Notice2023-24867
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Pricing Schedule at Options 7 To Specify Pricing Related to Unrelated Market or Marketable Interest
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 13, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 217 (Monday, November 13, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 217 (Monday, November 13, 2023)]
[Notices]
[Pages 77649-77652]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-24867]
[[Page 77649]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98866; File No. SR-GEMX-2023-13]
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Pricing Schedule at Options 7 To Specify Pricing Related to Unrelated
Market or Marketable Interest
November 6, 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 October 23, 2023, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Pricing Schedule at Options 7 to
specify pricing related to unrelated market or marketable interest.
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 Exchange proposes to amend the Exchange's Pricing Schedule at
Options 7 to specify pricing related to unrelated market or marketable
interest. Specifically, the Exchange proposes to specify the current
manner in which the Exchange assesses fees and rebates with respect to
unrelated market or marketable interest received prior to the
commencement of an auction in the Facilitation Mechanism (``FAC''),\3\
Solicited Order Mechanism (``SOL''),\4\ and Price Improvement Mechanism
(``PIM''),\5\ and during such auctions. In addition, the Exchange also
proposes a few non-substantive amendments to Options 7 that will bring
more clarity to the Exchange's Pricing Schedule. Each change is
discussed below.
---------------------------------------------------------------------------
\3\ The Facilitation Mechanism is a process by which an
Electronic Access Member can execute a transaction wherein the
Electronic Access Member seeks to facilitate a block-size order it
represents as agent, and/or a transaction wherein the Electronic
Access Member solicited interest to execute against a block-size
order it represents as agent. Electronic Access Members must be
willing to execute the entire size of orders entered into the
Facilitation Mechanism. See Options 3, Section 11(b).
\4\ The Solicited Order Mechanism is a process by which an
Electronic Access Member can attempt to execute orders of 500 or
more contracts it represents as agent (the ``Agency Order'') against
contra orders that it solicited. Each order entered into the
Solicited Order Mechanism shall be designated as all-or-none. See
Options 3, Section 11(d).
\5\ The Price Improvement Mechanism is a process by which an
Electronic Access Member can provide price improvement opportunities
for a transaction wherein the Electronic Access Member seeks to
facilitate an order it represents as agent, and/or a transaction
wherein the Electronic Access Member solicited interest to execute
against an order it represents as agent. See Options 3, Section
13(a).
---------------------------------------------------------------------------
Unrelated Interest
As a general rule, today, if an order executed in FAC (``FAC
Order''), SOL (``SOL Order''), or PIM (``PIM Order'') executes against
unrelated market or marketable interest received during an auction, the
Exchange would assess the applicable Crossing Order \6\ pricing in its
Pricing Schedule. If the FAC, SOL, or PIM Order executes against
unrelated market or marketable interest received prior to an auction,
the Exchange would assess applicable order book pricing in its Pricing
Schedule. As discussed below, the Exchange applies these concepts to
unrelated market or marketable interest in line with Member
expectations and to treat similarly situated Members in a uniform
manner. The Exchange notes that it currently denotes in the Pricing
Schedule that it would apply separate Crossing Order pricing for any
contra-side interest submitted after the commencement of an auction in
FAC, SOL, or PIM (which includes unrelated market and marketable
interest received during the auction) by grouping such interest as
Responses to Crossing Orders.\7\ The Exchange further notes that today,
it specifies throughout Options 7 how it will price Responses to
Crossing Orders.\8\ While the Exchange has delineated the treatment of
unrelated market and marketable interest received by the Exchange
during a FAC, SOL, and PIM auction in its Pricing Schedule, the
Exchange believes that further clarity would be beneficial to Members
as to how the Exchange currently assesses pricing for such interest
received prior to the commencement of the auction. As such, the
Exchange proposes to memorialize these concepts in its Pricing Schedule
by adding new paragraph (d) to Options 7, Section 1, titled ``Unrelated
Market or Marketable Interest Pricing.'' Proposed paragraph (d) would
state that the following concepts would apply to FAC, SOL, and PIM
Orders in Penny Symbols and Non-Penny Symbols (excluding Index
Options).\9\ The Exchange also proposes to note that all transactions
in Index Options are subject to separate pricing in Options 7, Section
3. Today, the Exchange charges separate transaction fees for all
executions (including executions in FAC, SOL, and PIM) in Index
Options.\10\ As such, the Exchange believes it is appropriate to
clarify that these Index Options fees are excluded from the unrelated
interest concepts in new paragraph (d).
---------------------------------------------------------------------------
\6\ A ``Crossing Order'' is an order executed in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement
Mechanism or submitted as a Qualified Contingent Cross order. For
purposes of this Pricing Schedule, orders executed in the Block
Order Mechanism are also considered Crossing Orders.
\7\ ``Responses to Crossing Order'' is any contra-side interest
(i.e., orders & quotes) submitted after the commencement of an
auction in the Exchange's Facilitation Mechanism, Solicited Order
Mechanism, Block Order Mechanism or Price Improvement Mechanism.
Contra-side interest in this context therefore includes both contra-
side interest submitted specifically in response to an auction
notification, and unrelated market and marketable contra-side
interest submitted to the order book during the auction.
\8\ See Section 3 (setting forth fees for Responses to Crossing
Orders except PIM Orders); and Section 3, note 12 (setting forth
fees for Responses to PIM Orders).
\9\ Today, the index options fees in Options 7, Section 3 apply
only to NDX, and are assessed to all executions in NDX. See Options
7, Section 3, note 6.
\10\ Currently, the transaction fees are $0.75 per contract for
all non-Priority Customer NDX orders and $0.00 for all Priority
Customer NDX orders.
---------------------------------------------------------------------------
Specifically, under new paragraph (d)(1), when the FAC Order or SOL
[[Page 77650]]
Order executes against unrelated market or marketable interest received
during an auction, the FAC Order or SOL Order will be assessed the
applicable Fees for Crossing Orders (excluding PIM Orders) in Options
7, Section 3.\11\ The unrelated market or marketable interest received
during an auction will be assessed the applicable Fees for Responses to
Crossing Orders (excluding PIM Orders) in Options 7, Section 3.\12\
---------------------------------------------------------------------------
\11\ Thus the FAC and SOL Order would be assessed the current
Fee for Crossing Orders (excluding PIM Orders) of $0.20 per contract
for all non-Priority Customer orders, and $0.00 per contract for
Priority Customer orders.
\12\ Thus, unrelated interest would be assessed the current
Penny Symbol Fee for Responses to Crossing Orders (excluding PIM
Orders) of $0.50 per contract for all market participant orders in
Penny Symbols and $1.10 per contract for all market participant
orders in Non-Penny Symbols.
---------------------------------------------------------------------------
Under new paragraph (d)(2), when the PIM Order executes against
unrelated market or marketable interest received during an auction, the
PIM Order will be assessed the applicable Fees for PIM Orders in
Options 7, Section 3, note 11.\13\ The unrelated market or marketable
interest received during an auction will be assessed the applicable
Fees for Responses to PIM Orders in Options 7, Section 3, note 12.\14\
---------------------------------------------------------------------------
\13\ Thus PIM Orders would be assessed the current Fee for PIM
Orders of $0.05 per contract for all non-Priority Customer orders
and Priority Customer orders on the contra-side of a PIM auction.
There is currently no fee for Priority Customer orders on the agency
side of a PIM auction.
\14\ Thus, unrelated interest would be assessed the current Fee
for Responses to PIM Orders of $0.05 per contract for all market
participant orders.
---------------------------------------------------------------------------
Under new paragraph (d)(3), when the FAC Order, SOL Order, or PIM
Order executes against unrelated market or marketable interest received
prior to the commencement of an auction, the FAC Order, SOL Order, or
PIM Order would be subject to the applicable taker pricing in Options
7, Section 3.\15\ The unrelated market or marketable interest received
prior to the commencement of an auction will be assessed the applicable
maker pricing in Options 7, Section 3.\16\
---------------------------------------------------------------------------
\15\ Thus the FAC, SOL, and PIM Order would be assessed the
current volume-based Tiers 1-5 taker fees in Options 7, Section 3 by
market participant category.
\16\ Thus, unrelated interest would be assessed the current
volume-based Tiers 1-5 maker rebates in Options 7, Section 3 by
market participant category. Note that today, Market Maker and
Priority Customer orders are eligible for the higher maker rebates
in Tiers 2-5 whereas all other market participant orders would
receive the Tier 1 maker rebate.
---------------------------------------------------------------------------
Unrelated market or marketable interest resting on the Exchange's
order book, whether received prior to the commencement of a FAC, SOL,
or PIM auction or during such auction, would be allocated in accordance
with Options 3, Section 11(b)(4) (FAC), Section 11(d)(3) (SOL), and
Section 13(d) (PIM).
The Exchange applies order book pricing in accordance with Options
7, Section 3 to interest received prior to a FAC, SOL, and PIM auction
that subsequently trades with a FAC, SOL, or PIM Order (which is
considered unrelated market or marketable interest for purposes of the
auction) because the Exchange seeks to treat the Member who submitted
such interest in a similar manner as any other Member who submits
interest to the order book. The Member that submitted such interest
would not have been aware at the time that a FAC, SOL, or PIM auction
was in progress, and therefore would not have expected to be assessed
separate Crossing Order pricing.\17\ In such instances, the unrelated
market or marketable interest that posted to the order book prior to
the commencement of the auction would be treated as posting liquidity
to the order book (makers of liquidity) and assessed maker pricing in
accordance with Options 7, Section 3. The FAC, SOL, and PIM Order that
trades against the unrelated interest would be considered as removing
liquidity from the order book (takers of liquidity) and assessed taker
pricing in accordance with Options 7, Section 3. This is consistent
with taker pricing assessed to any Member that removes liquidity from
the order book.
---------------------------------------------------------------------------
\17\ Members become aware of ongoing FAC, SOL, and PIM auctions
as the Exchange disseminates an auction notification in the form of
a ``broadcast message'' when the Exchange receives a FAC, SOL, and
PIM Order for auction processing. The broadcast message is sent by
the Exchange to all Members and includes the series, price, side,
and size of the Agency Order. See Options 3, Sections 11(b)(2),
11(d)(2), and 13(c).
---------------------------------------------------------------------------
In contrast, the Exchange applies Crossing Order pricing in Options
7, Section 3 to the unrelated market or marketable interest when the
interest arrived during a FAC, SOL, and PIM auction. Members submitting
interest to the order book during one of these auctions are aware that
they may be allocated in the auction.\18\ The Exchange assesses the
applicable response fee in Options 7, Section 3 to Members submitting
such interest in the same manner that responders to the FAC, SOL, and
PIM auction are assessed fees for their auction responses. In other
words, the unrelated market or marketable interest that received an
allocation within the FAC, SOL, or PIM auction would be uniformly
subject to the same fees as those Members that submitted auction
responses and were allocated.
---------------------------------------------------------------------------
\18\ See supra note 17.
---------------------------------------------------------------------------
The Exchange's pricing models for the order book and FAC/SOL/PIM
auctions each seek to attract liquidity to the Exchange and reward
Members differently for the different types of order flow. To this end,
the Exchange's pricing considers the manner in which orders interact
with the FAC/SOL/PIM auction based on the timing of when the order
entered the order book. The Exchange's pricing is consistent with its
current practice of assigning the applicable pricing for auctions
versus order book pricing depending on how and when the order was
submitted to the Exchange.
Technical Amendments
The Exchange proposes a few technical, non-substantive amendments
throughout Options 7. Specifically, the Exchange proposes to title
paragraph (b) in Options 7, Section 1 as ``Fee Disputes'' and paragraph
(c) as ``Definitions'' to more clearly identify the applicable rules
within the Pricing Schedule.
2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\19\ in general, and furthers the objectives of
sections 6(b)(4) and 6(b)(5) of the Act,\20\ 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. Further the proposal 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.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
Unrelated Interest
The Exchange believes that its proposal to specify how the Exchange
currently prices unrelated market or marketable interest received is
consistent with the Act because memorializing these concepts in new
paragraph (d) of Options 7, Section 1 will promote greater clarity and
transparency in the rules and make the Pricing Schedule easier to
navigate for market participants. As discussed above, the Exchange
already denotes how unrelated market or marketable interest received
during a FAC, SOL, and PIM auction is priced by grouping such interest
as Responses to Crossing Orders and Responses to PIM Orders today. How
the Exchange prices unrelated market or marketable interest
[[Page 77651]]
received prior to a FAC, SOL, and PIM auction, however, is not
currently detailed in the Exchange's Pricing Schedule. As such, the
Exchange believes that by consolidating and describing these concepts
in one place in the Pricing Schedule, Members can more easily locate
the related rules and avoid any potential investor confusion.
As discussed above, the Exchange will memorialize that it will
assess book pricing for unrelated market or marketable interest
received prior to the commencement of a FAC, SOL, or PIM auction by
stating that such interest would be assessed the applicable maker
pricing. The FAC, SOL and PIM Order that such interest executes against
would be assessed applicable taker pricing. The Exchange applies order
book pricing in this scenario because at the time the unrelated market
or marketable interest was submitted and posted to the order book,
Members would not have been aware of an ongoing FAC/SOL/PIM auction and
therefore would not expect to be subject to Responses to Crossing Order
fees in Section 3 and Responses to PIM Order fees in Section 3, note
12.\21\ In contrast, the Exchange applies Responses to Crossing Order
fees in Section 3 and Responses to PIM Order fees in Section 3, note 12
to the unrelated market or marketable interest when it arrives during
the FAC/SOL/PIM auction because Members submitting interest to the
order book at that time would be aware that they may be allocated in
the FAC/SOL/PIM auction.\22\ Additionally, the Exchange's pricing
models for the order book and FAC/SOL/PIM auctions each seek to attract
liquidity to the Exchange and reward Members differently for different
types of order flow. To this end, the Exchange's pricing considers the
manner in which interest interacts with the FAC/SOL/PIM auction based
on the timing of when such interest entered which order book. The
Exchange's pricing is consistent with its current practice of assigning
the applicable pricing for auctions versus order book pricing depending
on how and when the order was submitted to the Exchange.
---------------------------------------------------------------------------
\21\ See supra note 17.
\22\ See supra note 17.
---------------------------------------------------------------------------
Further, the Exchange's proposal to memorialize current practice
that unrelated market or marketable interest received prior to the
commencement of a FAC/SOL/PIM auction would be assessed the applicable
maker pricing is reasonable, equitable, and not unfairly discriminatory
because all Members who submitted such interest that posted to the
order book prior to the commencement of the auction (and executes
against the FAC/SOL/PIM Order) would be uniformly assessed the same
pricing as any other Member who posted liquidity on the order book.
Further, all Members who submitted a FAC/SOL/PIM Order that executed
against such interest would be uniformly assessed the same pricing as
any other Member who removed liquidity from the order book.
Similarly, the Exchange believes that its proposal to specify
current practice that unrelated market or marketable interest received
during a FAC/SOL/PIM auction would be assessed the applicable Responses
to Crossing Order (including PIM Order) pricing as described above is
reasonable, equitable, and not unfairly discriminatory because all
Members who submitted such interest would be uniformly assessed the
same pricing as any other Member who submitted responses into the FAC/
SOL/PIM auction.
Lastly, the Exchange believes that its proposal to specify that
Index Options fees are excluded from the unrelated interest concepts in
new paragraph (d) is reasonable, equitable, and not unfairly
discriminatory because all transactions in Index Options (including
transactions in FAC, SOL, and PIM) are presently subject to separate
pricing in Options 7, Section 3.\23\ By clarifying this exclusion, the
Exchange believes it will avoid potential confusion as to the
applicability of its Pricing Schedule to the benefit of all market
participants.
---------------------------------------------------------------------------
\23\ See supra notes 9 and 10.
---------------------------------------------------------------------------
Technical Amendments
The Exchange believes that adding titles to paragraphs (b) and (c)
of Options 7, Section 1 is consistent with the Act because they will
promote clarity so that market participants can more easily locate the
relevant rules in the Pricing Schedule.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
The Exchange does not believe that its proposal would impose an
undue burden on intra-market competition. The pricing of unrelated
interest in the manner described above uniformly treats similarly
situated market participants. Specifically, all Members who submitted
unrelated market or marketable interest that posted to the order book
prior to the commencement of the auction (and executes against the FAC/
SOL/PIM Order) would be uniformly assessed the same pricing as any
other Member who posted liquidity on the order book. All Members who
submitted a FAC/SOL/PIM Order that executed against such interest would
be uniformly assessed the same pricing as any other Member who removed
liquidity from the order book. Additionally, all Members who submitted
unrelated market or marketable interest to the order book during the
FAC/SOL/PIM auction (which ends up participating and executing against
the auction order) would be uniformly assessed the same pricing as any
other Member who submitted responses into the FAC/SOL/PIM auction.
In terms of inter-market competition, the Exchange continues to
believe that the way that it prices unrelated market or marketable
interest remains competitive with other options markets given that the
Exchange's current pricing models for the order book and for FAC/SOL/
PIM auctions are all designed to attract order flow to the Exchange.
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. Because competitors are free to
modify their own fees in response, and because market participants may
readily adjust their order routing practices, the Exchange believes
that the degree to which fee changes in this market may impose any
burden on competition is extremely limited.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to section
19(b)(3)(A)(ii) of the Act \24\ and Rule 19b-4(f)(2) \25\ thereunder.
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)
[[Page 77652]]
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.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78s(b)(3)(A)(ii).
\25\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#8ffdfae3eaa2ece0e2e2eae1fbfccffceaeca1e8e0f9"><span class="__cf_email__" data-cfemail="dfadaab3baf2bcb0b2b2bab1abac9facbabcf1b8b0a9">[email protected]</span></a>. Please include
file number SR-GEMX-2023-13 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-2023-13. 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="https://www.sec.gov/rules/sro.shtml">https://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
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-2023-13 and should be
submitted on or before December 4, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
---------------------------------------------------------------------------
\26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-24867 Filed 11-9-23; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on November 13, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.