[Federal Register Volume 84, Number 105 (Friday, May 31, 2019)]
[Notices]
[Pages 25332-25333]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11330]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85935; File No. SR-MRX-2019-08]


Self-Regulatory Organizations; Nasdaq MRX, LLC; Order Approving a 
Proposed Rule Change To Adopt Complex Order Functionality

May 24, 2019.

I. Introduction

    On April 12, 2019, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ a proposal to adopt rules to provide 
for the trading of Complex Orders. The proposed rule change was 
published for comment in the Federal Register on April 23, 2019.\3\ The 
Commission received no comment letters regarding the proposed rule 
change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 85671 (April 17, 
2019), 84 FR 16907 (``Notice'').
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II. Description of the Proposed Rule Change

    MRX proposes to adopt rules governing the trading of Complex 
Orders.\4\ The proposed rules address, among other things, the order 
types, auction and crossing mechanisms, trading increments, priority, 
execution, opening process, risk protections, obvious error provisions, 
and data feeds for Complex Orders. MRX states that the proposed Complex 
Order functionality is identical to the Complex Order functionality 
currently available on Nasdaq ISE, LLC (``ISE''), and that the proposed 
rules are identical to corresponding ISE rules.\5\ As described more 
fully in the Notice,\6\ MRX proposes to, among other things: (1)

[[Page 25333]]

Adopt new MRX Rule 722 to describe the availability of certain order 
types for Complex Orders and the priority and execution of Complex 
Orders; \7\ (2) add a defined term, ``Professional Customer,'' in MRX 
Rule 100(a)(54A); \8\ (3) amend MRX Rule 714 to exclude Complex Order 
transactions from the anti-internalization protection; \9\ (4) amend 
MRX Rule 715 to define ``legging orders'' and ``QCC with Stock Orders'' 
and to revise the Ouch to Trade Options and Specialized Quote Feed 
protocols to include complex instruments; \10\ (5) add a Complex 
Facilitation Mechanism and Complex Solicited Order Mechanism to MRX 
Rule 716; \11\ (6) amend MRX Rule 718(a)(5) to adopt a new Nasdaq MRX 
Spread Feed that will provide information regarding Complex Orders; 
\12\ (7) amend MRX Rule 720, relating to the nullification of trades 
and obvious errors, to address transactions in Complex Orders; \13\ (8) 
revise MRX Rule 721 to provide for Complex Customer Cross Orders, 
Complex Qualified Contingent Cross Orders, and Qualified Contingent 
Cross Orders with Stock; \14\ (9) add a new Complex Price Improvement 
Mechanism to MRX Rule 723; \15\ and (10) adopt new MRX Rule 724 to 
establish various risk protections for Complex Orders.\16\ The proposal 
also includes non-substantive and technical changes related to the 
adoption of the Complex Order functionality.
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    \4\ The term ``Complex Order'' includes Complex Options Orders, 
Stock-Option Orders, and Stock-Complex Orders. Complex Options 
Orders, Stock-Option Orders, and Stock-Complex Orders are orders for 
Complex Options Strategies, Stock-Option Strategies, and Stock-
Complex Strategies, respectively. See proposed MRX Rule 722(a)(5). A 
Complex Options Strategy is the simultaneous purchase and/or sale of 
two or more different options series in the same underlying 
security, for the same account, in a ratio that is equal to or 
greater than one-to-three (.333) and less than or equal to three-to-
one (3.00) and for the purpose of executing a particular investment 
strategy. Only those Complex Options Strategies with no more than 
the applicable number of legs, as determined by the Exchange on a 
class-by-class basis, are eligible for processing. A Stock-Option 
Strategy is the purchase or sale of a stated number of units of an 
underlying stock or a security convertible into the underlying stock 
(``convertible security'') coupled with the purchase or sale of 
options contract(s) on the opposite side of the market representing 
either (A) the same number of units of the underlying stock or 
convertible security, or (B) the number of units of the underlying 
stock necessary to create a delta neutral position, but in no case 
in a ratio greater than eight-to-one (8.00), where the ratio 
represents the total number of units of the underlying stock or 
convertible security in the option leg to the total number of units 
of the underlying stock or convertible security in the stock leg. A 
Stock-Complex Strategy is the purchase or sale of a stated number of 
units of an underlying stock or a security convertible into the 
underlying stock (``convertible security'') coupled with the 
purchase or sale of a Complex Options Strategy on the opposite side 
of the market representing either (A) the same number of units of 
the underlying stock or convertible security, or (B) the number of 
units of the underlying stock necessary to create a delta neutral 
position, but in no case in a ratio greater than eight-to-one 
(8.00), where the ratio represents the total number of units of the 
underlying stock or convertible security in the option legs to the 
total number of units of the underlying stock or convertible 
security in the stock leg. Only those Stock-Complex Strategies with 
no more than the applicable number of legs, as determined by the 
Exchange on a class-by-class basis, are eligible for processing. See 
proposed MRX Rules 722(a)(1), (2), and (3).
    \5\ See Notice, 84 FR at 16907.
    \6\ See note 3, supra.
    \7\ The Exchange represents that proposed MRX Rule 722 is 
identical to ISE Rule 722. See Notice at 16907. MRX also proposes to 
amend MRX Rules 702 (Trading Halts) and 710 (Minimum Trading 
Increments) to account for Complex Orders. The Exchange represents 
that MRX Rules 702 and 710, as proposed to be amended, are identical 
to ISE Rules 702 and 710, respectively. See id. at 16908 and 16910.
    \8\ The Exchange represents that proposed MRX Rule 100(a)(54A) 
is identical to ISE Rule 100(a)(54A). See id. at 16910.
    \9\ The Exchange represents that proposed MRX Rule 714(b)(3)(A) 
is identical to ISE Rule 714(b)(3)(A). See id.
    \10\ The Exchange represents that the proposed definitions of 
``legging orders'' and ``QCC with Stock Orders'' in proposed MRX 
Rules 715(k) and (t) are identical to ISE Rules 715(k) and (t), 
respectively. In addition, the Exchange represents that the proposed 
amendment to the Ouch to Trade Options and Specialized Quote Feed 
protocols in proposed MRX Rule 715, Supplementary Material .03(b) 
and (c) are identical to ISE Rule 715, Supplementary Material .03(b) 
and (c). See id.
    \11\ The Exchange represents that the proposed Complex 
Facilitation Mechanism and Complex Solicited Order Mechanism in MRX 
Rules 716(c) and (e) are identical to ISE Rules 716(c) and (e), 
respectively. In addition, proposed MRX Rules 716(f) and (g), 
addressing concurrent auctions, are identical to ISE Rules 716(f) 
and (g). See id. at 16908-9.
    \12\ The Exchange represents that proposed MRX Rule 718(a)(5) is 
identical to ISE Rule 718(a)(5). See id. at 16910. The Exchange also 
proposes to amend the MRX Pricing Schedule to indicate that the 
Nasdaq MRX Spread Feed will be available at no cost. See id. and MRX 
Options Pricing Schedule, Sections 6 and 7.
    \13\ The Exchange represents that MRX Rule 720, as proposed to 
be amended, is identical to ISE Rule 720. See id.
    \14\ The Exchange represents that these orders are identical to 
orders available on ISE. See id. at 16909.
    \15\ The Exchange represents that the Complex Price Improvement 
Mechanism in proposed MRX Rule 723(e) is identical to ISE Rule 
723(e). See id.
    \16\ MRX proposes to adopt the following Complex Order risk 
protections: Price Limits, Vertical Spread Protections, Calendar 
Spread Protections, Butterfly and Box Spread Protections, Limit 
Order Price Protections, Size Limitations, and Price Level 
Protections. The Exchange represents that proposed MRX Rule 724 is 
identical to ISE Rule 724. See id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act,\17\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\18\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\19\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, 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, and that the rules are not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers. The 
Commission believes that the proposed rules are consistent with the Act 
because they are substantially identical to ISE's rules governing the 
trading of Complex Orders, which the Commission has reviewed 
previously. Because they are substantially identical to ISE's Complex 
Order rules, MRX's proposed rules do not raise new or novel regulatory 
issues. The Commission believes that the proposed rules could assist 
market participants in making informed decisions regarding the trading 
of Complex Orders on MRX, including the order types, priority, auction 
and crossing mechanisms, and risk protections available for Complex 
Orders traded on MRX.
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    \17\ 15 U.S.C. 78f.
    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-MRX-2019-08) is approved.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11330 Filed 5-30-19; 8:45 am]
BILLING CODE 8011-01-P