Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NOM's Rules in Connection With a Technology Migration

SECURITIES AND EXCHANGE COMMISSION [Release No. 34-105511; File No. SR-NASDAQ-2026-039] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NOM's Rules in Connection With a Technology Migration May 18, 2026. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on May 6, 2026, The Nasdaq Stock Market LLC (“Nasdaq” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1  15 U.S.C. 78s(b)(1). 2  17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend various rules of the Nasdaq Options Market LLC (“NOM”) in connection with a technology migration. 3 Specifically, the Exchange proposes to amend rules at Options 1, Section 1, Definitions; Options 2, Section 3, which is currently reserved, Section 4, Obligations of Market Makers and Lead Market Makers, Section 5, Market Maker Quotations, and Section 6, Market Maker Orders; Options 3, Section 3, Minimum Increments; Options 3, Sections 7, Types of Orders and Order and Quote Protocols; Section 8, Opening and Halt Cross; Section 9, Trading Halts; Section 10, Order Book Allocation; Section 15, Risk Protections; Section 17, Kill Switch; Section 18, Detection of Loss of Communication; Section 20, Nullification and Adjustment of Options Transactions including Obvious Errors; Section 22, Limitations on Order Entry; Section 23, Data Feeds and Trade Information; and Section 28, Optional Risk Protections. The Exchange also proposes to amend Options 4A, Section 11 Trading Sessions; Options 4C, Section 2, Definitions; Options 5, Section 4, Order Routing; Options 6, Section 1, Authorization to Give-Up; Options 6B, Section 1, Exercise of Options Contracts; and Options 7, Section 1, General Provisions, and Section 3 Nasdaq Options Market—Ports and Other Services. 3  NOM's Re-Platform will commence on July 27, 2026. See https://www.nasdaqtrader.com/MicroNews.aspx?id=OTU2026-2. The text of the proposed rule change is available on the Exchange's website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rulefilings, and at the principal office of the Exchange. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose In connection with a technology migration to an enhanced Nasdaq, Inc. (“Nasdaq”) functionality which will result in higher performance, scalability, and more robust architecture, the Exchange intends to adopt certain trading functionality currently utilized at Nasdaq affiliate exchanges. As further discussed below, the Exchange proposes to adopt such functionality substantially in the same form as currently on the Nasdaq affiliated options exchanges, while retaining certain intended differences between it and its affiliates. The Exchange also proposes a number of changes to memorialize existing functionality, add more granularity in its rules to describe how existing functionality operates today, and to harmonize the Exchange's rules where appropriate with the rules of its affiliated options exchanges by using consistent language to describe identical functionality. Specifically, the Exchange proposes to amend various rules of the Nasdaq Options Market LLC (“NOM”) in connection with a technology migration to adopt rules on Nasdaq NTX Options, Inc. (“NTX Options”) and Nasdaq ISE, LLC (“ISE”), Nasdaq GEMX, LLC (“GEMX”), Nasdaq MRX, LLC (“MRX”), and Nasdaq Phlx LLC (“Phlx”). The Exchange proposes to permit Lead Market Maker appointments similar to NTX Options. The Exchange proposes to amend Options 2, Section 3 (currently reserved), and 4 (Obligations of Market Makers and Lead Market Makers) to adopt rules related to a Lead Market Maker that are identical to NTX Options at Options 2, Sections 3, 4 and 5. The Exchange would also add a definition for a Lead Market Maker in Options 1, Section 1 (Definitions), identical to NTX Options at Options 1, Section 1. The Exchange proposes to amend Options 3, Section 3, Minimum Increments, to amend the manner in which quotes are submitted to the System. The Exchange proposes to adopt order types at Options 3, Section 7 (Types of Orders and Order and Quote Protocols) that are identical to ISE, GEMX, MRX and Phlx with one exception. The Exchange proposes to adopt a new Stop Order, Stop Limit Order, Reserve Order and Good-Till-Date Order identical to ISE, GEMX, MRX and Phlx. The Exchange would retain NOM's Add Liquidity Order, which would be substantially similar to ISE, GEMX, MRX and Phlx except with respect to re-pricing as explained below in more detail. The Exchange would also retain its Price Improving Order without change. 4 The Exchange would remove the Minimum Quantity Order. The Exchange would also amend Options 2, Section 6 (Market Maker Orders), Options 3, Section 8 (Opening and Halt Cross), Options 3, Section 9 (Trading Halts),Options 3, Section 10 (Order Book Allocation), Options 3, Section 20 (Nullification and Adjustment of Options Transactions including Obvious Errors), and Options 3, Section 22 (Limitations on Order Entry) to account for new order types. These proposed changes would be identical to corresponding rules on ISE, GEMX, MRX and Phlx at Options 2, Section 6, Options 3, Section 8, Options 3, Section 9, Options 3, Section 10, and Options 3, Section 22. 4  A “Price Improving Order” is an order to buy or sell an option at a specified price at an increment smaller than the minimum price variation in the security. Price Improving Orders may be entered in increments as small as one cent. Price Improving Orders that are available for display shall be displayed at the minimum price variation in that security and shall be rounded up for sell orders and rounded down for buy orders. See current NOM Options 3, Section 7(a)(5). The Exchange proposes to relocate its Pricing Improving Order as described in this proposal. The Exchange proposes to amend its opening at Options 3, Section 8 to adopt an opening that would be identical to NTX Options at Options 3, Section 8. The Exchange proposes to amend its allocation methodology in Options 3, Section 10 to provide for a Lead Market Maker enhancement and an entitlement for orders of 5 contracts or fewer identical to NTX Options at Options 3, Section 10. The Exchange proposes to align certain risk protections in Options 3, Section 15 (Risk Protections) so that those protections in that rule are identical to NTX Options at Options 3, Section 15. The Exchange proposes to amend its QUO protocol to no longer treat orders as quotes and permit two-sided orders to be entered through the protocol subject to order entry protections. As amended, the QUO protocol would be identical to the OTTO protocol on NTX Options, ISE, GEMX, MRX and Phlx. The Exchange would also align the Kill Switch at Options 3, Section 17, and Detection of Loss at Options 3, Section 18 so that the rule text is identical to NTX Options at Options 3, Sections 17 and 18. The Exchange proposes to amend Options 3, Section 23, Data Feeds and Trade Information, to remove TradeInfo to align NOM's protocols to other Nasdaq affiliated markets. The Exchange proposes to adopt an Optional Risk Protection at new Options 3, Section 28 that is identical to NTX Options, ISE, GEMX, MRX and Phlx. The Exchange proposes to amend Options 5, Section 4, Order Routing, to adopt identical order routing to NTX Options at Options 5, Section 4, except with respect to the System handling of Price Improving Orders. 5 Each rule change is described below. 5  Unlike NOM, NTX Options does not offer Price Improving Orders. At the outset, the Exchange notes that unlike other Nasdaq affiliated options exchanges, Price Improving Orders only are being offered on NOM. Price Improving Orders are entered in increments smaller than the minimum price variation. Because NOM may accept orders in increments smaller than the minimum price variation, the rule text will differ in certain places as compared to the rule text of Nasdaq affiliated options exchanges. The Exchange has noted those distinctions in its proposal. Options 1, Section 1 The Exchange proposes to amend Options 1, Section 1, Definitions, to define the term “Lead Market Maker” at proposed Options 1, Section 1(a)(24) to mean a Market Maker who is registered as an options Lead Market Maker pursuant to Options 2, Section 3. The Exchange also proposes to renumber current Options 1, Section 1(a)(24) to (62). As a result of this renumbering, the Exchange proposes to also amend Options 4C. Sections 2(b)(2), and Options 7, Section 1, General Provisions, to amend the cross citations to align to the new numbering in Options 1, Section 1. The Exchange proposes to amend current Options 1, Section 1(a)(57) to add “Tuesday” and “Thursday” to the definition in the first sentence. Today, the series are opened for trading each day of the week and expire each day of the week. The addition of Tuesday and Thursday were inadvertently not made a second time in that sentence. 6 6   See Securities Exchange Act Release No. 96412 (November 30, 2022), 87 FR 74685 (December 6, 2022) (SR-NASDAQ-2022-066) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Definition of Short Term Option Series). Lead Market Makers NOM proposes to permit NOM Market Makers to act as Lead Market Makers, or “LMMs,” in one or more options classes, provided the LMM meets certain obligations and quoting requirements as provided for in the new proposed rules which are described below. The Exchange also proposes to provide assigned LMMs with certain participation entitlements in Options 3, Section 10, which is described in that section. Options 2, Section 3 At this time, the Exchange proposes to permit the appointment of LMMs on NOM. The Exchange proposes to amend Options 2, Section 3, which is currently reserved to title the rule “Lead Market Maker Allocation.” This proposed new rule would be identical to NTX Options at Options 2, Section 3. As proposed, approved NOM Options Market Makers  7 may become Lead Market Makers (LMMs”). Only one LMM may be allocated to an options class. 8 Initial application(s) to become an LMM shall be in a form and/or format prescribed by the Exchange and shall include the following: (1) background information on the LMM including experience in trading options; (2) the LMM's clearing arrangements; (3) adequacy of capital; and (4) adherence to Exchange rules and ability to meet obligations of an LMM. 9 Subsequent applications shall be in a form and/or format prescribed by the Exchange and shall include the information requested therein, including, but not limited to, an account of the abilities and background of the applicant as well as any other special requirements that the Exchange may require. 10 Once an applicant is approved by the Exchange as an LMM, any material change in capital shall be reported in writing to the Exchange within two business days after the change. 11 NOM will not place any limit on the number of entities that may become LMMs, however there will only be one LMM per class. 7  The term “Nasdaq Options Market Maker” or “Options Market Maker” or “Market Maker” mean an Options Participant registered with the Exchange for the purpose of making markets in options contracts traded on the Exchange and that is vested with the rights and responsibilities specified in Options 2 of these Rules. See Options 1, Section 1(a)(27). 8   See proposed Options 2, Section 3, A at subparagraph (a). 9   See proposed Options 2, Section 3, A at subparagraph (b). 10   See proposed Options 2, Section 3, A at subparagraph (c). 11   See proposed Options 2, Section 3, A at subparagraph (d). When an options class is to be allocated or reallocated by the Exchange, the Exchange will solicit applications from all eligible LMMs. If the Exchange determines that special qualifications should be sought in the successful applicant, it shall indicate such desired qualifications in the notice. 12 12   See proposed Options 2, Section 3, B at subparagraph (a). Further, the Exchange proposes to require an allocation application to be submitted in writing to the Exchange's designated staff and shall include, at a minimum, the name and background of the LMM, the LMM's experience and capitalization demonstrating an ability to trade the particular options class sought, and any other reasons why the LMM believes it should be assigned or allocated the security. In addition, the Exchange may also require that the application include other information such as system acceptance/execution levels and guarantees. The Exchange may re-solicit applications for any reason, including if it determines that its initial solicitation resulted in an insufficient number of applicants. 13 13   See proposed Options 2, Section 3, B at subparagraph (b). Allocation decisions and automatic allocations shall be communicated in writing to Exchange Participants. Once the LMM is allocated an issue, such LMM shall immediately notify the Exchange in writing of any change to the respective system acceptance/execution levels or any other material change in the application for any assigned issue. If an LMM seeks to withdraw from allocation in a security, it should notify the Exchange at least one business day prior to the desired effective date of such withdrawal. 14 14   See proposed Options 2, Section 3, B at subparagraph (c)-(e). Options on Related Securities shall be automatically allocated to the LMM, which is already the LMM in Currently Allocated Securities (as defined hereafter). As noted herein, only one LMM may be allocated to an options class. The Exchange is defining the term “Related Securities” for purpose of Options 2, Section 3 as follows: “Related Securities means, but is not limited to: securities of a partially or wholly owned subsidiary; securities that are convertible into the securities of the issuer; warrants on securities of the issuer; securities issued in connection with a name change; securities issued in a reverse stock split; contingent value rights; “tracking” securities designed to track the performance of the underlying security or corporate affiliate thereof; securities created in connection with the merger or acquisition of one or more companies; securities created in connection with a “spin-off” transaction; convertible on non-convertible senior securities; and securities into which a listed security is convertible, where such Related Securities emanate from or are related to securities underlying options that are currently allocated to a LMM on the Exchange (“Currently Allocated Options”). The term Related Securities does not include Exchange Traded Funds. 15 Options on Related Securities (“Related Options”) shall be automatically allocated to the LMM that is already the LMM in Currently Allocated Options. 16 15   See proposed Options 2, Section 3, B at subparagraph (f). 16   See proposed Options 2, Section 3, B at subparagraph (g). The Exchange shall allocate new options classes or reallocate existing options classes to applicants based on the results of such factors as the Exchange deems appropriate. Among the factors that the Exchange may consider in making such decisions are: the number and type of securities in which applicants are currently registered; the capital and other resources of the applicant; recent allocation decisions within the past eighteen months; the desirability of encouraging the entry of new LMMs into the Exchange's market; order flow commitments; any prior transfers of LMM privileges by the applicant and the reasons therefore and such policies as the Board instructs the Exchange to follow in allocating or reallocating securities. The Exchange may also consider the following: quality of markets data; observance of ethical standards and administrative responsibilities. Solely with respect to options class allocations or reallocations, past or contemplated voluntary delisting of options by LMMs, done in the best interest of the Exchange, will not be viewed negatively by the Exchange in making allocation and reallocation decisions. The Exchange is empowered to allocate option classes for a limited period of time or subject to such other terms and conditions as it deems appropriate. 17 17   See proposed Options 2, Section 3, C at subparagraph (a). Requests to allocate or transfer allocation, or transfer of an options class request must be made in writing to the Exchange, and such transfer may only be made to an approved LMM. The LMM shall be assigned to an options class for a period defined by the Exchange. The Exchange will communicate such period in solicitation applications (notices). The Exchange may re-allocate an options class after the defined period has expired. 18 18   See proposed Options 2, Section 3, D at subparagraph (a). Options 2, Section 4 The Exchange proposes amendments to Options 2, Section 4, Obligations of Market Makers and Lead Market Makers, to require LMM's to be held to certain obligations. The proposed amendments to Options 2, Section 4 are identical to rule text at NTX Options at Options 2, Section 4. As proposed, the Exchange requires that LMM transactions should constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and no LMM should enter into transactions or make bids or offers that are inconsistent with such a course of dealings. 19 Further, with respect to each class of options in his or her appointment, an LMM is expected to engage, to a reasonable degree under the existing circumstances, in dealings for his own account when there exists, or it is reasonably anticipated that there will exist, a lack of price continuity, a temporary disparity between the supply of and demand for a particular option contract, or a temporary distortion of the price relationships between option contracts of the same class. Without limiting the foregoing, an LMM is expected to perform certain activities in the course of maintaining a fair and orderly market which are listed in proposed Options 2, Section 4(f)(1)-(4). The Exchange proposes to require that an LMM (1) compete with other Market Makers to improve the market in all series of options classes to which the LMM is appointed; (2) make markets that will be honored for the number of contracts entered into the System  20 in all series of options classes within the LMM's appointment; (iii) update market quotations in response to changed market conditions in all series of options classes within the LMM's appointment; (iv) maintain certain intra-day bid/ask differentials, also known as Quote Spread Parameters. The Quote Spread Parameters shall require LMMs to quote equity options, including Exchange-Traded Fund Shares, and index options with a difference not to exceed $5 between the bid and offer regardless of the price of the bid. 21 However, an LMM shall be permitted to quote an in-the-money series, where the market for the underlying security is wider than $5, with a bid/ask differential as wide as the spread between the national best bid and offer in the underlying security. The Exchange may establish differences other than the above for one or more series or classes of options. 22 19   See proposed Options 2, Section 4(e). The Exchange proposes to reserve Options 2, Section 4(d). 20  The term “System” or “Trading System” mean the automated system for order execution and trade reporting owned and operated by The Nasdaq Options Market LLC. The Nasdaq Options Market comprises: (1) an order execution service that enables Participants to automatically execute transactions in options series; and provides Participants with sufficient monitoring and updating capability to participate in an automated execution environment; (2) a trade reporting service that submits “locked-in” trades for clearing to a registered clearing agency for clearance and settlement; transmits last-sale reports of transactions automatically to the Options Price Reporting Authority for dissemination to the public and industry; and provides participants with monitoring and risk management capabilities to facilitate participation in a “locked-in” trading environment; and (3) the data feeds described in Section 19. See Options 1, Section 1(a)(59). 21   See proposed Options 2, Section 4(f)(1)-(4). 22   See proposed Options 2, Section 4(f)(4). The Exchange proposes to reserve Options 2, Section 4(g). In classes of options other than those to which the LMM is appointed, LMMs should not engage in transactions for an account in which they have an interest that are disproportionate in relation to, or in derogation of, the performance of their obligations as specified in this Rule with respect to the classes in their appointment. Furthermore, LMMs should not: (1) individually or as a group, intentionally or unintentionally, dominate the market in option contracts of a particular class; and (2) effect purchases or sales on the Exchange except in a reasonable and orderly manner. 23 23   See proposed Options 2, Section 4(h). LMMs are prohibited from the following: (1) any practice or procedure whereby LMMs trading any particular option issue determine by agreement the spreads or option prices at which they will trade that issue; and (2) any practice or procedure whereby LMMs trading any particular option issue determine by agreement the allocation of orders that may be executed in that issue. 24 24   See proposed Options 2, Section 4(i). With respect to quoting obligations, an LMM must enter two-sided quotations. An LMM that enters a bid (offer) in a series of an option in which he is registered on NOM must enter an offer (bid), except in an assigned options series listed intra-day on NOM. These quotations must meet the legal quote width requirements specified in Options 2, Section 4 subsection (f)(4). An Options Participant will be required to meet each market making obligation separately. Quotes submitted through the Specialized Quote Feed  25 interface, utilizing badges  26 and options series assigned to a Lead Market Maker, will be counted toward the requirement to provide two-sided quotations in 90% of the cumulative number of seconds, or such higher percentage as NOM may announce. An Options Participant that is a Market Maker in an options series where the Options Participant is also assigned as the Lead Market Maker, pursuant to Options 2, Section 4, in an option series will be held to both the Lead Market Maker and Market Maker obligations, pursuant to Options 2, Section 5(d), separately, in that options series. 27 25  “Specialized Quote Feed” or “SQF” is an interface that allows Market Makers to connect, send, and receive messages related to quotes and Immediate-or-Cancel Orders into and from the Exchange. Features include the following: (1) options symbol directory messages ( e.g., underlying instruments); (2) system event messages ( e.g., start of trading hours messages and start of opening); (3) trading action messages ( e.g., halts and resumes); (4) execution messages; (5) quote messages; (6) Immediate-or-Cancel Order messages; (7) risk protection triggers and purge notifications; and (8) opening imbalance messages. The SQF Purge Interface only receives and notifies of purge requests from the Market Maker. Market Makers may only enter interest into SQF in their assigned options series. Immediate-or-Cancel Orders entered into SQF are not subject to the Order Price Protection, Market Order Spread Protection, or Size Limitation in Options 3, Section 15(a)(1) and (a)(2), and (b)(2), respectively. See Options 3, Section 7(e)(1)(B). 26  The term a “badge” means an account number, which may contain letters and/or numbers, assigned to NOM Market Makers. A NOM Market Maker account may be associated with multiple badges. See NOM Options 1, Section 1(a)(5). 27   See proposed Options 2, Section 4(j). LMMs, associated with the same Options Participant, are collectively required to provide two-sided quotations in 90% of the cumulative number of seconds, or such higher percentage as NOM may announce in advance, for which that Option Participant's assigned options series are open for trading. An LMM shall not be required to make two-sided markets in any Quarterly Option Series, any Adjusted Option Series, and any option series with an expiration of nine months or greater for options on equities and exchange-traded funds (“ETFs”) or with an expiration of twelve months or greater for index options. However, an LMM may still receive a participation entitlement in such series if it elects to quote in such series and otherwise satisfies the requirements of Options 3, Section 10. 28 An adjusted option series is defined as an option series wherein one option contract in the series represents the delivery of other than 100 shares of underlying stock or Exchange-Traded Fund Shares or “ETFs” (“Adjusted Options Series”). 29 28   See proposed Options 2, Section 4(j)(1). 29   See proposed Options 2, Section 4(j)(1)(a). Specifically, the Exchange will calculate subparagraph (j)(1) by (i) taking the total number of seconds the Options Participant disseminates quotes in each assigned options series, excluding Quarterly Option Series, any Adjusted Option Series, and any option series with an expiration of nine months or greater for options on equities and ETFs or with an expiration of twelve months or greater for index options; and (ii) dividing that time by the eligible total number of seconds each assigned option series is open for trading that day. Quoting is not required in every assigned options series. Compliance with this requirement is determined by reviewing the aggregate of quoting in assigned options series for the Options Participant. 30 30   See proposed Options 2, Section 4(j)(2). Quoting Obligation Methodology Lead Market Maker firm 123 is assigned five badges: 123A, 123B, 123C, 123D and 123E. Badge 123A is designated the Lead Market Maker badge and badge 123B-E are designated as Market Maker badges. As proposed, only quoting activity from badge 123A (and excluding badges 123B-E) would be counted toward the requirement to provide two-sided quotations in 90% of the cumulative number of seconds for which that Participant's assigned options series are open for trading. All other badges (123 B-E), excluding badge 123A, would be counted toward the requirement to provide two-sided quotations in 60% of the cumulative number of seconds for which that Participant's assigned options series are open for trading. An Options Participant may have only one Lead Market Maker badge per option series. Further, the below example explains how the Exchange aggregates quotes from Lead Market Makers, in their assigned options series, to determine compliance with quoting requirements. The same calculation applies to quotes from Market Makers in their assigned options series. NTX Options aggregates and calculates quotes from Lead Market Makers in an identical manner. 31 31   See NTX Options at Options 2, Section 4(j) and Options 2, Section 5(d)(1). Under the proposal, by way of example, assume Lead Market Maker Firm ABC is assigned in five symbols across 2 different badges: Badge 123A and B are assigned in symbols QQQ and SPY, respectively Badge 124A, B and C are assigned in symbols IBM, GM, and MSFT, respectively Quotes submitted through the Specialized Quote Feed interface from the Firm ABC's Lead Market Maker badges from all 5 symbols will be counted in determining compliance with Firm ABC's requirement to provide two-sided quotations in 90% of the cumulative number of seconds for which Firm ABC's assigned options series are open for trading. If Firm ABC Lead Market Maker badge 123A quotes symbol QQQ at 95% and badge 123B quotes symbol SPY at 90% and Firm ABC Lead Market Maker badge 124A quotes IBM at 85%, badge 124B quotes GM at 95%, and badge 124C quotes MSFT at 90% then Firm ABC will have met its requirement to provide two-sided quotations in 90% of the cumulative number of seconds for which Firm ABC's assigned options series are open for trading because the percentage across the 5 symbols is 91%. NOM Regulation may consider exceptions to the requirement to quote 90% (or higher) of the trading day based on demonstrated legal or regulatory requirements or other mitigating circumstances. For purposes of the Exchange's surveillance of an Options Participant compliance with this Rule, the Exchange may determine compliance on a monthly basis. The Exchange's monthly compliance evaluation of the quoting requirement does not relieve an Options Participant of the obligation to provide two-sided quotes on a daily basis, nor will it prohibit the Exchange from taking disciplinary action against an Options Participant for failing to meet the quoting obligation each trading day. 32 32   See proposed Options 2, Section 4(j)(3). If a technical failure or limitation of a System of the Exchange prevents an LMM from maintaining, or prevents an LMM from communicating to the Exchange, timely and accurate electronic quotes in an issue, the duration of such failure shall not be considered in determining whether the LMM has satisfied the 90% quoting standard with respect to that option issue. The Exchange may consider other exceptions to this intra-day electronic quote obligation based on demonstrated legal or regulatory requirements or other mitigating circumstances. 33 33   See proposed Options 2, Section 4(j)(4). An LMM may be called upon by NOM Regulation to submit a single quote or maintain intra-day quotes in one or more series of an option issue within its appointment whenever, in the judgment of NOM Regulation, it is necessary to do so in the interest of maintaining fair and orderly markets. 34 An LMM will be compelled to buy/sell a specified quantity of option contracts at the disseminated bid/offer pursuant to his obligations with respect to firm quotes. 35 All quotes and orders entered into the System by Options Participants are firm under Options 2, Section 4 and Rule 602 of Regulation NMS under the Exchange Act (“SEC Rule 602”) for the number of contracts specified and according to the size requirements set forth herein. Market Maker bids and offers are not firm under this Rule and SEC Rule 602: (1) for the period prior to the Opening Cross; or (2) if any of the circumstances provided in paragraph (b)(3) or (c)(4) of SEC Rule 602 exist. 36 34   See proposed Options 2, Section 4(k). 35   See proposed Options 2, Section 4(l). 36   See proposed Options 2, Section 4(l). Options 2, Section 5 With the adoption of LMMs, the Exchange proposes to add rule text to Options 3, Section 5(d)(1) to provide, An Options Participant will be required to meet each market making obligation separately. Quotes submitted through the Specialized Quote Feed interface, utilizing badges and options series assigned to a Market Maker, will be counted toward the requirement to provide two-sided quotations in 60% of the cumulative number of seconds, or such higher percentage as NOM may announce. An Options Participant that is a Market Maker in an options series where the Options Participant is also assigned as the Lead Market Maker, pursuant to Options 2, Section 4, in an option series will be held to both the Lead Market Maker and Market Maker obligations, pursuant to Options 2, Section 5(d), separately, in that options series. Similar to NTX Options, 37 the Exchange proposes to make clear that the quoting requirements for a Market Maker and a Lead Market Maker are separate obligations. Further, the Exchange proposes a technical requirement at Options 2, Section 5(d)(1)(A) to define an ETF and an amendment to Options 2, Section 5(d)(1)(D) to correct the cross reference from “subparagraph A” to “paragraph d.” 37   See NTX Options at Options 2, Section 5(d)(1). Options 3, Section 10 The Exchange proposes to provide LMM participation entitlements in Options 3, Section 10, Order Book Allocation. As noted herein, an LMM may be assigned by the Exchange in each option class in accordance with Options 2, Section 3. With respect to Price/Time, whereby the System executes all trading interest at the best price level within the System before executing trading interest at the next best price, the Exchange proposes to note that allocation of displayed interest shall occur before allocation of non-displayed interest at each price level. Specifically, with respect to Size Pro-Rata executions, after all Public Customer  38 orders have been fully executed, upon receipt of an order, provided the LMM's quote is at or improves on the better of the NBBO or internal BBO, the LMM will be afforded a participation entitlement as noted below. 39 The LMM shall not be entitled to receive a number of contracts that is greater than the displayed size associated with such LMM. LMM participation entitlements will be considered after the Opening Process. A NOM Options LMM shall receive the greater of: (i) the LMM's Size Pro-Rata; (ii) 50% of remaining interest if there is one other Market Maker order or quote at that price; (iii) 40% of remaining interest if there are two other Market Maker orders or quotes at that price; or (d) 30% of remaining interest if there are more than two other Market Maker orders or quotes at that price. Rounding will be to the nearest integer. The Exchange is not considering Public Customer orders in determining the LMM allocation because Public Customer orders will continue to have priority over all other interest at the same price and those orders would have been executed prior to any LMM allocation. NTX Options has identical rules at Options 3, Section 10(a)(2)(ii). 38  As proposed herein at renumbered Options 1, Section 1(a)(49), the term “Public Customer” means a person or entity that is not a broker or dealer in securities and is not a Professional as defined within Options 1, Section 1(a)(48). 39  Public Customer non-displayed orders will retain price priority before an LMM participation entitlement is provided at the Exchange's disseminated price. ( e.g., Price Improving Orders and Reserve Orders). The Exchange also proposes to provide an Entitlement for Orders of 5 contracts or fewer in addition to the LMM Priority overlay at Options 3, Section 10(a)(1)(C)(3) that states, This Entitlement for Orders of 5 contracts or fewer shall be allocated to the LMM as described below. The allocation will only apply after the Opening Process. An LMM is not entitled to receive a number of contracts that is greater than the size that is associated with its quote. On a quarterly basis, the Exchange will evaluate what percentage of the volume executed on the Exchange is comprised of orders for 5 contracts or fewer allocated to LMMs, and will reduce the size of the orders included in this provision if such percentage is over 40%. (A) An LMM is entitled to priority with respect to Orders of 5 contracts or fewer if the LMM has a quote at the better of the internal BBO or the NBBO, with no other Public Customer interest with a higher priority. (B) If the LMM's quote is at the better of the internal BBO, or the NBBO, with other Public Customer interest, a LMM is not entitled to priority with respect to Orders of 5 contracts or fewer, however the LMM is eligible to receive such contracts pursuant to paragraph (a)(1)(C)(4); thereafter orders will be allocated pursuant to paragraph (a)(1)(C)(5). In order to be entitled to receive Orders for 5 contracts or fewer, the LMM's quote must be at the better of the internal BBO  40 or the NBBO with no other Public Customer interest which has a higher priority. If the LMM is quoting at the better of the internal BBO or the NBBO with other Public Customer Maker interest present which has a higher priority at the time of execution, the LMM is not entitled to priority with respect to Orders of 5 contracts or fewer, however the LMM is eligible to receive such contracts pursuant to paragraph (a)(1)(C)(4), which describes Market Maker Priority after all Public Customer orders and LMM participation entitlements have been applied, and, thereafter, (a)(1)(C)(5) which provides for allocation of all other remaining interest after Market Maker interest has been fully executed. The Lead Market Maker would be entitled to the entire allocation of the Order of 5 contracts or fewer where no Public Customer interest was present with a higher priority. If, for example, a Public Customer is resting at the NBBO at the time of execution, a Lead Market Maker is not entitled to priority with respect to Orders of 5 contracts or fewer. The Lead Market Maker will continue to not be entitled to priority with respect to allocation of Orders of 5 contracts or fewer because there is interest present with a higher priority or because the Lead Market Maker is not quoting at the NBBO. In these situations, the Lead Market Maker is eligible to receive such contracts pursuant to paragraph (a)(1)(C)(4); thereafter orders will be allocated pursuant to paragraph (a)(1)(C)(5). NTX Options has identical rule text at Options 3, Section 10(a)(2)(iii). 40  The “internal BBO” refers to the Exchange's non-display order book. See Options 3, Section 4(b)(7). The Exchange proposes to add the word “order” before “Book” and lowercase “book” at Options 3, Section 10(a)(3). Options 2, Section 6 Options 2, Section 6(a) currently states that Market Makers may enter all order types defined in Options 3, Section 7 in the options classes to which they are appointed and non-appointed. The Exchange proposes to adopt a new Reserve Order at proposed Options 3, Section 7(g) that is identical to Nasdaq ISE, LLC (“ISE”), Nasdaq GEMX, LLC (“GEMX”) and Nasdaq MRX, LLC (“MRX”) Reserve Orders at Options 3, Section 7(g). The Exchange proposes to amend Options 2, Section 6(a) to restrict Market Makers from entering Reserve Orders in both appointed and non-appointed options classes. Today, ISE, GEMX and MRX Options 2, Section 6 only restricts Market Makers from entering Reserve Orders. Unlike other order types, the Reserve Order is a limit order that contains both a displayed portion and a non-displayed portion. Both the displayed and non-displayed portions of a Reserve Order are available for potential execution against incoming marketable orders. When the displayed portion of a Reserve Order is decremented, either in full or in part, it shall be refreshed from the non-displayed portion of the resting Reserve Order. The Exchange believes that because a Reserve Order contains a non-displayed portion, Market Makers should not be permitted to enter this order type. Market Makers are required to make markets that, absent changed market conditions, will be honored for the number of contracts entered into the Exchange's System in all series of options classes to which the market maker is appointed. The Exchange believes that Market Maker liquidity should be displayed liquidity and, therefore, proposes to amend Options 2, Section 6 by stating that Market Makers should not be permitted to enter Reserve Orders. Options 3, Section 3 The Exchange proposes to amend Options 3, Section 3(c) which currently states, “A quote submitted to the System with an invalid trading increment will be re-priced. The quote will be rounded up to the nearest valid minimum price variation for offers and rounded down for bids.” Today, the Exchange permits NOM Participants to enter quotes in sub-pennies. At this time, the Exchange proposes to no longer permit quotes to be submitted to the Exchange in sub-pennies. Requiring quotes to be submitted in valid minimum price increments will standardize NOM to the behavior of other Nasdaq affiliated exchanges that do not permit quotes to be permitted in sub-pennies. 41 All other Nasdaq affiliated exchanges require quotes to be submitted in minimum price increments. 42 As a result of this System change, any quote submitted in a sub-penny would be rejected by the System as a result of the technology migration. 41  Other Nasdaq affiliated exchanges require quotes to be submitted in minimum price increments. 42  See ISE, GEMX, MRX and Phlx Options 3, Section 3. Further, the Exchange proposes to amend the current text of Options 3, Section 3(c) to add that those quotes are displayed at the nearest minimum price variation. Today, Options 3, Section 4(b)(6)  43 specifies that NOM displays quotes at the minimum price variation and the Exchange is adding that detail to Options 3, Section 3(c) as well. While quotes are accessible to be traded at the trading increment in which they are entered, the Exchange displays these quotes at the nearest minimum price variation. 43  Options 3, Section 4(b)(6) provides that, a quote will not be executed at a price that trades through another market or displayed at a price that would lock or cross another market. If, at the time of entry, a quote would cause a locked or crossed market violation or would cause a trade-through, violation, it will be re-priced to the current national best offer (for bids) or the current national best bid (for offers) as non-displayed and displayed at one minimum price variance above (for offers) or below (for bids) the national best price. Options 3, Section 7 The Exchange proposes to remove “(a)” and move the rule text of Options 3, Section 7(a) after the first sentence. Market Orders The Exchange proposes to amend the description of Market Orders and relocate the order type from Options 3, Section 7(a)(4) to Options 3, Section 7(a) without any substantive change to the rule. Today, Options 3, Section 7(a)(4) states, A Market Order is an order to buy or sell at the best price available at the time of execution. Participants can designate that their Market Orders not executed after a pre-established period of time, as established by the Exchange, will be cancelled back to the Participant, once an option series has opened for trading. Market Orders on the Order Book would be immediately cancelled if an options series halted, provided the Participant designated the cancellation of Market Orders. The Exchange proposes to instead provide that, A Market Order is an order to buy or sell a stated number of options contracts that is to be executed at the best price obtainable when the order reaches the Exchange. Participants can designate that their Market Orders not executed after a pre-established period of time, as established by the Exchange, will be cancelled back to the Participant, once an options series has opened for trading. Market Orders on the order book would be immediately cancelled if an options series is halted, provided the Participant designated the cancellation of Market Orders. The Exchange's amendment to the first sentence does not substantively amend this order type, rather the text is being reworded to align to ISE, GEMX and MRX rule text at Options 3, Section 7(a). Limit Orders The Exchange proposes to amend and relocate “Limit Orders” from current Options 3, Section 7(a)(2) to proposed Options 3, Section 7(b). Today, Options 3, Section 7(a)(2) states, “Limit Order” is an order to buy or sell an option at a specified price or better. A marketable Limit Order is a Limit Order to buy (sell) at or above (below) the best offer (bid) on the Exchange. The Exchange proposes to slightly modify the text in a non-substantive matter to align to ISE, GEMX and MRX Options 3, Section 7(b) with respect to the description of a Limit Order and a Marketable Limit Order to provide at proposed Options 3, Section 7(b) that a Limit Order is an order to buy or sell a stated number of options contracts at a specified price or better. The Exchange proposes to state at Options 3, Section 7(b)(1) that a Marketable Limit Order is a limit order to buy (sell) at or above (below) the best offer (bid) on the Exchange. The Exchange proposes to define a Fill-or-Kill Orders as a Limit Order that is to be executed in its entirety as soon as it is received and, if not so executed, treated as cancelled similar to ISE, GEMX and MRX Options 3, Section 7(b)(2). The Exchange proposes to amend and relocate the Intermarket Sweep Order from current Options 3, Section 7(a)(7) to proposed Options 3, Section 7(b)(3) under Limit Orders. Current Options 3, Section 7(a)(7) states “Intermarket Sweep Order” or “ISO” is a Limit Order that meets the requirements of Options 5, Section 1(8). Orders submitted to the Exchange as ISO are not routable and will ignore the ABBO and trade at allowable prices on the Exchange. ISOs may be entered on the Order Book. ISOs may have any time-in-force designation and are handled within the System pursuant to Options 3, Section 10 and shall not be eligible for routing as set out in Options 5, Section 4. ISO Orders may not be submitted during the opening. The relocated rule text is substantively identical, except the Exchange is removing the sentence that state, “ISOs may be entered on the Order Book” and “. . . are handled within the System pursuant to Options 3, Section 10 and shall not be eligible for routing as set out in Options 5, Section 4.” Since all orders may be entered on the Order Book, the sentence is not necessary. Further, all orders are subject to the allocation process in Options 3, Section 10. Also, ISO orders shall not be routable, as specified in Options 5, Section 4, and these orders meet the requirements of Options 5, Section 1(8). The Exchange's proposal aligns NOM's rule text for ISO Orders with that of ISE, GEMX and MRX at Options 3, Section 7(b)(3). All-or-None Orders The Exchange proposes to amend and relocate the All-or-None Orders or “AON” Orders from current Options 3, Section 7(a)(8) to proposed Options 3, Section 7(c). Current Options 3, Section 7(a)(8) provides that an “All-or-None Order” is a Market or Limit Order which is to be executed in its entirety or not at all. All-or-None Orders are treated as having a time-in-force designation of Immediate or Cancel. All-or-None Orders received prior to the Opening Process or after market close will be rejected. The Exchange proposes to add a new sentence which states that AON Orders will only execute against multiple, aggregated orders if the executions would occur simultaneously. This is true for NOM today. The handling of AONs as described in the proposed rule text in Options 3, Section 7(c) is consistent with the Exchange's allocation methodology in Options 3, Section 10. The additional detail makes clear that because of the size contingency of AON Orders, those orders must be satisfied simultaneously to avoid any priority conflict on the order book, which considers current displayed NBBO prices to avoid locked and crossed markets as well as trade-throughs. Additionally, the rule text will be harmonized to ISE, GEMX and MRX Options 3, Section 7(c). The Exchange also proposes to amend the sentence that states, “All-or-None Orders received prior to the opening cross or after market close will be rejected” to harmonize the rule text to ISE, GEMX and MRX Options 3, Section 7(c). The Exchange proposes to modify this sentence to instead provide that AON Orders may not be submitted during the Opening Process. 44 The current rule text similarly prohibits the submission of AON Orders before the market opens, which occurs at the end of the Opening Process. 44  NOM's amended Opening Process is described in Options 3, Section 8. Stop Orders The Exchange proposes to adopt a Stop Order on NOM at proposed Options 3, Section 7(d). The Exchange proposes to describe a Stop Order as an order that becomes a Market Order when the stop price is elected. A Stop Order to buy is elected when the option is bid or trades on the Exchange at, or above, the specified stop price. A Stop Order to sell is elected when the option is offered or trades on the Exchange at, or below, the specified stop price. A Stop Order shall be cancelled if it is immediately electable upon receipt. Stop Orders may only be entered through FIX. A Stop Order shall not be elected by a trade that is reported late or out of sequence. 45 45  ISE and MRX Options 3, Section 7(c) also provide that a Stop Order is not elected by a Complex Order trading with another Complex Order. NOM currently does not offer Complex Orders, therefore it is not adding this text. The Exchange also proposes to adopt a Stop Limit Order at proposed Options 3, Section 7(e). The Exchange proposes to provide that a Stop Limit Order is an order that becomes a Limit Order when the stop price is elected. A Stop Limit Order to buy is elected when the option is bid or trades on the Exchange at, or above, the specified stop price. A Stop Limit Order to sell becomes a