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Federal Register / Vol. 86, No. 41 / Thursday, March 4, 2021 / Notices around how allocation takes place in those auction mechanisms today.

jbell on DSKJLSW7X2PROD with NOTICES

Block Order Mechanism The Exchange proposes minor changes to the current descriptions of the Block execution and allocation process in Options 3, Section 11a. As discussed below, the proposed Block changes are non-substantive in nature, and are intended to harmonize with the Block rule on its affiliated market, BX
Options BX in order to ensure rule consistency between the Exchange and its affiliate offering identical functionality.
First, the Exchange proposes to add up to the size of the block order at the end of subsection a2A. As amended, the rule will provide that bids offers on the Exchange at the time the block order is time the block order is executed that are priced higher lower than the block execution price, as well as Responses that are priced higher lower than the block execution price, will be executed in full at the block execution price up to the size of the block order. The Exchange is making this non-substantive change to align with BXs Block rule,15 which will ensure rule consistency for identical functionality across affiliated markets.
The language states that better priced interest gets executed in full only if there is sufficient size to execute against such interest, which is how block orders are executed and priced on the Exchange and BX today.
Second, the Exchange proposes a nonsubstantive change in the first sentence of subsection a2B to replace first and in time priority with first in price time priority. As amended, the rule will provide that at the block execution price, Priority Customer Orders and Priority Customer Responses will be executed first in price time priority. This is not a change to the current Block allocation methodology, but rather a non-substantive change for better readability, and to align with BXs Block rule 16 in order to ensure rule consistency for identical functionality across affiliated markets. Block orders will continue to trade at a single execution price that allows the maximum number of contracts of the block order to be executed against both the Responses entered to trade against the order and unrelated interest on the Exchanges order book.
Example 1
Block order is entered to buy 50 contracts @
1.50
The following Responses are received:
15 See 16 See
BX Options 3, Section 11a2A.
BX Options 3, Section 11a2B.

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Priority Customer Response 1 to sell 40
contracts @1.40
Priority Customer Response 2 to sell 10
contracts @1.40
Priority Customer Response 3 to sell 10
contracts @1.39
The block execution price would be $1.40
i.e., the price at which the maximum number of contracts could be executed and would be executed as follows:
Block order trades 10 with Priority Customer Response 3 @1.40
Block order trades 40 with Priority Customer Response 1 @1.40

As shown above, Priority Customer Response 3 would be executed in full since it is priced better than the block execution price and there is sufficient size to execute Response 3 against the block order, while Priority Customer Responses 1 and 2, which are priced at the block execution price, would participate in price time priorityi.e., the remaining 40 contracts would go to Response 1, which was received before Response 2.
Facilitation Mechanism The Exchange proposes a number of changes to its Facilitation rule, none of which will change the current operation of this technology offering. Many of the proposed changes are intended to align the simple Facilitation rule in Options 3, Section 11b with the complex Facilitation rule in Options 3, Section 11c where relevant. In October 2018, the Exchange amended its complex order rules to provide greater clarity and additional detail regarding the operation and applicability of complex order functionality, including complex auction mechanisms like complex Facilitation.17 Accordingly, the Exchange seeks to make aligning changes and update its simple auction mechanism rules to similarly provide the level of detail that now exists in its complex auction mechanism rules. The proposed changes are also intended to align with the simple Facilitation rules of the Exchanges affiliated markets, Nasdaq GEMX GEMX and Nasdaq MRX MRX. The Exchange also proposes to more accurately describe how orders will be allocated in Facilitations auto-match functionality.
In Options 3, Section 11b, the Exchange proposes to add new 17 See Securities Exchange Act Release No. 84373
October 5, 2018, 83 FR 51730 October 12, 2018
SRISE201856 Complex Order Filing. As discussed later in this filing, the Complex Order Filing also clarified the Exchanges complex Solicitation and PIM rules, and the Exchange is proposing to align the simple Solicitation and PIM
rules with the complex rules where possible.

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subsection b1,18 which will provide that Orders must be entered into the Facilitation Mechanism at a price that is A equal to or better than the NBBO on the same side of the market as the agency order unless there is a Priority Customer order on the same side Exchange best bid or offer, in which case the order must be entered at an improved price; and B equal to or better than the ABBO 19 on the opposite side. Orders that do not meet these requirements are not eligible for the Facilitation Mechanism and will be rejected. The Exchange is not proposing any other changes to the current entry requirements for Facilitation. The new subsection b1 would simply provide additional detail about simple Facilitations existing entry checks, and align to the level of detail currently within the complex Facilitation rule regarding entry checks.20
Example 2
Assume the following market:
ISE BBO: 1 2 also NBBO
CBOE: 0.75. times; 2.25 next best exchange quote Facilitation order is entered to buy 50
contracts @2.05
No Responses are received.

The Facilitation order executes with resting 50 lot quote @2. In this instance, the Facilitation order is able to begin crossed with the contra side ISE BBO
because in execution, the resting 50 lot quote @2 is able to provide price improvement to the facilitation order.
In renumbered subsection b2, the Exchange proposes to add language to describe the content of the broadcast message sent to Members upon entry of an order into simple Facilitation. In particular, the Exchange proposes to specify that the broadcast message includes the series, price and size of the Agency Order, and whether it is to buy or sell. Although this change reflects current functionality, the existing rule is silent in this regard and only indicates that a broadcast message is sent upon the orders entry into the mechanism.
18 As a result, current subsections b13 will be renumbered as b24. The Exchange will also renumber current subsection b3D as subsection b5.
19 The term Away Best Bid or Offer or ABBO
means the displayed National Best Bid or Offer not including the Exchanges Best Bid or Offer. See Options 1, Section 1a4.
20 See Options 3, Section 11c1 and c2.
Complex Facilitation refers to the Exchanges best bid or offer instead of the NBBO or ABBO. There is no NBBO for complex orders as complex orders may be executed without consideration of any prices that might be available on other exchanges trading the same options contracts. See Options 3, Section 14d. Additionally, executions of legs of complex orders are exceptions to the prohibition on trade-throughs. See Options 5, Section 2b7.

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