Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing of a Proposed Rule Change To Adopt Complex Order Functionality, 16907-16911 [2019-08103]

Download as PDF 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 http://nasdaqmrx.cchwallstreet.com/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. jbell on DSK3GLQ082PROD with NOTICES 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’’). VerDate Sep<11>2014 17:49 Apr 22, 2019 Jkt 247001 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 PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 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. E:\FR\FM\23APN1.SGM 23APN1 16908 Federal Register / Vol. 84, No. 78 / Tuesday, April 23, 2019 / Notices 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. jbell on DSK3GLQ082PROD with NOTICES 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. VerDate Sep<11>2014 17:49 Apr 22, 2019 Jkt 247001 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.’’ PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 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. E:\FR\FM\23APN1.SGM 23APN1 Federal Register / Vol. 84, No. 78 / Tuesday, April 23, 2019 / Notices 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. jbell on DSK3GLQ082PROD with NOTICES 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). VerDate Sep<11>2014 17:49 Apr 22, 2019 Jkt 247001 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’’). PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 16909 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 E:\FR\FM\23APN1.SGM 23APN1 16910 Federal Register / Vol. 84, No. 78 / Tuesday, April 23, 2019 / Notices 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. jbell on DSK3GLQ082PROD with NOTICES 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. VerDate Sep<11>2014 17:49 Apr 22, 2019 Jkt 247001 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. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 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 (http://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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 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 E:\FR\FM\23APN1.SGM 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]]

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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.
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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 http://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.
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    \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).
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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\
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    \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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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\
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    \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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    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.
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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).
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    \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

[[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.
---------------------------------------------------------------------------

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).
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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 (http://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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of 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