Document ID: SEC-2022-1650-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq GEMX, LLC
Posted Date: 2022-12-22T05:00Z

[Federal Register Volume 87, Number 245 (Thursday, December 22, 2022)]
[Notices]
[Pages 78717-78722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-27786]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96519; File No. SR-GEMX-2022-13]

Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Certain 
Functionality in Connection With a Technology Migration

December 16, 2022.
    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 December 9, 2022, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Options 3, Section 12, Crossing 
Orders and Options 3, Section 13, Price Improvement Mechanism for 
Crossing Transactions.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/gemx/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
    In connection with a technology migration to an enhanced Nasdaq, 
Inc. (``Nasdaq'') functionality which will result in higher 
performance, scalability, and more robust architecture, the Exchange 
intends to adopt certain trading functionality currently utilized at 
Nasdaq affiliate exchanges. Specifically, the Exchange proposes to 
amend Options 3, Section 12, Crossing Orders and Options 3, Section 13, 
Price Improvement Mechanism for Crossing Transactions. The changes 
proposed herein are identical to changes that were recently proposed 
for MRX.\3\ Each change will be described below.
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    \3\ See Securities Exchange Act Release No. 95854 (September 21, 
2022), 87 FR 58571 (September 27, 2022) (Order Approving SR-MRX-
2022-10).
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Changes to the Price Improvement Mechanism for Crossing Transactions
    The Price Improvement Mechanism (``PIM'') is a process by which an 
Electronic Access Member can provide price improvement opportunities 
for a transaction wherein the Electronic Access Member seeks to 
facilitate an order it represents as agent, and/or a transaction 
wherein the Electronic Access Member solicited interest to execute 
against an order it represents as agent (a ``Crossing Transaction'').
    The Exchange proposes to amend PIM in Options 3, Section 13(d)(4) 
which currently provides,

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

    Today, unrelated interest in the form of a market order or 
marketable limit order, on the opposite side of the market from an 
Agency Order,\4\ may end an exposure period \5\ within a PIM and 
participate in the execution of the Agency Order. The unrelated order 
would participate at the price that is mid-way between the best 
counter-side interest and the NBBO, so that both the market order or 
marketable limit order

[[Page 78718]]

and the Agency Order receive price improvement.
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    \4\ An Agency Order is the part of a Crossing Transaction that 
an Electronic Access Member represents as agent. See GEMX Options 3, 
Section 13(b).
    \5\ Upon entry of a Crossing Transaction into the Price 
Improvement Mechanism, a broadcast message that includes the series, 
price and size of the Agency Order, and whether it is to buy or 
sell, will be sent to all Members. The Exchange designates a time of 
no less than 100 milliseconds and no more than 1 second for Members 
to indicate the size and price at which they want to participate in 
the execution of the Agency Order (``Improvement Orders''). 
Improvement Orders may be entered by all Members in one-cent 
increments at the same price as the Crossing Transaction or at an 
improved price for the Agency Order, and will only be considered up 
to the size of the Agency Order. During the exposure period, 
Improvement Orders may not be canceled, but may be modified to (i) 
increase the size at the same price, or (ii) improve the price of 
the Improvement Order for any size up to the size of the Agency 
Order. During the exposure period, responses (including the Counter-
Side Order, Improvement Orders, and any changes to either) submitted 
by Members shall not be visible to other auction participants. The 
exposure period will automatically terminate (i) at the end of the 
time period designated by the Exchange pursuant to Options 3, 
Section 13(c)(1) above, (ii) upon the receipt of a market or 
marketable limit order on the Exchange in the same series, or (iii) 
upon the receipt of a non-marketable limit order in the same series 
on the same side of the market as the Agency Order that would cause 
the price of the Crossing Transaction to be outside of the best bid 
or offer on the Exchange. See GEMX Options 3, Section 13(c).
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    First, the Exchange proposes to not permit unrelated marketable 
interest on the opposite side of the market from the Agency Order, 
which is received during a PIM, to early terminate a PIM. The Exchange 
proposes to amend GEMX Options 3, Section 13(d)(4) to instead provide,

    Unrelated market or marketable interest (against the GEMX BBO) 
on the opposite side of the market from the Agency Order received 
during the exposure period will not cause the exposure period to end 
early and will execute against interest outside of the Crossing 
Transaction. If contracts remain from such unrelated order at the 
time the auction exposure period ends, they will be considered for 
participation in the order allocation process described in sub-
paragraph (3).\6\
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    \6\ Subparagraph (3) of Options 3, Section 13(d) describes the 
manner in which a Counter-Side Order would be allocated. The Counter 
Side Order is one part of a Crossing Transaction and represents the 
full size of the Agency Order. The Counter-Side Order may represent 
interest for the Member's own account, or interest the Member has 
solicited from one or more other parties, or a combination of both. 
See GEMX Options 3, Section 13(b).

    This amendment is identical to a change recently adopted for 
MRX.\7\ Additionally, Nasdaq Phlx LLC (``Phlx'') \8\ and Nasdaq BX, 
Inc. (``BX'') \9\ similarly do not permit unrelated interest on the 
opposite side of the market from the Agency Order to early terminate 
their price improvement auctions. With this proposed change, the PIM 
exposure period would continue for the full period despite the receipt 
of unrelated marketable interest on the opposite side of the market 
from the Agency Order. Allowing the PIM to run its full course would 
provide an opportunity for additional price improvement to the Crossing 
Transaction. Further, the unrelated interest would participate in the 
PIM allocation with any residual contracts remaining after interacting 
with the order book pursuant to GEMX Options 3, Section 13(d). The 
aforementioned residual contracts are contracts that remain available 
for execution after the unrelated order on the opposite side of market 
as the Agency Order, which was marketable with bids and offers on the 
same side of the market as the Agency Order, executed against bids and 
offers on the Exchange's order book.
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    \7\ See note 3 above. MRX amended Options 3, Section 13(d)(4).
    \8\ Phlx Options 3, Section 13(b)(4) provides that an unrelated 
market or marketable Limit Order (against the PBBO) on the opposite 
side of the market from the PIXL Order received during the Auction 
will not cause the Auction to end early and will execute against 
interest outside of the Auction. See Securities Exchange Act 
Releases No. 79835 (January 18, 2017), 82 FR 8445 (January 25, 2017) 
(SR-Phlx-2016-119) (Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To 
Amend the PIXL Price Improvement Auction in Phlx Rule 1080(n) and To 
Make Pilot Program Permanent) and 63027 (October 1, 2010), 75 FR 
62160 (October 7, 2010) (SR-Phlx-2010-108) (``PIXL Approval 
Order''). The Commission noted in SR-Phlx-2016-119 that, ``In 
approving this feature on a pilot basis, the Commission found that 
`allowing the PIXL auction to continue for the full auction period 
despite receipt of unrelated orders outside the Auction would allow 
the auction to run its full course and, in so doing, will provide a 
full opportunity for price improvement to the PIXL Order. Further, 
the unrelated order would be available to participate in the PIXL 
order allocation.' The Exchange does not believe that this provision 
has had a significant impact on either the unrelated order or the 
PIXL Auction process, either for simple or Complex PIXL Orders. The 
Exchange therefore has requested that the Commission approve this 
aspect of the Pilot on a permanent basis for both simple and Complex 
PIXL Orders.''
    \9\ BX Options 3, Section 13(ii)(D) provides that unrelated 
market or marketable interest (against the BX BBO) on the opposite 
side of the market from the PRISM Order received during the Auction 
will not cause the Auction to end early and will execute against 
interest outside of the Auction.
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    Second, the Exchange also proposes to amend current GEMX Options 3, 
Section 13(c)(5) which states,

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

    Specifically, the Exchange proposes to remove ``(ii),'' which 
provides the exposure period will automatically terminate ``. . . (ii) 
upon the receipt of a market or marketable limit order on the Exchange 
in the same series. . .''. The Exchange notes that this sentence 
applies to the receipt of marketable orders both on the same side and 
opposite side of the Agency order. As described above, the Exchange 
proposes to not permit unrelated marketable interest on the opposite 
side of the market from the Agency Order, which is received during a 
PIM, to early terminate a PIM. Therefore, with respect to the opposite 
side of the Agency Order, the termination of the auction will no longer 
be possible with the proposed change to GEMX Options 3, Section 
13(d)(4). With respect to the same side of the Agency Order, today, an 
unrelated market or marketable limit order in the same series on the 
same side of the Agency Order would cause the PIM to early terminate as 
well. At this time the Exchange proposes to not permit an unrelated 
market or marketable limit order in the same series on the same side of 
the Agency Order to cause the PIM to early terminate. This proposed 
change will align the functionality of GEMX's PIM to that of MRX's 
PIM,\10\ BX's PRISM and Phlx's PIXL,\11\ which do not permit an 
unrelated market or marketable limit order in the same series on the 
same side of the Agency Order to cause the PRISM or PIXL to early 
terminate, unless the BBO improves beyond the price of the Crossing 
Transaction on the same side. The Exchange notes that a market or 
marketable limit order in the same series on the same side of the 
Agency Order cannot interact with a PIM auction. The market or 
marketable limit order may interact with the order book, and if there 
are residual contracts that remain from the market or marketable limit 
order in the same series on the same side of the Agency Order, they 
could rest on the order book and improve the BBO beyond the price of 
the Crossing Transaction which would cause early termination pursuant 
to proposed Options 3, Section 13(c)(5)(ii) as discussed below. In this 
instance, residual contracts are contracts that remain available for 
execution after the unrelated order on the same side of market as the 
Agency Order, which was marketable with bids and offers on the opposite 
side of the market as the Agency Order, executed against bids and 
offers on the Exchange's order book. The Exchange believes that this 
outcome would allow for the PIM exposure period to continue for the 
full period despite the receipt of unrelated marketable interest on the 
same side of the market from the Agency Order, provided residual 
interest does not go on to rest on the order book, improving the BBO 
beyond the price of the Crossing Transaction. Allowing the PIM to run 
its full course (unless the BBO improves beyond the price of the 
Crossing Transaction on the same side), rather than early terminate, 
would provide an opportunity for price improvement to the Agency Order.
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    \10\ See MRX Options 3, Section 13(d)(4).
    \11\ See BX Options 3, Section 13(ii)(D) and Phlx Options 3, 
Section 13(b)(4).
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    Third, the Exchange proposes to amend current GEMX Options 3, 
Section 13(c)(5)(iii) to align the rule text to a recent change adopted 
on MRX.\12\ Additionally, BX Options 3, Section 13(ii)(B)(2) has 
similar language.\13\

[[Page 78719]]

Specifically, the Exchange proposes to amend Options 3, Section 
13(c)(5) to delete current ``iii'' and renumber as ``ii''. Proposed new 
Options 3, Section 13(c)(5)(ii) would state, ``The exposure period will 
automatically terminate . . . (ii) any time the Exchange best bid or 
offer improves beyond the price of the Crossing Transaction on the same 
side of the market as the Agency Order. . .'' The proposed rule is 
designed to align to MRX's and BX's rule text to remove any ambiguity 
that a market or marketable limit order priced more aggressively than 
the Agency Order could ultimately rest on the order book, improving the 
BBO beyond the price of the Crossing Transaction and, therefore, cause 
the early termination of a PIM auction.
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    \12\ See note 3 above. MRX amended Options 3, Section 
15(c)(5)(iii).
    \13\ BX Options 3, Section 13(ii)(B) provides ``Conclusion of 
Auction. The PRISM Auction shall conclude at the earlier to occur of 
(1) through (3) below, with the PRISM Order executing pursuant to 
paragraph (C)(1) or (C)(2) below if it concludes pursuant to (2) or 
(3) of this paragraph. (1) The end of the Auction period; (2) For a 
PRISM Auction any time the BX BBO crosses the PRISM Order stop price 
on the same side of the market as the PRISM Order; (3) Any time 
there is a trading halt on the Exchange in the affected series.''
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    By way of example, assume: GEMX 1.00 x 2.00 (10) and a second GEMX 
Market Maker's quote is 1.00 x 2.10 (10). If a PIM auction starts with 
a buy at 1.50, and subsequently an order to buy for 20 @ 2.00 arrives, 
the incoming order would trade with the quote, and the remaining 10 
contracts would rest on the order book. Thereafter, the GEMX BBO would 
update to 2.00 x 2.10 and trigger the early termination of the PIM 
pursuant to Options 3, Section 13(c)(5)(iii), which is being renumbered 
to Options 3, Section 13(c)(5)(ii). Early terminating the PIM in this 
example is necessary because the price of the PIM is no longer at the 
top of book (best price) and would not have execution priority with 
respect to responses or unrelated interest that arrive. By early 
terminating the PIM auction, GEMX allows responses to the PIM, which 
arrived prior to the time the Exchange's best bid and offer improved 
beyond the Crossing Transaction, to execute.
    The Exchange believes the proposed rule text will provide greater 
clarity to the manner in which the System operates today with respect 
to early termination of PIMs when the BBO on the same side improves 
beyond the price of the Crossing Transaction. The proposed amendment to 
the rule text is not intended to amend the current System 
functionality, rather it is intended to make clear that a market or 
marketable limit order could ultimately rest on the order book with 
residual interest and improve the BBO on the same side as the Agency 
Order beyond the price of the Crossing Transaction and cause the PIM to 
early terminate.
    Fourth, the Exchange proposes to add a new GEMX Options 3, Section 
13(c)(5)(iii) which states, ``. . . (iii) any time there is a trading 
halt on the Exchange in the affected series. . .''. This proposed rule 
text is not modifying how the System currently operates.\14\ Today, a 
trading halt would cause a PIM to early terminate. Current GEMX Options 
3, Section 13(d)(5) notes such an early termination as a result of the 
aforementioned trading halt. Adding this circumstance to the list of 
events that would terminate the exposure period would make the list 
complete and add clarity to the rule. Furthermore, the Exchange notes 
that in a separate rule change, SR-GEMX-2022-6P \15\ the Exchange is 
proposing to amend Options 3, Section 13(d)(5) to change the System 
behavior such that if a trading halt is initiated after an order is 
entered into the PIM, such auction will be automatically terminated 
with execution solely with the Counter-Side Order. Today, if a trading 
halt is initiated after an order is entered into the PIM, such auction 
will be automatically terminated without execution.\16\ This amendment 
is identical to a change recently adopted for MRX.\17\
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    \14\ GEMX Options 3, Section 13(d)(5) currently states that, 
``If a trading halt is initiated after an order is entered into the 
Price Improvement Mechanism, such auction will be automatically 
terminated without execution.'' Of note, the Exchange is proposing 
to amend GEMX's PIM within a separate rule change, SR-GEMX-2022-6P. 
Among other things, the Exchange proposes to amend the PIM 
functionality so that if a trading halt is initiated after an order 
is entered into the PIM, the auction will be automatically 
terminated with an execution. Specifically, SR-GEMX-2022-6P proposes 
to renumber current GEMX Options 3, Section 13(d) to Options 3, 
Section 13(d)(6) and proposes to state, ``If a trading halt is 
initiated after an order is entered into the Price Improvement 
Mechanism, such auction will be automatically terminated with 
execution solely with the Counter-Side Order.''
    \15\ GEMX has separately filed to amend Options 3, Section 
13(d)(5) within SR-GEMX-2022-6P. SR-GEMX-2022-6P amended, among 
other things, the rule text in Options 3, Section 13, except that it 
does not amend Options 3, Section 13(c)(5).
    \16\ See current GEMX Options 3, Section 13(d)(5).
    \17\ See note 3 above. MRX amended Options 3, Section 
13(c)(5)(iii).
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Re-Pricing
    In connection with the technology migration, the Exchange recently 
adopted re-pricing functionality for certain quotes and orders that 
lock or cross an away market's price.\18\ With the recent change within 
SR-GEMX-2022-10, the System will re-price certain quotes and orders 
that lock or cross an away market's price. Specifically, quotes and 
orders which lock or cross an away market price will be automatically 
re-priced to the current national best offer (for bids) or the current 
national best bid (for offers) and displayed one minimum price variance 
(``MPV'') above (for offers) or below (for bids) the national best 
price. The re-priced quotes and orders will be displayed on OPRA at its 
displayed price and placed on the Exchange's order book at its re-
priced, non-displayed price, which may be priced better than the NBBO. 
The quotes and orders will remain on the Exchange's order book and will 
be accessible at their non-displayed price. With this change, a non-
displayed limit order or quote may be available on the Exchange at a 
price that is better than the NBBO. The following example illustrates 
how the proposed re-pricing mechanism would work:
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    \18\ See Securities Exchange Act. No. 96363 (November 18, 2022), 
87 FR 72556 (November 25, 2022) (SR-GEMX-2022-10). This rule change 
is effective, but not yet operative. SR-GEMX-2022-10 would be 
implemented as part of the same technology migration as the changes 
proposed herein.

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

    Recently amended Options 3, Section 5(c) provides that the System 
automatically executes eligible orders using the Exchange's displayed 
best bid and offer (i.e., BBO) or the Exchange's non-displayed order 
book (``internal BBO'') if the best bid and/or offer on the Exchange 
has been re-priced pursuant to Options 3, Section 5(d).\19\ The 
definition of an ``internal BBO'' covers re-priced quotes and orders 
that remain on the order book and are available at non-displayed prices 
while resting on the order book.\20\
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    \19\ A similar change was made for quotes within Options 3, 
Section 4(b)(7). The Exchange added the following new rule text to 
Options 3, Section 4(b)(7), ``The System automatically executes 
eligible quotes using the Exchange's displayed best bid and offer 
(``BBO'') or the Exchange's non-displayed order book (``internal 
BBO'') if the best bid and/or offer on the Exchange has been 
repriced pursuant to Options 3, Section 5(d) below and subsection 
(6) above.''
    \20\ The Exchange amended the rule text within Options 3, 
Section 4 and Options 3, Section 5, within SR-GEMX-2022-10, to 
describe the manner in which a non-routable quotes and orders would 
be re-priced, respectively. The Exchange added rule text within 
Options 3, Section 4(b)(6) to state, ``A quote will not be executed 
at a price that trades through another market or displayed at a 
price that would lock or cross another market. If, at the time of 
entry, a quote would cause a locked or crossed market violation or 
would cause a trade-through violation, it will be re-priced to the 
current national best offer (for bids) or the current national best 
bid (for offers) and displayed at one minimum price variance above 
(for offers) or below (for bids) the national best price, or 
immediately cancelled, as configured by the Member.'' The Exchange 
amended the rule text within Options 3, Section 5(d) to state, ``An 
order that is designated by a Member as non-routable will be re-
priced in order to comply with applicable Trade-Through and Locked 
and Crossed Markets restrictions. If, at the time of entry, an order 
that the entering party has elected not to make eligible for routing 
would cause a locked or crossed market violation or would cause a 
trade-through violation, it will be re-priced to the current 
national best offer (for bids) or the current national best bid (for 
offers) and displayed at one minimum price variance above (for 
offers) or below (for bids) the national best price.''

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[[Page 78720]]

    In connection with the foregoing changes, the Exchange proposes to 
add references to ``internal BBO'' within Options 3, Section 12(c) 
which describes the Qualified Contingent Cross Orders, to conform with 
the concept of re-pricing at an internal BBO as provided in Options 3, 
Sections 4(b)(6) and 4(b)(7) and Options 3, Section 5(c) and (d) within 
SR-GEMX-2022-10. This amendment is identical to a change recently 
adopted for MRX.\21\
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    \21\ See note 3 above. MRX amended Options 3, Section 12(c) and 
(d).
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    As noted above, the internal BBO could be better than the NBBO. The 
Exchange believes that adding references to the internal BBO to Options 
3, Section 12(c) would continue to require Members to be at or between 
the best price, that is not at the same price as a Priority Customer 
Order on the Exchange's limit order book, to execute a Qualified 
Contingent Cross Order. The Exchange believes that the addition of 
``internal BBO'' is consistent with the intent of these order types, 
which is to require Members [sic] submit these orders at the best price 
and not execute ahead of better-priced quotes or orders.
    Specifically, the Exchange proposes to amend Options 3, Section 
12(c), which describes the conditions under which a Qualified 
Contingent Cross Order may be entered into the System for execution, to 
state that a Qualified Contingent Cross Order may be executed upon 
entry provided the execution is at or between the better of the 
internal BBO or the NBBO.\22\ This amendment is identical to a change 
recently adopted for MRX.\23\
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    \22\ The Qualified Contingent Cross Order must also not be at 
the same price as a Priority Customer Order on the Exchange's limit 
order book. See Options 3, Section 12(c).
    \23\ See note 3 above. MRX amended Options 3, Section 12(c).
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Implementation
    The Exchange intends to begin implementation of the proposed rule 
change prior to September 1, 2023. The implementation would commence 
with a limited symbol migration and continue to migrate symbols over 
several weeks. The Exchange will issue an Options Trader Alert to 
Members to provide notification of the symbols that will migrate and 
the relevant dates.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\24\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\25\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest for the reasons discussed below.
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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
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Changes to the Price Improvement Mechanism for Crossing Transactions
    The Exchange's proposal to amend GEMX Options 3, Section 13(d)(4), 
related to PIM, to not permit unrelated marketable interest, on the 
opposite side of the market from the Agency Order, which is received 
during a PIM to early terminate a PIM is consistent with the Act and 
promotes just and equitable principles because allowing the auction to 
run its full course would provide a full opportunity for price 
improvement to the Crossing Transaction. The unrelated interest would 
participate in the PIM allocation pursuant to GEMX Options 3, Section 
13(d), if residual contracts remain after executing with interest on 
the order book. This amendment is identical to a change recently 
adopted for MRX.\26\ Additionally, Phlx \27\ and BX \28\ do not permit 
unrelated interest on the same or opposite side of an Agency Order to 
early terminate their price improvement auctions.
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    \26\ See note 3 above. MRX amended Options 3, Section 13(d)(4).
    \27\ See note 17 above.
    \28\ See note 18 above.
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    The proposed amendment in GEMX Options 3, Section 13(c)(5)(ii), 
related to PIM, applies to the receipt of marketable orders both on the 
same side and opposite side of the Agency order. With respect to the 
same side of the Agency Order, today, an unrelated market or marketable 
limit order in the same series on the same side of the Agency Order 
would cause the PIM to early terminate as well. The proposal promotes 
just and equitable principles of trade because a market or marketable 
limit order in the same series on the same side of the Agency Order 
cannot interact with a PIM auction. The market or marketable limit 
order may interact with the order book, and if there are residual 
contracts that remain from the market or marketable order in the same 
series on the same side of the Agency Order, they will rest on the 
order book and could improve the BBO beyond the price of the Crossing 
Transaction which will cause early termination of the PIM pursuant to 
proposed GEMX Options 3, Section 13(c)(5)(ii). The Exchange believes 
that this outcome would allow for the PIM exposure period to continue 
for the full period despite the receipt of unrelated marketable 
interest on the same side of the market from the Agency Order, provided 
residual interest does not go on to rest on the order book improving 
the BBO beyond the price of the Crossing Transaction of the PIM. 
Allowing the PIM to run its full course protects investors and the 
general public because it would provide an opportunity for price 
improvement to the Agency Order. This amendment is identical to a 
change recently adopted for MRX.\29\
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    \29\ See note 3 above. MRX amended Options 3, Section 
13(c)(5)(ii).
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    Amending current GEMX Options 3, Section 13(c)(5)(iii) to align the 
rule text with MRX \30\ and also more closely with BX Options 3, 
Section 13(ii)(B)(2) \31\ is consistent with the Act because it removes 
any ambiguity that a market or marketable limit order priced more 
aggressively than the Agency Order on the same side could ultimately 
rest on the order book, improving the BBO beyond the price of the 
Crossing Transaction of the PIM and, therefore, cause the early 
termination of a PIM. Continuing to permit a PIM to early terminate any 
time the Exchange best bid or offer improves beyond the price of the 
Crossing Transaction on the same side of the market as the Agency Order 
protects investors and the general public because the Crossing 
Transaction Agency Order's price is inferior to the Exchange's best bid 
or offer on the same side of the market as the Agency Order. Upon early 
termination of the PIM, the Crossing Transaction would execute against 
responses that arrived prior to the time the Exchange's best bid or 
offer improved beyond the Crossing Transaction. The proposed amendment 
to the rule text is not intended to amend the current System 
functionality, rather it is intended to make clear that a market or 
marketable limit order could ultimately rest on the order book and

[[Page 78721]]

improve the BBO beyond the price of the Crossing Transaction.
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    \30\ See MRX Options 3, Section 13(c)(5)(iii).
    \31\ See note 13 above.
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    Adding proposed new GEMX Options 3, Section 13(c)(5)(iii), which 
describes the automatic termination of the exposure period resulting 
from a trading halt on the Exchange in the affected series, is 
consistent with the Act because a trading halt would cause an option 
series to stop trading on GEMX and thereby impact the PIM auction. 
Today, if a trading halt is initiated after an order is entered into 
the PIM, such auction will be automatically terminated without 
execution. Of note, the Exchange is separately proposing to amend GEMX 
Options 3, Section 13(d)(5) \32\ to change System behavior such that if 
a trading halt is initiated after an order is entered into the PIM, 
such auction will be automatically terminated with execution solely 
with the Counter-Side Order.\33\ The proposed amendment to GEMX Options 
3, Section 13(c)(5)(iii) protects investors and the general public by 
making clear that a trading halt would lead to early termination of a 
PIM. This amendment is not intended to amend the current System 
functionality, rather it is intended to make clear that a trading halt 
will cause the PIM to early terminate. This amendment is identical to a 
change recently adopted for MRX.\34\
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    \32\ See note 14 above.
    \33\ SR-GEMX-2022-6P proposes to renumber GEMX Options 3, 
Section 13(d)(5) as Options 3, Section 13(d)(6), and proposes to 
amend the rule text to state, ``If a trading halt is initiated after 
an order is entered into the Price Improvement Mechanism, such 
auction will be automatically terminated with execution solely with 
the Counter-Side Order.''
    \34\ See note 3 above. MRX amended Options 3, Section 
13(c)(5)(iii).
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Re-Pricing
    The Exchange believes that amending Options 3, Section 12(c) to 
account for re-pricing of quotes and orders that would otherwise lock 
or cross an away market, as provided in GEMX Options 3, Section 4(b)(6) 
and (7) and Options 3, Section 5(c) and (d), is consistent with the 
Act.
    As discussed above with the implementation of re-pricing as 
provided in Options 3, Section 4(b)(6) and (7) and Options 3, Section 
5(c) and (d), interest could be available on the Exchange at a price 
that is better than the NBBO but is non-displayed (i.e., the Exchange's 
non-displayed order book or internal BBO). The proposed addition of 
``internal BBO'' to Options 3, Section 12(c) will ensure that Members 
continue to submit Qualified Contingent Cross Orders at prices equal to 
or better than the best prices available in the market and ensure that 
these orders are not executed ahead of better-priced interest. By 
including ``internal BBO'' the Exchange ensures that such Qualified 
Contingent Cross Orders will continue to be executed at the best price 
and would not be executed ahead of better-priced interest. This 
amendment is identical to a change recently adopted for MRX.\35\
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    \35\ See note 3 above. MRX amended Options 3, Section 12(c) and 
(d).
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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. MRX recently made identical 
changes to the amendments proposed herein.\36\
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    \36\ See note 3.
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Changes to the Price Improvement Mechanism for Crossing Transactions
    The Exchange's proposal to amend GEMX Options 3, Section 13(d)(4), 
GEMX Options 3, Section 13(c)(5)(ii) and (iii), and add a proposed new 
GEMX Options 3, Section 13(c)(5)(iii), related to PIM, does not impose 
an undue burden on intra-market competition because the proposed 
amendments will apply equally to all Members. All Members may utilize 
PIM.
    The Exchange's proposal to amend GEMX Options 3, Section 13(d)(4), 
GEMX Options 3, Section 13(c)(5)(ii) and (iii), and add a proposed new 
GEMX Options 3, Section 13(c)(5)(iii), related to PIM, does not impose 
an undue burden on inter-market competition because other options 
exchanges may adopt similar rules. In addition to mirroring to MRX 
Options 3, Section 13, Phlx \37\ and BX \38\ do not permit unrelated 
marketable interest on either the same or opposite side of the market 
from an Agency Order to early terminate their price improvement 
auctions.
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    \37\ See note 8 above.
    \38\ See note 9 above.
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Re-Pricing
    Adding language consistent with re-pricing within Options 3, 
Section 12(c) does not impose an undue burden on competition, rather it 
will ensure that the rules conform to the concept of re-pricing at an 
internal BBO within Options 3, Section 4(b)(6) and (7) and Options 5(c) 
and (d) which recently became effective.\39\ With this recent change, 
re-priced quotes and orders are accessible on the Exchange's order book 
at the non-displayed price. Amending Options 3, Section 12(c) to 
utilize the ``internal BBO'' language would continue to require Members 
to submit Qualified Contingent Cross Orders at the best price to 
receive an execution. The introduction of ``internal BBO'' will ensure 
that Qualified Contingent Cross Orders do not execute if better-priced 
interest is available.
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    \39\ See Securities Exchange Act. No. 96363 (November 18, 2022), 
87 FR 72556 (November 25, 2022) (SR-GEMX-2022-10).
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    The re-pricing proposal within Options 3, Section 12(c) does not 
impose an undue burden on inter-market competition because this rule 
continues to support executions at the best price.

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

    Because the foregoing 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 for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \40\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\41\
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    \40\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \41\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of 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 the 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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:

[[Page 78722]]

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-GEMX-2022-13 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-GEMX-2022-13. 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-GEMX-2022-13, and should be submitted on 
or before January 12, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27786 Filed 12-21-22; 8:45 am]
BILLING CODE 8011-01-P