[Federal Register Volume 87, Number 98 (Friday, May 20, 2022)]
[Notices]
[Pages 31010-31013]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-10806]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94922; File No. SR-GEMX-2022-06]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the GEMX 
Pricing Schedule at Options 7, Section 3

May 16, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 2, 2022, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I, II, and III, below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to

[[Page 31011]]

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 GEMX's Pricing Schedule at Options 
7, Section 3 (Regular Order Fees and Rebates).
    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
    GEMX proposes to amend its Pricing Schedule at Options 7, Section 3 
to: (1) Decrease the Priority Customer \3\ Tier 4 Maker Rebate in Penny 
Symbols,\4\ and (2) decrease the Non-Priority Customer \5\ and Priority 
Customer Penny Symbol Taker Fees in note 13. Each amendment is 
described below.
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    \3\ A ``Priority Customer'' is a person or entity that is not a 
broker/dealer in securities, and does not place more than 390 orders 
in listed options per day on average during a calendar month for its 
own beneficial account(s), as defined in Nasdaq GEMX Options 1, 
Section 1(a)(36).
    \4\ ``Penny Symbols'' are options overlying all symbols listed 
on Nasdaq GEMX that are in the Penny Interval Program. See Options 
7, Section 1.
    \5\ ``Non-Priority Customer'' includes Market Makers (including 
Market Maker orders sent to the Exchange by EAMs), Non-Nasdaq GEMX 
Market Makers (FarMM), Firm Proprietary/Broker-Dealers, and 
Professional Customers.
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Priority Customer Maker Rebate
    Today, the Exchange provides Priority Customers Penny Symbol Maker 
Rebates as follows: $0.25 per contract (Tier 1), $0.40 per contract 
(Tier 2), $0.48 per contract (Tier 3), and $0.53 per contract (Tier 4). 
Priority Customers are eligible for the higher tiers of Maker Rebates 
based on achieving the tiered volume thresholds in Table 1 in Options 
7, Section 3. The Exchange now proposes to lower the Tier 4 Priority 
Customer Maker Rebate from $0.53 to $0.52 per contract.
Note 13 Taker Fees
    Today, the Exchange assesses all market participants Penny Symbol 
Taker Fees in Tiers 1-4 as follows:

----------------------------------------------------------------------------------------------------------------
                                                    Taker fee:      Taker fee:      Taker fee:      Taker fee:
               Market participant                     Tier 1          Tier 2          Tier 3          Tier 4
----------------------------------------------------------------------------------------------------------------
Market Maker....................................           $0.50           $0.50           $0.50           $0.48
Non-Nasdaq GEMX Market Maker (FarMM)............            0.50            0.50            0.50            0.48
Firm Proprietary/Broker-Dealer..................            0.50            0.50            0.50            0.49
Professional Customer...........................            0.50            0.50            0.50            0.49
Priority Customer...............................            0.48            0.48            0.48            0.43
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    Market participants are eligible for the higher tiers of Penny 
Taker Fees based on achieving the tiered volume thresholds in Table 1 
in Options 7, Section 3. The tiered Penny Taker Fees set forth above 
apply when the market participant trades against a Non-Priority 
Customer. When the market participant trades against a Priority 
Customer, the Exchange assesses the Penny Taker Fees set forth in note 
13 of Options 7, Section 3, regardless of tier. Specifically, note 13 
currently provides that Non-Priority Customers who execute less than 
4.0% of Customer Total Consolidated Volume will be charged a Penny 
Taker Fee of $0.50 per contract for trades executed against a Priority 
Customer. Non-Priority Customers who execute 4.0% or greater of 
Customer Total Consolidated Volume will be charged a Penny Taker Fee of 
$0.47 per contract for trades executed against a Priority Customer. All 
Priority Customer orders will be charged a Penny Taker Fee of $0.49 per 
contract for trades executed against a Priority Customer. For purposes 
of note 13, Customer Total Consolidated Volume means the total volume 
cleared at The Options Clearing Corporation in the Customer range in 
equity and ETF options in that month.
    The Exchange now proposes to lower the: (i) $0.50 Taker Fee for 
Non-Priority Customers that execute less than 4.0% of Customer Total 
Consolidated Volume to $0.48 per contract when trading against a 
Priority Customer, and (ii) the $0.49 Taker Fee for Priority Customers 
that trade against another Priority Customer to $0.48 per contract. In 
other words, all market participants would be charged a base Penny 
Taker Fee of $0.48 per contract if they trade against a Priority 
Customer. Non-Priority Customers will continue to have an opportunity 
to lower that fee to $0.47 per contract if they execute 4.0% or greater 
of Customer Total Consolidated Volume.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\7\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to its Pricing Schedule are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for options 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution

[[Page 31012]]

of order flow from broker dealers'. . . .'' \8\
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    \8\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \9\
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    \9\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options security transaction services. The Exchange is only one of 
sixteen options exchanges to which market participants may direct their 
order flow. Within this environment, market participants can freely and 
often do shift their order flow among the Exchange and competing venues 
in response to changes in their respective pricing schedules. As such, 
the proposal represents a reasonable attempt by the Exchange to 
increase its liquidity and market share relative to its competitors.
Priority Customer Maker Rebate
    The Exchange believes that its proposal to lower the Tier 4 Penny 
Maker Rebate for Priority Customers from $0.53 to $0.52 per contract is 
reasonable, equitable and not unfairly discriminatory. While the 
Exchange is lowering this rebate, Priority Customers will continue to 
receive the highest Penny Maker Rebates with the proposed changes. No 
market participants other than Market Makers and Priority Customers are 
offered enhanced Penny Maker Rebates in Tier 4, and the proposed $0.52 
Tier 4 Maker Rebate for Priority Customers continues to be 
significantly higher than the $0.41 Tier 4 Maker Rebate currently 
provided to Market Makers.\10\ The Exchange therefore believes that the 
proposed pricing will continue to be attractive for Priority Customer 
order flow.
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    \10\ As set forth in Options 7, Section 3, Non-Nasdaq GEMX 
Market Makers (FarMM), Firm Proprietary/Broker-Dealers, and 
Professional Customers are eligible to receive a $0.20 Penny Maker 
Rebate in Tier 1 only.
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    The Exchange believes that the proposed Tier 4 Priority Customer 
Maker Rebate changes are equitable and not unfairly discriminatory. As 
discussed above, the Exchange believes the proposed pricing will 
continue to attract Priority Customer order flow to the Exchange. 
Priority Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts Market Makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
Note 13 Taker Fees
    The Exchange believes that its proposal in note 13 of Options 7, 
Section 3 to lower the Penny Taker Fees that apply when trading against 
a Priority Customer is reasonable. As discussed above, the Exchange is 
proposing to lower the base Penny Taker Fee for all market participants 
to $0.48 per contract if they trade against a Priority Customer. Non-
Priority Customers would continue to have an opportunity to lower that 
fee to $0.47 per contract if they execute 4.0% or greater of Customer 
Total Consolidated Volume. The Exchange notes that the proposed Penny 
Taker Fees for trading against Priority Customers will generally be 
lower or comparable to the current tiered Penny Taker Fees for trading 
against Non-Priority Customers. The only exception is the Tier 4 Penny 
Taker Fee for Priority Customers when trading against a Non-Priority 
Customer. As described above, this fee is currently $0.43 per contract. 
Otherwise, the proposed Taker Fees are lower or comparable for all 
market participants, regardless of tier.\11\ The Exchange believes that 
its proposal will enhance Priority Customer experience on the Exchange 
by incentivizing market participants with a lower Penny Taker Fee to 
remove Priority Customer liquidity. At the same time, the Exchange 
believes the proposed pricing (including the Priority Customer Taker 
Fee when the counter party is another Priority Customer) appropriately 
balances the Exchange's intent to offset the favorable Penny Symbol 
pricing currently offered to Priority Customers through higher Maker 
Rebates and lower Taker Fees. With the proposed changes, the Exchange 
continues to believe that its pricing structure for Penny Symbols will 
continue to attract additional volume to GEMX.
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    \11\ Specifically, all Non-Priority Customers are currently 
assessed a Penny Taker Fee of $0.50 per contract in Tiers 1-3 when 
trading against Non-Priority Customers, while this fee is $0.48 per 
contract for Priority Customers in Tiers 1-3. In Tier 4, Market 
Makers and Non-Nasdaq GEMX Market Makers are currently assessed a 
$0.48 per contract Penny Taker Fee when trading against Non-Priority 
Customers. For Firm Proprietary/Broker-Dealers and Professional 
Customers, the Tier 4 fee is currently $0.49 per contract. As 
previously discussed, the Tier 4 fee is currently $0.43 per contract 
for Priority Customers.
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    The Exchange further believes that the proposed changes to lower 
the Penny Taker Fees in note 13 are equitable and not unfairly 
discriminatory. In particular, the Exchange is lowering the Penny Taker 
Fee to $0.48 per contract for all market participants when the counter 
party is a Priority Customer.

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 Tier 4 Priority Customer Maker Rebate changes do not 
impose an undue burden on intra-market competition. As discussed above, 
Priority Customers will continue to receive the highest Penny Maker 
Rebates on the Exchange with the proposed changes, so the Exchange 
believes its proposal will continue to attract Priority Customer order 
flow to the Exchange. Priority Customer liquidity benefits all market 
participants by providing more trading opportunities, which attracts 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. As 
it relates to proposed note 13 Taker Fee changes, the Exchange will 
assess the same Taker Fee to all market participants when the counter 
party is a Priority Customer. Accordingly, the Exchange does not 
believe that its pricing proposal will place any market participant at 
a competitive disadvantage.
    As it relates to inter-market competition, the Exchange believes 
its proposal remains competitive with other options markets and will 
offer market participants with another choice of where to transact 
options. The Exchange notes that it operates in a highly competitive 
market in which market participants can readily favor competing venues 
if they deem fee levels at a particular venue to be excessive, or 
rebate opportunities available at other venues to be more favorable. In 
such an environment, the

[[Page 31013]]

Exchange must continually adjust its fees to remain competitive with 
other options exchanges. Because competitors are free to modify their 
own fees in response, and because market participants may readily 
adjust their order routing practices, the Exchange believes that the 
degree to which fee changes in this market may impose any burden on 
competition is extremely limited.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\12\ 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: (i) Necessary or appropriate in the public 
interest; (ii) for the protection of investors; or (iii) otherwise in 
furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2022-06 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-2022-06. 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-2022-06 and should be submitted on 
or before June 10, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10806 Filed 5-19-22; 8:45 am]
BILLING CODE 8011-01-P