[Federal Register Volume 85, Number 163 (Friday, August 21, 2020)]
[Notices]
[Pages 51809-51811]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-18347]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89576; File No. SR-GEMX-2020-19]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 6, 
Section 5 (Transfer of Positions)

August 17, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 6, 2020, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Exchange filed the 
proposal as a ``non-controversial'' proposed rule change pursuant to 
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Options 6, Section 5, titled 
``Transfer of Positions.''
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/gemx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Options 6, Section 5, titled 
``Transfer of Positions.'' The proposed rule change is similar to Cboe 
Exchange, Inc. (``Cboe'') Rule 6.7.\5\
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    \5\ See Securities and Exchange Act Release No. 89389 (July 23, 
2020), 85 FR 45709 (July 29, 2020) (SR-Cboe-2020-067) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Amend Rule 6.7 Concerning Off-Floor Transfers).
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    Options 6, Section 5 permits market participants to move positions 
from one account to another without first exposure of the transaction 
on the Exchange, provided certain exceptions are met. Specifically, 
Options 6, Section 5(a)(2) \6\ provides that transfers of positions are 
permissible if from one account to another account where no change in 
ownership is involved (i.e.,

[[Page 51810]]

accounts of the same Person),\7\ provided the accounts are not in 
separate aggregation units or otherwise subject to information barrier 
or account segregation requirements. These transfers are subject to, 
among other things, the requirement to submit prior written notice of 
the transfers to the Exchange pursuant to Options 6, Section 5(d) and 
the restriction on effecting these transfers repeatedly or routinely.
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    \6\ Options 6, Section 5(a) states, ``Permissible Transfers. 
Existing positions in options listed on the Exchange of a Member or 
non-Member that are to be transferred on, from, or to the books of a 
Clearing Member may be transferred off the Exchange if the transfer 
involves on or more of the following events: . . . . . (2) the 
transfer of positions from one account to another account where no 
change in ownership is involved (i.e., accounts of the same Person, 
provided the accounts are not in separate aggregation units or 
otherwise subject to information barrier or account segregation 
requirements; . . .''
    \7\ For purposes of this rule, the term ``Person'' as an 
individual, partnership (general or limited), joint stock company, 
corporation, limited liability company, trust, or unincorporated 
organization, or any governmental entity or agency or political 
subdivision thereof. See Options 6, Section 5(a).
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    The proposed rule change excepts position transfers effected 
pursuant to Options 6, Section(a)(2) from the prior written notice 
requirement in paragraph (d) and from repeated, recurring use 
restriction in paragraph (g). Position transfers pursuant to Options 6, 
Section(a)(2) do not involve a change in ownership. In other words, 
such transfers may only occur between the same individual or legal 
entity. These types of transfers are merely transfers of positions from 
one account to another, both of which accounts are attributable to the 
same individual or legal entity, and thus the transferred option 
positions will continue to be attributable to the same Person. A market 
participant effecting an position transfer pursuant to Options 6, 
Section 5(a)(2) is analogous to an individual transferring funds from a 
checking account to a savings account, or from an account at one bank 
to an account at another bank--the money still belongs to the same 
person, who is just holding it in a different account for personal 
financial reasons.
    Because there is no change in ownership of positions transferred 
pursuant to Options 6, Section 5(a)(2), the Exchange believes it is 
appropriate to permit them to occur as routinely and repeatedly as a 
market participant would like. These transfers will continue to be 
subject to the prohibition on netting set forth in Options 6, Section 
5(b), and thus may not result in the closing of any positions. While 
the position transfers permitted by Options 6, Section 5 were intended 
to accommodate non-routine and non-recurring transfers, the Exchange 
believes permitting routine, recurring position transfers that do not 
result in a change in ownership or reduction in open interest is 
consistent with the purpose of not being used to circumvent the normal 
auction purpose. Additionally, given that these transfers may occur on 
a regular basis in accordance with a market participants' business 
needs and procedures, the Exchange believes prior written notice would 
be onerous and would not serve any purpose given the lack of change in 
ownership and in open interest. The Exchange believes this will provide 
market participants with additional flexibility to structure their 
option position accounts as they believe is appropriate and move their 
positions between accounts as they deem necessary and appropriate for 
their business and trading needs, including for risk management 
purposes.
    The proposed rule change also corrects an erroneous cross-reference 
in Rule Options 6, Section 5(d)(1), as the method for determining the 
transfer price is in paragraph (c) rather than paragraph (e) of Options 
6, Section 5.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act.\9\ Specifically, the Exchange believes the proposed 
rule change is consistent with the Section 6(b)(5) \10\ requirements 
that the rules of an exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. Additionally, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) \11\ requirement that the rules of an exchange not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
    \11\ Id.
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    In particular, the Exchange believes the proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest because it will provide market 
participants with a more efficient process to transfer open positions 
between their own accounts in accordance with their own business and 
trading needs, including to respond to then-current market conditions. 
Because these transfers would not result in a change in ownership or a 
reduction in open interest, the Exchange believes the proposed rule 
change remains consistent with the purpose of Options 6, Section 5, 
which was to prohibit use of the transfer procedure in circumvention of 
the normal auction process, as the normal auction process involves the 
opening or closing of positions through a transaction among multiple 
market participants. Market participants may maintain different 
accounts for a variety of reasons, such as the structure of their 
businesses, the manner in which they trade, their risk management 
procedures, and for capital purposes. Given that these transfers may 
occur on a regular basis in accordance with a market participants' 
business needs and procedures, the Exchange believes prior written 
notice would be onerous and would not serve any purpose given the lack 
of change in ownership and in open interest. Therefore, the proposed 
rule change will benefit investors by permitting market participants to 
manage the open positions in their accounts in a manner consistent with 
their businesses.
    The Exchange recognizes the numerous benefits of executing options 
transactions on an exchange, including price transparency, potential 
price improvement, and a clearing guarantee. However, the Exchange 
believes it is appropriate to permit position transfers among accounts 
of the same individual or legal entity where there is no impact on open 
interest to occur off the exchange, as these benefits are inapplicable 
to those transfers. These transfers have a narrow scope and are 
intended to permit market participants to achieve their own business 
needs. These transfers are not intended to be a competitive trading 
tool. There is no need for price discovery or improvement, as the 
transfer merely moves positions to different accounts for the same 
Person and does not open or close any positions. These transfers will 
result in no change in ownership. The transactions that resulted in the 
open positions to be transferred pursuant to Options 6, Section 5(a)(2) 
were already guaranteed by a clearing member of The Options Clearing 
Corporation (``OCC''), and the positions may not be closed pursuant to 
the transfer and will continue to be subject to OCC rules, as they will 
continue to be held in an account with an OCC clearing member.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance

[[Page 51811]]

of the purposes of the Act. The proposed rule change is not intended to 
address competitive issues. The Exchange does not believe that the 
proposed rule change will impose any burden on intramarket competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act because the proposed rule change will apply to all market 
participants in the same manner. All market participants will be able 
to effect position transfers pursuant to Options 6, Section 5(a)(2) on 
a recurring or routine basis without providing the Exchange with notice 
of such transfers. The Exchange does not believe the proposed rule 
change will impose any burden on intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act, 
because it relates solely to the notice required for transfers that may 
occur today, and the frequency with which those transfers may occur. 
These transfers will continue to not result in a change in ownership or 
netting, and thus will have no impact on outstanding option positions.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay to so that it may 
adopt the proposed position transfer rules as soon as possible which, 
according to the Exchange, would benefit investors and the general 
public because it will provide Participants with the ability to request 
a transfer, for limited, non-recurring types of transfers, without the 
need for exposing those orders on the Exchange. The proposed rule 
change does not present any unique or novel regulatory issues and is 
substantively identical to provisions in Cboe Rule 6.7. Accordingly, 
the Commission hereby waives the operative delay and designates the 
proposal operative upon filing.\16\
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-GEMX-2020-19 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-GEMX-2020-19. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-GEMX-2020-19 and should be 
submitted on or before September 11, 2020.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-18347 Filed 8-20-20; 8:45 am]
BILLING CODE 8011-01-P