[Federal Register Volume 86, Number 180 (Tuesday, September 21, 2021)]
[Notices]
[Pages 52518-52520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-20336]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93010; File No. SR-GEMX-2021-09]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, 
Section 17, To Decommission the Exchange's Quote Removal Kill Switch 
Functionality

September 15, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on September 2, 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

[[Page 52519]]

comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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 decommission the Exchange's quote removal 
Kill Switch functionality at Options 3, Section 17.
    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 3, Section 17 to 
decommission the Exchange's quote removal Kill Switch functionality, 
which is an optional tool that allows Market Makers to initiate a 
message \4\ to the System \5\ to promptly cancel and restrict their 
quote activity on GEMX, or across both GEMX and its affiliate, Nasdaq 
ISE, in either case as set by the Market Maker. Market Makers may 
submit a Kill Switch request to the System for certain identifier(s) 
(``Identifier'') on either a user or group level.\6\ If quotes are 
cancelled by the Market Maker using Kill Switch, it will result in the 
removal of all quotes requested for the Identifier(s). The Market Maker 
will be unable to enter any additional quotes for the affected 
Identifier(s) until the Market Maker sends a re-entry request to the 
Exchange.\7\
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    \4\ Today, Market Makers can log in through a graphical user 
interface (``GUI'') to send a message to the Exchange to initiate 
the quote removal or order cancellation Kill Switch. See Options 3, 
Section 17(a)(2). The Exchange also currently offers an order 
cancellation Kill Switch through its order entry ports (i.e., FIX, 
OTTO, and Precise) as an alternative to its GUI Kill Switch. See 
Options 3, Section 17(a)(1). The Exchange is not amending the port 
Kill Switch functionality with this proposal.
    \5\ The term ``System'' means the electronic system operated by 
the Exchange that receives and disseminates quotes, executes orders 
and reports transactions. See Options 1, Section 1(a)(49).
    \6\ Identifiers include Exchange accounts, ports, and/or badges 
or mnemonics. Thus, a Market Maker using Kill Switch may elect to 
remove quotes for an individual Identifier (e.g., badge) or any 
group of Identifiers (e.g., all badges within one Market Maker 
firm). Permissible groups must reside within a single Member firm.
    \7\ See Options 3, Section 17(a)(2) and (3). The GUI Kill Switch 
tool also currently allows Members to cancel open orders and prevent 
new order submission. As noted above, the Exchange also offers an 
order cancellation Kill Switch through its order entry ports. See 
supra note 3. The Exchange is not proposing to decommission the 
order cancellation portion of the GUI Kill Switch or the order 
cancellation port Kill Switch at this time.
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    Due to the lack of demand for the quote removal Kill Switch by 
Market Makers, the Exchange proposes to decommission this optional tool 
by the end of Q4 2021.\8\ Through consultation with individual Market 
Maker firms prior to filing this rule change, the Exchange did not 
receive any negative feedback for its proposal to decommission the 
quote removal Kill Switch functionality. The Exchange has also provided 
all market participants with advance notice that it will decommission 
this functionality in Q4 2021.\9\ With the proposed changes, the 
Exchange seeks to streamline its product offerings and to reallocate 
Exchange resources to other business and risk management initiatives. 
While the Exchange will no longer offer this optional functionality to 
Market Makers, it will continue to offer similar quote management tools 
that would assist Market Makers with their efforts to manage their risk 
with respect to quotes on the Exchange. For example, Market Makers are 
currently able to send a mass purge request through Specialized Quote 
Feed (``SQF'') to pull their existing quotes from the market and 
inhibit the entry of new quotes until the Market Maker sends a message 
to the Exchange to re-enter the System.\10\ Indeed, the Exchange has 
found that Market Makers utilize this SQF purge functionality instead 
of the Kill Switch quote removal tool when they want to remove their 
quotes from the market.
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    \8\ No Market Makers have used the Kill Switch for quote removal 
in 2021.
    \9\ See Options Trader Alert #2021-49.
    \10\ ``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 Supplementary Material 
.03(c) to Options 3, Section 7.
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    In addition, all Members, including Market Makers, may contact the 
Exchange's market operations staff to request that the Exchange cancel 
any of their existing bids, offers, or orders in any series of 
options.\11\ Furthermore, the Exchange will continue to have mandatory 
System-enforced risk mechanisms that automatically remove quotes for 
the Market Maker once certain pre-set thresholds or conditions are met. 
This includes risk protections such as rapid fire risk controls \12\ 
and cancel on disconnect.\13\
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    \11\ See Options 3, Section 19.
    \12\ The rapid fire risk controls automatically remove Market 
Maker quotes submitted over SQF when certain firm-set thresholds are 
met. Once the thresholds are triggered, the Market Maker must send a 
re-entry indicator to re-enter the System. See Options 3, Section 
15(a)(3)(B).
    \13\ When the SQF Port detects the loss of communication with a 
Member's Client Application because the Exchange's server does not 
receive a Heartbeat message for a certain time period (``nn'' 
seconds), the Exchange will automatically logoff the Member's 
affected Client Application and automatically cancel all of the 
Member's open quotes pursuant to Section 18(e). Quotes will be 
cancelled across all Client Applications that are associated with 
the same GEMX Market Maker ID and underlying issues. See Options 3, 
Section 18(b).
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    To effect the decommissioning of the quote removal Kill Switch, the 
Exchange proposes to amend Options 3, Section 17 by eliminating all 
references to quote cancellation within this Rule.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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 that the proposed rule 
change is consistent with the Section 6(b)(5) requirement that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange does not believe that the proposed rule 
change will affect the protection of investors or the public interest 
or the maintenance of a fair and orderly market because no Market 
Makers have used the quote removal Kill Switch risk control in

[[Page 52520]]

2021. In addition, the Exchange notes that the use of this tool is 
completely optional, and the Exchange will continue to offer Market 
Makers similar risk management tools such as the SQF mass quote purge 
functionality. As discussed above, the Exchange has found that Market 
Makers use the SQF purge functionality much more frequently than the 
quote removal Kill Switch to pull their quotes from the market. 
Furthermore, Market Makers will retain the ability to contact market 
operations staff to manually purge their quotes from the market. In 
addition, the Exchange will continue to implement mandatory System-
enforced risk mechanisms that automatically remove quotes for the 
Market Maker once certain pre-set thresholds or conditions are met 
(i.e., rapid fire and cancel on disconnect).
    Also, the Exchange believes that the low usage rate for the quote 
removal Kill Switch does not warrant the continuous resources necessary 
for System support of such tools. As a result, the Exchange also 
believes that the proposal will remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
allowing the Exchange to reallocate System capacity and resources 
currently used to maintain this functionality to the development and 
maintenance of other business initiatives and risk management products.
    As noted above, the Exchange will retain the ability for Members to 
utilize Kill Switch to cancel orders and prevent new order submission. 
The Exchange does not believe that decommissioning the quote removal 
portion of the Kill Switch tool for Market Makers is unfairly 
discriminatory because Market Makers are professional traders with 
their own risk settings, and have more sophisticated infrastructures 
than most other market participants. Furthermore, as discussed above, 
the Exchange has determined that Market Makers currently use the mass 
purge functionality on SQF to pull their quotes from the market instead 
of using the quote removal Kill Switch tool to achieve the same result.

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. The proposed rule change will 
allow the Exchange to decommission a risk management tool that is 
rarely, if ever, used on the Exchange. As discussed above, Market 
Makers currently have a variety of similar tools like the quote removal 
Kill Switch that allow them to pull their quotes from the market and 
inhibit the entry of new quotes, including the mass quote purge 
functionality on SQF that the Exchange has found Market Makers use much 
more frequently than the quote removal Kill Switch to achieve the same 
result.
    As noted above, the Exchange will retain the ability for Members to 
utilize Kill Switch to cancel orders and prevent new order submission. 
The Exchange does not believe that decommissioning the quote removal 
portion of the Kill Switch tool for Market Makers will impose an undue 
burden on competition because Market Makers are professional traders 
with their own risk settings, and have more sophisticated 
infrastructures than most other market participants.

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 \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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-2021-09 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-2021-09. 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-2021-09 and should be submitted on 
or before October 12, 2021.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20336 Filed 9-20-21; 8:45 am]
BILLING CODE 8011-01-P