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Options 2 Options Market Participants
Section 1 Application for Approval as an SQT, RSQT, or RSQTO and Assignment in Options

(a) Approval as an SQT, RSQT, or RSQTO. Market Makers, as defined in Options 1, Section 1(b)(28), may apply for approval as Streaming Quote Traders ("SQTs") and Remote Streaming Quote Traders ("RSQTs"), as defined in Options 1, Sections (1)(b) (54) and (49), respectively. Member organizations may function as Remote Streaming Quote Trader Organizations ("RSQTOs") pursuant to this rule. RSQTOs may also be referred to as Remote Market Maker Organizations ("RMOs") and RSQTs may also be referred to as Remote Market Markers ("RMMs").

This Rule places no limit on the number of qualifying Market Makers that may become SQTs; any applicant that is qualified as an Market Maker in good standing, and that satisfies the technological readiness and testing requirements described in subsection (b)(ii) below, shall be approved as an SQT. This Rule places no limit on the number of member organizations that are converted to or may become RSQTOs. Any member organization in good standing, and that satisfies the RSQTO readiness and testing requirements described in this rule, shall be approved as an RSQTO. As many as five RSQTs at any time may be identified by and affiliated with an RSQTO. Each of the affiliated RSQTs must be qualified as an Market Maker and must be in good standing. However, based on system constraints, capacity restrictions or other factors relevant to the maintenance of a fair and orderly market, the Exchange may defer, for a period to be determined in the Exchange's discretion, approval of qualifying applications for SQT or RSQT status pending any action required to address the issue of concern to the Exchange. The Exchange may not defer a determination of the approval of the application of any SQT or RSQT applicant or place any limitation(s) on access to the Exchange's electronic quoting and System on any SQT or RSQT applicant unless the basis for such limitation(s) or deferral have been objectively determined by the Exchange, subject to SEC approval or effectiveness pursuant to a rule change filing under Section 19(b) of the Exchange Act, as amended. The Exchange shall provide written notification to any SQT or RSQT applicant whose application is the subject of such limitation(s) or deferral, describing the objective basis for such limitation(s) or deferral.

RSQTO application. A member organization that is not currently qualified as an RSQTO may apply to the Exchange to be an RSQTO with up to five affiliated RSQTs. Each RSQTO application shall be submitted to the Exchange's designated staff in writing (electronically or otherwise as specified by the Exchange) in a form and/or format prescribed by the Exchange and shall include, at a minimum, the name of the RSQTO applicant, the appropriate Exchange account number, and the name of each RSQT affiliated with the RSQTO applicant (the "Application Process").

(1) RSQTO applicants must demonstrate that they have:

(A) Significant market-making and/or Lead Market Maker experience in a broad array of securities;

(B) Superior resources, including capital, technology and personnel;

(C) Demonstrated history of stability, superior electronic capacity, and superior operational capacity;

(D) Proven ability to interact with order flow in all types of markets;

(E) Existence of order flow commitments;

(F) Willingness to accept allocations as an RSQT in options overlying 400 or more securities; and

(G) Willingness and ability to make competitive markets on the Exchange and otherwise to promote the Exchange in a manner that is likely to enhance the ability of the Exchange to compete successfully for order flow in the options it trades.

(2) SQT and RSQT applicants must demonstrate that they have:

(A) Significant market-making and/or Lead Market Maker experience in a broad array of securities;

(B) Superior resources, including capital, technology and personnel;

(C) Demonstrated history of stability, superior electronic capacity, and superior operational capacity;

(D) Proven ability to interact with order flow in all types of markets;

(E) Willingness and ability to make competitive markets on the Exchange and otherwise to promote the Exchange in a manner that is likely to enhance the ability of the Exchange to compete successfully for order flow in the options it trades.

(F) A current affiliation with an Exchange-approved RSQTO (RSQT applicants only).

(b)(1) Application and Assignment in Options. Each RSQTO, RSQT or SQT application for assignment in an option shall be submitted to the Exchange's designated staff in writing (electronically or otherwise as specified by the Exchange) in a form and/or format prescribed by the Exchange and shall include, at a minimum, the name of the SQT or RSQT applicant, the appropriate Exchange account number, the requested start date for each option applied for, and the name of the RSQTO member organization with whom the RSQT applicant is affiliated or the member organization with whom the SQT is affiliated. If the Exchange does not have applications for assignment in a particular option or options that it desires to assign or reassign, the Exchange may request such applications.

(2) No application for initial assignment in an option shall be approved without verification that (A) the RSQTO, SQT or RSQT applicant has sufficient technological ability to support his/her continuous quoting requirements as set forth in Options 2, Section 6(b)(ii), and (B) the RSQTO, SQT or RSQT applicant has successfully completed, or is scheduled to complete, testing of its quoting system with the Exchange.

(3) In addition to the criteria described in this sub-paragraph, the Exchange shall consider the following factors in making its decision concerning an application for assignment in an option:

(A) the financial and technical resources available to the applicant;

(B) the applicant's experience and expertise in market making or options trading;

(C) the applicant's prior performance as a Lead Market Maker, SQT or RSQT based on good standing pursuant to Options 2, Section 9.

(c) Decisions concerning applications for assignment in Streaming Quote Options shall be in writing and shall be distributed to the applicants.

(d) The RSQTO, SQT or RSQT, upon initial assignment in an option, may not withdraw from such option assignment for ten (10) or fewer business days after the effective date of assignment. However, the Exchange may, in exceptional circumstances, approve withdrawal from an option assignment in ten (10) or fewer business days. If an RSQTO, SQT or RSQT seeks to withdraw from assignment in an option, it should so notify the Exchange at least one business day prior to the desired effective date of such withdrawal.

(e) An appeal to the Board of Directors from a decision of the Exchange may be requested by a member or member organization interested therein by filing with the Secretary of the Exchange written notice of appeal within ten (10) days after the decision has been rendered. Any appeal from a decision pursuant to this Rule shall be heard by the Board of Directors ("Board") or a panel appointed by the Board of Directors ("Board Panel") composed of three (3) members not involved in the Exchange decision appealed from and who otherwise have no conflict of interest. If a Board Panel is appointed by the Board, three persons shall be selected to serve on the Board Panel and in making such selections the Board shall choose individuals whose background, experience and training qualify them to consider and make determinations regarding the subject matter to be presented to the Board Panel. The Board Panel shall consist of two members of the Exchange, or general partners or officers of member organizations and one other person who would qualify as a public member as defined in Article I of the By-Laws, whom the Board considers to be qualified. The person requesting review shall be permitted to submit a written statement to and/or appear before this Board or Board Panel. The Secretary of the Exchange shall certify the record of the proceeding, if any and the written decision and shall submit these documents to the Board or Board Panel. The Board's or Board Panel's review of the action shall be based solely on the record, the written decision and any statement submitted by the person requesting the review. The Board or Board Panel shall prepare and deliver to such person a written decision and reasons therefore. If the Board or Board Panel affirms the action, the action shall become effective ten (10) days from the date of the Board's or Board Panel's decision. There shall be no appeal to the Board from any decision of the Board Panel.

(f) Nothing in this Rule shall be construed to automatically qualify an RSQT to be a Remote Lead Market Maker on the Exchange.

(g) Within not more than thirty business days after assignment of an option pursuant to this Rule, an assigned SQT or RSQT shall begin to generate and submit electronic quotations for such option through the Exchange's electronic quotation, execution, and System.

(1) If electronic quotes are not generated and submitted by an assigned SQT or RSQT within the requisite time, the Exchange shall have the ability to terminate the assignment in question after providing written notice to the assigned SQT or RSQT, and make a re-assignment, unless there are exigent circumstances that the Exchange believes may not have allowed timely generation and submission of electronic quotes.

Adopted Feb. 3, 2020 (20-03).

Section 2. Reserved

 

Adopted Feb. 3, 2020 (20-03).

Section 3. Allocation Application, Allocation, Reallocation, Transfer and Voluntary Resignation

(a) When an options class is to be allocated or reallocated by the Exchange, the Exchange will solicit applications from all eligible Lead Market Maker unit. If the Exchange determines that special qualifications should be sought in the successful applicant, it shall indicate such desired qualifications in the notice.

(b) An allocation or reallocation application shall be submitted in writing to the Exchange's designated staff and shall include, at a minimum, the name and background of the head Lead Market Maker and back-up Lead Market Maker(s) (except that a Remote Lead Market Maker need not include a back-up Lead Market Maker), the unit's experience and capitalization demonstrating an ability to trade the particular options class sought, and any other reasons why the unit believes it should be assigned or allocated the security. In addition, the Exchange may also require that the application include other information. The Exchange may re-solicit applications for any reason, including if it determines that its initial solicitation resulted in an insufficient number of applicants.

(c) Allocation, reallocation, or transfer decisions and automatic allocations shall be communicated in writing to Exchange members.

(d) Upon allocation, reallocation, or transfer of an options class, the options class must be registered in either the name of the Lead Market Maker unit, or jointly in the name of the unit and the Lead Market Maker ("Registrant"). Each Registrant must be an Exchange member and an approved Lead Market Maker. The Registrant shall act as Lead Market Maker for the options class for at least one year ("minimum Lead Market Maker period"); unless some other period is defined by the Exchange pursuant to this rule. After expiration of the minimum Lead Market Maker period, the Exchange may re-allocate the options class. Once the Lead Market Maker unit is allocated, reallocated, or transferred an options class, such Lead Market Maker unit shall immediately notify the Exchange in writing regarding any material change in the application for any assigned options class.

(e) If a Lead Market Maker unit seeks to withdraw from allocation in a security, it should so notify the Exchange at least one business day prior to the desired effective date of such withdrawal.

(f) Transfer Application. Any proposed agreement between or among Lead Market Maker units to transfer one or more options classes already allocated to a specified Lead Market Maker unit shall be identified to the Exchange in writing before the proposed transfer. An agreement to transfer a Lead Market Maker unit's options classes may not become effective until approved by the Exchange. Failure to provide the Exchange prior notice of a transfer in accordance with this Rule, or failure to obtain Exchange approval of a transfer, permits the Exchange to recover the allocated securities and reallocate them pursuant to this Rule.

(g) Voluntary Resignation of Options Privileges. If an option Lead Market Maker unit voluntarily resigns from allocation in a particular option and the Exchange determines such resignation to be in the best interest of the Exchange, and that option is subsequently delisted, barring any Lead Market Maker performance or disciplinary issues, the option Lead Market Maker unit which last traded that option may be given preference in any future allocation decision regarding that option.

Supplementary Material to Options 2, Section 3

.01 Allocation Preclusion. A Lead Market Maker unit may not apply for any new listings (allocations) for a six (6) month period after an option was taken away from the Lead Market Maker in: (i) an involuntary reallocation proceeding; or (ii) a disciplinary proceeding. Such Lead Market Maker is also prohibited from applying for any new listings (allocations) for a second six month period unless the Exchange is satisfied that adequate corrective actions have been undertaken by the Lead Market Maker.

02. Automatic Allocation of Options on Related Securities.

For purposes of Supplementary Material. 02, the term "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 Lead Market Maker on the Exchange ("Currently Allocated Options").

The term Related Securities does not include Exchange Traded Funds.

03. Alternate Lead Market Maker Period.

The Exchange may establish that a Registrant shall act as a Lead Market Maker in an allocated options class for a shorter period defined by the Exchange that is less than one year ("alternate Lead Market Maker period"). If the Exchange establishes an alternate Lead Market Maker period, it will communicate such period in solicitation applications (notices) pursuant to this Rule.

After expiration of the alternate Lead Market Maker period, the Exchange may reallocate the options class.

(a) Options on Related Securities ("Related Options") shall be automatically allocated to the Lead Market Maker unit that is already the Lead Market Maker in Currently Allocated Options ("Current Lead Market Maker"), unless the Current Lead Market Maker is subject to an Allocation Preclusion regarding new listings (allocations) pursuant to this Rule. In such an event, the Exchange may, nonetheless, allocate the Related Options to the Current Lead Market Maker if the Exchange determines that the trading characteristics of the Related Options to be allocated are similar to the Currently Allocated Options.

Adopted Feb. 3, 2020 (20-03); amended April 14, 2020 (20-21).

Section 4. Obligations of Market Makers

(a) General. Transactions of a Lead Market Maker and a Market Maker should constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and those members should not enter into transactions or make bids or offers that are inconsistent with such a course of dealings.

(b) Each Market Maker electing to engage in Exchange options transactions shall be assigned by the Exchange one or more classes of options. The obligations of an Market Maker with respect to those classes of options to which he is assigned shall take precedence over his other Market Maker activities.

(1) The off-floor orders for which a Market Maker receives Lead Market Maker margin treatment shall be subject to the obligations of paragraph (a) and, in general, be effected for the purpose of hedging, reducing risk of, or rebalancing positions of the Market Maker. An Market Maker is responsible for evidencing compliance with these provisions. The Exchange may exempt one or more classes of options.

(2) An RSQT may only submit quotations electronically from off the floor of the Exchange. An RSQT may not simultaneously quote both as RSQT and Remote Lead Market Maker in a particular security. If an RSQT is a Remote Lead Market Maker in a particular security, the Remote Lead Marker Maker must make a market as a Remote Lead Market Maker and may not make a market as an RSQT in that particular security.

(3) The Exchange shall assign SQTs and RSQTs in accordance with Options 2, Section 1 and allocate one or more options to Remote Lead Market Makers in accordance with Options 2, Section 11. An SQT or RSQT may be assigned to and a Remote Lead Market Maker may be allocated (and thus submit quotes electronically in) any option for which they are approved by the Exchange.

(4) An RSQT shall be required to maintain information barriers that are reasonably designed to prevent the misuse of material, non-public information with any affiliates that may conduct a brokerage business in options assigned to the RSQT or act as a Lead Market Maker or market maker in any security underlying options assigned to the RSQT, and otherwise comply with the requirements of Options 2, Section 12 regarding restrictions on the flow of privileged information between the affiliate and the Lead Market Maker organization.

(5) An RSQT electing to engage in Exchange options transactions is designated as a Lead Market Maker on the Exchange for all purposes under the Exchange Act and the rules and regulations thereunder with respect to options transactions initiated and effected by him in his capacity as a Market Maker.

(c) Appointment. Without limiting the foregoing, a Lead Market Maker and a Market Maker is expected to perform the following activities in the course of maintaining a fair and orderly market. The following bid/ask differentials only apply to electronic quotations following the Opening Process.

(1) Options on equities (including Exchange-Traded Fund Shares), index options and options on U.S. dollar-settled FCOs may be quoted electronically with a difference not to exceed $5 between the bid and offer regardless of the price of the bid, provided that the foregoing bid/ask differentials shall not apply to in-the-money series where the market for the underlying security is wider than the differentials set forth above. For such series, the bid/ask differentials may be as wide as the spread between the national best bid and offer in the underlying security, or its decimal equivalent rounded down to the nearest minimum increment. The Exchange may establish differences other than the above for one or more series or classes of options.

(d) Classes of Options To Which Not Appointed . With respect to classes of options to which a Market Maker is not appointed, it should not engage in transactions for an account in which it has an interest that are disproportionate in relation to, or in derogation of, the performance of his obligations as specified in paragraph (c) above with respect to those classes of options to which it is appointed, a Market Maker should not

(1) Individually or as a group, intentionally or unintentionally, dominate the market in option contracts of a particular class; or

(2) Effect purchases or sales on the Exchange except in a reasonable and orderly manner.

Adopted Feb. 3, 2020 (20-03); amended April 14, 2020 (20-21).

Section 5. Electronic Market Maker Obligations and Quoting Requirements

For purposes of this rule an "electronic Market Maker" shall mean an SQT, RSQT, Lead Market Maker (including Remote Lead Market Maker), Directed SQT and Directed RSQT who enters electronic quotations into the Exchange's System.

(a) In registering as an electronic Market Maker, a member organization commits to various obligations. Transactions of an electronic Market Maker in its market making capacity must constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and those member organizations should not make bids or offers or enter into transactions that are inconsistent with such course of dealings. Electronic Market Makers should not effect purchases or sales except in a reasonable and orderly manner. Ordinarily during trading hours, an electronic Market Maker must:

(1) Maintain a two-sided market in those options in which the electronic Market Maker is registered to trade, in a manner that enhances the depth, liquidity and competitiveness of the market.

(2) Engage, to a reasonable degree under the existing circumstances, in dealings for its 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 (or demand for) a particular option contract, or a temporary distortion of price relationships between option contracts of the same class.

(3) Compete with other electronic Market Makers in all options in all capacities in which the electronic Market Maker is registered to trade.

(4) Make markets that will be honored for the number of contracts entered into the System in all options in which the electronic Market Maker is registered to trade.

(5) Update quotations in response to changed market conditions in all options in which the electronic Market Maker is registered to trade.

(6) Maintain active markets in all options in which the electronic Market Maker is registered.

(7) Honor all orders attributed to the electronic Market Maker that the System routes to away markets pursuant to Options 5, Section 4.

(b) If Phlx Regulation finds any substantial or continued failure to engage in a course of dealings as specified in paragraph (a) of this section, the electronic Market Maker will be subject to disciplinary action or suspension or revocation of registration in one or more of the securities in which the electronic Market Maker is registered. Nothing in this rule will limit any other power of the Board under these Rules, or procedures of Phlx with respect to the registration of a Market Maker or in respect of any violation by a Market Maker pursuant to this rule.

(c) Electronic Market Makers must enter bids and offers for the options to which it is registered, except in an assigned options series listed intra-day on the Exchange. On a daily basis, an electronic Market Maker must make markets consistent with the applicable quoting requirements specified below. A member organization will be required to meet each market making obligation separately. An SQT and RSQT who is also the Lead Market Maker will be held to the Lead Market Maker obligations in options series in which the Lead Market Maker is assigned and will be held to SQT and RSQT obligations in all other options series where assigned. An SQT or RSQT who receives a Directed Order shall be held to the standard of a Directed SQT or Directed RSQT, as appropriate.

(1) Size Associated with Quotes. An electronic Market Maker's bid and offer for a series of options contracts shall be accompanied by the number of contracts at that price the electronic Market Maker is willing to buy or sell. The best bid and best offer submitted by an electronic Market Maker must have a size of not less than the minimum number of contracts determined by the Exchange on a class by class basis, which minimum shall be at least one (1) contract.

(2) Two-Sided Quotes. An electronic Market Maker that enters a bid (offer) in a series of an option in which he is registered on Phlx must enter an offer (bid). These quotations must meet the legal quote width requirements specified in Options 2, Section 4(c).

(A) SQTs and RSQTs, associated with the same member organization, are collectively required to provide two-sided quotations in 60% of the cumulative number of seconds, or such higher percentage as Phlx may announce in advance, for which that member organization's assigned options series are open for trading. Notwithstanding the foregoing, a member organization shall not be required to make two-sided markets pursuant to this paragraph (c)(2) above in any Quarterly Option Series, any adjusted option series, and any option series with an expiration of nine months or greater.

(i) 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 ("Adjusted Options Series").

(B) Lead Market Makers (including Remote Lead Market Makers), associated with the same member organization, are collectively required to provide two-sided quotations in 90% of the cumulative number of seconds, or such higher percentage as Phlx may announce in advance, for which that member organization's assigned options series are open for trading. Lead Market Makers shall be required to make two-sided markets pursuant to this rule in any Quarterly Option Series, any Adjusted Option Series, and any option series with an expiration of nine months or greater.

(C) Directed SQTs and Directed RSQTs, associated with the same member organization, are collectively required to provide two-sided quotations in 90% of the cumulative number of seconds, or such higher percentage as Phlx may announce in advance, for which that member organization's assigned options series are open for trading. A member organization shall be considered directed in all assigned options once the member organization receives a Directed Order in any option in which they are assigned and shall be considered a Directed SQT or Directed RSQT until such time as the member organization notifies the Exchange that they are no longer directed. Notwithstanding the foregoing, a member organization shall not be required to make two-sided markets pursuant to this paragraph (c)(2) above in any Quarterly Option Series, any Adjusted Option Series, and any option series with an expiration of nine months or greater.

(D) Specifically, the Exchange will calculate subparagraphs (A) - (C) above by (i) taking the total number of seconds the member organization 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 SQTs, RSQTs, Directed SQTs and Directed RSQTs; 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 member organization.

(3) Phlx Regulation may consider exceptions to the above-referenced requirement to quote based on demonstrated legal or regulatory requirements or other mitigating circumstances. For purposes of the Exchange's surveillance of member organization 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 a member organization of the obligation to provide two-sided quotes on a daily basis, nor will it prohibit the Exchange from taking disciplinary action against a member organization for failing to meet the quoting obligation each trading day.

(4) If a technical failure or limitation of a System of Phlx prevents a member organization from maintaining, or prevents a member organization from communicating to Phlx timely and accurate quotes, the duration of such failure or limitation shall not be included in any of the calculations under paragraph (c)(2) above with respect to the affected quotes.

Adopted Feb. 3, 2020 (20-03).

Section 6. Market Maker Orders

(a) ROTs and Specialists may enter all order types defined in Options 3, Section 7(b) in the options classes to which they are appointed and non-appointed, except for Market Orders as provided in Options 3, Section 7(b)(1), Stop Orders as provided in Options 3, Section 7(b)(4), All-or-None Orders as provided in Options 3, Section 7(b)(5), Directed Orders as provided for in Options 2, Section 10, and Public Customer-to-Public Customer Cross Orders subject to Options 3, Section 13(a) and (f). The total number of contracts executed during a quarter by a ROT or Specialist in options series to which it is not appointed may not exceed twenty-five percent (25%) of the total number of contracts executed by the ROT or Specialist in options series.

Adopted Feb. 3, 2020 (20-03); amended April 16, 2020 (20-22).

Section 7. Securities Accounts and Orders of Lead Market Makers and Market Makers

(a) Identification of Accounts—In a manner prescribed by the Exchange, each Lead Market Maker and Market Maker shall file with the Exchange upon request and keep current a list identifying all accounts for stock, Exchange-Traded Fund Share, option and related securities or foreign currencies, physical commodities, physical commodity options, commodity futures contracts, options on commodity futures contracts, any other derivatives based on such commodity and other related trading in which the Lead Market Maker or Market Maker may, directly or indirectly, engage in trading activities or over which he exercises investment discretion. No Lead Market Maker or Market Maker shall engage in stock, Exchange-Traded Fund Share, option, or related securities or foreign currencies, physical commodities, physical commodity options, commodity futures contracts, options on commodity futures contracts, any other derivatives based on such commodity and other related trading in an account which has not been reported (pursuant to this Rule) in a manner prescribed by the Exchange.

(b) No Lead Market Maker or Market Maker in options on a foreign currency shall fail to make available to the Exchange such books, records or other information maintained by or in the possession of such person, or any corporation or partnership associated with such person's member organization, pertaining to transactions by such person, corporation or partnership for its own account in any foreign currency with respect to which options are traded on the Exchange, in any futures contract on such a foreign currency, in any option contract on such a foreign currency (including options on foreign currency futures contracts), or in other foreign currency derivatives as may be called for under the Rules of the Exchange or as may be requested by the Exchange in the course of any investigation, any examination or other official inquiry.

(c) Reports of accounts and orders required to be filed with the Exchange pursuant to this Rule relate only to accounts in which a Lead Market Maker or Market Maker, as an individual, directly or indirectly, controls trading activities or has a direct interest in the profits or losses of such accounts. Reports are required for accounts over which a Lead Market Maker or Market Maker exercises investment discretion as well as his proprietary accounts. For purposes of this Rule, related securities include securities convertible into or exchangeable for underlying securities. In the case of Lead Market Makers and Market Makers in options on a foreign currency, the provisions of this Rule governing identification of accounts shall apply to accounts for the trading of foreign currencies, foreign currency futures contracts and foreign currency options (including options on foreign currency futures contracts).

(d) In addition to the existing obligations under Exchange Rules regarding the production of books and records, a Lead Market Maker or Market Maker in commodity futures contracts, options on commodity futures contracts or any other derivatives based on such commodity, shall make available to the Exchange such books, records or other information pertaining to transactions in the applicable physical commodity, physical commodity options, commodity futures contracts, options on commodity futures contracts, or any other derivatives on such commodity, as may be requested by the Exchange.

Adopted Feb. 3, 2020 (20-03).

Section 8. Reserved

 

Adopted Feb. 3, 2020 (20-03).

Section 9. Good Standing for Lead Market Maker, SQT, and RSQT

(a) To remain in good standing as a Lead Market Maker (including Remote Lead Market Maker), SQT, or RSQT, the Lead Market Maker, SQT, or RSQT must:

(1) continue to meet the requirements established in SEC Rule 15c3-1(a)(6)(i), and the requirements set forth in Options 2 in the Rules of the Exchange;

(2) continue to satisfy the Lead Market Maker, SQT, or RSQT qualification and market making requirements specified by the Exchange, as amended from time to time;

(3) comply with the Rules of the Exchange and the Options Rules as well as the rules of The Options Clearing Corporation and the rules of the Federal Reserve Board; and

(4) pay on a timely basis such member, transaction, and other fees as the Exchange shall prescribe.

(b) The good standing of a Lead Market Maker (including Remote Lead Market Maker), SQT, or RSQT may be suspended, terminated, or otherwise withdrawn, as provided in the Exchange's rules, if any of said conditions for approval cease to be maintained or the Lead Market Maker, SQT, or RSQT violates any of its agreements with the Exchange or any of the provisions of the Rules of the Exchange or of the Options Rules.

(1) Informal Meeting. The Exchange will provide written notice to a Lead Market Maker (including Remote Lead Market Maker), SQT, or RSQT of a contemplated action regarding good standing pursuant to this Rule. A Lead Market Maker (including Remote Lead Market Maker), SQT, or RSQT may request and the Exchange may hold an informal meeting to discuss the alleged failure to remain in good standing and to explore possible appropriate remedies. Written notice of the date and time of the meeting will be given to the Lead Market Maker (including Remote Lead Market Maker), SQT, or RSQT and no verbatim record will be kept. If the Exchange believes there are no mitigating circumstances that would demonstrate substantial improvement of or reasonable justification for the failure to meet the good standing requirements of this Rule, the Exchange may take appropriate action pursuant to subsection (b) of this Rule. Nothing in this Informal Meeting process limits the Exchange from bringing disciplinary actions for violations of these rules.

(c) Appeal rights. An appeal by a Lead Market Maker (including Remote Lead Market Maker), SQT, or RSQT to the Board of Directors ("Board") from a decision of the Exchange may be requested by a member or member organization interested therein by filing with the Secretary of the Exchange written notice of appeal within ten (10) days after the decision has been rendered. Any appeal from a decision pursuant to this Rule shall be heard by the Board or a panel appointed by the Board of Directors ("Board Panel") composed of three (3) members not involved in the Exchange decision appealed from and who otherwise have no conflict of interest. If a Board Panel is appointed by the Board, three persons shall be selected to serve on the Board Panel and in making such selections the Board shall choose individuals whose background, experience and training qualify them to consider and make determinations regarding the subject matter to be presented to the Board Panel. The Board Panel shall consist of two members of the Exchange, or general partners or officers of member organizations and one other person who would qualify as a public member as defined in Article I of the By-Laws, whom the Board considers to be qualified. The person requesting review shall be permitted to submit a written statement to and/or appear before the Board or Board Panel. The Secretary of the Exchange shall certify the record of the proceeding, if any, and the written decision and shall submit these documents to the Board or Board Panel. The Board's or Board Panel's review of the action shall be based solely on the record, the written decision and any statement submitted by the person requesting the review. The Board or Board Panel shall prepare and deliver to such person a written decision and reasons therefore. If the Board or Board Panel affirms the action, the action shall become effective ten (10) days from the date of the Board's or Board Panel's decision. There shall be no appeal to the Board from any decision of the Board Panel.

Adopted Feb. 3, 2020 (20-03).

Section 10. Directed Orders

(a) Lead Market Makers, RSQTs and SQTs may receive Directed Orders (as defined in this Rule) in accordance with the provisions of this rule.

(i) Definitions

(A) The term "Directed Order" means any order to buy or sell which has been directed to a particular Lead Market Maker, RSQT, or SQT by an Order Flow Provider, as defined below. To qualify as a Directed Order, an order must be delivered to the Exchange via the System.

(B) The term "Order Flow Provider" ("OFP") means any member or member organization that submits, as agent, orders to the Exchange.

(C) The term "Directed Lead Market Maker, RSQT, or SQT" means a Lead Market Maker, RSQT, or SQT that receives a Directed Order.

(ii) When the Exchange's disseminated price is the NBBO at the time of receipt of the Directed Order, and the Directed Lead Market Maker, SQT or RSQT is quoting at the Exchange's best price, the Directed Order shall be automatically executed and allocated in accordance with Options 3, Section 10(a)(1)(C).

(iii) When the Exchange's disseminated price is the NBBO, and the quotation disseminated by the Directed Lead Market Maker, RSQT, or SQT on the opposite side of the market from the Directed Order is inferior to the NBBO at the time of receipt of the Directed Order, the Directed Order shall be automatically executed and allocated to those quotations and orders at the NBBO in accordance with Options 10, Section 11(a)(1)(C).

(iv) If the Exchange's disseminated price is not the NBBO at the time of receipt of the Directed Order, the Directed Order shall be handled in accordance with Exchange rules.

Section 11. Lead Market Maker Appointment

(a) Upon application by a qualified member organization, the Exchange will approve such organization as an approved Lead Market Maker unit. An application to act as a Lead Market Maker must include, for ordinary and extraordinary circumstances, the identity of the individual who will act as head Lead Market Maker as well as the individual(s) who will act as back-up Lead Market Maker(s).

(b) Initial application(s) to become a Lead Market Maker unit shall be in a form and/or format prescribed by the Exchange and shall include the following: (1) the identity of the unit's staff positions and who will occupy those positions; (2) the unit's clearing arrangements; (3) the unit's capital structure, including any lines of credit; and (4) the unit's back up arrangements endorsed by the parties providing the following support: a substitute Lead Market Maker unit not associated with the Lead Market Maker unit which shall serve as a substitute Lead Market Maker unit in the event that the Lead Market Maker unit is unable to perform the duties of a Lead Market Maker.

Subsequent applications shall be in a form and/or format prescribed by the Exchange and shall include the information requested therein.

(c) Initial applications for individuals to act as Lead Market Maker shall be in a form and/or format prescribed by the Exchange and include an account of the abilities and background of the applicant as well as any other special requirements that the Exchange may require. Applications for individuals to act as a Lead Market Maker on behalf of a Lead Market Maker unit, must be approved by the Exchange prior to that individual acting in such capacity. The Exchange must approve an individual prior to that individual moving from one Lead Market Maker unit to another Lead Market Maker unit.

Subsequent applications shall be in a form and/or format prescribed by the Exchange and shall include the information requested therein.

(d) To be approved as a Lead Market Maker unit and to retain the privilege of such status, an options or foreign currency options Lead Market Maker unit must maintain the approved clearing arrangements and capital structure stated on their application as described in (b)(2) and (b)(3) above. Changes regarding the requirements in (b)(4) must be submitted and approved by the Exchange.

(e) Once an applicant is approved by the Exchange as a Lead Market Maker unit, any material change in the capital or staff of the unit or any move by a head or back-up Lead Market Maker from one unit to another shall be reported in writing to the Exchange and in no circumstances shall be reported more than two business days after the change.

(f) A Remote Streaming Quote Trader ("RSQT"), as defined in Options 1, Section 1(b)(49), may submit an application as described above to be approved in one or more classes as a Remote Lead Market Maker as defined in Options 2, Section 12(a)(2).

(i) A Remote Lead Market Maker does not need to meet the back-up Lead Market Maker staffing requirement pursuant to paragraph (d) of this rule.

 

Adopted Feb. 3, 2020 (20-03); amended April 14, 2020 (20-21).

Section 12. Registration and Functions of Options Lead Market Makers

(a) A Lead Market Maker is not required to be assigned to an options series.

(1) Notwithstanding the foregoing, no member shall act as an options Lead Market Maker (to include a Remote Lead Market Maker as defined in paragraph (a)(2) below in any option unless such member is registered as an options Lead Market Maker in such option by the Exchange pursuant to Options 2, Section 11and such registration may be revoked or suspended at any time by the Exchange.

(2) A Remote Lead Market Maker is an options Lead Market Maker in one or more classes that does not have a physical presence on an Exchange floor and is approved by the Exchange pursuant to Options 2, Section 11.

(3) A Remote Lead Market Maker has all the rights and obligations of an options Lead Market Maker, unless Exchange rules provide otherwise.

(4) A Remote Lead Market Maker shall be accessible to Exchange staff and members during all trading hours for the product(s) allocated to such Lead Market Maker and shall provide Exchange staff and members with telephonic and/or electronic communication access to such Lead Market Maker and/or associated staff at all times during trading hours.

(5) A Remote Lead Market Maker can have a Designee in a physical trading crowd during trading hours. The Designee may trade in open outcry in the option classes allocated to the Remote Lead Market Maker, but the Remote Lead Market Maker shall not receive a participation entitlement under Options 3, Section 10(a)(1)(B) with respect to orders represented by the Designee in open outcry.

(A) A Designee is an individual who is approved by the Exchange for the time period specified by the Exchange to represent a Remote Lead Market Maker in its capacity as a Remote Lead Market Maker. The Exchange may require specified supervision of a Designee and/or limit a Designee's authority to represent a Remote Lead Market Maker.

(B) A Designee must be a member of the Exchange, an affiliate of the Remote Lead Market Maker, and a Market Maker pursuant to the rules of the Exchange.

The Exchange shall have the discretion to permit an individual who is not affiliated with a Remote Lead Market Maker to act as a Designee for the Remote Lead Market Maker on an emergency basis, provided that the individual satisfies the other requirements of subparagraph (a)(5)(B) of this Rule.

(C) A Designee may not trade as a Market-Maker in securities allocated to the Remote Lead Market Maker unless the Designee is acting on behalf of the Remote Lead Market Maker in its capacity as a Remote Lead Market Maker.

(b) As a condition of a member's being registered as a Lead Market Maker in one or more options, it is to be understood that a Lead Market Maker is to engage in a course of dealings for his own account to assist in the maintenance insofar as reasonably practicable, of a fair and orderly market on the Exchange in such options in accordance with and when viewed in relation to the criteria set forth in paragraphs (c) and (d) of this Rule and the commentary thereto. If the Exchange shall have found any substantial or continued failure by a Lead Market Maker to engage in such a course of dealings, the registration of such Lead Market Maker shall be subject to suspension or cancellation by the Exchange in one or more of the options in which he is registered. Nothing herein shall limit any other power of the Board of Directors under the By-Laws or any Rule of the Exchange with respect to the registration of a Lead Market Maker or in respect of any violation by a Lead Market Maker of the provisions of this Rule.

(c) A Lead Market Maker or his member organization shall not effect on the Exchange purchases or sales of any option in which such Lead Market Maker is registered, for any account in which he or his member organization is directly or indirectly interested, unless such dealings are reasonably necessary to permit such Lead Market Maker to maintain a fair and orderly market.

(d) In connection with the function of a Lead Market Maker in relation to assisting in the maintenance, insofar as reasonably practicable, of a fair and orderly market in the options in which he is registered, it is ordinarily expected that a Lead Market Maker will engage, to a reasonable degree under the existing circumstances, in dealings for his own account in options when lack of price continuity or lack of depth in the options market or temporary disparity between supply and demand in the options market exists or is reasonably to be anticipated. Transactions on the Exchange for his own account effected by a Lead Market Maker in the options in which he is registered are to constitute a course of dealings reasonably calculated to contribute to the maintenance of price continuity with reasonable depth, and to the minimizing of the effects of temporary disparity between supply and demand, immediate or reasonably to be anticipated. Transactions in such options not part of such a course of dealings are not to be effected by a Lead Market Maker for his own account.

(e) In effecting transactions for his own account for the purpose of establishing or increasing a position, a Lead Market Maker is to effect such transactions in a reasonable and orderly manner in relation to the condition of the general market, the market in the particular option and the adequacy of his position to the immediate and reasonably anticipated needs of the options market.

(f) Transactions by a Lead Market Maker for his own account in liquidating or decreasing his position in an option in which he is registered are to be effected in a reasonable and orderly manner in relation to the condition of the general market, the market in the particular option and the adequacy of the Lead Market Maker's positions to the immediate and reasonably anticipated needs of the options market.

Adopted Feb. 3, 2020 (20-03).

Section 13. Affiliated Persons Of Lead Market Makers

No issuer, or parent or subsidiary thereof, or any officer, director or 10% stockholder thereof, may become an approved person in a Lead Market Maker member organization whose members are registered in options overlying a security of that issuer.

Adopted Feb. 3, 2020 (20-03).

Section 14. Limitations on Options Market Making

No Market Maker or any member, limited partner, officer, or associated person thereof shall act as an options Lead Market Maker, Market Maker or function in any capacity involving market making responsibilities, in any option overlying a security in which the Market Maker is registered as such.

Adopted Feb. 3, 2020 (20-03).

 
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