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Federal Register / Vol. 86, No. 41 / Thursday, March 4, 2021 / Notices
The Exchange proposes to amend its anti-internalization AIQ rule in Options 3, Section 15a3A.
Specifically, the Exchange proposes to add that AIQ does not apply during the opening process or reopening process following a trading halt pursuant to Options 3, Section 8 to provide more specificity on how this functionality currently operates. The Exchange notes that the same procedures used during the opening process are used to reopen an option series after a trading halt, and therefore proposes to specify that AIQ
will not apply during an Opening Process i.e., the opening and halt reopening process in addition to an auction, as currently within the Rule.
AIQ is unnecessary during an Opening Process due to the high level of control that Market Makers exercise over their quotes during this process. The proposed changes will align the Exchanges AIQ rule with BXs AIQ
rule, which sets forth materially identical functionality.38

through the ABBO, when the ABBO is better than the Exchange BBO.
Supplementary Material .02 to Options 5, Section 2 currently provides that when the automatic execution of an incoming order would result in an impermissible Trade-Through, such order would be exposed at the current NBBO to all Exchange Members for a time period established by the Exchange not to exceed one 1 second.
Supplementary Material .01 to Options 5, Section 3, however, currently provides that when the price of an incoming limit order that is not executable upon entry would lock or cross a Protected Quotation, such order would be handled in accordance with the Exposure process in Supplementary Material .02 to Options 5, Section 2.40
The Exchange proposes to modify Supplementary Material .02 by removing the portion related to the automatic execution of an incoming order that would result in an impermissible Trade-Through, and instead providing within this Rule that Exposure will initiate when an incoming order is priced at or through the ABBO, when the ABBO is better than the Exchange BBO. The current language in Supplementary Material .02
only specifies that Exposure is initiated when the price of the incoming order is crossed with the ABBO i.e., would result in an impermissible TradeThrough, but does not specify the scenario in Supplementary Material .01
to Options 5, Section 3 when the price is locked. As such, the proposed changes seek to enhance the accuracy of the rules by codifying both scenarios within the Exposure rule in Supplementary Material .02.

Exposure Mechanism
Technical Amendments
Under the linkage rules, the Exchange cannot execute orders at a price that is inferior to the NBBO, nor can the Exchange place an order on its book that would cause the Exchange best bid or offer to lock or cross another exchanges quote.39 In these circumstances, Supplementary Material .02 to Options 5, Section 2 sets forth an Exposure mechanism for automated order handling where eligible incoming orders are exposed at the NBBO to all Members to give them an opportunity to execute the order at the NBBO price or better.
The Exchange proposes to make clear within Supplementary Material .02 that an incoming order will be eligible for Exposure if the order is priced at or
The Exchange proposes technical changes in the Supplementary Material to Options 3, Section 11. First, the Exchange proposes in Supplementary Material .03 to update an incorrect cross-cite from Options 3, Section 22d to Section 22b, which limits principal transactions. Second, the Exchange will make corrective changes to renumber Supplementary Material .07 to .05, and to update the cross-cite to paragraph a2i therein to paragraph a2A.
Third, the Exchange proposes in renumbered Supplementary Material .07
to update the reference to Block Mechanism to Block Order
align the rule text to how TVA is presently implemented in the System.
The Exchange notes that its complex auction mechanisms provide an opportunity for market participants to respond with better-priced interest that could execute against an Agency Order.
As such, the Exchange believes that it is appropriate to ensure that paired orders entered into complex Facilitation, Solicitation and PIM that are broken up due to better-priced interest are actually executed against such better-priced interest, and are not restricted from trading due to TVA settings of one or more Members.

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Anti-Internalization
38 See
BX Options 3, Section 15c1.
Options 5, Sections 2 and 3. See also Options 3, Section 5d.
39 See
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40 Such order would also be handled in accordance with Supplementary Material .04 NonCustomer Orders that opt out of the Exposure mechanism or .05 Sweep Orders to Options 5, Section 2, as applicable. See Supplementary Material .01 to Options 5, Section 3.

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Mechanism to use the correct terminology.
Lastly, the Exchange proposes some harmonizing changes throughout its Rulebook to align with the rule numbering and titles with that of its affiliates. Specifically, the Exchange proposes to add a new Options 4B and reserve it in the Rulebook in order to harmonize its Options Rule numbering with that of its affiliates, GEMX and Nasdaq PHLX LLC Phlx. The Exchange also proposes to retitle General 4 currently titled Regulation to Registration Requirements to harmonize its General Rule titles with that of its affiliates The Nasdaq Stock Market LLC and Nasdaq BX, Inc.
2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6b of the Act,41 in general, and furthers the objectives of Section 6b5 of the Act,42
in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest.
The Exchange believes that its proposal is consistent with the protection of investors and public interest as all of the proposed changes will increase transparency around how various existing Exchange mechanisms work today. As such, no System changes to existing functionality are being made pursuant to this proposal. Rather, this proposal is designed to reduce any potential investor confusion as to the features and applicability of certain functionality presently available on the Exchange.
Furthermore, many of the proposed changes seek to provide greater harmonization between the rules of the Exchange and its affiliates notably rules related to Block, Facilitation, Solicitation, and AIQ, or between the Exchanges own simple and complex auction rules notably for simple and complex Facilitation, Solicitation, and PIM.43 The Exchange believes that these harmonizing changes would result in greater uniformity, and ultimately less burdensome and more efficient regulatory compliance by market participants. As such, the proposed rule change would foster cooperation and coordination with persons engaged in facilitating transactions in securities and 41 15

U.S.C. 78fb.
U.S.C. 78fb5.
43 As noted above, the Exchange seeks to add granularity to its simple auction rules to align with the level of detail that currently exists within its complex auction rules. See supra note 17.
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