Notice2024-18476
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
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
August 19, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 160 (Monday, August 19, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 160 (Monday, August 19, 2024)]
[Notices]
[Pages 67117-67120]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-18476]
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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 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 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.
---------------------------------------------------------------------------
\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
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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)).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\12\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\16\ See Options 2, Section 5.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\17\ An Order Flow Provider, by definition, means any Member
that submits, as agent, orders to the Exchange. See supra note 7.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
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#b7c5c2dbd29ad4d8dadad2d9c3c4f7c4d2d499d0d8c1"><span class="__cf_email__" data-cfemail="dfadaab3baf2bcb0b2b2bab1abac9facbabcf1b8b0a9">[email protected]</span></a>. Please include
file number SR-GEMX-2024-27 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-2024-27. 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 (<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-2024-27 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\
---------------------------------------------------------------------------
\19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-18476 Filed 8-16-24; 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 August 19, 2024.
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.