[Federal Register Volume 89, Number 160 (Monday, August 19, 2024)]
[Notices]
[Pages 67117-67120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18476]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100722; File No. SR-GEMX-2024-27]


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

August 13, 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 August 1, 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 the Exchange's Pricing Schedule at 
Options 7, Section 3.
    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 purpose of the proposed rule change is to amend the Exchange's

[[Page 67118]]

Pricing Schedule at Options 7, Section 3.
    Today, as set forth in Options 7, Section 3, the Exchange assesses 
Market Makers \3\ and Priority Customers \4\ the below tiered maker/
taker pricing for adding/removing liquidity in Penny Symbols.
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    \3\ A ``Market Maker'' is a market maker as defined in Nasdaq 
GEMX Options 1, Section 1(a)(21).
    \4\ 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).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Maker      Maker      Maker      Maker      Maker      Taker      Taker      Taker      Taker      Taker
            Market participant               rebate:    rebate:    rebate:    rebate:    rebate:   fee: Tier  fee: Tier  fee: Tier  fee: Tier  fee: Tier
                                              Tier 1     Tier 2     Tier 3     Tier 4     Tier 5       1          2          3          4          5
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Market Maker..............................    ($0.20)    ($0.25)    ($0.30)    ($0.32)    ($0.41)      $0.50      $0.50      $0.50      $0.50      $0.48
Priority Customer.........................     (0.25)     (0.43)     (0.48)     (0.51)     (0.53)       0.41       0.41       0.41       0.41       0.41
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    The Exchange now proposes to assess Market Makers and Priority 
Customers separate pricing for SPY, QQQ, and IWM in lieu of the maker/
taker pricing set forth above for other Penny Symbols. First, the 
Exchange proposes to pay Market Makers a $0.41 per contract Maker 
Rebate in Tiers 1-5 for SPY, QQQ, and IWM (instead of the current Maker 
Rebates in Tiers 1-5 ranging from $0.20 to $0.41 per contract).\5\ 
Second, the Exchange proposes to assess Priority Customers a $0.45 per 
contract Taker Fee in Tiers 1-5 for SPY, QQQ, and IWM (instead of the 
current $0.41 per contract Taker Fee in Tiers 1-5).\6\ Third, the 
Exchange proposes to reduce the new $0.45 per contract Taker Fee in 
Tiers 1-5 for SPY, QQQ, and IWM by $0.02 per contract when the 
Preferred Market Maker \7\ transacts against a Priority Customer Order 
directed to that Preferred Market Maker for execution.\8\
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    \5\ See proposed note 15 of Options 7, Section 3.
    \6\ See id.
    \7\ Today, an Electronic Access Member may designate a 
``Preferred Market Maker'' on orders it enters into the System. 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. Market Makers may be categorized as Preferred Market 
Makers when such Market Makers execute against a ``Preferenced 
Order'' directed to them for execution by an Order Flow Provider. An 
Order Flow Provider means any Member that submits, as agent, orders 
to the Exchange. The Preferred Market Maker must be quoting at the 
better of the internal BBO or NBBO at the time the Preferenced Order 
is received in order to receive the Preferred Market Maker 
allocation described in Options 3, Section 10(c)(1)(C). See Options 
2, Section 10. See also Securities Exchange Act Release No. 100612 
(July 29, 2024) (SR-GEMX-2024-20) (amending, among other changes 
that are immediately effective but not yet operative, Options 2, 
Section 10 that sets forth the aforementioned definitions) .
    \8\ See proposed note 17 of Options 7, Section 3.
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    The Exchange will set forth the above changes in proposed notes 15 
and 17 of Options 7, Section 3. Proposed note 15 will provide: ``Market 
Maker Tier 1 through Tier 5 Maker Rebates in Penny Symbols will be 
($0.41) per contract for the following option symbols: SPY, QQQ and 
IWM. Priority Customer Tier 1 through Tier 5 Taker Fees in Penny 
Symbols will be $0.45 per contract for the following option symbols: 
SPY, QQQ and IWM.'' Proposed note 17 will provide: ``Priority Customer 
Tier 1 through Tier 5 Taker Fees in SPY, QQQ, and IWM set forth in note 
15 above will be decreased by $0.02 per contract when the Preferred 
Market Maker transacts against a Priority Customer Order directed to 
that Preferred Market Maker for execution.''
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to its schedule of credits 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 of order flow from broker 
dealers'. . . .'' \11\
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    \11\ 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.'' \12\
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    \12\ 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 
seventeen 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.
    The Exchange believes that the proposed changes to the maker/taker 
pricing in SPY, QQQ, and IWM for Market Makers and Priority Customers 
in the manner described above are reasonable, equitable and not 
unfairly discriminatory for the reasons that follow.
    The Exchange believes it is reasonable to pay Market Makers a $0.41 
per contract Maker Rebate in Tiers 1-5 for SPY, QQQ, and IWM (instead 
of the current Maker Rebates in Tiers 1-5 ranging from $0.20 to $0.41 
per contract) because the proposed changes are intended to encourage 
Market Makers to add more liquidity in these three symbols. 
Specifically, the proposal

[[Page 67119]]

generally provides Market Makers significantly higher Maker Rebates in 
SPY, QQQ, and IWM than they receive today except for the Tier 5 Maker 
Rebate, which is currently the highest Maker Rebate in Penny Symbols 
for Market Makers and will remain the same as today. Accordingly, the 
Exchange believes that Market Makers will continue to be incentivized 
to add liquidity in these symbols on the Exchange. Increased liquidity 
benefits all market participants by deepening the Exchange's liquidity 
pool and supporting the quality of price discovery.
    The Exchange also believes that it is reasonable to assess Priority 
Customers a $0.45 per contract Taker Fee in Tiers 1-5 for SPY, QQQ, and 
IWM (instead of the current $0.41 per contract Taker Fee in Tiers 1-5). 
While Priority Customers will be charged higher Taker Fees for SPY, 
QQQ, and IWM than the Taker Fees currently assessed, the Exchange 
believes that the increased Taker Fees are appropriate to offset the 
proposed Maker Market Maker Rebates for SPY, QQQ, and IWM. Furthermore, 
Priority Customers will continue to be assessed lower Taker Fees in 
Penny Symbols compared to all other market participants today.\13\
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    \13\ Specifically, Market Makers and Non-Nasdaq GEMX Market 
Makers are currently assessed Taker Fees in Penny Symbols ranging 
from $0.48 to $0.50 per contract. In addition, Firm Proprietary/
Broker-Dealers and Professional Customers are currently assessed 
Taker Fees ranging from $0.49 to $0.50 per contract. See Options 7, 
Section 3.
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    The Exchange believes that reducing the Priority Customer Taker Fee 
in Tiers 1-5 for SPY, QQQ, and IWM by $0.02 per contract when the 
Preferred Market Maker transacts against a Priority Customer Order 
directed to that Preferred Market Maker for execution is reasonable 
because the Exchange seeks to incentivize Members to direct more 
Priority Customer order flow in these symbols to the Exchange. As 
discussed above, the proposal provides the reduced Taker Fee benefit to 
the Priority Customer. To the extent the proposal attracts more 
Priority Customer order flow in SPY, QQQ, and IWM to the Exchange, the 
Exchange believes that this will benefit all market participants 
through increased trading opportunities. The Exchange also represents 
that for orders directed to Preferred Market Makers, Preferred Market 
Makers are unaware of the identity of the contra-party prior to and at 
the time of the trade. Furthermore, Options 9, Section 1 (Just and 
Equitable Principles of Trade) and Options 9, Section 9 (Prevention of 
the Misuse of Material Nonpublic Information) \14\ are intended to 
prohibit coordinated actions between Preferred Market Makers and Order 
Flow Providers,\15\ and the Exchange proactively conducts surveillance 
for, and enforces against, such violations. Finally, of note, a Market 
Maker must be quoting at the better of the internal BBO or the NBBO at 
the time the Preferenced Order is received to be allocated, as required 
by Options 2, Section 10.
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    \14\ GEMX Options 9, Sections 1 and 9 incorporates ISE Options 
9, Sections 1 and 9 by reference.
    \15\ An Order Flow Provider means any Member that submits, as 
agent, orders to the Exchange. See supra note 7.
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    The Exchange also believes that assessing different pricing for 
SPY, QQQ and IWM, as compared to other symbols, is reasonable because 
trading in SPY, QQQ and IWM is different from trading in other symbols 
in that they are more liquid, have higher volume and competition for 
executions is more intense.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to provide the proposed Maker Rebate Tiers 1-5 for SPY, 
QQQ, and IWM to Market Makers because they have different requirements 
and additional obligations that other market participants do not (such 
as quoting requirements).\16\ As discussed above, the proposed Maker 
Rebates of $0.41 per contract are designed to continue to incentivize 
Market Maker add liquidity activity in SPY, QQQ, and IWM, thereby 
facilitating tighter spreads and contributing towards a robust, well-
balanced market ecosystem, to the benefit of all market participants.
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    \16\ See Options 2, Section 5.
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    The Exchange further believes that it is equitable and not unfairly 
discriminatory to assess Priority Customers a $0.45 per contract Taker 
Fee in Tiers 1-5 for SPY, QQQ, and IWM because Priority Customers will 
continue to be assessed lower Taker Fees in Penny Symbols compared to 
all other market participants today. As such, the Exchange believes 
that the proposed taker pricing will continue to incentivize Priority 
Customer order flow in SPY, QQQ, and IWM to the Exchange. An increase 
in Priority Customer order flow 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, to 
the benefit of all market participants.
    The Exchange further believes it is equitable and not unfairly 
discriminatory to reduce the Priority Customer Taker Fee in Tiers 1-5 
for SPY, QQQ, and IWM set forth in proposed note 15 by $0.02 per 
contract when the Preferred Market Maker transacts against a Priority 
Customer Order directed to that Preferred Market Maker for execution. 
Any Member can be an Order Flow Provider (as defined in Options 2, 
Section 10) and may direct a Priority Customer order to any Market 
Maker on the Exchange.\17\ Furthermore, the proposal seeks to encourage 
more Priority Customer order flow in SPY, QQQ, and IWM to the Exchange 
by providing a reduced Taker Fee to Priority Customers in the manner 
discussed above. An increase in Priority Customer order flow 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, to the benefit of all market participants.
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    \17\ An Order Flow Provider, by definition, means any Member 
that submits, as agent, orders to the Exchange. See supra note 7.
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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.
    In terms of intra-market competition, the Exchange does not believe 
that its proposal will place any category of market participants at a 
competitive disadvantage. The Exchange believes that all of the changes 
proposed above will incentivize market participants to direct more 
order flow to the Exchange, to the benefit of all market participants 
who may interact with this order flow. While some aspects of the 
proposal apply directly to Market Makers (through the Market Maker Tier 
1 through Tier 5 Maker Rebates for SPY, QQQ, and IWM) or Priority 
Customers (through the Priority Customer Tier 1 through Tier 5 Taker 
Fees for SPY, QQQ, and IWM; and the reduced Priority Customer Tier 1 
through 5 Taker Fees for SPY, QQQ, and IWM when the Preferred Market 
Maker transacts against a Priority Customer Order directed to that 
Preferred Market Maker for execution), the Exchange believes that the 
proposed changes taken together will fortify and encourage activity, 
especially Market Maker and Priority Customer activity, on the 
Exchange. As discussed above, all

[[Page 67120]]

market participants will benefit from any increase in market activity 
that the proposal effectuates. As it relates to the reduced Taker Fee 
in SPY, QQQ, and IWM for Priority Customers, any Member can be an Order 
Flow Provider, and may direct a Priority Customer Order to any Market 
Maker at any time on an order by order basis.
    In terms of inter-market competition, 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 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. In sum, if the changes proposed herein are 
unattractive to market participants, it is likely that the Exchange 
will lose market share as a result. Accordingly, the Exchange does not 
believe that the proposed changes will impair the ability of members or 
competing order execution venues to maintain their competitive standing 
in the financial markets.

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.\18\ 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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    \18\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-GEMX-2024-27 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-2024-27. 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-2024-27 and should be 
submitted on or before September 9, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-18476 Filed 8-16-24; 8:45 am]
BILLING CODE 8011-01-P