[Federal Register Volume 87, Number 186 (Tuesday, September 27, 2022)]
[Notices]
[Pages 58571-58590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20816]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95854; File No. SR-MRX-2022-10]


Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Its 
Rules Relating to Single-Leg and Complex Orders in Connection With a 
Technology Migration

September 21, 2022.

I. Introduction

    On July 25, 2022, 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 proposed rule change to amend its 
rules relating to single-leg and Complex Orders in connection with a 
technology migration. The proposed rule change was published for 
comment in the Federal Register on July 29, 2022.\3\ The Commission 
received no comments regarding the proposal. On September 8, 2022, 
pursuant to Section 19(b)(2) of the Act,\4\ the Commission extended the 
time for Commission action on the proposal until October 27, 2022.\5\ 
On September 9, 2022, MRX filed Amendment No. 1 to the proposal, which 
replaces and supersedes the original filing in its entirety.\6\ The 
Commission is publishing this notice to solicit comment on Amendment 
No. 1 to the proposed rule change from interested persons and is 
approving the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis.
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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. 95363 (July 25, 
2022), 87 FR 45814 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 95704 (September 8, 
2022), 87 FR 56457 (September 14, 2022).
    \6\ Amendment No. 1 modifies the original proposal to (1) amend 
MRX Options 3, Sections 7, 11, 12, and 13 to add a paragraph at the 
beginning of each of the rules indicating that certain orders that 
require stock-tied functionality will be implemented at a later date 
as part of the technology migration; (2) add references to the 
``internal BBO'' to the Qualified Contingent Cross and Complex 
Qualified Contingent Cross provisions in MRX Options 3, Sections 
12(c) and (d), and to the proposed Complex Preferenced Order 
provisions in MRX Options 3, Section 14(b)(19), to conform with the 
concept of re-pricing at an ``internal BBO,'' as provided in MRX 
Options 3, Section 5(c) and (d); (3) amend MRX Options 3, Section 
13(d)(4) to replace an incorrect reference to the ``Crossing 
Transaction'' with a reference to the ``exposure period;'' and (4) 
replace references to File No. SR-MRX-2022-5P with references to 
File No. SR-MRX-2022-16, to reflect the immediate effectiveness of 
File No. SR-MRX-2022-16. See Securities Exchange Act Release No. 
95807 (September 16, 2022) (File No. SR-MRX-2022-16) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Amend 
Certain Rules in Connection With a Technology Migration to Enhanced 
Nasdaq Functionality) (``SR-MRX-2022-16''). Amendment No. 1 is 
available at https://www.sec.gov/comments/sr-mrx-2022-10/srmrx202210-20138852-308557.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

1. Purpose

    In connection with a technology migration to an enhanced Nasdaq, 
Inc. (``Nasdaq'') functionality which will result in higher 
performance, scalability, and more robust architecture, the Exchange 
intends to adopt certain trading functionality currently utilized at 
Nasdaq affiliate exchanges. Also, the Exchange intends to remove 
certain functionality. Specifically, the following sections would be 
amended: Options 3, Section 7, Types of Orders and Order and Quote 
Protocols, Options 3, Section 10, Priority of Quotes and Orders; 
Options 3, Section 11, Auction Mechanisms; Options 3, Section 12, 
Crossing Orders, Options 3, Section 13, Price Improvement Mechanisms 
for Crossing Transactions; Options 3, Section 14, Complex Orders; and 
Options 3, Section 16, Complex Risk Protections. Each change will be 
described below.
Legging Order
    The Exchange proposes to amend Options 3, Section 7(k)(1) to add a 
provision which states that a Legging Order \7\ will not be generated 
during a Posting Period, as described in detail below, in progress on 
the same side in the series pursuant to Options 3, Section 15 regarding 
Acceptable Trade Range (``ATR''). A Legging Order would not be 
generated because it would no longer be at the Exchange's displayed 
best bid or offer, therefore, generating a Legging Order during a 
Posting Period in progress, on the same side in the series, would lead 
to its immediate removal, making it superfluous to have been generated.
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    \7\ A Legging Order is a limit order on the regular limit order 
book that represents one side of a Complex Options Order that is to 
buy or sell an equal quantity of two options series resting on the 
Exchange's Complex Order Book. See Options 3, Section 7(k).
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    ATR is a risk protection, that sets dynamic boundaries within which 
quotes and orders may trade.\8\ It is designed to guard the System \9\ 
from experiencing dramatic price swings by preventing the immediate 
execution of quotes and orders beyond the thresholds set by this risk 
protection. The Exchange recently amended ATR to adopt an iterative 
process wherein an order/quote that reaches its ATR boundary is paused 
for a brief period of time to allow more liquidity to be collected, 
before the order/quote is automatically re-priced and a new ATR is 
calculated.\10\
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    \8\ See Options 3, Section 15(a)(2)(A).
    \9\ The term ``System'' means the electronic system operated by 
the Exchange that receives and disseminates quotes, executes orders 
and reports transactions. See MRX Options 1, Section 1(a)(49).
    \10\ See SR-MRX-2022-16. SR-MRX-2022-16 proposed an iterative 
process for ATR wherein the Exchange will attempt to execute 
interest that exceeds the outer limit of the ATR for a brief period 
of time while that interest is automatically re-priced as described 
herein. The Exchange also updated the reference price definition to 
provide that upon receipt of a new order or quote, the reference 
price will now be the better of the NBB or internal best bid for 
sell orders/quotes and the better of the NBO or internal best offer 
for buy orders/quotes or the last price at which the order/quote is 
posted, whichever is higher for a buy order/quote or lower for a 
sell order/quote. The additions of ``internal BBO'' were consistent 
with the re-pricing of orders. SR-MRX-2022-16 is effective, but not 
yet operative. SR-MRX-2022-16 would be implemented as part of the 
same technology migration as the changes proposed herein.
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    Specifically, SR-MRX-2022-16 amended current Options 3, Section 
15(a)(2)(A)(iii) to adopt an iterative process wherein an order or 
quote reaches the outer limit of the ATR (``Threshold Price'') without 
being fully executed, it will be posted at the Threshold Price for a 
brief period, not to exceed one second (``Posting Period''), to allow 
the market to refresh and determine whether or not more liquidity will 
become available (on the Exchange or any other exchange if the order is 
designated as routable) within the posted price of the order or quote 
before moving on to a new Threshold Price. With this change, upon 
posting, either the current Threshold Price of the order/quote or an 
updated NBB for buy orders/quotes or the NBO for sell orders/quotes 
(whichever is higher for a buy order/quote or lower for a sell order/
quote) would become the reference price for calculating a new ATR. If 
the order/quote remains unexecuted after the Posting Period, a new ATR 
will be calculated and the

[[Page 58572]]

order/quote will execute, route, or post up to the new Threshold Price. 
This process will repeat until either (1) the order/quote is executed, 
cancelled, or posted at its limit price or (2) the order/quote has been 
subject to a configurable number of instances of the ATR as determined 
by the Exchange (in which case it will be returned).
    With this change, during the proposed Posting Period, an order 
would be in flux and would potentially increase (decrease) past the 
price of any Legging Order generated on the bid (offer) as the order 
works its way through the order book. Legging Orders are removed from 
the order book when they are no longer at the Exchange's displayed best 
bid or offer and, therefore, generating a Legging Order during a 
Posting Period in progress on the same side in the series would lead to 
its immediate removal. Accordingly, in the current proposal, the 
Exchange proposes to amend Options 3, Section 7(k)(1) to provide that a 
Legging Order would not be created during the Posting Period in 
progress on the same side in the series. By way of example, assume that 
the ATR is set for $0.05, the MPV is $0.01 and the following quotations 
are posted on MRX and away markets:
    Away Exchange Quotes:

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                    Exchange                         Bid size        Bid price      Offer price     Offer size
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ISE.............................................              10            0.75           $0.90              10
AMEX............................................              10            0.75            0.92              10
PHLX............................................              10            0.75            0.94              10
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    MRX Price Levels:

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                    Exchange                         Bid size        Bid price      Offer price     Offer size
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MRX.............................................              10           $0.75           $0.90              10
MRX.............................................              10            0.75            0.95              10
MRX.............................................              10            0.75            1.00              10
MRX.............................................              10            0.75            1.05              10
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    MRX receives a routable order to buy 70 contracts at $1.10. The ATR 
is $0.05 and the reference price is the National Best Offer--$0.90. The 
ATR threshold is then $0.90 + $0.05 = $0.95 which is the Threshold 
Price. The order is allowed to execute up to and including $0.95.

 10 contracts will be executed at $0.90 against MRX
 10 contracts will be executed at $0.90 against ISE
 10 contracts will be executed at $0.92 against AMEX
 10 contracts will be executed at $0.94 against PHLX
 10 contracts will be executed at $0.95 against MRX
 Then, after executing at multiple price levels, the order is 
posted at $0.95 for a brief period not to exceed one second (Posting 
Period) to determine whether additional liquidity will become 
available.
 During this pause, the MRX BBO for this option is 0.95 x 1.00
 Assume the leg above with the Posting Period in process is Leg 
A of an A-B complex strategy
 Leg B has a BBO of 0.85 x 0.88
 Therefore, the cBBO \11\ of this A-B complex strategy is 0.07 
x 0.15
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    \11\ The ``cBBO'' represents the net price of a complex strategy 
comprised of the best bids and offers of the individual legs.
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    [cir] (Leg A Bid 0.95-Leg B Offer 0.88 = 0.07)
    [cir] (Leg A Offer 1.00-Leg B Bid 0.85 = 0.15)
 Also during the pause, a Complex Options Order to buy A-B 
arrives for net price of $0.11
 The Complex Options Order could generate a Legging Order at 
$0.96 on the bid of Leg A, relying on the $0.85 bid to sell Leg B and 
achieve a net price $0.11, however the Legging Order is not generated 
because Leg A has an order on the bid side in an ATR Posting Period 
which will continue to move through the order book, and would 
ultimately lead to the immediate removal of the Legging Order once it 
is no longer at the Exchange's displayed best bid.
 During the Posting Period, a new ATR Price of $1.00 is 
determined (new reference price $0.95 + $0.05 = $1.00).
 If, during the Posting Period (brief pause not to exceed 1 
second), no liquidity becomes available within the order's posted price 
of $0.95, then at the conclusion of the Posting Period, the System will 
execute 10 contracts at $1.00
 Then, after executing at multiple price levels, the order is 
posted at $1.00 for a brief period not to exceed one second to 
determine whether additional liquidity will become available.
 A new ATR Threshold Price of $1.05 is determined (new 
reference price of $1.00 + $0.05 = $1.05).
 During this time the MRX BBO would be $1.00 x $1.05.
 If, during the brief pause not to exceed 1 second, no 
liquidity becomes available within the order's posted price of $1.00, 
the System will then execute 10 contracts at $1.05.

The Exchange believes from a System processing and user acceptance 
standpoint, the best practice is to wait for the ATR Posting Period to 
complete before attempting to generate a Legging Order on the same side 
in the series, as the time required to complete the ATR Posting Period 
is minimal. Nasdaq Phlx LLC's (``Phlx'') legging order rule in Options 
3, Section 14(f)(iii)(C)(2) has the same restriction on generating 
legging orders during the ATR Posting Period as proposed to be added to 
MRX's Legging Order rule.\12\
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    \12\ Phlx Options 3, Section 14(f)(iii)(C)(2) provides that a 
Legging Order will not be created, ``. . . (ii) if there is . . . a 
Posting Period under Options 3, Section 15 regarding Acceptable 
Trade Range on the same side in progress in the series . . .''.
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Changes to the Single-Leg Price Improvement Mechanism for Crossing 
Transactions
The Price Improvement Mechanism (``PIM'') is a process by which an 
Electronic Access Member can 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 (a ``Crossing Transaction''). 
The Exchange provides a PIM for

[[Page 58573]]

single-leg \13\ orders and for Complex Orders \14\ and proposes to 
amend both single-leg and Complex PIM rules. The Exchange proposes to 
amend the single-leg PIM in Options 3, Section 13(d)(4) which currently 
provides,
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    \13\ See MRX Options 3, Section 13(a)-(d).
    \14\ See MRX Options 3, Section 13(e).

    When a market order or marketable limit order on the opposite 
side of the market from the Agency Order ends the exposure period, 
it will participate in the execution of the Agency Order at the 
price that is mid-way between the best counter-side interest and the 
NBBO, so that both the market or marketable limit order and the 
Agency Order receive price improvement. Transactions will be 
rounded, when necessary, to the $.01 increment that favors the 
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Agency Order.

Today, unrelated interest in the form of a market order or marketable 
limit order, on the opposite side of the market from an Agency 
Order,\15\ may end an exposure period \16\ within a single-leg PIM and 
participate in the execution of the Agency Order. The unrelated order 
would participate at the price that is mid-way between the best 
counter-side interest and the NBBO, so that both the market order or 
marketable limit order and the Agency Order receive price improvement.
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    \15\ An Agency Order is the part of a Crossing Transaction that 
an Electronic Access Member represents as agent. See MRX Options 3, 
Section 13(b).
    \16\ Upon entry of a Crossing Transaction into the PIM, a 
broadcast message that includes the series, price and size of the 
Agency Order, and whether it is to buy or sell, will be sent to all 
Members. The Exchange designates a time of no less than 100 
milliseconds and no more than 1 second for Members to indicate the 
size and price at which they want to participate in the execution of 
the Agency Order (``Improvement Orders''). During the exposure 
period, Improvement Orders may not be canceled, but may be modified 
to (i) increase the size at the same price, or (ii) improve the 
price of the Improvement Order for any size up to the size of the 
Agency Order. During the exposure period, responses (including the 
Counter-Side Order, Improvement Orders, and any changes to either) 
submitted by Members shall not be visible to other auction 
participants. The exposure period will automatically terminate (i) 
at the end of the time period designated by the Exchange pursuant to 
Options 3, Section 13(c)(1) above, (ii) upon the receipt of a market 
or marketable limit order on the Exchange in the same series, or 
(iii) upon the receipt of a non-marketable limit order in the same 
series on the same side of the market as the Agency Order that would 
cause the price of the Crossing Transaction to be outside of the 
best bid or offer on the Exchange. See MRX Options 3, Section 13(c).
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    First, the Exchange proposes to not permit unrelated marketable 
interest on the opposite side of the market from the Agency Order, 
which is received during a single-leg PIM, to early terminate a PIM. 
The Exchange proposes to amend MRX Options 3, Section 13(d)(4) to 
instead provide,

    Unrelated market or marketable interest (against the MRX BBO) on 
the opposite side of the market from the Agency Order received 
during the exposure period will not cause the exposure period to end 
early and will execute against interest outside of the Crossing 
Transaction. If contracts remain from such unrelated order at the 
time the auction exposure period ends, they will be considered for 
participation in the order allocation process described in sub-
paragraph (3).\17\
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    \17\ Subparagraph (3) of Options 3, Section 13(d) describes the 
manner in which a Counter-Side Order would be allocated. The Counter 
Side Order is one part of a Crossing Transaction and represents the 
full size of the Agency Order. The Counter-Side Order may represent 
interest for the Member's own account, or interest the Member has 
solicited from one or more other parties, or a combination of both. 
See MRX Options 3, Section 13(b).

Today, Phlx \18\ and Nasdaq BX, Inc. (``BX'') \19\ similarly do not 
permit unrelated interest on the opposite side of the market from the 
Agency Order to early terminate their price improvement auctions. With 
this proposed change, the single-leg PIM exposure period would continue 
for the full period despite the receipt of unrelated marketable 
interest on the opposite side of the market from the Agency Order. 
Allowing the single-leg PIM to run its full course would provide an 
opportunity for additional price improvement to the Crossing 
Transaction. Further, the unrelated interest would participate in the 
single-leg PIM allocation with any residual contracts remaining after 
interacting with the order book pursuant to MRX Options 3, Section 
13(d). The aforementioned residual contracts are contracts that remain 
available for execution after the unrelated order on the opposite side 
of market as the Agency Order, which was marketable with bids and 
offers on the same side of the market as the Agency Order, executed 
against bids and offers on the Exchange's order book.
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    \18\ Phlx Options 3, Section 13(b)(4) provides that an unrelated 
market or marketable Limit Order (against the PBBO) on the opposite 
side of the market from the PIXL Order received during the Auction 
will not cause the Auction to end early and will execute against 
interest outside of the Auction. See Securities Exchange Act 
Releases No. 79835 (January 18, 2017), 82 FR 8445 (January 25, 2017) 
(SR-Phlx-2016-119) (Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To 
Amend the PIXL Price Improvement Auction in Phlx Rule 1080(n) and To 
Make Pilot Program Permanent) and 63027 (October 1, 2010), 75 FR 
62160 (October 7, 2010) (SR-Phlx-2010-108) (``PIXL Approval 
Order''). The Commission noted in SR-Phlx-2016-119 that, ``In 
approving this feature on a pilot basis, the Commission found that 
`allowing the PIXL auction to continue for the full auction period 
despite receipt of unrelated orders outside the Auction would allow 
the auction to run its full course and, in so doing, will provide a 
full opportunity for price improvement to the PIXL Order. Further, 
the unrelated order would be available to participate in the PIXL 
order allocation.' The Exchange does not believe that this provision 
has had a significant impact on either the unrelated order or the 
PIXL Auction process, either for simple or Complex PIXL Orders. The 
Exchange therefore has requested that the Commission approve this 
aspect of the Pilot on a permanent basis for both simple and Complex 
PIXL Orders.''
    \19\ BX Options 3, Section 13(ii)(D) provides that unrelated 
market or marketable interest (against the BX BBO) on the opposite 
side of the market from the PRISM Order received during the Auction 
will not cause the Auction to end early and will execute against 
interest outside of the Auction.
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    Second, the Exchange also proposes to amend current MRX Options 3, 
Section 13(c)(5) which states,

    The exposure period will automatically terminate (i) at the end 
of the time period designated by the Exchange pursuant to Options 3, 
Section 13(c)(1) above, (ii) upon the receipt of a market or 
marketable limit order on the Exchange in the same series, or (iii) 
upon the receipt of a non-marketable limit order in the same series 
on the same side of the market as the Agency Order that would cause 
the price of the Crossing Transaction to be outside of the best bid 
or offer on the Exchange.

Specifically, the Exchange proposes to remove ``(ii),'' which provides 
the exposure period will automatically terminate ``. . . (ii) upon the 
receipt of a market or marketable limit order on the Exchange in the 
same series . . .''. The Exchange notes that this sentence applies to 
the receipt of marketable orders both on the same side and opposite 
side of the Agency order. As described above, the Exchange proposes to 
not permit unrelated marketable interest on the opposite side of the 
market from the Agency Order, which is received during a single-leg 
PIM, to early terminate a PIM. Therefore, with respect to the opposite 
side of the Agency Order, the termination of the auction will no longer 
be possible with the proposed change to MRX Options 3, Section 
13(d)(4). With respect to the same side of the Agency Order, today, an 
unrelated market or marketable limit order in the same series on the 
same side of the Agency Order would cause the PIM to early terminate as 
well. At this time the Exchange proposes to not permit an unrelated 
market or marketable limit order in the same series on the same side of 
the Agency Order to cause the PIM to early terminate. This proposed 
change will align the functionality of MRX's PIM to that of BX's PRISM 
and Phlx's PIXL,\20\ which do not permit an unrelated market or 
marketable limit order in the same series on the same side of the 
Agency Order to cause the PRISM or PIXL to early terminate, unless the 
BBO improves beyond the price of the Crossing Transaction on the same 
side.

[[Page 58574]]

The Exchange notes that a market or marketable limit order in the same 
series on the same side of the Agency Order cannot interact with a PIM 
auction. The market or marketable limit order may interact with the 
single-leg order book, and if there are residual contracts that remain 
from the market or marketable limit order in the same series on the 
same side of the Agency Order, they could rest on the order book and 
improve the BBO beyond the price of the Crossing Transaction which 
would cause early termination pursuant to proposed Options 3, Section 
13(c)(5)(ii) as discussed below. In this instance, residual contracts 
are contracts that remain available for execution after the unrelated 
order on the same side of market as the Agency Order, which was 
marketable with bids and offers on the opposite side of the market as 
the Agency Order, executed against bids and offers on the Exchange's 
order book. The Exchange believes that this outcome would allow for the 
single-leg PIM exposure period to continue for the full period despite 
the receipt of unrelated marketable interest on the same side of the 
market from the Agency Order, provided residual interest does not go on 
to rest on the order book, improving the BBO beyond the price of the 
Crossing Transaction. Allowing the single-leg PIM to run its full 
course (unless the BBO improves beyond the price of the Crossing 
Transaction on the same side), rather than early terminate, would 
provide an opportunity for price improvement to the Agency Order.
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    \20\ See Options 3, Section 13 of BX's PRISM Rules and Phlx's 
PIXL Rules.
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    Third, the Exchange proposes to amend current MRX Options 3, 
Section 13(c)(iii) to align the rule text more closely with language in 
BX Options 3, Section 13(ii)(B)(2).\21\ Specifically, the Exchange 
proposes to amend Options 3, Section 13(c)(5) to delete current ``iii'' 
and renumber as ``ii''. Proposed new Options 3, Section 13(c)(5)(ii) 
would state, ``The exposure period will automatically terminate . . . 
(ii) any time the Exchange best bid or offer improves beyond the price 
of the Crossing Transaction on the same side of the market as the 
Agency Order . . .'' The proposed rule is designed to align to BX's 
rule text to remove any ambiguity that a market or marketable limit 
order priced more aggressively than the Agency Order could ultimately 
rest on the order book, improving the BBO beyond the price of the 
Crossing Transaction and, therefore, cause the early termination of a 
PIM auction.
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    \21\ BX Options 3, Section 13(ii)(B) provides ``Conclusion of 
Auction. The PRISM Auction shall conclude at the earlier to occur of 
(1) through (3) below, with the PRISM Order executing pursuant to 
paragraph (C)(1) or (C)(2) below if it concludes pursuant to (2) or 
(3) of this paragraph. (1) The end of the Auction period; (2) For a 
PRISM Auction any time the BX BBO crosses the PRISM Order stop price 
on the same side of the market as the PRISM Order; (3) Any time 
there is a trading halt on the Exchange in the affected series.''
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    By way of example, assume: MRX 1.00 x 2.00 (10) and a second MRX 
Market Maker's quote is 1.00 x 2.10 (10). If a PIM auction starts with 
a buy at 1.50, and subsequently an order to buy for 20 @2.00 arrives, 
the incoming order would trade with the quote, and the remaining 10 
contracts would rest on the order book. Thereafter, the MRX BBO would 
update to 2.00 x 2.10 and trigger the early termination of the single-
leg PIM pursuant to Options 3, Section 13(c)(5)(iii), which is being 
renumbered to Options 3, Section 13(c)(5)(ii). Early terminating the 
single-leg PIM in this example is necessary because the price of the 
single-leg PIM is no longer at the top of book (best price) and would 
not have execution priority with respect to responses or unrelated 
interest that arrive. By early terminating the single-leg PIM, MRX 
allows responses to the single-leg PIM, which arrived prior to the time 
the Exchange's best bid and offer improved beyond the Crossing 
Transaction, to execute.
    The Exchange believes the proposed rule text will provide greater 
clarity to the manner in which the System operates today with respect 
to early termination of single-leg PIMs when the BBO on the same side 
improves beyond the price of the Crossing Transaction. The proposed 
amendment to the rule text is not intended to amend the current System 
functionality, rather it is intended to make clear that a market or 
marketable limit order could ultimately rest on the order book with 
residual interest and improve the BBO on the same side as the Agency 
Order beyond the price of the Crossing Transaction and cause the 
single-leg PIM to early terminate.
    Fourth, the Exchange proposes to add a new MRX Options 3, Section 
13(c)(5)(iii) which states, ``. . . (iii) any time there is a trading 
halt on the Exchange in the affected series . . .''. This proposed rule 
text is not modifying how the System currently operates.\22\ Today, a 
trading halt would cause a single-leg PIM to early terminate. Current 
MRX Options 3, Section 13(d)(5) notes such an early termination as a 
result of the aforementioned trading halt. Adding this circumstance to 
the list of events that would terminate the exposure period would make 
the list complete and add clarity to the rule. Furthermore, the 
Exchange notes that in a separate rule change, SR-MRX-2022-5P,\23\ 
[sic] the Exchange is proposing to amend Options 3, Section 13(d)(5) to 
change the System behavior such that if a trading halt is initiated 
after an order is entered into the PIM, such auction will be 
automatically terminated with execution solely with the Counter-Side 
Order. Today, if a trading halt is initiated after an order is entered 
into the PIM, such auction will be automatically terminated without 
execution.\24\
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    \22\ MRX Options 3, Section 13(d)(5) currently states that, ``If 
a trading halt is initiated after an order is entered into the Price 
Improvement Mechanism, such auction will be automatically terminated 
without execution.'' Of note, the Exchange is proposing to amend 
MRX's PIM within a separate rule change, SR-MRX-2022-5P. Among other 
things, the Exchange proposes to amend the PIM functionality so that 
if a trading halt is initiated after an order is entered into the 
PIM, the auction will be automatically terminated with an execution. 
Specifically, SR-MRX-2022-5P proposes to renumber current MRX 
Options 3, Section 13(d) to Options 3, Section 13(d)(6) and proposes 
to state, ``If a trading halt is initiated after an order is entered 
into the Price Improvement Mechanism, such auction will be 
automatically terminated with execution solely with the Counter-Side 
Order.''
    \23\ MRX has separately filed to amend Options 3, Section 
13(d)(5) within SR-MRX-2022-5P. [sic] SR-MRX-2022-5P [sic] proposes 
to amend, among other things, the rule text in Options 3, Section 
13, except that it does not amend Options 3, Section 13(c)(5).
    \24\ See current MRX Options 3, Section 13(d)(5).
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Changes to the Complex PIM
    In accordance with the proposed rule change regarding the early 
termination provisions of a single-leg PIM auction explained above, the 
Exchange also proposes to remove a paragraph related to Complex PIM in 
current MRX Options 3, Section 13(e)(4)(vi) which provides,

    A Complex Price Improvement Mechanism in a complex strategy may 
be ongoing at the same time as a Price Improvement Auction pursuant 
to this Rule or during an exposure period pursuant to Supplementary 
Material .02 to Options 5, Section 2 in a component leg(s) of such 
Complex Order. If a Complex Price Improvement Mechanism is early 
terminated pursuant to paragraph (iv) above, and the incoming 
Complex Order that causes the early termination in the complex 
strategy is also marketable against a component leg(s) of the 
complex strategy that is the subject of a concurrent ongoing Price 
Improvement Auction pursuant to this Rule or an exposure period 
pursuant to Supplementary Material .02 to Options 5, Section 2, then 
the concurrent Complex Price Improvement Mechanism and component leg 
auction(s) are processed in the following sequence: (1) the Complex 
Price Improvement Mechanism is early terminated; (2) the component 
leg auction(s) are early terminated and processed; and (3) legging 
of residual incoming Complex Order interest occurs, except with 
respect to Stock Option Orders and Stock Complex Orders.


[[Page 58575]]


Today, unrelated marketable interest may cause the early termination of 
a single-leg PIM, if a component leg of a Complex Order is marketable 
against the order book in the same series as the single-leg PIM. An 
example is provided below.

    Example #1 (Complex PIM early termination elimination-opposite 
side) \25\
---------------------------------------------------------------------------

    \25\ Example 1 addresses an order on the opposite side of the 
Agency Order, although the same early termination would apply to an 
order on the same side of an Agency Order pursuant to MRX Options 3, 
Section 13(e)(4)(vi).

Complex Order Strategy A-B
MM Quote Leg A 4.20 (100) x 4.50 (100)
MM Quote Leg B 4.00 (100) x 4.10 (100)
cBBO 0.10 x 0.50
(Leg A Bid 4.20-Leg B Offer 4.10 = 0.10)
(Leg A Offer 4.50-Leg B Bid 4.00 = 0.50)
Complex PIM to Buy A-B 10 @ 0.20, with an election to automatically 
match to a net price of 0.10
Complex PIM begins
Single-leg PIM Auction on Leg A to Buy 100 @ 4.25
Single-leg PIM begins

    During both auction timers, an unrelated marketable Complex 
Order A-B to sell 50 @ a net price of 0.10 arrives (the individual 
legs of the marketable Complex Order would be selling A @ 4.20 and 
buying B @ 4.10).
    Complex Order PIM is early terminated and trades 4 with the 
Counter-Side Order @ a net price of 0.10 and 6 with the unrelated 
Complex Order @ a net price of 0.15.
    Today, the unrelated Complex Order would have legged-in after 
trading with the Complex PIM and caused the single-leg PIM to early 
terminate because one leg of the Complex Order was marketable 
against the Leg A bid of 4.20.
    With the proposed amendment, the unrelated Complex Order will 
not cause the single-leg PIM to early terminate as a result of 
trading with an unrelated order on the opposite side in the same 
series. The unrelated marketable Complex Order will trade with the 
Complex PIM as well as the best bids and offers from the single-leg 
order book. In this case, the remaining quantity of the unrelated 
Complex Order would leg-in and trade with the single-leg quotes 
without impacting the single-leg PIM; the single-leg PIM auction 
timer would conclude after running its full course. Thereafter, if 
there are no responses to the single-leg PIM, the Agency Order would 
trade 100 @4.25 with the Counter-Side Order.

    Today, if a Complex PIM is early terminated pursuant to MRX Options 
3, Section 14(e)(4)(iv) \26\ and the incoming Complex Order that causes 
the early termination in the complex strategy is also marketable 
against a component leg(s) of the complex strategy that is the subject 
of a concurrent ongoing single-leg PIM, or an exposure period pursuant 
to flash functionality as provided for in Supplementary Material .02 to 
Options 5, Section 2,\27\ then the concurrent Complex PIM and component 
leg auction(s) are processed in accordance with MRX Options 3, Section 
14(e)(4)(vi).
---------------------------------------------------------------------------

    \26\ MRX Options 3, Section 14(e)(4)(iv) provides, ``The 
exposure period will automatically terminate (A) at the end of the 
time period designated by the Exchange pursuant to subparagraph 
(4)(i) above, (B) upon the receipt of a Complex Order in the same 
complex strategy on either side of the market that is marketable 
against the Complex Order Book or bids and offers for the individual 
legs, or (C) upon the receipt of a non-marketable Complex Order in 
the same complex strategy on the same side of the market as the 
Agency Complex Order that would cause the execution of the Agency 
Complex Order to be outside of the best bid or offer on the Complex 
Order Book.''
    \27\ Pursuant to Supplementary Material .02 to ISE Options 5, 
Section 2, ISE permits certain orders to first be exposed at the 
NBBO to all Members for execution at the National Best Bid or Offer 
(``NBBO'') before the order would be routed to another market for 
execution (``flash functionality''). MRX Options 5 Rules are 
incorporated by reference to ISE Options 5 Rules.
---------------------------------------------------------------------------

    With this proposed change, a single-leg PIM will no longer early 
terminate as a result of the arrival of unrelated marketable interest 
on either the same or the opposite side of the market from the Agency 
Order. Because a single-leg PIM will no longer early terminate from the 
arrival of unrelated marketable interest on either the same or the 
opposite side of the market from the Agency Order, and because the 
flash functionality will no longer exist,\28\ the Exchange proposes to 
delete MRX Options 3, Section 13(e)(4)(vi) in its entirety.
---------------------------------------------------------------------------

    \28\ MRX filed a rule change to eliminate its flash 
functionality. See Securities Exchange Act Release No. 94897 (May 
12, 2022), 87 FR 30294 (May 18, 2022) (SR-ISE-2022-11) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Routing Functionality in Connection With a Technology Migration). 
MRX's rule regarding flash functionality at Supplementary Material 
.02 to Options 5, Section 2 is incorporated by reference to Nasdaq 
ISE, LLC Options 5 rules. Therefore, eliminating the flash 
functionality from ISE Options 5 rules also eliminates the flash 
functionality from MRX's Options 5 rules. SR-ISE-2022-11 is 
effective but not yet operative. SR-ISE-2022-11 would be implemented 
as part of the same technology migration as the changes proposed 
herein.
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to remove a related paragraph 
in current Supplementary Material .01(b)(iii) of MRX Options 3, Section 
14 describing Complex Order Exposure, which states,

    A Complex Order Exposure in a complex strategy may be ongoing in 
a complex strategy at the same time as a Price Improvement Auction 
pursuant to Options 3, Section 13 or during an exposure period 
pursuant to Supplementary Material .02 to Options 5, Section 2 in a 
component leg(s) of such complex strategy. If a Complex Order 
Exposure is early terminated pursuant to paragraph (ii) above, and 
the incoming Complex Order that causes the early termination in the 
complex strategy is also marketable against a component leg(s) of 
the complex strategy that is the subject of a concurrent ongoing 
Price Improvement Auction pursuant to Options 3, Section 13 or an 
exposure period pursuant to Supplementary Material .02 to Options 5, 
Section 2, then the concurrent Complex Order and component leg 
auction(s) are processed in the following sequence: (1) the Complex 
Order exposure is early terminated; (2) the component leg 
auction(s), which are early terminated and processed; and (3) 
legging of residual incoming Complex Order interest occurs.

    Today, unrelated marketable interest may cause the early 
termination of a single-leg PIM, therefore, when a Complex Order legs 
into the single-leg order book, it may cause the early termination of a 
single-leg PIM if that leg was on either the same or the opposite side 
of the market from the single-leg PIM. An example is provided below.

    Example #2 (Complex Exposure early termination elimination-
opposite side) \29\
---------------------------------------------------------------------------

    \29\ Example 2 addresses an order on the opposite side of the 
Agency Order, although the same early termination would apply to an 
order on the same side of the Agency Order pursuant to Supplementary 
Material .01(b)(iii) of MRX Options 3, Section 14.

Complex Order Strategy A-B
MM Quote Leg A 4.20 (100) x 4.50 (100)
MM Quote Leg B 4.00 (100) x 4.10 (100)
cBBO 0.10 x 0.50
(Leg A Bid 4.20-Leg B Offer 4.10 = 0.10)
(Leg A Offer 4.50-Leg B Bid 4.00 = 0.50)
Complex Order in A-B Strategy marked for Complex Order Exposure to 
buy 10 @ 0.20
Complex Order Exposure auction begins
Single-leg PIM Auction on Leg A to Buy 100 @ 4.25
Single-leg PIM begins

    During both auction timers, unrelated marketable Complex Order 
A-B Sell 50 @ 0.10 arrives.
    Complex Order Exposure is early terminated and the exposed order 
to buy A-B 10 @ 0.20 and trades with the unrelated Complex Order 10 
@ net price of 0.10.
    Today, the unrelated marketable Complex Order would have legged-
in after trading with the Complex Order Exposure and caused the 
single-leg PIM to early terminate because one leg of the marketable 
Complex Order on the opposite side was marketable against the Leg A 
bid of 4.20.
    With the proposed amendment, the unrelated marketable Complex 
Order will not cause the single-leg PIM on the opposite side in the 
same series to early terminate as a result of the component leg of 
the Complex Order being marketable against the bid in the same 
series as the single-leg PIM. The unrelated marketable Complex Order 
will trade with the Complex Order Exposure order as well as the best 
bids and offers from the single-leg order book. In this case, the 
remaining quantity would leg-in and trade with the single-leg quotes 
without impacting the single-leg PIM; the auction timer would 
conclude after running its full course. Thereafter, the Crossing 
Transaction would trade 100 @4.25 Agency Order with the Counter-Side 
Order.


[[Page 58576]]


    Today, when a Complex Order Exposure early terminates, as a result 
of the arrival of unrelated marketable Complex Order interest that 
trades against the exposed Complex Order and the best bids and offers 
on the single-leg order book (as described in Supplementary Material 
.01(b)(ii) of MRX Options 3, Section 14), the component legs of the 
unrelated marketable Complex Order on either the same or the opposite 
side of the single-leg PIM may leg-in and cause early termination of 
the single-leg PIM. Thereafter, the component leg auction(s) would be 
processed pursuant to Supplementary Material .01(b)(iii) of MRX Options 
3, Section 14. With this proposed change to MRX Options 3, Section 
13(d)(4), a single-leg PIM will no longer early terminate from the 
arrival of unrelated marketable interest on either the same or opposite 
side of the market from the Agency Order. Therefore, because a single-
leg PIM will no longer early terminate from the arrival of unrelated 
marketable interest on either the same or opposite side of the market 
from the Agency Order, and because the flash functionality will no 
longer exist,\30\ the early termination provisions addressed in 
Supplementary Material .01(b)(iii) of MRX Options 3, Section 14 will no 
longer arise, accordingly, the Exchange proposes to delete 
Supplementary Material .01(b)(iii) of MRX Options 3, Section 14 in its 
entirety.
---------------------------------------------------------------------------

    \30\ Id. [sic].
---------------------------------------------------------------------------

Re-Pricing
    In connection with the technology migration, the Exchange recently 
adopted re-pricing functionality for certain quotes and orders that 
lock or cross an away market's price.\31\ As a result of the 
effectiveness of SR-MRX-2022-16, the Exchange proposes a number of 
corresponding amendments in Options 2, Section 12, as well as the 
proposed definition of Complex Preferenced Orders, which is discussed 
below, in connection with adopting the re-pricing mechanism.
---------------------------------------------------------------------------

    \31\ See SR-MRX-2022-16. This rule change is effective, but not 
yet operative. SR-MRX-2022-16 would be implemented as part of the 
same technology migration as the changes proposed herein.
---------------------------------------------------------------------------

    With the recent change within SR-MRX-2022-16, the System will re-
price certain quotes and orders that lock or cross an away market's 
price. Specifically, quotes and orders which lock or cross an away 
market price will be automatically re-priced to the current national 
best offer (for bids) or the current national best bid (for offers) and 
displayed one minimum price variance (``MPV'') above (for offers) or 
below (for bids) the national best price. The re-priced quotes and 
orders will be displayed on OPRA at its displayed price and placed on 
the Exchange's order book at its re-priced, non-displayed price, which 
may be priced better than the NBBO. The quotes and orders will remain 
on the Exchange's order book and will be accessible at their non-
displayed price. With this change, a non-displayed limit order or quote 
may be available on the Exchange at a price that is better than the 
NBBO. The following example illustrates how the proposed re-pricing 
mechanism would work:

Symbol ABCD in a Non-Penny name
CBOE BBO at 1.00 x 1.20
DNR order to buy ABCD for 1.30 arrives
DNR buy order books at 1.20 (current national best offer) and 
displays at 1.15 (one MPV below national best offer) *
CBOE BBO adjusts to 1.00 x 1.25
DNR buy order adjusts to book at 1.25 (current national best offer) 
and displays at 1.20 (one MPV below national best offer) *
    * OPRA will show the displayed price, not the booked price

    Recently amended Options 3, Section 5(c) provides that the System 
automatically executes eligible orders using the Exchange's displayed 
best bid and offer (i.e., BBO) or the Exchange's non-displayed order 
book (``internal BBO'') if the best bid and/or offer on the Exchange 
has been re-priced pursuant to Options 3, Section 5(d).\32\ The 
definition of an ``internal BBO'' will cover re-priced quotes and 
orders that remain on the order book and are available at non-displayed 
prices while resting on the order book.\33\
---------------------------------------------------------------------------

    \32\ A similar change was made for quotes within Options 3, 
Section 4(b)(7). The Exchange added the following new rule text to 
Options 3, Section 4(b)(7), ``The System automatically executes 
eligible quotes using the Exchange's displayed best bid and offer 
(``BBO'') or the Exchange's non-displayed order book (``internal 
BBO'') if the best bid and/or offer on the Exchange has been 
repriced pursuant to Options 3, Section 5(d) below and subsection 
(6) above.''
    \33\ The Exchange amended the rule text within Options 3, 
Section 4 and Options 3, Section 5, within SR-MRX-2022-16, to 
describe the manner in which a non-routable quotes and orders would 
be re-priced, respectively. The Exchange added rule text within 
Options 3, Section 4(b)(6) to state, ``A quote will not be executed 
at a price that trades through another market or displayed at a 
price that would lock or cross another market. If, at the time of 
entry, a quote would cause a locked or crossed market violation or 
would cause a trade-through violation, it will be re-priced to the 
current national best offer (for bids) or the current national best 
bid (for offers) and displayed at one minimum price variance above 
(for offers) or below (for bids) the national best price, or 
immediately cancelled, as configured by the Member.'' The Exchange 
amended the rule text within Options 3, Section 5(d) to state, ``An 
order that is designated by a Member as non-routable will be re-
priced in order to comply with applicable Trade-Through and Locked 
and Crossed Markets restrictions. If, at the time of entry, an order 
that the entering party has elected not to make eligible for routing 
would cause a locked or crossed market violation or would cause a 
trade-through violation, it will be re-priced to the current 
national best offer (for bids) or the current national best bid (for 
offers) and displayed at one minimum price variance above (for 
offers) or below (for bids) the national best price.''
---------------------------------------------------------------------------

    In connection with the foregoing changes, the Exchange proposes to 
add references to ``internal BBO'' within Options 3, Section 12(c) and 
(d) which describe the Qualified Contingent Cross Orders and Complex 
Qualified Contingent Cross Orders, respectively, to conform with the 
concept of re-pricing at an internal BBO as provided in Options 3, 
Sections 4(b)(6) and 4(b)(7) and Options 3, Section 5(c) and (d) within 
SR-MRX-2022-16. As noted above, the internal BBO could be better than 
the NBBO. The Exchange believes that adding references to the internal 
BBO to Options 3, Section 12(c) and (d) would continue to require 
Members to be at or between the best price, that is not at the same 
price as a Priority Customer Order on the Exchange's limit order book, 
to execute a Qualified Contingent Cross Order. Further, with respect to 
Complex Qualified Contingent Cross Orders, the Exchange would continue 
to require a Member to be at or between the best price for the 
individual series and comply with other relevant provisions noted 
within Options 3, Section 12(d) to execute a Complex Qualified 
Contingent Cross Order. The Exchange believes that the addition of 
``internal BBO'' is consistent with the intent of these order types, 
which is to require Members submit these orders at the best price and 
not execute ahead of better-priced quotes or orders.
    The Exchange proposes to amend Options 3, Section 12(c), which 
describes the conditions under which a Qualified Contingent Cross Order 
may be entered into the System for execution, to state that a Qualified 
Contingent Cross Order may be executed upon entry provided the 
execution is at or between the better of the internal BBO or the 
NBBO.\34\ Similarly, the Exchange proposes to amend Options 3, Section 
12(d), which describes the conditions under which a Complex Qualified 
Contingent Cross Order may be entered into the System for execution, to 
state that Complex Options Orders may be entered as Qualified 
Contingent Cross Orders to be automatically executed upon entry so long 
as the options legs can be executed

[[Page 58577]]

at prices that are at or between the better of the internal BBO or the 
NBBO for the individual series.\35\
---------------------------------------------------------------------------

    \34\ The Qualified Contingent Cross Order must also not be at 
the same price as a Priority Customer Order on the Exchange's limit 
order book. See Options 3, Section 12(c).
    \35\ Currently, Options 3, Section 12(d) provides in its 
entirety that Complex Options Orders may be entered as Qualified 
Contingent Cross Orders, as defined in Options 3, Section 7(j). Such 
orders will be automatically executed upon entry so long as: (i) the 
price of the transaction is at or within the best bid and offer for 
the same complex options strategy on the Complex Order Book; (ii) 
there are no Priority Customer Complex Options Orders for the same 
strategy at the same price on the Complex Order Book; and (iii) the 
options legs can be executed at prices that (A) are at or between 
the NBBO for the individual series, and (B) comply with the 
provisions of Options 3, Section 14(c)(2)(i), provided that no legs 
of the Complex Options Order can be executed at the same price as a 
Priority Customer Order on the Exchange in the individual options 
series. Complex Qualified Contingent Cross Orders will be rejected 
if they cannot be executed. Complex Qualified Contingent Cross 
Orders may be entered in one cent increments. Each leg of a Complex 
Options Order must meet the 1,000 contract minimum size requirement 
for Qualified Contingent Cross Orders.
---------------------------------------------------------------------------

    The Exchange also proposes to add the ``internal BBO'' rule text in 
its description of Complex Preferenced Orders within new Options 3, 
Section 14(b)(19). This change is described below.
Delayed Functionality
    The Exchange proposes to delay the implementation of certain 
functionality in Options 3, Section 7, 11, 12, 13, and 14 in connection 
with the technology migration. Specifically, Stock-Option Strategies as 
described in MRX Options 3, Section 14(a)(2),\36\ Stock-Complex 
Strategies as described in MRX Options 3, Section 14(a)(3),\37\ Complex 
QCC with Stock Orders as described in MRX Options 3, Section 
14(b)(15),\38\ and QCC with Stock Orders \39\ as described in Options 
3, Section 7(t) and 12(e), Stock-Option Orders \40\ as described in 
Options 3, Sections 11(c) and 13(e), Stock-Complex Orders \41\ as 
described in Options 3, Sections 11(c) and 13(e) and Trade Value 
Allowance,\42\ as described in Supplementary Material .03 of MRX 
Options 3, Section 14, would not be available for symbols that migrated 
to the platform (``Delayed Functionalities''). Today, these Delayed 
Functionalities are available to Members.
---------------------------------------------------------------------------

    \36\ A Stock-Option Strategy is the purchase or sale of a stated 
number of units of an underlying stock or a security convertible 
into the underlying stock (``convertible security'') coupled with 
the purchase or sale of options contract(s) on the opposite side of 
the market representing either (A) the same number of units of the 
underlying stock or convertible security, or (B) the number of units 
of the underlying stock necessary to create a delta neutral 
position, but in no case in a ratio greater than eight-to-one 
(8.00), where the ratio represents the total number of units of the 
underlying stock or convertible security in the option leg to the 
total number of units of the underlying stock or convertible 
security in the stock leg. See MRX Options 3, Section 14(a)(2).
    \37\ A Stock-Complex Strategy is the purchase or sale of a 
stated number of units of an underlying stock or a security 
convertible into the underlying stock (``convertible security'') 
coupled with the purchase or sale of a Complex Options Strategy on 
the opposite side of the market representing either (A) the same 
number of units of the underlying stock or convertible security, or 
(B) the number of units of the underlying stock necessary to create 
a delta neutral position, but in no case in a ratio greater than 
eight-to-one (8.00), where the ratio represents the total number of 
units of the underlying stock or convertible security in the option 
legs to the total number of units of the underlying stock or 
convertible security in the stock leg. Only those Stock-Complex 
Strategies with no more than the applicable number of legs, as 
determined by the Exchange on a class-by-class basis, are eligible 
for processing. See MRX Options 3, Section 14(a)(3).
    \38\ A Complex QCC with Stock Order is a Qualified Contingent 
Cross Complex Order, as defined in subparagraph (b)(6) of Options 3, 
Section 14, entered with a stock component to be communicated to a 
designated broker-dealer for execution pursuant to MRX Options 3, 
Section 12(f).
    \39\ A QCC with Stock Order is a Qualified Contingent Cross 
Order, as defined in Options 3, Section 7(j), entered with a stock 
component to be communicated to a designated broker-dealer for 
execution pursuant to Options 3, Section 12(c). See Options 3, 
Section 7(t).
    \40\ The term ``Stock-Option Order'' refers to an order for a 
Stock-Option Strategy as defined in Options 3, Section 14(a)(2).
    \41\ The term ``Stock-Complex Order'' refers to an order for a 
Stock-Complex Strategy as defined in Options 3, Section 14(a)(3).
    \42\ Trade Value Allowance permits Stock-Option Strategies and 
Stock-Complex Strategies at valid increments Options 3, Section 
14(c)(1), Stock-Option Strategies and Stock-Complex Strategies to 
trade outside of their expected notional trade value by a specified 
amount, in order to facilitate the execution of the stock leg and 
options leg(s). The Trade Value Allowance is the percentage 
difference between the expected notional value of a trade and the 
actual notional value of the trade. The amount of Trade Value 
Allowance permitted may be determined by the Member, or a default 
value determined by the Exchange and announced to Members; provided 
that any amount of Trade Value Allowance is permitted in mechanisms 
pursuant to Options 3, Sections 11 and 13 when auction orders do not 
trade solely with their contra-side order. See Supplementary 
Material .03 of MRX Options 3, Section 14.
---------------------------------------------------------------------------

    The Delayed Functionalities would not be available for symbols that 
migrated to the platform and thereafter, until such time as the 
Exchange recommenced their availability by announcing a date in an 
Options Trader Alert, which date would be prior to one year from the 
start of the migration of the symbols to the platform. The Exchange is 
staging the migration to provide maximum benefit to its Members while 
also ensuring a successful rollout. The Exchange intends to focus its 
resources on the other amendments to its System that are contemplated 
with this System migration and other amendments that have been filed 
with the Commission. Additionally, the Exchange desires to offer 
Members adequate time to test their access to the new platform to 
ensure a smooth transition for Members. The proposed delay will also 
provide the Exchange additional time to code, test, and implement on 
the Delayed Functionalities on the enhanced platform. The Exchange 
further notes that it is contemplating amendments to its stock-tied 
functionality and desires additional time to draft and code those 
changes before reintroducing stock-tied on MRX.\43\
---------------------------------------------------------------------------

    \43\ MRX would also need time to file any related rule changes 
with the Commission prior to reintroducing stock-tied functionality.
---------------------------------------------------------------------------

    While no Members will be able to utilize the Delayed 
Functionalities on MRX to accomplish an options transaction with stock 
until they are reactivated on MRX, ISE currently offers the Delayed 
Functionalities. As such, the ability to transact options with stock 
would be available on ISE for Members, as is the case today. The 
Exchange has issued Options Technical Updates to apprise Members of the 
migration schedule.\44\ The Exchange intends to continue to issue 
Options Trader Alerts to ensure Members are aware of when the 
functionality will be available on its market.
---------------------------------------------------------------------------

    \44\ See Options Technical Updates #2022-2 and 2022-3. See also 
https://www.nasdaq.com/solutions/mrx-replatform.
---------------------------------------------------------------------------

Other Complex Order Amendments
Opening Only Complex Order
    Currently, MRX Options 3, Section 14(b)(10) states, ``An Opening 
Only Complex Order is a Limit Order that may be entered for execution 
during the Complex Opening Process described in Supplementary Material 
.04 to Options 3, Section 14. Any portion of the order that is not 
executed during the Complex Opening Process is cancelled.'' The 
Exchange proposes to amend MRX Options 3, Section 14(b)(10) to remove 
the word ``Limit'' within the description of the Opening Only Complex 
Order to allow Opening Only Complex Orders to be submitted as Market 
Orders or Limit Orders. This amendment is consistent with current 
System operations. The Exchange believes that both Market and Limit 
Orders should be permitted in the Complex Opening Process.\45\ Market 
Orders are typically the most aggressively priced orders, while Limit 
Orders have a limit price contingency that Market Orders do not have. 
Allowing both of these order types to participate in the Complex 
Opening Process allows greater liquidity to be present to determine the 
Opening

[[Page 58578]]

Price.\46\ All Members may enter both Market Orders and Limit Orders 
during the Complex Opening Process, as well as intra-day.
---------------------------------------------------------------------------

    \45\ The Complex Opening Process is described in Supplementary 
Material .04 of MRX Options 3, Section 14.
    \46\ The Opening Price is described in MRX Options 3, Section 
14(a)(2).
---------------------------------------------------------------------------

Complex QCC With Stock Orders
    The Exchange proposes to correct a non-substantive citation with 
MRX Options 3, Section 14(b)(15) related to Complex QCC with Stock 
Orders. The current citation to MRX Options 3, Section 12(e) within the 
description of this order type is incorrect. The citation should be to 
MRX Options 3, Section 12(f). Correcting this cross reference will 
clarify the description of the order type.
Complex Preferenced Orders
    The Exchange proposes to add ``Complex Preferenced Orders'' to the 
list of Complex Order Types in Options 3, Section 14(b). This proposal 
describes how Complex Preferenced Orders will work. MRX Options 2, 
Section 10 currently describes Preferenced Orders which may be Complex 
Preferenced Orders.\47\ To complete the list of Complex Order types, 
the Exchange proposes to state in MRX Options 3, Section 14(b)(19) 
that,
---------------------------------------------------------------------------

    \47\ MRX Options 2, Section 10 provides, ``Preferenced Orders. 
An Electronic Access Member may designate a ``Preferred Market 
Maker'' on orders it enters into the System (``Preferenced 
Orders''). (1) A Preferred Market Maker may be the Primary Market 
Maker appointed to the options class or any Competitive Market Maker 
appointed to the options class. (2) If the Preferred Market Maker is 
not quoting at a price equal to the NBBO at the time the Preferenced 
Order is received, the allocation procedure described in Options 3, 
Section 10(c)(1)(C) shall not be applied to the execution of the 
Preferenced Order. (3) If the Preferred Market Maker is quoting at 
the NBBO at the time the Preferenced Order is received, the 
allocation procedure described in Options 3, Section 10(c)(1)(C) 
shall be applied to the execution of the Preferenced Order.''

    [a] Complex Preferenced Order is a Complex Order for which an 
Electronic Access Member has designated a Preferred Market Maker as 
described in Options 2, Section 10. The component leg(s) of a 
Complex Order with a Preferenced Order instruction may allocate 
pursuant to Options 3, Section 10(c)(1)(C) when the Complex 
Preferenced Order legs into the single-leg market provided that the 
Preferred Market Maker is quoting at the better of the internal BBO 
or the NBBO for a component leg(s) of the Complex Preferenced Order 
at the time the Complex Preferenced Order is received. A Preferred 
Market Maker will not receive an allocation pursuant to Options 3, 
Section 10(c)(1)(C) for a component leg(s) of a Complex Preferenced 
Order if the Preferred Market Maker is not quoting at the better of 
the internal BBO or the NBBO for that leg at the time the Complex 
---------------------------------------------------------------------------
Preferenced Order is received.

    Allocation of a leg(s) of a Complex Preferenced Order, pursuant to 
MRX Options 3, Section 10, would occur when a leg(s) of a Complex Order 
trades synthetically with the Preferred Market Maker's \48\ quote that 
was at the better of the internal BBO or the NBBO on the single-leg 
order book in accordance with MRX Options 3, Section 10. A Preferred 
Market Maker must be quoting at the NBBO for a component leg(s) of the 
Complex Preferenced Order at the time the Complex Preferenced Order is 
received. As is the case for single-leg orders, a Preferred Market 
Maker will not receive an allocation pursuant to Options 3, Section 
10(c)(1)(C) for a component leg(s) of a Complex Preferenced Order if 
the Preferred Market Maker is not quoting at the better of the internal 
BBO or NBBO for that leg at the time the Complex Preferenced Order is 
received.
---------------------------------------------------------------------------

    \48\ Preferred Market Maker may be the Primary Market Maker 
appointed to the options class or any Competitive Market Maker 
appointed to the options class. See MRX Options 2, Section 10(a)(1).
---------------------------------------------------------------------------

    The referenced internal BBO is being utilized within the 
description of the Complex Preferenced Order because the internal BBO 
for a leg component of Complex Order on the single-leg order book may 
be priced better than the NBBO. The Exchange notes that similar changes 
were recently made to the Preferenced Order type for single-leg orders 
within Options 7, Section 3.\49\ The Exchange described re-pricing 
earlier in Purpose section.
---------------------------------------------------------------------------

    \49\ See MRX-2022-16.
---------------------------------------------------------------------------

    With respect to orders which leg into the single-leg order book, 
MRX Options 3, Section 14(c) states that, ``Except as otherwise 
provided in this Rule, complex strategies shall be subject to all other 
Exchange Rules that pertain to orders and quotes generally.'' 
Additionally, the Exchange notes that orders that execute against 
interest on the single-leg order book, including the options leg of 
Complex Options Strategies are subject to the provisions of MRX Options 
3, Section 5 which, among other things, describes the NBBO Price 
Protection and Trade-Through Compliance and Locked or Crossed Markets.
    Further, Supplementary Material .01 to Options 9, Section 1 
provides,

    [i]t will be a violation of this Rule for a Member to have a 
relationship with a third party regarding the disclosure of agency 
orders. Specifically, a Member may not disclose to a third party 
information regarding agency orders represented by the Member prior 
to entering such orders into the System to allow such third party to 
attempt to execute against the Member's agency orders. A Member's 
disclosing information regarding agency orders prior to the 
execution of such orders on the Exchange would provide an 
inappropriate informational advantage to the third party in 
violation of this Rule. For purposes of this paragraph .01, a third 
party includes any other person or entity, including affiliates of 
the Member. Nothing in this paragraph is intended to prohibit a 
Member from soliciting interest to execute against an order it 
represents as agent (a ``solicited order''), the execution of which 
is governed by Options 3, Section 22(e) and paragraph .02 of 
Supplementary Material to Options 3, Section 22.

    This rule prohibits a Member from notifying a Preferred Market 
Maker of an intention to submit a Complex Preferenced Order so that the 
Preferred Market Maker could change its quotation to match the NBBO 
immediately prior to submission of the Complex Preferenced Order, and 
then fade its quote. The Exchange represents that it proactively 
conducts surveillance for, and enforces against, violations of 
Supplementary Material .01 to Options 9, Section 1.
    The Exchange's proposal to add ``Complex Preferenced Orders'' to 
the list of Complex Order Types in MRX Options 3, Section 14(b) will 
continue to encourage Preferred Market Makers to quote aggressively in 
an effort to execute against the Complex Preferenced Order. Preferred 
Marker Makers are not able to ascertain if a particular order is a 
Complex Preferenced Order. The Exchange believes the proposal will 
encourage Market Makers to quote tighter and add a greater amount of 
liquidity on MRX in an attempt to interact with Complex Preferenced 
Orders that are sent to the Exchange. This order flow will benefit all 
market participants on the Exchange because any MRX Member may interact 
with that order flow.
    The addition of Complex Preferenced Orders to the list of order 
types in MRX Options 3, Section 14(b) will make clear to Members the 
availability of Complex Preferenced Orders. Both Phlx \50\ and MIAX 
\51\ have a similar order type.
---------------------------------------------------------------------------

    \50\ See Phlx Options 3, Section 14(b)(v) which specifies that a 
Directed Order may be submitted as a Complex Order. See also Phlx 
Options 3, Section 7(b)(11) which describes a Directed Order. Phlx's 
Options 2, Section 10 Directed Order rule is similar to MRX's 
Options 2, Section 10 Preferenced Order rule.
    \51\ A ``Directed Order'' is an order entered into the System by 
an Electronic Exchange Member with a designation for a Lead Market 
Maker (referred to as a ``Directed Lead Market Maker''). Only 
Priority Customer Orders will be eligible to be entered into the 
System as a Directed Order by an Electronic Exchange Member. See 
MIAX Rule 100. See also MIAX Rule 514(h) which describes allocation. 
Today, MIAX permits Directed Orders to be submitted as a New Order--
Multileg. See https://www.miaxoptions.com/sites/default/files/page-files/FIX%20Order%20Interface_FOI_v2.5a_re.pdf. Pursuant to MIAX's 
specifications, ``AllocAccount (Tag 79) is defined as MIAX assigned 
directed firm code of the designated participant for directed order 
flow.''

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[[Page 58579]]

Options 3, Section 14(c)(2) and MRX Supplementary Material .02 to 
Options 3, Section 14
    The Exchange proposes a non-substantive amendment in MRX Options 3, 
Section 14(c)(2) to amend an incorrect reference to ``ISE''. The 
reference should be to ``MRX''. Also, the Exchange proposes to make a 
non-substantive technical correction in Supplementary Material .02 of 
MRX Options 3, Section 14 to make a grammatical amendment to change the 
word ``which'' to ``whom''.
Complex Opening Price Determination
    The Exchange proposes to amend the citation within Supplementary 
Material .05(d)(2) to Options 3, Section 14 which states, ``Potential 
Opening Price. The System will calculate the Potential Opening Price by 
identifying the price(s) at which the maximum number of contracts can 
trade (``maximum quantity criterion'') taking into consideration all 
eligible interest pursuant to Supplementary Material .06(b) to this 
Rule.'' The citation to Supplementary Material .06(b), related to 
Uncrossing is incorrect. The citation should be to Supplementary 
Material .05(b), related to Complex Opening Price Determination. The 
citation is referring is to eligible interest during the Complex 
Opening Price Determination.
    The Exchange proposes to amend the Complex Opening Price 
Determination in Supplementary Material .05(d)(3) to Options 3, Section 
14 to allow for additional contracts to be included in the Potential 
Opening Price calculation leading to better price discovery and more 
contracts executing as part of the Complex Opening Price Determination 
process.
    With this proposal, when the interest does not match the size and 
there is more than one Potential Opening Price at which the interest 
may execute, the Exchange would calculate a Potential Opening Price 
using the mid-point of the highest (lowest) executable offer (bid) 
price and the next available executable offer (bid) price rounded, if 
necessary, down (up) to the closest minimum trading increment. As a 
result, more options contracts are likely to be executed at better 
prices than under the current rule. Example number 3 below demonstrates 
this behavior. This behavior differs from current rules in that, today, 
the Exchange would calculate the Potential Opening Price as the highest 
(lowest) executable bid (offer) when there would be contracts left 
unexecuted on the bid (offer) side of the complex market.
    Further, the proposed amendment will allow Market Complex Orders to 
participate in the Opening Price Determination process in a broader 
capacity than the rule allows for today. Today, if there are only 
Market Complex Orders on both sides of the market, or if there are 
Market Complex Orders on the bid (offer) side of the market for greater 
than the total size of Complex Orders on the offer (bid) side of the 
market, then MRX will not trade in the Complex Opening Price 
Determination process and would instead open pursuant to an Uncrossing 
as provide for in Supplementary Material .06(b) of MRX Options 3, 
Section 14. With the proposed amendment Market Complex Orders will be 
included in the Complex Opening Price Determination process in both 
situations described above, leading to more contracts being able to 
trade in the Complex Opening Price Determination with better price 
discovery. Example 5 below illustrates this point.
    Finally, the proposed amendment considers the Boundary Price 
earlier in the Complex Opening Process. Today, the rule seeks to 
satisfy the maximum quantity criterion first and then consider Boundary 
Prices. With the proposed change, the Exchange will consider the 
Boundary Price while determining the Potential Opening Price, thereby 
enabling as many contracts as possible to trade sooner, which reduces 
risk for market participants awaiting executions. With this proposal, 
the Complex Opening Process considers the Boundary Price earlier in the 
process and the Boundary Price becomes the limit price for Market 
Complex Orders. This proposal should maximize the number of contracts 
executed, to the benefit of those Members participating in that complex 
strategy.
    Current Supplementary Material .05 of MRX Options 3, Section 14 
describes how Complex Orders arrive at an Opening Price. Specifically, 
Supplementary .05(b) of MRX Options 3, Section 14 describes the 
interest that is eligible within the Complex Opening Price 
Determination. The rule text provides that the System would calculate 
Boundary Prices \52\ at or within which Complex Orders may be executed 
during the Complex Opening Price Determination.\53\ Current 
Supplementary Material .05(d)(2) of MRX Options 3, Section 14 provides, 
``The System will calculate the Potential Opening Price \54\ by 
identifying the price(s) at which the maximum number of contracts can 
trade (``maximum quantity criterion'') taking into consideration all 
eligible interest pursuant to Supplementary Material .06(b) to this 
Rule.'' \55\ The System takes into consideration all Complex Orders, 
identifies the price at which the maximum number of contracts can 
trade, and calculates the Potential Opening Price as described in 
Supplementary Material .05(d)(2) of MRX Options 3, Section 14. 
Supplementary Material .05(d)(3) of MRX Options 3, Section 14 further 
describes the way the System handles more than one Potential Opening 
Price. Current Supplementary Material .05(d)(3) of MRX Options 3, 
Section 14 states,
---------------------------------------------------------------------------

    \52\ The Boundary Price is described in Supplementary Material 
.05(d)(1) of MRX Options 3, Section 14(a)(1).
    \53\ See Supplementary Material .05(d)(1) of MRX Options 3, 
Section 14.
    \54\ The Potential Opening Price is described in Supplementary 
Material .05(d)(2) of MRX Options 3, Section 14.
    \55\ The Exchange proposes to amend the citation within 
Supplementary Material .05(d)(2) to Options 3, Section 14 within 
this proposal. The citation to Supplementary Material .06(b), 
related to Uncrossing, should be to Supplementary Material .05(b), 
related to Complex Opening Price Determination. Specifically, the 
reference is to Eligible Interest during the Complex Opening Price 
Determination.

    When two or more Potential Opening Prices would satisfy the 
maximum quantity criterion: (A) without leaving unexecuted contracts 
on the bid or offer side of the market of Complex Orders to be 
traded at those prices, the System takes the highest and lowest of 
those prices and takes the mid-point; provided that (1) if the 
highest and/or lowest price described above is through the price of 
a bid or offer that is priced to not allocate in the Complex Opening 
Price Determination, the highest and/or lowest price will be rounded 
to the price of such bid or offer that is priced to not allocate 
before taking the mid-point, and (2) if the midpoint is not 
expressed as a permitted minimum trading increment, it will be 
rounded down to the nearest permissible minimum trading increment; 
or (B) leaving unexecuted contracts on the bid (offer) side of the 
market of Complex Orders to be traded at those prices, the Potential 
Opening Price is the highest (lowest) executable bid (offer) price. 
Notwithstanding the foregoing: (C) if there are Market Complex 
Orders on the bid (offer) side of the market that would equal the 
full quantity of Complex Orders on offer (bid) side of the market, 
the limit price of the highest (lowest) priced Limit Complex Order 
is the Potential Opening Price; and (D) if there are only Market 
Complex Orders on both sides of the market, or if there are Market 
Complex Orders on the bid (offer) side of the market for greater 
than the total

[[Page 58580]]

size of Complex Orders on the offer (bid) side of the market, there 
will be no trade in the Complex Opening Price Determination and the 
complex strategy will open pursuant to the Complex Uncrossing 
---------------------------------------------------------------------------
Process described in Supplementary Material .06(b) to this Rule.

    At this time, the Exchange proposes to amend the System handling 
within the Complex Opening Process by replacing Supplementary Material 
.05(d)(3) of MRX Options 3, Section 14 with the following proposed rule 
text,

    Opening Price Determination. When interest crosses and does not 
match in size, the System will calculate the Potential Opening Price 
based on the highest (lowest) executable offer (bid) price when the 
larger sized interest is offering (bidding), provided, however, that 
if there is more than one price at which the interest may execute, 
the Potential Opening Price when the larger sized interest is 
offering (bidding) shall be the mid-point of the highest (lowest) 
executable offer (bid) price and the next available executable offer 
(bid) price rounded, if necessary, down (up) to the closest minimum 
trading increment; or
    When interest crosses and is equal in size, the System will 
calculate the Potential Opening Price based on the mid-point of 
lowest executable bid price and the highest executable offer price, 
rounded, if necessary, up to the closest minimum trading increment.
    (A) Executable bids/offers include any interest which could be 
executed at the Potential Opening Price without trading through 
residual interest or the Boundary Price or without trading at the 
Boundary Price where there is Priority Customer interest at the best 
bid or offer for any leg, consistent with paragraph Options 3, 
Section 14(c)(2).
    (B) Executable bids/offers will be bounded by the Boundary Price 
on the contra-side of the interest, for determination of the 
Potential Opening Price described above.

    This proposed new Complex Opening Process seeks to maximize the 
interest which is traded during the Complex Opening Price Determination 
process and deliver a rational price for the available interest at the 
opening. The Complex Opening Price Determination process maximizes the 
number of contracts executed during the Complex Opening Process and 
ensures that residual contracts of partially executed orders or quotes 
are at a price equal to or inferior to the Opening Price. In other 
words, the logic ensures there is no remaining unexecuted interest 
available at a price which crosses the Opening Price. If multiple 
prices exist that ensure that there is no remaining unexecuted interest 
available through such price(s), the opening logic selects the mid-
point of such price points. Below are some examples.

    Example #3 (More Than One Potential Opening Price--Mid-Point of 
Larger-Sized Interest)
    ``if there is more than one price at which the interest may 
execute, the Potential Opening Price when the larger sized interest 
is offering (bidding) is the mid-point of the highest (lowest) 
executable offer (bid) price and the next available executable offer 
(bid) price rounded, if necessary, down (up) to the closest minimum 
trading increment''

Assume
Complex Order Strategy: A+B strategy
Quote for Leg A @ 1.75 x 1.95
Quote for Leg B @ 1.75 x 1.95
Boundary Price = 3.50 (10)-3.90 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 1.95 + Leg B Offer 1.95 = 3.90)
Complex Order #1: Buy 20 for $3.79
Complex Order #2: Buy 20 at $3.73
Complex Order #3: Sell 20 at $3.60

    With the proposed amendment, Opening Price would be for 20 
strategies at a price of $3.76. The execution price of $3.76 is 
derived from the mid-point of the lowest executable bid price of 
$3.73 and the next available executable bid price of $3.79. In this 
example, 20 strategies can be opened at multiple price points 
ranging from $3.73 up to $3.79. None of these Potential Opening 
Prices would cause the unexecuted $3.73 buy order to be available at 
a price which crosses the Opening Price, therefore, the System opens 
at the mid-point of such prices, $3.76.
    Today, with this same example, the Opening Price would be 3.79, 
the highest executable bid price, which provides the offer side with 
all price improvement. With the proposed amendment, the Opening 
Price seeks to distribute to the extent possible price improvement 
to both the bid and offer side of the transaction.
    Example #4 (Mid-Point When Interest is Equal In Size)
    ``Provided such crossing interest is equal in size, the System 
will calculate the Potential Opening Price based on the mid-point of 
lowest executable bid price and the highest executable offer price, 
rounded, if necessary, up to the closest minimum trading increment''

Complex Order Strategy: A+B strategy
Quote for Leg A @ 1.75 x 1.95 each
Quote for Leg B @ 1.75 x 1.95 each
Boundary Price = 3.50 (10)-3.90 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 1.95 + Leg B Offer 1.95 = 3.90)
Complex Order #1: Buy 10 for $3.78
Complex Order #2: Buy 20 for $3.74
Complex Order #3: Buy 10 at $3.71
Complex Order #4: Sell 20 at $3.64
Complex Order #5: Sell 20 at $3.66

    With the proposed amendment, the Opening Price will be for 40 
strategies at a price of $3.69. The execution price of $3.69 is 
derived from the mid-point of the lowest executable bid price of 
$3.71 and the highest executable offer price of $3.66, rounded up to 
the closest minimum trading increment. Today, rounding would be down 
and with this proposal the rounding would be up.
    If the example were changed slightly such that Complex Order #4 
and Complex Order #5 were Market Complex Orders rather than Limit 
Orders, the Opening Price for the 40 strategies would be $3.61, 
which is derived from the mid-point of the lowest executable bid 
price of $3.71 and the highest executable offer of $3.50 (which is 
the Boundary Price of the sell Market Complex Orders), rounded up to 
the closest minimum trading increment.

    The Exchange notes that executable bids/offers include any interest 
that could be executed at the net price without trading through 
residual interest or the Boundary Price, or without trading at the 
Boundary Price where there is Priority Customer interest at the best 
bid or offer for any leg, consistent with current MRX Options 3, 
Section 14(c)(2).\56\ Further, executable bids/offers would be bounded 
to the Boundary Price on the contra-side of the interest, for 
determination of the Opening Price described above when crossing 
interest is different in size and when crossing interest is equal in 
size.
---------------------------------------------------------------------------

    \56\ MRX Options 3, Section 14(c)(2) provides, ``Complex 
strategies will not be executed at prices inferior to the best net 
price achievable from the best ISE bids and offers for the 
individual legs. Notwithstanding the provisions of Options 3, 
Section 10: (i) a Complex Options Strategies may be executed at a 
total credit or debit price with one other Member without giving 
priority to bids or offers established on the Exchange that are no 
better than the bids or offers in the individual options series 
comprising such total credit or debit; provided, however, that if 
any of the bids or offers established on the Exchange consist of a 
Priority Customer Order, the price of at least one leg of the 
complex strategy must trade at a price that is better than the 
corresponding bid or offer on the Exchange by at least one minimum 
trading increment for the series as defined in Options 3, Section 3; 
(ii) the option leg of a Stock-Option Strategy has priority over 
bids and offers for the individual options series established on the 
Exchange by Professional Orders and market maker quotes that are no 
better than the price of the options leg, but not over such bids and 
offers established by Priority Customer Orders; and (iii) the 
options legs of a Stock-Complex Strategy are executed in accordance 
with subparagraph (c)(2)(i).
---------------------------------------------------------------------------

    The amendment will benefit Members by smoothing the way for the 
complex strategy to open with Market Complex Orders. Today, Market 
Complex Orders participate in the Complex Opening Process in a limited 
capacity as explained above. By permitting Market Complex Orders to 
participate in the Complex Opening Price Determination process in more 
situations, the Exchange can provide more opportunity for Complex 
Orders to trade in the Opening Process without having to go to the 
Uncrossing process. Market conditions can change between the Complex 
Opening Price Determination process and the Uncrossing process, which 
can lead to missed opportunities for execution. The proposed rule would 
have the Boundary Price assign limits to the Opening Price and 
therefore permit Market Complex Orders to participate in the Complex 
Opening Process to the extent that they are within the Boundary Prices. 
With this change, MRX would permit a complex strategy to calculate

[[Page 58581]]

an Opening Price utilizing a greater number of Market Complex Orders, 
which benefits the Opening Process by taking into account these more 
aggressively priced orders \57\ while also bringing more liquidity into 
the Opening Price calculation.
---------------------------------------------------------------------------

    \57\ The allowance of a greater number of Market Complex Orders 
within the Opening Process provides a greater depth of price 
discovery for an options series. As noted above, the Boundary Price 
would assign limits to the Opening Price, therefore preventing 
Market Complex Orders which are aggressively priced from negatively 
impacting the Opening Price.

    Example #5 (Market Complex Orders trading in Opening Price 
Determination)
    ``Provided interest crosses and does not match in size, the 
System will calculate the Potential Opening Price based on the 
highest (lowest) executable offer (bid) price when the larger sized 
interest is offering (bidding)''
    As referenced above,

Assume
Complex Order Strategy: A+B strategy
Quote for Leg A @ 1.75 x 2.00
Quote for Leg B @ 1.75 x 2.00
Boundary Price = 3.50 (10)--4.00 (10)
(Leg A Bid 1.75 + Leg B Bid 1.75 = 3.50)
(Leg A Offer 2.00 + Leg B Offer 2.00 = 4.00)
Market Complex Order #1: Buy 30
Complex Order #2: Sell 20 at $3.95
After Complex Opening Price Determination process, but before 
Uncrossing
ABBO for Leg A updates: 1.85 x 1.90
ABBO for Leg B updates 1.85 x 1.90
cNBBO: 3.70 x 3.80
(ABBO Leg A Bid 1.85 + Leg B Bid 1.85 = 3.70)
(ABBO Leg A Offer 1.90 + Leg B Offer 1.90 = 3.80)

    With the proposed amendment the Market Complex Order can be 
considered in the Complex Opening Price Determination process and 
therefore is able to trade at the Opening Price of $4.00 for 20 
strategies with Complex Order #2 and also able to trade 10 
strategies at a net price $4.00 with the individual legs at the best 
bids and offers before the ABBO updates, leaving no place for this 
complex strategy to trade. The Opening Price in this example is 
determined as the lowest executable bid because the bid side is the 
larger sized interest, which is limited by the Boundary Price on the 
offer side at 4.00.
    Today, Market Complex Orders with a larger quantity than the 
quantity of interest on the contra side of the market do not 
participate in the Complex Opening Price Determination and can only 
execute during the Uncrossing pursuant to Supplementary Material 
.05(d)(6) of MRX Options 3, Section 14. In the example above, the 
ABBO of each leg updates after the Complex Opening Price 
Determination process and restricts the Market Complex Order and 
Complex Limit Order from trading in the Uncrossing because they 
cannot match at a price that would be within the Price Limits for 
Complex Orders pursuant to MRX Options 3, Section 16(a).

    Finally, with this proposal and as demonstrated in Example 5 above, 
a complex strategy would open pursuant to Supplementary Material 
.05(d)(5) of MRX Options 3, Section 14, with less contracts becoming 
subject to the Uncrossing pursuant to Supplementary Material .05(d)(6) 
of MRX Options 3, Section 14. As a result of this change, more interest 
would be able to trade within the Opening Process, ensuring a greater 
number of contracts are executed on MRX at the Complex Opening and 
lessening the likelihood that contracts which remain unmatched during 
the Complex Opening Price Determination process receive no execution in 
the Uncrossing due to changing market conditions.\58\
---------------------------------------------------------------------------

    \58\ Unmatched orders would rest on the Order Book with the 
potential to execute intra-day.
---------------------------------------------------------------------------

    Phlx has a similar methodology to arrive at a complex opening price 
at Phlx Options 3, Section 14(d)(ii)(C)(2) \59\ as compared to proposed 
Supplementary Material .05(d)(3) of MRX Options 3, Section 14. Phlx's 
COOP Evaluation and MRX's proposed Opening Price Determination both 
seek the price at which the maximum number of contracts can trade. 
Phlx's COOP Evaluation is an auction with a timer, unlike MRX's Opening 
Price Determination.\60\ Proposed Supplementary Material .05(d)(3)(A) 
and (B) of MRX Options 3, Section 14 differs from Phlx Options 3, 
Section 14(d)(ii)(C)(2). MRX will open a complex strategy with the 
Complex Order Book crossed if an Opening Price cannot be found within 
the Boundary Prices and remain crossed while attempting to uncross the 
Complex Order Book on a best effort basis, pursuant to Supplementary 
Material .06 of MRX Options 3, Section 14, until all interest can be 
executed. Today, Phlx will open a complex strategy crossed when a price 
cannot be found within Phlx's cPBBO during the COOP Evaluation period 
and there are more aggressive away market prices that are limiting the 
ability to leg into the single-leg book, but will not remain crossed as 
complex orders that are through Phlx's cPBBO would be cancelled 
pursuant to Phlx Options 3, Section 14(f)(i)(A).\61\
---------------------------------------------------------------------------

    \59\ COOP Evaluation. Upon expiration of the COOP Timer, the 
System will conduct a COOP Evaluation to determine, for a Complex 
Order Strategy, the price at which the maximum number of contracts 
can trade, taking into account Complex Orders marked All-or-None 
(which will be executed if possible) unless the maximum number of 
contracts can only trade without including All-or-None Orders. The 
Exchange will open the Complex Order Strategy at that price, 
executing marketable trading interest, in the following order: 
first, to Public Customers in time priority; next to Phlx electronic 
market makers on a pro rata basis; and then to all other 
participants on a pro rata basis. The imbalance of Complex Orders 
that are unexecutable at that price are placed on the CBOOK. (1) No 
trade possible. If at the end of the COOP Timer the System 
determines that no market or marketable limit Complex Orders or COOP 
Sweeps, Complex Orders or COOP Sweeps that are equal to or improve 
the cPBBO, and/or Complex Orders or COOP Sweeps that cross within 
the cPBBO exist in the System, all Complex Orders received during 
the COOP Timer will be placed on the CBOOK, as described in 
paragraph (f) below. (2) Trade is possible. If at the end of the 
COOP Timer the System determines that there are market or marketable 
limit Complex Orders or COOP Sweeps, Complex Orders or COOP Sweeps 
that are equal to or improve the cPBBO, and/or Complex Orders or 
COOP Sweeps that cross within the cPBBO in the System, the System 
will do the following: if such interest crosses and does not match 
in size, the execution price is based on the highest (lowest) 
executable offer (bid) price when the larger sized interest is 
offering (bidding), provided, however, that if there is more than 
one price at which the interest may execute, the execution price 
when the larger sized interest is offering (bidding) is the midpoint 
of the highest (lowest) executable offer (bid) price and the next 
available executable offer (bid) price rounded, if necessary, down 
(up) to the closest minimum trading increment. If the crossing 
interest is equal in size, the execution price is the midpoint of 
lowest executable bid price and the highest executable offer price, 
rounded, if necessary, up to the closest minimum trading increment. 
Executable bids/offers include any interest which could be executed 
at the net price without trading through residual interest or the 
cPBBO or without trading at the cPBBO where there is Public Customer 
interest at the best bid or offer for any leg, consistent with 
paragraph (c)(iii). If there is any remaining interest and there is 
no component that consists of the underlying security and provided 
that the order is not marked all-or-none, such interest may ``leg'' 
whereby each options component may trade at the PBBO with existing 
quotes and/or Limit Orders on the Limit Order book for the 
individual components of the Complex Order; provided that remaining 
interest may execute against any eligible Complex Orders received 
before legging occurs. If the remaining interest has a component 
that consists of the underlying security, such Complex Order will be 
placed on the CBOOK (as defined below). (3) The Complex Order 
Strategy will be open after the COOP even if no executions occur.
    \60\ Phlx's All-or-None order type differs from MRX's All-or-
None order in that only Public Customers may utilize the Phlx All-
or-None order type and Phlx's All-or-None order may rest on the 
order book. See Phlx Option 3, Section 7(b)(5). MRX's All-or-None 
order is a limit or market order that is to be executed in its 
entirety or not at all. See MRX Options 3, Section 7(c).
    \61\ By way of example, assume Phlx cPBBO is 1.00 x 2.00 and 
cNBBO is 1.45 x 1.50. Also, assume Phlx complex Day Order to buy the 
strategy @$0.50 which begins a COOP timer. Next, a complex day order 
to sell the strategy @$0.50 arrives during the COOP timer. These 
orders are crossed, but are not within Phlx's cPBBO, and, therefore, 
both orders cannot trade as part of the COOP Evaluation. 
Additionally, the sell order cannot leg into Phlx's simple order 
book because of the more aggressive cNBBO which would limit legging 
as part of the ACE price protection described within Phlx Options 3, 
Section 16(b)(i), and, therefore, the sell order that is crossed 
with Phlx's cPBBO cannot remain on the Complex Order Book and is 
ultimately cancelled. In contrast, on MRX, this sell order would 
remain crossed on the Complex Order Book while continuously looking 
for an opportunity to uncross and trade these Complex Orders as new 
orders arrive or the market moves. Options 3, Section 14 (f)(i)(A) 
provides that Complex Orders must be entered onto the CBOOK in 
increments of $0.01. The individual components of a Complex Order 
may be executed in minimum increments of $0.01, regardless of the 
minimum increments applicable to such components. Such orders will 
be placed on the CBOOK by the System when the following conditions 
exist: (A) When the Complex Order does not price-improve upon the 
cPBBO upon receipt. . .''.

---------------------------------------------------------------------------

[[Page 58582]]

    The Exchange also proposes to amend the Opening Price in 
Supplementary Material .05(d)(4) of MRX Options 3, Section 14 that 
---------------------------------------------------------------------------
currently provides,

    Opening Price. If the Potential Opening Price is at or within 
the Boundary Prices, the Potential Opening Price becomes the Opening 
Price. If the Potential Opening Price is not at or within the 
Boundary Prices, the Opening Price will be the price closest to the 
Potential Opening Price that satisfies the maximum quantity criteria 
without leaving unexecuted contracts on the bid or offer side of the 
market at that price and is at or within the Boundary Prices. If the 
bid Boundary Price is higher than the offer Boundary Price, or if no 
valid Opening Price can be found at or within the Boundary Prices, 
there will be no trade in the Complex Opening Price Determination 
and the complex strategy will open pursuant to the Complex 
Uncrossing Process described in Supplementary Material .06(b) to 
this Rule.

    The Exchange proposes to amend this rule to instead provide,

    If the Potential Opening Price is at or within the Boundary 
Prices, the Potential Opening Price becomes the Opening Price and 
the complex strategy will open pursuant to Supplementary Material 
.05(d)(5) to this Rule. If the bid Boundary Price is higher than the 
offer Boundary Price, or if no valid Potential Opening Price can be 
found at or within the Boundary Prices, there will be no trade in 
the Complex Opening Price Determination and the complex strategy 
will open pursuant to the Complex Uncrossing Process described in 
Supplementary Material .06(b) to this Rule.

    With the proposed change, if the Potential Opening Price is at or 
within the Boundary Prices, the Potential Opening Price becomes the 
Opening Price and the complex strategy will open pursuant to the 
Uncrossing described in Supplementary Material .05(d)(5) of MRX Options 
3, Section 14, as is the case today. However, as is the case today, if 
the bid Boundary Price is higher than the offer Boundary Price, or if 
no valid Potential Opening Price can be found at or within the Boundary 
Prices, there will be no trade in the Complex Opening Price 
Determination and the complex strategy will open pursuant to the 
Complex Uncrossing process described in Supplementary Material .06(b) 
of MRX Options 3, Section 14 pursuant to the proposed amendment to the 
Complex Opening Price Determination.
Complex Order Risk Protections
    The Exchange proposes a non-substantive amendment to the title of a 
Complex Order Risk Protection in MRX Options 3, Section 16, Complex 
Order Risk Protections. Specifically, the Exchange proposes to amend 
MRX Options 3, Section 16(c)(1) to change the title from ``Limit Order 
Price Protection'' to ``Complex Order Price Protection.'' The Exchange 
believes the proposed title more accurately describes the risk 
protection. The Exchange also proposes a non-substantive amendment to 
correct an incorrect citation in MRX Options 3, Section 16(b) to 
``Options 2, Section 11.'' The correct citation is ``Options 3, Section 
11.'' Correcting this citation will make clear what was section was 
being referenced.
Implementation
    The Exchange intends to begin implementation of the proposed rule 
change prior to December 23, 2022. The implementation would commence 
with a limited symbol migration and continue to migrate symbols over 
several weeks. The Exchange will issue an Options Trader Alert to 
Members to provide notification of the symbols that will migrate and 
the relevant dates.

2. Statutory Basis

    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\62\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\63\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest for the reasons discussed below.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78f(b).
    \63\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Legging Order
    Amending MRX Options 3, Section 7(k)(1) to add a provision which 
states that a Legging Order will not be generated during a Posting 
Period in progress on the same side in the series pursuant to Options 
3, Section 15 regarding Acceptable Trade Range, is consistent with the 
Act because from a System processing and user acceptance standpoint, 
the best practice is to wait for the ATR Posting Period to complete 
before attempting to generate a Legging Order on the same side in the 
series, as the time required to complete the ATR Posting Period is 
minimal. The proposed change is designed to protect investors and the 
public interest as automatically generated Legging Orders would be 
removed from the single-leg order book when they are no longer at the 
Exchange's displayed best bid or offer. Generating a Legging Order 
during a Posting Period in progress on the same side in the series 
would lead to the immediate removal of the Legging Order from the 
single-leg order book, making it superfluous to have been generated. 
Phlx's legging order rule in Options 3, Section 14(f)(iii)(C)(2) \64\ 
has the same restriction on generating legging orders as proposed 
herein.
---------------------------------------------------------------------------

    \64\ See note 8 above. [sic]
---------------------------------------------------------------------------

Re-Pricing
    The Exchange believes that amending Options 3, Section 12(c) and 
(d) and Options 3, Section 14(b)(19) to account for re-pricing of 
quotes and orders that would otherwise lock or cross an away market, as 
provided in Options 3, Section 4(b)(6) and (7) and Options 3, Section 
5(c) and (d) of SR-MRX-2022-16, is consistent with the Act.
    As discussed above with the implementation of re-pricing as 
provided in Options 3, Section 4(b)(6) and (7) and Options 3, Section 
5(c) and (d), interest could be available on the Exchange at a price 
that is better than the NBBO but is non-displayed (i.e. the Exchange's 
non-displayed order book or internal BBO). The proposed addition of 
``internal BBO'' to Options 3, Section 12(c) and (d) will ensure that 
Members continue to submit Qualified Contingent Cross Orders and 
Complex Qualified Contingent Cross Orders at prices equal to or better 
than the best prices available in the market and ensure that these 
orders are not executed ahead of better-priced interest. By including 
``internal BBO'' the Exchange ensures that such Qualified Contingent 
Cross Orders and Complex Qualified Contingent Cross Orders will 
continue to be executed at the best price and would not be executed 
ahead of better-priced interest.
    Further, with respect to the amendment to Options 3, Section 
14(b)(19), regarding Complex Preferenced Orders, the addition of 
``internal BBO'' is designed to ensure that Complex Preferenced Orders 
are not allocated unless the Preferred Market Maker is quoting at the 
better of the internal BBO (which could be better than the NBBO) or the 
NBBO for a component leg(s) of the Complex Preferenced Order at the 
time the Complex Preferenced Order is received.
Changes to the Single-Leg Price Improvement Mechanism for Crossing 
Transactions
    The Exchange's proposal to amend MRX Options 3, Section 13(d)(4), 
related to single-leg PIM, to not permit unrelated marketable interest, 
on the opposite side of the market from the Agency Order, which is 
received during a single-leg PIM to early terminate a single-leg PIM is 
consistent with the Act

[[Page 58583]]

and promotes just and equitable principles because allowing the auction 
to run its full course would provide a full opportunity for price 
improvement to the Crossing Transaction. The unrelated interest would 
participate in the single-leg PIM allocation pursuant to MRX Options 3, 
Section 13(d), if residual contracts remain after executing with 
interest on the single-leg order book. Today, Phlx \65\ and BX \66\ do 
not permit unrelated interest on the same or opposite side of an Agency 
Order to early terminate their simple price improvement auctions.
---------------------------------------------------------------------------

    \65\ See note 14 above. [sic]
    \66\ See note 15 above. [sic]
---------------------------------------------------------------------------

    The proposed amendment in MRX Options 3, Section 13(c)(5)(ii), 
related to single-leg PIM, applies to the receipt of marketable orders 
both on the same side and opposite side of the Agency order. With 
respect to the same side of the Agency Order, today, an unrelated 
market or marketable limit order in the same series on the same side of 
the Agency Order would cause the single-leg PIM to early terminate as 
well. The proposal promotes just and equitable principles of trade 
because a market or marketable limit order in the same series on the 
same side of the Agency Order cannot interact with a single-leg PIM 
auction. The market or marketable limit order may interact with the 
order book, and if there are residual contracts that remain from the 
market or marketable order in the same series on the same side of the 
Agency Order, they will rest on the order book and improve the BBO 
beyond the price of the Crossing Transaction which will cause early 
termination of the single-leg PIM pursuant to proposed MRX Options 3, 
Section 13(c)(5)(ii). The Exchange believes that this outcome would 
allow for the single-leg PIM exposure period to continue for the full 
period despite the receipt of unrelated marketable interest on the same 
side of the market from the Agency Order, provided residual interest 
does not go on to rest on the order book improving the BBO beyond the 
price of the Crossing Transaction of the PIM. Allowing the single-leg 
PIM to run its full course protects investors and the general public 
because it would provide an opportunity for price improvement to the 
Agency Order.
    Amending current MRX Options 3, Section 13(c)(5)(iii) to align the 
rule text more closely with BX Options 3, Section 13(ii)(B)(2) \67\ is 
consistent with the Act because it removes any ambiguity that a market 
or marketable limit order priced more aggressively than the Agency 
Order on the same side could ultimately rest on the order book, 
improving the BBO beyond the price of the Crossing Transaction of the 
PIM and, therefore, cause the early termination of a single-leg PIM. 
Continuing to permit a single-leg PIM to early terminate any time the 
Exchange best bid or offer improves beyond the price of the Crossing 
Transaction on the same side of the market as the Agency Order protects 
investors and the general public because the Crossing Transaction 
Agency Order's price is inferior to the Exchange's best bid or offer on 
the same side of the market as the Agency Order. Upon early termination 
of the single-leg PIM, the Crossing Transaction would execute against 
responses that arrived prior to the time the Exchange's best bid or 
offer improved beyond the Crossing Transaction. The proposed amendment 
to the rule text is not intended to amend the current System 
functionality, rather it is intended to make clear that a market or 
marketable limit order could ultimately rest on the order book and 
improve the BBO beyond the price of the Crossing Transaction.
---------------------------------------------------------------------------

    \67\ See note 17 above. [sic]
---------------------------------------------------------------------------

    Adding proposed new MRX Options 3, Section 13(c)(5)(iii), which 
describes the automatic termination of the exposure period resulting 
from a trading halt on the Exchange in the affected series, is 
consistent with the Act because a trading halt would cause an option 
series to stop trading on MRX and thereby impact the PIM auction. 
Today, if a trading halt is initiated after an order is entered into 
the single-leg PIM, such auction will be automatically terminated 
without execution. Of note, the Exchange is separately proposing to 
amend MRX Options 3, Section 13(d)(5) \68\ to change System behavior 
such that if a trading halt is initiated after an order is entered into 
the single-leg PIM, such auction will be automatically terminated with 
execution solely with the Counter-Side Order.\69\ The proposed 
amendment to MRX Options 3, Section 13(c)(5)(iii) protects investors 
and the general public by making clear that a trading halt would lead 
to early termination of a single-leg PIM. This amendment is not 
intended to amend the current System functionality, rather it is 
intended to make clear that a trading halt will cause the single-leg 
PIM to early terminate.
---------------------------------------------------------------------------

    \68\ See note 18 above. [sic]
    \69\ SR-MRX-2022-5P [sic] proposes to renumber MRX Options 3, 
Section 13(d)(5) as Options 3, Section 13(d)(6), and proposes to 
amend the rule text to state, ``If a trading halt is initiated after 
an order is entered into the Price Improvement Mechanism, such 
auction will be automatically terminated with execution solely with 
the Counter-Side Order.''
---------------------------------------------------------------------------

Changes to the Complex PIM
    Deleting MRX Options 3, Section 13(e)(4)(vi) within Complex PIM, as 
well as a paragraph in Supplementary Material .01(b)(ii) of MRX Options 
3, Section 14 discussing Complex Order Exposure, related to the early 
termination of single-leg PIM from the arrival of unrelated marketable 
interest on either the same or opposite side of the market from the 
Agency Order, is consistent with the Act because a single-leg PIM will 
no longer early terminate from the arrival of unrelated marketable 
interest on either the same or opposite side of the market from the 
Agency Order and because the flash functionality will no longer 
exist.\70\ The removal of the aforementioned rule text will protect 
investors and the public by avoiding confusion as the scenarios 
contemplated by MRX Options 3, Section 13(e)(4)(vi) and Supplementary 
Material .01(b)(ii) of MRX Options 3, Section 14 will no longer be able 
to occur.
---------------------------------------------------------------------------

    \70\ See note 24 above. [sic]
---------------------------------------------------------------------------

Delayed Functionality
    The Exchange's proposal to delay the implementation of certain 
stock-tied functionality in connection with the technology migration is 
consistent with the Act as it will allow the Exchange additional time 
to code, test and implement this functionality on the enhanced 
platform. The Delayed Functionalities will not be available for symbols 
that migrated to the platform and thereafter, until such time as the 
Exchange recommenced their availability by announcing a date in an 
Options Trader Alert, which date would be prior to one year from the 
start of the migration of the symbols to the platform. The Exchange is 
staging the migration to provide maximum benefit to its Members while 
also ensuring a successful rollout. As noted above, the Exchange is 
contemplating amendments to its stock-tied functionality and desires 
additional time to draft and code those changes before reintroducing 
stock-tied on MRX.\71\ While no Member will be able to utilize the 
Delayed Functionalities on MRX to accomplish an options transaction 
with stock until they are reactivated on MRX, the Exchange notes that 
today, ISE offers the Delayed Functionalities and the ability to 
transact options with stock would be

[[Page 58584]]

available on ISE for Members, as is the case today.
---------------------------------------------------------------------------

    \71\ MRX would also need time to submit any related rule filings 
with the Commission prior to reintroducing this functionality.
---------------------------------------------------------------------------

Other Complex Order Amendments
Opening Only Complex Order
    The Exchange's proposal to remove the word ``Limit'' within the 
description of the Opening Only Complex Order Type in MRX Options 3, 
Section 14(b)(10) is consistent with the Act because it allows Opening 
Only Complex Orders to be submitted as Market Orders or Limit Orders. 
The Exchange believes that allowing Market and Limit Orders to be 
submitted within the Complex Opening Process promotes just and 
equitable principles of trade. Market Orders are typically the most 
aggressively priced orders while Limit Orders have a limit price 
contingency that Market Orders do not have. Allowing both of these 
order types to participate in the Complex Opening Process protects 
investors and the general public because it allows greater liquidity to 
be present to determine the Opening Price. All Members may enter both 
Market Orders and Limit Orders in the Complex Opening Process as well 
as intra-day. This proposal is consistent with current System 
operations.
Complex QCC With Stock Orders
    The Exchange's proposal to amend an incorrect citation with MRX 
Options 3, Section 14(b)(15), related to Complex QCC with Stock Orders, 
is consistent with the Act because the current citation to MRX Options 
3, Section 12(e) in the description of this order type should be to MRX 
Options 3, Section 12(f). This non-substantive amendment will make 
clear what was meant by the reference.
Complex Preferenced Orders
    The Exchange's proposal to add ``Complex Preferenced Orders'' to 
the list of Complex Order Types in MRX Options 3, Section 14(b) is 
consistent with the Act because the Exchange believes that this order 
type will promote just and equitable principles of trade because the 
order type will continue to encourage Preferred Market Makers to quote 
aggressively in an effort to execute against the Complex Preferenced 
Order. Preferred Marker Makers are not able to ascertain if a 
particular order is a Complex Preferenced Order. The Exchange believes 
the proposal will protect investors and the general public by 
encouraging greater order flow to be sent to the Exchange through 
Complex Preferenced Orders and that this increased order flow will 
benefit all market participants on the Exchange because they may 
interact with that order flow.
    The proposal promotes just and equitable principles of trade 
because it continues to prioritize Priority Customer \72\ Orders on the 
single-leg order book. Priority Customers have priority over non-
Priority Customer interest at the same price in the same options series 
on the single-leg order book.\73\ Complex Preferenced Orders are 
allocated based on the competitive bidding of market participants. The 
Exchange's proposal promotes just and equitable principles of trade as 
a Preferred Marker Maker must be at the NBBO for a component leg(s) of 
the Complex Preferenced Order at the time the Complex Preferenced Order 
is received. Moreover, participation entitlements for Preferred Market 
Makers are designed to balance the obligations \74\ that the Preferred 
Market Maker has to the market with corresponding benefits. In its 
approval of other options exchange preferenced or directed order 
programs, the Commission has, like proposals to amend a specialist 
guarantee, focused on whether the percentage of the ``entitlement'' 
would rise to a level that could have a material adverse impact on 
quote competition within a particular exchange, and concluded that such 
programs do not jeopardize market integrity or the incentive for market 
participants to post competitive quotes.\75\
---------------------------------------------------------------------------

    \72\ The term ``Priority Customer'' means a person or entity 
that (i) is not a broker or dealer in securities, and (ii) does not 
place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s). See 
Options 1, Section 1(a)(36).
    \73\ See MRX Options 3, Section 10(c)(1)(A).
    \74\ Primary Market Makers are obligated to quote in the Opening 
Process pursuant to MRX Options 3, Section 8(c) as well as intra-day 
pursuant to Options 2, Section 5(e), in addition to other 
obligations noted within MRX Options 2, Sections 4-8.
    \75\ See Securities Exchange Act Release Nos. 74129 (January 23, 
2015), 80 FR 4954 at 4955 (January 29, 2015) (SR-BX-2014-049) (Order 
Approving Proposed Rule Change Relating to Directed Market Makers); 
and 51759 (May 27, 2005), 70 FR 32860 at 32861(June 6, 2005) (SR-
Phlx-2004-91) (Order Approving Proposed Rule Change and Notice of 
Filing and Order Granting Accelerated Approval to Amendment No. 1 
Thereto To Establish a Directed Order Process for Orders Delivered 
to the Phlx Via AUTOM).
---------------------------------------------------------------------------

    Further, adding this existing order type, which is described in MRX 
Options 2, Section 10, would complete the list of Complex Order types 
in MRX Options 3, Section 14(b). The addition of Complex Preferenced 
Orders to the list of order types in MRX Options 3, Section 14(b) will 
make clear to Members the availability of Complex Preferenced Orders. 
Both Phlx \76\ and MIAX \77\ have a similar order type.
---------------------------------------------------------------------------

    \76\ See note 46 above. [sic]
    \77\ See note 47 above. [sic]
---------------------------------------------------------------------------

Options 3, Section 14(c)(2) and MRX Supplementary Material .02 to 
Options 3, Section 14
    Correcting an incorrect reference to ``ISE'' with MRX Options 3, 
Section 14(c)(2), which should be to ``MRX,'' will add clarity to the 
rule; this amendment is non-substantive. The Exchange's proposal to 
make a technical correction in Supplementary Material .02 of MRX 
Options 3, Section 14 to amend the word ``which'' to ``whom'' is a non-
substantive amendment.
Complex Opening Price Determination
    The Exchange's proposal to amend the citation within Supplementary 
Material .05(d)(2) to Options 3, Section 14, related to the Potential 
Opening Price, is consistent with the Act because the current citation 
to Supplementary Material .06(b) should be to Supplementary Material 
.05(b). This non-substantive amendment will make clear what was meant 
by the reference.
    The Exchange's proposal to amend Supplementary Material .05(d)(3) 
of MRX Options 3, Section 14, which describes the Complex Opening Price 
Determination, is consistent with the Act because the proposed new 
Complex Opening Process would allow for additional contracts to be 
included in the Potential Opening Price calculation. This proposed 
methodology would protect investors and the general public by leading 
to better price discovery and more contracts executing as part of the 
Complex Opening Price Determination. With this proposal, when the 
interest does not match the size and there is more than one Potential 
Opening Price at which the interest may execute, then the Exchange 
would calculate a Potential Opening Price using the mid-point of the 
highest (lowest) executable offer (bid) price and the next available 
executable offer (bid) price rounded, if necessary, down (up) to the 
closest minimum trading increment. As a result, the proposal promotes 
just and equitable principles of trade as more options contracts are 
likely to be executed at better prices than under current rule. This 
behavior differs from MRX's current opening rule in that, today, the 
Exchange would calculate the Potential Opening Price as the highest 
(lowest) executable bid (offer) when there would be contracts left 
unexecuted on the bid (offer) side of the

[[Page 58585]]

complex market. The proposed methodology is similar to Phlx.\78\
---------------------------------------------------------------------------

    \78\ See Phlx Options 3, Section 14(d)(ii)(C)(2).
---------------------------------------------------------------------------

    Further, the proposed amendment promotes just and equitable 
principles of trade by allowing Market Complex Orders to participate in 
the Opening Price Determination process in a broader capacity than the 
MRX opening rule allows for today. Today, if there are only Market 
Complex Orders on both sides of the market, or if there are Market 
Complex Orders on the bid (offer) side of the market for greater than 
the total size of Complex Orders on the offer (bid) side of the market, 
then MRX will not trade in the Complex Opening Price Determination 
process and would instead open pursuant to an Uncrossing pursuant to 
Supplementary Material .06(b) of MRX Options 3, Section 14. The 
proposed rule would have the Boundary Price assign limits to the 
Opening Price and, therefore, permit Market Complex Orders to 
participate in the Complex Opening Process, without limitation to the 
benefit of investors and the public interest. With this change, MRX 
would permit a complex strategy to calculate an Opening Price utilizing 
a greater number of Market Complex Orders, which benefits the Opening 
Process by taking into account these more aggressively priced orders 
\79\ while also bringing more liquidity into the Opening Price 
calculation. The amendment is designed to promote just and equitable 
principles of trade as it will benefit Members by smoothing the way for 
the complex strategy to open with Market Complex Orders.
---------------------------------------------------------------------------

    \79\ The allowance of a greater number of Market Complex Orders 
within the Opening Process provides a greater depth of price 
discovery for an options series. As noted above, the Boundary Price 
would assign limits to the Opening Price, therefore preventing 
Market Complex Orders which are aggressively priced from negatively 
impacting the Opening Price.
---------------------------------------------------------------------------

    Finally, the proposed amendments to the Complex Opening Process 
should promote just and equitable principles by allowing a complex 
strategy to open pursuant to Supplementary Material .05(d)(4) of MRX 
Options 3, Section 14, with less contracts becoming subject to the 
Uncrossing pursuant to Supplementary Material .05(d)(5) of MRX Options 
3, Section 14. As a result of this change, more interest would be able 
to trade within the Opening Process, ensuring a greater number of 
contracts are executed on MRX at the opening and lessening the 
likelihood that contracts which remain unmatched during the Uncrossing 
receive no execution.\80\
---------------------------------------------------------------------------

    \80\ Unmatched orders would rest on the order book with the 
potential to execute intra-day.
---------------------------------------------------------------------------

Complex Order Risk Protections
    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.
Legging Orders
    Amending MRX Options 3, Section 7(k)(1) to add a provision which 
states that a Legging Order will not be generated during a Posting 
Period in progress on the same side in the series pursuant to Options 
3, Section 15 regarding Acceptable Trade Range does not impose an undue 
burden on intra-market competition because the amendment will apply 
equally to all Members as Legging Orders are generated by the System.
    Additionally, this proposal does not impose an undue burden on 
inter-market competition as other options exchanges may adopt Legging 
Orders and similar rules for the generation of such orders. Today, 
Phlx's legging order rule in Options 3, Section 14(f)(iii)(C)(2) has 
the same restriction as proposed to be added to MRX's Legging Order 
rule in MRX Options 3, Section 7(k)(1).\81\
---------------------------------------------------------------------------

    \81\ See note 8 above. [sic]
---------------------------------------------------------------------------

Re-Pricing
    Adding language consistent with re-pricing within Options 3, 
Section 12(c) and (d) and Options 3, Section 14(b)(19) does not impose 
an undue burden on competition, rather it will ensure that the rules 
conform to the concept of re-pricing at an internal BBO within Options 
3, Section 4(b)(6) and (7) and Options 5(c) and (d) which recently 
became effective.\82\ With this recent change, re-priced quotes and 
orders are accessible on the Exchange's order book at the non-displayed 
price. Amending Options 3, Section 12(c) and (d) to utilize the 
``internal BBO'' language would continue to require Members to submit 
Qualified Contingent Cross Orders and Complex Qualified Contingent 
Cross Orders at the best price to receive an execution. Furthermore, 
amending Options 3, Section 14(b)(19) to utilize the ``internal BBO'' 
language would continue to require Members to quote at the best price 
to receive allocation of a Complex Preferenced Order. The introduction 
of ``internal BBO'' will ensure that Qualified Contingent Cross Orders 
and Complex Qualified Contingent Cross Orders do not execute if better-
priced interest is available and that a Complex Preferenced Order would 
not receive a Preferred Market Maker allocation if better-priced 
interest was available.
---------------------------------------------------------------------------

    \82\ See SR-MRX-2022-16.
---------------------------------------------------------------------------

Changes to the Single-Leg Price Improvement Mechanism for Crossing 
Transactions
    The Exchange's proposal to amend MRX Options 3, Section 13(d)(4), 
MRX Options 3, Section 13(c)(5)(ii) and (iii), and add a proposed new 
MRX Options 3, Section 13(c)(5)(iii), related to single-leg PIM, does 
not impose an undue burden on intra-market competition because the 
amendment will apply equally to all Members. All Members may utilize 
PIM.
    The Exchange's proposal to amend MRX Options 3, Section 13(d)(4), 
MRX Options 3, Section 13(c)(5)(ii) and (iii), and add a proposed new 
MRX Options 3, Section 13(c)(5)(iii), related to single-leg PIM, does 
not impose an undue burden on inter-market competition because other 
options exchanges may adopt similar rules. Today, Phlx \83\ and BX \84\ 
do not permit unrelated marketable interest on either the same or 
opposite side of the market from an Agency Order to early terminate 
their simple price improvement auctions.
---------------------------------------------------------------------------

    \83\ See note 14 above. [sic]
    \84\ See note 15 above. [sic]
---------------------------------------------------------------------------

Changes to the Complex PIM
    Deleting MRX Options 3, Section 13(e)(4)(vi) within Complex PIM, as 
well as a related paragraph in Supplementary Material .01(b)(ii) of MRX 
Options 3, Section 14, which describes Complex Order Exposure, related 
to the early termination of single-leg PIM as a result of the arrival 
of unrelated marketable interest on either the same or the opposite 
side of the market from the Agency Order does not impose an undue 
burden on intra-market competition because the amendment will apply 
equally to all Members. All Members may utilize Complex PIM.
    Deleting MRX Options 3, Section 13(e)(4)(vi) within Complex PIM, as 
well as a related paragraph in Supplementary Material .01(b)(ii) of MRX 
Options 3, Section 14, which describes Complex Order Exposure, related 
to the early termination of single-leg PIM from the arrival of 
unrelated marketable interest on either the same or opposite side of 
the market from the Agency Order does not impose an undue burden on 
inter-market competition as other options exchanges may adopt similar 
rules. Today, Phlx \85\ and BX \86\ do not permit unrelated marketable 
interest on either the same

[[Page 58586]]

or opposite side of the market from an Agency Order to early terminate 
their simple price improvement auctions.
---------------------------------------------------------------------------

    \85\ See note 14 above. [sic]
    \86\ See note 15 above. [sic]
---------------------------------------------------------------------------

Delayed Functionality
    The Exchange's proposal to delay the implementation of certain 
stock-tied functionality in connection with the technology migration 
does not impose an undue burden on intra-market competition as no 
Member will be able to utilize the Delayed Functionalities. 
Furthermore, ISE offers the Delayed Functionalities today.
    The Exchange's proposal to delay the implementation of certain 
stock-tied functionality in connection with the technology migration 
does not impose an undue burden on inter-market competition because the 
Exchange does not believe that the proposed rule change will impact the 
intense competition that exists in the options market. Today, ISE 
offers the Delayed Functionalities.
Other Complex Order Amendments
    The Exchange does not believe that the proposed amendments to the 
Complex Orders rule will impose any significant burden on inter-market 
competition. Other exchanges today offer complex order functionalities. 
These options markets may amend their rules to mirror those of MRX. 
Other options exchanges offer orders similar to Complex Preferenced 
Orders.\87\ Additionally, the proposed Complex Opening Process is 
similar to Phlx.\88\ Finally, the proposed Complex Opening Process 
methodology would allow MRX to compete with other options exchanges 
that offer Complex Order functionality.
---------------------------------------------------------------------------

    \87\ See e.g. Phlx Options 2, Section 10 and MIAX Rule 100.
    \88\ See Phlx Options 3, Section 14(d)(ii)(C)(2).
---------------------------------------------------------------------------

Opening Only Complex Order
    The Exchange's proposal to remove the word ``Limit'' within the 
description of the Opening Only Complex Order Type in MRX Options 3, 
Section 14(b)(10) does not impose an undue burden on intra-market 
competition because this proposed change will apply to all Members.
Complex QCC With Stock Orders
    The Exchange's proposal to amend an incorrect citation with MRX 
Options 3, Section 14(b)(15), related to Complex QCC with Stock Orders, 
does not impose an undue burden on intra-market competition because the 
amendment is non-substantive.
Complex Preferenced Orders
    The Exchange's proposal to add ``Complex Preferenced Orders'' to 
the list of Complex Order Types in MRX Options 3, Section 14(b) does 
not impose an undue burden on intra-market competition. Preferred 
Market Makers have obligations \89\ unlike other market participants. 
The allocation entitlements for Preferred Market Makers are designed to 
balance the obligations that the Preferred Market Makers has to the 
market with corresponding benefits. In order to receive the 
participation entitlement for a Complex Preferenced Order, Preferred 
Market Makers are required to quote 90% of the trading day as compared 
to Market Makers who are required to quote 60% of the trading day.\90\ 
Further, Priority Customers \91\ have priority over non-Priority 
Customer interest at the same price in the same options series on the 
single-leg order book.\92\
---------------------------------------------------------------------------

    \89\ See MRX Options 2, Section 5.
    \90\ See MRX Options 2, Section 5.
    \91\ See note 68 above. [sic]
    \92\ See MRX Options 3, Section 10(c)(1)(A).
---------------------------------------------------------------------------

    At the time of receipt of the Complex Preferenced Order, a 
Preferred Market Maker would have to be quoting at the NBBO, which is 
intended to incentivize the Preferred Market Maker to quote 
aggressively in order to execute against the Complex Preferenced Order. 
Preferred Marker Makers are not able to ascertain if a particular order 
is a Complex Preferenced Order. The Exchange believes the proposal will 
encourage Market Makers to quote tighter and add a greater amount of 
liquidity on MRX in an attempt to interact with Complex Preferenced 
Orders that are sent to the Exchange. This order flow will benefit all 
market participants on the Exchange because any MRX Member may interact 
with that order flow. Finally, any MRX Member on the single-leg or 
Complex Order Book may trade with a Complex Preferenced Order. Also, 
any MRX Market Maker may elect to receive Preferenced Order.
Options 3, Section 14(c)(2) and MRX Supplementary Material .02 to 
Options 3, Section 14
    Correcting an incorrect reference to ``ISE'' with MRX Options 3, 
Section 14(c)(2), which should be to ``MRX,'' will add clarity to the 
rule; this amendment is non-substantive. The Exchange's proposal to 
make a technical correction in Supplementary Material .02 of MRX 
Options 3, Section 14 to amend the word ``which'' to ``whom'' is a non-
substantive amendment.
Complex Opening Price Determination
    The Exchange's proposal to amend an incorrect citation within 
Supplementary Material .05(d)(2) to Options 3, Section 14, related to 
the Potential Opening Price, does not impose an undue burden on intra-
market competition because the amendment is non-substantive.
    The Exchange's proposal to amend Supplementary Material .05(d)(3) 
to MRX Options 3, Section 14, which describes the Complex Opening Price 
Determination, does not impose an undue burden on intra-market 
competition because all Members may submit interest into the Complex 
Opening Process.
Complex Order Risk Protections
    The Exchange's proposal to amend the title of a Complex Order Risk 
Protection in Options 3, Section 16, Complex Order Risk Protections is 
a non-substantive amendment.

III. Discussion and Commission Findings

    The Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\93\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\94\ 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.
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    \93\ 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).
    \94\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. Legging Orders

    The Exchange proposes to amend MRX Options 3, Section 7(k)(1) to 
provide that a Legging Order will not be generated during an ATR 
Posting Period, as provided in Options 3, Section 15, on the same side 
in the series. The Exchange states that during an ATR Posting Period, 
an order could increase (decrease) past the price of any Legging Order 
generated on the bid (offer) as the order works its way through the 
order book.\95\ The Exchange further states because Legging Orders

[[Page 58587]]

are removed from the order book when they are no longer at the 
Exchange's displayed best bid or offer, generating a Legging Order 
during a Posting Period in progress on the same side in the series 
would lead to the immediate removal of the Legging Order.\96\ The 
Commission believes that not generating a Legging Order during an ATR 
Posting Period on the same side in the series will protect investors 
and the public interest by avoiding the generation of an order that 
would be removed immediately, which should help to provide for orderly 
trading on the Exchange and the efficient operation of the Exchange's 
system. Another options exchange also does not generate legging orders 
under these circumstances.\97\
---------------------------------------------------------------------------

    \95\ See Amendment No. 1 at 7.
    \96\ See id.
    \97\ See Phlx Options 3, Section 14(f)(iii)(C)(2).
---------------------------------------------------------------------------

B. Repricing and the Internal BBO

    The Exchange recently adopted a re-pricing functionality for 
certain quotes and orders that lock or cross an away market's 
price.\98\ As described more fully above, these re-priced orders and 
quotes may rest on the Exchange's order book at non-displayed prices 
(the internal BBO), which may be better than the NBBO. Currently, a 
Qualified Contingent Cross Order must be executed at a price that is at 
or between the NBBO, and the component legs of a Complex Qualified 
Contingent Cross Order must executed at a price that is at or between 
the NBBO for the series.\99\ The Exchange proposes to amend its rules 
to require a Qualified Contingent Cross Order to execute at a price 
that is at or between the better of the internal BBO or the NBBO, and 
to require each component leg of a Complex Qualified Contingent Cross 
Order to execute at a price that is at or between the better of the 
internal BBO or the NBBO for the individual series.\100\ Because MRX's 
non-displayed internal BBO could be better than the NBBO for a series, 
the Commission believes that requiring a Qualified Contingent Cross 
Order and the component legs of a Complex Qualified Contingent Cross 
Order to execute at a price that is at or between the better of the 
internal BBO or the NBBO for that series will protect investors and the 
public interest by effectively maintaining the existing requirement in 
the Exchange's rules that the option leg(s) of Qualified Contingent 
Cross and Complex Qualified Contingent Cross Orders execute at a price 
that is at or between best prices available for the options leg(s).
---------------------------------------------------------------------------

    \98\ See SR-MRX-2022-16, supra note 6.
    \99\ Qualified Contingent Cross and Complex Qualified Contingent 
Cross Orders also must satisfy other requirements, including not 
trading at the same price as resting Priority Customer Orders. See 
MRX Options 3, Sections 12(c) and (d).
    \100\ See proposed MRX Options 3, Sections 12(c) and (d). As 
discussed below, MRX also proposes to include a reference to the 
internal BBO in its proposed rules providing for Complex Preferenced 
Orders.
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C. Price Improvement Mechanism for Crossing Transactions

1. Single-Leg PIM
    The Exchange proposes to amend MRX Options 3, Sections 13(c)(5) and 
(d)(4), relating to the termination of a single-leg PIM auction.
Incoming Interest That Will Not Cause an Early Termination
    The Exchange proposes to amend MRX Options 3, Section 13(d)(4) to 
provide that unrelated market or marketable interest (against the MRX 
BBO) on the opposite side of the market from the Agency Order received 
during the exposure period for a single-leg PIM auction will not cause 
the exposure period to end early and will execute against interest 
outside of the Crossing Transaction. The Commission believes that 
allowing the single-leg PIM exposure period to continue despite the 
receipt of unrelated market or marketable interest on the opposite side 
of the market from the Agency Order will benefit investors by providing 
the Agency Order with additional time to receive price improvement and 
allowing the unrelated interest to seek an execution against interest 
outside of the Crossing Transaction, including against interest on the 
Exchange's order book. If contracts remain from the unrelated order at 
the time the exposure period ends, they will be considered for 
participation in the single-leg PIM allocation process described in MRX 
Options 3, Section 13(d)(3).\101\ Other options exchanges do not 
terminate their price improvement auctions upon receipt of unrelated 
interest on the opposite side of the market from an agency order.\102\
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    \101\ See proposed MRX Rule Options 3, Section 13(d)(4).
    \102\ See, e.g., Phlx Options 3, Section 13(b)(4) (providing 
that an unrelated market or marketable Limit Order (against the 
PBBO) on the opposite side of the market from the PIXL Order 
received during the Auction will not cause the Auction to end early 
and will execute against interest outside of the Auction); and BX 
Options 3, Section 13(ii)(D) (providing that unrelated market or 
marketable interest (against the BX BBO) on the opposite side of the 
market from the PRISM Order received during the Auction will not 
cause the Auction to end early and will execute against interest 
outside of the Auction).
---------------------------------------------------------------------------

    The Exchange proposes to delete current MRX Options 3, Section 
13(c)(5)(ii), which states that the PIM exposure period will 
automatically terminate ``upon the receipt of a market or marketable 
limit order on the Exchange in the same series.'' As discussed above, 
proposed MRX Options 3, Section 13(d)(4) states that unrelated market 
or marketable interest on the opposite side of the market from the 
Agency Order will not cause the exposure period to end early. The 
Commission believes that allowing the single-leg PIM to continue after 
the receipt of a market or marketable limit order in the series on the 
same side of the market as the Agency Order, unless the incoming order 
causes the Exchange's best bid or offer to improve beyond the price of 
the Crossing Transaction on the same side, as provided in proposed MRX 
Options 3, Section 13(c)(5)(ii), will benefit investors by providing 
the Agency Order with additional time to receive price improvement. In 
addition, the Exchange states that the proposed change is consistent 
with BX's PRISM Auction and Phlx's PIXL, which do not terminate early 
when the exchange receives an unrelated market or marketable limit 
order in the same series on the same side of the market as the Agency 
Order, unless the exchange's best bid or offer improves beyond the 
price of the Crossing Transaction on the same side.\103\
---------------------------------------------------------------------------

    \103\ See Amendment No. 1 at 14.
---------------------------------------------------------------------------

Same-Side Interest That Will Cause an Early Termination
    The proposal replaces current Options 3, Section 13(c)(5)(iii), 
which provides that the exposure period will automatically terminate 
``upon the receipt of a non-marketable limit order in the same series 
on the same side of the market as the Agency Order that would cause the 
Crossing Transaction to be outside of the best bid of offer on the 
Exchange,'' with proposed Options 3, Section 13(c)(5)(ii), which states 
that the exposure period will automatically terminate ``any time the 
Exchange best bid or offer improves beyond the price of the Crossing 
Transaction on the same side of the market as the Agency Order.'' The 
Exchange states that new Section 13(c)(5)(ii) is designed to remove any 
ambiguity that a market or marketable limit order priced more 
aggressively than the Agency Order could improve the Exchange's best 
bid or offer beyond the price of the Crossing Transaction and cause the 
PIM to terminate early.\104\ The Exchange states that termination of 
the exposure period is necessary under these circumstances because the 
price of the single-leg PIM would no longer be at the Exchange's best 
price and would

[[Page 58588]]

not have execution priority with respect to responses or unrelated 
interest that arrives.\105\ In addition, the Exchange states that 
termination of the exposure period would permit the execution of 
responses received prior to the improvement in the Exchange's best bid 
or offer.\106\ The Commission believes that terminating the exposure 
period when the Exchange's best bid or offer improves beyond the price 
of the Crossing Transaction on the same side as the Agency Order will 
protect investors and the public interest by preserving the priority of 
the better-priced incoming interest. In addition, another options 
exchange terminates its price improvement auction under these 
circumstances.\107\
---------------------------------------------------------------------------

    \104\ See id. at 16.
    \105\ See Amendment No. 1 at 16.
    \106\ See id.
    \107\ See Nasdaq BX Options 3, Section 13(ii)(B)(2) (stating 
that the PRISM Auction will conclude any time the BX BBO crosses the 
PRISM Order stop price on the same side of the market as the PRISM 
Order).
---------------------------------------------------------------------------

Termination Following a Trading Halt
    The Exchange proposes to amend Options 3, Section 13(c)(5) to state 
that the exposure period for a single-leg PIM will terminate any time 
there is a trading halt on the Exchange in the affected series.\108\ 
The Commission believes that terminating the PIM exposure period after 
a trading halt is consistent with current MRX Options 3, Section 
13(d)(5), which states that a PIM auction will terminate automatically 
if a trading halt is initiated after an order is entered into the PIM. 
Other options exchanges also terminate their price improvement auctions 
following a trading halt.\109\
---------------------------------------------------------------------------

    \108\ See proposed MRX Options 3, Section 13(c)(5)(iii).
    \109\ See BX Options 3, Section 13(ii)(B)(3) (stating that a 
PRISM Auction will conclude any time there is a trading halt on the 
exchange in the affected series); and Phlx Options 3, Section 
13(b)(2)(D) (stating that a PIXL Auction will conclude any time 
there is a trading halt on the exchange in the affected series).
---------------------------------------------------------------------------

2. Complex PIM
    MRX Options 3, Section 13(e)(4)(vi) describes the processing of 
orders when an incoming Complex Order that causes the early termination 
of a Complex PIM auction is also marketable against a component leg(s) 
of the strategy that is the subject of a concurrent single-leg PIM 
auction or an exposure period pursuant to Supplementary Material .02 to 
MRX Options 5, Section 2. Supplementary Material .01(b)(iii) to MRX 
Options 3, Section 14 describes the processing of orders when an 
incoming Complex Order that causes the early termination of the Complex 
Order Exposure period is also marketable against a component leg(s) of 
the strategy that is the subject of a concurrent single-leg PIM auction 
or an exposure period pursuant to Supplementary Material .02 to MRX 
Options 5, Section 2. Because MRX has eliminated the flash 
functionality exposure period \110\ and because a single-leg PIM will 
no longer terminate early due to the arrival of unrelated marketable 
interest on either side of the market, as discussed above, the 
circumstances and processing addressed in MRX Options 3, Section 
13(e)(4)(vi) and Supplementary Material .01(b)(iii) to MRX Options 3, 
Section 14 will no longer occur. Accordingly, the Commission believes 
that deleting MRX Options 3, Section 13(e)(4)(vi) and Supplementary 
Material .01(b)(iii) to MRX Options 3, Section 14 from MRX's rulebook 
will protect investors and the public interest by helping to avoid 
confusion and maintain the clarity and accuracy of the Exchange's 
rules.
---------------------------------------------------------------------------

    \110\ See note 28 supra.
---------------------------------------------------------------------------

D. Delayed Functionalities

    As described more fully above, the Exchange proposes to amend MRX 
Options 3, Sections 7, 11, 12, 13, and 14 to delay the implementation 
of Stock-Option Orders, Stock-Complex Orders, QCC with Stock Orders, 
and Complex QCC with Stock Orders, in connection with the migration to 
the Exchange's new trading platform. The Commission believes that 
delaying the implementation of these functionalities will benefit 
investors by providing the Exchange with additional time to code, test, 
and implement these functionalities. As stated above, the Exchange will 
issue Options Trader Alerts to ensure that Members are aware of when 
the Delayed Functionalities will be available on the Exchange.\111\
---------------------------------------------------------------------------

    \111\ See Amendment No. 1 at 29.
---------------------------------------------------------------------------

E. Complex Order Types

1. Opening Only Complex Orders
    The Exchange proposes to amend MRX Options 3, Section 14(b)(10) to 
indicate that Opening Only Complex Orders may be submitted as market 
orders as well as limit orders. The Exchange's current Complex Opening 
Price Determination rules address the participation of Market Complex 
Orders in the opening process.\112\ The Commission believes that the 
proposed change to MRX Options 3, Section 14(b)(10) will protect 
investors and the public interest by providing consistency to the 
Exchange's rules and making clear that an Opening Only Complex Order 
may be submitted as either a market order or a limit order. Allowing 
both Market and Limit Complex Orders to participate in the Complex 
Opening Process could result in better price discovery and help to 
ensure that the Opening Price incorporates all available trading 
interest.
---------------------------------------------------------------------------

    \112\ See Supplementary Material .05(d)(3) and (5) to MRX 
Options 3, Section 14.
---------------------------------------------------------------------------

2. Complex Preferenced Orders
    The Exchange proposes to adopt rules to provide for Complex 
Preferenced Orders.\113\ The proposed rules will allow a Preferred 
Market Maker that receives a Complex Preferenced Order to receive the 
allocation provided in current MRX Options 3, Section 10(c)(1)(C) (the 
Preferred Market Maker participation entitlement for single-leg orders) 
when the component legs of the Complex Preferenced Order execute 
against the Preferred Market Maker's single-leg market quotes, provided 
the Preferred Market Maker satisfies certain conditions.\114\ As 
described more fully above, an Electronic Access Member designated as a 
Preferred Market Maker may receive the Preferred Market Maker 
allocation described in MRX Options 3, Section 10(c)(1)(C) when the 
component leg(s) of a Complex Preferenced Order execute against the 
Preferred Market Maker's single-leg market quotes, provided that the 
Preferred Market Maker is quoting at the better of the internal BBO or 
the NBBO for a component leg(s) of the Complex Preferenced Order at the 
time the Complex Preferenced Order is received.\115\ The Commission has

[[Page 58589]]

previously approved rules of national securities exchanges that provide 
for directed order participation entitlements for single-leg 
orders.\116\ The Commission has closely scrutinized such exchange rule 
proposals where the percentage of enhanced participation would rise to 
a level that could have a material adverse impact on quote competition 
within a particular exchange.\117\ Under the proposal, a Preferred 
Market Maker that is quoting at the better of the internal BBO or the 
NBBO for a component leg of a Complex Preferenced Order at the time the 
Complex Preferenced Order is received will receive the same 
participation entitlement for that leg--the participation entitlement 
provided in MRX Options 3, Section 10(c)(1)(C)--as a Preferred Market 
Maker that receives a single-leg Preferenced Order. The Commission has 
reviewed MRX Options 3, Section 10(c)(1)(C) previously.\118\
---------------------------------------------------------------------------

    \113\ See proposed MRX Options 3, Section 14(b)(19).
    \114\ MRX Options 3, Section 10(c)(1)(C) provides that after all 
Priority Customer orders have been fully executed, upon receipt of a 
Preferenced Order pursuant to Supplementary .01 to Options 3, 
Section 10, provided the Preferred Market Maker's quote is at the 
better of the internal BBO or the NBBO, the Preferred Market Maker 
will be afforded a participation entitlement. Preferred Market Maker 
participation entitlements will apply only after the Opening 
Process. When the Preferred Market Maker is at the same price as a 
non- Priority Customer Order or Market Maker quote, pursuant to the 
Preferred Market Maker participation entitlement, the Preferred 
Market Maker shall receive, with respect to a Preferenced Order, the 
greater of: (a) 60% of remaining interest if there is one other non-
Priority Customer Order or Market Maker quote at that price; or 40% 
of remaining interest if there are two or more other non-Priority 
Customer Orders or Market Maker quotes at that price; (b) the 
Preferred Market Maker's Size Pro-Rata share under subparagraph 
(c)(1)(E); or (c) the entitlement for Orders of 5 Contracts or Fewer 
under subparagraph (c)(1)(D) if the Preferred Market Maker is also 
the Primary Market Maker and the incoming Order is for 5 Contracts 
or Fewer.
    \115\ See proposed MRX Options 3, Section 14(b)(19). The 
Commission notes that the proposed requirement that the Preferred 
Market Maker be quoting at the better of the internal BBO or the 
NBBO for the component leg(s) of a Complex Preferenced Order at the 
time the Complex Preferenced Order is received is consistent with 
the requirements applicable to single-leg Preferenced Orders. MRX 
Options 3, Section 10(c)(1)(B) states that ``After all Priority 
Customer orders have been fully executed, provided the Primary 
Market Maker's quote is at the better of the internal BBO or the 
NBBO, the Primary Market Maker shall be entitled to receive the 
allocation described in Options 3, Section 10(c)(1)(B)(i), unless 
the incoming order to be allocated is a Preferenced Order and the 
Primary Market Maker is not the Preferred Market Maker, in which 
case allocation would be pursuant to (c)(1)(C).'' See SR-MRX-2022-
16.
    \116\ See, e.g., Securities Exchange Act Release No. 74129 
(January 23, 2015), 80 FR 4954 (January 29, 2015) (Order Approving 
File No. BX-2014-049) (``BX Order'').
    \117\ See id.
    \118\ See Securities Exchange Act Release No. 86949 (September 
12, 2019), 84 FR 49151 (September 18, 2019) (Notice of Filing and 
Immediate Effectiveness of File No. SR-MRX-2019-17).
---------------------------------------------------------------------------

    To receive the Preferred Market Maker allocation, a Preferred 
Market Maker must be quoting at the better of the internal BBO or the 
NBBO for a component leg(s) of the Complex Preferenced Order at the 
time the Complex Preferenced Order is received.\119\ The Commission 
believes that it is critical that a Preferred Market Maker not be 
permitted to step up and match the better of the internal BBO or the 
NBBO for the component legs of a Complex Order after it receives a 
Complex Preferenced Order to receive the participation 
entitlement.\120\ In this regard, the Exchange states that 
Supplementary Material .01 to MRX Options 9, Section 1 prohibits a 
Member from notifying a Preferred Market Maker of an intention to 
submit a Complex Preferenced Order so that the Preferred Market Maker 
could change its quotation to match the NBBO immediately prior to 
submission of the Complex Preferenced Order, and then fade its 
quote.\121\ The Exchange further states that it proactively conducts 
surveillance for, and enforces against, violations of Supplementary 
Material .01 to MRX Options 9, Section 1.\122\
---------------------------------------------------------------------------

    \119\ See proposed MRX Options 3, Section 14(b)(19).
    \120\ See BX Order, supra note 116, 80 FR at 4955.
    \121\ See Amendment No. 1 at 33.
    \122\ See id.
---------------------------------------------------------------------------

    In addition, Preferred Market Makers will be subject to heightened 
quoting requirements. To receive the participation entitlement for a 
Complex Preferenced Order, Preferred Market Makers are required to 
quote 90% of the trading day as compared to Market Makers, who are 
required to quote 60% of the trading day.\123\ Other options exchanges 
also have adopted heightened quoting obligations for market makers to 
be eligible to receive a participant entitlement as part of their 
directed order programs.\124\
---------------------------------------------------------------------------

    \123\ See Amendment No. 1 at 65 and MRX Options 2, Section 5.
    \124\ See, e.g., BX Order, supra note 116, 80 FR at 4955.
---------------------------------------------------------------------------

    The Commission emphasizes that approval of this proposal does not 
affect a broker-dealer's duty of best execution. The Commission has 
discussed the duty of best execution in previous orders approving 
proposals to implement participation entitlements, and hereby 
incorporates those discussions by reference into this order.\125\
---------------------------------------------------------------------------

    \125\ See id. at 4955-6.
---------------------------------------------------------------------------

F. Complex Opening Price Determination

    The Commission believes that the proposed changes to the Complex 
Opening Price Determination process are designed to protect investors 
and the public interest by enhancing the Exchange's Complex Opening 
Process and facilitating the fair and orderly opening of trading in 
complex strategies. Under the proposal, the contra-side Boundary Price 
will be the limit price for Market Complex Orders.\126\ Because the 
Boundary Prices for a strategy are calculated based on the NBBO for the 
individual component legs of a strategy, the Commission believes that 
making the contra-side Boundary Price the limit price for Market 
Complex Orders will help to ensure that the opening price for a complex 
strategy is within the broad market price for the strategy.\127\ In 
addition, assigning a limit price to Market Complex Orders will allow 
the Exchange to use the Complex Opening Process, rather than the 
Uncrossing Process provided for in Supplementary Material .06(b) to MRX 
Options 3, Section 14, to open a strategy when there are only Market 
Complex Orders on both sides of the market for a strategy or if there 
are Market Complex Orders on the bid (offer) side of the market for 
greater than the total size of Complex Orders on the offer (bid) side 
of the market.\128\ Because a change in market conditions between the 
time of the Complex Opening Price Determination process and the time of 
the Uncrossing Process could result in missed execution opportunities, 
allowing Market Complex Orders to execute in the Complex Opening 
Process could help to maximize the number of contracts that 
execute.\129\ As discussed above, the proposal will allow MRX to 
calculate an Opening Price for a strategy utilizing a greater number of 
Market Complex Orders.\130\ In addition, the proposed Opening Price 
Determination process will seek to distribute price improvement to both 
the bid and offer side of the transaction to the extent possible, 
rather than providing all of the price improvement to one side of the 
transaction.\131\ The Commission believes that including additional 
liquidity in the Complex Opening Price Determination process could 
facilitate price discovery and result in more accurate pricing for 
complex strategies, which would benefit all market participants. The 
Commission believes that distributing price improvement to both sides 
of the transaction could encourage market participants to submit orders 
to participate in the Complex Opening Process.
---------------------------------------------------------------------------

    \126\ See Amendment No. 1 at 42. See also proposed MRX 
Supplementary Material .05(d)(3)(B) to Options 3, Section 14 
(stating that ``Executable bids/offers will be bounded by the 
Boundary Price on the contra-side of the interest, for determination 
of the Potential Opening Price described above'').
    \127\ See Supplementary Material .05(d)(1) to Options 3, Section 
14 (describing the calculation of the Boundary Prices for a complex 
order strategy).
    \128\ See Amendment No. 1 at 35-6.
    \129\ See id. at 42.
    \130\ See id.
    \131\ See Amendment No. 1 at 40.
---------------------------------------------------------------------------

G. Additional Changes

    The Exchange proposes non-substantive changes to correct inaccurate 
cross-references in MRX Options 3, Sections 14(b)(15), 16(b), and 
Supplementary Material .05(d)(2) to MRX Options 3, Section 14; make a 
grammatical correction in Supplementary Material .02 to MRX Options 3, 
Section 14; provide a more accurate title for MRX Options 3, Section 
16(c)(1); and correct an inaccurate reference to ISE in MRX Options 3, 
Section 14(c)(2). The

[[Page 58590]]

Commission believes that these proposed changes will protect investors 
and the public interest by helping to ensure the clarity and accuracy 
of the Exchange's rules.

IV. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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-2022-10 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MRX-2022-10. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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-2022-10, and should be submitted on 
or before October 18, 2022.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of the notice of Amendment No. 1 in the 
Federal Register. As discussed more fully above, Amendment No. 1 
revises MRX Options 3, Sections 7, 11, 12, and 13 to indicate that 
certain order types requiring stock-tied functionality will be 
implemented at a later date as part of the Exchange's technology 
migration. In addition, Amendment No. 1 corrects an error in the text 
of the proposed rules, replaces references to SR-MRX-2022-5P with 
references to SR-MRX-2022-16, and adds references to the ``internal 
BBO'' to the proposed Complex Preferenced Order rules and to the 
Qualified Contingent Cross Order and Complex Qualified Contingent Cross 
Order rules. The Commission believes that Amendment No. 1 raises no 
novel regulatory issues. Amending MRX's rules to note the delayed 
implementation of certain order types will help to provide members with 
notice regarding the order types that will not be available immediately 
following MRX's migration to its new trading platform. Adding 
references to the internal BBO to the Qualified Contingent Cross Order 
and Complex Qualified Contingent Cross Order rules will help to 
effectively maintain the existing pricing requirements currently 
applicable to the option leg(s) of those orders, and adding a reference 
to the internal BBO to the Complex Preferenced Order rules will provide 
consistency with MRX's single-leg Preferenced Order rules. The 
correction in the proposed rule text will help to ensure the accuracy 
of the Exchange's rules and the addition of references to SR-MRX-2022-
16 will help to ensure the completeness and accuracy of the proposal. 
Accordingly, the Commission finds good cause for approving the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\132\ that the proposed rule change (SR-MRX-2022-10), as modified 
by Amendment No. 1, is approved on an accelerated basis.
---------------------------------------------------------------------------

    \132\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\133\
---------------------------------------------------------------------------

    \133\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20816 Filed 9-26-22; 8:45 am]
BILLING CODE 8011-01-P