Notice2024-16548
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Fees for Nasdaq 100 Index Options in Options 7, Section 3
Primary source
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Published
July 29, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 145 (Monday, July 29, 2024)</title>
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[Federal Register Volume 89, Number 145 (Monday, July 29, 2024)]
[Notices]
[Pages 60939-60941]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-16548]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100577; File No. SR-GEMX-2024-22]
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the Fees
for Nasdaq 100 Index Options in Options 7, Section 3
July 23, 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 12, 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 fees for Nasdaq 100 Index
options in 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 <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 fees for
NDX \3\ in Options 7, Section 3. The Exchange initially filed the
proposed pricing changes on July 1, 2024 (SR-GEMX-2024-18). On July 12,
2024, the Exchange withdrew that filing and submitted this filing.
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\3\ NDX represents A.M. settled options on the full value of the
Nasdaq 100 Index traded under the symbol NDX.
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Today, the Exchange assesses transaction fees of $0.75 per contract
for all Non-Priority Customer \4\ orders in NDX and $0.25 per contract
for all Priority Customers \5\ NDX orders. The Exchange now proposes to
assess a surcharge of $0.25 per contract to all market participants for
executions in NDX with a premium price of $25.00 or greater.\6\ The
fees for NDX executions with a premium price of less than $25.00 will
remain unchanged under this proposal. The Exchange notes that charging
different fees based on the option premium is consistent with how other
options are priced at another options exchange.\7\ The Exchange further
notes that the proposed surcharge amount is within the range of
surcharges assessed for transactions in other products at other options
exchanges.\8\
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\4\ ``Non-Priority Customers'' include Market Makers, Non-Nasdaq
GEMX Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and
Professional Customers.
\5\ 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).
\6\ See proposed note 14 (which is currently reserved) of
Options 7, Section 3.
\7\ For example, Cboe Options (``Cboe'') currently assesses
customers a $0.36 per contract fee (if premium < $1.00) or $0.45 per
contract fee (if premium >= $1.00) for SPX and SPESG options. Cboe
also currently assesses market-makers a $0.05 per contract fee (if
premium is $0.00-$0.10) or $0.23 per contract (if premium >= $0.11)
for VIX options. See Cboe Fees Schedule.
\8\ For example, Cboe currently assesses customers a $0.25 per
contract exotic surcharge and a $0.21 per contract execution
surcharge in SPX and SPESG options. See Cboe Fees Schedule. In
addition, the Exchange's affiliate, Nasdaq Phlx LLC (``Phlx'')
current assesses a $0.25 per contract complex surcharge for
executions in singly-listed U.S. dollar-settled foreign currency
options. See Phlx Options 7, Section 5.D.
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The Exchange notes that less than 50% of total NDX executed volume
is in NDX contracts with a premium of $25.00 or greater, as shown in
the chart below.\9\
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\9\ The chart includes A.M. and P.M. settled options on the full
value of the Nasdaq 100[supreg] Index on Nasdaq ISE, LLC, Nasdaq
GEMX, LLC, and Nasdaq Phlx LLC.
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[[Page 60940]]
[GRAPHIC] [TIFF OMITTED] TN29JY24.000
Notably, the majority of NDX contracts have a premium price of
below $25.00. The Exchange believes that on the whole, while it is
proposing a $0.25 per contract surcharge on NDX executions with a
premium price of $25.00 or greater, market participants will continue
to be incentivized to transact in NDX, especially given that the
majority of such transactions would occur below the threshold at which
the proposed surcharge would be assessed.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that its proposal to add a $0.25 per contract
surcharge to all market participants for NDX executions with a premium
price of $25.00 or greater is reasonable because the proposed pricing
reflects the proprietary nature of this product. Similar to other
proprietary products, the Exchange seeks to recoup the operational
costs of listing proprietary products.\12\ Also, pricing by symbol is a
common practice on many U.S. options exchanges as a means to
incentivize order flow to be sent to an exchange for execution in
particular products. Other options exchanges price by symbol and based
on the option premium.\13\ Further, the Exchange notes that market
participants are offered different ways to gain exposure to the Nasdaq
100 Index, whether through the Exchange's proprietary products like NDX
options, or separately through multi-listed options overlying Invesco
QQQ Trust (``QQQ'').\14\ Offering such products provides market
participants with a variety of choices in selecting the product they
desire to utilize in order to gain exposure to the Nasdaq 100 Index.
When exchanges are able to recoup costs associated with offering
proprietary products, it incentivizes growth and competition for the
innovation of additional products. The Exchange further believes that
the proposed surcharge described above is reasonable because the new
fee is in line with surcharges assessed on other index products at
other options exchanges.\15\
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\12\ By way of example, in analyzing an obvious error, the
Exchange would have additional data points available in establishing
a theoretical price for a multiply listed option as compared to a
proprietary product, which requires additional analysis and
administrative time to comply with Exchange rules to resolve an
obvious error.
\13\ See supra note 7.
\14\ QQQ is an exchange-traded fund based on the same Nasdaq 100
Index as NDX.
\15\ See supra note 8.
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The Exchange believes that its proposal is equitable and not
unfairly discriminatory because it will be applied uniformly to all
market participants. Assessing a surcharge only for executions in NDX
whose premium is $25.00 or greater is equitable and not unfairly
discriminatory for the reasons that follow. As shown in the chart
above, the majority of NDX contracts have a premium of less than
$25.00, and the Exchange is limiting the proposed surcharge to higher-
priced NDX contracts (i.e., $25.00 or greater), while maintaining lower
costs on lower-priced NDX contracts (i.e., below $25.00). As such, the
Exchange believes that its proposal will continue to promote liquidity
in these products, to the benefit of all market participants because
the majority of NDX contracts would not incur the proposed $0.25
surcharge as they would fall below the premium price threshold at which
the surcharge would be assessed.
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.
[[Page 60941]]
In terms of intra-market competition, the Exchange will apply the
proposed surcharge uniformly to all market participants. As discussed
above, the majority of NDX contracts have a premium of less than $25.00
and these contracts would not incur the proposed $0.25 surcharge as
they would fall under the premium price threshold at which the
surcharge would be assessed. By limiting the proposed surcharge to
higher-priced NDX contracts (i.e., with a premium price of $25.00 or
higher), the Exchange believes that its proposal will continue to
promote liquidity in NDX by maintaining lower costs for lower-priced
NDX contracts. Greater liquidity benefits all market participants by
providing more trading opportunities, tighter spreads, and added market
transparency and price discovery.
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. As noted above, market participants are offered
an opportunity to transact in NDX, or separately execute options
overlying QQQ. Offering these products provides market participants
with a variety of choices in selecting the product they desire to use
to gain exposure to the Nasdaq 100 Index. Furthermore, the proposed
surcharge is in line with surcharges assessed on other products at
another options exchange.\16\
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\16\ See supra note 8.
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In addition to the Exchange, market participants have alternative
options exchanges that they may participate on and direct their order
flow, which list proprietary products that compete with NDX.\17\ 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 options
exchanges to maintain their competitive standing in the financial
markets.
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\17\ See e.g., pricing for Russell 2000 Index (``RUT'') on
Cboe's Fees Schedule and Cboe C2 Exchange, Inc.'s (``C2'') Fees
Schedule. See also SPX pricing on Cboe's Fees Schedule. Both RUT and
SPX are proprietary products on the Cboe markets that are broad-
based index options, like NDX and NDXP.
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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
<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#addfd8c1c880cec2c0c0c8c3d9deeddec8ce83cac2db"><span class="__cf_email__" data-cfemail="6f1d1a030a420c0002020a011b1c2f1c0a0c41080019">[email protected]</span></a>. Please include
file number SR-GEMX-2024-22 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-2024-22. 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-2024-22 and should be
submitted on or before August 19, 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. 2024-16548 Filed 7-26-24; 8:45 am]
BILLING CODE 8011-01-P
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