
definition of Opening Sweep as 715(u),
as proposed this amendment will make
the rule identical to ISE Rule 715(u).
13 Pursuant to current Rule 715(j), Qualified
Contingent Cross Orders are orders to buy or sell
at least 1,000 contracts that are identified as being
part of a qualified contingent trade, as that term is
defined in Supplementary Material .01 to Rule 715.
The definition of Qualified Contingent Cross trade
is substantively identical to the Commission’s
definition of a Qualified Contingent Transaction
(‘‘QCT’’) for which the Commission, by order, has
provided trade-through relief in the equities market.
Securities Exchange Act Release No. 57620 (April
4, 2008), 73 FR 19271 (April 9, 2008) (the ‘‘QCT
Release’’). Pursuant to Supplementary Material .01
to Rule 715, a Qualified Contingent Cross trade
must meet the following conditions: (i) At least one
component must be an NMS Stock; (ii) all the
components must be effected with a product or
price contingency that either has been agreed to by
all the respective counterparties or arranged for by
a broker-dealer as principal or agent; (iii) the
execution of one component must be contingent
upon the execution of all other components at or
near the same time; (iv) the specific relationship
between the component orders (e.g., the spread
between the prices of the component orders) must
be determined by the time the contingent order is
placed; (v) the component orders must 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 cancelled; and (iv) the transaction must be fully
hedged (without regard to any prior existing
position) as a result of other components of the
contingent trade. Consistent with the QCT Release
members must demonstrate that the transaction is
fully hedged using reasonable risk-valuation
methodologies.
14 See also proposed Rule 722(b)(15).
15 See Securities Exchange Act Release No. 80090
(February 22, 2017), 82 FR 12150 (February 28,
2017) (SR–ISE–2017–12) (‘‘QCC with Stock
Notice’’).
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Complex Order Risk Protections
The Exchange proposes to adopt
Complex Order Protections at proposed
MRX Rule 724. Proposed MRX Rule 724
is identical to ISE Rule 724. The
Complex Order Protections include:
Price limits, Vertical Spread Protections,
Calendar Spread Protections, Butterfly
Spread Protections, Box Spread
Protections, Limit Order Spread
Protections, Size Limitation and Price
Level Protection.
Price Limits
The Exchange proposes to adopt a
Price Limits protection at proposed
MRX Rule 724(a). This protection will
prevent the legs of a complex strategy
from trading 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.
Vertical Spread Protections
The Exchange proposes to adopt a
Vertical Spread Protection at proposed
MRX Rule 724(b)(1). Pursuant to this
proposal, a Vertical Spread is an order
to buy a call (put) option and to sell
another call (put) option in the same
security with the same expiration but at
a higher (lower) strike price at proposed
Rule 724(b)(1). The System will reject
Vertical Spread orders when entered
with a net price of less than zero (minus
a pre-set value) and will prevent the
execution of a Vertical Spread order at
a price that is less than zero (minus a
pre-set value) when entered as a market
order to sell. The System will also reject
a Vertical Spread order or quote when
entered with a net price greater than the
value of the higher strike price minus
the lower strike price (plus a pre-set
value), and will prevent the execution of
a Vertical Spread order at a price that is
greater than the value of the higher
strike price minus the lower strike price
(plus a pre-set value) when entered as
a Market Order to buy.
Calendar Spread Protections
The Exchange proposes to adopt a
Calendar Spread Protection at proposed
MRX Rule 724(b)(2). Pursuant to this
proposal, a Calendar Spread is an order
to buy a call (put) option with a longer
expiration and to sell another call (put)
option with a shorter expiration in the
same security at the same strike price at
proposed Rule 724(b)(2). The System
will reject a Calendar Spread order
when entered with a net price of less
than zero (minus a pre-set value), and
will prevent the execution of a Calendar
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Spread order at a price that is less than
zero (minus a pre-set value) when
entered as a market order to sell.
Butterfly and Box Spread Protections
The Exchange proposes to adopt a
Butterfly Spread Protection at proposed
MRX Rule 724(b)(3) and a Box Spread
Protection at proposed Rule 724(b)(4).
Pursuant to this proposal, a Butterfly
spread is a three legged Complex Order
with certain characteristics.16 Pursuant
to this proposal, a Box spread is a four
legged Complex Order with certain
characteristics.17 Butterfly and Box
Spreads will be rejected outside of
certain parameters to avoid potential
executions at prices that exceed the
minimum and maximum possible
intrinsic value of the spread by a
specified amount.
Limit Order Price Protection
MRX proposes to adopt a Limit Order
Price Protection at MRX Rule 724(c)(1).
This protection will limit the amount by
which the net price of an incoming
Limit Complex Order to buy may exceed
the net price available from the
individual options series on the
Exchange and the national best bid or
offer for any stock leg, and by which the
net price of an incoming Limit Complex
Order to sell may be below the net price
available from the individual options
series on the Exchange and the national
best bid or offer for any stock leg. Limit
Complex Orders that exceed the pricing
limit will be rejected.
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Size Limitation
MRX proposes to adopt a Size
Limitation protection at proposed MRX
Rule 724(c)(2) the same as provided for
in ISE Rule 724(c)(2). This protection
will limit the number of contracts (and
shares in the case of a Stock-Option
Strategy or Stock-Complex Strategy) any
single leg of an incoming Complex
Order may specify. Orders or quotes that
exceed the maximum number of
contracts (or shares) will be rejected.
Price Level Protection
MRX proposes to adopt a Price Level
Protection at proposed MRX Rule
724(c)(3). Pursuant to this proposal, the
Price Level Protection will limit the
number of price levels at which an
incoming Complex Order to sell (buy)
will be executed automatically with the
bids or offers of each component leg
when there are no bids (offers) from
16 This strategy will utilize a combination of
either all calls or all puts of the same expiration
date in the same underlying to limit risk.
17 This strategy utilizes a combination of put/call
pairs of options with the same expiration date in
the same underlying to limit risk.
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other exchanges at any price for the
options series. Complex Orders will be
executed at each successive price level
until the maximum number of price
levels is reached. On any component leg
where the maximum number of price
levels has been reached, the protection
will be triggered and any balance will be
canceled.
Professional Definition
The Exchange proposes to amend the
definition of Professional Orders within
Rule 100(a)(54). Proposed MRX Rule
100(a)(54) is identical to ISE Rule
1(a)(54). Specifically, the Exchange
proposes to amend the calculation of
Professional Orders to include rule text
indicating the manner in which
Complex Orders should be counted.
With this proposal, a cancel and replace
order which replaces a prior order shall
be counted as a second order, or
multiple new orders in the case of
Complex Order comprising 9 options
legs or more. Additionally, Complex
Orders consisting of 8 legs or fewer will
be counted as a single order, and
respecting Complex Orders of 9
options 18 legs or more, each leg will
count as a separate order. Stock orders
shall not count toward the number of
legs.
Trading Halts
The Exchange proposes to amend
MRX Rule 702(d)(2) to describe how
Market Complex Orders, which are
proposed within proposed MRX Rule
722, will be handled during a trading
halt. Proposed MRX Rule 702 is
identical to ISE Rule 702.
Automatic Execution of Orders
The Exchange proposes to amend
MRX Rule 714, ‘‘Automatic Execution of
Orders,’’ which lists the various singlelegged risk protections available to
Members. The Exchange proposes to
exclude Complex Orders from the AntiInternalization 19 protection. The
Exchange currently provides that AntiInternalization does not apply in any
auction and proposes to also state that
Anti-Internalization functionality shall
not apply with respect to Complex
Order transactions. Proposed MRX Rule
714(b)(3)(A) is identical to ISE Rule
714(b)(3)(A).
18 Orders that have nine legs, where one leg is a
stock, will be considered one order. Stock orders
shall not count toward the number of legs.
19 Anti-Internalization prevents quotes and orders
entered by Market Makers from executing against
quotes and orders entered on the opposite side of
the market by the same Market Maker using the
same Market Maker identifiers, or alternatively, if
selected by the Member, the same Exchange
account number or member firm identifier.
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Types of Orders
The Exchange is proposing to amend
MRX Rule 715 to define legging orders
within Rule 715(k) and QCC with Stock
at proposed Rule 715(t). Proposed MRX
Rule 715(k) and (t) are identical to ISE
Rule 715(k) and (t). Additionally, the
Exchange proposes to re-letter ‘‘Opening
Sweep’’ as ‘‘u’’ and capitalize the term
‘‘System’’ which is defined. These
proposed changes will make the rule
text in MRX Rule 715 identical to ISE
Rule 715.
The Exchange proposes to amend the
MRX Supplementary Material .03 to
Rule 715 to indicate both ‘‘Ouch to
Trade Options’’ or ‘‘OTTO’’ and the
‘‘Specialized Quote Feed’’ or ‘‘SQF’’
protocols may connect, send and receive
message related to complex instruments.
Proposed MRX Supplementary Material
.03(b) and (c) to Rule 715 are identical
to Supplementary Material .03(b) and (c)
to ISE Rule 715.
Data Feeds and Trade Information
The Exchange proposes to adopt a
MRX Spread Feed at proposed MRX
Rule 718(a)(5) at no cost as noted in
proposed Options 7, Section 6(iii)(5).
The Spread Feed contains various
information regarding Complex Orders.
Proposed MRX Rule 718(a)(5) is
identical to ISE Rule 718(a)(5).
Additionally, the Exchange purposes to
define the term ‘‘Professional Customer’’
at proposed MRX Rule 100(a)(54A). The
MRX Spread Feed introduces this term,
which exists within ISE Rule
100(a)(54A). Proposed MRX Rule
100(a)(54A) is identical to ISE Rule
100(a)(54A).
Nullification and Adjustment of Options
Transactions Including Obvious Errors
The Exchange proposes to amend
MRX Rule 720, titled ‘‘Nullification and
Adjustment of Options Transactions
including Obvious Errors’’ which
permits the Exchange to nullify a
transaction or adjust the execution price
of a transaction for Complex Orders.
Additionally, the Exchange proposes to
renumber current Supplementary
Material .04 to .06 within Rule 720.
Proposed MRX Rule 720 is identical to
ISE Rule 720 including the
Supplementary Material.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Securities Exchange Act of 1934
(the ‘‘Act’’) 20 in general, and furthers
the objectives of Section 6(b)(5) of the
Act 21 in particular, in that it is designed
20 15
21 15
E:\FR\FM\23APN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
23APN1
Federal Register / Vol. 84, No. 78 / Tuesday, April 23, 2019 / Notices
to promote just and equitable principles
of trade, to remove impediments to and
perfect the mechanism for a free and
open market and a national market
system, and, in general, to protect
investors and the public interest. MRX’s
adoption of Complex Order
Functionality will allow MRX to
compete with other options exchanges
that offer complex functionality.22 The
Exchange believes that the proposed
rule change will better enable Members
and investors to make informed
decisions regarding the use of Complex
Orders on the Exchange. As described
more fully above, MRX’s Complex Order
Functionality is identical to the
Complex Order Functionality offered
today on ISE.23
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange notes that it operates in a
highly competitive market in which
market participants can readily direct
order flow to competing venues who
offer similar functionality. The
Exchange believes that offering Complex
Order Functionality on MRX will
enhance competition among the various
markets for Complex Order execution,
potentially resulting in more active
Complex Order trading on all
exchanges. The Exchange does not
believe its proposal to offer Complex
Order Functionality will create an
undue burden on inter-market
competition as various other options
markets offer Complex Order
functionality.24
With respect to intra-market
competition, all Members are permitted
to submit Complex Orders into MRX.
Further, the Exchange will uniformly
apply the proposed rules to any Member
that submits a Complex Order into
MRX.
jbell on DSK3GLQ082PROD with NOTICES
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.
22 See NYSE American LLC Rule 971.2NY, ISE
Rule 722, Phlx Rule 1098, Cboe Interpretations and
Policies .01 to Cboe Rule 6.41 and MIAX Rule 518.
23 See note 3 above.
24 See note 22 above.
VerDate Sep<11>2014
17:49 Apr 22, 2019
Jkt 247001
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
16911
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–MRX–2019–08 and should
be submitted on or before May 14, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–08103 Filed 4–22–19; 8:45 am]
IV. Solicitation of Comments
BILLING CODE 8011–01–P
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:
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85678; File No. SR–BOX–
2019–11]
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MRX–2019–08 on the subject line.
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Fee
Schedule on the BOX Options Market
LLC (‘‘BOX’’) Facility To Modify Its
Strategy QOO Order Fee Cap and
Rebate
Paper Comments
April 17, 2019.
• 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–2019–08. 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
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 4,
2019, BOX Exchange LLC (the
‘‘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
Exchange filed the proposed rule change
pursuant to Section 19(b)(3)(A)(ii) of the
Act,3 and Rule 19b–4(f)(2) thereunder,4
which renders the proposal effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
Electronic Comments
PO 00000
Frm 00076
Fmt 4703
Sfmt 4703
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to amend the Fee Schedule to amend
25 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
1 15
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23APN1
]]>Agencies
[Federal Register Volume 84, Number 78 (Tuesday, April 23, 2019)]
[Notices]
[Pages 16907-16911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-08103]
[[Page 16907]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85671; File No. SR-MRX-2019-08]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
of a Proposed Rule Change To Adopt Complex Order Functionality
April 17, 2019.
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 April 12, 2019, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt Complex Order Functionality.\3\ The
proposed amendments to adopt Complex Order Functionality are identical
to corresponding Nasdaq ISE, LLC (``ISE'') Rules.
---------------------------------------------------------------------------
\3\ MRX proposes to amend the Complex Order functionality within
Rules 100(a)(54) and (54A); 702, 710, 714, 715, 716, 718, 720, 721,
722, 723, and 724 (collectively ``Complex Order Functionality'').
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqmrx.cchwallstreet.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to introduce Complex Order Functionality on
MRX that is identical to the Complex Order Functionality offered today
on ISE. The Exchange specifically proposes to: (1) Adopt a new Rule
722, titled ``Complex Orders'' to describe the functionality; (2) amend
the definition of Professional Order within Section 100 (a)(54) to
account for Complex Orders and add a definition for Professional
Customer within Section 100 (a)(54A); (3) amend Rule 702, ``Trading
Halts,'' to account for Complex Orders; (4) amend Rule 710, ``Minimum
Trading Increments,'' to account for Complex Orders; (5) amend Rule
714, ``Automatic Execution of Orders'' to note a limitation with
respect to the Anti-Internalization protection; (6) amend Rule 715,
``Order Types,'' to define two new order types, ``legging orders'' and
``QCC with Stock Orders,'' and amend the Ouch to Trade Options and
Specialized Quote Feed protocols; (7) amend the title of Rule 716 from
``Block Trades'' to ``Auction Mechanisms'' and introduce a new Complex
Facilitation Mechanism and Complex Solicited Order Mechanism; (8) adopt
a new Nasdaq MRX Spread Feed within Rule 718(a)(5); (9) amend Rule 720,
``Nullification and Adjustment of Options Transactions including
Obvious Errors'' to account for Complex Orders; (10) amend Rule 721,
``Crossing Orders,'' to adopt new Complex Customer Cross Orders,
Complex Qualified Contingent Cross Orders, Qualified Contingent Cross
Orders with Stock and Complex Qualified Contingent Cross with Stock
Orders; (11) amend Rule 723 to adopt a new Complex Price Improvement
Mechanism; (12) adopt new Rule 724, entitled ``Complex Order Risk
Protections'' to adopt various Complex Order risk protections; (13)
amend the Pricing Schedule within Options 7, Sections 6 and 7 to
reflect the new MRX data feed at no cost; and (14) and other universal
changes. Each change will be discussed below in detail.
Universal Changes
In addition to the amendments described below, the Exchange
proposes to make several changes throughout its rules. In particular,
the Exchange proposes to capitalize references to ``member'' to reflect
the defined term ``Member'' \4\ and capitalize references to ``system''
to reflect the defined term ``System.'' \5\ Finally, cross-references
to rule numbers will be updated where appropriate.
---------------------------------------------------------------------------
\4\ The term ``Member'' means an organization that has been
approved to exercise trading rights associated with Exchange Rights.
See Rule 100(a)(30).
\5\ The term ``System'' means the electronic system operated by
the Exchange that receives and disseminates quotes, executes orders
and reports transactions. See Rule 100(a)(63).
---------------------------------------------------------------------------
Rule 722
The Exchange proposes to adopt a new Rule 722, titled ``Complex
Orders.'' This proposed new rule will: (1) Define various terms related
to Complex Orders; (2) indicate the types of Complex Orders that may be
entered into the System; (3) describe the applicability of various
rules (e.g., minimum increments, complex strategies and rules regarding
internalization); (4) describe the manner in which complex strategies
are executed; (5) describe complex exposure; (6) describe the manner in
which Stock Option and Stock-Complex Orders will be handled; (7)
describe Trade Value Allowance; (8) describe various aspects of the
Complex Opening Process; and (9) describe the trading of Qualified
Contingent Cross and Complex Qualified Contingent Cross Orders.
Proposed MRX Rule 722 is identical to ISE Rule 722.
Complex Exposure
Proposed Supplementary Material .01 to MRX Rule 722 provides that
Members may elect to have their Complex Orders that are marketable upon
entry exposed for up to one second before those orders are
automatically executed. Specifically, the proposed rule describes an
auction process whereby Complex Orders that improve upon the best price
for the same complex strategy on the Complex Order Book upon entry may
be exposed for up to one second.\6\
---------------------------------------------------------------------------
\6\ A Complex Order improves upon the best price for the same
complex strategy on the Complex Order Book if it is a Limit Order to
buy priced higher than the best bid, a Limit Order to sell priced
lower than the best offer, or a Market Order to buy or sell.
---------------------------------------------------------------------------
Stock Option and Stock-Complex Orders
Proposed Supplementary Material .02 to MRX Rule 722 describes an
automated process for the communication of stock-option orders by
electronically transmitting the orders related to the stock leg(s) for
execution on behalf of the parties to the trade.
[[Page 16908]]
Trade Value Allowance
Proposed Supplementary Material .03 to MRX Rule 722 describes the
manner in which Stock-Option Strategies and Stock Complex Strategies
would be handled when different minimum trading increments are allowed
for the stock and options legs of such trades.
Complex Opening Process
A Complex Opening Process is proposed at Supplementary Material .04
to MRX Rule 722. The rule provides that after each of the individual
component legs have opened, or reopened following a trading halt,
Complex Options Strategies would be opened pursuant to the Complex
Opening Price Determination described in proposed Supplementary
Material .05 to MRX Rule 722, and Stock-Option Strategies and Stock-
Complex Strategies will be opened pursuant to the Complex Uncrossing
Process described in proposed Supplementary Material .06(b) to MRX Rule
722.\7\
---------------------------------------------------------------------------
\7\ The Complex Uncrossing Process is also used during regular
trading when a resting Complex Order that is locked or crossed with
other interest becomes executable.
---------------------------------------------------------------------------
Complex Options Strategies are opened pursuant to an Opening
Process that attempts to execute Complex Orders on the Complex Order
Book at a single price that is within Boundary Prices that are
constrained by the NBBO for the individual legs, thereby serving an
important price discovery function.
Proposed Supplementary Material .06(b) to Rule 722 describes the
Exchange's process for uncrossing the Complex Order Book when a resting
Complex Order that is locked or crossed with other interest becomes
executable during regular trading or as part of the Complex Opening
Process. The Complex Uncrossing Process applies to Complex Options
Strategies, Stock-Option Strategies, and Stock-Complex Strategies.
Minimum Increments
The Exchange proposes to amend MRX Rule 710, ``Minimum
Increments,'' to provide the increments for trading in complex
strategies. Additionally, the Exchange proposes a minor technical
amendment to spell out ``one cent.'' Proposed MRX Rule 710 is identical
to ISE Rule 710.
Auction Mechanisms
Block Order Mechanism
The Exchange proposes to retitle MRX Rule 716, currently titled
``Block Trades,'' as ``Auction Mechanisms,'' because the new title more
accurately describes the rule text contained in this rule. The Exchange
proposes to relocate the text of Rule 716(a) within current Rule 716(c)
and re-letter that Rule as 716(a). The Exchange also proposes to make
clear that the Block Order Mechanism applies only to single-leg
transactions and therefore does not apply to Complex Orders. The
Exchange proposes to remove the ``(b)'' from Rule 716 so that the
following text will apply to the entirety of Rule 716 and all
mechanisms within the rule, including proposed relocated text, ``For
purposes of this Rule, a ``broadcast message'' means an electronic
message that is sent by the Exchange to all Members, and a ``Response''
means an electronic message that is sent by Members in response to a
broadcast message.'' This rule text, as written, is being amended so
that it is clear that the rule text applies to all mechanisms within
this rule, including the Complex Facilitation and Solicited Order
Mechanisms which are proposed to be added in Rule 716(b) and (e),
respectively, as proposed below. In addition, the Exchange proposes to
relocate and expand rule text within Supplementary Material .04 to Rule
716 \8\ to this introductory paragraph so that with the relocation it
also will apply to the entire rule. The Exchange proposes to provide,
``Also for purposes of this rule, the time given to Members to enter
Responses for any of the below auction mechanisms shall be designated
by the Exchange via circular, but no less than 100 milliseconds and no
more than 1 second.'' Today, this rule text applies to all mechanisms
within the rule, the Block Order Mechanism, Facilitation Mechanism and
Solicited Order Mechanisms. As amended, the rule text will apply to the
proposed Complex Facilitation and Solicited Order Mechanisms as well.
Proposed MRX Rule 716(a) and (b) are identical to ISE Rule 716(a) and
(b).
---------------------------------------------------------------------------
\8\ Supplementary Material .04 to Rule 716 provides, ``The time
given to Members to enter Responses under paragraphs (c)(1), (d)(1)
and (e)(1) shall be designated by the Exchange via circular, but no
less than 100 milliseconds and no more than 1 second.''
---------------------------------------------------------------------------
Complex Facilitation Mechanism
The Exchange proposes to amend MRX Rule 716 to re-letter the
Facilitation Mechanism from ``(d)'' to ``(b).'' In addition, the
Exchange proposes to adopt a new Complex Facilitation Mechanism in new
MRX Rule 716(c). With this proposal, Electronic Access Members may use
the Complex Facilitation Mechanism in new rule Rule 716(c) above to
execute block-size Complex Orders at a net price. The Complex
Facilitation Mechanism is a process by which an Electronic Access
Member can execute a transaction wherein the Electronic Access Member
seeks to facilitate a block-size Complex Order it represents as agent,
and/or a transaction wherein the Electronic Access Member solicited
interest to execute against a block-size Complex Order it represents as
agent. Proposed MRX Rule 716(c) is identical to ISE Rule 716(c).
Complex Solicited Order Mechanism
MRX proposes to adopt a new Complex Solicited Order Mechanism at
proposed MRX Rule 716(e). The Complex Solicited Order Mechanism is a
process by which an Electronic Access Member can attempt to execute
Complex Orders it represents as agent against contra orders that it
solicited according to Rule 716(d). Proposed MRX Rule 716(e) is
identical to ISE Rule 716(e). Additionally, the Exchange proposes to
eliminate Supplementary Material .03, which is currently reserved, and
.04 to Rule 716, which is being relocated as discussed above. The
Exchange proposes to amend Supplementary Material .05 \9\ to Rule 716
to renumber it .03. The Exchange proposes to renumber Supplementary
Material .06 \10\ to Rule 716 as .04. The Exchange proposes to
eliminate references to Supplementary Material .07 and .08 to Rule 716,
which are currently reserved. The Exchange proposes to renumber
Supplementary Material .09 \11\ to Rule 716 as .07. As proposed to be
amended, the entirety of the MRX Supplementary Material to Rule 716
will be identical to the entirety of the Supplementary Material of ISE
Rule 716.
---------------------------------------------------------------------------
\9\ Supplementary .05 to Rule 716 prohibits Members from
utilizing the Solicited Order Mechanism to circumvent MRX Rule
717(d) limiting principal transactions.
\10\ Supplementary .06 to Rule 716 permits orders and responses
entered into the Facilitation and Solicited Order Mechanisms to
receive executions at the mid-price between the standard minimum
trading increments for the option series (``Split Prices'').
\11\ Supplementary Material .09 to Rule 716 allows orders and
responses to be entered into the Block Mechanism and receive
executions at penny increments.
---------------------------------------------------------------------------
Concurrent Auctions
The Exchange proposes to adopt new MRX Rules 716(f) and (g)
regarding the processing of concurrent auctions. The Exchange will not
operate multiple concurrent auctions for a complex strategy.
Specifically, proposed MRX Rule 716(f) provides that only one Exposure
Auction, Complex Price Improvement Mechanism auction, Complex
Facilitation Mechanism auction, or Complex Solicited Order
[[Page 16909]]
Mechanism auction, pursuant to proposed Rule 722, Supplementary
Material .01 or proposed Rule 723(e) or proposed Rule 716(c) and (e),
respectively, will be ongoing at any given time in a Complex Strategy,
and such auctions will not queue or overlap in any manner. Proposed MRX
Rule 716(g) describes concurrent complex and single leg auctions.
Proposed MRX Rule 716(f) and (g) are identical to ISE Rule 716(f) and
(g).
Complex Price Improvement Mechanism
The Exchange proposes to amend MRX Rule 723 to adopt a new Complex
Price Improvement Mechanism at proposed MRX Rule 723(e). The Price
Improvement Mechanism exposes paired orders to all Members for a
specified period of time \12\ to provide an opportunity for price
improvement. The Exchange proposes to make the Price Improvement
Mechanism available for the execution of Complex Orders. Proposed MRX
Rule 723(e) is identical to ISE Rule 723(e).
---------------------------------------------------------------------------
\12\ The exposure period shall be no less than 100 milliseconds
and no more than 1 second. See MRX Rule 723(c).
---------------------------------------------------------------------------
Complex Customer Cross Order
The Exchange proposes to amend MRX Rule 721, Crossing Orders. The
Exchange proposes to add a title within Rule 721(a), ``Customer Cross
Orders.'' This will distinguish this paragraph from new proposed Rule
721(b), titled ``Complex Customer Cross Order.'' The Exchange proposes
to adopt a new Customer Complex Cross Orders at proposed MRX Rule
721(b). With this proposal, Complex Orders may be entered as Customer
Cross Orders, which are currently defined in MRX Rule 715(i). MRX Rule
721(a), as proposed to be amended, and proposed MRX Rule 721(b) are
identical to ISE Rules 721(a) and (d) respectively.
Complex Qualified Contingent Cross Orders
The Exchange proposes to re-letter MRX 721(b) as 721(c) and to add
a title ``Qualified Contingent Cross Orders'' to the rule. The Exchange
proposes to adopt a new Complex Qualified Contingent Cross Orders
(``Complex QCC'') at proposed MRX Rule 721(d). Proposed MRX Rule 721(d)
describes Complex QCC Orders which are automatically executed upon
entry as long as certain conditions are satisfied. Pursuant to current
Rule 715(j), Qualified Contingent Cross Orders are orders to buy or
sell at least 1,000 contracts that are identified as being part of a
qualified contingent trade, as that term is defined in Supplementary
Material .01 to MRX Rule 715.\13\ Proposed MRX Rule 721(c), as proposed
to be amended, and proposed Rule 721(d) are identical to ISE Rules
721(c) and (d) respectively.
---------------------------------------------------------------------------
\13\ Pursuant to current Rule 715(j), Qualified Contingent Cross
Orders are orders to buy or sell at least 1,000 contracts that are
identified as being part of a qualified contingent trade, as that
term is defined in Supplementary Material .01 to Rule 715. The
definition of Qualified Contingent Cross trade is substantively
identical to the Commission's definition of a Qualified Contingent
Transaction (``QCT'') for which the Commission, by order, has
provided trade-through relief in the equities market. Securities
Exchange Act Release No. 57620 (April 4, 2008), 73 FR 19271 (April
9, 2008) (the ``QCT Release''). Pursuant to Supplementary Material
.01 to Rule 715, a Qualified Contingent Cross trade must meet the
following conditions: (i) At least one component must be an NMS
Stock; (ii) all the components must be effected with a product or
price contingency that either has been agreed to by all the
respective counterparties or arranged for by a broker-dealer as
principal or agent; (iii) the execution of one component must be
contingent upon the execution of all other components at or near the
same time; (iv) the specific relationship between the component
orders (e.g., the spread between the prices of the component orders)
must be determined by the time the contingent order is placed; (v)
the component orders must 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 cancelled; and (iv)
the transaction must be fully hedged (without regard to any prior
existing position) as a result of other components of the contingent
trade. Consistent with the QCT Release members must demonstrate that
the transaction is fully hedged using reasonable risk-valuation
methodologies.
---------------------------------------------------------------------------
Qualified Contingent Cross With Stock
The Exchange proposes to adopt Qualified Contingent Cross (``QCC'')
Orders with Stock at proposed MRX Rule 721(e). The proposal adopts a
definition of QCC with Stock Orders.\14\ The proposed definition is
identical to ISE Rule 722(b)(15). The proposed QCC with Stock Order
facilitates the execution of the stock component of qualified
contingent trades.\15\ The Exchange proposes to adopt rule text at
proposed MRX Rule 721(e) to provide detail explaining how a QCC with
Stock Order is processed. Proposed MRX Rule 721(e) is identical to ISE
Rule 721(e). Additionally, the Exchange proposes to define QCC with
Stock within proposed new Rule 715(t). This defined term is identical
to ISE Rule 715(t). Finally, the Exchange proposes to re-letter the
definition of Opening Sweep as 715(u), as proposed this amendment will
make the rule identical to ISE Rule 715(u).
---------------------------------------------------------------------------
\14\ See also proposed Rule 722(b)(15).
\15\ See Securities Exchange Act Release No. 80090 (February 22,
2017), 82 FR 12150 (February 28, 2017) (SR-ISE-2017-12) (``QCC with
Stock Notice'').
---------------------------------------------------------------------------
Complex Order Risk Protections
The Exchange proposes to adopt Complex Order Protections at
proposed MRX Rule 724. Proposed MRX Rule 724 is identical to ISE Rule
724. The Complex Order Protections include: Price limits, Vertical
Spread Protections, Calendar Spread Protections, Butterfly Spread
Protections, Box Spread Protections, Limit Order Spread Protections,
Size Limitation and Price Level Protection.
Price Limits
The Exchange proposes to adopt a Price Limits protection at
proposed MRX Rule 724(a). This protection will prevent the legs of a
complex strategy from trading 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.
Vertical Spread Protections
The Exchange proposes to adopt a Vertical Spread Protection at
proposed MRX Rule 724(b)(1). Pursuant to this proposal, a Vertical
Spread is an order to buy a call (put) option and to sell another call
(put) option in the same security with the same expiration but at a
higher (lower) strike price at proposed Rule 724(b)(1). The System will
reject Vertical Spread orders when entered with a net price of less
than zero (minus a pre-set value) and will prevent the execution of a
Vertical Spread order at a price that is less than zero (minus a pre-
set value) when entered as a market order to sell. The System will also
reject a Vertical Spread order or quote when entered with a net price
greater than the value of the higher strike price minus the lower
strike price (plus a pre-set value), and will prevent the execution of
a Vertical Spread order at a price that is greater than the value of
the higher strike price minus the lower strike price (plus a pre-set
value) when entered as a Market Order to buy.
Calendar Spread Protections
The Exchange proposes to adopt a Calendar Spread Protection at
proposed MRX Rule 724(b)(2). Pursuant to this proposal, a Calendar
Spread is an order to buy a call (put) option with a longer expiration
and to sell another call (put) option with a shorter expiration in the
same security at the same strike price at proposed Rule 724(b)(2). The
System will reject a Calendar Spread order when entered with a net
price of less than zero (minus a pre-set value), and will prevent the
execution of a Calendar
[[Page 16910]]
Spread order at a price that is less than zero (minus a pre-set value)
when entered as a market order to sell.
Butterfly and Box Spread Protections
The Exchange proposes to adopt a Butterfly Spread Protection at
proposed MRX Rule 724(b)(3) and a Box Spread Protection at proposed
Rule 724(b)(4). Pursuant to this proposal, a Butterfly spread is a
three legged Complex Order with certain characteristics.\16\ Pursuant
to this proposal, a Box spread is a four legged Complex Order with
certain characteristics.\17\ Butterfly and Box Spreads will be rejected
outside of certain parameters to avoid potential executions at prices
that exceed the minimum and maximum possible intrinsic value of the
spread by a specified amount.
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\16\ This strategy will utilize a combination of either all
calls or all puts of the same expiration date in the same underlying
to limit risk.
\17\ This strategy utilizes a combination of put/call pairs of
options with the same expiration date in the same underlying to
limit risk.
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Limit Order Price Protection
MRX proposes to adopt a Limit Order Price Protection at MRX Rule
724(c)(1). This protection will limit the amount by which the net price
of an incoming Limit Complex Order to buy may exceed the net price
available from the individual options series on the Exchange and the
national best bid or offer for any stock leg, and by which the net
price of an incoming Limit Complex Order to sell may be below the net
price available from the individual options series on the Exchange and
the national best bid or offer for any stock leg. Limit Complex Orders
that exceed the pricing limit will be rejected.
Size Limitation
MRX proposes to adopt a Size Limitation protection at proposed MRX
Rule 724(c)(2) the same as provided for in ISE Rule 724(c)(2). This
protection will limit the number of contracts (and shares in the case
of a Stock-Option Strategy or Stock-Complex Strategy) any single leg of
an incoming Complex Order may specify. Orders or quotes that exceed the
maximum number of contracts (or shares) will be rejected.
Price Level Protection
MRX proposes to adopt a Price Level Protection at proposed MRX Rule
724(c)(3). Pursuant to this proposal, the Price Level Protection will
limit the number of price levels at which an incoming Complex Order to
sell (buy) will be executed automatically with the bids or offers of
each component leg when there are no bids (offers) from other exchanges
at any price for the options series. Complex Orders will be executed at
each successive price level until the maximum number of price levels is
reached. On any component leg where the maximum number of price levels
has been reached, the protection will be triggered and any balance will
be canceled.
Professional Definition
The Exchange proposes to amend the definition of Professional
Orders within Rule 100(a)(54). Proposed MRX Rule 100(a)(54) is
identical to ISE Rule 1(a)(54). Specifically, the Exchange proposes to
amend the calculation of Professional Orders to include rule text
indicating the manner in which Complex Orders should be counted. With
this proposal, a cancel and replace order which replaces a prior order
shall be counted as a second order, or multiple new orders in the case
of Complex Order comprising 9 options legs or more. Additionally,
Complex Orders consisting of 8 legs or fewer will be counted as a
single order, and respecting Complex Orders of 9 options \18\ legs or
more, each leg will count as a separate order. Stock orders shall not
count toward the number of legs.
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\18\ Orders that have nine legs, where one leg is a stock, will
be considered one order. Stock orders shall not count toward the
number of legs.
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Trading Halts
The Exchange proposes to amend MRX Rule 702(d)(2) to describe how
Market Complex Orders, which are proposed within proposed MRX Rule 722,
will be handled during a trading halt. Proposed MRX Rule 702 is
identical to ISE Rule 702.
Automatic Execution of Orders
The Exchange proposes to amend MRX Rule 714, ``Automatic Execution
of Orders,'' which lists the various single-legged risk protections
available to Members. The Exchange proposes to exclude Complex Orders
from the Anti-Internalization \19\ protection. The Exchange currently
provides that Anti-Internalization does not apply in any auction and
proposes to also state that Anti-Internalization functionality shall
not apply with respect to Complex Order transactions. Proposed MRX Rule
714(b)(3)(A) is identical to ISE Rule 714(b)(3)(A).
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\19\ Anti-Internalization prevents quotes and orders entered by
Market Makers from executing against quotes and orders entered on
the opposite side of the market by the same Market Maker using the
same Market Maker identifiers, or alternatively, if selected by the
Member, the same Exchange account number or member firm identifier.
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Types of Orders
The Exchange is proposing to amend MRX Rule 715 to define legging
orders within Rule 715(k) and QCC with Stock at proposed Rule 715(t).
Proposed MRX Rule 715(k) and (t) are identical to ISE Rule 715(k) and
(t). Additionally, the Exchange proposes to re-letter ``Opening Sweep''
as ``u'' and capitalize the term ``System'' which is defined. These
proposed changes will make the rule text in MRX Rule 715 identical to
ISE Rule 715.
The Exchange proposes to amend the MRX Supplementary Material .03
to Rule 715 to indicate both ``Ouch to Trade Options'' or ``OTTO'' and
the ``Specialized Quote Feed'' or ``SQF'' protocols may connect, send
and receive message related to complex instruments. Proposed MRX
Supplementary Material .03(b) and (c) to Rule 715 are identical to
Supplementary Material .03(b) and (c) to ISE Rule 715.
Data Feeds and Trade Information
The Exchange proposes to adopt a MRX Spread Feed at proposed MRX
Rule 718(a)(5) at no cost as noted in proposed Options 7, Section
6(iii)(5). The Spread Feed contains various information regarding
Complex Orders. Proposed MRX Rule 718(a)(5) is identical to ISE Rule
718(a)(5). Additionally, the Exchange purposes to define the term
``Professional Customer'' at proposed MRX Rule 100(a)(54A). The MRX
Spread Feed introduces this term, which exists within ISE Rule
100(a)(54A). Proposed MRX Rule 100(a)(54A) is identical to ISE Rule
100(a)(54A).
Nullification and Adjustment of Options Transactions Including Obvious
Errors
The Exchange proposes to amend MRX Rule 720, titled ``Nullification
and Adjustment of Options Transactions including Obvious Errors'' which
permits the Exchange to nullify a transaction or adjust the execution
price of a transaction for Complex Orders. Additionally, the Exchange
proposes to renumber current Supplementary Material .04 to .06 within
Rule 720. Proposed MRX Rule 720 is identical to ISE Rule 720 including
the Supplementary Material.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act'') \20\ in
general, and furthers the objectives of Section 6(b)(5) of the Act \21\
in particular, in that it is designed
[[Page 16911]]
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism for a free and open market and
a national market system, and, in general, to protect investors and the
public interest. MRX's adoption of Complex Order Functionality will
allow MRX to compete with other options exchanges that offer complex
functionality.\22\ The Exchange believes that the proposed rule change
will better enable Members and investors to make informed decisions
regarding the use of Complex Orders on the Exchange. As described more
fully above, MRX's Complex Order Functionality is identical to the
Complex Order Functionality offered today on ISE.\23\
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
\22\ See NYSE American LLC Rule 971.2NY, ISE Rule 722, Phlx Rule
1098, Cboe Interpretations and Policies .01 to Cboe Rule 6.41 and
MIAX Rule 518.
\23\ See note 3 above.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange notes that it
operates in a highly competitive market in which market participants
can readily direct order flow to competing venues who offer similar
functionality. The Exchange believes that offering Complex Order
Functionality on MRX will enhance competition among the various markets
for Complex Order execution, potentially resulting in more active
Complex Order trading on all exchanges. The Exchange does not believe
its proposal to offer Complex Order Functionality will create an undue
burden on inter-market competition as various other options markets
offer Complex Order functionality.\24\
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\24\ See note 22 above.
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With respect to intra-market competition, all Members are permitted
to submit Complex Orders into MRX. Further, the Exchange will uniformly
apply the proposed rules to any Member that submits a Complex Order
into MRX.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change 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-2019-08 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-2019-08. 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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MRX-2019-08 and should be submitted on
or before May 14, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-08103 Filed 4-22-19; 8:45 am]
BILLING CODE 8011-01-P
