Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend ISO Functionality, 8020-8024 [2023-02508]

Download as PDF 8020 Federal Register / Vol. 88, No. 25 / Tuesday, February 7, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES respect to the management of credit risk with respect to FSPs and links, including any through which assets of the Clearing House and CMs may be invested or maintained. The policy and procedures address the monitoring of an FSP or link’s credit risk and the steps the Clearing House may take to mitigate such risk where it exceeds exposure limits. As such, the CC Risk Policy and CC Risk Procedures will continue to enable the Clearing House to safeguard such assets and minimize the risk of loss from FSP default, consistent with the requirements of Rule 17Ad– 22(e)(16).12 For similar reasons, the amendments to the CC Risk Policy and the CC Risk Procedures are consistent with the requirements of Rule 17A–22(e)(20),13 which provides that the ‘‘covered clearing agency shall establish, implement, maintain and enforce written policies and procedures reasonable designed to, as applicable [. . .] identify, monitor, and manage risks related to any link the covered clearing agency establishes with one or more other clearing agencies, financial market utilities, or trading markets’’. The amendments document the Clearing House practices and policies with respect to the management of credit risk and related exposure with respect to link counterparties, and in ICE Clear Europe’s view are therefore consistent with the requirements of Rule 17Ad– 22(e)(20).14 (B) Clearing Agency’s Statement on Burden on Competition ICE Clear Europe does not believe the proposed documents would have any impact, or impose any burden, on competition not necessary or appropriate in furtherance of the purposes of the Act. The amendments to the CC Risk Policy and the CC Risk Procedures are intended to enhance practices with respect to counterparty credit risk monitoring and management, for CMs, FSPs and links, and are not intended to impose new requirements on CMs. The proposed amendments clarify ICE Clear Europe’s risk management procedures and ensure that ICE Clear Europe continues to appropriately monitors and limit risks relating to CMs, FSPs and links’ credit risk. The proposed amendments are not expected to materially change margin requirements or costs for CMs and any such change which may occur would be tailored to the counterparty credit risk presented by a particular CM. ICE Clear 12 17 CFR 240.17Ad–22(e)(16). CFR 240.17Ad–22(e)(20). 14 17 CFR 240.17Ad–22(e)(20). 13 17 VerDate Sep<11>2014 18:52 Feb 06, 2023 Jkt 259001 Europe does not believe that the proposed amendments will otherwise impact competition among Clearing Members or other market participants or affect the ability of market participants to access clearing generally. Therefore, ICE Clear Europe does not believe the proposed rule change imposes any burden on competition that is inappropriate or unnecessary in furtherance of the purposes of the Act. (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments relating to the proposed amendments have not been solicited or received by ICE Clear Europe. ICE Clear Europe will notify the Commission of any written comments received with respect to the proposed rule change. 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 rule-comments@ sec.gov. Please include File Number SR– ICEEU–2023–004 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–ICEEU–2023–004. This file number should be included on the subject line if email is used. To help the Commission process and review your PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 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 such filings will also be available for inspection and copying at the principal office of ICE Clear Europe and on ICE Clear Europe’s website at https:// www.theice.com/clear-europe/ regulation. 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–ICEEU–2023–004 and should be submitted on or before February 28, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–02510 Filed 2–6–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–96783; File No. SR–GEMX– 2023–01] Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend ISO Functionality February 1, 2023. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 19, 2023, Nasdaq GEMX, LLC (‘‘GEMX’’ 15 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\07FEN1.SGM 07FEN1 Federal Register / Vol. 88, No. 25 / Tuesday, February 7, 2023 / Notices or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Options 3, Section 11 with respect to the ability of Members to submit ISOs in the Exchange’s Facilitation Mechanism (‘‘Facilitation ISO’’), and Solicited Order Mechanism (‘‘Solicitation ISO’’), to codify current System functionality.3 The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/gemx/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change ddrumheller on DSK120RN23PROD with NOTICES 1. Purpose The Exchange proposes to amend Options 3, Section 11 with respect to the ability of Members to submit ISOs in the Exchange’s Facilitation Mechanism (‘‘Facilitation ISO’’), and Solicited Order Mechanism (‘‘Solicitation ISO’’), to codify current System functionality.4 As set forth in Options 3, Section 11(b), the Facilitation Mechanism is a process wherein the Electronic Access Member seeks to facilitate a block-size 3 This functionality is currently offered on the Exchange, so the proposed rule change codifies existing functionality in the Exchange’s rules. 4 This functionality is currently offered on the Exchange, so the proposed rule change codifies existing functionality in the Exchange’s rules. VerDate Sep<11>2014 18:52 Feb 06, 2023 Jkt 259001 order it represents as agent, and/or a transaction wherein the Electronic Access Member solicited interest to execute against a block-size order it represents as agent. Electronic Access Members must be willing to execute the entire size of orders entered into the Facilitation Mechanism. As set forth in Options 3, Section 11(d), the Solicited Order Mechanism is a process by which an Electronic Access Member can attempt to execute orders of 500 or more contracts it represents as agent against contra orders it solicited. Each order entered into the Solicited Order Mechanism shall be designated as all-ornone. An ISO is defined in Options 3, Section 7(b)(5) as a limit order that meets the requirements of Options 5, Section 1(h) and trades at allowable prices on the Exchange without regard to the ABBO. Simultaneously with the routing of the ISO to the Exchange, one or more additional ISOs, as necessary, are routed to execute against the full displayed size of any Protected Bid, in the case of a limit order to sell, or any Protected Offer, in the case of a limit order to buy, for the options series with a price that is superior to the limit price of the ISO.5 A Member may submit an ISO to the Exchange only if it has simultaneously routed one or more additional ISOs to execute against the full displayed size of any Protected Bid, in the case of a limit order to sell, or Protected Offer, in the case of a limit order to buy, for an options series with a price that is superior to the limit price of the ISO. As discussed further below, none of the proposed rule changes will amend current functionality. Rather, these changes are designed to bring greater transparency around certain order types currently available on the Exchange. The Exchange notes that the Facilitation ISO and Solicitation ISO 6 are functionally similar to the Exchange’s Price Improvement Mechanism 7 ISO 5 ‘‘Protected Bid’’ or ‘‘Protected Offer’’ means a Bid or Offer in an options series, respectively, that: (a) is disseminated pursuant to the Options Order Protection and Locked/Crossed Market Plan; and (b) is the Best Bid or Best Offer, respectively, displayed by an Eligible Exchange. See Options 5, Section 1(o). 6 The Exchange notes that it has an ISO trade through surveillance in place that will identify and capture when a Member marks a Facilitation or Solicitation ISO and the order possibly trades through a Protected Bid or Protected Offer price at an away exchange. The Exchange will monitor the NBBO prior to and after the order trades on the Exchange to detect potential trade through violations. 7 The Price Improvement Mechanism (‘‘PIM’’) is a process that allows an Electronic Access Member to provide price improvement opportunities for a transaction wherein the Electronic Access Member PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 8021 (‘‘PIM ISO’’) as set forth in Supplementary Material .08 to Options 3, Section 13, as further discussed below.8 Facilitation ISO Today, the Exchange allows the submission of ISOs into its Facilitation Mechanism as Facilitation ISOs. To promote transparency, the Exchange proposes to memorialize Facilitation ISOs as an order type in Supplementary Material .06 to Options 3, Section 11. Specifically, the Exchange proposes: A Facilitation ISO order (‘‘Facilitation ISO’’) is the transmission of two orders for crossing pursuant to paragraph (b) above without regard for better priced Protected Bids or Protected Offers (as defined in Options 5, Section 1) because the Member transmitting the Facilitation ISO to the Exchange has, simultaneously with the transmission of the Facilitation ISO, routed one or more ISOs, as necessary, to execute against the full displayed size of any Protected Bid or Protected Offer that is superior to the starting Facilitation auction price. Any execution(s) resulting from such sweeps shall accrue to the Agency order. Today, the Exchange will accept a Facilitation ISO provided the order adheres to the current order entry requirements for the Facilitation Mechanism as set forth in Options 3, Section 11(b)(1),9 but without regard to seeks to facilitate an order it represents as agent, and/or a transaction wherein the Electronic Access Member solicited interest to execute against an order it represents as agent. See Options 3, Section 13(a). 8 The Exchange also notes that its affiliates, Nasdaq BX (‘‘BX’’) and Nasdaq Phlx (‘‘Phlx’’), currently allow ISOs to be entered into BX’s Price Improvement Mechanism (‘‘PRISM’’) and Phlx’s Price Improvement XL (‘‘PIXL’’), respectively. See BX Options 3, Section 13(ii)(K) (describing PRISM ISOs) and Phlx Options 3, Section 13(b)(11) (describing PIXL ISOs). Other options exchanges like Cboe Exchange, Inc. (‘‘Cboe’’) and Cboe EDGX Exchange, Inc. (‘‘EDGX’’) similarly allow ISOs to be entered into their auction mechanisms. See Cboe Rule 5.37(b)(4)(A) and EDGX Rule 21.19(b)(3)(A) (allowing ISOs to be entered into Cboe’s and EDGX’s Automated Improvement Mechanism (‘‘AIM ISOs’’)) and Cboe Rule 5.39(b)(4) and EDGX Rule 21.21(b)(4) (allowing ISOs to be entered into Cboe’s and EDGX’s Solicitation Auction Mechanism (‘‘SAM ISOs’’)). See also Securities Exchange Act Release No. 60551 (August 20, 2009), 74 FR 43196 (August 26, 2009) (SR–CBOE–2009–040) (Order Granting Approval of a Proposed Rule Change to Adopt Rules Implementing the Options Order Protection and Locked/Crossed Market Plan, including to adopt AIM ISOs). 9 Specifically, Options 3, Section 11(b)(1) provides that orders must be entered into the Facilitation Mechanism at a price that is (A) equal to or better than the NBBO on the same side of the market as the agency order unless there is a Priority Customer order on the same side Exchange best bid or offer, in which case the order must be entered at an improved price; and (B) equal to or better than the ABBO on the opposite side. Orders that do not meet these requirements are not eligible for the Facilitation Mechanism and will be rejected. The E:\FR\FM\07FEN1.SGM Continued 07FEN1 ddrumheller on DSK120RN23PROD with NOTICES 8022 Federal Register / Vol. 88, No. 25 / Tuesday, February 7, 2023 / Notices the ABBO (similar to a regular ISO in Options 3, Section 7(b)(5)). Therefore, Facilitation ISOs must be entered at a price that is equal to or better than the Exchange best bid or offer on the same side of the market as the agency order unless there is a Priority Customer order on the same side Exchange best bid or offer, in which case the Facilitation ISO must be entered at an improved price. The Exchange does not check the Exchange best bid or offer on the opposite side of the Facilitation ISO because the underlying Facilitation Mechanism similarly does not check the opposite side Exchange best bid or offer. As discussed above, the Facilitation Mechanism only requires that the opposite side of the Facilitation order be equal to or better than the ABBO.10 The Facilitation Mechanism does not check the opposite side Exchange best bid or offer because any interest that is available on the opposite side of the market would allocate against the Facilitation agency order and provide price improvement. As an example of the current underlying Facilitation Mechanism: Assume the following market: Exchange BBO: 1 × 2 (also NBBO) CBOE: 0.75. × 2.25 (next best exchange quote) Facilitation order is entered to buy 50 contracts @2.05 No Responses are received. The Facilitation order executes with resting 50 lot quote @2. In this instance, the Facilitation order is able to begin crossed with the contra side Exchange BBO because in execution, the resting 50 lot quote @2 is able to provide price improvement to the facilitation order. Given that the Facilitation ISO is accepted so long as it adheres to the order entry requirements of the underlying Facilitation Mechanism, but without regard to the ABBO, the Exchange believes that it is appropriate and logical to align the order entry checks of the Facilitation ISO in the manner discussed above. The Exchange processes the Facilitation ISO in the same manner that it processes any other Facilitation orders, except that it will initiate a Facilitation auction without protecting prices away. Instead, the Member entering the Facilitation ISO will bear the responsibility to clear all better priced interest away simultaneously Exchange notes that it is amending this provision in a concurrent rule filing (SR–GEMX–2022–10), but that the proposed changes in this filing do not impact SR–GEMX–2022–10 and vice versa. See Securities Exchange Act Release No. 96363 (November 18, 2022), 87 FR 72556 (November 25, 2022) (SR–GEMX–2022–10). 10 Id. VerDate Sep<11>2014 18:52 Feb 06, 2023 Jkt 259001 with submitting the Facilitation ISO to the Exchange. The Exchange believes that offering this order type is beneficial for Members as it provides them with an efficient method to initiate a Facilitation auction while preventing tradethroughs. The Exchange notes that the Facilitation ISO is similar to the PIM ISO that is currently described in Supplementary Material .08 to Options 3, Section 13.11 Similar to the Facilitation ISO, the PIM ISO must meet the order entry requirements for PIM in Options 3, Section 13(b) but does not consider the ABBO.12 Further, the Exchange processes a PIM ISO order the same way as any other PIM order except the Exchange will initiate a PIM auction without protecting away prices. As with Facilitation ISOs, the Member entering the PIM ISO bears responsibility to clear all better priced interest away simultaneously with submitting the PIM ISO to the Exchange. The following example illustrates how Facilitation ISO operates: Assume: ABBO: 1 × 1.20 Exchange BBO: 0.90 × 1.30 Member enters Facilitation ISO with Agency side to buy 50 @1.25 and simultaneously routes multiple ISOs to execute against the full displayed size of any Protected Bids priced better than the starting Facilitation auction price 11 Supplementary Material .08 to Options 3, Section 13 defines PIM ISO as the transmission of two orders for crossing pursuant to this Rule without regard for better priced Protected Bids or Protected Offers (as defined in Options 5, Section 1) because the Member transmitting the PIM ISO to the Exchange has, simultaneously with the routing of the PIM ISO, routed one or more ISOs, as necessary, to execute against the full displayed size of any Protected Bid or Protected Offer that is superior to the starting PIM auction price and has swept all interest in the Exchange’s book priced better than the proposed auction starting price. Any execution(s) resulting from such sweeps shall accrue to the PIM order. 12 Unlike the Facilitation Mechanism, PIM requires an opposite side NBBO check, which would include the Exchange best bid or offer. As discussed above, the Facilitation order entry checks only require that the opposite side of the Facilitation order be equal to or better than the ABBO (i.e., there is no opposite side local book check). For PIM, the order must be entered at one minimum price improvement increment better than the NBBO on the opposite side of the market if the Agency Order is for less than 50 option contracts and if the difference between the NBBO is $0.01. If the Agency Order is for 50 option contracts or more, or if the difference between the NBBO is greater than $0.01, the PIM order must be entered at a price that is equal to or better than the NBBO on the opposite side. See Options 3, Section 13(b)(1) and (2). As such, PIM ISOs additionally require the entering Member to sweep all interest in the Exchange’s book priced better than the proposed auction starting price (unlike Facilitation ISO which does not have a similar sweep requirement). PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 Facilitation ISO auction period concludes with no responses arriving Facilitation ISO executes with contra side 50 @1.25 because the away market Best Offer of 1.20 has been cleared by the ISOs clearing the way for the Agency side to trade with the counterside order at 1.25. Solicitation ISO Today, the Exchange allows the submission of ISOs into its Solicited Order Mechanism as Solicitation ISOs. To promote transparency, the Exchange proposes to memorialize Solicitation ISOs as an order type in Supplementary Material .07 to Options 3, Section 11. Specifically, the Exchange proposes: A Solicitation ISO order (‘‘Solicitation ISO’’) is the transmission of two orders for crossing pursuant to paragraph (d) above without regard for better priced Protected Bids or Protected Offers (as defined in Options 5, Section 1) because the Member transmitting the Solicitation ISO to the Exchange has, simultaneously with the transmission of the Solicitation ISO, routed one or more ISOs, as necessary, to execute against the full displayed size of any Protected Bid or Protected Offer that is superior to the starting Solicitation auction price and has swept all interest in the Exchange’s book priced better than the proposed auction starting price. Any execution(s) resulting from such sweeps shall accrue to the Agency order. Today, the Exchange will accept a Solicitation ISO provided the order adheres to the current order entry requirements for the Solicited Order Mechanism as set forth in Options 3, Section 11(d)(1),13 but without regard to the ABBO (similar to a regular ISO in Options 3, Section 7(b)(5)). Therefore, Solicitation ISOs must be entered at a price that is equal to or better than the Exchange best bid or offer on both sides of the market; provided that, if there is a Priority Customer order on the Exchange best bid or offer, the Solicitation ISO must be entered at an improved price. The Exchange processes the Solicitation ISO in the same manner that it processes other orders entered in the Solicited Order Mechanism, except 13 Specifically, Options 3, Section 11(d)(1) provides that orders must be entered into the Solicited Order Mechanism at a price that is equal to or better than the NBBO on both sides of the market; provided that, if there is a Priority Customer order on the Exchange best bid or offer, the order must be entered at an improved price. Orders that do not meet these requirements are not eligible for the Solicited Order Mechanism and will be rejected. Similar to the Facilitation Mechanism, the Exchange is amending the entry checks for the Solicited Order Mechanism in SR–GEMX–2022–10; however, the proposed changes in this filing do not impact SR–GEMX–2022–10 and vice versa. See supra note 8. E:\FR\FM\07FEN1.SGM 07FEN1 Federal Register / Vol. 88, No. 25 / Tuesday, February 7, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES that it will initiate a Solicited Order auction without protecting away prices. Instead, the Member entering the Solicitation ISO will bear the responsibility to clear all better priced interest away simultaneously with submitting the Solicitation ISO to the Exchange. Similar to the Facilitation ISO discussed above, the Exchange believes that offering this order type is beneficial for Members as it provides them with an efficient method to initiate an auction in the Solicited Order Mechanism while preventing tradethroughs. Furthermore, Solicitation ISOs are similar to PIM ISOs in the manner described above for Facilitation ISOs.14 In addition, other options exchanges currently offer a substantially similar order type as the Exchange’s Solicitation ISO.15 The following example illustrates how the Solicitation ISO operates: Assume: ABBO: 1 × 1.20 Exchange BBO: 0.90 × 1.30 Member enters Solicitation ISO with Agency side to buy 500 @1.25 and simultaneously routes multiple ISOs to execute against the full displayed size of any Protected Bids priced better than the starting Solicitation auction price Solicitation ISO auction period concludes with no responses arriving Solicitation ISO executes with contra side 500 @1.25 Note that in the case a Solicitation ISO was entered with the Agency side to buy 500 @1.35, it would be rejected because it was not at or better than the 14 The Exchange notes that similar to the PIM ISO, but unlike Facilitation ISO, the Solicitation ISO requires entering Members to sweep all interest in the Exchange’s book priced better than the proposed auction starting price. The order entry checks for the Solicited Order Mechanism, similar to PIM, requires an opposite side NBBO check, which would include the Exchange best bid or offer. See supra notes 11–12. 15 As noted above, both Cboe and EDGX currently offer a SAM ISO order type, which is defined as the submission of two orders for crossing in a SAM Auction without regard for better-priced Protected Quotes (as defined in Cboe Rule 5.65 and EDGX Rule 27.1) because the Initiating TPH routed an ISO(s) simultaneously with the routing of the SAM ISO to execute against the full displayed size of any Protected Quote that is better than the stop price and has swept all interest in the Book with a price better than the stop price. Any execution(s) resulting from these sweeps accrue to the SAM Agency Order. See Cboe Rule 5.39(b)(4) and EDGX Rule 21.21(b)(4). See also Securities Exchange Act Release Nos. 87192 (October 1, 2019), 84 FR 53525 (October 7, 2019) (SR–CBOE–2019–063) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change related to the SAM Auction, including to adopt the SAM ISO); and 87060 (September 23, 2019), 84 FR 51211 (September 27, 2019) (SR– CboeEDGX–2019–047) (Order Approving a Proposed Rule Change to Adopt a SAM Auction, including to adopt the SAM ISO). VerDate Sep<11>2014 18:52 Feb 06, 2023 Jkt 259001 NBBO on both sides (which is inclusive of an Exchange book check). While the 1.20 away Best Offer was cleared by the simultaneously routed ISOs, the Exchange Best Offer of 1.30 would now be viewed as the National Best Offer for purposes of the Solicitation ISO. Further note that a Facilitation ISO entered with the Agency side to buy 50 @1.35 can start in the same example above because it does not have a contraside (from the Agency order perspective) Exchange book check to begin. The Facilitation ISO would go on to allocate against the 1.30 offer on the Exchange book upon the conclusion of the auction. Intermarket Sweep Orders In light of the changes proposed above to adopt the Facilitation ISO and Solicitation ISO into its Rulebook, the Exchange proposes to make related amendments to the ISO rule in Options 3, Section 7(b)(5) to add that ‘‘ISOs may be entered on the order book or into the Facilitation Mechanism, Solicited Order Mechanism, or Price Improvement Mechanism, pursuant to Supplementary Material .06 and .07 to Options 3, Section 11, and Supplementary Material .08 to Options 3, Section 13.’’ The proposed rule text will be similar to BX’s current ISO rule in BX Options 3, Section 7(a)(6), except the Exchange’s ISO rule will refer to Exchange functionality that BX does not have today. Specifically, BX does not currently offer Facilitation ISOs or Solicitation ISOs. PIM ISOs are currently codified in Supplementary Material .08 to Options 3, Section 13, so the proposed rule text herein is a nonsubstantive amendment to add a crossreference to the PIM ISO rule. The proposed language does not amend the current ISO functionality but rather is intended to add more granularity and more closely align the ISO rule with BX’s ISO rule.16 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,17 in general, and furthers the objectives of Section 6(b)(5) of the Act,18 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market 16 BX’s ISO rule currently has more granularity than the Exchange’s ISO rule, such as requiring ISOs to have a TIF designation of IOC and prohibiting ISOs from being submitted during the opening process. The Exchange will add identical granularity to its ISO rule in a separate rule filing. 17 15 U.S.C. 78f(b). 18 15 U.S.C. 78f(b)(5). PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 8023 system, and, in general to protect investors and the public interest. Facilitation and Solicitation ISOs The Exchange believes that the proposal to adopt Facilitation ISOs and Solicitation ISOs in Supplementary Material .06 and .07 to Options 3, Section 11 is consistent with the Act. The proposal will codify current functionality, thereby promoting transparency in the Exchange’s rules and reducing any potential confusion. As it relates to Solicitation ISOs, the Exchange believes that the proposed rule change promotes fair competition. Specifically, the proposal allows the Exchange to offer Members an order type that is already offered by other options exchanges.19 In addition, offering the Facilitation ISO and Solicitation ISO benefits market participants and investors because this functionality provides an additional and efficient method to initiate a Facilitation or Solicited Order auction while preventing trade-throughs. As discussed above, the Exchange processes the Facilitation and Solicitation ISO in the same manner as it processes any other order entered into the Facilitation and Solicited Order Mechanism, except the Exchange will initiate a Facilitation auction or Solicited Order auction without protecting away prices (similar to a regular ISO in Options 3, Section 7(b)(5)). Instead, the entering Member, simultaneous with the transmission of the Facilitation ISO or Solicitation ISO to the Exchange, remains responsible for routing one or more ISOs, as necessary, to execute against the full displayed size of any Protected Bid or Protected Offer that is superior to the starting Facilitation or Solicitation auction price, and for Solicitation ISO, has swept all interest in the Exchange’s book priced better than the proposed auction starting price.20 As discussed above, these order types operate in a similar manner to the PIM ISO that is currently described in Supplementary Material .08 to Options 3, Section 13.21 Intermarket Sweep Orders The Exchange believes that the proposed changes to the definition of ISOs in Options 3, Section 7(b)(5) are consistent with the Act. As discussed above, the proposed changes are intended to add more granularity and more closely align the level of detail in the ISO rule with BX’s ISO rule in BX Options 3, Section 7(a)(6) by specifying 19 See supra note 14. supra note 13. 21 See supra notes 11 and 13. 20 See E:\FR\FM\07FEN1.SGM 07FEN1 8024 Federal Register / Vol. 88, No. 25 / Tuesday, February 7, 2023 / Notices how ISOs may be submitted.22 As such, the Exchange believes that its proposal will promote transparency in the Exchange’s rules and consistency across the rules of the Nasdaq affiliated options exchanges. While the proposed changes to the Exchange’s ISO rule generally track BX’s ISO rule, the proposed language will refer to certain Exchange functionality that BX does not have today (i.e., Facilitation ISOs or Solicitation ISOs). B. Self-Regulatory Organization’s Statement on Burden on Competition ddrumheller on DSK120RN23PROD with NOTICES The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. Offering Facilitation and Solicitation ISOs does not impose an undue burden on competition because it enables the Exchange to provide market participants with an additional and efficient method to initiate a Facilitation or Solicited Order auction while preventing tradethroughs, as discussed above. In addition, all Members may submit a Facilitation ISO or Solicitation ISO. As it relates to the Solicitation ISO, the Exchange believes that the proposed rule change will promote fair competition among options exchanges as it will allow the Exchange to compete with other markets that already allow ISOs in their solicitation auction mechanisms.23 The Exchange further believes that the proposed changes to its ISO rule do not impose an undue burden on competition. As discussed above, the proposed changes are intended to add more granularity and more closely align the level of detail in the ISO rule with BX’s ISO rule in BX Options 3, Section 7(a)(6) by specifying how ISOs may be submitted, except the Exchange’s ISO rule will refer to Exchange functionality that BX does not have today (i.e., Facilitation and Solicitation ISOs).24 With the proposed changes, the Exchange believes that its proposal will promote transparency in the Exchange’s rules and consistency across the rules of the Nasdaq affiliated options exchanges. 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 supra note 15. supra note 14. 24 See supra note 15. 23 See VerDate Sep<11>2014 18:52 Feb 06, 2023 Jkt 259001 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 25 and subparagraph (f)(6) of Rule 19b–4 thereunder.26 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– GEMX–2023–01 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–GEMX–2023–01. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ 25 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 26 17 PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 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 such 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–GEMX–2023–01 and should be submitted on or before February 28, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–02508 Filed 2–6–23; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #17769 and #17770; Alabama Disaster Number AL–00130] Presidential Declaration of a Major Disaster for Public Assistance Only for the State of Alabama U.S. Small Business Administration. ACTION: Notice. AGENCY: This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of ALABAMA (FEMA–4684– DR), dated 01/31/2023. Incident: Severe Storms, Straight-line Winds, and Tornadoes. Incident Period: 01/12/2023. DATES: Issued on 01/31/2023. Physical Loan Application Deadline Date: 04/03/2023. Economic Injury (EIDL) Loan Application Deadline Date: 10/31/2023. SUMMARY: 27 17 E:\FR\FM\07FEN1.SGM CFR 200.30–3(a)(12). 07FEN1

Agencies

[Federal Register Volume 88, Number 25 (Tuesday, February 7, 2023)]
[Notices]
[Pages 8020-8024]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-02508]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96783; File No. SR-GEMX-2023-01]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend ISO 
Functionality

February 1, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 19, 2023, Nasdaq GEMX, LLC (``GEMX''

[[Page 8021]]

or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \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 amend Options 3, Section 11 with respect 
to the ability of Members to submit ISOs in the Exchange's Facilitation 
Mechanism (``Facilitation ISO''), and Solicited Order Mechanism 
(``Solicitation ISO''), to codify current System functionality.\3\
---------------------------------------------------------------------------

    \3\ This functionality is currently offered on the Exchange, so 
the proposed rule change codifies existing functionality in the 
Exchange's rules.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/gemx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Options 3, Section 11 with respect 
to the ability of Members to submit ISOs in the Exchange's Facilitation 
Mechanism (``Facilitation ISO''), and Solicited Order Mechanism 
(``Solicitation ISO''), to codify current System functionality.\4\
---------------------------------------------------------------------------

    \4\ This functionality is currently offered on the Exchange, so 
the proposed rule change codifies existing functionality in the 
Exchange's rules.
---------------------------------------------------------------------------

    As set forth in Options 3, Section 11(b), the Facilitation 
Mechanism is a process wherein the Electronic Access Member seeks to 
facilitate a block-size order it represents as agent, and/or a 
transaction wherein the Electronic Access Member solicited interest to 
execute against a block-size order it represents as agent. Electronic 
Access Members must be willing to execute the entire size of orders 
entered into the Facilitation Mechanism. As set forth in Options 3, 
Section 11(d), the Solicited Order Mechanism is a process by which an 
Electronic Access Member can attempt to execute orders of 500 or more 
contracts it represents as agent against contra orders it solicited. 
Each order entered into the Solicited Order Mechanism shall be 
designated as all-or-none.
    An ISO is defined in Options 3, Section 7(b)(5) as a limit order 
that meets the requirements of Options 5, Section 1(h) and trades at 
allowable prices on the Exchange without regard to the ABBO. 
Simultaneously with the routing of the ISO to the Exchange, one or more 
additional ISOs, as necessary, are routed to execute against the full 
displayed size of any Protected Bid, in the case of a limit order to 
sell, or any Protected Offer, in the case of a limit order to buy, for 
the options series with a price that is superior to the limit price of 
the ISO.\5\ A Member may submit an ISO to the Exchange only if it has 
simultaneously routed one or more additional ISOs to execute against 
the full displayed size of any Protected Bid, in the case of a limit 
order to sell, or Protected Offer, in the case of a limit order to buy, 
for an options series with a price that is superior to the limit price 
of the ISO.
---------------------------------------------------------------------------

    \5\ ``Protected Bid'' or ``Protected Offer'' means a Bid or 
Offer in an options series, respectively, that: (a) is disseminated 
pursuant to the Options Order Protection and Locked/Crossed Market 
Plan; and (b) is the Best Bid or Best Offer, respectively, displayed 
by an Eligible Exchange. See Options 5, Section 1(o).
---------------------------------------------------------------------------

    As discussed further below, none of the proposed rule changes will 
amend current functionality. Rather, these changes are designed to 
bring greater transparency around certain order types currently 
available on the Exchange. The Exchange notes that the Facilitation ISO 
and Solicitation ISO \6\ are functionally similar to the Exchange's 
Price Improvement Mechanism \7\ ISO (``PIM ISO'') as set forth in 
Supplementary Material .08 to Options 3, Section 13, as further 
discussed below.\8\
---------------------------------------------------------------------------

    \6\ The Exchange notes that it has an ISO trade through 
surveillance in place that will identify and capture when a Member 
marks a Facilitation or Solicitation ISO and the order possibly 
trades through a Protected Bid or Protected Offer price at an away 
exchange. The Exchange will monitor the NBBO prior to and after the 
order trades on the Exchange to detect potential trade through 
violations.
    \7\ The Price Improvement Mechanism (``PIM'') is a process that 
allows an Electronic Access Member to provide price improvement 
opportunities for a transaction wherein the Electronic Access Member 
seeks to facilitate an order it represents as agent, and/or a 
transaction wherein the Electronic Access Member solicited interest 
to execute against an order it represents as agent. See Options 3, 
Section 13(a).
    \8\ The Exchange also notes that its affiliates, Nasdaq BX 
(``BX'') and Nasdaq Phlx (``Phlx''), currently allow ISOs to be 
entered into BX's Price Improvement Mechanism (``PRISM'') and Phlx's 
Price Improvement XL (``PIXL''), respectively. See BX Options 3, 
Section 13(ii)(K) (describing PRISM ISOs) and Phlx Options 3, 
Section 13(b)(11) (describing PIXL ISOs). Other options exchanges 
like Cboe Exchange, Inc. (``Cboe'') and Cboe EDGX Exchange, Inc. 
(``EDGX'') similarly allow ISOs to be entered into their auction 
mechanisms. See Cboe Rule 5.37(b)(4)(A) and EDGX Rule 21.19(b)(3)(A) 
(allowing ISOs to be entered into Cboe's and EDGX's Automated 
Improvement Mechanism (``AIM ISOs'')) and Cboe Rule 5.39(b)(4) and 
EDGX Rule 21.21(b)(4) (allowing ISOs to be entered into Cboe's and 
EDGX's Solicitation Auction Mechanism (``SAM ISOs'')). See also 
Securities Exchange Act Release No. 60551 (August 20, 2009), 74 FR 
43196 (August 26, 2009) (SR-CBOE-2009-040) (Order Granting Approval 
of a Proposed Rule Change to Adopt Rules Implementing the Options 
Order Protection and Locked/Crossed Market Plan, including to adopt 
AIM ISOs).
---------------------------------------------------------------------------

Facilitation ISO
    Today, the Exchange allows the submission of ISOs into its 
Facilitation Mechanism as Facilitation ISOs. To promote transparency, 
the Exchange proposes to memorialize Facilitation ISOs as an order type 
in Supplementary Material .06 to Options 3, Section 11. Specifically, 
the Exchange proposes:

    A Facilitation ISO order (``Facilitation ISO'') is the 
transmission of two orders for crossing pursuant to paragraph (b) 
above without regard for better priced Protected Bids or Protected 
Offers (as defined in Options 5, Section 1) because the Member 
transmitting the Facilitation ISO to the Exchange has, 
simultaneously with the transmission of the Facilitation ISO, routed 
one or more ISOs, as necessary, to execute against the full 
displayed size of any Protected Bid or Protected Offer that is 
superior to the starting Facilitation auction price. Any 
execution(s) resulting from such sweeps shall accrue to the Agency 
order.

    Today, the Exchange will accept a Facilitation ISO provided the 
order adheres to the current order entry requirements for the 
Facilitation Mechanism as set forth in Options 3, Section 11(b)(1),\9\ 
but without regard to

[[Page 8022]]

the ABBO (similar to a regular ISO in Options 3, Section 7(b)(5)). 
Therefore, Facilitation ISOs must be entered at a price that is equal 
to or better than the Exchange best bid or offer on the same side of 
the market as the agency order unless there is a Priority Customer 
order on the same side Exchange best bid or offer, in which case the 
Facilitation ISO must be entered at an improved price. The Exchange 
does not check the Exchange best bid or offer on the opposite side of 
the Facilitation ISO because the underlying Facilitation Mechanism 
similarly does not check the opposite side Exchange best bid or offer. 
As discussed above, the Facilitation Mechanism only requires that the 
opposite side of the Facilitation order be equal to or better than the 
ABBO.\10\ The Facilitation Mechanism does not check the opposite side 
Exchange best bid or offer because any interest that is available on 
the opposite side of the market would allocate against the Facilitation 
agency order and provide price improvement. As an example of the 
current underlying Facilitation Mechanism:
---------------------------------------------------------------------------

    \9\ Specifically, Options 3, Section 11(b)(1) provides that 
orders must be entered into the Facilitation Mechanism at a price 
that is (A) equal to or better than the NBBO on the same side of the 
market as the agency order unless there is a Priority Customer order 
on the same side Exchange best bid or offer, in which case the order 
must be entered at an improved price; and (B) equal to or better 
than the ABBO on the opposite side. Orders that do not meet these 
requirements are not eligible for the Facilitation Mechanism and 
will be rejected. The Exchange notes that it is amending this 
provision in a concurrent rule filing (SR-GEMX-2022-10), but that 
the proposed changes in this filing do not impact SR-GEMX-2022-10 
and vice versa. See Securities Exchange Act Release No. 96363 
(November 18, 2022), 87 FR 72556 (November 25, 2022) (SR-GEMX-2022-
10).
    \10\ Id.
---------------------------------------------------------------------------

    Assume the following market:

Exchange BBO: 1 x 2 (also NBBO)
CBOE: 0.75. x 2.25 (next best exchange quote)
Facilitation order is entered to buy 50 contracts @2.05

    No Responses are received.
    The Facilitation order executes with resting 50 lot quote @2. In 
this instance, the Facilitation order is able to begin crossed with the 
contra side Exchange BBO because in execution, the resting 50 lot quote 
@2 is able to provide price improvement to the facilitation order.
    Given that the Facilitation ISO is accepted so long as it adheres 
to the order entry requirements of the underlying Facilitation 
Mechanism, but without regard to the ABBO, the Exchange believes that 
it is appropriate and logical to align the order entry checks of the 
Facilitation ISO in the manner discussed above.
    The Exchange processes the Facilitation ISO in the same manner that 
it processes any other Facilitation orders, except that it will 
initiate a Facilitation auction without protecting prices away. 
Instead, the Member entering the Facilitation ISO will bear the 
responsibility to clear all better priced interest away simultaneously 
with submitting the Facilitation ISO to the Exchange. The Exchange 
believes that offering this order type is beneficial for Members as it 
provides them with an efficient method to initiate a Facilitation 
auction while preventing trade-throughs.
    The Exchange notes that the Facilitation ISO is similar to the PIM 
ISO that is currently described in Supplementary Material .08 to 
Options 3, Section 13.\11\ Similar to the Facilitation ISO, the PIM ISO 
must meet the order entry requirements for PIM in Options 3, Section 
13(b) but does not consider the ABBO.\12\ Further, the Exchange 
processes a PIM ISO order the same way as any other PIM order except 
the Exchange will initiate a PIM auction without protecting away 
prices. As with Facilitation ISOs, the Member entering the PIM ISO 
bears responsibility to clear all better priced interest away 
simultaneously with submitting the PIM ISO to the Exchange.
---------------------------------------------------------------------------

    \11\ Supplementary Material .08 to Options 3, Section 13 defines 
PIM ISO as the transmission of two orders for crossing pursuant to 
this Rule without regard for better priced Protected Bids or 
Protected Offers (as defined in Options 5, Section 1) because the 
Member transmitting the PIM ISO to the Exchange has, simultaneously 
with the routing of the PIM ISO, routed one or more ISOs, as 
necessary, to execute against the full displayed size of any 
Protected Bid or Protected Offer that is superior to the starting 
PIM auction price and has swept all interest in the Exchange's book 
priced better than the proposed auction starting price. Any 
execution(s) resulting from such sweeps shall accrue to the PIM 
order.
    \12\ Unlike the Facilitation Mechanism, PIM requires an opposite 
side NBBO check, which would include the Exchange best bid or offer. 
As discussed above, the Facilitation order entry checks only require 
that the opposite side of the Facilitation order be equal to or 
better than the ABBO (i.e., there is no opposite side local book 
check). For PIM, the order must be entered at one minimum price 
improvement increment better than the NBBO on the opposite side of 
the market if the Agency Order is for less than 50 option contracts 
and if the difference between the NBBO is $0.01. If the Agency Order 
is for 50 option contracts or more, or if the difference between the 
NBBO is greater than $0.01, the PIM order must be entered at a price 
that is equal to or better than the NBBO on the opposite side. See 
Options 3, Section 13(b)(1) and (2). As such, PIM ISOs additionally 
require the entering Member to sweep all interest in the Exchange's 
book priced better than the proposed auction starting price (unlike 
Facilitation ISO which does not have a similar sweep requirement).
---------------------------------------------------------------------------

    The following example illustrates how Facilitation ISO operates:
    Assume:

ABBO: 1 x 1.20
Exchange BBO: 0.90 x 1.30
Member enters Facilitation ISO with Agency side to buy 50 @1.25 and 
simultaneously routes multiple ISOs to execute against the full 
displayed size of any Protected Bids priced better than the starting 
Facilitation auction price
Facilitation ISO auction period concludes with no responses arriving

    Facilitation ISO executes with contra side 50 @1.25 because the 
away market Best Offer of 1.20 has been cleared by the ISOs clearing 
the way for the Agency side to trade with the counter-side order at 
1.25.
Solicitation ISO
    Today, the Exchange allows the submission of ISOs into its 
Solicited Order Mechanism as Solicitation ISOs. To promote 
transparency, the Exchange proposes to memorialize Solicitation ISOs as 
an order type in Supplementary Material .07 to Options 3, Section 11. 
Specifically, the Exchange proposes:

    A Solicitation ISO order (``Solicitation ISO'') is the 
transmission of two orders for crossing pursuant to paragraph (d) 
above without regard for better priced Protected Bids or Protected 
Offers (as defined in Options 5, Section 1) because the Member 
transmitting the Solicitation ISO to the Exchange has, 
simultaneously with the transmission of the Solicitation ISO, routed 
one or more ISOs, as necessary, to execute against the full 
displayed size of any Protected Bid or Protected Offer that is 
superior to the starting Solicitation auction price and has swept 
all interest in the Exchange's book priced better than the proposed 
auction starting price. Any execution(s) resulting from such sweeps 
shall accrue to the Agency order.

    Today, the Exchange will accept a Solicitation ISO provided the 
order adheres to the current order entry requirements for the Solicited 
Order Mechanism as set forth in Options 3, Section 11(d)(1),\13\ but 
without regard to the ABBO (similar to a regular ISO in Options 3, 
Section 7(b)(5)). Therefore, Solicitation ISOs must be entered at a 
price that is equal to or better than the Exchange best bid or offer on 
both sides of the market; provided that, if there is a Priority 
Customer order on the Exchange best bid or offer, the Solicitation ISO 
must be entered at an improved price.
---------------------------------------------------------------------------

    \13\ Specifically, Options 3, Section 11(d)(1) provides that 
orders must be entered into the Solicited Order Mechanism at a price 
that is equal to or better than the NBBO on both sides of the 
market; provided that, if there is a Priority Customer order on the 
Exchange best bid or offer, the order must be entered at an improved 
price. Orders that do not meet these requirements are not eligible 
for the Solicited Order Mechanism and will be rejected. Similar to 
the Facilitation Mechanism, the Exchange is amending the entry 
checks for the Solicited Order Mechanism in SR-GEMX-2022-10; 
however, the proposed changes in this filing do not impact SR-GEMX-
2022-10 and vice versa. See supra note 8.
---------------------------------------------------------------------------

    The Exchange processes the Solicitation ISO in the same manner that 
it processes other orders entered in the Solicited Order Mechanism, 
except

[[Page 8023]]

that it will initiate a Solicited Order auction without protecting away 
prices. Instead, the Member entering the Solicitation ISO will bear the 
responsibility to clear all better priced interest away simultaneously 
with submitting the Solicitation ISO to the Exchange. Similar to the 
Facilitation ISO discussed above, the Exchange believes that offering 
this order type is beneficial for Members as it provides them with an 
efficient method to initiate an auction in the Solicited Order 
Mechanism while preventing trade-throughs. Furthermore, Solicitation 
ISOs are similar to PIM ISOs in the manner described above for 
Facilitation ISOs.\14\ In addition, other options exchanges currently 
offer a substantially similar order type as the Exchange's Solicitation 
ISO.\15\
---------------------------------------------------------------------------

    \14\ The Exchange notes that similar to the PIM ISO, but unlike 
Facilitation ISO, the Solicitation ISO requires entering Members to 
sweep all interest in the Exchange's book priced better than the 
proposed auction starting price. The order entry checks for the 
Solicited Order Mechanism, similar to PIM, requires an opposite side 
NBBO check, which would include the Exchange best bid or offer. See 
supra notes 11-12.
    \15\ As noted above, both Cboe and EDGX currently offer a SAM 
ISO order type, which is defined as the submission of two orders for 
crossing in a SAM Auction without regard for better-priced Protected 
Quotes (as defined in Cboe Rule 5.65 and EDGX Rule 27.1) because the 
Initiating TPH routed an ISO(s) simultaneously with the routing of 
the SAM ISO to execute against the full displayed size of any 
Protected Quote that is better than the stop price and has swept all 
interest in the Book with a price better than the stop price. Any 
execution(s) resulting from these sweeps accrue to the SAM Agency 
Order. See Cboe Rule 5.39(b)(4) and EDGX Rule 21.21(b)(4). See also 
Securities Exchange Act Release Nos. 87192 (October 1, 2019), 84 FR 
53525 (October 7, 2019) (SR-CBOE-2019-063) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change related to the SAM 
Auction, including to adopt the SAM ISO); and 87060 (September 23, 
2019), 84 FR 51211 (September 27, 2019) (SR-CboeEDGX-2019-047) 
(Order Approving a Proposed Rule Change to Adopt a SAM Auction, 
including to adopt the SAM ISO).
---------------------------------------------------------------------------

    The following example illustrates how the Solicitation ISO 
operates:
    Assume:

ABBO: 1 x 1.20
Exchange BBO: 0.90 x 1.30
Member enters Solicitation ISO with Agency side to buy 500 @1.25 and 
simultaneously routes multiple ISOs to execute against the full 
displayed size of any Protected Bids priced better than the starting 
Solicitation auction price
Solicitation ISO auction period concludes with no responses arriving
Solicitation ISO executes with contra side 500 @1.25

    Note that in the case a Solicitation ISO was entered with the 
Agency side to buy 500 @1.35, it would be rejected because it was not 
at or better than the NBBO on both sides (which is inclusive of an 
Exchange book check). While the 1.20 away Best Offer was cleared by the 
simultaneously routed ISOs, the Exchange Best Offer of 1.30 would now 
be viewed as the National Best Offer for purposes of the Solicitation 
ISO.
    Further note that a Facilitation ISO entered with the Agency side 
to buy 50 @1.35 can start in the same example above because it does not 
have a contra-side (from the Agency order perspective) Exchange book 
check to begin. The Facilitation ISO would go on to allocate against 
the 1.30 offer on the Exchange book upon the conclusion of the auction.
Intermarket Sweep Orders
    In light of the changes proposed above to adopt the Facilitation 
ISO and Solicitation ISO into its Rulebook, the Exchange proposes to 
make related amendments to the ISO rule in Options 3, Section 7(b)(5) 
to add that ``ISOs may be entered on the order book or into the 
Facilitation Mechanism, Solicited Order Mechanism, or Price Improvement 
Mechanism, pursuant to Supplementary Material .06 and .07 to Options 3, 
Section 11, and Supplementary Material .08 to Options 3, Section 13.''
    The proposed rule text will be similar to BX's current ISO rule in 
BX Options 3, Section 7(a)(6), except the Exchange's ISO rule will 
refer to Exchange functionality that BX does not have today. 
Specifically, BX does not currently offer Facilitation ISOs or 
Solicitation ISOs. PIM ISOs are currently codified in Supplementary 
Material .08 to Options 3, Section 13, so the proposed rule text herein 
is a non-substantive amendment to add a cross-reference to the PIM ISO 
rule. The proposed language does not amend the current ISO 
functionality but rather is intended to add more granularity and more 
closely align the ISO rule with BX's ISO rule.\16\
---------------------------------------------------------------------------

    \16\ BX's ISO rule currently has more granularity than the 
Exchange's ISO rule, such as requiring ISOs to have a TIF 
designation of IOC and prohibiting ISOs from being submitted during 
the opening process. The Exchange will add identical granularity to 
its ISO rule in a separate rule filing.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\18\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Facilitation and Solicitation ISOs
    The Exchange believes that the proposal to adopt Facilitation ISOs 
and Solicitation ISOs in Supplementary Material .06 and .07 to Options 
3, Section 11 is consistent with the Act. The proposal will codify 
current functionality, thereby promoting transparency in the Exchange's 
rules and reducing any potential confusion. As it relates to 
Solicitation ISOs, the Exchange believes that the proposed rule change 
promotes fair competition. Specifically, the proposal allows the 
Exchange to offer Members an order type that is already offered by 
other options exchanges.\19\
---------------------------------------------------------------------------

    \19\ See supra note 14.
---------------------------------------------------------------------------

    In addition, offering the Facilitation ISO and Solicitation ISO 
benefits market participants and investors because this functionality 
provides an additional and efficient method to initiate a Facilitation 
or Solicited Order auction while preventing trade-throughs. As 
discussed above, the Exchange processes the Facilitation and 
Solicitation ISO in the same manner as it processes any other order 
entered into the Facilitation and Solicited Order Mechanism, except the 
Exchange will initiate a Facilitation auction or Solicited Order 
auction without protecting away prices (similar to a regular ISO in 
Options 3, Section 7(b)(5)). Instead, the entering Member, simultaneous 
with the transmission of the Facilitation ISO or Solicitation ISO to 
the Exchange, remains responsible for routing one or more ISOs, as 
necessary, to execute against the full displayed size of any Protected 
Bid or Protected Offer that is superior to the starting Facilitation or 
Solicitation auction price, and for Solicitation ISO, has swept all 
interest in the Exchange's book priced better than the proposed auction 
starting price.\20\ As discussed above, these order types operate in a 
similar manner to the PIM ISO that is currently described in 
Supplementary Material .08 to Options 3, Section 13.\21\
---------------------------------------------------------------------------

    \20\ See supra note 13.
    \21\ See supra notes 11 and 13.
---------------------------------------------------------------------------

Intermarket Sweep Orders
    The Exchange believes that the proposed changes to the definition 
of ISOs in Options 3, Section 7(b)(5) are consistent with the Act. As 
discussed above, the proposed changes are intended to add more 
granularity and more closely align the level of detail in the ISO rule 
with BX's ISO rule in BX Options 3, Section 7(a)(6) by specifying

[[Page 8024]]

how ISOs may be submitted.\22\ As such, the Exchange believes that its 
proposal will promote transparency in the Exchange's rules and 
consistency across the rules of the Nasdaq affiliated options 
exchanges. While the proposed changes to the Exchange's ISO rule 
generally track BX's ISO rule, the proposed language will refer to 
certain Exchange functionality that BX does not have today (i.e., 
Facilitation ISOs or Solicitation ISOs).
---------------------------------------------------------------------------

    \22\ See supra note 15.
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Offering Facilitation and 
Solicitation ISOs does not impose an undue burden on competition 
because it enables the Exchange to provide market participants with an 
additional and efficient method to initiate a Facilitation or Solicited 
Order auction while preventing trade-throughs, as discussed above. In 
addition, all Members may submit a Facilitation ISO or Solicitation 
ISO. As it relates to the Solicitation ISO, the Exchange believes that 
the proposed rule change will promote fair competition among options 
exchanges as it will allow the Exchange to compete with other markets 
that already allow ISOs in their solicitation auction mechanisms.\23\
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    \23\ See supra note 14.
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    The Exchange further believes that the proposed changes to its ISO 
rule do not impose an undue burden on competition. As discussed above, 
the proposed changes are intended to add more granularity and more 
closely align the level of detail in the ISO rule with BX's ISO rule in 
BX Options 3, Section 7(a)(6) by specifying how ISOs may be submitted, 
except the Exchange's ISO rule will refer to Exchange functionality 
that BX does not have today (i.e., Facilitation and Solicitation 
ISOs).\24\ With the proposed changes, the Exchange believes that its 
proposal will promote transparency in the Exchange's rules and 
consistency across the rules of the Nasdaq affiliated options 
exchanges.
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    \24\ See supra note 15.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \25\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\26\
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    \25\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-GEMX-2023-01 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-GEMX-2023-01. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet 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 such 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-GEMX-2023-01 and should be submitted on 
or before February 28, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-02508 Filed 2-6-23; 8:45 am]
BILLING CODE 8011-01-P
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