[Federal Register Volume 86, Number 135 (Monday, July 19, 2021)]
[Notices]
[Pages 38171-38174]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15190]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92384; File No. SR-GEMX-2021-06]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 2, 
Section 5, Market Maker Quotations

July 13, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 30, 2021, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Options 2, Section 5, Market Maker 
Quotations.
    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 GEMX Rules at Options 2, Section 5, 
Market Maker Quotations. Currently, the Exchange requires Competitive 
Market Makers \3\ and Primary Market Makers \4\ to enter bids and 
offers for the options to which they are registered, except in an 
assigned options series listed intra-day on the Exchange.\5\ Quotations 
must meet the legal quote width requirements specified in Options 2, 
Section 4(b)(4).\6\ On any given day, a Competitive Market Maker is not 
required to enter quotations in the options classes to which it is 
appointed. A Competitive Market Maker may initiate quoting in options 
classes to which it is appointed intra-day. If a Competitive Market 
Maker initiates quoting in an options class, the Competitive Market 
Maker, associated with the same Member,\7\ is collectively required to 
provide two-sided quotations in 60% of the cumulative number of 
seconds, or such higher percentage as the Exchange may announce in 
advance, for which that Member's assigned options class is open for 
trading.\8\ Notwithstanding the foregoing, a Competitive Market Maker 
shall not be required to make two-sided markets pursuant to Options 2, 
Section 5(e)(1) in any Quarterly Options Series, any adjusted options 
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. 
Competitive Market Makers may choose to quote such series in addition 
to regular series

[[Page 38172]]

in the options class, but such quotations will not be considered when 
determining whether a Competitive Market Maker has met the 
obligation.\9\ Primary Market Makers, associated with the same Member 
are collectively required to provide two-sided quotations in 90% of the 
cumulative number of seconds, or such higher percentage as the Exchange 
may announce in advance, for which that Member's assigned options class 
is open for trading. Primary Market Makers are required to make two-
sided markets in any Quarterly Options Series, any Adjusted Options 
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.\10\
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    \3\ The term ``Competitive Market Maker'' means a Member that is 
approved to exercise trading privileges associated with CMM Rights. 
See Options 1, Section 1(a)(12).
    \4\ The term ``Primary Market Maker'' means a Member that is 
approved to exercise trading privileges associated with PMM Rights. 
See Options 1, Section 1(a)(35).
    \5\ Options 2, Section 5(e).
    \6\ Options 2, Section 4(b)(4) describes bid/ask differentials.
    \7\ The term ``Member'' means an organization that has been 
approved to exercise trading rights associated with Exchange Rights. 
See General 1, Section 1(a)(13)[sic].
    \8\ Options 2, Section 5(e)(1).
    \9\ Options 2, Section 5(e)(1).
    \10\ Options 2, Section 5(e)(2).
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    A Member is required to meet each market making obligation 
separately.\11\ Currently, Options 2, Section 5(e) states, ``A 
Competitive Market Maker who is also the Primary Market Maker will be 
held to the Primary Market Maker obligations in the options series in 
which the Primary Market Maker is assigned and will be held to 
Competitive Market Maker obligations in all other options series where 
assigned. A Competitive Market Maker who receives a Preferenced Order, 
as described in Options 2, Section 10 and Options 3, Section 10 will be 
held to the standard of a Preferred CMM in the options series of any 
options class in which it receives the Preferenced Order.'' \12\
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    \11\ See Options 2, Section 5(e). Today, the Exchange aggregates 
all quotes submitted through the Specialized Quote Feed interface 
from the Member, regardless of whether the quote was submitted by 
the Member in its capacity as Primary Market Maker or Competitive 
Market Maker.
    \12\ Preferred Competitive Market Makers are subject to enhanced 
quoting requirements as provided in Options 2, Section 5(e)(3). See 
Options 3, Section 10 at Supplementary Material .01.
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    Today, the Exchange calculates whether a Member that is assigned in 
an options series as both a Primary Market Maker and a Competitive 
Market Maker has met its quoting obligations as Primary Market Maker 
and Competitive Market Maker, respectively, by aggregating all quotes 
submitted through the Specialized Quote Feed \13\ interface from the 
Member, whether the quote was submitted by the Member in its capacity 
as Primary Market Maker or Competitive Market Maker.
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    \13\ ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Market Makers to connect, send, and receive messages related 
to quotes, Immediate-or-Cancel Orders, and auction responses to 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; (8) opening imbalance messages; (9) auction 
notifications; and (10) auction responses. 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. See Options 3, Section 7 at Supplementary Material 
.03(c).
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    The Exchange proposes to amend its calculation to only consider 
quotes submitted through the Specialized Quote Feed interface utilizing 
badges \14\ and options series \15\ assigned to a Primary Market Maker 
when calculating whether a Member acting as a Primary Market Maker has 
satisfied the requirements to provide two-sided quotations in 90% of 
the cumulative number of seconds, or such higher percentage as GEMX may 
announce for which that Member's assigned options class is open for 
trading. Similarly, the Exchange proposes to only consider quotes 
submitted through the Specialized Quote Feed interface utilizing badges 
and options series assigned to a Competitive Market Maker when 
calculating whether a Member acting as a Market Maker has satisfied the 
requirements to provide two-sided quotations in 60% of the cumulative 
number of seconds, or such higher percentage as GEMX may announce for 
which that Member's assigned options class is open for trading, 
provided the Competitive Market Maker initiated quoting in an options 
class for which that Member's assigned options class is open for 
trading. With this proposed change, a Member that is a Competitive 
Market Maker in an options series where the Member is also assigned as 
the Primary Market Maker in an options series will be held to both the 
Primary Market Maker and Competitive Market Maker obligations, pursuant 
to Options 2, Section 5(e), separately, in that options series. The 
Exchange will consider whether a Member, acting as both Primary Market 
Maker and Competitive Market Maker in an assigned options series, has 
complied with each requirement by only considering quotes in the 
respective badges.
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    \14\ A ``badge'' shall mean an account number, which may contain 
letters and/or numbers, assigned to Market Makers. A Market Maker 
account may be associated with multiple badges. See Options 1, 
Section 1(a)(5).
    \15\ GEMX currently utilizes a badge with an associated options 
series to designate a Primary Market Maker assigned in an options 
series and a badge with an associated options series to designate a 
Competitive Market Maker assigned in an option series.
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    By way of example,
    Current Quoting obligation methodology:
    Primary Market Maker firm 123 is assigned five badges: 123A, 123B, 
123C, 123D and 123E.
    Badge 123A is designated the Primary Market Maker badge and badge 
123B-E are designated as Competitive Market Maker badges.
    Today, all quoting activity from all 5 badges is aggregated in 
determining if Firm 123 complied with the requirement to provide two-
sided quotations in 90% of the cumulative number of seconds for which 
that Member's assigned options series are open for trading. The higher 
of the two obligations is required today.
    Proposed Quoting obligation methodology:
    Primary Market Maker firm 123 is assigned five badges: 123A, 123B, 
123C, 123D and 123E.
    Badge 123A is designated the Primary Market Maker badge and badge 
123B-E are designated as Competitive Market Maker badges.
    As proposed only quoting activity from badge 123A (and excluding 
badges 123 B-E) would be counted toward the requirement to provide two-
sided quotations in 90% of the cumulative number of seconds for which 
that Member'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 Member's assigned options 
series are open for trading.
    A Member may have only one Primary Market Maker badge per option 
series.
    The below example explains how the Exchange aggregates quotes from 
Primary Market Makers, in their assigned options series, to determine 
compliance with quoting requirements, which will not be changing 
pursuant to this proposal. The same calculation applies to quotes from 
Competitive Market Makers in their assigned options series.
    Under the proposal, and as is the case today, by way of example, 
assume Primary Market Maker Firm ABC assigned in five symbols across 2 
different badges:
    Badge 123A and B is assigned in symbols QQQ and SPY, respectively.
    Badge 124A, B and C is assigned in symbols IBM, GM, and MSFT, 
respectively. Quotes submitted through the Specialized Quote Feed 
interface from the Firm ABC's Primary Market Maker badges from all 5 
symbols will be counted in determining compliance

[[Page 38173]]

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 Primary Market Maker badge 123A quotes symbol QQQ at 
95% and badge 123B quotes symbol SPY at 90% and Firm ABC Primary 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 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%.
Implementation
    The Exchange proposes to implement this rule change on August 2, 
2021. The Exchange has issued an Options Regulatory Alert notifying 
Members of this change.\16\
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    \16\ See Options Regulatory Alert 2021-36.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\18\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest by requiring Primary Market Makers and 
Competitive Market Makers to separately meet quoting requirements as 
both a Primary Market Maker and Competitive Market Maker, respectively, 
when the Member is assigned in both roles in an options series.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange's proposal to separately calculate Competitive Market 
Maker and Primary Market Maker quoting obligations where the Member is 
assigned as both Primary Market Maker and Competitive Market Maker in 
an options series is consistent with the Act. Specifically, the 
Exchange's proposal would only consider quotes submitted through the 
Specialized Quote Feed interface utilizing badges and options series 
assigned to a Primary Market Maker when calculating whether a Member 
acting as a Primary Market Maker has satisfied the requirements to 
provide two-sided quotations in 90% of the cumulative number of 
seconds, or such higher percentage as GEMX may announce for which that 
Member's assigned options series are open for trading. Similarly, the 
Exchange's proposal would only consider quotes submitted through the 
Specialized Quote Feed interface utilizing badges and option series 
assigned to a Competitive Market Maker when calculating whether a 
Member acting as a Competitive Market Maker has satisfied the 
requirements to provide two-sided quotations in 60% of the cumulative 
number of seconds, or such higher percentage as GEMX may announce for 
which that Member's assigned options series are open for trading.
    The proposed change for calculating the Primary Market Maker 
requirement separate from the Competitive Market Maker requirement, 
where a Member is assigned in both roles in an options series, would 
ensure that the Member quotes the requisite number of seconds in an 
assigned options series, when acting as both Primary Market Maker and 
Competitive Market Maker. This would ensure that a Member adds the 
requisite amount of liquidity in that assigned options series in 
exchange for certain benefits offered by the Exchange to the Member, 
such as enhanced Primary Market Maker allocation \19\ and favorable 
pricing,\20\ in addition to the Member fulfilling other market making 
obligations specified in Options 2, Section 4(a) and (b).\21\
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    \19\ See Options 3, Section 10(c)(1)(B).
    \20\ See Options 7, Pricing Schedule.
    \21\ General. Transactions of a Market Maker should constitute a 
course of dealings reasonably calculated to contribute to the 
maintenance of a fair and orderly market, and Market Makers should 
not make bids or offers or enter into transactions that are 
inconsistent with such a course of dealings. Appointment. With 
respect to each options class to which a Market Maker is appointed 
under Options 2, Section 3, the Market Maker has a continuous 
obligation 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 options contract, or a temporary distortion of the 
price relationships between options contracts of the same class. 
Without limiting the foregoing, a Market Maker is expected to 
perform the following activities in the course of maintaining a fair 
and orderly market: (1) To compete with other Market Makers to 
improve the market in all series of options classes to which the 
Market Maker is appointed. (2) 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. (3) To update market 
quotations in response to changed market conditions in all series of 
options classes to which the Market Maker is appointed.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Rather, the proposal would 
ensure that Members that are assigned in an options series as both the 
Primary Market Maker and Competitive Market Maker, respectively, are 
meeting the same quoting obligations as other Members who are assigned 
solely as either the Primary Market Maker or Competitive Market Maker 
in an option series. Also, this proposal would ensure that a Member 
quotes the requisite number of seconds in an assigned options series, 
when acting as both Primary Market Maker and Competitive Market Maker, 
respectively, thereby adding the requisite amount of liquidity in 
exchange for certain benefits provided by the Exchange such as enhanced 
Primary Market Maker allocation \22\ and favorable pricing,\23\ in 
addition to fulfilling its other market making obligations specified in 
Options 2, Section 4(a) and (b).\24\
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    \22\ See note 19 above.
    \23\ See note 20 above.
    \24\ See note 21 above.
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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 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 \25\ and Rule 19b-4(f)(6) thereunder.\26\
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of its 
intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the filing of the proposed rule change, or 
such shorter time as designated by the Commission. The Exchange has 
satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \27\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\28\ 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 so that the proposal 
may become operative

[[Page 38174]]

upon filing. Waiving the operative delay will allow the Exchange to 
amend, without delay, its rules regarding Market Maker quoting 
obligations to ensure that Members assigned in an options series as 
both the Primary Market Maker and Competitive Market Maker would have 
the same quoting obligations as Members who are assigned solely as 
either Primary Market Maker or Competitive Market Maker in an option 
series. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest 
and hereby designates the proposed rule change to be operative upon 
filing.\29\
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    \27\ 17 CFR 240.19b-4(f)(6).
    \28\ 17 CFR 240.19b-4(f)(6)(iii).
    \29\ 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.

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-2021-06 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-2021-06. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-GEMX-2021-06 and should be submitted on 
or before August 9, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15190 Filed 7-16-21; 8:45 am]
BILLING CODE 8011-01-P