Notice2023-03479
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend GEMX Pricing Schedule at Options 7, Section 3 To Add a New Priority Customer Maker Rebate
Primary source
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Published
February 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 34 (Tuesday, February 21, 2023)</title>
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[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10577-10580]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03479]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96918; File No. SR-GEMX-2023-03]
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend GEMX
Pricing Schedule at Options 7, Section 3 To Add a New Priority Customer
Maker Rebate
February 14, 2023.
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 February 1, 2023, 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 GEMX Pricing Schedule at Options
7, Section 3.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/gemx/rules">https://listingcenter.nasdaq.com/rulebook/gemx/rules</a>, 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
Pricing Schedule at Options 7, Section 3 to introduce incentives for
Members to add liquidity in Priority Customer \3\ orders and qualify
for the Exchange's Market Access and Routing Subsidy (``MARS'')
program.
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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).
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Background
Today, Members that add liquidity in Priority Customer orders are
currently eligible for tiered Priority Customer Maker Rebates of $0.25
(Tier 1), $0.40 (Tier 2), $0.48 (Tier 3), $0.51 (Tier 4), and $0.53
(Tier 5) in Penny Symbols. In Non-Penny Symbols (excluding Index
Options),\4\ the Priority Customer Maker Rebates are $0.75 (Tier 1),
$0.80 (Tier 2), $0.85 (Tier 3), $0.90 (Tier 4), and $1.05 (Tier 5) in
Non-Penny Symbols. The foregoing rebates are paid per the highest tier
achieved below.
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\4\ Index Options fees are set forth separately in Options 7,
Section 3 and apply only to NDX executions.
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Qualifying Tier Thresholds
Table 1
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Priority customer maker %
Tier Percent of customer total of customer total
consolidated volume consolidated volume
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Tier 1......... Executes less than 0.65% of Executes Priority Customer
Customer Total Maker volume of less than
Consolidated Volume. 0.10% of Customer Total
Consolidated Volume.
Tier 2......... Executes 0.65% to less than Executes Priority Customer
1.5% of Customer Total Maker volume of 0.10% to
Consolidated Volume. less than 0.65% of
Customer Total
Consolidated Volume.
Tier 3......... Executes 1.5% to less than Executes Priority Customer
2.25% of Customer Total Maker volume of 0.65% to
Consolidated Volume. less than 1.05% of
Customer Total
Consolidated Volume.
Tier 4......... Executes 2.25% to less than Executes Priority Customer
2.50% of Customer Total Maker volume of 1.05% to
Consolidated Volume. less than 1.20% of
Customer Total
Consolidated Volume.
Tier 5......... Executes 2.5% or greater of Executes Priority Customer
Customer Total Maker volume of 1.20% or
Consolidated Volume. greater of Customer Total
Consolidated Volume.
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[[Page 10578]]
<bullet> For purposes of measuring Total Affiliated Member or
Affiliated Entity % of Customer Total Consolidated Volume, 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.
<bullet> The highest tier threshold attained above applies
retroactively in a given month to all eligible traded contracts and
applies to all eligible market participants.
<bullet> All eligible volume from Affiliated Members or an
Affiliated Entity will be aggregated in determining applicable tiers
for each of the Qualifying Tier Thresholds above in Table 1.
<bullet> The Total Affiliated Member or Affiliated Entity % of
Customer Total Consolidated Volume category includes all volume in all
symbols and order types, including both maker and taker volume and
volume executed in the PIM, Facilitation, Solicitation, and QCC
mechanisms.
<bullet> The Priority Customer Maker % of Customer Total
Consolidated Volume category includes all Priority Customer volume that
adds liquidity in all symbols.
In addition, GEMX currently offers a MARS program under Options 7,
Section 4.B whereby the Exchange pays a subsidy to Members that provide
certain order routing functionalities to other Members and/or use such
functionalities themselves. Generally, under MARS, the Exchange pays
any participating Members to subsidize their costs of providing routing
services to route orders to GEMX. The purpose of this program is to
attract higher volumes of equity and ETF options to GEMX from non-GEMX
market participants as well as from GEMX Members.
To qualify for MARS, Members must have System Eligibility.\5\
Participants that have System Eligibility and have routed and executed
the requisite number of Eligible Contracts \6\ daily in a month
(``Average Daily Volume'' or ``ADV'') that add liquidity on GEMX are
entitled to tiered MARS Payments, which are currently paid per the
highest tier achieved below.\7\
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\5\ Specifically, a Member's routing system (hereinafter
``System'') would be required to: (1) enable the electronic routing
of orders to all of the U.S. options exchanges, including GEMX; (2)
provide current consolidated market data from the U.S. options
exchanges; and (3) be capable of interfacing with GEMX's API to
access current GEMX match engine functionality. Further, the
Member's System would also need to cause GEMX to be the one of the
top four default destination exchanges for (a) individually executed
marketable orders if GEMX is at the national best bid or offer
(``NBBO''), regardless of size or time or (b) orders that establish
a new NBBO on GEMX's Order Book, but allow any user to manually
override GEMX as a default destination on an order-by-order basis.
Any Member would be permitted to avail itself of this arrangement,
provided that its order routing functionality incorporates the
features described above and satisfies GEMX that it appears to be
robust and reliable. The Member remains solely responsible for
implementing and operating its System.
\6\ For the purpose of qualifying for the MARS Payment, Eligible
Contracts include the following: Non-Nasdaq GEMX Market Maker
(FARMM), Firm Proprietary/Broker-Dealer and Professional Customer
Orders that are executed. Eligible Contracts do not include
qualified contingent cross or ``QCC'' Orders or Price Improvement
Mechanism or ``PIM'' Orders. Options overlying NDX are not
considered Eligible Contracts.
\7\ The specified MARS Payment will be paid on all executed
Eligible Contracts that add liquidity, which are routed to GEMX
through a participating GEMX Member's System and meet the requisite
Eligible Contracts ADV. No payment will be made with respect to
orders that are routed to GEMX, but not executed.
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Average daily
Tiers volume MARS payment
(``ADV'')
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1....................................... 10,000 $0.08
2....................................... 15,000 0.11
3....................................... 20,000 0.14
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Proposal
The Exchange now proposes in note 13 of Options 7, Section 3 to
introduce two new incentives for Members who qualify for MARS and add
liquidity in Priority Customer orders. First, Members who execute
Priority Customer Maker volume of 0.04% or more of Customer Total
Consolidated Volume in a given month and qualify for MARS will be
eligible for a Priority Customer Maker Rebate of ($0.43) per contract
in Penny Symbols and a Priority Customer Maker Rebate of ($0.90) per
contract in Non-Penny Symbols. Second, Members who execute Priority
Customer Maker volume of 0.07% or more of Customer Total Consolidated
Volume in a given month and qualify for MARS will be eligible for a
Priority Customer Maker Rebate of ($0.48) per contract in Penny Symbols
and a Priority Customer Maker Rebate of ($1.00) per contract in Non-
Penny Symbols. Priority Customer orders that qualify for this note 13
incentive and qualify for the tiered Priority Customer Maker Rebates
described above will receive the greater of the note 13 incentive or
the applicable tiered Priority Customer Maker Rebate, but not both. The
purpose of the proposed note 13 incentive is to attract additional
order flow to GEMX by encouraging Members to qualify for MARS and
increase their liquidity adding activity in Priority Customer orders on
GEMX.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\8\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\9\ 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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\8\ 15 U.S.C. 78f(b).
\9\ 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 of order flow from broker
dealers'. . . .'' \10\
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\10\ 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.'' \11\
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\11\ 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
[[Page 10579]]
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.
The Exchange believes that its proposal to add the new incentives
in note 13 is a reasonable attempt by the Exchange to attract
additional liquidity, particularly in Priority Customer orders that add
liquidity. With this proposal, Members would have the opportunity to
receive rebates of $0.43 (Penny Symbols) and $0.90 (Non-Penny Symbols)
if they execute Priority Customer Maker volume of 0.04% or more of
Customer Total Consolidated Volume in a given month and qualify for
MARS. Additionally, Members would have the opportunity to receive
higher rebates of $0.48 (Penny Symbols) and $1.00 (Non-Penny Symbols)
if they execute Priority Customer Maker volume of 0.07% or more of
Customer Total Consolidated Volume in a given month and qualify for
MARS. The Exchange believes that this will encourage liquidity adding
activity in Priority Customer orders to earn the note 13 incentives.
The proposal will also incentivize Members to qualify for the MARS
program, which is designed to attract higher volumes of equity and ETF
options volume to the Exchange. As discussed above, Members must have
System Eligibility to qualify for MARS, which imposes various
requirements for Members to maintain their routing systems, including
the requirement that GEMX be the one of the top four default
destination exchanges on the Member's routing system for execution for
orders that meet the specified criteria. If more Members seek to
qualify for MARS, the proposal will bring higher volumes of orders to
GEMX, which will enhance market quality by offering greater price
discovery and increased opportunities to trade, which benefits all
market participants. The Exchange also notes that the proposed
qualifications in new note 13 are similar to the existing rebate
qualifications on its affiliate, The Nasdaq Options Market
(``NOM'').\12\
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\12\ Today, NOM offers Customer and Professional Rebates to Add
Liquidity in Penny Symbols Tiers 1-6. NOM Participants can qualify
for the Tier 3 rebate by adding Customer and/or Professional
liquidity in Penny Symbols and/or Non-Penny Symbols above 0.05% of
total industry customer equity and ETF option ADV contracts per day
in a month and qualifying for MARS. See NOM Options 7, Section 2(1),
note 1.
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The Exchange also believes that it is reasonable to offer Members
whose Priority Customer orders qualify for the new note 13 incentive
and also qualify for the current tiered Priority Customer Maker Rebates
described in Options 7, Section 3 the greater of the note 13 incentive
or the applicable tiered Priority Customer Maker Rebate because Members
will be able to receive the greater of the rebates for which they
qualify under this proposal.
The Exchange believes that the proposed note 13 incentives
described above are equitable and not unfairly discriminatory because
the Exchange will uniformly apply the changes to all qualifying
Members. All Members may qualify for MARS provided they have requisite
System Eligibility. Furthermore, the Exchange believes it is equitable
and not unfairly discriminatory to pay the proposed note 13 incentives
to eligible Priority Customer liquidity adding orders. 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, to the benefit of all market
participants.
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 participant at a competitive disadvantage. As
discuss above, while the Exchange's proposal provides incentives for
certain order flow and activity on the Exchange (i.e., Priority
Customer liquidity adding activity), the proposed changes are
ultimately aimed at attracting greater liquidity to the Exchange, which
benefits all market participants in the quality of order interaction.
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
exchanges and with alternative trading systems that have been exempted
from compliance with the statutory standards applicable to 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.
The Exchange's proposed note 13 incentives are pro-competitive as
the Exchange intends for the changes to increase liquidity addition and
activity on the Exchange, thereby rendering the Exchange a more
attractive and vibrant venue to existing and prospective market
participants. 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.\13\ 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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\13\ 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:
[[Page 10580]]
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#e694938a83cb85898b8b83889295a6958385c8818990"><span class="__cf_email__" data-cfemail="2755524b420a44484a4a424953546754424409404851">[email protected]</span></a>. Please include
File Number SR-GEMX-2023-03 on the subject line.
Paper Comments
<bullet> 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-2023-03. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 such 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-2023-03 and should be submitted on
or before March 14, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03479 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P
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