Notice2026-10148
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NOM's Rules in Connection With a Technology Migration
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 21, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 91, Number 98 (Thursday, May 21, 2026)]
[Notices]
[Pages 30030-30083]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-10148]
[[Page 30029]]
Vol. 91
Thursday,
No. 98
May 21, 2026
Part II
Securities and Exchange Commission
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Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
NOM's Rules in Connection With a Technology Migration; Notice
Federal Register / Vol. 91 , No. 98 / Thursday, May 21, 2026 /
Notices
[[Page 30030]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105511; File No. SR-NASDAQ-2026-039]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend NOM's Rules in Connection With a Technology Migration
May 18, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 6, 2026, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III, below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend various rules of the Nasdaq Options
Market LLC (``NOM'') in connection with a technology migration.\3\
Specifically, the Exchange proposes to amend rules at Options 1,
Section 1, Definitions; Options 2, Section 3, which is currently
reserved, Section 4, Obligations of Market Makers and Lead Market
Makers, Section 5, Market Maker Quotations, and Section 6, Market Maker
Orders; Options 3, Section 3, Minimum Increments; Options 3, Sections
7, Types of Orders and Order and Quote Protocols; Section 8, Opening
and Halt Cross; Section 9, Trading Halts; Section 10, Order Book
Allocation; Section 15, Risk Protections; Section 17, Kill Switch;
Section 18, Detection of Loss of Communication; Section 20,
Nullification and Adjustment of Options Transactions including Obvious
Errors; Section 22, Limitations on Order Entry; Section 23, Data Feeds
and Trade Information; and Section 28, Optional Risk Protections. The
Exchange also proposes to amend Options 4A, Section 11 Trading
Sessions; Options 4C, Section 2, Definitions; Options 5, Section 4,
Order Routing; Options 6, Section 1, Authorization to Give-Up; Options
6B, Section 1, Exercise of Options Contracts; and Options 7, Section 1,
General Provisions, and Section 3 Nasdaq Options Market--Ports and
Other Services.
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\3\ NOM's Re-Platform will commence on July 27, 2026. See
<a href="https://www.nasdaqtrader.com/MicroNews.aspx?id=OTU2026-2">https://www.nasdaqtrader.com/MicroNews.aspx?id=OTU2026-2</a>.
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The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rulefilings">https://listingcenter.nasdaq.com/rulebook/nasdaq/rulefilings</a>, and at the principal office of the Exchange.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
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. As further discussed below, the Exchange
proposes to adopt such functionality substantially in the same form as
currently on the Nasdaq affiliated options exchanges, while retaining
certain intended differences between it and its affiliates. The
Exchange also proposes a number of changes to memorialize existing
functionality, add more granularity in its rules to describe how
existing functionality operates today, and to harmonize the Exchange's
rules where appropriate with the rules of its affiliated options
exchanges by using consistent language to describe identical
functionality.
Specifically, the Exchange proposes to amend various rules of the
Nasdaq Options Market LLC (``NOM'') in connection with a technology
migration to adopt rules on Nasdaq NTX Options, Inc. (``NTX Options'')
and Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC (``GEMX''), Nasdaq MRX,
LLC (``MRX''), and Nasdaq Phlx LLC (``Phlx'').
The Exchange proposes to permit Lead Market Maker appointments
similar to NTX Options. The Exchange proposes to amend Options 2,
Section 3 (currently reserved), and 4 (Obligations of Market Makers and
Lead Market Makers) to adopt rules related to a Lead Market Maker that
are identical to NTX Options at Options 2, Sections 3, 4 and 5. The
Exchange would also add a definition for a Lead Market Maker in Options
1, Section 1 (Definitions), identical to NTX Options at Options 1,
Section 1.
The Exchange proposes to amend Options 3, Section 3, Minimum
Increments, to amend the manner in which quotes are submitted to the
System.
The Exchange proposes to adopt order types at Options 3, Section 7
(Types of Orders and Order and Quote Protocols) that are identical to
ISE, GEMX, MRX and Phlx with one exception. The Exchange proposes to
adopt a new Stop Order, Stop Limit Order, Reserve Order and Good-Till-
Date Order identical to ISE, GEMX, MRX and Phlx. The Exchange would
retain NOM's Add Liquidity Order, which would be substantially similar
to ISE, GEMX, MRX and Phlx except with respect to re-pricing as
explained below in more detail. The Exchange would also retain its
Price Improving Order without change.\4\ The Exchange would remove the
Minimum Quantity Order. The Exchange would also amend Options 2,
Section 6 (Market Maker Orders), Options 3, Section 8 (Opening and Halt
Cross), Options 3, Section 9 (Trading Halts),Options 3, Section 10
(Order Book Allocation), Options 3, Section 20 (Nullification and
Adjustment of Options Transactions including Obvious Errors), and
Options 3, Section 22 (Limitations on Order Entry) to account for new
order types. These proposed changes would be identical to corresponding
rules on ISE, GEMX, MRX and Phlx at Options 2, Section 6, Options 3,
Section 8, Options 3, Section 9, Options 3, Section 10, and Options 3,
Section 22.
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\4\ A ``Price Improving Order'' is an order to buy or sell an
option at a specified price at an increment smaller than the minimum
price variation in the security. Price Improving Orders may be
entered in increments as small as one cent. Price Improving Orders
that are available for display shall be displayed at the minimum
price variation in that security and shall be rounded up for sell
orders and rounded down for buy orders. See current NOM Options 3,
Section 7(a)(5). The Exchange proposes to relocate its Pricing
Improving Order as described in this proposal.
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The Exchange proposes to amend its opening at Options 3, Section 8
to adopt an opening that would be identical to NTX Options at Options
3, Section 8.
The Exchange proposes to amend its allocation methodology in
Options 3, Section 10 to provide for a Lead Market
[[Page 30031]]
Maker enhancement and an entitlement for orders of 5 contracts or fewer
identical to NTX Options at Options 3, Section 10.
The Exchange proposes to align certain risk protections in Options
3, Section 15 (Risk Protections) so that those protections in that rule
are identical to NTX Options at Options 3, Section 15.
The Exchange proposes to amend its QUO protocol to no longer treat
orders as quotes and permit two-sided orders to be entered through the
protocol subject to order entry protections. As amended, the QUO
protocol would be identical to the OTTO protocol on NTX Options, ISE,
GEMX, MRX and Phlx. The Exchange would also align the Kill Switch at
Options 3, Section 17, and Detection of Loss at Options 3, Section 18
so that the rule text is identical to NTX Options at Options 3,
Sections 17 and 18.
The Exchange proposes to amend Options 3, Section 23, Data Feeds
and Trade Information, to remove TradeInfo to align NOM's protocols to
other Nasdaq affiliated markets.
The Exchange proposes to adopt an Optional Risk Protection at new
Options 3, Section 28 that is identical to NTX Options, ISE, GEMX, MRX
and Phlx.
The Exchange proposes to amend Options 5, Section 4, Order Routing,
to adopt identical order routing to NTX Options at Options 5, Section
4, except with respect to the System handling of Price Improving
Orders.\5\ Each rule change is described below.
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\5\ Unlike NOM, NTX Options does not offer Price Improving
Orders.
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At the outset, the Exchange notes that unlike other Nasdaq
affiliated options exchanges, Price Improving Orders only are being
offered on NOM. Price Improving Orders are entered in increments
smaller than the minimum price variation. Because NOM may accept orders
in increments smaller than the minimum price variation, the rule text
will differ in certain places as compared to the rule text of Nasdaq
affiliated options exchanges. The Exchange has noted those distinctions
in its proposal.
Options 1, Section 1
The Exchange proposes to amend Options 1, Section 1, Definitions,
to define the term ``Lead Market Maker'' at proposed Options 1, Section
1(a)(24) to mean a Market Maker who is registered as an options Lead
Market Maker pursuant to Options 2, Section 3. The Exchange also
proposes to renumber current Options 1, Section 1(a)(24) to (62). As a
result of this renumbering, the Exchange proposes to also amend Options
4C. Sections 2(b)(2), and Options 7, Section 1, General Provisions, to
amend the cross citations to align to the new numbering in Options 1,
Section 1.
The Exchange proposes to amend current Options 1, Section 1(a)(57)
to add ``Tuesday'' and ``Thursday'' to the definition in the first
sentence. Today, the series are opened for trading each day of the week
and expire each day of the week. The addition of Tuesday and Thursday
were inadvertently not made a second time in that sentence.\6\
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\6\ See Securities Exchange Act Release No. 96412 (November 30,
2022), 87 FR 74685 (December 6, 2022) (SR-NASDAQ-2022-066) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Definition of Short Term Option Series).
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Lead Market Makers
NOM proposes to permit NOM Market Makers to act as Lead Market
Makers, or ``LMMs,'' in one or more options classes, provided the LMM
meets certain obligations and quoting requirements as provided for in
the new proposed rules which are described below. The Exchange also
proposes to provide assigned LMMs with certain participation
entitlements in Options 3, Section 10, which is described in that
section.
Options 2, Section 3
At this time, the Exchange proposes to permit the appointment of
LMMs on NOM. The Exchange proposes to amend Options 2, Section 3, which
is currently reserved to title the rule ``Lead Market Maker
Allocation.'' This proposed new rule would be identical to NTX Options
at Options 2, Section 3.
As proposed, approved NOM Options Market Makers \7\ may become Lead
Market Makers (LMMs''). Only one LMM may be allocated to an options
class.\8\ Initial application(s) to become an LMM shall be in a form
and/or format prescribed by the Exchange and shall include the
following: (1) background information on the LMM including experience
in trading options; (2) the LMM's clearing arrangements; (3) adequacy
of capital; and (4) adherence to Exchange rules and ability to meet
obligations of an LMM.\9\ Subsequent applications shall be in a form
and/or format prescribed by the Exchange and shall include the
information requested therein, including, but not limited to, an
account of the abilities and background of the applicant as well as any
other special requirements that the Exchange may require.\10\ Once an
applicant is approved by the Exchange as an LMM, any material change in
capital shall be reported in writing to the Exchange within two
business days after the change.\11\ NOM will not place any limit on the
number of entities that may become LMMs, however there will only be one
LMM per class.
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\7\ The term ``Nasdaq Options Market Maker'' or ``Options Market
Maker'' or ``Market Maker'' mean an Options Participant registered
with the Exchange for the purpose of making markets in options
contracts traded on the Exchange and that is vested with the rights
and responsibilities specified in Options 2 of these Rules. See
Options 1, Section 1(a)(27).
\8\ See proposed Options 2, Section 3, A at subparagraph (a).
\9\ See proposed Options 2, Section 3, A at subparagraph (b).
\10\ See proposed Options 2, Section 3, A at subparagraph (c).
\11\ See proposed Options 2, Section 3, A at subparagraph (d).
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When an options class is to be allocated or reallocated by the
Exchange, the Exchange will solicit applications from all eligible
LMMs. If the Exchange determines that special qualifications should be
sought in the successful applicant, it shall indicate such desired
qualifications in the notice.\12\
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\12\ See proposed Options 2, Section 3, B at subparagraph (a).
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Further, the Exchange proposes to require an allocation application
to be submitted in writing to the Exchange's designated staff and shall
include, at a minimum, the name and background of the LMM, the LMM's
experience and capitalization demonstrating an ability to trade the
particular options class sought, and any other reasons why the LMM
believes it should be assigned or allocated the security. In addition,
the Exchange may also require that the application include other
information such as system acceptance/execution levels and guarantees.
The Exchange may re-solicit applications for any reason, including if
it determines that its initial solicitation resulted in an insufficient
number of applicants.\13\
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\13\ See proposed Options 2, Section 3, B at subparagraph (b).
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Allocation decisions and automatic allocations shall be
communicated in writing to Exchange Participants. Once the LMM is
allocated an issue, such LMM shall immediately notify the Exchange in
writing of any change to the respective system acceptance/execution
levels or any other material change in the application for any assigned
issue. If an LMM seeks to withdraw from allocation in a security, it
should notify the Exchange at least one business day prior to the
desired effective date of such withdrawal.\14\
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\14\ See proposed Options 2, Section 3, B at subparagraph (c)-
(e).
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[[Page 30032]]
Options on Related Securities shall be automatically allocated to
the LMM, which is already the LMM in Currently Allocated Securities (as
defined hereafter). As noted herein, only one LMM may be allocated to
an options class. The Exchange is defining the term ``Related
Securities'' for purpose of Options 2, Section 3 as follows: ``Related
Securities means, but is not limited to: securities of a partially or
wholly owned subsidiary; securities that are convertible into the
securities of the issuer; warrants on securities of the issuer;
securities issued in connection with a name change; securities issued
in a reverse stock split; contingent value rights; ``tracking''
securities designed to track the performance of the underlying security
or corporate affiliate thereof; securities created in connection with
the merger or acquisition of one or more companies; securities created
in connection with a ``spin-off'' transaction; convertible on non-
convertible senior securities; and securities into which a listed
security is convertible, where such Related Securities emanate from or
are related to securities underlying options that are currently
allocated to a LMM on the Exchange (``Currently Allocated Options'').
The term Related Securities does not include Exchange Traded Funds.\15\
Options on Related Securities (``Related Options'') shall be
automatically allocated to the LMM that is already the LMM in Currently
Allocated Options.\16\
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\15\ See proposed Options 2, Section 3, B at subparagraph (f).
\16\ See proposed Options 2, Section 3, B at subparagraph (g).
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The Exchange shall allocate new options classes or reallocate
existing options classes to applicants based on the results of such
factors as the Exchange deems appropriate. Among the factors that the
Exchange may consider in making such decisions are: the number and type
of securities in which applicants are currently registered; the capital
and other resources of the applicant; recent allocation decisions
within the past eighteen months; the desirability of encouraging the
entry of new LMMs into the Exchange's market; order flow commitments;
any prior transfers of LMM privileges by the applicant and the reasons
therefore and such policies as the Board instructs the Exchange to
follow in allocating or reallocating securities. The Exchange may also
consider the following: quality of markets data; observance of ethical
standards and administrative responsibilities. Solely with respect to
options class allocations or reallocations, past or contemplated
voluntary delisting of options by LMMs, done in the best interest of
the Exchange, will not be viewed negatively by the Exchange in making
allocation and reallocation decisions. The Exchange is empowered to
allocate option classes for a limited period of time or subject to such
other terms and conditions as it deems appropriate.\17\
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\17\ See proposed Options 2, Section 3, C at subparagraph (a).
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Requests to allocate or transfer allocation, or transfer of an
options class request must be made in writing to the Exchange, and such
transfer may only be made to an approved LMM. The LMM shall be assigned
to an options class for a period defined by the Exchange. The Exchange
will communicate such period in solicitation applications (notices).
The Exchange may re-allocate an options class after the defined period
has expired.\18\
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\18\ See proposed Options 2, Section 3, D at subparagraph (a).
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Options 2, Section 4
The Exchange proposes amendments to Options 2, Section 4,
Obligations of Market Makers and Lead Market Makers, to require LMM's
to be held to certain obligations. The proposed amendments to Options
2, Section 4 are identical to rule text at NTX Options at Options 2,
Section 4.
As proposed, the Exchange requires that LMM transactions should
constitute a course of dealings reasonably calculated to contribute to
the maintenance of a fair and orderly market, and no LMM should enter
into transactions or make bids or offers that are inconsistent with
such a course of dealings.\19\ Further, with respect to each class of
options in his or her appointment, an LMM is expected to engage, to a
reasonable degree under the existing circumstances, in dealings for his
own account when there exists, or it is reasonably anticipated that
there will exist, a lack of price continuity, a temporary disparity
between the supply of and demand for a particular option contract, or a
temporary distortion of the price relationships between option
contracts of the same class. Without limiting the foregoing, an LMM is
expected to perform certain activities in the course of maintaining a
fair and orderly market which are listed in proposed Options 2, Section
4(f)(1)-(4). The Exchange proposes to require that an LMM (1) compete
with other Market Makers to improve the market in all series of options
classes to which the LMM is appointed; (2) make markets that will be
honored for the number of contracts entered into the System \20\ in all
series of options classes within the LMM's appointment; (iii) update
market quotations in response to changed market conditions in all
series of options classes within the LMM's appointment; (iv) maintain
certain intra-day bid/ask differentials, also known as Quote Spread
Parameters. The Quote Spread Parameters shall require LMMs to quote
equity options, including Exchange-Traded Fund Shares, and index
options with a difference not to exceed $5 between the bid and offer
regardless of the price of the bid.\21\ However, an LMM shall be
permitted to quote an in-the-money series, where the market for the
underlying security is wider than $5, with a bid/ask differential as
wide as the spread between the national best bid and offer in the
underlying security. The Exchange may establish differences other than
the above for one or more series or classes of options.\22\
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\19\ See proposed Options 2, Section 4(e). The Exchange proposes
to reserve Options 2, Section 4(d).
\20\ The term ``System'' or ``Trading System'' mean the
automated system for order execution and trade reporting owned and
operated by The Nasdaq Options Market LLC. The Nasdaq Options Market
comprises: (1) an order execution service that enables Participants
to automatically execute transactions in options series; and
provides Participants with sufficient monitoring and updating
capability to participate in an automated execution environment; (2)
a trade reporting service that submits ``locked-in'' trades for
clearing to a registered clearing agency for clearance and
settlement; transmits last-sale reports of transactions
automatically to the Options Price Reporting Authority for
dissemination to the public and industry; and provides participants
with monitoring and risk management capabilities to facilitate
participation in a ``locked-in'' trading environment; and (3) the
data feeds described in Section 19. See Options 1, Section 1(a)(59).
\21\ See proposed Options 2, Section 4(f)(1)-(4).
\22\ See proposed Options 2, Section 4(f)(4). The Exchange
proposes to reserve Options 2, Section 4(g).
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In classes of options other than those to which the LMM is
appointed, LMMs should not engage in transactions for an account in
which they have an interest that are disproportionate in relation to,
or in derogation of, the performance of their obligations as specified
in this Rule with respect to the classes in their appointment.
Furthermore, LMMs should not: (1) individually or as a group,
intentionally or unintentionally, dominate the market in option
contracts of a particular class; and (2) effect purchases or sales on
the Exchange except in a reasonable and orderly manner.\23\
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\23\ See proposed Options 2, Section 4(h).
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LMMs are prohibited from the following: (1) any practice or
procedure whereby LMMs trading any particular
[[Page 30033]]
option issue determine by agreement the spreads or option prices at
which they will trade that issue; and (2) any practice or procedure
whereby LMMs trading any particular option issue determine by agreement
the allocation of orders that may be executed in that issue.\24\
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\24\ See proposed Options 2, Section 4(i).
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With respect to quoting obligations, an LMM must enter two-sided
quotations. An LMM that enters a bid (offer) in a series of an option
in which he is registered on NOM must enter an offer (bid), except in
an assigned options series listed intra-day on NOM. These quotations
must meet the legal quote width requirements specified in Options 2,
Section 4 subsection (f)(4). An Options Participant will be required to
meet each market making obligation separately. Quotes submitted through
the Specialized Quote Feed \25\ interface, utilizing badges \26\ and
options series assigned to a Lead Market Maker, will be counted toward
the requirement to provide two-sided quotations in 90% of the
cumulative number of seconds, or such higher percentage as NOM may
announce. An Options Participant that is a Market Maker in an options
series where the Options Participant is also assigned as the Lead
Market Maker, pursuant to Options 2, Section 4, in an option series
will be held to both the Lead Market Maker and Market Maker
obligations, pursuant to Options 2, Section 5(d), separately, in that
options series.\27\
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\25\ ``Specialized Quote Feed'' or ``SQF'' is an interface that
allows Market Makers to connect, send, and receive messages related
to quotes and Immediate-or-Cancel Orders into and from the Exchange.
Features include the following: (1) options symbol directory
messages (e.g., underlying instruments); (2) system event messages
(e.g., start of trading hours messages and start of opening); (3)
trading action messages (e.g., halts and resumes); (4) execution
messages; (5) quote messages; (6) Immediate-or-Cancel Order
messages; (7) risk protection triggers and purge notifications; and
(8) opening imbalance messages. The SQF Purge Interface only
receives and notifies of purge requests from the Market Maker.
Market Makers may only enter interest into SQF in their assigned
options series. Immediate-or-Cancel Orders entered into SQF are not
subject to the Order Price Protection, Market Order Spread
Protection, or Size Limitation in Options 3, Section 15(a)(1) and
(a)(2), and (b)(2), respectively. See Options 3, Section 7(e)(1)(B).
\26\ The term a ``badge'' means an account number, which may
contain letters and/or numbers, assigned to NOM Market Makers. A NOM
Market Maker account may be associated with multiple badges. See NOM
Options 1, Section 1(a)(5).
\27\ See proposed Options 2, Section 4(j).
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LMMs, associated with the same Options Participant, are
collectively required to provide two-sided quotations in 90% of the
cumulative number of seconds, or such higher percentage as NOM may
announce in advance, for which that Option Participant's assigned
options series are open for trading. An LMM shall not be required to
make two-sided markets in any Quarterly Option Series, any Adjusted
Option Series, and any option series with an expiration of nine months
or greater for options on equities and exchange-traded funds (``ETFs'')
or with an expiration of twelve months or greater for index options.
However, an LMM may still receive a participation entitlement in such
series if it elects to quote in such series and otherwise satisfies the
requirements of Options 3, Section 10.\28\ An adjusted option series is
defined as an option series wherein one option contract in the series
represents the delivery of other than 100 shares of underlying stock or
Exchange-Traded Fund Shares or ``ETFs'' (``Adjusted Options
Series'').\29\
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\28\ See proposed Options 2, Section 4(j)(1).
\29\ See proposed Options 2, Section 4(j)(1)(a).
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Specifically, the Exchange will calculate subparagraph (j)(1) by
(i) taking the total number of seconds the Options Participant
disseminates quotes in each assigned options series, excluding
Quarterly Option Series, any Adjusted Option Series, and any option
series with an expiration of nine months or greater for options on
equities and ETFs or with an expiration of twelve months or greater for
index options; and (ii) dividing that time by the eligible total number
of seconds each assigned option series is open for trading that day.
Quoting is not required in every assigned options series. Compliance
with this requirement is determined by reviewing the aggregate of
quoting in assigned options series for the Options Participant.\30\
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\30\ See proposed Options 2, Section 4(j)(2).
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Quoting Obligation Methodology
Lead Market Maker firm 123 is assigned five badges: 123A, 123B,
123C, 123D and 123E.
Badge 123A is designated the Lead Market Maker badge and badge
123B-E are designated as Market Maker badges.
As proposed, only quoting activity from badge 123A (and excluding
badges 123B-E) would be counted toward the requirement to provide two-
sided quotations in 90% of the cumulative number of seconds for which
that Participant's assigned options series are open for trading.
All other badges (123 B-E), excluding badge 123A, would be counted
toward the requirement to provide two-sided quotations in 60% of the
cumulative number of seconds for which that Participant's assigned
options series are open for trading.
An Options Participant may have only one Lead Market Maker badge
per option series.
Further, the below example explains how the Exchange aggregates
quotes from Lead Market Makers, in their assigned options series, to
determine compliance with quoting requirements. The same calculation
applies to quotes from Market Makers in their assigned options series.
NTX Options aggregates and calculates quotes from Lead Market Makers in
an identical manner.\31\
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\31\ See NTX Options at Options 2, Section 4(j) and Options 2,
Section 5(d)(1).
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Under the proposal, by way of example, assume Lead Market Maker
Firm ABC is assigned in five symbols across 2 different badges:
Badge 123A and B are assigned in symbols QQQ and SPY, respectively
Badge 124A, B and C are assigned in symbols IBM, GM, and MSFT,
respectively
Quotes submitted through the Specialized Quote Feed interface from
the Firm ABC's Lead Market Maker badges from all 5 symbols will be
counted in determining compliance with Firm ABC's requirement to
provide two-sided quotations in 90% of the cumulative number of seconds
for which Firm ABC's assigned options series are open for trading.
If Firm ABC Lead Market Maker badge 123A quotes symbol QQQ at 95%
and badge 123B quotes symbol SPY at 90% and Firm ABC Lead Market Maker
badge 124A quotes IBM at 85%, badge 124B quotes GM at 95%, and badge
124C quotes MSFT at 90% then Firm ABC will have met its requirement to
provide two-sided quotations in 90% of the cumulative number of seconds
for which Firm ABC's assigned options series are open for trading
because the percentage across the 5 symbols is 91%.
NOM Regulation may consider exceptions to the requirement to quote
90% (or higher) of the trading day based on demonstrated legal or
regulatory requirements or other mitigating circumstances. For purposes
of the Exchange's surveillance of an Options Participant compliance
with this Rule, the Exchange may determine compliance on a monthly
basis. The Exchange's monthly compliance evaluation of the quoting
requirement does not relieve an Options Participant of the obligation
to provide two-sided quotes on a daily basis, nor will it prohibit the
Exchange from taking disciplinary action against an Options Participant
for failing to meet the quoting obligation each trading day.\32\
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\32\ See proposed Options 2, Section 4(j)(3).
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[[Page 30034]]
If a technical failure or limitation of a System of the Exchange
prevents an LMM from maintaining, or prevents an LMM from communicating
to the Exchange, timely and accurate electronic quotes in an issue, the
duration of such failure shall not be considered in determining whether
the LMM has satisfied the 90% quoting standard with respect to that
option issue. The Exchange may consider other exceptions to this intra-
day electronic quote obligation based on demonstrated legal or
regulatory requirements or other mitigating circumstances.\33\
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\33\ See proposed Options 2, Section 4(j)(4).
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An LMM may be called upon by NOM Regulation to submit a single
quote or maintain intra-day quotes in one or more series of an option
issue within its appointment whenever, in the judgment of NOM
Regulation, it is necessary to do so in the interest of maintaining
fair and orderly markets.\34\ An LMM will be compelled to buy/sell a
specified quantity of option contracts at the disseminated bid/offer
pursuant to his obligations with respect to firm quotes.\35\ All quotes
and orders entered into the System by Options Participants are firm
under Options 2, Section 4 and Rule 602 of Regulation NMS under the
Exchange Act (``SEC Rule 602'') for the number of contracts specified
and according to the size requirements set forth herein. Market Maker
bids and offers are not firm under this Rule and SEC Rule 602: (1) for
the period prior to the Opening Cross; or (2) if any of the
circumstances provided in paragraph (b)(3) or (c)(4) of SEC Rule 602
exist.\36\
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\34\ See proposed Options 2, Section 4(k).
\35\ See proposed Options 2, Section 4(l).
\36\ See proposed Options 2, Section 4(l).
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Options 2, Section 5
With the adoption of LMMs, the Exchange proposes to add rule text
to Options 3, Section 5(d)(1) to provide,
An Options Participant will be required to meet each market making
obligation separately. Quotes submitted through the Specialized Quote
Feed interface, utilizing badges and options series assigned to a
Market Maker, will be counted toward the requirement to provide two-
sided quotations in 60% of the cumulative number of seconds, or such
higher percentage as NOM may announce. An Options Participant that is a
Market Maker in an options series where the Options Participant is also
assigned as the Lead Market Maker, pursuant to Options 2, Section 4, in
an option series will be held to both the Lead Market Maker and Market
Maker obligations, pursuant to Options 2, Section 5(d), separately, in
that options series.
Similar to NTX Options,\37\ the Exchange proposes to make clear
that the quoting requirements for a Market Maker and a Lead Market
Maker are separate obligations. Further, the Exchange proposes a
technical requirement at Options 2, Section 5(d)(1)(A) to define an ETF
and an amendment to Options 2, Section 5(d)(1)(D) to correct the cross
reference from ``subparagraph A'' to ``paragraph d.''
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\37\ See NTX Options at Options 2, Section 5(d)(1).
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Options 3, Section 10
The Exchange proposes to provide LMM participation entitlements in
Options 3, Section 10, Order Book Allocation. As noted herein, an LMM
may be assigned by the Exchange in each option class in accordance with
Options 2, Section 3.
With respect to Price/Time, whereby the System executes all trading
interest at the best price level within the System before executing
trading interest at the next best price, the Exchange proposes to note
that allocation of displayed interest shall occur before allocation of
non-displayed interest at each price level.
Specifically, with respect to Size Pro-Rata executions, after all
Public Customer \38\ orders have been fully executed, upon receipt of
an order, provided the LMM's quote is at or improves on the better of
the NBBO or internal BBO, the LMM will be afforded a participation
entitlement as noted below.\39\ The LMM shall not be entitled to
receive a number of contracts that is greater than the displayed size
associated with such LMM. LMM participation entitlements will be
considered after the Opening Process. A NOM Options LMM shall receive
the greater of: (i) the LMM's Size Pro-Rata; (ii) 50% of remaining
interest if there is one other Market Maker order or quote at that
price; (iii) 40% of remaining interest if there are two other Market
Maker orders or quotes at that price; or (d) 30% of remaining interest
if there are more than two other Market Maker orders or quotes at that
price. Rounding will be to the nearest integer. The Exchange is not
considering Public Customer orders in determining the LMM allocation
because Public Customer orders will continue to have priority over all
other interest at the same price and those orders would have been
executed prior to any LMM allocation. NTX Options has identical rules
at Options 3, Section 10(a)(2)(ii).
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\38\ As proposed herein at renumbered Options 1, Section
1(a)(49), the term ``Public Customer'' means a person or entity that
is not a broker or dealer in securities and is not a Professional as
defined within Options 1, Section 1(a)(48).
\39\ Public Customer non-displayed orders will retain price
priority before an LMM participation entitlement is provided at the
Exchange's disseminated price. (e.g., Price Improving Orders and
Reserve Orders).
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The Exchange also proposes to provide an Entitlement for Orders of
5 contracts or fewer in addition to the LMM Priority overlay at Options
3, Section 10(a)(1)(C)(3) that states,
This Entitlement for Orders of 5 contracts or fewer shall be
allocated to the LMM as described below. The allocation will only apply
after the Opening Process. An LMM is not entitled to receive a number
of contracts that is greater than the size that is associated with its
quote. On a quarterly basis, the Exchange will evaluate what percentage
of the volume executed on the Exchange is comprised of orders for 5
contracts or fewer allocated to LMMs, and will reduce the size of the
orders included in this provision if such percentage is over 40%.
(A) An LMM is entitled to priority with respect to Orders of 5
contracts or fewer if the LMM has a quote at the better of the internal
BBO or the NBBO, with no other Public Customer interest with a higher
priority.
(B) If the LMM's quote is at the better of the internal BBO, or the
NBBO, with other Public Customer interest, a LMM is not entitled to
priority with respect to Orders of 5 contracts or fewer, however the
LMM is eligible to receive such contracts pursuant to paragraph
(a)(1)(C)(4); thereafter orders will be allocated pursuant to paragraph
(a)(1)(C)(5).
In order to be entitled to receive Orders for 5 contracts or fewer,
the LMM's quote must be at the better of the internal BBO \40\ or the
NBBO with no other Public Customer interest which has a higher
priority. If the LMM is quoting at the better of the internal BBO or
the NBBO with other Public Customer Maker interest present which has a
higher priority at the time of execution, the LMM is not entitled to
priority with respect to Orders of 5 contracts or fewer, however the
LMM is eligible to receive such contracts pursuant to paragraph
(a)(1)(C)(4), which describes Market Maker Priority after all Public
Customer orders and LMM participation entitlements have been applied,
and, thereafter, (a)(1)(C)(5) which provides for allocation of all
other remaining interest after Market Maker interest has been fully
executed.
[[Page 30035]]
The Lead Market Maker would be entitled to the entire allocation of the
Order of 5 contracts or fewer where no Public Customer interest was
present with a higher priority. If, for example, a Public Customer is
resting at the NBBO at the time of execution, a Lead Market Maker is
not entitled to priority with respect to Orders of 5 contracts or
fewer. The Lead Market Maker will continue to not be entitled to
priority with respect to allocation of Orders of 5 contracts or fewer
because there is interest present with a higher priority or because the
Lead Market Maker is not quoting at the NBBO. In these situations, the
Lead Market Maker is eligible to receive such contracts pursuant to
paragraph (a)(1)(C)(4); thereafter orders will be allocated pursuant to
paragraph (a)(1)(C)(5). NTX Options has identical rule text at Options
3, Section 10(a)(2)(iii).
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\40\ The ``internal BBO'' refers to the Exchange's non-display
order book. See Options 3, Section 4(b)(7).
---------------------------------------------------------------------------
The Exchange proposes to add the word ``order'' before ``Book'' and
lowercase ``book'' at Options 3, Section 10(a)(3).
Options 2, Section 6
Options 2, Section 6(a) currently states that Market Makers may
enter all order types defined in Options 3, Section 7 in the options
classes to which they are appointed and non-appointed.
The Exchange proposes to adopt a new Reserve Order at proposed
Options 3, Section 7(g) that is identical to Nasdaq ISE, LLC (``ISE''),
Nasdaq GEMX, LLC (``GEMX'') and Nasdaq MRX, LLC (``MRX'') Reserve
Orders at Options 3, Section 7(g). The Exchange proposes to amend
Options 2, Section 6(a) to restrict Market Makers from entering Reserve
Orders in both appointed and non-appointed options classes. Today, ISE,
GEMX and MRX Options 2, Section 6 only restricts Market Makers from
entering Reserve Orders. Unlike other order types, the Reserve Order is
a limit order that contains both a displayed portion and a non-
displayed portion. Both the displayed and non-displayed portions of a
Reserve Order are available for potential execution against incoming
marketable orders. When the displayed portion of a Reserve Order is
decremented, either in full or in part, it shall be refreshed from the
non-displayed portion of the resting Reserve Order. The Exchange
believes that because a Reserve Order contains a non-displayed portion,
Market Makers should not be permitted to enter this order type. Market
Makers are required to make markets that, absent changed market
conditions, will be honored for the number of contracts entered into
the Exchange's System in all series of options classes to which the
market maker is appointed. The Exchange believes that Market Maker
liquidity should be displayed liquidity and, therefore, proposes to
amend Options 2, Section 6 by stating that Market Makers should not be
permitted to enter Reserve Orders.
Options 3, Section 3
The Exchange proposes to amend Options 3, Section 3(c) which
currently states, ``A quote submitted to the System with an invalid
trading increment will be re-priced. The quote will be rounded up to
the nearest valid minimum price variation for offers and rounded down
for bids.'' Today, the Exchange permits NOM Participants to enter
quotes in sub-pennies. At this time, the Exchange proposes to no longer
permit quotes to be submitted to the Exchange in sub-pennies. Requiring
quotes to be submitted in valid minimum price increments will
standardize NOM to the behavior of other Nasdaq affiliated exchanges
that do not permit quotes to be permitted in sub-pennies.\41\ All other
Nasdaq affiliated exchanges require quotes to be submitted in minimum
price increments.\42\ As a result of this System change, any quote
submitted in a sub-penny would be rejected by the System as a result of
the technology migration.
---------------------------------------------------------------------------
\41\ Other Nasdaq affiliated exchanges require quotes to be
submitted in minimum price increments.
\42\ See ISE, GEMX, MRX and Phlx Options 3, Section 3.
---------------------------------------------------------------------------
Further, the Exchange proposes to amend the current text of Options
3, Section 3(c) to add that those quotes are displayed at the nearest
minimum price variation. Today, Options 3, Section 4(b)(6) \43\
specifies that NOM displays quotes at the minimum price variation and
the Exchange is adding that detail to Options 3, Section 3(c) as well.
While quotes are accessible to be traded at the trading increment in
which they are entered, the Exchange displays these quotes at the
nearest minimum price variation.
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\43\ Options 3, Section 4(b)(6) provides that, 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) as non-displayed and displayed at one
minimum price variance above (for offers) or below (for bids) the
national best price.
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Options 3, Section 7
The Exchange proposes to remove ``(a)'' and move the rule text of
Options 3, Section 7(a) after the first sentence.
Market Orders
The Exchange proposes to amend the description of Market Orders and
relocate the order type from Options 3, Section 7(a)(4) to Options 3,
Section 7(a) without any substantive change to the rule. Today, Options
3, Section 7(a)(4) states,
A Market Order is an order to buy or sell at the best price
available at the time of execution. Participants can designate that
their Market Orders not executed after a pre-established period of
time, as established by the Exchange, will be cancelled back to the
Participant, once an option series has opened for trading. Market
Orders on the Order Book would be immediately cancelled if an options
series halted, provided the Participant designated the cancellation of
Market Orders.
The Exchange proposes to instead provide that,
A Market Order is an order to buy or sell a stated number of
options contracts that is to be executed at the best price obtainable
when the order reaches the Exchange. Participants can designate that
their Market Orders not executed after a pre-established period of
time, as established by the Exchange, will be cancelled back to the
Participant, once an options series has opened for trading. Market
Orders on the order book would be immediately cancelled if an options
series is halted, provided the Participant designated the cancellation
of Market Orders.
The Exchange's amendment to the first sentence does not
substantively amend this order type, rather the text is being reworded
to align to ISE, GEMX and MRX rule text at Options 3, Section 7(a).
Limit Orders
The Exchange proposes to amend and relocate ``Limit Orders'' from
current Options 3, Section 7(a)(2) to proposed Options 3, Section 7(b).
Today, Options 3, Section 7(a)(2) states, ``Limit Order'' is an order
to buy or sell an option at a specified price or better. A marketable
Limit Order is a Limit Order to buy (sell) at or above (below) the best
offer (bid) on the Exchange. The Exchange proposes to slightly modify
the text in a non-substantive matter to align to ISE, GEMX and MRX
Options 3, Section 7(b) with respect to the description of a Limit
Order and a Marketable Limit Order to provide at proposed Options 3,
Section 7(b) that a Limit Order is an order to buy or sell a stated
number of options contracts at a specified price or better. The
Exchange proposes to state at Options 3, Section 7(b)(1) that a
Marketable Limit Order is a limit order
[[Page 30036]]
to buy (sell) at or above (below) the best offer (bid) on the Exchange.
The Exchange proposes to define a Fill-or-Kill Orders as a Limit Order
that is to be executed in its entirety as soon as it is received and,
if not so executed, treated as cancelled similar to ISE, GEMX and MRX
Options 3, Section 7(b)(2).
The Exchange proposes to amend and relocate the Intermarket Sweep
Order from current Options 3, Section 7(a)(7) to proposed Options 3,
Section 7(b)(3) under Limit Orders. Current Options 3, Section 7(a)(7)
states
``Intermarket Sweep Order'' or ``ISO'' is a Limit Order that meets
the requirements of Options 5, Section 1(8). Orders submitted to the
Exchange as ISO are not routable and will ignore the ABBO and trade at
allowable prices on the Exchange. ISOs may be entered on the Order
Book. ISOs may have any time-in-force designation and are handled
within the System pursuant to Options 3, Section 10 and shall not be
eligible for routing as set out in Options 5, Section 4. ISO Orders may
not be submitted during the opening.
The relocated rule text is substantively identical, except the
Exchange is removing the sentence that state, ``ISOs may be entered on
the Order Book'' and ``. . . are handled within the System pursuant to
Options 3, Section 10 and shall not be eligible for routing as set out
in Options 5, Section 4.'' Since all orders may be entered on the Order
Book, the sentence is not necessary. Further, all orders are subject to
the allocation process in Options 3, Section 10. Also, ISO orders shall
not be routable, as specified in Options 5, Section 4, and these orders
meet the requirements of Options 5, Section 1(8). The Exchange's
proposal aligns NOM's rule text for ISO Orders with that of ISE, GEMX
and MRX at Options 3, Section 7(b)(3).
All-or-None Orders
The Exchange proposes to amend and relocate the All-or-None Orders
or ``AON'' Orders from current Options 3, Section 7(a)(8) to proposed
Options 3, Section 7(c). Current Options 3, Section 7(a)(8) provides
that an
``All-or-None Order'' is a Market or Limit Order which is to be
executed in its entirety or not at all. All-or-None Orders are treated
as having a time-in-force designation of Immediate or Cancel. All-or-
None Orders received prior to the Opening Process or after market close
will be rejected.
The Exchange proposes to add a new sentence which states that AON
Orders will only execute against multiple, aggregated orders if the
executions would occur simultaneously. This is true for NOM today. The
handling of AONs as described in the proposed rule text in Options 3,
Section 7(c) is consistent with the Exchange's allocation methodology
in Options 3, Section 10. The additional detail makes clear that
because of the size contingency of AON Orders, those orders must be
satisfied simultaneously to avoid any priority conflict on the order
book, which considers current displayed NBBO prices to avoid locked and
crossed markets as well as trade-throughs. Additionally, the rule text
will be harmonized to ISE, GEMX and MRX Options 3, Section 7(c). The
Exchange also proposes to amend the sentence that states, ``All-or-None
Orders received prior to the opening cross or after market close will
be rejected'' to harmonize the rule text to ISE, GEMX and MRX Options
3, Section 7(c). The Exchange proposes to modify this sentence to
instead provide that AON Orders may not be submitted during the Opening
Process.\44\ The current rule text similarly prohibits the submission
of AON Orders before the market opens, which occurs at the end of the
Opening Process.
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\44\ NOM's amended Opening Process is described in Options 3,
Section 8.
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Stop Orders
The Exchange proposes to adopt a Stop Order on NOM at proposed
Options 3, Section 7(d). The Exchange proposes to describe a Stop Order
as an order that becomes a Market Order when the stop price is elected.
A Stop Order to buy is elected when the option is bid or trades on the
Exchange at, or above, the specified stop price. A Stop Order to sell
is elected when the option is offered or trades on the Exchange at, or
below, the specified stop price. A Stop Order shall be cancelled if it
is immediately electable upon receipt. Stop Orders may only be entered
through FIX. A Stop Order shall not be elected by a trade that is
reported late or out of sequence.\45\
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\45\ ISE and MRX Options 3, Section 7(c) also provide that a
Stop Order is not elected by a Complex Order trading with another
Complex Order. NOM currently does not offer Complex Orders,
therefore it is not adding this text.
---------------------------------------------------------------------------
The Exchange also proposes to adopt a Stop Limit Order at proposed
Options 3, Section 7(e). The Exchange proposes to provide that a Stop
Limit Order is an order that becomes a Limit Order when the stop price
is elected. A Stop Limit Order to buy is elected when the option is bid
or trades on the Exchange at, or above, the specified stop price. A
Stop Limit Order to sell becomes a sell limit order when the option is
offered or trades on the Exchange at, or below, the specified stop
price. A Stop Limit Order shall be cancelled if it is immediately
electable upon receipt. Stop Limit Orders may only be entered through
FIX. A Stop Limit Order shall not be elected by a trade that is
reported late or out of sequence.
A Stop Order is not elected by a trade that is reported late to
ensure systemically that a Stop Order would be elected by the execution
price at the actual time of the execution, instead of at a later time.
Absent this provision, it would be possible for a Stop Order to be
elected by a trade that is reported late, which could result in such
Stop Order being converted into a Market Order or a Limit Order and, in
the case of a Stop Order executed at a significantly different price
than the election price of the Stop Order.\46\
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\46\ For example, if a Stop Order to sell at $3.00 is elected by
a trade reported late or out-of-sequence with an execution price of
$3.00 when the actual bid price at the time of the report is $1.00,
the Stop Order would be converted into a market order and executed
at $1.00.
---------------------------------------------------------------------------
Cancel or Replace Orders
The Exchange proposes to rename the ``Cancel-Replacement Order'' as
a ``Cancel or Replace Order'' and amend and relocate the proposed
Cancel and Replace Order description from Options 3, Section 7(a)(1) to
proposed Options 3, Section 7(f). Currently, Options 3, Section 7(a)(1)
states,
``Cancel-Replacement Order'' is a single message for the immediate
cancellation of a previously received order and the replacement of that
order with a new order with new terms and conditions. If the previously
placed order is already filled partially or in its entirety, the
replacement order is automatically canceled or reduced by the number of
contracts that were executed. The replacement order will retain the
priority of the cancelled order, if the order posts to the Order Book,
provided the price is not amended, and the size is not increased.
The Exchange proposes to modify the Cancel and Replace Order so
that it is identical to the functionality on ISE, GEMX and MRX at
Options 3, Section 7(f) by stating,
Cancel and Replace Orders shall mean a single message for the
immediate cancellation of a previously received order and the
replacement of that order with a new order. If the previously placed
order is already filled partially or in its entirety, the replacement
order is automatically canceled or reduced by the number of contracts
that were executed. The replacement order will retain the priority of
the cancelled
[[Page 30037]]
order, if the order posts to the Order Book, provided the price is not
amended or size is not increased. In the case of Reserve Orders, the
replacement order will retain the priority of the cancelled order, if
the order posts to the Order Book, provided the price is not amended or
size (displayed and non-displayed) is not changed. If the replacement
portion of a Cancel and Replace Order does not satisfy the System's
price or other reasonability checks (e.g., Order Price Protection and
Market Order Spread Protection within Options 3, Section 15(a)(1) and
(a)(2), respectively); the existing order shall be cancelled and not
replaced.
The Exchange is not proposing to substantively amend the
description of a Cancel and Replace Order, except that the Exchange
proposes to introduce Reserve Orders, as explained below. The Exchange
proposes to state that in the case of Reserve Orders, the replacement
order will retain the priority of the cancelled order, if the order
posts to the Order Book, provided the price is not amended or size
(displayed and non-displayed) is not changed. Because a Reserve Order
has both a displayed and non-displayed portion, this additional
language makes clear the System handling for this order type. Also, the
Exchange proposes to add language to provide that if the replacement
portion of a Cancel and Replace Order does not satisfy the System's
price or other reasonability checks (e.g. Order Price Protection and
Market Order Spread Protection within Options 3, Section 15(a)(1) and
(a)(2), respectively); the existing order shall be cancelled and not
replaced. The Limit Order Price Protection and Market Order Spread
Protection are the only risk protections within Options 3, Section 15
(Risk Protections) that are applicable. Price or other reasonability
checks consider the current market at the time the Cancel and Replace
Order is entered. The Exchange proposes to begin applying price or
other reasonability checks to all Cancel and Replace Orders, similar to
ISE, GEMX and MRX, to provide market participants with additional risk
protection checks with the re-entry of the Cancel and Replace Order.
This proposed rule is similar to ISE, GEMX and MRX Rules at Options 3,
Section 7 at Supplementary Material .02. All risk protections are noted
within Options 3, Section 15. Those risk protections apply throughout
the Rulebook, except where otherwise noted. Finally, the Exchange is
also proposing to remove the phrase ``. . .with new terms and
conditions'' to harmonize the rule text to that of ISE, GEMX and MRX at
Options 3, Section 7(f).
Reserve Orders
The Exchange proposes to adopt a Reserve Order at Options 3,
Section 7(g) that is identical to the order type in ISE, GEMX and MRX
Options 3, Section 7(g). As proposed, a Reserve Order would be a limit
order that contains both a displayed portion and a non-displayed
portion. Both the displayed and non-displayed portions of a Reserve
Order would be available for potential execution against incoming
marketable orders. A non-marketable Reserve Order would rest on the
order book. The displayed portion of a Reserve Order would be ranked at
the specified limit price and the time of order entry. The displayed
portion of a Reserve Order would trade in accordance with Options 3,
Section 10(a)(1)(C)(1)(a) or Options 3, Section 10(a)(2)(i) for Public
Customer Orders and Options 3, Section 10(a)(1)(C)(1)(d) or Options 3,
Section 10(a)(2)(iv) or (v) for non-Public Customer Orders. Reserve
Orders would be entered with an instruction for the displayed portion
of the order to be refreshed: (A) upon full execution of the displayed
portion or upon any partial execution; and (B) up to the initial size
of the displayed portion or with a random refresh quantity within a
range determined by the Participant. When the displayed portion of a
Reserve Order is decremented, either in full or in part, it would be
refreshed from the non-displayed portion of the resting Reserve Order.
If the displayed portion is refreshed in part, the new displayed
portion would include the previously displayed portion. Upon any
refresh, the entire displayed portion would be ranked at the specified
limit price and obtain a new time stamp, i.e., the time that the new
displayed portion of the order was refreshed. The new displayed portion
would trade in accordance with Options 3, Section 10(a)(1)(C)(1)(a) and
10(a)(1)(C)(2)(i) for Public Customer Orders, and Options 3, Section
10(a)(1)(C)(1)(d) and 10(a)(1)(C)(2)(iv) and (v) for non-Public
Customer Orders. The initial non-displayed portion of a Reserve Order
rests on the order book and would be ranked based on the specified
limit price and time of order entry. Thereafter, non-displayed
portions, if any, always obtain the same time stamp as that of the new
displayed portion as described in proposed Options 3, Section 7(g)(5).
The non-displayed portion of any Reserve Order would be available for
execution only after all displayed interest has been executed. The non-
displayed portion of any Reserve Order would trade in accordance with
Options 3, Section 10(a)(1)(C)(1)(a) and 10(a)(1)(C)(2)(i) for Public
Customer Orders, and Options 3, Section 10(a)(1)(C)(1)(d) and
10(a)(1)(C)(2)(iv) and (v) for non-Public Customer Orders. The Exchange
believes that the adoption of this new order type will allow all
Participants the ability to trade their orders with displayed and non-
displayed portions similar to ISE, GEMX and MRX Options 3, Section
7(g).
Price Improving Orders
The Exchange proposes to relocate Price Improving Orders from
current Options 7, Section (a)(5) to proposed Options 3, Section 7(m)
without change.
Add Liquidity Orders
The Exchange proposes to relocate the Add Liquidity Order (``ALO'')
from current Options 3, Section 7(a)(9) \47\ to proposed Options 3,
Section 7(n) and amend the current text to conform the rule text to Add
Liquidity Orders on ISE, GEMX, MRX and Phlx except that NOM's Add
Liquidity Order will continue to reprice $.01 below the current low
offer (for bids) or above the current best bid (for offers) and
displays the quote at one MPV below the current low offer (for bids) or
above the current best bid (for offers) unlike ISE, GEMX, MRX and Phlx.
In contrast to NOM, ISE, GEMX, MRX and Phlx re-price to the minimum
price variation above the national best bid price (for sell orders) or
below the national best offer price (for buy orders) resulting in
better-priced non-displayed interest that is available on the order
book. Further, unlike ISE, GEMX, MRX and Phlx, NOM
[[Page 30038]]
does not offer auction functionality. NOM's Add Liquidity Order would
provide,
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\47\ An ``Add Liquidity Order'' is an order that will not remove
liquidity from the System. Add Liquidity Orders are to be ranked and
executed on the Exchange or cancelled, as appropriate, without
routing away to another market. Add Liquidity Orders are evaluated
at the time of entry with respect to locking or crossing other
orders as follows: (i) if an Add Liquidity Order would lock or cross
an order on the System, the order will be re-priced to $.01 below
the current low offer (for bids) or above the current best bid (for
offers) and displayed by the System at one minimum price increment
below the current low offer (for bids) or above the current best bid
(for offers); and (ii) if a Add Liquidity Order would not lock or
cross an order on the System but would lock or cross the NBBO as
reflected in the protected quotation of another market center, the
order will be handled pursuant to Options 3, Section 5(b)--(d).
Participants may choose to have their Add Liquidity Orders returned
whenever the order would lock or cross the NBBO or be placed on the
order book at a price other than its limit price. Add Liquidity
Orders received prior to the Opening Process will be eligible for
execution during the Opening Process and will be processed as per
Options 3, Section 8. Add Liquidity Orders received after market
close will be rejected. Add Liquidity Orders may not have a time-in-
force designation of Good Til Cancelled or Immediate or Cancel. See
NOM Options 3, Section 7(a)(9).
---------------------------------------------------------------------------
An Add Liquidity Order is a limit order that is to be executed in
whole or in part on the Exchange (i) only after being displayed on the
Exchange's limit order book; and (ii) without routing any portion of
the order to another market center. Participants may specify whether an
Add Liquidity Order shall be cancelled or re-priced to $.01 below the
current low offer (for bids) or above the current best bid (for offers)
and displayed by the System at one minimum price increment below the
current low offer (for bids) or above the current best bid (for offers)
if, at the time of entry, the order: (i) is executable on the Exchange;
or (ii) the order is not executable on the Exchange, but would lock or
cross the national best bid or offer. If at the time of entry, an Add
Liquidity Order would lock or cross one or more non-displayed orders or
quotes on the Exchange, the Add Liquidity Order shall be cancelled or
re-priced to $.01 below the current low offer (for bids) or above the
current best bid (for offers) and displayed by the System at one
minimum price increment below the current low offer (for bids) or above
the current best bid (for offers). Notwithstanding the aforementioned,
if an Add Liquidity Order would not lock or cross an order or quote on
the System but would lock or cross the NBBO, the order will be handled
pursuant to Options 3, Section 5(c) and (d). An Add Liquidity Order
will be ranked in the Exchange's limit order book in accordance with
Options 3, Section 10. Add Liquidity Orders may only be submitted when
an options series is open for trading. Add Liquidity Orders may only
have a time-in-force designation of Day.
The Exchange proposes to remove the rule text that states that Add
Liquidity Orders will not remove liquidity from the System because this
is evident from the title of the order type. Further, the Exchange
proposes to remove rule text that states that Add Liquidity Orders are
to be ranked and executed on the Exchange or cancelled, as appropriate,
without routing away to another market because this is the case for all
order types. Also, the Exchange proposes to remove the rule text that
states that Add Liquidity Orders are evaluated at the time of entry
with respect to locking or crossing other orders and instead state
provide that an Add Liquidity Order is a limit order that is to be
executed in whole or in part on the Exchange based on certain criteria.
Identical to ISE, GEMX, MRX and Phlx the Exchange proposes to state
that, ``An Add Liquidity Order is a limit order that is to be executed
in whole or in part on the Exchange. . . (i) only after being displayed
on the Exchange's limit order book and (ii) without routing any portion
of the order to another market center.'' The Exchange proposes to
retain rule text that describes repricing and also adopt rule text from
ISE, GEMX, MRX and Phlx when next stating that,
Participants may specify whether an Add Liquidity Order shall be
cancelled or re-priced to $.01 below the current low offer (for bids)
or above the current best bid (for offers) and displayed by the System
at one minimum price increment below the current low offer (for bids)
or above the current best bid (for offers) if, at the time of entry,
the order: (i) is executable on the Exchange; or (ii) the order is not
executable on the Exchange, but would lock or cross the national best
bid or offer. If at the time of entry, an Add Liquidity Order would
lock or cross one or more non-displayed orders or quotes on the
Exchange, the Add Liquidity Order shall be cancelled or re-priced to
$.01 below the current low offer (for bids) or above the current best
bid (for offers) and displayed by the System at one minimum price
increment below the current low offer (for bids) or above the current
best bid (for offers). Notwithstanding the aforementioned, if an Add
Liquidity Order would not lock or cross an order or quote on the System
but would lock or cross the NBBO, the order will be handled pursuant to
Options 3, Section 5(c) and (d). An Add Liquidity Order will be ranked
in the Exchange's limit order book in accordance with Options 3,
Section 10. Add Liquidity Orders may only be submitted when an options
series is open for trading. Add Liquidity Orders may only have a time-
in-force designation of Day.
With this migration, Add Liquidity Orders received prior to the
Opening Process will not be eligible for execution during the Opening.
Add Liquidity Orders received after market close will be rejected
similar to all other order types, so this language is being removed.
The Exchange is removing the sentence that provides, ``Participants may
choose to have their Add Liquidity Orders returned whenever the order
would lock or cross the NBBO or be placed on the order book at a price
other than its limit price.'' Also, the citation to Options 3, Section
5(b)-(d) is being amended to Options 3, Sections (c) and (d). Options
3, Section 5(b) is not necessary, however Options 3, Sections (c) and
(d) contain price improving order details relevant to re-pricing. Add
Liquidity Orders may only have a time-in-force designation of Day
because the proposed new text states that Add Liquidity Order shall be
cancelled or re-priced. Finally, with this migration, Add Liquidity
Orders may only have a time-in-force designation of Day. Today, Add
Liquidity Orders may not have a time-in-force designation of Good Til
Cancelled or Immediate or Cancel. The Exchange has added a Good-Till-
Date Time in Force with this proposal, so at this time, the Exchange
proposes to simply note that Add Liquidity Orders may only have a time-
in-force designation of Day.
Opening Sweep
The Exchange proposes to adopt a new order type at proposed Options
3, Section 7(u), ``Opening Sweep.'' An Opening Sweep is a one-sided
order entered by a Market Maker through SQF for execution against
eligible interest in the System during the Opening Process. This order
type is not subject to any protections listed in Options 3, Section 15,
except for Automated Quotation Adjustments and Market Wide Risk
Protection. The Opening Sweep will only participate in the Opening
Process pursuant to Options 3, Section 8(b) and will be cancelled upon
the open if not executed. The Exchange also proposes to amend the
Opening Halt Cross at Options 3, Section 8 to describe the Opening
Sweep in the proposed changes to that rule.
The Exchange proposes to reserve Options 3, Section 7(h), (i)-(l),
and (o)-(t), and (v)-(z) which contain order types that are available
on other Nasdaq affiliated options markets, but are not available on
NOM which does not have auction order types or other order types
available on other Nasdaq affiliated markets.
Time in Force Provisions
The Exchange proposes to relocate the rule text concerning Time in
Force from current Options 3, Section 7(b) \48\ to Supplementary
Material .02 to Options 3, Section 7 without change.
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\48\ Current NOM Options 3, Section 7(b) states, The term ``Time
in Force'' or ``TIF'''' shall mean the period of time that the
System will hold an order for potential execution, and shall
include:.
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Day Order
The Exchange proposes to relocate a Day TIF from current Options 3,
Section 7(b)(3) \49\ to new to Supplementary Material .02(a) to Options
3, Section 7 without substantive change. The minor
[[Page 30039]]
proposed wording changes to the rule text of Day Order are intended to
be identical to the rule text in ISE, GEMX and MRX Supplementary
Material .02(a) to Options 3, Section 7.\50\
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\49\ ``DAY'' is an order entered with a TIF of ``Day'' that
expires at the end of the day on which it was entered, if not
executed. All orders by their terms are Day Orders unless otherwise
specified. Day orders may be entered through FIX. See NOM Options 3,
Section 7(b)(3).
\50\ NOM does not offer a Precise protocol similar to ISE and
GEMX.
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Good-Till-Cancelled
The Exchange proposes to amend and relocate Good-Till-Cancelled
from Options 3, Section 7(b)(4) \51\ to proposed Supplementary Material
.02(b) to Options 3, Section 7. The Exchange is not amending the System
functionality of this order type. The Exchange proposes to amend the
current rule text to instead provide that an order to buy or sell
entered with a TIF of ``GTC'' remains in force until the order is
filled, canceled or the option contract expires; provided, however,
that GTC orders will be canceled in the event of a corporate action
that results in an adjustment to the terms of an option contract. The
first sentence of the current text is simply worded differently; today
GTC orders are canceled in the event of a corporate action that results
in an adjustment to the terms of an option contract. The Exchange is
adding this rule text concerning a corporate action to clarify the
current System behavior. The proposed GTC description is identical to
the rule text in ISE, GEMX and MRX Supplementary Material .02(b) to
Options 3, Section 7.
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\51\ Current NOM Options 3, Section 7(b)(4) states ``Good Til
Cancelled'' or ``GTC'' is an order entered with a TIF of ``GTC''
that, if not fully executed, will remain available for potential
display and/or execution unless cancelled by the entering party, or
until the option expires, whichever comes first. GTC Orders shall be
available for entry from the time prior to market open specified by
the Exchange until market close.
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Good-Till-Date
The Exchange proposes to adopt a new TIF designation, Good-Till-
Date or ``GTD'' at Supplementary Material .02(c) to Options 3, Section
7 which is identical to ISE, GEMX and MRX's Good-Till-Date TIF at
Supplementary Material .02(c) to Options 3, Section 7. A Good-Till-Date
TIF is an order to buy or sell entered with a TIF of ``GTD,'' which, if
not executed, would be cancelled at the sooner of the end of the
expiration date assigned to the order, or the expiration of the series;
provided, however, that GTD orders would be canceled in the event of a
corporate action that results in an adjustment to the terms of an
option contract. GTD Orders will only be available on FIX, similar to
ISE, GEMX and MRX Supplementary Material .02(c) to Options 3, Section
7. The Exchange believes this additional TIF will provide Participants
with additional opportunities when trading on the Exchange.
Immediate-or-Cancel
The Exchange proposes to relocate Immediate-or-Cancel from Options
3, Section 7(c)(2) \52\ to Supplementary Material .02(d) to Options 3,
Section 7 with minor non-substantive wording amendments that are
intended to align with rule text in ISE, GEMX and MRX Supplementary
Material .02(d) to Options 3, Section 7. The Exchange would add
``simple orders'' to the end of the description.
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\52\ Current NOM Options 3, Section 7(b)(2) states (d)
``Immediate-or-Cancel'' or ``IOC'' is a Market Order or Limit Order
to be executed in whole or in part upon receipt. Any portion not so
executed is cancelled and/or routed pursuant to Participant's
instruction. IOC orders may be entered through FIX, or SQF, provided
that an IOC Order entered by a Market Maker through SQF is not
subject to the Order Price Protection, the Market Order Spread
Protection, or Size Limitation in Options 3, Section 15(a)(1),
(a)(2), and (b)(2), respectively. IOC Orders entered through SQF may
not route.
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Opening Only
The Exchange proposes to replace the ``On the Open Order'' time-in-
force or ``TIF'' currently located at Options 3, Section 7(b)(1) with
an ``Opening Only'' or ``OPG'' TIF, which can only be executed in the
Opening Process pursuant to Options 3, Section 8. Currently, Options 3,
Section 7(b)(1) provides,
``On the Open Order'' or ``OPG'' shall mean for orders so
designated, that if after entry into the System, the order is not fully
executed in its entirety during the Opening Cross, the order, or any
unexecuted portion of such order, will be cancelled back to the
entering participant. OPG orders may not route. This order type is not
subject to any protections listed in Options 3, Section 15, except Size
Limitation.
The Exchange proposes to replace the On the Open Order with the
following rule text describing an Opening Only TIF,
An Opening Only (``OPG'') order is entered with a TIF of ``OPG.''
This order can only be executed in the Opening Process pursuant to
Options 3, Section 8. Any portion of the order that is not executed
during the Opening Process is cancelled. OPG orders may not route. This
order type is not subject to any protections listed in Options 3,
Section 15, except Size Limitation and Market Wide Risk Protection.
Any portion of an Opening Only order that is not executed during
the Opening Process would be cancelled. This order type would not be
subject to any protections listed in Options 3, Section 15. Finally,
the Exchange proposes to note that OPG orders may not route. This order
type is identical to the OPG order in ISE, GEMX and MRX Supplementary
Material .02(e) to Options 3, Section 7.
The Exchange is adding an italicized header to each order type to
conform the format to that of ISE, GEMX and MRX Options 3, Section 7.
Order Entry Protocols
The Exchange proposes to relocate the order entry protocols from
current Options 3, Section 7(e) to proposed Supplementary Material .03
to Options 3, Section 7. The Exchange proposes to re-letter the
subsections from ``A, B, and C'' to ``a, b, and c.'' The Exchange
proposes to remove the rule text that provides, ``(e) Entry and Display
or Orders and Quotes. Participants may enter orders and quotes into the
System as specified below'' to align the rule text with ISE, GEMX and
MRX Supplementary Material .03 to Options 3, Section 7.
The Exchange proposes to amend the FIX protocol to note that
similar to ISE, GEMX and MRX at Supplementary Material .03(a) to
Options 3, Section 7, that the Exchange will commence offering post
trade allocation messages. A post trade allocation message allows
market participants to specify how an order should be subdivided among
one or more accounts.\53\ Today, ISE, GEMX and MRX provide post trade
allocation messages through FIX.\54\
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\53\ For example, a member may specify the account(s) and their
respective order quantities which make up the order.
\54\ See ISE, GEMX and MRX Supplementary Material .03(a)(i) of
Options 3, Section 7.
---------------------------------------------------------------------------
The Exchange proposes to add the word ``Protection'' after ``Size
Limitation'' for the SQF Protocol and re-letter the protocol from ``B''
to ``c'' within Supplementary Material .03 to Options 3, Section 7.
At this time, the Exchange proposes to rename ``Quote Using
Orders'' or ``QUO,'' \55\ to ``Ouch to Trade Options'' or ``OTTO.'' The
Exchange also proposes to amend and relocate the protocol description
to Supplementary Material .03(b) to Options 3, Section 7. Today, QUO
permits Market Makers to
[[Page 30040]]
connect, send and receive messages related to single-sided orders to
and from the Exchange and those orders are treated as quotes. Similar
to QUO, the OTTO protocol would include (1) options symbol directory
messages (e.g., underlying instruments); (2) System event messages
(e.g., start of trading hours messages and start of opening); (3)
trading action messages (e.g., halts and resumes); (4) execution
messages; (5) order messages; and (6) risk protection triggers and
cancel notifications; and (7) post trade allocation messages.
---------------------------------------------------------------------------
\55\ QUO is an interface that allows NOM Market Makers to
connect, send, and receive messages related to single-sided orders
to and from the Exchange. Order Features include the following: (1)
Options symbol directory messages (e.g., underlying); (2) system
event messages (e.g., start of trading hours messages and start of
opening); (3) trading action messages (e.g., halts and resumes); (4)
execution messages; (5) order messages; and (6) risk protection
triggers and cancel notifications. Orders submitted by NOM Market
Makers over this interface are treated as quotes. See Options 3,
Section 7(d)(1)(D).
---------------------------------------------------------------------------
The Exchange proposes to amend QUO so that the orders could be
submitted as two-sided orders. Today, orders may only be submitted as
single-sided orders. Further, the Exchange would no longer treat orders
submitted by Market Makers over this interface as quotes, instead they
would be viewed by the System as orders. The current functionality of
QUO would otherwise remain the same. The Exchange would permit all NOM
Participants to utilize the amended QUO functionality instead of only
Market Makers. Because QUO would be for order submission, the Exchange
would subject the orders to the Order Price Protection and Size
Limitation in Options 3, Section 15(a)(1) and (b)(2) that are currently
not being applied. SQF would continue to be available for Market Makers
to enter quotes. The Exchange believes that this amended protocol will
allow a greater number of market participants on NOM to utilize the
protocol. This order entry protocol would be in addition to the FIX
protocol currently offered for order entry. Additionally, as amended,
the protocol would be identical to the OTTO protocol offered on all
other Nasdaq affiliated options markets. The Exchange proposes to
reserve Supplementary Material .03(d) to Options 3, Section 7.
Routing
The Exchange proposes to relocate the rule text at Options 3,
Section 7(c) \56\ to Supplementary Material .04 of Options 3, Section 7
and amend that rule text to provide ``Orders may be entered on the
Exchange with a routing strategy of FIND, SRCH or Do-Not-Route
(``DNR'') as provided in Options 5, Section 4 through FIX only.'' The
Exchange proposes to align NOM's routing options to that of all other
Nasdaq affiliated options markets by offering FIND as a routing options
in lieu of SEEK. The Exchange describes that amendment below under
Routing.
---------------------------------------------------------------------------
\56\ Current NOM Options 3, Section 7(c) provides, Routing
Strategies. Orders may be entered on the Exchange with a routing
strategy of SEEK, SRCH or Do-Not-Route (``DNR'') as provided in
Options 5, Section 4 through FIX only.
---------------------------------------------------------------------------
Order Size
The Exchange is removing the sentence that provides, ``The term
``Order Size'' shall mean the number of contracts up to 999,999
associated with the Order.'' This term is not utilized in the Exchanges
rules.
Options 3, Section 8
The Exchange proposes to amend NOM's Opening Process so that it
would be identical to Nasdaq Texas, LLC's or ``NTX Options'' Opening
Process at Options 3, Section 8.
In summary, the Exchange proposes to retain NOM's Valid Width NBBO
requirements with respect to Opening With a Trade pursuant to proposed
Options 3, Section 8(i) and (j). The Exchange's proposal would maintain
NOM's ability to open with a BBO (no trade) pursuant to proposed
Options 3, Section 8(f) either with: (1) a Valid Width NBBO; (2) upon
the opening of a certain number of away markets; or (3) if a certain
amount of time has passed since the commencement of the Opening
Process. When opening with a trade, NOM's proposal will limit the
current opening price boundaries on NOM. The proposal would align NOM's
current Valid Width NBBO requirements to NTX Options' Quality Opening
Markets requirements. This proposal seeks to provide a process for NOM,
when opening with a trade, which requires tighter boundaries identical
to NTX Options. The Exchange's proposal is described in greater detail
below.
The Exchange proposes to amend the title of Options 3, Section 8
from ``Opening and Halt Cross'' to ``Options Opening Process'' to
conform the title to NTX Options at Options 3, Section 8, ``Options
Opening Process.'' The Exchange also proposes to amend the title of
Options 3, Section 8, within Options 4A, Section 11, Trading Session,
and Options 6B, Section 1, Exercise of Options Contracts, to conform
the title to ``Opening Process'' as proposed herein.
Definitions
The Exchange proposes to amend the current ``Definitions'' section
at proposed Options 3, Section 8(a). The Exchange proposes to remove
the text ``For purposes of this Rule the term:'' and instead state,
``The Exchange conducts an opening for all option series traded on the
Exchange using its System.'' This rule text change is identical to NTX
Options at Options 3, Section 8(a).
The Exchange proposes to amend and alphabetize the current
definitions within Options 3, Section 8(a). The Exchange proposes to
set forth the following terms, which are described below: ``Away Best
Bid or Offer'' or ``ABBO;'' ``imbalance;'' ``market for the underlying
security;'' ``Opening Price;'' ``Opening Process;'' ``Potential Opening
Price;'' ``Pre-Market BBO;'' ``Valid Width National Best Bid or Offer''
or ``Valid Width NBBO;'' ``Valid Width Quote,'' and ``Zero Bid
Market.'' The Exchange is conforming the definitions within Options 3,
Section 8(a) to start with ``A'' or ``An,'' as appropriate.
The Exchange proposes to relocate and amend the term ``Away Best
Bid or Offer'' or ``ABBO'' from current NOM Options 3, Section 8(a)(7)
to proposed Options 3, Section 8(a)(1). The words ``shall mean'' are
replaced by ``is,'' but otherwise the description remains the same.
The Exchange proposes to relocate ``imbalance'' from current NOM
Options 3, Section 8(a)(1) to proposed Options 3, Section 8(a)(2) and
amend the language to provide that an imbalance is the number of
unmatched contracts priced through the Potential Opening Price.
Currently, the term ``imbalance'' is defined as ``the number of
contracts of eligible interest that may not be matched with other order
contracts at a particular price at any given time.'' The Exchange
proposes to adopt the NTX Options definition at Options 3, Section
8(a)(2). The Exchange will be defining Potential Opening Price within
this rule change and therefore the new proposed imbalance definition
would be more applicable with that definition.
The Exchange proposes to relocate ``market for the underlying
security'' from current NOM Options 3, Section 8(a)(5) to proposed
Options 3, Section 8(a)(3).\57\ Today Options 3, Section 8(a)(5)
describes ``market for the underlying security'' as ``. . . either the
primary listing market, the primary volume market (defined as the
market with the most liquidity in that underlying security for the
previous two calendar months), or the first market to open the
underlying security, as determined by the Exchange on an issue-by-issue
basis and announced to the membership on the Exchange's website.'' The
Exchange proposes to amend this definition by replacing the term
``primary volume market'' with ``an alternative market designated by
the primary market.'' The Exchange anticipates that an alternative
market
[[Page 30041]]
would be necessary if the primary listing market were impaired.\58\ In
the event that a primary market is impaired and utilizes its designated
alternative market, the Exchange would utilize that market as the
underlying.\59\ The Exchange further proposes an additional
contingency, in the event that the primary market is unable to open,
and an alternative market is not designated (and/or the designated
alternative market does not open), the Exchange may utilize a non-
primary market to open all underlying securities from the primary
market. The Exchange will select the non-primary market with the most
liquidity in the aggregate for all underlying securities that trade on
the primary market for the previous two calendar months, excluding the
primary and alternate markets. In order to open an option series, it
would require an equity market's underlying quote. If another equity
market displays opening prices for the underlying security, the
Exchange proposes to utilize those quotes. This proposed change to the
current System would allow the Exchange to open in situations, where
the primary market is experiencing an issue, and also where an
alternative market designated by the primary market may not be
designated by the primary market or is unable to open. Utilizing a non-
primary market with the most liquidity in the aggregate for all
underlying securities for the previous two calendar months will ensure
that the Exchange opens with quotes which are representative of the
volume on that primary market. The Exchange believes that this proposal
will enable it to open in the event that there are issues with the
primary market or the alternate market assigned by the primary.
---------------------------------------------------------------------------
\57\ The proposed description of the term ``market for the
underlying security'' is identical to Phlx's Options 3, Section
8(a)(ii).
\58\ The primary listing market and the primary volume market,
as defined in NOM's Rules, could be the same market and therefore an
alternative market is not available under the current Rule.
\59\ For example, in the event that the New York Stock Exchange
LLC was unable to open because of an issue with its market and it
designated NYSE Arca, Inc. (``NYSE Arca'') as its alternative
market, then NOM would utilize NYSE Arca as the market for the
underlying.
---------------------------------------------------------------------------
The Exchange proposes a new definition, ``Opening Price,'' at
proposed Options 3, Section 8(a)(4). This proposed definition would
state that the Opening Price is described in sections (i) and (k). This
proposed definition is identical to NTX Options at Options 3, Section
8(a)(4).
The Exchange proposes a new definition, ``Opening Process,'' at
proposed Options 3, Section 8(a)(5). This proposed definition would
state that ``Opening Process'' is described in section (d). This
proposed definition is identical to NTX Options at Options 3, Section
8(a)(5).
The Exchange proposes a new definition, ``Potential Opening
Price,'' at proposed Options 3, Section 8(a)(6). This proposed
definition would state that Potential Opening Price is described in
section (h). This proposed definition is identical to NTX Options at
Options 3, Section 8(a)(6).
The Exchange proposes a new definition, ``Pre-Market BBO,'' at
Options 3, Section 8(a)(7). This proposed definition would state that
Pre-Market BBO is the highest bid and lowest offer among Valid Width
Quotes. The term ``Valid Width Quote'' is defined below. This proposed
definition is identical to NTX Options at Options 3, Section 8(a)(7).
The Exchange proposes to relocate and amend the definition of
``Valid Width National Best Bid or Offer'' or ``Valid Width NBBO'' from
current NOM Options 3, Section 8(a)(6) to proposed Options 3, Section
8(a)(8). The Exchange proposes to replace the words ``shall mean'' with
``is'' and also replace the rule text which states, ``any combination
of NOM-registered Market Maker orders and quotes received over the QUO
or SQF Protocols within a specified bid/ask differential as established
and published by the Exchange,'' with the proposed term ``Valid Width
Quote.'' The Exchange also proposes a grammatical correction to add
``the underlying security'' instead of ``underlying'' and also add
``which'' in the second sentence. Finally, the Exchange proposes to
amend the last sentence to: (1) replace ``NOM'' with ``Exchange;'' (2)
remove references to Market Maker ``orders'' and only refer to quotes;
and (3) change the term ``such'' to ``Exchange'' to make clear that all
local quotes would be excluded from the Valid Width NBBO, when any
local quotes are crossed. This proposed change to the definition will
align NOM's consideration of only Market Maker quotes, and not orders,
with NTX Options at Options 3, Section 8. NOM's current rule includes
Market Maker orders, Market Maker quotes and away market quotes as part
of the Valid Width NBBO calculation. The Exchange proposes to amend the
Valid Width NBBO to exclude Market Maker orders and only include Market
Maker Valid Width Quotes and away market quotes. This would exclude
Opening Sweeps, which are orders that are entered by Market Makers
through SQF.\60\ The Exchange proposes to exclude such orders from the
Valid Width NBBO because Opening Sweeps are considered eligible
interest during the Opening Process.
---------------------------------------------------------------------------
\60\ Proposed NOM Options 3, Section 7(u) provides, that an
Opening Sweep is a one-sided order entered by a Market Maker through
SQF for execution against eligible interest in the System during the
Opening Process. This order type is not subject to any protections
listed in Options 3, Section 15, except for Automated Quotation
Adjustments and Market Wide Risk Protection. The Opening Sweep will
only participate in the Opening Process pursuant to Options 3,
Section 8(b) and will be cancelled upon the open if not executed.
---------------------------------------------------------------------------
The Exchange proposes a new definition, ``Valid Width Quote,'' at
proposed Options 3, Section 8(a)(9). This proposed definition would
state that a Valid Width Quote is a two-sided electronic quotation,
submitted by a Market Maker, quoted with a difference not to exceed $5
between the bid and offer regardless of the price of the bid. However,
respecting in-the-money series where the market for the underlying
security is wider than $5, the bid/ask differential may be as wide as
the quotation for the underlying security on the primary market, or its
decimal equivalent rounded down to the nearest minimum increment. The
Exchange may establish differences other than the above for one or more
series or classes of options. The bid/ask differentials on NOM are
identical to those on NTX Options. Like NTX Options, NOM would permit
the Exchange to establish differences, other than as stated for one or
more series or classes of options. Like NTX Options, NOM references its
respective intra-day differentials. NOM refers to a difference not to
exceed $5 between the bid and offer, same as NTX Options at Options 3,
Section 8(a)(9).
Finally, the Exchange proposes a new definition, ``Zero Bid
Market,'' at proposed Options 3, Section 8(a)(10). This proposed new
definition would state that a Zero Bid Market is where the best bid for
an options series is zero. This proposed definition is the identical to
NTX Options at Options 3, Section 8(a)(10). The Exchange believes that
the aforementioned proposed definitions will bring additional clarity
to the proposed rule.
The Exchange proposes to eliminate the term ``Order Imbalance
Indicator'' at current Options 3, Section 8(a)(2).\61\ This term is no
longer necessary as the Exchange is amending the manner in which
imbalances are handled on NOM.
[[Page 30042]]
The Order Imbalance Indicator describes a message that is disseminated
by electronic means and contains information about Eligible Interest
and the price in penny increments at which such interest would execute
at the time of dissemination. NOM would disseminate the number of
unmatched contracts priced through the Potential Opening Price,
identical to NTX Options.\62\
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\61\ The Order Imbalance Indicator shall disseminate the
following information: (A) ``Current Reference Price'' shall mean an
indication of what the opening cross price would be at a particular
point in time; (B) the number of contracts of Eligible Interest that
are paired at the Current Reference Price; (C) the size of any
Imbalance; and (D) the buy/sell direction of any Imbalance. See
Options 3, Section 8(a)(2).
\62\ NOM's proposed imbalance message would include the symbol,
side of the imbalance, size of matched contracts, size of the
imbalance, and Potential Opening Price bounded by the Pre-Market
BBO. See proposed Options 3, Section 8(k)(1).
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The Exchange proposes to eliminate the term ``NOM Opening Cross''
at current Options 3, Section 8(a)(3).\63\ This term is being replaced
by the new term ``Opening Process'' at proposed Options 3, Section
8(a)(5) and provides, ``An Opening Process is described herein in
section (d).''
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\63\ ``NOM Opening Cross'' means the process for opening or
resuming trading pursuant to this Rule and shall include the process
for determining the price at which Eligible Interest shall be
executed at the open of trading for the day, or the open of trading
for a halted option, and the process for executing that Eligible
Interest. See NOM Options 3, Section 8(a)(3).
---------------------------------------------------------------------------
The Exchange proposes to eliminate the term ``Eligible Interest''
at current Options 3, Section 8(a)(4).\64\ The Exchange describes
eligible interest within proposed Options 3, Section 8(b), identical to
NTX Options at Options 3, Section 8(a)(4). The defined term is no
longer necessary.
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\64\ ``Eligible Interest'' shall mean any quotation or any order
that may be entered into the system and designated with a time-in-
force of IOC (immediate-or-cancel), DAY (day order), GTC (good-till-
cancelled), and OPG (On the Open Order). However, orders received
via FIX protocol prior to the NOM Opening Cross designated with a
time-in-force of IOC will be rejected and shall not be considered
eligible interest. Orders received via SQF prior to the NOM Opening
Cross designated with a time-in-force of IOC will remain in-force
through the opening and shall be cancelled immediately after the
opening.
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Eligible Interest
The first part of the Opening Process determines what constitutes
eligible interest. The Opening Process is a price discovery process
which considers interest on NOM and away markets to determine the
optimal bid and offer with which to open the market. The Opening
Process seeks the price point at which the most number of contracts may
be executed, while protecting away market interest.
Proposed Options 3, Section 8(b) explains the eligible interest
that will be accepted during the Opening Process which includes: Valid
Width Quotes, Opening Sweeps \65\ and orders. Quotes,\66\ other than
Valid Width Quotes, will not be included in the Opening Process,
including Opening Only Orders, but excluding orders with a Time in
Force of ``Immediate-or-Cancel'' and Add Liquidity Orders.\67\ Also,
the displayed and non-displayed portions of the Reserve Orders are
considered for execution and in determining the Opening Price
throughout the Opening Process.\68\ This rule text is identical to NTX
Options at Options 3, Section 8(b). Opening Sweeps, which are defined
at proposed Options 3, Section 7(u), may be submitted through the
Specialized Quote Feed or ``SQF'' protocol, which permits one-sided
orders to be entered by a Market Maker. As proposed, an Opening Sweep
is a Market Maker order submitted for execution against eligible
interest in the System during the Opening Process. Market participants
may specify orders for the Opening Process by placing a TIF of ``OPG''
on the order as explained below. All Participants may submit interest
into the Opening Process.
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\65\ See proposed NOM Options 3, Section 7(a)(9).
\66\ ``Quotes'' refers to a two-sided quote.
\67\ The Exchange notes that current NTX Options at Options 3,
Section 8(b) does not include the phrase, including Opening Only
Orders, but excluding orders with a Time in Force of ``Immediate-or-
Cancel'' and Add Liquidity Orders. The Exchange notes that this
language is proposed to be added to NTX Options' rule text in a
separate rule change.
\68\ This rule change proposes to add Reserve Orders at NOM
Options 3, Section 7(g).
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Additionally, the Exchange proposes to amend current Options 3,
Section 7(a)(9) to remove the current order type described as ``On the
Open Order'' and instead adopt an ``Opening Sweep'' order type
identical to NTX Options at Options 3, Section 7(a)(9), as described in
this proposal in the order types section. While the ``On the Open
Order'' and ``Opening Sweep'' are similar, in that both order types may
only be entered during the Opening Process, and both cancel back the
unexecuted portion of the order, the Exchange believes that utilizing
the same terminology and level of detail in describing this order type
will conform the Opening Process of these two Nasdaq affiliated
markets. Today, only a Market Maker may enter an Opening Sweep into SQF
for execution against eligible interest in the System during the
Opening Process. This order type is not subject to any protections
listed in Options 3, Section 15, except for Automated Quotation
Adjustments, as explained in the order types section above. The Opening
Sweep will only participate in the Opening Process, pursuant to Options
3, Section 8, and will be cancelled after the opening if not executed.
Further, NOM currently permits orders marked with a ``Time In
Force'' or ``TIF'' of ``On the Open Order'' or ``OPG'' to be utilized
to specify orders for submission into the Opening Cross.\69\ This TIF
of ``OPG'' means for orders so designated, that if after entry into the
System, the order is not fully executed in its entirety during the
Opening Cross, the order, or any unexecuted portion of such order, will
be cancelled back to the entering participant. Identical to NTX
Options, NOM proposes to replace the ``On the Open Order'' \70\ TIF
with an ``Opening Only'' or ``OPG'' TIF at proposed Supplementary
Material .02(e) to Options 3, Section 7, which can only be executed in
the Opening Process pursuant to Options 3, Section 8 as explained in
the order types section above. Any portion of the order that is not
executed during the Opening Process is cancelled. This order type is
not subject to any protections listed in Options 3, Section 15 as
explained above in the order types section. Finally, the Exchange
proposes to note that OPG orders may not route.
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\69\ See current NOM Options 3, Section 7(a)(9).
\70\ See current NOM Options 3, Section 7(b)(1).
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The Exchange also proposes rule text within Options 3, Section
8(b)(1)(A) that states,
A Market Maker assigned in a particular option may only submit an
Opening Sweep if, at the time of entry of the Opening Sweep, the Market
Maker has already submitted and maintained a Valid Width Quote. All
Opening Sweeps in the affected series entered by a Market Maker will be
cancelled immediately if that Market Maker fails to maintain a
continuous quote with a Valid Width Quote in the affected series.
The proposed rule text is identical to NTX Options at Options 3,
Section 8(b)(1)(A). Since the protocol over which an Opening Sweep is
submitted is used for Market Maker quoting, the acceptance of an
Opening Sweep was structured to rely on the Valid Width Quote. An
Opening Sweep may only be submitted by a Market Maker when that Market
Maker has a Valid Width Quote in the affected series.
The Exchange proposes rule text within Options 3, Section
8(b)(1)(B), which is similar to NTX Options at Options 3, Section
8(b)(1)(B),\71\ that states,
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\71\ NTX Options' language states that Opening Sweeps may be
entered at any price with a minimum price variation applicable to
the affected series.
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[[Page 30043]]
Opening Sweeps may be entered at any price on either side of the
market, at single or multiple price level(s), and may be cancelled and
re-entered. A single Market Maker may enter multiple Opening Sweeps,
with each Opening Sweep at a different price level. If a Market Maker
submits multiple Opening Sweeps, the System will consider only the most
recent Opening Sweep at each price level submitted by such Market Maker
in determining the Opening Price. Unexecuted Opening Sweeps will be
cancelled once the affected series is open.
Unlike NTX Options, NOM has Price Improving Orders which may be
entered in minimum price increments as small as $0.01. To account for
Price Improving Orders, NOM's rule text has been modified to state that
Opening Sweeps may be entered at any price.
The Exchange proposes to state at proposed Options 3, Section
8(b)(2) that, ``The System will allocate interest pursuant to Options
3, Section 10.'' Options 3, Section 10 is the Exchange's allocation
methodology which would apply to allocation in the Opening Process.
This rule text is identical to NTX Options at Options 3, Section
8(b)(2).\72\ Today, NOM allocates pursuant to Options 3, Section 10
within its opening. The allocation methodology is not being amended
with this proposal.
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\72\ Current NOM Options 3, Section 8(b)(5) states, If the NOM
Opening Cross price is selected and fewer than all contracts of
Eligible Interest that are available in NOM Options would be
executed, all Eligible Interest shall be executed at the NOM Opening
Cross price in accordance with the execution algorithm assigned to
the associated underlying option.'' The Exchange would continue to
allocate pursuant to the Exchange's allocation methodology within
Options 3, Section 10. Further, in accordance with current Options
3, Section 8(b)(6), all eligible interest will be executed at the
Opening Price and disseminated on OPRA.
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The Exchange proposes to reserve Options 3, Section 8(c) identical
to NTX Options.
Pursuant to proposed Options 3, Section 8(d), eligible interest may
be submitted into NOM's System and will be received starting at the
times noted herein. Specifically, Market Maker Valid Width Quotes and
Opening Sweeps received starting at 9:25 a.m. will be included in the
Opening Process. Orders entered at any time before an option series
opens are included in the Opening Process. This proposed language adds
specificity to the rule regarding the submission of Valid Width Quotes
and Opening Sweeps. The 9:25 a.m. trigger is intended to tie the option
Opening Process to quoting in the majority of the underlying
securities; it presumes that option quotes submitted before any
indicative quotes have been disseminated for the underlying security
may not be reliable or intentional. Therefore, the Exchange has chosen
a reasonable timeframe at which to begin utilizing option quotes, based
on the Exchange's experience when underlying quotes start becoming
available. NOM's current rule at Options 3, Section 8(b) provides the
Opening Cross shall occur at or after 9:30 if the dissemination of a
regular market hours quote or trade by the market for the underlying
security has occurred or in the case of index options the Exchange has
received the opening price of the underlying index. The Exchange
continues to rely on the underlying price with this proposal.
Proposed Options 3, Section 8(d)(1) describes when the Opening
Process may begin with specific time-related triggers. The proposed
rule provides that the Opening Process for an option series will be
conducted pursuant to proposed Options 3, Section 8 (f) through (k) on
or after 9:30 a.m., when the System has received the opening trade or
quote on the market for the underlying security in the case of equity
options or in the case of index options. This requirement is intended
to tie the option Opening Process to receipt of liquidity. This rule
text is identical to NTX Options at Options 3, Section 8(d)(1).
Further, proposed NOM Options 3, Section 8(d)(3) makes clear that the
Opening Process will stop and an option series will not open if the
ABBO becomes crossed.
The Exchange proposes to state in proposed Options 3, Section
8(d)(2), identical to NTX Options at Options 3, Section 8(d)(2), that
for all options, the underlying security, including indexes, must be
open on the market for the underlying security for a certain time
period to be determined by the Exchange for the Opening Process to
commence. The Exchange proposes that the time period be no less than
100 milliseconds and no more than 5 seconds.\73\ This proposal is
intended to permit the price of the underlying security to settle down
and not flicker back and forth among prices after its opening. It is
common for a stock to fluctuate in price immediately upon opening; such
volatility reflects a natural uncertainty about the ultimate Opening
Price, while the buy and sell interest is matched. The Exchange
proposes a range of no less than 100 milliseconds and no more than 5
seconds in order to ensure that it has the ability to adjust the period
for which the underlying security must be open on the primary market.
The Exchange may determine that in periods of high/low volatility that
allowing the underlying to be open for a longer/shorter period of time
may help to ensure more stability in the marketplace prior to
initiating the Opening Process.
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\73\ NTX Options' Opening Process is set at 100 milliseconds.
The Exchange believes that 100 milliseconds is the appropriate
amount of time given the experience with the NTX Options market. The
Exchange would set the timer for NOM initially at 100 milliseconds.
The Exchange will issue a notice to provide the initial setting and,
would, thereafter, issue a notice if it were to change the timing,
which may be between 100 milliseconds and 5 seconds. If the Exchange
were to select a time not between 100 milliseconds and 5 seconds, it
would be required to file a rule proposal with the Commission.
---------------------------------------------------------------------------
Identical to NTX Options at Options 3, Section 8(d)(3), NOM
proposes within Options 3, Section 8(d)(3) to provide that the Opening
Process will stop and an option series will not open if the ABBO
becomes crossed. Once this condition no longer exists, the Opening
Process in the affected option series will start again pursuant to
paragraphs (f)-(k). All eligible opening interest will continue to be
considered during the Opening Process when the process is re-started.
The proposed rule reflects that the ABBO cannot be crossed for the
Opening Process to proceed. These events are indicative of uncertainty
in the marketplace of where the option series should be valued. In
these cases, the Exchange will wait for the ABBO to become uncrossed
before initiating the Opening Process to ensure that there is stability
in the marketplace in order to assist the Exchange in determining the
Opening Price, or for a Valid Width Quote to be submitted. NOM will not
consider if a Valid Width Quote(s) is no longer present. A Valid Width
NBBO must be present for NOM to open with a trade pursuant to this
proposal.
The Exchange proposes to add rule text within proposed Options 3,
Section 8(d)(4) to provide a scenario, identical to NTX Options at
Options 3, Section 8(d)(4). The Exchange proposes that an Opening
Process will stop and an options series will not open, if a Valid Width
NBBO is no longer present, pursuant to paragraph (i)(2). Once this
condition no longer exists, the Opening Process in the affected options
series will start again, pursuant to paragraphs (j) and (k) below.
Today, NOM will not open with a trade unless there is a Valid Width
NBBO present. This would remain the case with this proposal. The
Exchange believes that the addition of this text provides market
participants with an expectation of the circumstances under which the
Exchange would open an option series, as well as price protection
afforded to interest attempting to participate in the Opening Process
on NOM.
[[Page 30044]]
Reopening After a Trading Halt
Proposed Options 3, Section 8(e) is intended to provide information
regarding the manner in which a trading halt would impact the Opening
Process. This rule text is identical to NTX Options at Options 3,
Section 8(e). Proposed NTX Options at Options 3, Section 8(e) states
that ``[t]he procedure described in this Rule will be used to reopen an
option series after a trading halt. If there is a trading halt or pause
in the underlying security, the Opening Process will start again
irrespective of the specific times listed in paragraph (d).'' This last
sentence makes clear that this rule applies to openings related to the
normal market opening, as well as intra-day re-openings following a
trading halt. Current Options 3, Section 8(b) similarly provides that
an Opening Cross shall occur when trading resumes after a trading halt.
The Exchange is not amending this provision, rather the text is being
presented similar to NTX Options' rule text.
Opening With a BBO
Proposed Options 3, Section 8(f) describes when the Exchange may
open with a quote on its market (no trade). The proposed rule states,
Opening with a BBO (No Trade). If there are no opening quotes or
orders that lock or cross each other, and no routable orders locking or
crossing the ABBO, the System will open with an opening quote by
disseminating the Exchange's best bid and offer among quotes and orders
(``BBO'') that exist in the System at that time, if any of the below
conditions are satisfied:
(1) A Valid Width NBBO is present;
(2) A certain number of other options exchanges (as determined by
the Exchange) have disseminated a firm quote on OPRA; or
(3) A certain period of time (as determined by the Exchange) has
elapsed.
This proposal affirmatively states that the System will open with
no trade provided one of the three conditions within Options 3, Section
8(f) are met. These three conditions are identical to NTX Options'
current rule text at Options 3, Section 8(f). Proposed Options 3,
Section (f)(1) provides that that the System will open, provided any
one of the three conditions are met, and one of those conditions is a
Valid Width NBBO, as noted in (f)(1). Subject to Options 3, Section
8(f)(2), an options series may open if a certain number of other
options exchanges (as determined by the Exchange) have disseminated a
firm quote on OPRA.\74\ Also, an options series will open if a certain
period of time, as determined by the Exchange, has elapsed pursuant to
Options 3, Section 8(f)(3).\75\ As previously noted, NOM requires a
Valid Width NBBO to open.
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\74\ NOM currently requires at least two other options exchanges
to open. The setting will be initially set at two away options
exchanges with this new proposal.
\75\ NOM currently requires 15 minutes to pass with respect to
this setting. The setting will remain at 15 minutes with this
proposal.
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Current Options 3, Section 8(b)(2) provides that ``[i]f no trade is
possible on NOM, then NOM will open dependent upon one of the
following: (A) A Valid Width NBBO is present; (B) A certain number of
other options exchanges (as determined by the Exchange) have
disseminated a firm quote on OPRA; or (C) A certain period of time (as
determined by the Exchange) has elapsed.'' It will continue to permit
one of these 3 scenarios to open an options series on NOM. A Valid
Width NBBO must be present to open, pursuant to Options 3, Section 8(j)
or (k), as described below.
Further Opening Processes
If, as proposed, an opening did not occur pursuant to proposed
paragraph (e) (Reopening After a Trading Halt) and there are opening
Valid Width Quotes, or orders, that lock or cross each other, the
System will calculate the Pre-Market BBO.\76\ The Pre-Market BBO only
uses Valid Width Quotes, which provide both a bid and offer as compared
to orders which are one-sided. The rule text of proposed Options 3,
Section 8(g) provides, ``If there are opening Valid Width Quotes or
orders that lock or cross each other, the System will calculate the
Pre-Market BBO.'' This rule text is identical to NTX Options at Options
3, Section 8(g). The Exchange calculates a Pre-Market BBO in order for
the Exchange to open with a trade pursuant to proposed Options 3,
Section 8(i), to ensure that the Pre-Market BBO is a Valid Width NBBO,
which is required to open the market.\77\ The Exchange does not
disseminate a Pre-Market BBO, rather, the Exchange disseminates
imbalance messages to notify Participants of available trading
opportunities on NOM during the Opening Process.
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\76\ See proposed NOM Options 3, Section 8(g).
\77\ The Pre-Market BBO is calculated to ensure, when the
Exchange opens with a trade, a Valid Width NBBO is present,
particularly when there is no away market quote or when the away
market quote is not a Valid Width NBBO.
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Potential Opening Price
Current Options 3, Section 8(b)(4) provides that the ``[t]he NOM
Opening Cross shall occur at the price that maximizes the number of
contracts of eligible interest in NOM Options to be executed at or
within the ABBO and within a defined range, as established and
published by the Exchange, of the Valid Width NBBO.'' The proposed
Opening Process seeks to maximize the number of contracts of eligible
interest that will execute during the Opening Process. The Exchange
proposes to establish boundaries, identical to NTX Options, to
establish the Opening Price. The ABBO will continue to be considered as
part of the Potential Opening Price. Proposed Options 3, Section 8(i)
describes the manner in which the ABBO is considered in arriving at the
Potential Opening Price.
Proposed Options 3, Section 8(h) is similar to NTX Options at
Options 3, Section 8(h),\78\ in that it describes the general concept
of how the System calculates the Potential Opening Price under all
circumstances once the Opening Process is triggered. The first sentence
of that paragraph describes a Potential Opening Price as a price where
the System may open once all other Opening Process criteria are met.
Next, the rule text provides, ``[t]o calculate the Potential Opening
Price, the System will take into consideration all Valid Width Quotes
and orders (including Opening Sweeps and displayed and non-displayed
portions of Reserve Orders) for the option series and identify the
price at which the maximum number of contracts can trade (``maximum
quantity criterion''). In addition, paragraphs (i)(1)(C) and (j)(5)-(7)
below contain additional provisions related to the Potential Opening
Price.'' The proposal attempts to maximize the number of contracts that
can trade and is intended to find the most reasonable and suitable
price, relying on the maximization to reflect the best price.
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\78\ NTX Options currently does not have Reserve Orders, so the
language concerning Reserve Orders is not included.
---------------------------------------------------------------------------
Proposed Options 3, Section 8(h)(1) presents the scenario for more
than one Potential Opening Price. Proposed Options 3, Section 8(h)(1)
provides,
More Than One Potential Opening Price. When two or more Potential
Opening Prices would satisfy the maximum quantity criterion and leave
no contracts unexecuted, the System takes the highest and lowest of
those prices and takes the mid-point; if such mid-point is not
expressed as a permitted minimum price variation, it will be rounded to
the minimum price
[[Page 30045]]
variation that is closest to the closing price for the affected series
from the immediately prior trading session. If there is no closing
price from the immediately prior trading session, the System will round
up to the nearest minimum price increment.\79\
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\79\ NTX Options rounds mid-point up to the minimum price
variation, where NOM would round up to the nearest minimum price
increment as a result of offering Price Improving Orders which can
be entered in smaller increments. NOM's proposed rule text at
Options 3, Section 8(h) is otherwise identical to NTX Options at
Options 3, Section 8(h).
---------------------------------------------------------------------------
Proposed Options 3, Section 8(h)(2) presents the scenario for two
or more Potential Opening Prices. Proposed Options 3, Section 8(h)(2)
provides, ``If two or more Potential Opening Prices for the affected
series would satisfy the maximum quantity criterion and leave contracts
unexecuted, the Opening Price will be either the lowest executable bid
or highest executable offer of the largest sized side.'' This, again,
bases the Potential Opening Price on the maximum quantity that is
executable.
Proposed Options 3, Section 8(h)(3) provides that ``[t]he Opening
Price is bounded by the better away market price that cannot be
satisfied with the Exchange routable interest.'' The Exchange does not
open with a trade at a price that trades through another market's BBO.
This process, importantly, breaks a tie by considering the largest
sized side and away markets, which are relevant to determining a fair
Opening Price.
The System applies certain boundaries to the Potential Opening
Price to help ensure that the price is a reasonable one by identifying
the quality of that price; if a well-defined, fair price can be found
within these boundaries, the option series can open at that price
without going through a further price discovery mechanism.
Proposed Options 3, Section 8(i), Opening with a Trade,
provides:The Exchange will open the option series for trading with a
trade on Exchange interest only at the Opening Price, if any of these
conditions occur:
(A) the Potential Opening Price is at or within the best of the
Pre-Market BBO and the ABBO, which is also a Valid Width NBBO;
(B) the Potential Opening Price is at or within the non-zero bid
ABBO, which is also a Valid Width NBBO, if the Pre-Market BBO is
crossed; or
(C) where there is no ABBO, the Potential Opening Price is at or
within the Pre-Market BBO, which is also a Valid Width NBBO.
For the purposes of calculating the mid-point the Exchange will use
the better of the Pre-Market BBO or ABBO as a boundary price and will
open that options series for trading with an execution at the resulting
Potential Opening Price.\80\ Proposed Options 3, Section 8(i) is
identical to NTX Options at Options 3, Section 8(i).
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\80\ Today, NOM Options 3, Section 8(b)(4)(B) states, ``If more
than one price exists under subparagraph (A), and there are no
contracts that would remain unexecuted in the cross, the NOM Opening
Cross shall occur at the midpoint price, rounded to the penny
closest to the price of the last execution in that series (and in
the absence of a previous execution price, the price will round up,
if necessary) of (1) the National Best Bid or the last offer on NOM
against which contracts will be traded whichever is higher, and (2)
the National Best Offer or the last bid on NOM against which
contracts will be traded whichever is lower.'' This process for
considering the mid-point is being eliminated in favor of NTX
Options' methodology for calculating the mid-point as described in
proposed Options 3, Section 8(h).
---------------------------------------------------------------------------
These boundaries serve to validate the quality of the Opening
Price. Proposed Options 3, Section 8(i), provides that the Exchange
will open the option series for trading with an execution at the
resulting Potential Opening Price, as long as it is within the defined
boundaries regardless of any imbalance. The Exchange believes that
since the Opening Price can be determined within a well-defined
boundary and not trading through other markets, it is fair to open the
market immediately with a trade and to have the remaining interest
available to remain on the Order Book to be potentially executed in the
displayed market. Using a boundary-based price counterbalances opening
faster at a less bounded and perhaps less expected price and reduces
the possibility of leaving an imbalance.
Proposed Options 3, Section 8(i)(2), provides that if there is more
than one Potential Opening Price which meets the conditions set forth
in proposed Options 3, Section 8(i)(1)(A), (B) or (C), where (A) no
contracts would be left unexecuted and (B) any value used for the mid-
point calculation (which is described in subparagraph (g)) would cross
either: (i) the Pre-Market BBO or (ii) the ABBO, then the Exchange will
open the option series for trading with an execution and use the best
price which the Potential Opening Price crosses as a boundary price for
the purpose of the mid-point calculation. If these aforementioned
conditions are not met, but a Valid Width NBBO is present, an Opening
Quote Range is calculated as described in proposed Options 3, Section
8(j) and the price discovery mechanism, described in proposed Options
3, Section 8(k), would commence. The proposed rule explains the
boundary, as well as the price basis for the mid-point calculation, to
enable the market to immediately open with a trade, which improves the
detail included in the rule. The Exchange believes that this process is
logical because it seeks to select a fair and balanced price. This rule
text is identical to NTX Options at Options 3, Section 8(i).
Today, NOM has the concept of a Valid Width NBBO in its current
rule. The Exchange proposes to amend the description of a Valid Width
NBBO to provide that it would be a combination of all away market
quotes and Valid Width Quotes received over SQF. The Valid Width NBBO
is configurable by underlying, and a table with valid width
differentials will be available on NOM's web page. Away markets that
are crossed will void all Valid Width NBBO calculations. If any Market
Maker quotes on NOM are crossed internally, then all such quotes will
be excluded from the Valid Width NBBO calculation. Within the Valid
Width NBBO, all away market quotes and any combination of Market Maker
Valid Width Quotes, whether they include the Exchange's Best Bid or
Offer or not, are represented. The price discovery on NOM currently
includes not only Market Maker quotes, but also away market interest,
this will remain the same with the proposal. The following examples
illustrate the calculation of the Valid Width NBBO:
Example 1: (Away Markets are Crossed)
Assume the Valid Width NBBO bid/ask differential is set by NOM at .10.
Market Maker1 is quoting on the Exchange 1.05-1.15
Market Maker2 is quoting on the Exchange 1.00-1.10
NOM BBO 1.05-1.10
Assume Cboe is quoting .90-1.10
Assume MIAX is quoting .70-.85.
Since the ABBO is crossed (.90-.85), Valid Width NBBO calculations
are not taken into account until the away markets are no longer
crossed. Once the away markets are no longer crossed, the Exchange will
determine if a Valid Width NBBO can be calculated. Assume the ABBO
uncrosses because MIAX updates their quote to .90-1.15, the NOM BBO of
1.05-1.10 is considered a Valid Width NBBO. Pursuant to proposed
Options 3, Section 8(f), NOM will open with no trade and BBO
disseminated as 1.05-1.10.
Example 2: (NOM Orders/Quotes are Crossed, ABBO is Valid Width NBBO
Pursuant to Proposed Options 3, Section 8(f))
Assume that the Valid Width NBBO bid/ask differential is set by the
Exchange at .10.
[[Page 30046]]
Market Maker1 is quoting on the Exchange 1.05-1.15 (10x10 contracts)
Market Maker2 is quoting on the Exchange .90-.95 (10x10 contracts)
NOM BBO crossed, 1.05-.95, while another Market Maker3 is quoting on
the Exchange at .90-1.15 (10x10 contracts).
Since the NOM BBO is crossed, the crossing quotes are excluded from
the Valid Width NBBO calculation. However, assume Cboe is quoting .95-
1.10 and MIAX is quoting .95-1.05, resulting in an uncrossed ABBO of
.95-1.05.
The ABBO of .95-1.05 meets the required .10 bid/ask differential
and is considered a Valid Width NBBO. As Market Maker1 and Market
Maker2 have 10 contracts each, these contracts will cross because there
is more than one price at which those contracts could execute. The
opening will occur with 10 contracts executing at 1.00, which is the
mid-point of the NBBO.
At the end of the Opening Process, only the quote from Market
Maker3 remains so the NOM disseminated quote at the end of Opening
Process will be .90-1.15 (10x10 contracts).
The requirement of a Valid Width NBBO being present continues to
ensure that the Opening Price is rationally based on what is present in
the broader marketplace during the Opening Process. As noted herein,
the Valid Width NBBO includes all away market quotes. A Potential
Opening Price must be at or within the ABBO, provided the market opened
prior to calculation an OQR as discussed below.
Proposed Options 3, Section 8(j) provides that the System will
calculate an Opening Quote Range (``OQR'') for a particular option
series that will be utilized in the price discovery mechanism if the
Exchange has not opened subject to any of the provisions described
above. Proposed Options 3, Section 8(j) is identical to NTX Options at
Options 3, Section 8(j). Provided the Exchange has been unable to open
the option series \81\ the OQR would broaden the range of prices at
which the Exchange may open. This would allow additional interest to be
eligible for consideration in the Opening Process. The OQR is an
additional type of boundary beyond the boundaries mentioned in proposed
Options 3, Section 8(h) and (i). OQR is intended to limit the Opening
Price to a reasonable, middle ground price and thus reduce the
potential for erroneous trades during the Opening Process. Although the
Exchange applies other boundaries such as the BBO, the OQR provides a
range of prices that may be able to satisfy additional contracts, while
still ensuring a reasonable Opening Price. The Exchange seeks to
execute as much volume as is possible at the Opening Price. OQR is
constrained by the least aggressive limit prices within the broader
limits of OQR. The least aggressive buy order or Valid Width Quote bid
and least aggressive sell order or Valid Width Quote offer within the
OQR will further bound the OQR. Although the Exchange applies other
boundaries such as the BBO, the OQR is outside of the BBO. It is meant
to provide a price that can satisfy more size without becoming
unreasonable. Below is an example of the manner in which OQR is
constrained.
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\81\ This would refer to an opening pursuant to proposed Options
3, Section 8(f) or (i).
---------------------------------------------------------------------------
OQR Example: Assume the Below Pre-opening Interest
Market Maker quotes 4.10 (100) x 4.20 (50)
Order1: Public Customer Buy 300 @4.39
Order2: Public Customer Sell 50 @4.13
Order3: Public Customer Sell 5 @4.29
Opening Quote Range \82\ configuration in this scenario is +/-0.10
---------------------------------------------------------------------------
\82\ This configuration would be provided by the Exchange in a
table as noted in the proposed Options 3 Section 8(j)(1) and (2).
---------------------------------------------------------------------------
9:30 a.m. events occur, underlying opens
First imbalance message: Buy imbalance @4.20, 100 matched, 200
unmatched
Next 3 imbalance messages: Buy imbalance @4.29, 105 matched, 195
unmatched
Potential Opening Price calculation would have been 4.20 + 0.10 = 4.30,
but OQR is further bounded by the least aggressive Sell order @4.29
Order 1 executes against Order 2 50 @4.29
Order 1 executes against Market Maker quote 50 @4.29
Order 1 executes against Order 3 5 @4.29
Remainder of Order1 cancels as it is through the Opening Price
Market Maker quote purges as its entire offer side volume has been
exhausted
Specifically, to determine the minimum value for the OQR, an
amount, as defined in a table to be determined by the Exchange, will be
subtracted from the highest quote bid among Valid Width Quotes on the
Exchange and on the away market(s), if any, except as provided in
proposed Options 3, Section 8(j) paragraphs (3) and (4). To determine
the maximum value for the OQR, an amount, as defined in a table to be
determined by the Exchange, will be added to the lowest quote offer
among Valid Width Quotes on the Exchange and on the away market(s), if
any, except as provided in proposed NOM Options 3, Section 8(j)
paragraphs (3) and (4).\83\ However, if one or more away markets are
disseminating a BBO that is not crossed, and there are Valid Width
Quotes on the Exchange that cross each other or are marketable against
the ABBO, then the minimum value for the OQR will be the highest away
bid.\84\ It should be noted that the Opening Process would stop and an
option series will not open if the ABBO becomes crossed, pursuant to
proposed Options 3, Section 8(d)(3). In addition, the maximum value for
the OQR will be the lowest away offer.\85\
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\83\ See proposed NOM Options 3, Section 8(j)(2).
\84\ See proposed NOM Options 3, Section 8(j)(3)(A).
\85\ See proposed NOM Options 3, Section 8(j)(3)(B).
---------------------------------------------------------------------------
If there is more than one Potential Opening Price possible, where
no contracts would be left unexecuted, any price used for the mid-point
calculation (which is described in proposed Options 3, Section
8(h)(3)), that is outside of the OQR, will be restricted to the OQR
price on that side of the market for the purposes of the mid-point
calculation. Proposed Options 3, Section 8(j)(4) continues the theme of
relying on both maximizing executions and looking at the correct side
of the market to determine a fair price.
Proposed NOM Options 3, Section 8(j)(5) deals with the situation
where there is an away market price involved. If there is more than one
Potential Opening Price possible, where no contracts would be left
unexecuted, pursuant to proposed Options 3, Section 8(h)(3), when
contracts will be routed, the System will use the away market price as
the Potential Opening Price. The Exchange is seeking to execute the
maximum amount of volume possible at the Opening Price. The Exchange
will enter into the Order Book any unfilled interest at a price equal
to or inferior to the Opening Price.\86\ It should be noted; the
Exchange will not trade through an away market.\87\
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\86\ See proposed NOM Options 3, Section 8(k)(5).
\87\ See current NOM Options 3, Section 5(d).
---------------------------------------------------------------------------
Finally, proposed Options 3, Section 8(j)(6) provides if the
Exchange determines that non-routable interest can execute the maximum
number of Exchange contracts against Exchange interest, after routable
interest has been determined by the System to satisfy the away market,
then the Potential Opening Price is the price at which the
[[Page 30047]]
maximum number of contracts can execute, excluding the interest which
will be routed to an away market, which may be executed on the Exchange
as described in proposed Options 3, Section 8(h). This continues the
theme of trying to satisfy the maximum amount of interest during the
Opening Process. This is identical to NTX Options at Options 3, Section
8(j). NOM's proposed rule at Options 3, Section 8(j)(6) provides that
the System will route all routable interest pursuant to Options 3,
Section 10(a)(1).
Price Discovery Mechanism
If the Exchange has not opened pursuant to proposed paragraphs (f)
or (i), after the OQR is calculated, pursuant to proposed Options 3,
Section 8(j), the Exchange will conduct a price discovery mechanism,
pursuant to proposed Options 3, Section 8(k), which is identical to NTX
Options at Options 3, Section 8(k). The price discovery mechanism is
the process by which the Exchange seeks to identify an Opening Price
having not been able to do so following the process outlined thus far
herein. The principles behind the price discovery mechanism are, as
described above, to satisfy the maximum number of contracts possible by
identifying a price that may leave unexecuted contracts. However, the
price discovery mechanism applies a proposed, wider boundary to
identify the Opening Price, and the price discovery mechanism involves
seeking additional liquidity.
The Exchange believes that conducting the price discovery process
in these situations protects orders from receiving a random price that
does not reflect the totality of what is happening in the markets on
the opening, and also further protects opening interest from receiving
a potentially erroneous execution price on the opening. Opening
immediately has the benefit of speed and certainty, but that benefit
must be weighed against the quality of the execution price, and whether
orders were left unexecuted. The Exchange believes that the proposed
rule strikes an appropriate balance.
The proposed rule attempts to open using Exchange interest only to
determine an Opening Price, provided certain conditions contained in
proposed Options 3, Section 8(j) are present, to ensure market
participants receive a quality execution in the opening. The proposed
rule does not consider away market liquidity, for purposes of routing
interest to other markets, until the price discovery mechanism pursuant
to proposed paragraph (k). Rather, away market prices are considered
for purposes of avoiding trade-throughs. As a result, the Exchange
might open without routing, if all of the conditions described above
are met. The Exchange believes that the benefit of this process is a
more rapid opening with quality execution prices. Opening with a quote,
pursuant to Options 3, Section 8(f), would not require consideration of
away market quotes because NOM would have opened with a local quote
that was not locked or crossed with the away market, provided there are
no opening quotes or orders that lock or cross each other, and no
routable orders locking or crossing the ABBO.\88\ With respect to
Opening with a Trade, pursuant to Options 3, Section 8(i), the Exchange
would not consider away market interest if it could open immediately
with a trade, provided that the Exchange would not trade-through an
away market. If NOM is locked and crossed with an away market, then the
Exchange would require additional price discovery, pursuant to Options
3, Section 8(j) and (k). Finally, the Exchange considers away market
interest in the Valid Width NBBO.
---------------------------------------------------------------------------
\88\ See proposed NOM Options 3, Section 8(f).
---------------------------------------------------------------------------
Today, pursuant to current Options 3, Section 8(b)(3) and (7), NOM
disseminates, by electronic means, an Order Imbalance Indicator every 5
seconds beginning between 9:20 and 9:28, or a shorter dissemination
interval as established by the Exchange, with the default being set at
9:25 a.m. The start of dissemination, and a dissemination interval, are
posted by NOM on its website.\89\ Also, NOM would disseminate an Order
Imbalance Indicator for an imbalance containing marketable routable
interest.\90\ The Exchange proposes to continue to disseminate an
imbalance, but instead of the manner in which NOM utilizes an Order
Imbalance Indicator today, NOM would instead post up to 4 Imbalance
Messages which each run its own Imbalance Timer, identical to NTX
Options. Today, NOM's imbalance process begins, even if it has no
interest. With this proposal, NOM's imbalance message will serve to
notify Participants of the availability of interest to cross in the
opening. The Exchange believes that the proposed methodology will
attract interest during the Opening Process, because the imbalance
message will highlight for Participants the available size that may be
crossed. The Exchange believes adopting NTX Options' process improves
the quality of execution of NOM's opening by attracting more liquidity
through more meaningful imbalance notifications that broadcast trading
opportunities during NOM's Opening Process. The proposed changes give
Participants more transparency into the Opening Process that would
afford them a better experience.
---------------------------------------------------------------------------
\89\ See <a href="https://www.nasdaq.com/docs/NOMSystemSettings">https://www.nasdaq.com/docs/NOMSystemSettings</a>.
\90\ See current NOM Options 3, Section 8(b)(3).
---------------------------------------------------------------------------
Specifically, proposed Options 3, Section 8(k)(1) provides that the
System will broadcast an Imbalance Message for the affected series
(which includes the symbol, side of the imbalance, size of matched
contracts, size of the imbalance, and Potential Opening Price bounded
by the Pre-Market BBO) to participants, and begin an ``Imbalance
Timer,'' not to exceed three seconds to notify Participants of
available interest that may be crossed during the Opening Process. The
Imbalance Timer would initially be set 200 milliseconds.\91\ The
Imbalance Message is intended to attract additional liquidity, much
like an auction, using an auction message and timer. The Imbalance
Timer would be for the same number of seconds for all options traded on
the Exchange. Pursuant to this proposed rule, as described in more
detail below, the Exchange may have up to 4 Imbalance Messages which
each run its own Imbalance Timer. Proposed Options 3, Section 8(k)(1)
is identical to NTX Options at Options 3, Section 8(k)(1).
---------------------------------------------------------------------------
\91\ NTX Options' timer is currently set at 200 milliseconds.
NOM will issue a notice to provide the initial setting and would
thereafter issue a notice if it were to change the timing. See supra
note 89. If NOM were to select a time which exceeds 3 seconds, it
would be required file a rule proposal with the Commission.
---------------------------------------------------------------------------
The Exchange proposes to provide at Options 3, Section 8(k)(1)(A),
An Imbalance Message will be disseminated showing a ``0'' volume
and a $0.00 price if: (i) no executions are possible but routable
interest is priced at or through the ABBO; or (ii) internal quotes are
crossing each other. Where the Potential Opening Price is through the
ABBO, an imbalance message will display the side of interest priced
through the ABBO.
This rule text explains the information that is being conveyed when
an imbalance message indicates ``0'' volume, such as (i) when no
executions are possible and routable interest is priced at or through
the ABBO; or (ii) internal quotes are crossing each other. The
Imbalance Message provides details regarding the potential state of the
interest available. Where the Potential Opening Price is through the
ABBO, an imbalance message will display the side of interest priced
through the ABBO. The Imbalance Message provides transparency to market
participants
[[Page 30048]]
during the Opening Process. NOM, as noted herein, does not have a
concept of a Quality Opening Market, but does have a concept of a Valid
Width NBBO, which is always required, when attempting to open with a
trade pursuant to Options 3 Section 8(d)(4).
Proposed Options 3, Section 8(k)(2), states that any new interest
received by the System will update the Potential Opening Price. An
update may not result in an immediate change to the Potential Opening
Price, however, the Exchange will consider new interest as it arrives
and update the Potential Opening Price accordingly based on existing
interest and new interest. Proposed Options 3, Section 8(k)(2) is
identical to NTX Options at Options 3, Section 8(k)(2). By way of
example:
Case 1--An Update Which Does Not Result in a Change to Potential
Opening Price
Valid Width NBBO = 0.20
CBOE market maker quotes 1.15 x 1.30 (10)
NOM Market Maker quotes 1 x 1.25 (10)
Order to sell arrives for 1 contract @1.26 (Potential Opening Price
updates, but determines there is no match, and therefore no change to
lack of Potential Opening Price)
Order to buy arrives for 100 contracts @1.26 (Potential Opening Price
updates, and changes to 1.26)
Order to buy arrives for 1,000 contracts @1.24 (Potential Opening Price
updates, but remains unchanged from 1.26)
Case 2--An Update Results in a Change to the Potential Opening Price
Valid Width NBBO = 0.20
CBOE market maker quotes 1.15 x 1.30 (10)
NOM Market Maker quotes 1 x 1.25 (10)
Order to sell arrives for 1 contract @1.26 (Potential Opening Price
updates, but determines there is no match, and therefore no change to
lack of Potential Opening Price)
Order to buy arrives for 1,000 contracts @1.24 (Potential Opening Price
updates, but determines there is no match, and therefore no change to
lack of Potential Opening Price)
Order to sell arrives for 1,000 contracts @1.24 (Potential Opening
Price updates and changes to 1.24)
If during or at the end of the Imbalance Timer, the Opening Price
is at or within the OQR, the Imbalance Timer will end and the System
will open with a trade at the Opening Price if the executions consist
of Exchange interest only without trading through the ABBO, and without
trading through the limit price(s) of interest within OQR, which is
unable to be fully executed at the Opening Price. If no new interest
comes in during the Imbalance Timer, and the Potential Opening Price is
at or within OQR and does not trade through the ABBO, the Exchange will
open with a trade at the end of the Imbalance Timer at the Potential
Opening Price. This reflects that the Exchange is seeking to identify a
price on the Exchange without routing away, yet which price may not
trade through another market and the quality of which is addressed by
applying the OQR boundary.
Provided the option series has not opened pursuant to proposed
Options 3, Section 8(k)(2),\92\ the System will send a second Imbalance
Message with a Potential Opening Price that is bounded by the OQR (and
would not trade through the limit price(s) of interest within OQR,
which is unable to be fully executed at the Opening Price) and includes
away market volume in the size of the imbalance to Participants; and
concurrently initiate a Route Timer, not to exceed one second.\93\ The
Route Timer is intended to give Exchange users an opportunity to
respond to an Imbalance Message before any opening interest is routed
to away markets and, thereby, maximize trading on the Exchange. If
during the Route Timer, interest is received by the System, which would
allow the Opening Price to be within OQR, without trading through away
markets and without trading through the limit price(s) of interest
within OQR, which is unable to be fully executed, the System will open
with trades and the Route Timer will simultaneously end. The System
will monitor quotes and orders received during the Route Timer period
and make ongoing corresponding changes to the permitted OQR and
Potential Opening Price to reflect them.\94\ This proposal serves to
widen the boundary of available Opening Prices, which should similarly
increase the likelihood that an Opening Price can be determined. The
Route Timer, like the Imbalance Timer, is intended to permit responses
to be submitted and considered by the System in calculating the
Potential Opening Price. The System does not route away until the Route
Timer ends.
---------------------------------------------------------------------------
\92\ The System would not open pursuant to proposed Options 3,
Section 8(k)(2) if the Potential Opening Price is outside of the
OQR, or if the Potential Opening Price is at or within the OQR, but
would otherwise trade through the ABBO, or through the limit
price(s) of interest within the OQR, which is unable to be fully
executed at the Potential Opening Price.
\93\ The Route Timer would be a brief timer that operates as a
pause before an order is routed to an away market. Currently, the
NTX Options Route Timer is set to one second. NOM's Route Timer will
also be initially set to one second. The Exchange will issue a
notice to Participants to provide the initial setting and would
thereafter issue a notice to Participants, if it were to change the
timing within the range of up to one second. If the Exchange were to
select a time beyond one second, it would be required file a rule
proposal with the Commission.
\94\ See proposed NOM Options 3, Section 8(k)(3)(B).
---------------------------------------------------------------------------
Proposed Options 3, Section 8(k)(3)(C) provides if no trade
occurred pursuant to proposed Section 8(k)(3)(B), when the Route Timer
expires, if the Potential Opening Price is within OQR (and would not
trade through the limit price(s) of interest within OQR, which is
unable to be fully executed at the Opening Price), the System will
determine if the total number of contracts displayed at better prices
than the Exchange's Potential Opening Price on away markets (``better
priced away contracts'') would satisfy the number of marketable
contracts available on the Exchange. This provision protects the
unexecuted interest and should result in a fairer price.\95\ The
Exchange will open the option series by routing and/or trading on the
Exchange, pursuant to proposed Options 3, Section 8(k)(3)(C) paragraphs
(i) through (iii). Proposed Options 3, Section 8(k)(3) is identical to
NTX Options at Options 3, Section 8(k)(3).
---------------------------------------------------------------------------
\95\ Current NOM Options 3, Section 8(b)(4)(C) considers
unexecuted contracts. The proposed Opening Process likewise serves
to protect unexecuted interest and also execute as many contract as
possible during the Opening Process. The System will price any
contracts routed to away markets at the better of the Exchange
Opening Price or the order's limit price. Any unexecuted contracts
from the imbalance not traded or routed will be cancelled back to
the entering participant if they remain unexecuted and priced
through the Opening Price. All other interest will be eligible for
trading after opening, if consistent with the Participant's
instruction as provided for within proposed Options 3, Section
8(k)(3)(E) pursuant to a Forced Opening.
---------------------------------------------------------------------------
Proposed Options 3, Section 8(k)(3)(C)(i) provides if the total
number of better priced away contracts would satisfy the number of
marketable contracts available on the Exchange on either the buy or
sell side, the System will route all marketable contracts on the
Exchange to such better priced away markets as Intermarket Sweep Order
(``ISO''),\96\ designated as Immediate-or-Cancel (``IOC'') \97\
Order(s), and determine an opening NOM Best Bid or Offer (``BBO'') that
reflects the interest remaining on the Exchange. The System will price
any contracts routed to away markets at the Exchange's Opening Price or
pursuant to proposed Options 3, Section 8(k)(3)(C)(ii) or (iii)
described
[[Page 30049]]
below. Routing away at the Exchange's Opening Price is intended to
achieve the best possible price available at the time the order is
received by the away market. Proposed Options 3, Section 8(k)(3)(C)(i)
is identical to NTX Options at Options 3, Section 8(k)(3)(C)(i).
---------------------------------------------------------------------------
\96\ Proposed NOM Options 3, Section 7(b)(3) describes an ISO
Order.
\97\ Proposed Supplementary Material .02(d) to NOM Options 3,
Section 7 describes an IOC Order.
---------------------------------------------------------------------------
Proposed Options 3, Section 8(k)(3)(C)(ii) provides if the total
number of better priced away contracts would not satisfy the number of
marketable contracts the Exchange has, the System will determine how
many contracts it has available at the Exchange Opening Price. If the
total number of better priced away contracts, plus the number of
contracts available at the Exchange Opening Price, would satisfy the
number of marketable contracts on the Exchange on either the buy or
sell side, the System will contemporaneously route, based on price/time
priority of routable interest, a number of contracts that will satisfy
interest at away markets at prices better than the Exchange Opening
Price and trade available contracts on the Exchange at the Exchange
Opening Price. The System will price any contracts routed to away
markets at the better of the Exchange Opening Price or the order's
limit price pursuant to this subparagraph. This continues with the
theme of maximum possible execution of the interest on the Exchange or
away markets. Proposed Options 3, Section 8(k)(3)(C)(ii) is identical
to NTX Options at Options 3, Section 8(k)(3)(C)(ii).
Proposed Options 3, Section 8(k)(3)(C)(iii) provides if the total
number of better priced away contracts, plus the number of contracts
available at the Exchange Opening Price, plus the contracts available
at away markets at the Exchange Opening Price would satisfy the number
of marketable contracts the Exchange has on either the buy or sell
side, the System will contemporaneously route, based on price/time
priority of routable interest, a number of contracts that will satisfy
interest at away markets at prices better than the Exchange Opening
Price (pricing any contracts routed to away markets at the better of
the Exchange Opening Price or the order's limit price), trade available
contracts on the Exchange at the Exchange Opening Price, and route a
number of contracts that will satisfy interest at away markets at
prices equal to the Exchange Opening Price. This provision is intended
to introduce routing to away markets, potentially both at a better
price than the Exchange Opening Price, as well as at the Exchange
Opening Price to access as much liquidity as possible to maximize the
number of contracts able to be traded as part of the Opening Process.
The Exchange routes at the better of the Exchange's Opening Price or
the order's limit price to first ensure the order's limit price is not
violated. Routing away at the Exchange's Opening Price is intended to
achieve the best possible price for the routed order, at the time the
order is received by the away market. Proposed Options 3, Section
8(k)(3)(C)(iii) is identical to NTX Options at Options 3, Section
8(k)(3)(C)(iii). By way of example:
Example of Interest ``Better Than'' and ``Better of the Exchange
Opening Price'' Rule Text: Options 3, Section 8(k)(3)(C)(ii), Options
3, Section 8(k)(3)(C)(iii) and Options 3, Section 8(k)(5)
NOM Market Maker 1 BBO 4.00 x 4.15 (100 contracts)
Cboe 4.00 x 4.14 (100 contracts)
DNR Order to buy 105 @4.20
Routable SRCH Order to buy 100 contracts at 4.18
Sell 2 contracts @4.21
After imbalance process:
SRCH Order routes at limit price of 4.18 (better than Opening Price
of 4.20) and executes at 4.14 on Cboe's offer.
DNR Order Trades 100 With NOM Market Maker Quote (Quote Purges)
Proposed Options 3, Section 8(k)(3)(D) provides that the System may
send up to two additional Imbalance Messages \98\ (which may occur
while the Route Timer is operating) bounded by OQR and reflecting away
market interest in the volume. These boundaries are intended to assist
in determining a reasonable price at which an option series might open.
This provision is proposed to further state that after the Route Timer
has expired, the processes in proposed Options 3, Section 8(k)(3)(C)(3)
will repeat (except no new Route Timer will be initiated). No new Route
Timer is initiated, because after the Route Timer has been initiated
and subsequently expired, no further delay is needed before routing
contracts. This is the case if at any point thereafter the Exchange is
able to satisfy the total number of marketable contracts the Exchange
has by executing on the Exchange and routing to other markets. Proposed
Options 3, Section 8(k)(3)(D) is identical to NTX Options at Options 3,
Section 8(k)(3)(D).
---------------------------------------------------------------------------
\98\ The first two Imbalance Messages always occur if there is
interest which will route to an away market. If the Exchange is
thereafter unable to open at a price without trading through the
ABBO, up to two more Imbalance Messages may occur based on whether
or not the Exchange has been able to open before repeating the
Imbalance Process. The Exchange may open prior to the end of the
first two Imbalance Messages provided routing is not necessary.
---------------------------------------------------------------------------
Proposed Options 3, Section 8(k)(3)(E), entitled ``Forced
Opening,'' will describe what will happen as a last resort in order to
open an options series when the processes described above have not
resulted in an opening of the options series. Under this process,
called a Forced Opening, after all additional Imbalance Messages have
occurred, pursuant to proposed subparagraph (D), the System will open
the series by executing as many contracts as possible by routing to
away markets at prices better than the Exchange Opening Price for their
disseminated size, trading available contracts on the Exchange at the
Exchange Opening Price bounded by OQR (without trading through the
limit price(s) of interest within OQR, which is unable to be fully
executed at the Opening Price). The System will also route contracts to
away markets at prices equal to the Exchange Opening Price at their
disseminated size. In this situation, the System will price any
contracts routed to away markets at the better of the Exchange Opening
Price or the order's limit price. Any unexecuted interest from the
imbalance not traded or routed will be cancelled back to the entering
Participant, if they remain unexecuted and priced through the Opening
Price, otherwise orders will remain in the Order Book. All other
interest will be eligible for trading after opening, if consistent with
the Participant's instruction. The boundaries of OQR and limit prices
within the OQR are intended to ensure a quality Opening Price as well
as protect unexecutable interest, which may not be able to be fully
executed. Proposed Options 3, Section 8(k)(3)(E) is identical to NTX
Options Proposed Options 3, Section 8(k)(3)(E). The Exchange believes
that cancelling the order back to the Participant allows for the
Participant to determine how its customer would like its order to be
handled. NOM proposes to cancel back to provide certainty to its
Participants, in line with current handling on NOM.
Proposed Options 3, Section 8(k)(3)(F), provides the System will
execute orders at the Opening Price that have contingencies (such as
without limitation, Reserve Orders) and non-routable orders, such as a
``Do Not Route'' or ``DNR'' Orders, to the extent possible. The System
will only route non-contingency orders,\99\ except
[[Page 30050]]
Reserve Orders may route up to their full volume. The Exchange is
adding this detail to memorialize the manner in which the System will
execute non-routable orders at the opening. The Exchange desires to
provide certainty to market participants as to which contingency orders
will execute, and which orders will route during the Opening Process.
Proposed Options 3, Section 8(k)(3)(F) is similar to NTX Options at
Options 3, Section 8(k)(3)(F).\100\
---------------------------------------------------------------------------
\99\ As proposed, NOM would have the following contingency
orders that will not route: a Stop Order, an All-or-None Order and a
Fill-or-Kill Order.
\100\ NTX Options does not currently have Reserve Orders. This
is the only difference between NOM and NTX Options with respect to
Options 3, Section 8(k)(3)(F).
---------------------------------------------------------------------------
The Exchange proposes to state at Options 3, Section 8(k)(4) that,
pursuant to Options 3, Section 8(k)(3)(F), the System will re-price Do
Not Route Orders (that would otherwise have to be routed to the
exchange(s) disseminating the ABBO for an opening to occur) to the
current ABBO, and disseminate the re-priced DNR Order as part of the
new BBO. This paragraph, which explains the treatment of DNR Orders, is
substantially similar to NTX Options at Options 3, Section 8(k)(4)
except that Price Improving Orders on NOM would cause the System to
reprice a DNR Order to the current ABBO, and disseminate the re-priced
DNR Order as part of the new BBO. The System will re-price a DNR Order
when any residual DNR Order interest, which was not satisfied in the
Opening Process, crosses the ABBO.\101\
---------------------------------------------------------------------------
\101\ See proposed NOM Options 3, Section 8(k)(4).
---------------------------------------------------------------------------
Proposed Options 3, Section 8(k)(5) provides that the System will
cancel any order or quote priced through the Opening Price. All other
interest will be eligible for trading after the opening. This rule text
is identical to NTX Options at Options 3, Section 8(k)(5). This rule
makes clear that interest priced through the Opening will be cancelled.
Proposed Options 3, Section 8(k)(6), which is identical to NTX
Options at Options 3, Section 8(k)(6), provides that during the opening
of the option series, where there is an execution possible, the System
will give priority to Market Orders first, then to resting Limit Orders
and quotes. The allocation provisions of Options 3, Section 10 will
apply. Options 3, Section 10 describes NOM's Order Book allocation. The
Exchange provides certainty to market participants as to the priority
scheme during the Opening Process. Market Orders will be immediately
executed first because these orders have no specified price and Limit
Orders will be executed, thereafter, in accordance with the prices
specified.
Proposed Options 3, Section 8(k)(7), which is identical to Options
3, Section 8(k)(7), provides that upon opening of an option series,
regardless of an execution, the System disseminates the price and size
of the Exchange's best bid and offer (BBO). This provision simply makes
known the manner in which the Exchange establishes the BBO for purposes
of reference upon opening.
Finally, proposed Options 3, Section 8(k)(8) provides that any
remaining contracts, which are not priced through the Exchange Opening
Price after routing a number of contracts to satisfy better priced away
contracts, will be posted to the Order Book at the better of the away
market price or the order's limit price. This includes DNR Orders that
are not crossed with the Opening Price. Only in the event that ABBO
interest, which the DNR Order would otherwise be crossing, has been
satisfied by routable interest during the Opening Process would DNR
Orders be included within the remaining contracts described in proposed
Options 3, Section 8(k)(8).\102\ This rule text accounts for orders
which have routed away and returned unsatisfied, and also accounts for
interest that remains unfilled during the Opening Process, provided
that interest was not priced through the Opening Price. Proposed
Options 3, Section 8(k)(8) is identical to NTX Options at Options 3,
Section 8(k)(8).
---------------------------------------------------------------------------
\102\ DNR Orders that are not crossed with the Opening Price
rest on the Order Book at the better of the ABBO price or the DNR
Order's limit order price.
---------------------------------------------------------------------------
The Exchange cancels orders, which are priced through the Opening
Price, since it lacks enough liquidity to satisfy these orders on the
opening, yet their limit price gives the appearance that they should
have been executed. The Exchange believes that market participants
would prefer to have these orders returned to them for further
assessment, rather than have these orders immediately entered onto the
Order Book at a price which is more aggressive than the price at which
the Exchange opened.
Opening Process Cancel Timer
The Exchange proposes to retain NOM's Opening Order Cancel Timer,
which is currently described within Options 3, Section 8(c). The
Exchange proposes to relocate this rule text within Options 3, Section
8(l), similar to NTX Options at Options 3, Section 8(l),\103\ and
rename it ``Opening Process Cancel Timer.'' While the Exchange is
retaining the timer, the Exchange proposes to amend the rule text to
conform the language to NTX Options' rule text. This process specifies
that if an options series has not opened before the conclusion of the
Opening Process Cancel Timer, a Participant may elect to have orders
returned by providing written notification to the Exchange. The Opening
Process Cancel Timer will continue to be posted by the Exchange on its
website. Orders submitted through FIX with a TIF of Good-Till-Canceled
or ``GTC'' or ``Good-Till-Date Order'' or ``GTD'' may not be cancelled,
as is the case today. This provision would provide for the continued
return of orders for un-opened options symbols. As is the case today,
Participants would have the ability to elect to have orders returned,
except for non-GTC and non-GTD Orders, when options do not open. This
functionality provides Participants with choice about where, and when,
they can send orders for the opening that would afford them the best
experience.
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\103\ NTX Options does not have Good Till Date Orders currently.
---------------------------------------------------------------------------
Opening Process Examples
The following examples are intended to demonstrate the Opening
Process.
Example 1. Proposed Options 3, Section 8(f) Opening with a BBO (No
Trade). Suppose the Market Maker in an option enters a quote, 2.00
(100) bid and 2.10 (100) offer and a buy order to pay 2.05 for 10
contracts is present in the System. The System also observes an ABBO is
present with CBOE quoting a spread of 2.05 (100) and 2.15 (100). Given
the Exchange has no interest which locks or crosses each other and does
not cross the ABBO, the option opens for trading with an Exchange BBO
of 2.05 (10) x 2.10 (100) and no trade. Since there is a Valid Width
NBBO, the System does not conduct the price discovery mechanism and the
option opens without delay.
Example 2a. Proposed Options 3, Section 8(i) Opening with Trade.
Suppose the Market Maker enters the same quote in an option, 2.00 (100)
bid and 2.10 (100) offer. This quote defines the Pre-Market BBO. CBOE
disseminates a quote of 2.01 (100) by 2.09 (100), making up the ABBO.
Firm A enters a buy order at 2.04 for 50 contracts. Firm B enters a
sell order at 2.04 for 50 contracts. The Exchange opens with the Firm A
and Firm B orders fully trading at an Opening Price of 2.04 which
satisfies the condition defined in proposed Options 3, Section 8(i),
the Potential Opening Price is at or within the best of the Pre-Market
BBO and the ABBO, which is a Valid Width NBBO.
[[Page 30051]]
Example 2b. Proposed Options 3, Section 8(i) Opening with Trade.
Similarly, suppose the Market Maker A enters the same quote in an
option, 2.00 (100) bid and 2.10 (100) offer. Market Maker B enters a
quote of 2.00 (100) x 2.12 (100). The Pre-Market BBO is therefore 2.00
bid and 2.10 offer. CBOE disseminates a quote of 2.05 (100) by 2.15
(100), making up the ABBO. Firm A enters a buy order at 2.11 for 300
contracts. Firm B enters a sell order at 2.11 for 100 contracts. The
option does not open for trading because the Potential Opening Price of
2.11 does not satisfy the condition defined in proposed Options 3,
Section 8(i) as the Potential Opening Price is outside the Pre-Market
BBO. The System thereafter calculates the OQR and initiates the price
discovery mechanism, as discussed in proposed Options 3, Section 8(k)
to facilitate the Opening Process for the option.
Assume an allowable OQR of 0.04. When the price discovery mechanism
is initiated:
The System broadcasts the first Imbalance Message with a Potential
Opening Price of 2.10 and a buy side imbalance of 200 and 100 matched.
The System opens with a trade @2.11 with Firm A buying 100 from
Market Maker A and another 100 from Firm B; invoking OQR of 0.04 (the
maximum value for OQR is the lowest quote offer (2.10) plus 0.04).
Example 3. Proposed Options 3, Section 8(k) Price Discovery
Mechanism and second iteration with routing. Suppose the Market Maker
enters a quote, 2.00 (100) bid and 2.10 (100) offer and the defined
allowable OQR is 0.04. If CBOE disseminates a quote of 2.00 (100) by
2.09 (100), the away offer is better than the Market Maker quote.
Public Customer A enters a routable buy order at 2.10 for 150
contracts. The price discovery mechanism initiates because the
Potential Opening Price (2.10) is equal to the Pre-Market BBO but
outside of the ABBO. The Potential Opening Price is 2.10 because there
is both buy and sell interest at that price point. The System is unable
to open after the first iteration of Imbalance since the Potential
Opening Price is within the OQR but outside of the ABBO. The System
proceeds with the price discovery mechanism and initiates a Route Timer
and broadcasts a second Imbalance Message (assume no additional
interest is received during the imbalance period). The System opens the
option for trading after the Route Timer has expired and the Imbalance
Timer has completed since the Potential Opening Price is within OQR.
The System routes 100 contracts of the Public Customer order to the
better priced away offer at CBOE. The Exchange would route to CBOE at
an Opening Price of 2.10 to execute against the interest at 2.09 on
CBOE. The 50 options contracts open and execute on the Exchange with an
Opening Price of 2.10. The Exchange routes to CBOE using the Exchange's
Opening Price to ensure, if there is market movement, that the routed
order is able to access any price point equal to or better than the
Exchange's Opening Price.
Options 3, Section 9
The Exchange proposes to amend Options 3, Section 9, Trading Halts
to amend certain rule text so that it is identical to rule text ISE,
GEMX and MRX Options 3, Section 9.
Specifically, the Exchange proposes to amend Options 3, Section
9(a)(6)(B) to amend the word ``cancelled'' to ``not maintained'' to
conform to the rule text in NTX Options at Options 3, Section
9(a)(6)(B). This amendment is not substantive but intended to conform
to the rules of NTX Options to indicate that quotes are not maintained
during a trading halt.
The Exchange proposes to amend Options 3, Section 9(d)(1) to change
the word ``Exchange'' to ``System'' which more precisely describes the
functionality.
The Exchange proposes to amend Options 3, Section 9(d)(2) to
describe the manner in which the newly adopted Stop Order will be
treated during a trading halt. The proposed text is identical to ISE,
GEMX and MRX Options 3, Section 9(d)(3). The Exchange proposes to add
this sentence to Options 3, Section 9(d)(2), ``Provided the Exchange
has opened an affected option for trading, the Exchange shall elect
Stop Orders if the condition as provided in Options 3, Section 7(d) is
met, and, because they become Market Orders, shall cancel them back and
notify Participants of the reason for such rejection.'' Stop Orders
would become elected as provided for in proposed Options 3, Section
7(d).\104\ If they elect as Market Orders, those Market Orders would be
rejected. This aligns with the current treatment for Market Orders
during a trading halt.
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\104\ As proposed in NOM Options 3, Section 7(d), a Stop Order
becomes a Market Order when the stop price is elected. A Stop Order
to buy is elected when the option is bid or trades on the Exchange
at, or above, the specified stop price. A Stop Order to sell is
elected when the option is offered or trades on the Exchange at, or
below, the specified stop price.
---------------------------------------------------------------------------
Finally, to align with the changes made to Options 3, Section 8,
the Exchange also proposes to amend Options 3, Section 9(f) to align
the current rule text to NTX Options at Options 3, Section 9(f). NOM
current Options 3, Section 9(f) states, ``The Exchange shall nullify
any transaction that occurs with respect to equity options (including
options overlying ETFs), during a regulatory halt as declared by the
primary listing market for the underlying security.'' The Exchange
proposes to amend that rule text to instead provide,
Resumption of Trading After a Halt. Trading in an option that has
been the subject of a halt under this Rule shall be resumed upon the
determination by Nasdaq Regulation, that the conditions which led to
the halt are no longer present or that the interests of a fair and
orderly market are best served by a resumption of trading. Trading
shall resume according to the process set forth in Options 3, Section 8
of these rules.
This new rule text provides more specificity as to the manner in
which a trading halt shall be resumed and the governing rule for
resumption after a halt.
Options 3, Section 10
In addition to the amendments to Options 3, Section 10 that have
been described for the addition of an LMM, the Exchange proposes other
amendments to NOM Options 3, Section 10, Order Book Allocation.
First, the Exchange proposes to change the word ``Nasdaq'' to
``NOM'' in Options 3, Section 10(a) and to include the word ``Process''
after ``Opening'' in Options 3, Section 10(a)(5).
Second, the Exchange proposes to add the following sentence to
further describe the allocation of Reserve Orders, which have both
displayed and non-displayed interest. The Exchange proposes to state,
``Allocation of displayed interest shall occur before allocation of
non-displayed interest at each price level.''
Third, the Exchange proposes to amend the description of Size Pro-
Rata to account for the addition of Reserve Orders that were described
in the order types section. Currently, NOM Options 3, Section
10(a)(1)(B) states,
The System shall execute trading interest within the System in
price priority, meaning it will execute all trading interest at the
best price level within the System before executing trading interest at
the next best price. Within each price level, if there are two or more
quotes or orders at the best price, trading interest will be executed
based on the size of each Participant's quote or order as a percentage
of the total size of all orders and quotes resting
[[Page 30052]]
at that price. If the result is not a whole number, it will be rounded
down to the nearest whole number. If there are residual contracts
remaining after rounding, such contracts will be distributed one
contract at a time to the remaining Participants in time priority.
The Exchange proposes to instead provide,
The System shall execute trading interest within the System in
price priority, meaning it will execute all trading interest at the
best price level within the System before executing trading interest at
the next best price. Within each price level, if there are two or more
quotes or orders at the same price, the System allocates contracts from
an incoming order or quote to resting orders and quotes beginning with
the resting order or quote displaying the largest size proportionally
according to displayed size, based on the total number of contracts
displayed at that price. If the result is not a whole number, it will
be rounded up to the nearest whole number. If there are still contracts
to be allocated after the displayed size of all orders at that price
has been executed, the remaining size from the incoming order will be
allocated proportionally against non-displayed interest according to
remaining total size of each resting order at such price, beginning
with the order which has the largest total size remaining.
The Exchange proposes to amend the definition of Size Pro-Rata to
account for the non-displayed portions of a Reserve Order. The proposed
new text describes the allocation methodology for display order portion
of Reserve Order as well as any other order type, resting orders and
quotes beginning with the resting order or quote displaying the largest
size proportionally according to displayed size, based on the total
number of contracts displayed at that price. Next, the proposed rule
provides how non-displayed orders are allocated. If there are still
contracts to be allocated after the displayed size of all orders at
that price has been executed, the remaining size from the incoming
order will be allocated proportionally against non-displayed interest
according to remaining total size of each resting order at such price,
beginning with the order which has the largest total size remaining.
This rule text, which is identical to NTX Options at Options 3, Section
10(a)(1)(B), will provide Participants with a description of the
handling of Reserve Orders with respect to allocation.
Third, the Exchange proposes to amend the rounding methodology from
down to up similar to all other Nasdaq affiliated options markets.
The Exchange proposes to amend Options 3, Section 10(a)(5) related
to Zero-Bid Option Series. Today, Options 3, Section 10(a)(5) provides,
In the case where the bid price for any options contract is $0.00,
a market order accepted into the System to sell that series shall be
considered a limit order to sell at a price equal to the minimum
trading increment as defined in Options 3, Section 3. Orders will be
placed on the limit order book in the order in which they were received
by the System. With respect to market orders to sell which are
submitted prior to the Opening and persist after the Opening, those
orders are posted at a price equal to the minimum trading increment as
defined in Options 3, Section 3.
The Exchange proposes to amend Options 3, Section 10(a)(5) to
account for Price Improving Orders that are entered in increments
smaller than the minimum price variation \105\ to properly account for
the manner in which Market Orders are handled in NOM. Today, NOM
accepts Market Orders and handles them in the same manner as a Price
Improving Order by considering them to sell in increments smaller than
the minimum price variation such as a Market Order priced at $0.01.
---------------------------------------------------------------------------
\105\ A Price Improving Order is an order to buy or sell an
option at a specified price at an increment smaller than the minimum
price variation in the security. Price Improving Orders may be
entered in increments as small as one cent. Price Improving Orders
that are available for display shall be displayed at the minimum
price variation in that security and shall be rounded up for sell
orders and rounded down for buy orders. See current Options 3
Section 7(a)(5).
---------------------------------------------------------------------------
While NOM may accept orders in increments smaller than the minimum
price variation, the current rule text only considers prices equal to
the minimum trading increment. In order to account for these smaller
increments, the Exchange proposes to amend the current text to account
for Price Improving Orders by stating that in the case where the bid
price for any options contract is $0.00, a market order accepted into
the System to sell that series shall be considered a limit order to
sell at a price equal to $0.01 and displayed at the minimum trading
increment as defined in Options 3, Section 3. This amendment is
intended to bring greater clarity to the Exchange's rules.
Options 3, Section 15
The Exchange proposes to amend Options 3, Section 15, Risk
Protections.
Order Price Protection
The Exchange proposes to amend its Order Price Protection (``OPP,''
also known as the fat finger check) in NOM Options 3, Section 15(a)(1)
to capitalize ``limit order.'' The Exchange also proposes to remove the
following text, ``OPP applies to all options but does not apply to
Intermarket Sweep Orders. OPP does not apply to orders entered through
QUO.'' With the proposed amendment to the ISO order type in Options 3,
Section 7(b)(3), OPP will apply to ISOs. As noted previously in the QUO
discussion, since QUO (renamed OTTO) will allow for the submission of
orders, OPP would apply to those orders entered through the protocol.
Market Wide Risk Protection
The Exchange proposes to introduce new order entry and execution
rate checks identical to those on NTX Options at Options 3, Section
15(a)(3) for Market Wide Risk Protection. These new risk protections
are designed to aid Participants in their order risk management by
supplementing current price reasonability checks with activity-based
order protections.\106\ The Exchange proposes to detail these risk
protections in proposed Options 3, Section 15(a)(3), entitled ``Market
Wide Risk Protection'' or ``MWRP''. As proposed, the System will
maintain one or more counting programs for each Participant that counts
orders entered and contracts traded on NOM. Participants may use
multiple counting programs to separate risk protections for different
groups established within the Participant. The counting programs will
maintain separate counts, over rolling time periods specified by the
Participant for each count, of: (1) the total number of orders entered
in the order book; and (2) the total number of contracts traded.
---------------------------------------------------------------------------
\106\ The Exchange currently provides Participants with price
protections for orders such as the OPP and the Market Order Spread
Protection, which prevent limit orders and market orders from being
executed at far away and potentially erroneous prices.
---------------------------------------------------------------------------
All Participants must provide parameters for the order entry and
execution rate protections as described in (1) and (2) above. While the
MWRP is mandatory for all Participants, the Exchange is not proposing
to establish minimum or maximum values for the order entry and
execution parameters described above. The Exchange believes that this
approach will give Participants the flexibility needed to appropriately
tailor the MWRP to their respective risk management needs. In this
regard, each Participant is in the best position to
[[Page 30053]]
determine risk settings appropriate for their firm based on the
Participant's trading activity and business needs. In the interest of
maintaining a fair and orderly market, however, the Exchange will also
establish default values for each of these parameters \107\ that apply
to Participants that do not submit their own parameters for the MWRP
and will announce these default values in an Options Trader Alert to be
distributed to Participants. This approach is consistent with NOM's
current functionality and would provide Participants with the
flexibility to establish their own MWRP order entry and execution rate
parameters. Similar to NTX Options, Participants will have the
discretion to establish the applicable time period for each of the
counts maintained under the proposed MWRP, provided that the selected
time period must be within the minimum and maximum duration of the
applicable time period established by the Exchange and announced via an
Options Trader Alert.\108\
---------------------------------------------------------------------------
\107\ See supra note 89.
\108\ See proposed NOM Options 3, Section 15(a)(3). See also NTX
Options at Options 3, Section 15(a)(3).
---------------------------------------------------------------------------
Pursuant to proposed Options 3, Section 15(a)(3)(A)-(C), if, during
the applicable time period, the Participant exceeds the thresholds that
it has set for any of the order entry or execution counts described
above on NOM, the System will automatically reject all subsequent
incoming orders entered by the Participant. Participants may also
choose to have the System automatically cancel all of their existing
orders on NOM when the MWRP is triggered. The MWRP will remain engaged
until the Participant manually notifies the Exchange to enable the
acceptance of new orders. For Participants that still have open orders
on the order book that have not been cancelled pursuant to proposed
subparagraph (B), the System will continue to allow those Participants
to interact with existing orders entered before the protection was
triggered, including sending cancel order messages and receiving trade
executions for those orders. The revised language in proposed
subparagraphs (A)-(C) is identical to NTX Options at Options 3, Section
15(a)(3)(C).
The Exchange believes that the proposed MWRP will assist
Participants in better managing their risk when trading on NOM. In
particular, the proposed rule change provides functionality that allows
Participants to set risk management thresholds for the number of orders
or contracts executed on the Exchange during a specified period. As
discussed above, this is identical to how NTX Options has implemented
the MWRP, and the Exchange believes this functionality will likewise be
beneficial for NOM Participants.
The examples below illustrate how the MWRP would work both for
order entry and order execution protections:
Example: Order Entry Rate Protection:
@0 milliseconds, BD1 enters 200 orders. (Order total: 200 orders)
@450 milliseconds, BD1 enters 250 orders. (Order total: 450 orders)
@950 milliseconds, BD1 enters 50 orders. (Order total: 500 orders)
Market Wide Risk Protection is triggered on NOM due to exceeding
499 orders in 1 second. All subsequent orders are rejected, and if BD1
has opted into this functionality, all existing orders are cancelled.
BD1 must contact the Exchange to resume trading.
Example: Order Execution Rate Protection:
BD1 designates an allowable execution rate of 15,000 contracts/2
seconds.
@0 milliseconds, BD1 receives executions for 5,000 contracts.
(Execution total: 5,000 contracts)
@600 milliseconds, BD1 receives executions for 10,000 contracts.
(Execution total: 15,000 contracts)
@1550 milliseconds, BD1 receives executions for 2,000 contracts.
(Execution total: 17,000 contracts)
Market Wide Risk Protection is triggered on NOM due to exceeding
15,000 contracts in 2 seconds. All subsequent orders are rejected, and
if BD1 has opted into this functionality, all existing orders are
cancelled. BD1 must contact the Exchange to resume trading.
Acceptable Trade Range
The Exchange proposes to amend the Acceptable Trade Range or
``ATR'' at Options 3, Section 15(b)(1) to note that ATR commences after
the Opening Process as this risk protection does not currently apply
during the Opening Halt Cross. This additional rule text provides
greater clarity to the rule. Today, the ATR risk protection is not
available during the Opening Halt Cross. The Exchange also proposes to
add the concept of ``internal BBO'' into the ATR rule. The Exchange
proposes to update 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. This rule text
reflects current functionality and the additional of the language makes
clear the intent of the rule text. The Exchange proposes to note that
currently, the ATR is not available for All-or-None Orders. It would be
difficult, from a technical standpoint, to apply this feature to those
orders because their particular contingency makes it difficult to
automate their handling. The Exchange proposes this rule text to note
similar to, ISE, GEMX and MRX Options 3, Section 15(a)(2)(A)(i) that
the Acceptable Trade Range is not available for All-or-None
Orders.\109\
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\109\ Similar to Phlx, ISE, GEMX and MRX All-or-None Orders are
immediate or cancel. See ISE, GEMX and MRX Options 3, Section 7(c).
---------------------------------------------------------------------------
The Exchange proposes to add a missing ``or'' in Options 3, Section
15(b)(1)(A). The Exchange also proposes to amend the remainder of the
rule text so that the rule text is similar to ISE, GEMX and MRX Options
3, Section 15(a)(2)(A)(i). The amendments are non-substantive and are
merely text changes to conform the language to other Nasdaq affiliated
markets. The amended rule text would state,
If an order/quote reaches the outer limit of the Acceptable Trade
Range (the ``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 more liquidity to be collected.
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) then becomes the reference price for calculating a new
Acceptable Trade Range. If the order/quote remains unexecuted after the
Posting Period, a new Acceptable Trade Range will be calculated and the
order/quote will execute, route, or post up to the new Threshold Price,
unless a Participant has requested that their quotes or orders be
returned if the quotes or orders would post at the outer limit of the
Acceptable Trade Range (in which case, the quotes or orders will be
returned). This process will repeat until either (i) the order/quote is
executed, cancelled, or posted at its limit price or (ii) the order/
quote has been subject to a configurable number of instances of the
Acceptable Trade Range as determined by the Exchange (in which case it
will be returned).
Additionally, the Exchange proposes to account for quotes, in
addition to orders in Options 3, Section 15(b)(1)(B) in the sentence
that provides, ``If the
[[Page 30054]]
order/quote remains unexecuted after the Posting Period, a New
Acceptable Trade Range will be calculated and the order/quote will
execute, route, or post up to the new Acceptable Trade Range Threshold
Price, unless a Participant has requested that their orders be returned
if posted at the outer limit of the Acceptable Trade Range (in which
case, the order will be returned).'' In addition to orders, quotes are
also subject to a request to be returned if posted at the outer limit
of the Acceptable Trade Range. The addition of quotes clarifies the
current System functionality.
Anti-Internalization
The Exchange proposes technical amendments to the Anti-
Internalization rule text. The Exchange proposes to capitalize ``market
maker'' and add the word ``Exchange'' and ``firm'' to add more context
to the current rule text. These amendments are non-substantive.
Quotation Adjustments
The Exchange proposes to enhance the risk protection tools
available to Market Makers and Groups by introducing a new method of
establishing and monitoring for risk parameters that will be offered as
an alternative to existing Rapid Fire risk parameters, thereby
supporting a Market Maker's ability to manage their risk on the
Exchange, and also providing them with flexibility to use additional
tools to manage risk. While the passive (Rapid Fire) and active (Active
QP) risk counter functionality will be mutually exclusive on each
badge, Market Makers will still be able to use both to cover their
activity on the Exchange by getting multiple badges and setting each
risk counter by badge. The Exchange believes that offering more risk
management tools to Market Makers would mitigate their exposure to
excessive risk. The Exchange further believes that having the new
Active Quote Protection functionality leverage the existing Multi-
Trigger functionality will similarly support a Market Maker's ability
to manage their risk on the Exchange by including Active Quote
Protection purge events to t
[…truncated; see source link]Indexed from Federal Register on May 21, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.