Document ID: SEC-2021-0318-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq BX, Inc.
Posted Date: 2021-03-05T05:00Z

[Federal Register Volume 86, Number 42 (Friday, March 5, 2021)]
[Notices]
[Pages 13004-13014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-04529]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91226; File No. SR-BX-2021-003]

Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Various BX 
Options Rules

March 1, 2021.
    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 February 17, 2021, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II 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 Options 2, Section 10 (Directed 
Market Makers); Options 3, Section 7 (Types of Orders and Order and 
Quote Protocols); Options 3, Section 10 (Order Book Allocation); and 
Options 3, Section 15 (Risk Protections).
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/bx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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
    The Exchange proposes to amend Options 2, Section 10 (Directed 
Market Makers); Options 3, Section 7 (Types of Orders and Order and 
Quote Protocols); Options 3, Section 10 (Order Book Allocation); and 
Options 3, Section 15 (Risk Protections). Each change will be described 
below.
Options 2, Section 10
    Options 2, Section 10(a), which concerns Directed Market Makers, 
currently provides, ``Market Makers may receive Directed Orders \3\ in 
their appointed classes in accordance with the provisions of this Rule, 
Directed Market Makers provided they indicated to the Exchange, in a 
form specified, that they will receive Directed Orders.'' The Exchange 
proposes to amend this sentence to remove the unnecessary phrase 
``Directed Market Makers'' so that the sentence provides, ``Market 
Makers may receive Directed Orders in their appointed classes in 
accordance with the provisions of this Rule, provided they indicated to 
the Exchange, in a form specified, that they will receive Directed 
Orders.'' The words ``Directed Market Makers'' are not necessary and 
add confusion to the sentence.
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    \3\ Pursuant to Options 3, Section 7(a)(2), a ``Directed Order'' 
is an order to buy or sell which has been directed, provided it is 
properly marked as such, to a particular Market Maker (``Directed 
Market Maker'').
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Options 3, Section 7
    The Exchange proposes to amend Options 3, Section 7(a)(4), which 
describes a Minimum Quantity Order, to amend the word ``require'' by 
making it plural. This grammatical amendment is technical and non-
substantive.
    The Exchange proposes to amend Options 3, Section 7(a)(4) to 
describe a Contingency Order. Today, BX has two order types which have 
contingencies: (1) Minimum Quantity Orders \4\ and (2) All-or-None 
Orders.\5\ The Exchange

[[Page 13005]]

proposes to formalize the definition of a ``Contingency Order'' within 
proposed new Options 3, Section 7(a)(4)(A) to mean Minimum Quantity 
Orders and All-or-None Orders to bring greater clarity to its rules. 
The Exchange proposes to state within proposed new Options 3, Section 
7(a)(4)(A) that Contingency Orders will only execute against multiple, 
aggregated orders if the executions would occur simultaneously, which 
is true of Minimum Quantity Orders and All-or-None Orders today. Today, 
Minimum Quantity Orders and All-or-None Orders both have a time-in-
force designation of Immediate or Cancel and both have a size 
requirement. A Minimum Quantity Order requires that a specified minimum 
quantity of contracts be obtained, or the order is cancelled. 
Similarly, an All-or-None Order is to be executed in its entirety at 
the specified size or the order will be cancelled. The Contingency 
Orders execute against multiple, aggregated orders only if the 
executions would occur simultaneously to ensure that Minimum Quantity 
Orders and All-or-None Orders are executed at the specified size while 
also honoring the priority of all other orders on the Order Book. The 
Exchange is adopting rule text which is similar, in relevant part, to a 
provision in the definition of Minimum Quantity Order on Cboe Exchange, 
Inc. (``Cboe''). Cboe Rule 5.6(b) provides, ``. . . Minimum Quantity. A 
``Minimum Quantity'' order is an order that requires a specified 
minimum quantity of contracts to be executed or is cancelled. Minimum 
Quantity orders will only execute against multiple, aggregated orders 
if the executions would occur simultaneously. Only a Book Only order 
with a Time-in-Force designation of IOC may have a Minimum Quantity 
instruction (the System disregards a Minimum Quantity instruction on 
any other order). Users may not designate bulk messages as Minimum 
Quantity Orders.'' Similar to BX's Minimum Quantity Orders and All-or-
None Orders, Cboe's Minimum Quantity Orders will only execute against 
multiple, aggregated orders if the executions would occur 
simultaneously because of the size contingency.
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    \4\ ``Minimum Quantity Order'' is an order that require that a 
specified minimum quantity of contracts be obtained, or the order is 
cancelled. Minimum Quantity Orders are treated as having a time-in-
force designation of Immediate or Cancel. Minimum Quantity Orders 
received prior to the opening cross or after market close will be 
rejected. See Options 3, Section 7(a)(4).
    \5\ ``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 or after 
market close will be rejected. See Options 3, Section 7(a)(7).
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    This amendment will clarify the current rule to more specifically 
describe the manner in which the System currently handles Contingency 
Orders on BX. The Exchange notes that the handling of such orders as 
described by the proposed rule text within Options 3, Section 
7(a)(4)(A) is consistent with the Exchange's allocation methodology 
within Options 3, Section 10 and description of order types within 
Options 3, Section 7. The additional clarity makes clear that because 
of the size requirements of Minimum Quantity Orders and All-or-None 
Orders, that 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.
    The Exchange proposes to replace references to the term ``Limit 
Order Price Protection'' within Options 3, Section 7 with the correct 
term, ``Order Price Protection.'' The Exchange inadvertently referred 
to a ``Limit Order Price Protection'' within Options 3, Section 
7(a)(1), Options 3, Section 7(b)(3)(B), and Options 3, Section 
7(e)(1)(B). The correct name of the risk protection is the ``Order 
Price Protection'' as described within Options 3, Section 15(a)(1).\6\ 
At this time the Exchange proposes to amend this term to reflect the 
correct name of the risk protection.
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    \6\ Options 3, Section 15(a)(1) provides in part, ``Order Price 
Protection (``OPP''). OPP is a feature of the System that prevents 
certain day limit, good til cancelled, and immediate or cancel 
orders at prices outside of pre-set standard limits from being 
accepted by the System. OPP applies to all options but does not 
apply to market orders . . .''
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    Finally, the Exchange proposes to renumber the rule from current 
Options 3, Section 7(a)(9) through (12) to amend the numbering which 
today does not have an Options 3, Section 7(a)(8).
Options 3, Section 10
    The Exchange proposes to amend Options 3, Section 10, Order Book 
Allocation, to conform this rule, in relevant part, to Phlx Options 3, 
Section 10 as discussed below. In 2019, Phlx revised its allocation 
rule,\7\ which was previously located at Phlx Rule 1089 and has since 
been relocated to Options 3, Section 10,\8\ to conform the location of 
Phlx's allocation rule to the location of BX's allocation rule. In 
addition to conforming the structure and certain content of the Phlx 
rule to BX's rule in the Prior Allocation Rule Change, Phlx made some 
additional modifications to its rule. At this time, the Exchange 
proposes to conform certain rule text within BX's allocation rule to 
Phlx's allocation rule. The Phlx rule text was added within the Prior 
Allocation Rule Change in order to add specificity to Phlx's allocation 
rule.
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    \7\ See Securities Exchange Act Release No. 86191 (June 28, 
2019), 84 FR 31131 (June 24, 2019) (SR-Phlx-2019-20) (Order Granting 
Approval of Proposed Rule Change Relating to the Allocation and 
Prioritization of Automatically Executed Trades) (``Prior Allocation 
Rule Change'').
    \8\ See Securities Exchange Act Release No. 88213 (February 14, 
2020), 85 FR 9859 (February 20, 2020) (SR-Phlx-2020-03) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To 
Relocate Rules From Its Current Rulebook Into Its New Rulebook 
Shell).
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    Currently BX Options 3, Section 10(a)(1)(C)(1)(b), which provides 
for Lead Market Maker allocation, states:

    Lead Market Maker (``LMM'') Priority: An LMM may be assigned by 
the Exchange in each option class in accordance with Options 2, 
Section 3. LMM participant entitlements shall only be in effect when 
the Public Customer Priority Overlay is also in effect. After all 
Public Customer orders have been fully executed, upon receipt of an 
order, provided the LMM's bid/offer is at or improves on the 
Exchange's disseminated price, the LMM will be afforded a 
participation entitlement. 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. The LMM participation 
entitlement is as follows:
    The Exchange proposes to amend this rule text, similar to 
Phlx,\9\ to insert the term ``quote'' \10\ in place of the terms 
``bid'' \11\ and ``offer'' \12\ in the third sentence. The term 
``quote'' and the term ``bid/offer'' are, where changes are proposed 
herein, interchangeable terms that are intended to differentiate 
``quotes'' or ``bid/offer'' from an ``order.'' \13\ Of note, only BX 
Market Makers may enter a ``quote'' or a ``bid/offer.'' The 
Exchange's proposal regarding this amendment is non-substantive as 
the words proposed to be amended herein are interchangeable.
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    \9\ See Phlx Options 3, Section 10(a)(1)(B).
    \10\ See BX Options 1, Section 1(a)(53). The term ``quote'' or 
``quotation'' mean a bid or offer entered by a Market Maker as a 
firm order that updates the Market Maker's previous bid or offer, if 
any.
    \11\ See BX Options 1, Section 1(a)(7). The term ``bid'' means a 
limit order to buy one or more options contracts.
    \12\ See BX Options 1, Section 1(a)(34). The term ``offer'' 
means a limit order to sell one or more options contracts.
    \13\ See BX Options 1, Section 1(a)(44). The term ``order'' 
means a firm commitment to buy or sell options contracts as defined 
in Section 7 of Options 3.
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    Further, the Exchange proposes to amend the third sentence of 
Options 3, Section 10(a)(1)(C)(1)(b) to replace ``Exchange's 
disseminated price'' with ``better of the NBBO or internal BBO.'' BX 
Options 3, Section 4, Entry and Display of Quotes, provides, at 
subparagraph (b)(6), ``. . . A quote will not be executed at a price 
that trades through another market or displayed at a price that 
would lock or cross another market. If, at the time of entry, a 
quote would cause a locked or crossed market violation or would 
cause a trade-through, violation, it will be re-priced to the 
current national best offer (for bids) or the current national best 
bid (for offers) and displayed at one minimum price variance above 
(for offers) or below (for bids) the national best price.'' As 
further explained within a prior BX rule change,\14\
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    \14\ See Securities Exchange Act Release No. 89476 (August 10, 
2020), 85 FR 48274 (August 4, 2020) (SR-BX-2020-017) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Various BX Rules in Connection With a Technology Migration).

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[[Page 13006]]

    Today, BX re-prices certain orders to avoid locking and crossing 
away markets, consistent with its Trade-Through Compliance and 
Locked or Crossed Markets obligations. Orders which lock or cross an 
away market will automatically re-price one minimum price 
improvement inferior to the original away best bid/offer price to 
one minimum trading increment away from the new away best bid/offer 
price or its original limit price. The re-priced order is displayed 
on OPRA. The order remains on BX's Order Book and is accessible at 
the non-displayed price. For example, a limit order may be accessed 
on BX by a Participant if the limit order is priced better than the 
NBBO. The Exchange believes that the addition of this rule text will 
allow BX to define an ``internal BBO'' within its rules when 
describing re-priced orders that remain on the Order Book and are 
available at non-displayed prices, which are resting on the Order 
Book.\15\
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    \15\ Id at 48276.

    BX Options 5, Section 4, Order Routing, describes the repricing of 
orders for both routable and non-routable orders within Options 5, 
Section 4(a)(iii)(A), (B) and (C). The Exchange's proposal to use the 
term ``better of the NBBO or the internal BBO'' in BX Options 3, 
Section 10(a)(1)(C)(1)(b) seeks to better articulate current behavior 
and more closely conform with the concept of re-pricing at an internal 
BBO described within BX Options 3, Section 4, Entry and Display of 
Quotes. While this concept of ``better of the NBBO or the internal 
BBO'' is currently described in other portions of the BX Rulebook 
today, the Exchange believes adding context within the allocation rule 
to the re-priced quotes which remain on BX's Order Book and are 
accessible at the non-displayed price, will make clear within Options 
3, Section 10 that, as is the case today, if the LMM's quote is at or 
improves on the better of the better of the NBBO or internal BBO, the 
LMM is entitled to the allocation.\16\ While the proposed rule text 
offers a more precise description, the Exchange notes that the current 
rule text is not inaccurate as an LMM must improve on Exchange's 
disseminated price. The proposed language also considers a re-priced 
quote, which may be at a better price on the Order Book but is non-
displayed. Today, the re-pricing of quotes permits BX to comply with 
trade-through rules and prevent locked and crossed markets. This System 
behavior is not new, rather it is being described in greater detail 
herein as in other parts of the Rulebook. The proposed change within 
Options 3, Section 10(a)(1)(C)(1)(b) relates to BX's Price-Time 
Execution Algorithm. A similar change is proposed in identical rule 
text contained within BX Options 3, Section 10(a)(1)(C)(2)(ii)(1) which 
describes Size Pro-Rata Execution Algorithm.
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    \16\ See Options 3, Section 10(a)(1)(C)(1)(b), as proposed, ``An 
LMM may be assigned by the Exchange in each option class in 
accordance with Options 2, Section 3. LMM participant entitlements 
shall only be in effect when the Public Customer Priority Overlay is 
also in effect. After all Public Customer 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. 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. The LMM 
participation entitlement is as follows: . . .''. A similar change 
is proposed within Options 3, Section 10(a)(1)(C)(2)(ii).
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    The Exchange also proposes to amend a paragraph within Options 3, 
Section 10(a)(1)(C)(1)(b)(1) which currently provides,

    Notwithstanding the foregoing, when a Directed Order is received 
and the DMM's bid/offer is at or improves on the NBBO and the LMM is 
at the same price level and is not the DMM, the LMM participation 
entitlement set forth in this subsection (C)(1)(b)(1) will not apply 
with respect to such Directed Order.

    The Exchange proposes to instead provide,\17\
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    \17\ The amendment to change the term ``bid/offer'' to ``quote'' 
was described above.

    Notwithstanding the foregoing, when a Directed Order is received 
and the DMM's quote is at or improves on the better of the NBBO or 
internal BBO and the LMM is at the same price level and is not the 
DMM, the LMM participation entitlement set forth in this subsection 
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(C)(1)(b)(1) will not apply with respect to such Directed Order.

    While today, the DMM's quote must be at or improve upon the NBBO as 
provided for within Options 2, Section 10,\18\ the re-pricing of orders 
would permit a DMM's quote that is at or improves on the better of the 
NBBO or internal BBO to be subject to the DMM allocation described 
within Options 3, Section 10(a)(1)(C)(1)(b)(1). As explained above in 
greater detail, orders which lock or cross an away market will 
automatically re-price one minimum price improvement inferior to the 
original away best bid/offer price to one minimum trading increment 
away from the new away best bid/offer price or its original limit 
price. While the re-priced order is displayed on OPRA that order is 
accessible on BX's Order Book at the non-displayed price. The proposed 
change within Options 3, Section 10(a)(1)(C)(1)(b)(1) relates to BX's 
Price-Time Execution Algorithm. A similar change is proposed in 
identical rule text contained within current Options 3, Section 
10(a)(1)(C)(2)(iii) which describes the Size Pro-Rata Execution 
Algorithm, and which is proposed to be renumbered as ``(iv)'' to 
account for new rule text proposed herein. The changes described in 
this paragraph are not System or functionality changes but provide 
greater clarity as to the way the System functions.
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    \18\ Options 2, Section 10(a)(1) provides, ``When the Exchange's 
disseminated price is the NBBO at the time of receipt of the 
Directed Order, and the Directed Market Maker is quoting at or 
improving the Exchange's disseminated price, the Directed Order 
shall be automatically executed and allocated in accordance with 
Options 3, Section 10 such that the Directed Market Maker shall 
receive a Directed Market Maker participation entitlement provided 
for therein.''
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    Finally, a similar clarifying change is proposed to be made to 
Options 3, Section 10(a)(1)(C)(1)(c) (DMM Priority) which relates to 
BX's Price-Time Execution Algorithm. Similar to what was noted above 
for Options 3, Section 10(a)(1)(C)(1)(b)(1), the Exchange proposes to 
amend the paragraph to provide,

    A Market Maker which receives a Directed Order is a DMM with 
respect to that Directed Order. DMM participant entitlements shall 
only be in effect when the Public Customer Priority Overlay is also 
in effect. After all Public Customer orders have been fully 
executed, upon receipt of a Directed Order, provided the DMM's quote 
is at or improves on the better of the internal BBO or the NBBO, the 
DMM will be afforded a participation entitlement . . .\19\
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    \19\ Amending the terms ``bid/offer'' to the term ``quote'' in 
this paragraph was described above.

    While this proposed change relates to DMM Priority, it is proposed 
to be changed for the same reasons described herein for LMM Priority. A 
similar change is proposed in identical rule text contained within 
current Options 3, Section 10(a)(1)(C)(2)(iii) which describes the Size 
Pro-Rata Execution Algorithm.
    Currently, BX Options 3, Section 10(a)(1)(C)(1)(b)(1) provides,

    (1) A BX Options LMM shall receive the greater of:
    (a) Contracts the LMM would receive if the allocation was based 
on time priority pursuant to subparagraph (C)(1)(a) above with 
Public Customer priority;
    (b) 50% of remaining interest if there is one or no other Market 
Maker at that price;
    (c) 40% of remaining interest if there is two other Market 
Makers at that price;
    (d) 30% of remaining interest if there are more than two other 
Market Makers at that price; or
    (e) the Directed Market Maker (``DMM'') participation 
entitlement, if any, set forth in subsection (C)(1)(c) below (if the 
order is a Directed Order and the LMM is also the DMM).
    Rounding will be up to the nearest integer.

[[Page 13007]]

    Notwithstanding the foregoing, when a Directed Order is received 
and the DMM's bid/offer is at or improves on the NBBO and the LMM is 
at the same price level and is not the DMM, the LMM participation 
entitlement set forth in this subsection (C)(1)(b)(1) will not apply 
with respect to such Directed Order.

    The Exchange proposes to amend Options 3, Section 
10(a)(1)(C)(1)(b)(1)(b) to remove the words ``or no.'' Today, if there 
was no other Market Maker order or quote present, the Lead Market Maker 
would receive the allocation described within Options 3, Section 
10(a)(1)(C)(1)(b)(1)(a) because there would be no other interest 
present to require a split allocation in this scenario. The removal of 
the words ``or no'' would align the rule text to the current System 
functionality. This proposed change within Options 3, Section 
10(a)(1)(C)(1)(b)(1)(b) relates to BX's Price-Time Execution Algorithm. 
A similar change is proposed in identical rule text contained within 
current Options 3, Section 10(a)(1)(C)(2)(ii)(1)(b) which describes the 
Size Pro-Rata Execution Algorithm.
    The Exchange also proposes to be more specific with the text within 
Options 3, Section 10(a)(1)(C)(1)(b)(1)(b)-(d) by adding the words 
``order or quote'' or ``orders or quotes,'' as appropriate, after 
Market Maker because the System is looking for other orders or quotes 
from a Market Maker to determine the percentage of the allocation that 
will be provided to that Lead Market Maker. If a Market Maker entered 
both an order and a quote, the System would count the order and quote 
from the same Market Maker separately for purposes of determining the 
number of other Market Makers present for Options 3, Section 
10(a)(1)(C)(1)(b)(1)(b)-(d) allocation. This amendment would clarify 
current System behavior. This proposed change within Options 3, Section 
10(a)(1)(C)(1)(b)(1)(b)-(d) relates to BX's Price-Time Execution 
Algorithm. A similar change is proposed in identical rule text 
contained within current Options 3, Section 10(a)(1)(C)(2)(ii)(1)(b)-
(d) which describes the Size Pro-Rata Execution Algorithm.
    The Exchange also proposes to correct a grammatical error within BX 
Options 3, Section 10(a)(1)(C)(1)(b)(1)(c) to correct ``is'' to 
``are.''
    The Exchange proposes to update the cross-reference within Options 
3, Section 10(a)(1)(C)(1)(b)(1)(e), related to BX's Price-Time 
Execution Algorithm, and Options 3, Section 10(a)(1)(C)(2)(ii)(1)(e), 
related to the Size Pro-Rata Execution Algorithm, as the Exchange 
proposes new rule text with this proposal which impacted the numbering/
lettering.
    Currently, BX Options 3, Section 10(a)(1)(C)(1)(b)(2), related to 
BX's Price-Time Execution Algorithm, provides, ``Orders for 5 contracts 
or fewer shall be allocated to the LMM. The Exchange will review this 
provision quarterly and will maintain the small order size at a level 
that will not allow orders of 5 contracts or less executed by the LMM 
to account for more than 40% of the volume executed on the Exchange. 
This provision shall not apply if the order of 5 contracts or fewer is 
directed to a DMM who is quoting at or better than the NBBO.'' The 
Exchange proposes to replace this language with rule text similar to 
Phlx Options 3, Section 10(a)(1)(D) and redesignate the provision as BX 
Options 3, Section 10(a)(C)(1)(c).\20\
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    \20\ Current BX Options 3, Section 10(a)(C)(1)(c) relates to DMM 
Priority, the Exchange also proposes to redesignate that section as 
new BX Options 3, Section 10(a)(C)(1)(d) to account for the new rule 
text.
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    Reorganizing this part of the rule to mirror Phlx is not a 
substantive change. The Exchange is not otherwise amending the System, 
rather these changes are being made to conform the rule text to Phlx 
rule text, which more specifically describes the scenarios in which a 
Lead Market Maker would be entitled to Orders of 5 contracts or fewer.
    Similar rule text describing entitlement for order of 5 contracts 
or fewer replacement is proposed within Options 3, Section 
10(a)(1)(C)(2)(iii), relating to the Size Pro-Rata Execution Algorithm, 
and this rule text will cause current Options 3, Section 
10(a)(1)(C)(2)(iii), which describes DMM Priority, to be redesignated 
as Options 3, Section 10(a)(1)(C)(2)(iv) to account for the new rule 
text.
    With respect to proposed new BX Options 3, Section 
10(a)(1)(C)(1)(c), related to the Price-Time Execution Algorithm, and 
Options 3, Section 10(a)(1)(C)(2)(iii), related to the Size Pro-Rata 
Execution Algorithm, the Exchange proposes to provide,

    The Exchange proposes to provide the Entitlement for Orders of 5 
contracts or fewer shall be allocated to the Lead Market Maker as 
described below. The allocation will only apply after the Opening 
Process and shall not apply to auctions. A Lead Market Maker 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 Lead Market Makers, and will reduce the size of the orders 
included in this provision if such percentage is over 40%.

    While the percentage of 40% of the volume executed on the Exchange 
is comprised of orders for 5 contracts or fewer allocated to Lead 
Market Makers differs from Phlx, which is 25%,\21\ the Exchange notes 
it is retaining BX's current percentage which is specified within 
current BX Options 3, Section 10(a)(1)(C)(1)(b)(2), related to the 
Price-Time Execution Algorithm, and current Options 3, Section 
10(a)(1)(C)(2)(ii)(2), related to the Size Pro-Rata Execution 
Algorithm.
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    \21\ See Phlx Options 3, Section 10(a)(1)(D).
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    With respect to proposed new BX Options 3, Section 
10(a)(1)(C)(1)(c)(1), related to the Price-Time Execution Algorithm, 
and Options 3, Section 10(a)(1)(C)(2)(iii)(1), related to the Size Pro-
Rata Execution Algorithm, the Exchange proposes to provide,

    A Lead Market Maker is entitled to priority with respect to 
Orders of 5 contracts or fewer, including when the Lead Market Maker 
is also the Directed Market Maker, if the Lead Market Maker has a 
quote at the better of the internal BBO or the NBBO, with no other 
Public Customer or Directed Market Maker interest with a higher 
priority.

    Of note, Phlx describes the manner in which All-or-None Orders are 
handled in its related rule,\22\ which order type differs on BX. Also, 
the term ``PBBO'' is similar to BX's term ``BBO''.
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    \22\ Phlx has All-or-None Orders which are permitted to rest on 
the Order Book. See Phlx Options 3, Section 7(b)(5). BX's All-or-
None Orders must be executed in its entirety or not at all and do 
not rest on the Order Book. See BX Options 3, Section 7(a)(8). 
Because BX's All-or-None Orders do not rest on the Order Book, the 
treatment of such orders would be different on the two markets (Phlx 
and BX) and therefore it is consistent to align its treatment of 
order types within the allocation rule with its treatment of those 
orders pursuant to BX Options 3, Section 7.
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    With respect to proposed new BX Options 3, Section 
10(a)(1)(C)(1)(c)(2), related to the Price-Time Execution Algorithm, 
the Exchange proposes to provide:

    If the Lead Market Maker's quote is at the better of the 
internal BBO or the NBBO, with other Public Customer (including when 
the Lead Market Maker is also the Directed Market Maker) or other 
Directed Market Maker interest with a higher priority at the time of 
execution, a Lead Market Maker is not entitled to priority with 
respect to Orders of 5 contracts or fewer; thereafter orders will be 
allocated pursuant to paragraph (a)(1)(C)(1)(e).

    Similar rule text, with the appropriate cross-reference, is 
proposed within Options 3, Section 10(a)(1)(C)(2)(iii)(2), related to 
the Size Pro-Rata Execution

[[Page 13008]]

Algorithm.\23\ Similar to the aforementioned paragraph, All-or-None 
Orders are handled differently on Phlx and BX, and the term ``PBBO'' is 
similar to BX's term ``BBO''.
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    \23\ Options 3, Section 10(a)(1)(C)(2)(iii)(2) proposes to 
provide, ``(2) If the Lead Market Maker's quote is at the better of 
the internal BBO, excluding All-or-None Orders that cannot be 
satisfied, or the NBBO, with other Public Customer (including when 
the Lead Market Maker is also the Directed Market Maker) or other 
Directed Market Maker interest with a higher priority at the time of 
execution, a Lead Market Maker is not entitled to priority with 
respect to Orders of 5 contracts or fewer, however the Lead Market 
Maker is eligible to receive such contracts pursuant to paragraph 
(a)(1)(C)(2)(v); thereafter orders will be allocated pursuant to 
paragraph (a)(1)(C)(2)(vi).
---------------------------------------------------------------------------

    As is the case today, in order to be entitled to receive Orders for 
5 contracts or fewer, the Lead Market Maker's quote must be at the 
better of the internal BBO or the NBBO with no other Public Customer or 
Directed Market Maker interest which has a higher priority. If the Lead 
Market Maker is quoting at the better of the internal BBO or the NBBO 
with other Public Customer or Directed Market Maker interest present 
which has a higher priority at the time of execution, a Lead Market 
Maker is not entitled to priority with respect to Orders of 5 contracts 
or fewer, however the Lead Market Maker is eligible to receive such 
contracts pursuant to paragraph (a)(1)(C)(1)(b)(1)(e) for Price-Time 
Execution, and paragraph (a)(1)(C)(2)(vi) for Size Pro-Rata Execution, 
which describe the treatment of all other remaining interest after Lead 
Market Maker and Directed Market Maker allocations. The Lead Market 
Maker would be entitled to the entire allocation of the Order of 5 
contracts or fewer where the Lead Market Maker is also the Directed 
Market Maker and the Lead Market Maker receives the Directed Order and 
has a quote at the best price (described as the better of the internal 
BBO or the NBBO) at the time the Directed Order was received. This 
means that no other interest, including Public Customer or Directed 
Market Maker interest is present with a higher priority, if the Lead 
Market Maker is to receive the allocation.
    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)(1)(b)(1)(e) for Price-
Time Execution and paragraph (a)(1)(C)(2)(vi) for Size Pro-Rata 
Execution, which both describe the treatment of all other remaining 
interest after Lead Market Maker and Directed Market Maker allocations.
    This is the manner in which the System behaves today and the rule 
is being amended to expand upon the current text, similar to Phlx, and 
provide additional granularity as to the circumstances in which a Lead 
Market Maker would be entitled to an allocation for Orders of 5 
contracts or fewer.\24\
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    \24\ Phlx's similar rule text at Phlx Options 3, Section 
10(a)(1)(D) is similar, however Phlx's rule has a different 
percentage than proposed for BX, despite the execution algorithm. 
Phlx provides that 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 Lead Market Makers, 
and will reduce the size of the orders included in this provision if 
such percentage is over 25%. BX's rules both provide that 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 Lead Market Makers, and will reduce 
the size of the orders included in this provision if such percentage 
is over 40%. Also, as noted herein, All-or-None Orders are handled 
differently on Phlx and BX, and the term ``PBBO'' is similar to BX's 
term ``BBO''.
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    The Exchange proposes to amend current Options 3, Section 
10(a)(1)(C)(1)(c) (DMM Priority), related to Price-Time Execution, 
which will be redesignated as ``d'', to capitalize the term ``Opening 
Process,'' which is capitalized elsewhere in the rule. A similar change 
is proposed within current Options 3, Section 10(a)(1)(C)(2)(iii) (DMM 
Priority), related to Size Pro-Rata Execution, which will be 
redesignated as ``iv.''
    The Exchange proposes to add a title to current BX Options 3, 
Section 10(a)(1)(C)(1)(d), ``All Other Remaining Interest,'' similar to 
Phlx Options 3, Section 10(a)(1)(d), and redesignate this section as 
``e''. The Exchange also proposes to redesignate current BX Options 3, 
Section 10(a)(1)(C)(1)(e) as ``f''.
    Current Options 3, Section 10(a)(1)(C)(2)(iv) (Market Maker 
Priority), related to Size Pro-Rata Execution, is proposed to be 
renumbered as ``(v).''
    The Exchange proposes to relocate the last sentence of current 
Options 3, Section 10(a)(1)(C)(2)(iv) to new Options 3, Section 
10(a)(1)(C)(2)(vi) with the Size Pro-Rata Execution Algorithm to 
conform the rule text to Phlx's rule text and add the title ``All Other 
Remaining Interest'' to provide,

    If there are contracts remaining after all Market Maker interest 
has been fully executed, such contracts shall be executed based on 
the Size Pro-Rata execution algorithm.

    The Exchange notes that this same paragraph currently exists within 
BX Options 3, Section 10(a)(1)(C)(1)(e), related to Price-Time 
Execution, but those paragraphs differ because a Market Maker Priority 
overlay does not exist in the Price-Time Execution Algorithm on BX, but 
it does exist in the Size Pro-Rata Execution Algorithm on BX.
    Finally, current Options 3, Section 10(a)(1)(C)(2)(v), related to 
Size Pro-Rata Execution, is proposed to be renumbered as ``(vii).''
Options 3, Section 15(b)(1)
    Today, the Exchange offers an Acceptable Trade Range (``ATR'') risk 
protection that sets dynamic boundaries within which quotes and orders 
may trade, and is designed to prevent the Exchange's System from 
experiencing dramatic price swings by preventing the execution of 
quotes and orders beyond the thresholds set by the protection.
    As presently set forth in Options 3, Section 15(b)(1), the System 
will calculate an ATR to limit the range of prices at which an order 
will be allowed to execute. ATR is calculated by taking the reference 
price, plus or minus a value to be determined by the Exchange (i.e., 
the reference price - (x) for sell orders and the reference price + (x) 
for buy orders).\25\ Upon receipt of a new order, the reference price 
is the National Best Bid (``NBB'') for sell orders and the National 
Best Offer (``NBO'') for buy orders or the last price at which the 
order is posted, whichever is higher for a buy order or lower for a 
sell order.\26\ If an order reaches the outer limit of the ATR (the 
``Threshold Price'') without being fully executed pursuant to Options 
3, Section 15(b)(1)(A), 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 or an updated NBB for buy orders or the 
NBO for sell orders (whichever is higher for a buy order or lower for a 
sell order) then becomes the reference price for calculating a new ATR. 
If the order remains unexecuted, a new ATR will be calculated and the 
order will execute, route, or post up to the new Threshold

[[Page 13009]]

Price. This process will repeat until either i) the order/quote is 
executed, cancelled, or posted at its limit price or ii) the order has 
been subject to a configurable number of instances of the ATR as 
determined by the Exchange (in which case it will be returned).\27\ 
During the Posting Period, pursuant to Options 3, Section 15(b)(1)(B), 
the Exchange will disseminate as a quotation: (i) The Threshold Price 
for the remaining size of the order triggering the ATR and (ii) on the 
opposite side of the market, the best price will be displayed using the 
``non-firm'' indicator message in accordance with the specifications of 
the network processor.\28\ Following the final Posting Period, the 
Exchange will return to a normal trading state and disseminate its best 
bid and offer.
---------------------------------------------------------------------------

    \25\ ATR settings are tied to the option premium.
    \26\ In the event of a crossed ABBO, ATR will use the NBO 
instead of the NBB for incoming sell orders and the NBB instead of 
the NBO for incoming buy orders as the reference price, unless the 
order's last posted price is more aggressive than the NBO (for the 
sell order) or the NBB (for the buy order).
    \27\ In the case of ``Do Not Route'' or ``DNR'' Orders that are 
locked against the ABBO, such orders will pause their ATR iterations 
(i.e., a new ATR will not be calculated based on the reference price 
at that time) and remain this way until the ATR process can be 
completed.
    \28\ During ATR iterations, route timers continue to run and 
``firm'' quote posting can occur if, for example, the order is re-
priced one minimum price variant away from the ABBO pursuant to 
Options 3, Section 5(d) to comply with applicable Trade-Through and 
Locked/Crossed market restrictions, in which case the quotation will 
disseminate as a ``firm'' quote.
---------------------------------------------------------------------------

    The Exchange now proposes to add that ATR will not be available for 
All-or-None Orders (``AONs'') \29\ or Minimum Quantity Orders 
(``MQOs'').\30\ Although this change reflects current functionality, 
the rule is silent in this regard. The Exchange does not believe that 
ATR is necessary for AONs or MQOs because by definition, these orders 
types must meet a sufficient size requirement before executing. As 
described above, applying ATR may result in an order receiving partial 
executions at multiple price points. The Exchange therefore believes 
that it would contradict the explicit instructions of a BX Participant 
using AONs and MQOs to apply ATR to these order types. The following 
examples illustrate how the ATR protection applies today:
---------------------------------------------------------------------------

    \29\ See note 5 above.
    \30\ See note 4 above.
---------------------------------------------------------------------------

Example 1
1. ATR band in this price range is set to $0.07
2. Assume the following market:
    a. MM1 Quote sets BBO 2.00 (10) x 2.12 (10)
    b. MM2 Quote 1.99 (10) x 2.13 (10)
    c. MM3 Quote 1.98 (10) x 2.13 (10)
    d. Customer Order to Buy 10 @ 1.97
    e. Firm Order to Buy 10 @ 1.93
    f. BD Order to Buy 10 @ 1.92 (this is .01 past ATR band since 2.00-
0.07 = 1.93)
3. Incoming AON Order to Sell 60 @ 1.92
4. The incoming AON trades with all of the bids layering the book, 
trading its total of 60 contracts without regard to the ATR band
Example 2
1. ATR band in this price range is set to $0.07
2. Assume the following market:
    a. MM1 Quote sets BBO 2.00 (10) x 2.12 (10)
    b. MM2 Quote 1.99 (10) x 2.13 (10)
    c. MM3 Quote 1.98 (10) x 2.13 (10)
    d. Customer Order to Buy 10 @ 1.97
    e. Firm Order to Buy 10 @ 1.93
    f. BD Order to Buy 10 @ 1.92 (this is .01 past ATR band since 2.00-
0.07 = 1.93)
3. Incoming DAY Order to Sell 100 @ 1.92
4. The incoming DAY Order trades at each price level down to 1.93, for 
a total of 50 contracts, but does not trade with the resting interest 
at 1.92 yet
5. DAY Order then posts at the ATR band of 1.93 during the ATR Posting 
Period
6. After the ATR Posting Period concludes, the DAY Order trades with 
the BD Order @ 1.92
7. Remainder of the DAY Order now books at its limit price of 1.92 as 
there is no more tradeable interest

    Lastly, the Exchange proposes the following minor, corrective 
changes in paragraph (b)(1)(A) of Options 3, Section 15 to replace: (i) 
``New Acceptable Trade Range'' with ``new Acceptable Trade Range,'' and 
(ii) ``new Acceptable Trade Range Threshold Price'' with ``new 
Threshold Price'' to conform to the defined term.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\31\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\32\ 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.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Options 2, Section 10
    The Exchange's proposal to amend Options 2, Section 10(a) to remove 
inadvertent wording is consistent with the Act because the removal of 
the wording will make the rule text easier to understand.
Options 3, Section 7
    The Exchange's proposal to amend Options 3, Section 7(a)(4) to make 
the term ``require'' plural is technical and non-substantive.
    The Exchange's proposal to amend Options 3, Section 7 to describe a 
Contingency Order is consistent with the Act because it adds more 
context to the current rules. Today, BX has two order types which have 
contingencies: (1) Minimum Quantity Orders and (2) All-or-None Orders. 
The Exchange proposes to formalize the definition of a ``Contingency 
Order'' within proposed new Options 3, Section 7(a)(4)(A) to mean 
Minimum Quantity Orders and All-or-None Orders to bring greater clarity 
to its rules. The Exchange proposes to state within proposed new 
Options 3, Section 7(a)(4)(A) that Contingency Orders will only execute 
against multiple, aggregated orders if the executions would occur 
simultaneously, which is true of Minimum Quantity Orders and All-or-
None Orders today.\33\
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    \33\ Today, Minimum Quantity Orders and All-or-None Orders both 
have a time-in-force designation of Immediate or Cancel and both 
have a size requirement. A Minimum Quantity Order requires that a 
specified minimum quantity of contracts be obtained, or the order is 
cancelled. Similarly, an All-or-None Order is to be executed in its 
entirety at the specified size or the order will be cancelled.
---------------------------------------------------------------------------

    The Exchange's proposal to adopt rule text which more clearly 
explains how the System executes Minimum Quantity Orders and All-or-
None Orders, which both have a size requirement, within the Order Book 
protects investors and the public interest because it adds specificity 
to the rules with respect to current System handling. Specifically, 
this amendment will clarify the current rule to more specifically 
describe the manner in which the System currently handles Contingency 
Orders on BX. The Exchange notes that the handling of such orders as 
described by the proposed rule text within Options 3, Section 
7(a)(4)(A) is consistent with the Exchange's allocation methodology 
within Options 3, Section 10 and description of order types within 
Options 3, Section 7. The additional clarity makes clear that because 
of the size requirements of Minimum Quantity Orders and All-or-None 
Orders, that 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. Also, BX is adopting rule text which is similar, in relevant 
part, to a provision in the definition of Minimum Quantity Order to 
Cboe Rule 5.6(b). Similar to BX's Minimum Quantity Orders and

[[Page 13010]]

All-or-None Orders, Cboe's Minimum Quantity Orders will only execute 
against multiple, aggregated orders if the executions would occur 
simultaneously because of the size contingency.
    The Exchange's proposal to replace references to the term ``Limit 
Order Price Protection'' within Options 3, Section 7 with the correct 
term, ``Order Price Protection'' is consistent with the Act. Amending 
the inadvertent references to a ``Limit Order Price Protection'' within 
Options 3, Section 7(a)(1), Options 3, Section 7(b)(3)(B), and Options 
3, Section 7(e)(1)(B) to the correct name of the risk protection will 
bring clarity to these cross-references.
Options 3, Section 10
    The Exchange proposes to amend Options 3, Section 10, Order Book 
Allocation, to conform this rule, in relevant part, to Phlx Options 3, 
Section 10 as discussed herein. The Exchange's proposal to amend rule 
text, similar to Phlx,\34\ to insert the term ``quote'' in place of the 
terms ``bid'' and ``offer'' in the third sentence is consistent with 
the Act. The term ``quote'' and the term ``bid/offer'' are, where 
changes are proposed herein, interchangeable terms that are intended to 
differentiate ``quotes'' or ``bid/offer'' from an ``order.'' Of note, 
only BX Market Makers may enter a ``quote'' or a ``bid/offer.'' The 
Exchange's proposal regarding this amendment is non-substantive as the 
words proposed to be amended herein are interchangeable.
---------------------------------------------------------------------------

    \34\ See Phlx Options 3, Section 10(a)(1)(B).
---------------------------------------------------------------------------

    The Exchange's proposal to amend the third sentence of Options 3, 
Section 10(a)(1)(C)(1)(b) to replace ``Exchange's disseminated price'' 
with ``better of the NBBO or internal BBO'' is consistent with the Act 
because amending the rule text will protect investors and the general 
public by making clear that a re-priced order is accessible on BX's 
Order Book at the non-displayed price. Today, BX re-prices certain 
orders to avoid locking and crossing away markets, consistent with its 
Trade-Through Compliance and Locked or Crossed Markets obligations. 
Orders which lock or cross an away market will automatically re-price 
one minimum price improvement inferior to the original away best bid/
offer price to one minimum trading increment away from the new away 
best bid/offer price or its original limit price. The re-priced order 
is displayed on OPRA. The order remains on BX's Order Book and is 
accessible at the non-displayed price. The Exchange believes that the 
addition of this rule text will allow BX to define an ``internal BBO'' 
within its rules when describing re-priced orders that remain on the 
Order Book and are available at non-displayed prices while resting on 
the Order Book.\35\ The proposed rule text will make clear within 
Options 3, Section 10 that, as is the case today, if the LMM's quote is 
at or improves on the better of the better of the NBBO or internal BBO, 
the LMM is entitled to the allocation. The proposed rule text is a more 
precise description which better articulates current behavior, although 
the Exchange notes that the current rule text is not inaccurate as an 
LMM must improve on Exchange's disseminated price. This System behavior 
is not new, rather it is being described in greater detail herein as in 
other parts of the Rulebook.\36\
---------------------------------------------------------------------------

    \35\ BX Options 5, Section 4, Order Routing, describes the 
repricing of orders for both routable and non-routable orders within 
Options 5, Section 4(a)(iii)(A), (B) and (C). The Exchange's 
proposal seeks to conform the concept of re-pricing and an internal 
BBO, which is described within BX Options 3, Section 4, Entry and 
Display of Quotes with the proposed change to BX Options 3, Section 
10(a)(1)(C)(1)(b).
    \36\ The proposed change within Options 3, Section 
10(a)(1)(C)(1)(b) relates to BX's Price-Time Execution Algorithm. A 
similar change is proposed in identical rule text contained within 
BX Options 3, Section 10(a)(1)(C)(2)(ii) which describes Size Pro-
Rata Execution Algorithm.
---------------------------------------------------------------------------

    Similarly, the Exchange's proposal to amend a paragraph within 
Options 3, Section 10(a)(1)(C)(1)(b)(1) to change ``. . . is at or 
improves on the NBBO . . .'' to ``. . . is at or improves on the better 
of the NBBO or internal BBO'' is consistent with the Act. While today, 
the DMM's quote must be at or improve upon the NBBO as provided for 
within Options 2, Section 10,\37\ the re-pricing of orders would permit 
a DMM's quote that is at or improves on the better of the NBBO or 
internal BBO to be subject to the DMM allocation described within 
Options 3, Section 10(a)(1)(C)(1)(b)(1).\38\ The changes described in 
this paragraph are not System or functionality changes but provide 
greater clarity as to the way the System functions.
---------------------------------------------------------------------------

    \37\ Options 2, Section 10(a)(1) provides, ``When the Exchange's 
disseminated price is the NBBO at the time of receipt of the 
Directed Order, and the Directed Market Maker is quoting at or 
improving the Exchange's disseminated price, the Directed Order 
shall be automatically executed and allocated in accordance with 
Options 3, Section 10 such that the Directed Market Maker shall 
receive a Directed Market Maker participation entitlement provided 
for therein.''
    \38\ The proposed change within Options 3, Section 
10(a)(1)(C)(1)(b)(1) relates to BX's Price-Time Execution Algorithm. 
A similar change is proposed in identical rule text contained within 
current Options 3, Section 10(a)(1)(C)(2)(iii) which describes the 
Size Pro-Rata Execution Algorithm, and which is proposed to be 
renumbered as ``(iv)'' to account for new rule text proposed herein.
---------------------------------------------------------------------------

    Finally, a similar clarifying change proposed to be made to Options 
3, Section 10(a)(1)(C)(1)(c) (DMM Priority), which relates to BX's 
Price-Time Execution Algorithm, is also consistent with the Act. 
Similar to what was noted above for Options 3, Section 
10(a)(1)(C)(1)(b)(1), the Exchange proposes to amend the paragraph 
related to DMM Priority for the same reasons described herein for LMM 
Priority.\39\
---------------------------------------------------------------------------

    \39\ A similar change is proposed in identical rule text 
contained within current Options 3, Section 10(a)(1)(C)(2)(iii) 
which describes the Size Pro-Rata Execution Algorithm
---------------------------------------------------------------------------

    The Exchange proposal to amend BX Options 3, Section 
10(a)(1)(C)(1)(b)(1) to remove the words ``or no'' is consistent with 
the Act as the proposed change will bring greater clarity to the 
Exchange's rule. Today, if there was no other Market Maker order or 
quote present, the Lead Market Makers would receive the allocation 
based described within Options 3, Section 10(a)(1)(C)(1)(b)(1)(a) 
because there would be no other interest present to require a split 
allocation in this scenario. Further, the removal of the words ``or 
no'' would align the rule text to the current System functionality.\40\
---------------------------------------------------------------------------

    \40\ This proposed change within Options 3, Section 
10(a)(1)(C)(1)(b)(1)(b) relates to BX's Price-Time Execution 
Algorithm. A similar change is proposed in identical rule text 
contained within current Options 3, Section 10(a)(1)(C)(2)(ii)(1)(b) 
which describes the Size Pro-Rata Execution Algorithm
---------------------------------------------------------------------------

    The Exchange's proposal to be more specific with the text within 
Options 3, Section 10(a)(1)(C)(1)(b)(1)(b)-(d) by adding the words 
``order or quote'' or ``orders or quotes,'' as appropriate, after 
Market Maker because the System is looking for other orders or quotes 
from a Market Maker to determine the percentage of the allocation that 
will be provided to that Lead Market Maker is consistent with the Act. 
If a Market Maker entered both an order and a quote, the System would 
count the order and quote from the same Market Maker separately for 
purposes of determining the number of other Market Makers present for 
Options 3, Section 10(a)(1)(C)(1)(b)(1)(b)-(d) allocation. This 
amendment would clarify current System behavior for the protection of 
investors and the general public.\41\
---------------------------------------------------------------------------

    \41\ This proposed change within Options 3, Section 
10(a)(1)(C)(1)(b)(1)(b)-(d) relates to BX's Price-Time Execution 
Algorithm. A similar change is proposed in identical rule text 
contained within current Options 3, Section 
10(a)(1)(C)(2)(ii)(1)(b)-(d) which describes the Size Pro-Rata 
Execution Algorithm.
---------------------------------------------------------------------------

    The Exchange's proposal to reorganize BX Options 3, Section 
10(a)(1)(C)(1)(b)(2),\42\ related to BX's

[[Page 13011]]

Price-Time Execution Algorithm, and replace this language with rule 
text similar to Phlx Options 3, Section 10(a)(1)(D) and redesignate the 
provision as BX Options 3, Section 10(a)(C)(1)(c) \43\ is consistent 
with the Act. Reorganizing this part of the rule to mirror Phlx is not 
a substantive change. The Exchange is not otherwise amending the 
System, rather these changes are being made to conform the rule text to 
Phlx rule text, which more specifically describes the scenarios in 
which a Lead Market Maker would be entitled to Orders of 5 contracts or 
fewer.
---------------------------------------------------------------------------

    \42\ Similar rule text describing entitlement for order of 5 
contracts or fewer replacement is proposed within Options 3, Section 
10(a)(1)(C)(2)(iii), relating to the Size Pro-Rata Execution 
Algorithm, and this rule text will cause current Options 3, Section 
10(a)(1)(C)(2)(iii) which describes DMM Priority, to be redesignated 
as Options 3, Section 10(a)(1)(C)(2)(iv) to account for the new rule 
text.
    \43\ Current BX Options 3, Section 10(a)(C)(1)(c) relates to DMM 
Priority, the Exchange also proposes to redesignate that section as 
new BX Options 3, Section 10(a)(C)(1)(d) to account for the new rule 
text.
---------------------------------------------------------------------------

    With respect to proposed new BX Options 3, Section 
10(a)(1)(C)(1)(c), related to the Price-Time Execution Algorithm, and 
Options 3, Section 10(a)(1)(C)(2)(iii), related to the Size Pro-Rata 
Execution Algorithm, the Exchange notes it is retaining BX's current 
percentage which is specified within current BX Options 3, Section 
10(a)(1)(C)(1)(b)(2), related to the Price-Time Execution Algorithm, 
and current Options 3, Section 10(a)(1)(C)(2)(ii)(2), related to the 
Size Pro-Rata Execution Algorithm.\44\ The Exchange also proposes to 
adopt similar Phlx provisions into Options 3, Section 
10(a)(1)(C)(1)(c)(1), related to the Price-Time Execution Algorithm, 
and Options 3, Section 10(a)(1)(C)(2)(iii)(1). Finally, the Exchange 
proposes to adopt similar Phlx provisions into new BX Options 3, 
Section 10(a)(1)(C)(1)(c)(2), related to the Price-Time Execution 
Algorithm and new Options 3, Section 10(a)(1)(C)(2)(iii)(2), related to 
the Size Pro-Rata Execution Algorithm, with respectively appropriate 
cross-references.
---------------------------------------------------------------------------

    \44\ Phlx's similar rule text at Phlx Options 3, Section 
10(a)(1)(D) is similar, however Phlx's rule has a different 
percentage than proposed for BX, despite the execution algorithm. 
Phlx provides that 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 Lead Market Makers, 
and will reduce the size of the orders included in this provision if 
such percentage is over 25%. BX's rules both provide that 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 Lead Market Makers, and will reduce 
the size of the orders included in this provision if such percentage 
is over 40%. Also, as noted herein, All-or-None Orders are handled 
differently on Phlx and BX, and the term ``PBBO'' is similar to BX's 
term ``BBO''.
---------------------------------------------------------------------------

    As is the case today, in order to be entitled to receive Orders for 
5 contracts or fewer, the Lead Market Maker's quote must be at the 
better of the internal BBO or the NBBO with no other Public Customer or 
Directed Market Maker interest which has a higher priority. If the Lead 
Market Maker is quoting at the better of the internal BBO or the NBBO 
with other Public Customer or Directed Market Maker interest present 
which has a higher priority at the time of execution, a Lead Market 
Maker is not entitled to priority with respect to Orders of 5 contracts 
or fewer, however the Lead Market Maker is eligible to receive such 
contracts pursuant to paragraph (a)(1)(C)(1)(b)(1)(e) for Price-Time 
Execution, and paragraph (a)(1)(C)(2)(vi) for Size Pro-Rata Execution, 
which describe the treatment of all other remaining interest after Lead 
Market Maker and Directed Market Maker allocations. The Lead Market 
Maker would be entitled to the entire allocation of the Order of 5 
contracts or fewer where the Lead Market Maker is also the Directed 
Market Maker and the Lead Market Maker receives the Directed Order and 
has a quote at the best price (described as the better of the internal 
BBO or the NBBO) at the time the Directed Order was received. This 
means that no other interest, including Public Customer or Directed 
Market Maker interest is present with a higher priority, if the Lead 
Market Maker is to receive the allocation. 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)(1)(b)(1)(e) for Price-Time Execution and paragraph 
(a)(1)(C)(2)(vi) for Size Pro-Rata Execution, which both describe the 
treatment of all other remaining interest after Lead Market Maker and 
Directed Market Maker allocations. This is the manner in which the 
System behaves today and the proposed new rule text which is being 
amended to expand upon the current text, similar to Phlx, will provide 
additional granularity as to the circumstances in which a Lead Market 
Maker would be entitled to an allocation for Orders of 5 contracts or 
fewer \45\ for the protection of investors and the general public.
---------------------------------------------------------------------------

    \45\ Phlx's similar rule text at Phlx Options 3, Section 
10(a)(1)(D) is similar, however Phlx's rule has a different 
percentage than proposed for BX, despite the execution algorithm. 
Phlx provides that 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 Lead Market Makers, 
and will reduce the size of the orders included in this provision if 
such percentage is over 25%. BX's rules both provide that 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 Lead Market Makers, and will reduce 
the size of the orders included in this provision if such percentage 
is over 40%. Also, as noted herein, All-or-None Orders are handled 
differently on Phlx and BX, and the term ``PBBO'' is similar to BX's 
term ``BBO''.
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    The remainder of the proposed rule changes within Options 3, 
Section 10 which include renumbering, capitalizations, relocation of 
rule text, addition of headers and technical amendments are non-
substantive.
Options 3, Section 15
    The Exchange believes that its proposal to amend the ATR rule in 
Options 3,
    Section 15(b)(1) would promote just and equitable principles of 
trade as well as protect investors and the public interest. The 
Exchange notes that the ATR functionality, including the exclusion of 
certain size contingency order types from ATR protections, is not new 
or novel, and is available on other options exchanges.\46\ The proposed 
rule change codifies existing ATR functionality by providing that ATR 
will not be available for AONs and MQOs. Although this change reflects 
current functionality, the existing rule is silent in this regard. As 
discussed above, the Exchange does not believe that ATR is necessary 
for AONs or MQOs because by definition, these orders types must meet a 
sufficient size requirement before executing. Because ATR may result in 
an order receiving partial executions at multiple price points, the 
Exchange believes that it would contradict the explicit instructions of 
a Participant using AONs and MQOs to apply ATR to these order types. 
Accordingly, the proposed changes would add greater transparency and 
internal consistency to Exchange rules regarding the interaction of 
AONs and MQOs with this risk protection, and therefore provide more 
certainty to Participants as to the application of the rule. The 
Exchange also notes that AONs and MQOs are still subject to other 
Exchange risk protections like the Order Price Protection (``OPP'') 
\47\ and Market Order

[[Page 13012]]

Spread Protection (``MOSP'') \48\ that are designed to prevent 
executions at far away prices. As such, the Exchange believes that its 
proposal will continue to protect investors by limiting executions that 
are away from prevailing market prices.
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    \46\ See, e.g., Nasdaq ISE (``ISE'') Options 3, Section 
15(a)(2)(A) (providing that ISE's ATR will not be available for 
AONs).
    \47\ See Options 3, Section 15(a)(1).
    \48\ See Options 3, Section 15(a)(2).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Options 3, Section 7
    The Exchange's proposal amend Options 3, Section 7 to describe a 
Contingency Order does not impose an undue burden on competition 
because it adds more context to the current rules. Contingency Orders 
will trade against bids layering the order book to satisfy their size 
contingency to the extent that such size may be simultaneously executed 
against multiple orders on the order book in the aggregate for that 
contingency order. The Exchange believes that the addition of this rule 
text adds specificity to the rules with respect to current System 
handling. The proposal to renumber the rule is non-substantive.
    The Exchange's proposal to replace references to the term ``Limit 
Order Price Protection'' within Options 3, Section 7 with the correct 
term, ``Order Price Protection'' does not impose an undue burden on 
competition. Amending the inadvertent references to a ``Limit Order 
Price Protection'' within Options 3, Section 7(a)(1), Options 3, 
Section 7(b)(3)(B), and Options 3, Section 7(e)(1)(B) to the correct 
name of the risk protection will bring clarity to these cross-
references.
Options 3, Section 10
    The Exchange's proposal to amend Options 3, Section 10, Order Book 
Allocation, in relevant part as discussed herein, to conform this rule 
to Phlx Options 3, Section 10, does not impose an undue burden on 
competition, rather it will bring greater clarity to BX's allocation 
rule.
    The Exchange's proposal to amend rule text, similar to Phlx,\49\ to 
insert the term ``quote'' in place of the terms ``bid'' and ``offer'' 
does not impose an undue burden on competition. The term ``quote'' and 
the term ``bid/offer'' are, where changes are proposed herein, 
interchangeable terms that are intended to differentiate ``quotes'' or 
``bid/offer'' from an ``order.'' \50\ Of note, only BX Market Makers 
may enter a ``quote'' or a ``bid/offer.'' The Exchange's proposal 
regarding this amendment is non-substantive as the words proposed to be 
amended herein are interchangeable.
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    \49\ See Phlx Options 3, Section 10(a)(1)(B).
    \50\ See BX Options 1, Section 1(a)(44). The term ``order'' 
means a firm commitment to buy or sell options contracts as defined 
in Section 7 of Options 3.
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    The Exchange's proposal to amend the third sentence of Options 3, 
Section 10(a)(1)(C)(1)(b) to replace ``Exchange's disseminated price'' 
with ``better of the NBBO or internal BBO'' does not impose an undue 
burden on competition because amending the rule text will make clear 
that a re-price order is accessible on BX's Order Book at the non-
displayed price. Today, BX re-prices certain orders to avoid locking 
and crossing away markets, consistent with its Trade-Through Compliance 
and Locked or Crossed Markets obligations. Orders which lock or cross 
an away market will automatically re-price one minimum price 
improvement inferior to the original away best bid/offer price to one 
minimum trading increment away from the new away best bid/offer price 
or its original limit price. The re-priced order is displayed on OPRA. 
The order remains on BX's Order Book and is accessible at the non-
displayed price. The Exchange believes that the addition of this rule 
text will allow BX to define an ``internal BBO'' within its rules when 
describing re-priced orders that remain on the Order Book and are 
available at non-displayed prices, which are resting on the Order 
Book.\51\ The proposed rule text will make clear within Options 3, 
Section 10 that, as is the case today, if the LMM's quote is at or 
improves on the better of the better of the NBBO or internal BBO, the 
LMM is entitled to the allocation. The proposed rule text is a more 
precise description, although the Exchange notes that the current rule 
text is not inaccurate as an LMM must improve on Exchange's 
disseminated price.
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    \51\ BX Options 5, Section 4, Order Routing, describes the 
repricing of orders for both routable and non-routable orders within 
Options 5, Section 4(a)(iii)(A), (B) and (C). The Exchange's 
proposal seeks to conform the concept of re-pricing and an internal 
BBO, which is described within BX Options 3, Section 4, Entry and 
Display of Quotes with the proposed change to BX Options 3, Section 
10(a)(1)(C)(1)(b).
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    Similarly, the Exchange's proposal to amend a paragraph within 
Options 3, Section 10(a)(1)(C)(1)(b)(1) does not impose an undue burden 
on competition. While today, the DMM's quote must be at or improve upon 
the NBBO as provided for within Options 2, Section 10,\52\ the re-
pricing of orders would permit a DMM's quote that is at or improves on 
the better of the NBBO or internal BBO to be subject to the DMM 
allocation described within Options 3, Section 
10(a)(1)(C)(1)(b)(1).\53\
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    \52\ Options 2, Section 10(a)(1) provides, ``When the Exchange's 
disseminated price is the NBBO at the time of receipt of the 
Directed Order, and the Directed Market Maker is quoting at or 
improving the Exchange's disseminated price, the Directed Order 
shall be automatically executed and allocated in accordance with 
Options 3, Section 10 such that the Directed Market Maker shall 
receive a Directed Market Maker participation entitlement provided 
for therein.''
    \53\ The proposed change within Options 3, Section 
10(a)(1)(C)(1)(b)(1) relates to BX's Price-Time Execution Algorithm. 
A similar change is proposed in identical rule text contained within 
current Options 3, Section 10(a)(1)(C)(2)(iii) which describes the 
Size Pro-Rata Execution Algorithm, and which is proposed to be 
renumbered as ``(iv)'' to account for new rule text proposed herein.
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    A similar change to Options 3, Section 10(a)(1)(C)(1)(c) (DMM 
Priority) which relates to BX's Price-Time Execution Algorithm does not 
impose an undue burden on competition. Similar to what was noted above 
for Options 3, Section 10(a)(1)(C)(1)(b)(1), the Exchange's proposal 
amends the paragraph related to DMM Priority for the same reasons 
described herein for LMM Priority.\54\
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    \54\ A similar change is proposed in identical rule text 
contained within current Options 3, Section 10(a)(1)(C)(2)(iii) 
which describes the Size Pro-Rata Execution Algorithm.
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    The Exchange proposal to amend BX Options 3, Section 
10(a)(1)(C)(1)(b)(1) to remove the words ``or no'' does not impose an 
undue burden on competition as the proposed change will bring greater 
clarity to the Exchange's rule. Today, if there was no other Market 
Maker order or quote present, the Lead Market Makers would receive the 
allocation based described within Options 3, Section 
10(a)(1)(C)(1)(b)(1)(a) because there would be no other interest 
present to require a split allocation in this scenario.
    The Exchange's proposal to be more specific with the text within 
Options 3, Section 10(a)(1)(C)(1)(b)(1)(b)-(d) by adding the words 
``order or quote'' or ``orders or quotes,'' as appropriate, after 
Market Maker because the System is looking for other orders or quotes 
from a Market Maker to determine the percentage of the allocation that 
will be provided to that Lead Market Maker does not impose an undue 
burden on competition. If a Market Maker entered both an order and a 
quote, the System would count the order and quote from the same Market 
Maker separately for purposes of determining the number of other Market 
Makers present for Options 3, Section 10(a)(1)(C)(1)(b)(1)(b)-(d)

[[Page 13013]]

allocation. This amendment would clarify current System behavior.\55\
---------------------------------------------------------------------------

    \55\ This proposed change within Options 3, Section 
10(a)(1)(C)(1)(b)(1)(b)-(d) relates to BX's Price-Time Execution 
Algorithm. A similar change is proposed in identical rule text 
contained within current Options 3, Section 
10(a)(1)(C)(2)(ii)(1)(b)-(d) which describes the Size Pro-Rata 
Execution Algorithm.
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    The Exchange's proposal to reorganize BX Options 3, Section 
10(a)(1)(C)(1)(b)(2),\56\ related to BX's Price-Time Execution 
Algorithm, and replace this language with rule text similar to Phlx 
Options 3, Section 10(a)(1)(D) and redesignate the provision as BX 
Options 3, Section 10(a)(C)(1)(c) \57\ does not impose an undue burden 
on competition. Reorganizing this part of the rule to mirror Phlx is 
not a substantive change. The Exchange is not otherwise amending the 
System, rather these changes are being made to conform the rule text to 
Phlx rule text, which more specifically describes the scenarios in 
which a Lead Market Maker would be entitled to Orders of 5 contracts or 
fewer. As is the case today, in order to be entitled to receive Orders 
for 5 contracts or fewer, the Lead Market Maker's quote must be at the 
better of the internal BBO or the NBBO with no other Public Customer or 
Directed Market Maker interest which has a higher priority. If the Lead 
Market Maker is quoting at the better of the internal BBO or the NBBO 
with other Public Customer or Directed Market Maker interest present 
which has a higher priority at the time of execution, a Lead Market 
Maker is not entitled to priority with respect to Orders of 5 contracts 
or fewer, however the Lead Market Maker is eligible to receive such 
contracts pursuant to paragraph (a)(1)(C)(1)(b)(1)(e) for Price-Time 
Execution, and paragraph (a)(1)(C)(2)(vi) for Size Pro-Rata Execution, 
which describe the treatment of all other remaining interest after Lead 
Market Maker and Directed Market Maker allocations. The remainder of 
the proposed rule changes within Options 3, Section 10 which include 
renumbering, capitalizations, relocation of rule text, addition of 
headers and technical amendments are non-substantive.
---------------------------------------------------------------------------

    \56\ Similar rule text describing entitlement for order of 5 
contracts or fewer replacement is proposed within Options 3, Section 
10(a)(1)(C)(2)(iii), relating to the Size Pro-Rata Execution 
Algorithm, and this rule text will cause current Options 3, Section 
10(a)(1)(C)(2)(iii) which describes DMM Priority, to be redesignated 
as Options 3, Section 10(a)(1)(C)(2)(iv) to account for the new rule 
text.
    \57\ Current BX Options 3, Section 10(a)(C)(1)(c) relates to DMM 
Priority, the Exchange also proposes to redesignate that section as 
new BX Options 3, Section 10(a)(C)(1)(d) to account for the new rule 
text.
---------------------------------------------------------------------------

Options 3, Section 15
    The Exchange believes that its proposal to amend the ATR rule in 
Options 3, Section 15(b)(1) does not impose an undue burden on 
competition. The proposed rule change codifies existing ATR 
functionality by providing that ATR will not be available for AONs and 
MQOs, and therefore provides more certainty to Participants as to the 
application of the rule. The Exchange notes that the ATR functionality, 
including the exclusion of certain size contingency order types from 
ATR protections, is not new or novel, and is available on other options 
exchanges.\58\
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    \58\ See, e.g., ISE Options 3, Section 15(a)(2)(A) (providing 
that ISE's ATR will not be available for AONs).
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \59\ and Rule 19b-4(f)(6) thereunder.\60\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\61\
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    \59\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \60\ 17 CFR 240.19b-4(f)(6).
    \61\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of its intent to file the 
proposed rule change, along with a brief description and text of the 
proposed rule change, at least five business days prior to the 
filing of the proposed rule change, or such shorter time as 
designated by the Commission. The Exchange has satisfied this 
requirement.
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BX-2021-003 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BX-2021-003. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BX-2021-003 and should be submitted on 
or before March 26, 2021.

[[Page 13014]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\62\
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    \62\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-04529 Filed 3-4-21; 8:45 am]
BILLING CODE 8011-01-P