[Federal Register Volume 89, Number 149 (Friday, August 2, 2024)]
[Notices]
[Pages 63230-63236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-17027]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100612; File No. SR-GEMX-2024-20]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 2, 
Sections 5, 6 and 10; and Options 3, Sections 7 and 17; and Options 7, 
Section 6

July 29, 2024.
    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 July 24, 2024, 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 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, Sections 5, 6 and 10; and 
Options 3, Sections 7 and 17; and Options 7, Section 6.
    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 2, Section 5, Market Maker 
Quotations, to amend intra-day quoting requirements. The Exchange 
proposes to amend Options 2, Section 6, Market Maker Orders, and 
Options 3, Section 7(g), Reserve Orders, to bring additional clarity to 
the types of orders available to Market Makers. The Exchange proposes 
to amend Options 2, Section 10, Preferenced Orders, to define various 
terms related to Preferenced Orders and harmonize the rule text to 
other Nasdaq affiliated markets. The Exchange proposes to amend Options 
3, Section 17, Kill Switch, to indicate the configurations available in 
the Kill Switch. Finally, the Exchange proposes to remove dated rule 
text in Options 7, Section 6, Ports and Other Services. Each change is 
described below.
Options 2, Section 5
    The Exchange proposes to amend the quoting requirements of a 
Competitive Market Maker and a Preferred CMM in Options 2, Section 5.
    With respect to a Competitive Market Maker, today, 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, 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.
    The Exchange proposes to amend the quoting obligations for a 
Competitive Market Maker by requiring a Competitive Market Maker to 
enter quotations each day in the options classes to which it is 
appointed. Specifically, the Exchange proposes to require in proposed 
Options 2, Section 5(e)(1) that,

    Competitive Market Makers, associated with the same Member, are 
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. Competitive Market Maker are not 
required to make two-sided markets pursuant

[[Page 63231]]

to this Rule in any Quarterly Options Series, any Adjusted Options 
Series, and any options 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.

    As is the case today, Competitive Market Makers may continue to 
choose to quote a Quarterly Options Series, any adjusted options 
series, and any options 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 option, in addition to regular 
series in the options class. Such quotations will not be considered 
when determining whether a Competitive Market Maker has met the 
obligation contained in Options 2, Section 5(e)(1). The Exchange 
believes that requiring a Competitive Market Maker to quote each day 
will increase liquidity on the Exchange.
    Additionally, the Exchange proposes to amend the quoting 
requirements for a Preferred CMM. Today, the last sentence of Options 
2, Section 5(e) provides, ``A Competitive Market Maker who receives a 
Preferenced Order, as described in Options 2, Section 10 and Options 3, 
Section 10, (``Preferred CMM'') shall be held to the standard of a 
Preferred CMM in the options series of any options class in which it 
receives the Preferenced Order.'' Further, today, Options 2, Section 
5(e)(3) provides,

    Preferred CMMs, 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. A Member shall be considered 
preferenced in an assigned options class once the Member receives a 
Preferenced Order in any option class in which they are assigned and 
shall be considered preferenced for that day in all series for that 
option class in which it received the Preferenced Order. 
Notwithstanding the foregoing, a Preferred CMM shall not be required 
to make two-sided markets pursuant to this Rule in any Quarterly 
Options Series, any Adjusted Options Series, and any options 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. Preferred CMMs may choose to quote such series in addition 
to regular series in the options class, but such quotations will not 
be considered when determining whether a Preferred CMM has met the 
obligation contained in this paragraph (e)(3). A Preferred CMM may 
be preferenced in such series and receive enhanced allocations 
pursuant to Options 3, Section 10(c)(1)(C), only if it complies with 
the heightened 90% quoting requirement contained in this paragraph 
(e)(3).

    Today, Preferred CMMs, 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. A Member is considered preferenced in an assigned 
options class once the Member receives a Preferenced Order in any 
option class in which they are assigned and shall be considered a 
Preferred CMM/Preferred PMM for that day in all series for that option 
class in which it received the Preferenced Order. Today, the Member 
must be quoting at the NBBO at the time the Preferenced Order is 
received and must execute the order. If a CMM does not receive a 
Preferenced Order, it will not be considered a Preferred CMM in that 
options class and any quotations in that options class by the CMM will 
not be considered when determining whether it met its Preferred CMM 
quoting obligations.
    At this time, the Exchange proposes to utilize the term ``Preferred 
Market Maker'' instead of ``Preferred CMM'' as both Competitive Market 
Makers and Primary Market Makers are Preferred Market Makers pursuant 
to proposed renumbered Options 2, Section 10(a)(1)(iii).\3\ Also, the 
Exchange proposes replacing the word ``receives'' with the word 
``executes'' in Options 2, Section 5(e). The proposed new sentence 
would provide, ``A Market Maker who executes a Preferenced Order, as 
described in Options 2, Section 10 and Options 3, Section 10, 
(``Preferred Market Maker'') shall be held to the standard of a 
Preferred Market Maker among all options series of any options class in 
which it executes the Preferenced Order.'' The Exchange proposes to 
amend this sentence to specify that the 90% quoting obligation 
described herein would be among all options series instead of in each 
assigned option series.
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    \3\ Renumbered Options 2, Section 10(a)(1)(iii) states that a 
Preferred Market Maker may be the Primary Market Maker appointed to 
the options class or any Competitive Market Maker appointed to the 
options class.
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    Additionally, the Exchange proposes amendments to Options 2, 
Section 5(e)(3) to utilize the term ``Preferred Market Maker'' and 
amend the quoting obligation as stated in the last sentence of Options 
2, Section 5(e) to require that the Preferred Market Maker collectively 
meet the 90% quoting obligation among all options series in which the 
Preferred Market Maker executes a Preferenced Order. The Exchange 
proposes to replace the word ``receives'' with ``executes.'' As 
amended, Options 2, Section 5(e)(3) would state,

    Preferred 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, among all options series in which 
the Preferred Market Maker has executed a Preferenced Order on a 
daily basis, except that a Preferred Market Maker shall not be 
required to make two-sided markets in any Quarterly Options Series, 
any Adjusted Options Series, and any options 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. A Preferred Market Maker has the ongoing quoting obligation 
from the time a Preferred Market Maker executes its first 
Preferenced Order in the options in which the Preferred Market Maker 
is assigned until a Preferred Market Maker notifies the Exchange 
that the Preferred Market Maker is no longer preferenced.
    A Preferred Market Maker shall not be required to make two-sided 
markets in any Quarterly Options Series, any Adjusted Options 
Series, and any options 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 and would receive a 
participation entitlement in the Quarterly Options Series, the 
Adjusted Options Series, and an options 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 for the 
Preferenced Order, only if it complies with the heightened 90% 
quoting requirement.

    The Exchange is amending the Preferred Market Maker quoting 
obligation to first require that a Market Maker indicate interest in 
the program with the Exchange.\4\ Once the Market Maker indicates it 
would like to receive a Preferenced Order, that Market Maker would be 
obligated, collectively, to provide two-sided quotations in 90% of the 
cumulative number of seconds, or such higher percentage as the Exchange 
may announce in advance, among all options series in which the 
Preferred Market Maker has executed a Preferenced Order on a daily 
basis, except that a Preferred Market Maker shall not be required to 
make two-sided markets in any Quarterly Options Series, any Adjusted 
Options Series, and any options 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.
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    \4\ The Exchange would issue an Options Trader Alert to notify 
Members that they are required to express their interest in 
receiving Preferenced Orders.
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    A Preferred Market Maker has an ongoing 90% quoting obligation, on 
a

[[Page 63232]]

daily basis, from the time a Preferred Market Maker executes its first 
Preferenced Order in the option in which the Preferred Market Maker is 
assigned until a Preferred Market Maker notifies the Exchange that it 
is no longer preferenced.
    The Exchange proposes to replace the word ``receives'' with 
``executes'' in Options 2, Section 5(e) and (e)(3) rule text because 
for a Market Maker to become aware of their quoting obligations, the 
Market Maker must be allocated pursuant to Options 2, Section 10 as a 
Preferenced Order. Market Makers are unaware if an order is preferenced 
to them until such time as they execute the Preferenced Order and 
received their enhanced allocation. A Market Maker must be quoting at 
the NBBO at the time the Preferenced Order is received to be allocated.
    A Preferred Market Maker shall not be required to make two-sided 
markets in any Quarterly Options Series, any Adjusted Options Series, 
and any options 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 and would receive a participation entitlement 
in the Quarterly Option Series, the Adjusted Option Series, and an 
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 for the Preferenced Order, only if it complies with 
the heightened 90% quoting requirement.
    To make clear the manner in which the quoting obligations will be 
applied, below are some examples.
Example 1
    [ssquf] Assume a Competitive Market Maker was assigned in options 
overlying AAPL, SPY, NFLX, ORCL and ADBE.
    [ssquf] Assume this Competitive Market Maker had previously 
executed a Preferenced Order and executes a Preferenced Order in NFLX 
and ADBE on February 27, 2024.
    [ssquf] The Preferred Market Maker obligation is a daily obligation 
once triggered and continues until the Preferred Market Maker notifies 
the Exchange that it no longer desires to be a part of the Preferenced 
Order program.
    [ssquf] Moreover, on February 28, 2024 and each day thereafter the 
Preferred Market Maker is required to provide two-sided quotations in 
90% of the cumulative number of seconds among all options series in 
which the Preferred Market Maker has executed a Preferenced Order on a 
daily basis until a Preferred Market Maker notifies the Exchange that 
it is no longer preferenced. Therefore, the Preferred Market Maker 
would be required to quote at 90% of the cumulative number of seconds 
among all options series in which the Preferred Market Maker has 
executed a Preferenced Order each day, regardless of whether the 
Preferred Market Maker executed a Preferenced Order that day.
Obligations
    This Competitive Market Maker is 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 series are open for trading among AAPL, SPY, 
and ORCL to fulfill its Competitive Market Maker obligation.
    Separately, this Competitive Market Maker would be obligated, 
separate and apart from its Competitive Market Maker obligations 
described in this example, to provide two-sided quotations in 90% of 
the cumulative number of seconds, or such higher percentage as the 
Exchange may announce in advance, among NFLX and ADBE to fulfill its 
Preferred Market Maker Obligation.
    This Competitive Market Maker would not be required to make two-
sided markets in any Quarterly Option Series, any Adjusted Option 
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 in AAPL, SPY, NFLX, ORCL and 
ADBE when meeting its Competitive Market Maker or Preferred Market 
Maker requirements.
Example 2
    [ssquf] Assume a Primary Market Maker \5\ was assigned in options 
overlying AAPL, SPY, NFLX, ORCL and ADBE.
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    \5\ Pursuant to Options 2, Section 5(e), a Member is required to 
meet each market making obligation separately. Quotes submitted 
through the Specialized Quote Feed interface, utilizing badges and 
options series assigned to a Primary Market Maker, will be counted 
toward the requirement to provide two-sided quotations in 90% of the 
cumulative number of seconds, or such higher percentage as GEMX may 
announce. Quotes submitted through the Specialized Quote Feed 
interface, utilizing badges and options series assigned to a 
Competitive Market Maker, will be counted toward the requirement to 
provide two-sided quotations in 60% of the cumulative number of 
seconds, or such higher percentage as GEMX may announce. Today, a 
Primary Market Maker who executes a Preferenced Order, as described 
in Options 2, Section 10 and Options 3, Section 10, (``Preferred 
PMM'') shall be held to the standard of a Preferred PMM in the 
options series of any options class in which it receives the 
Preferenced Order.
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    [ssquf] Assume this Primary Market Maker had previously executed a 
Preferenced Order and executes a Preferenced Order in NFLX and ADBE on 
February 27, 2024.
    [ssquf] The Preferred Market Maker obligation is a daily obligation 
once triggered and continues until the Preferred Market Maker notifies 
the Exchange that it no longer desires to be a part of the Preferenced 
Order program.
    [ssquf] Moreover, on February 28, 2024 and each day thereafter the 
Preferred Market Maker is required to provide two-sided quotations in 
90% of the cumulative number of seconds among all options series in 
which the Preferred Market Maker has executed a Preferenced Order on a 
daily basis until a Preferred Market Maker notifies the Exchange that 
it is no longer preferenced. Therefore, the Preferred Market Maker 
would be required to quote at 90% of the cumulative number of seconds 
among all options series in which the Preferred Market Maker has 
executed a Preferenced Order each day, regardless of whether the 
Preferred Market Maker executed a Preferenced Order that day.
Obligations
    This Primary Market Maker, associated with the same Options 
Participant, is 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, among AAPL, SPY, and ORCL to 
fulfill its Primary Market Maker obligation.\6\
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    \6\ See Options 2, Section 4(j)(1).
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    Separately, this Primary Market Maker would be obligated, separate 
and apart from its Primary Market Maker obligations described in this 
example, to provide two-sided quotations in 90% of the cumulative 
number of seconds, or such higher percentage as the Exchange may 
announce in advance, among NFLX and ADBE to fulfill its Preferred 
Market Maker obligation.
    A Primary Market Maker would not be required to make two-sided 
markets in any Quarterly Option Series, any Adjusted Option 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 in AAPL, SPY, NFLX, ORCL and ADBE when 
meeting its Primary Market Maker or Preferred Market Maker 
requirements.
    The Exchange proposes to amend Options 2, Section 5(e)(5) that 
currently states, ``GEMX Regulation may consider exceptions to the 
above-referenced requirement to quote based on

[[Page 63233]]

demonstrated legal or regulatory requirements or other mitigating 
circumstances. For purposes of the Exchange's surveillance of Member 
compliance with this Rule, the Exchange will determine compliance on a 
monthly basis.'' The Exchange proposes to instead provide that ``For 
purposes of the Exchange's surveillance of Member compliance with this 
Rule, the Exchange will determine compliance on at least a monthly 
basis.'' The Exchange notes that it may increase the frequency of the 
surveillance in particular circumstances but that it would conduct 
monthly surveillance at a minimum.
    The Exchange will implement the amendments to Options 2, Section 5 
on or before April 30, 2025.\7\
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    \7\ The Exchange will provide Members with notification of these 
changes in an Options Regulatory Alert and the Exchange will 
announce the implementation date in a second Options Regulatory 
Alert.
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Options 2, Section 6 and Options 3, Section 7
    Options 2, Section 6, Market Maker Orders, provides Market Makers 
with information as to the types of orders that may be entered on the 
Exchange. The current rule text at Options 2, Section 6(a) provides 
that, in options classes in which the Market Maker is appointed, a 
Market Maker may enter all order types defined in Options 3, Section 7 
in the options classes to which they are appointed under Options 2, 
Section 3, except Reserve Orders and Customer Cross Orders. Competitive 
Market Makers shall comply with the provisions of Options 2, Section 
5(e)(1) upon the entry of such orders if they were not previously 
quoting in the series.
    With the changes proposed to the Competitive Market Maker quoting 
requirements, the Exchange is also removing the last sentence of 
Options 2, Section 6 which provides, ``Competitive Market Makers shall 
comply with the provisions of Options 2, Section 5(e)(1) upon the entry 
of such orders if they were not previously quoting in the series.'' 
Competitive Market Makers will be required to quote throughout the day 
with the proposed amendments to Options 2, Section 5.
    The Exchange is not proposing to amend the restrictions applicable 
to Market Maker Orders. The Exchange proposes to modify the current 
rule text so that it will read clearly and harmonize with rule text on 
Phlx and BX at Options 2, Section 6. The Exchange proposes to first 
note that, today, Market Makers may enter all Complex Order types. To 
make this clear in the rule text, the Exchange proposes to cite to 
Options 3, Section 14, which governs Complex Orders, in addition to 
citing to Options 3, Section 7 which governs single-leg orders. 
Further, the Exchange proposes to remove the current rule text in 
Options 3, Section 6(b)(1) as the language is superfluous. In its 
place, the Exchange proposes to amend the text in Options 2, Section 
6(a) to remove the title ``Options Classes to Which Appointed'' and add 
``non-appointed'' to the paragraph so that it reflects all the order 
types for Market Makers in both appointed and non-appointed classes. 
The current language in Options 2, Section 6(b)(1) provides,

    A Market Maker may enter all order types permitted to be entered 
by non-customer participants under the Rules to buy or sell options 
in classes of options listed on the Exchange to which the Market 
Maker is not appointed under Options 2, Section 3, except for 
Reserve Orders, provided that:
    (i) the spread between a limit order to buy and a limit order to 
sell the same options contract complies with the parameters 
contained in Options 2, Section 4(b)(4); and
    (ii) the Market Maker does not enter orders in options classes 
to which it is otherwise appointed, either as a Competitive or 
Primary Market Maker.

    The Exchange believes that the rule will read more clearly by 
adding non-appointed to Options 2, Section 6(a) and removing current 
Options 2, Section 6(b)(1) which says the same thing. Today, Market 
Makers may not enter Customer Cross Orders in non-appointed options 
classes because only Priority Customers may enter Customer Cross Orders 
pursuant to Options 3, Section 7(i). Further Options 2, Section 
6(b)(1)(i) is a requirement provided for in Options 2, Section 4(b)(4) 
and does not need to be repeated in this rule. Finally, Options 2, 
Section 6(b)(1)(ii) is circular because Options 2, Section 6(a) allows 
Market Makers to enter all orders in appointed options classes except 
for Reserve Orders which is the same restriction applicable to non-
appointed options classes.
    The Exchange also proposes to amend Options 3, Section 7, Types of 
Orders and Order and Quote Protocols. The Exchange proposes to amend 
Options 3, Section 7(g), concerning Reserve Orders, that Market Makers 
may not enter Reserve Orders pursuant to Options 2, Section 6. The 
Exchange believes that the addition of this language will remind Market 
Makers of the obligations noted within Options 2, Section 6.
Options 2, Section 10
    Options 2, Section 10 describes Preferenced Orders. An Electronic 
Access Member may designate a ``Preferred Market Maker'' on orders it 
enters into the System (``Preferenced Orders'').\8\ The Exchange 
proposes to amend the definition of a ``Preferenced Order'' and add a 
definition for ``Order Flow Provider'' in new subsection (1). The 
Exchange proposes to amend the definition of a ``Preferenced Order'' to 
mean any order to buy or sell which has been directed to a particular 
Market Maker by an Order Flow Provider.\9\ The Exchange proposes to 
provide that the term ``Order Flow Provider'' means any Member that 
submits, as agent, orders to the Exchange.\10\ Finally, the Exchange 
proposes to renumber current Options 2, Section 10(a)(1) which states, 
``A Preferred Market Maker may be the Primary Market Maker appointed to 
the options class or any Competitive Market Maker appointed to the 
options class'' as Options 2, Section 10(a)(1)(iii). These definitions 
will bring greater clarity to Options 2, Section 10 and Options 2, 
Section 5 and will harmonize these definitions to those of Phlx at 
Options 2, Section 10.
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    \8\ See Options 2, Section 10(a).
    \9\ See proposed Options 2, Section 10(a)(1)(i).
    \10\ See proposed Options 2, Section 10(a)(1)(ii).
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Options 3, Section 17
    The Exchange proposes to amend Options 3, Section 17, Kill Switch. 
Previously, the Exchange amended Options 3, Section 17 in order to 
decommission graphical user interface (``GUI'') functionality.\11\ In 
eliminating the GUI functionality, the Exchange amended Options 3, 
Section 17(a)(1) to remove language related to the GUI functionality, 
including rule text related to purging orders at both the user and 
group level. While the GUI permitted a purge at both the user and group 
level, the remaining port functionality only removes orders at the user 
level, as specified in Options 3, Section 17(a)(1). At this time, the 
Exchanges proposes to remove the group level language from Options 3, 
Section 17(a).\12\ This proposed change is intended to clarify the 
current rule text.
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    \11\ See Securities Exchange Act Release No. 96817 (February 6, 
2023), 88 FR 8922 (February 10, 2023) (SR-GEMX-2023-02).
    \12\ The Exchange proposes to remove the words ``or group'' and 
the following sentence that applies to a group. The Exchange 
proposes to remove this sentence, ``Permissible groups must reside 
within a single broker-dealer.''
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Options 2, Section 6
    The Exchange proposes to remove the italicized language in Options 
7, Section 6. C related to a technology migration that took place in 
2023. In 2023, GEMX

[[Page 63234]]

filed a pricing change \13\ to permit Members to request certain 
duplicative ports at no additional cost, from November 1, 2023 through 
November 30, 2023, to facilitate a technology migration. The rule text 
related to the 2023 technology migration is no longer necessary because 
the migration is complete and the pricing is no longer applicable. At 
this time, the Exchange proposes to remove this rule text.
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    \13\ See Securities Exchange Act Release No. 97360 (April 24, 
2023), 88 FR 26349 (April 28, 2023) (SR-GEMX-2023-05) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
GEMX's Pricing Schedule at Options 7).
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2. Statutory Basis
    The Exchange believes that the proposed rule change 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.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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Options 2, Section 5
    The Exchange's proposal to amend the quoting obligations of a 
Competitive Market Maker are consistent with the act as the enhanced 
requirement to provide two-sided quotations, collectively, 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 each day will increase liquidity on 
the Exchange. The Exchange notes that other markets have similar 
requirements.\16\
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    \16\ See Nasdaq Phlx LLC and Nasdaq BX, Inc. Options 2, Section 
5.
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    The Exchange's proposal to amend the quoting obligations for a 
Preferred CMM are consistent with the Act. The Exchange proposes to 
amend the current rule text in Options 2, Section 5 to apply the 
obligation to a Preferred Market Maker more generally for ease of 
understanding the rule. The obligations for a Preferred CMM and 
Preferred PMM are the same and combining the obligations will make this 
clear. Today, pursuant to Options 2, Section 10, a Preferred Market 
Maker may be the Primary Market Maker appointed to the options class or 
any Competitive Market Maker appointed to the options class. Further, 
the Exchange proposes to first require that a Market Maker indicate 
interest in the program with the Exchange.\17\ Once a Market Maker 
indicates interest in the program, the Preferred Market Maker has an 
ongoing obligation, collectively, to quote in 90% of the cumulative 
number of seconds among all options series in which the Preferred 
Market Maker has executed a Preferenced Order on a daily basis until a 
Preferred Market Maker notifies the Exchange that it is no longer 
preferenced. The Exchange notes that other markets have similar 
requirements to quote, collectively, in 90% of the cumulative number of 
seconds among all options series on a daily basis.\18\
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    \17\ The Exchange would issue an Options Trader Alert to notify 
Members that they are required to express their interest in 
receiving Preferenced Orders.
    \18\ See NYSE Arca, Inc. (``NYSE Arca'') Rule 6.88-O and NYSE 
American LLC (``NYSE American'') Rule 964.1NY. NYSE Arca Rule 6.88-
O(iv) states that these obligations will apply collectively to all 
series in all of the issues for which the Directed Order Market 
Maker receives Directed Orders, rather than on an issue-by-issue 
basis.
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    Similar to the last sentence of Options 2, Section 5(e), the 
Exchange proposes to revise Options 2, Section 5(e) to require a 
Preferred Market Maker who executes a Preferenced Order, as described 
in Options 2, Section 10, to be held to the standard of a Preferred 
Market Maker among all options series in which the Preferred Market 
Maker executed a Preferenced Order and to quote, collectively, in 90% 
of the cumulative number of seconds among all options series in which 
the Preferred Market Maker has executed a Preferenced Order on a daily 
basis.
    The Preferred Market Maker requirement to quote, collectively, in 
90% of the cumulative number of seconds among all options series in 
which the Preferred Market Maker has executed a Preferenced Order on a 
daily basis is in addition to the quoting requirements for a 
Competitive Market Maker and Primary Market Maker. The Exchange 
believes that these quoting requirements create a direct nexus between 
the allocation that would be received by a Preferred Market Maker 
pursuant to Options 3, Section 10 and the liquidity that the Preferred 
Market Maker would be required to provide to the market in that 
particular options series. The Exchange notes that any Preferred Market 
Maker would need, collectively, to provide two-sided quotes in 90% of 
the cumulative number of seconds or such higher percentage as the 
Exchange may announce in advance, among all options series in which the 
Preferred Market Maker has executed a Preferenced Order for the entire 
day and on a daily basis. The Exchange believes that this quoting 
obligation is designed to promote just and equitable principles of 
trade by ensuring that Preferred Market Makers quote competitively in 
as many series as possible to attract Preferenced Orders so that they 
may receive an enhanced allocation as a Preferred Market Maker.
    The Exchange's proposal to replace the word ``receives'' with the 
word ``executes'' in Options 2, Section 5(e) and (e)(3) is consistent 
with the Act and protects investors and the public interest because for 
a Market Maker to become aware of their quoting obligations, the Market 
Maker must be allocated pursuant to Options 2, Section 10 as a 
Preferenced Order. Market Makers are unaware if an order is preferenced 
to them until such time as they execute the Preferenced Order and 
receive their enhanced allocation. Of note, a Market Maker must be 
quoting at the NBBO at the time the Preferenced Order is received to be 
allocated. Therefore, a Preferred Market Maker has an ongoing quoting 
obligation from the time a Preferred Market Maker executes its first 
Preferenced Order in the options in which the Preferred Market Maker is 
assigned until a Preferred Market Maker notifies the Exchange that the 
Preferred Market Maker is no longer preferenced.
    The Exchange's proposal to amend Options 2, Section 5(e)(5) to 
provide that ``For purposes of the Exchange's surveillance of Member 
compliance with this Rule, the Exchange will determine compliance on at 
least a monthly basis'' is consistent with the Act. The Exchange notes 
that it may increase the frequency of the surveillance in particular 
circumstances but that it would conduct monthly surveillance at a 
minimum.
Options 2, Section 6 and Options 3, Section 7
    The Exchange's proposal to amend Options 2, Section 6, Market Maker 
Orders, to cite to Options 3, Section 14, which governs Complex Orders, 
remove the title ``Options Classes to Which Appointed'' and add ``non-
appointed'' to the paragraph is consistent with the Act for several 
reasons. Market Makers may not enter Reserve Orders, as is the case 
today, but may utilize all other single-leg and Complex Order types, in 
their appointed and non-appointed classes. Today, Market Makers may not 
enter Customer Cross Orders in their appointed or non-appointed options 
classes as only Priority Customers may enter Customer Cross Orders 
pursuant to Options 3, Section 7(i). With this proposal, the Exchange 
is not proposing to amend the restrictions applicable to Market Maker 
Orders. Removing the last sentence of Options 2, Section 6 is 
consistent with the Act because

[[Page 63235]]

Competitive Market Makers will be required to quote throughout the day 
with the proposed amendments to Options 2, Section 5. Removing Options 
2, Section 6(b) is consistent with the Act because the language is 
repetitive of rule text contained in Options 2, Section 6(a) and 
Options 2, Section 4(b)(4). Finally, adding rule text that states that 
``Market Makers may not enter Reserve Orders pursuant to Options 2, 
Section 6'' in Options 3, Section 7(g) is consistent with the Act 
because it will remind Market Makers of the obligations noted within 
Options 2, Section 6. The language would harmonize GEMX's rule text to 
that of BX and Phlx in Options 2, Section 6.
Options 2, Section 10
    The Exchange's proposal to amend the definition of a ``Preferenced 
Order'' and add a definition for ``Order Flow Provider'' in new 
subsection (1) are consistent with the Act and protect investors and 
the general public because they clarify the meaning of terms utilized 
with respect to Preferenced Orders. The definitions will bring greater 
clarity to Options 2, Section 10 and Options 2, Section 5 and will 
harmonize these definitions to those of Phlx at Options 2, Section 10.
Options 3, Section 17
    The Exchange's proposal to remove rule text from Options 3, Section 
17(a) related to GUI functionality which is being decommissioned is 
consistent with the Act. The Exchange notes that purging orders through 
ports can only occur at the user level as specified in Options 3, 
Section 17(a)(1). The amendment will clarify the current rule text.
Options 7, Section 6
    The Exchange's proposal to remove the italicized language in 
Options 7, Section 6.C related to a technology migration that took 
place in 2023 is reasonable, equitable and not unfairly discriminatory 
because the rule text related to the technology migration is no longer 
necessary because the migration is complete and the fees are no longer 
applicable. No Member is subject to the pricing described for the 2023 
technology migration.

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 of the purposes of the Act.
Options 2, Section 5
    The Exchange's proposal to amend the quoting obligations of a 
Competitive Market Maker does not impose an undue burden on competition 
as the enhanced requirement to provide two-sided quotations, 
collectively, 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 each day would 
apply uniformly to all Electronic Access Members that elect to become 
Competitive Market Makers.
    The Exchange's proposal to amend the quoting obligations for a 
Preferred Market Maker does not impose an undue burden on competition 
because as amended the quoting obligations of Preferred Market Maker 
would apply uniformly to all Electronic Access Members that elect to 
become Competitive Market Makers or Primary Market Makers. The proposal 
does not impose an undue burden on inter-market competition as other 
options markets may impose similar quoting obligations.
    Finally, amending Options 2, Section 5(e)(5) to provide that ``For 
purposes of the Exchange's surveillance of Member compliance with this 
Rule, the Exchange will determine compliance on at least a monthly 
basis'' does not impose an undue burden on competition. The Exchange 
notes that it may increase the frequency of the surveillance in 
particular circumstances but that it would conduct monthly surveillance 
at a minimum. Nor does the amendment to Options 2, Section 5(e)(5) 
impose an undue burden on inter-market competition as other markets may 
elect to perform their surveillance in a similar fashion.
Options 2, Section 6 and Options 3, Section 7
    The Exchange's proposal to amend Options 2, Section 6, Market Maker 
Orders, to cite to Options 3, Section 14, which governs Complex Orders, 
remove the title ``Options Classes to Which Appointed'' and add ``non-
appointed'' to the paragraph does not impose an undue burden on 
competition as the Exchange is not amending the restrictions applicable 
to Market Maker Orders. Rather, the changes will make clear that Market 
Makers may not enter Reserve Orders, as is the case today, but may 
utilize all other single-leg and Complex Order types, as is the case 
today. Additionally, today, Market Makers may not enter Customer Cross 
Orders in non-appointed options classes because only Priority Customers 
may enter Customer Cross Orders pursuant to Options 3, Section 7(i). 
Adding rule text that states that ``Market Makers may not enter Reserve 
Orders pursuant to Options 2, Section 6'' in Options 3, Section 7(g) 
does not impose an undue burden on competition because it will remind 
Market Makers of the obligations noted within Options 2, Section 6. 
Removing the last sentence of Options 2, Section 6 does not impose an 
undue burden on competition because all Competitive Market Makers will 
be required to quote throughout the day with the proposed amendments to 
Options 2, Section 5. The rule text will harmonize GEMX's language to 
Phlx and BX Options 2, Section 6. The proposal does not impose an undue 
burden on inter-market competition as other options markets may 
similarly copy GEMX's order types and impose similar restrictions.
Options 2, Section 10
    The Exchange's proposal to amend the definition of ``Preferenced 
Order'' and add a definition for ``Order Flow Provider'' in new 
subsection (1) does not impose an undue burden on competition because 
the defined terms provide additional clarity and harmonize to rule text 
in Phlx at Options 2, Section 10. The proposed changes are not 
substantive in nature.
Options 3, Section 17
    The Exchange's proposal to remove rule text from Options 3, Section 
17(a) related to GUI functionality which is being decommissioned does 
not impose an undue burden on competition because no Member may purge 
orders at the group level. The amendment will clarify the current rule 
text. The proposal does not impose an undue burden on inter-market 
competition as other options markets may similarly copy GEMX's Kill 
Switch functionality.
Options 7, Section 6
    The Exchange's proposal to remove the italicized language in 
Options 7, Section 6. C related to a technology migration that took 
place in 2023 does not impose an undue burden on competition because 
the rule text related to the technology migration is no longer 
necessary because the migration is complete and the fees are no longer 
applicable. No Member is subject to the pricing described for the 2023 
technology migration.

[[Page 63236]]

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)(iii) of the Act \19\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \20\ 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-GEMX-2024-20 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-2024-20. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-GEMX-2024-20 and should be 
submitted on or before August 23, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-17027 Filed 8-1-24; 8:45 am]
BILLING CODE 8011-01-P