Notice2024-21869
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Codify the Definition of GEMX Open/Close End of Day and Intraday Trade Profile
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
September 25, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 186 (Wednesday, September 25, 2024)</title>
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[Federal Register Volume 89, Number 186 (Wednesday, September 25, 2024)]
[Notices]
[Pages 78408-78414]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-21869]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101097; File No. SR-GEMX-2024-35]
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Codify the
Definition of GEMX Open/Close End of Day and Intraday Trade Profile
September 19, 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 September 6, 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 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.
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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 codify the definition of GEMX Open/Close
End of Day and Intraday Trade Profile in the GEMX rulebook. This filing
also incorporates previously proposed fee changes that: (i) adjusted
fees for GEMX Open/Close End of Day and Intraday Trade Profile; (ii)
reduced fees for 36 months of historical data for current customers;
and (iii) allowed unlimited external distribution of GEMX Open/Close
End of Day and Intraday Trade Profile for a fixed monthly fee.
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
[[Page 78409]]
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 codify the definition
of GEMX Open/Close Trade Profile in the GEMX rulebook. This filing also
incorporates previously proposed fee changes that: (i) adjusted fees
for GEMX Open/Close End of Day and Intraday Trade Profile; (ii) reduced
fees for 36 months of historical data for current customers; and (iii)
allowed unlimited external distribution of GEMX Open/Close End of Day
and Intraday Trade Profile for a fixed monthly fee.\3\
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\3\ The previously introduced fee proposal was initially filed
on July 1, 2024, as SR-GEMX-2024-19. On July 15, 2024, that filing
was withdrawn and refiled as SR-GEMX-2024-24. On July 29, 2024, that
filing was withdrawn and refiled as SR-GEMX-2024-26 On August 12,
2024, that proposal was withdrawn and replaced with SR-GEMX-2024-28
to incorporate those fees into a filing that codifies the definition
of GEMX Open/Close Trade Profile. On August 23, 2024, SR-GEMX-2024-
28 was withdrawn and replaced with SR-GEMX-2024-31 to provide
additional information. On September 6, 2024, SR-GEMX-2024-31 was
withdrawn and replaced with the instant filing to provide further
information.
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GEMX Open/Close Trade Profile
The GEMX Open/Close Trade Profile provides over 80 fields of
trading and volume data for GEMX-listed options that can be used to
create and test trading models and analytical strategies.\4\ This
product is designed to provide data to subscribers regarding investor
sentiment and trading activity.
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\4\ See Securities Exchange Act Release No. 81632 (September 15,
2017), 82 FR 44235 (September 21, 2017) (SR-GEMX-2017-42) (setting
current fees for GEMX Open/Close Trade Profile).
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The GEMX Open/Close Trade Profile provides aggregate quantity and
volume information for trades on the Exchange for all series \5\ during
a trading session. Information is provided in the following categories:
(i) total exchange volume for Intra-Day information and total exchange
and industry volume for End of Day information for each reported
series; (ii) open interest for the series; (iii) aggregate quantity of
trades and aggregate trade volume effected to open a position,
characterized by origin type (Priority Customer,\6\ Broker-Dealer,\7\
Firm Proprietary,\8\ and Professional Customer \9\), and for Priority
Customers and Professional Customers, further subdivided by trade size
buckets; and (iv) aggregate quantity of trades and aggregate trade
volume effected to close a position, characterized by origin type
(Priority Customer, Broker-Dealer, Firm Proprietary, and Professional
Customer), and for Priority Customers and Professional Customers,
further subdivided by trade size buckets.
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\5\ Every options series trades as a distinct symbol; the terms
``series'' and ``symbol'' are therefore synonyms.
\6\ 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). See Options 7, Section 1(c).
\7\ A ``Broker-Dealer'' order is an order submitted by a member
for a broker-dealer account that is not its own proprietary account.
See Options 7 Section 1(c).
\8\ A ``Firm Proprietary'' order is an order submitted by a
member for its own proprietary account. See Options 7 Section 1(c).
\9\ A ``Professional Customer'' is a person or entity that is
not a broker/dealer and is not a Priority Customer. See Options 7
Section 1(c).
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GEMX Open/Close Trade Profile End of Day also provides opening buy,
closing buy, opening sell and closing sell information, which includes
underlying close, option close, and moneyness.
End of Day information is available the next business day. Intra-
Day information is updated at 10-minute intervals over the course of
the trading day. Historical information is available upon request.
The GEMX Open/Close Trade Profile provides proprietary Exchange
trade data and does not include any intraday trade data from any other
exchange.\10\ The information provided, both in End of Day and Intraday
formats, is not a real-time data feed.
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\10\ The End of Day report includes a field that presents Total
Industry Volume for the Series.
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GEMX Open/Close Trade Profile is a completely voluntary product in
that the Exchange is not required by any rule or regulation to make
this data available and potential subscribers may purchase it only if
they voluntarily choose to do so.
This information is available to all market participants, including
both members and non-members, for all series and symbols in End of Day,
Intra-Day, and historical files (upon request).
Trade Profile data includes ``Origin Code'' (the type of trader
participating in the transaction); opening and closing buys and sells;
\11\ trading volume and number of trades categorized by day and series;
\12\ the degree to which a series is ``in'' or ``out'' of the
``money''; \13\ the number of days to expiration; an indication of the
degree to which there is ``Open Interest'' \14\ for each series; and a
comparison of the volume of trading at GEMX relative to the industry as
a whole.
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\11\ An opening buy is a transaction that creates or increases a
long position and an opening sell is a transaction that creates or
increases a short position. A closing buy is a transaction made to
close out an existing position. A closing sell is a transaction to
reduce or eliminate a long position.
\12\ Trading volume is the number of contracts traded; the
number of trades is the number of transactions.
\13\ The degree to which a series is ``in'' or ``out'' of the
``money'' is identified according to the following five levels of
``moneyness'': (i) ``Deep in the Money'' means that the strike price
of this option is more than 12% lower than the price of the
underlying security if it is a call or more than 12% higher if it is
a put; (ii) ``In the Money'' means that the strike price of this
option is within the range of 5%-12% lower than the price of the
underlying security if it is a call or within the range of 5%-12%
higher if it is a put; (iii) ``At the Money'' means that the strike
price of this option is within the range of 5% higher or lower than
the price of the underlying security; (iv) ``Out of the Money''
means that the strike price of this option is within the range of
5%-12% higher than the price of the underlying security if it is a
call or 5%-12% lower if it is a put; and (v) ``Deep out of the
Money'' means that the strike price of this option is more than 12%
higher than the price of the underlying security if it is a call or
more than 12% lower if it is a put.
\14\ ``Open Interest'' is the total number of outstanding
contracts for each series across all options exchanges for the trade
date of the file.
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The End of Day file is updated overnight and available for download
the following morning.
The Intraday file is captured in ``snapshots'' taken every 10
minutes throughout the trading day, available to subscribers within 2
minutes of the conclusion of each period. Subscribers receive the first
calculation at 9:42 a.m. ET, representing data captured from 9:30 a.m.
to 9:39 a.m., and the second calculation at 9:52 a.m., representing
data from both the most recent snapshot and previous snapshots,
continuing over the course of the trading day.
The End of Day subscription is available for $500 per month. The
Intraday subscription is available for $1,000 per month. These fees
were set in 2017.\15\
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\15\ See Securities Exchange Act Release No. 81632 (September
15, 2017), 82 FR 44235 (September 21, 2017) (SR-GEMX-2017-42)
(setting current fees for GEMX Open/Close Trade Profile).
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The GEMX Open/Close Trade Profile is also available as an
historical database available upon request.\16\ This data is intended
to enhance a purchaser's ability to analyze option trade and volume
data, evaluate historical trends in the trading activity of a
particular option series, and create and test trading models and
analytical
[[Page 78410]]
strategies. The historical database provides the same fields of
information available for the Intraday and End of Day products,
respectively.
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\16\ See Securities Exchange Act Release No. 80722 (May 18,
2017), 82 FR 23891 (May 24, 2017) (SR-GEMX-2017-13) (establishing
fees for historical information on GEMX Open/Close Trade Profile).
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End of Day data is available for $400 per request per month.
Intraday information is available in 10-minute increments for $750 per
request per month. Historical data is available starting in August
2013.
Trade Profile is designed to enhance the ability of customers to
understand market sentiment on the Exchange and to create and test
trading models and analytical strategies useful in both options and
equities markets. It is not necessary to execute a trade, but it
supplies the customer with information about underlying market trends
designed to improve the quality of that customer's investment
decisions. Customers can, and often do, elect to forego this
information.
Products similar to Trade Profile have been available on multiple
exchanges for many years and are well-established in the market. Such
products are available from the Nasdaq Phlx LLC (``Phlx''),\17\ Nasdaq
Options Market (``NOM''),\18\ Nasdaq ISE LLC (``ISE''),\19\ Cboe
Options Exchange (``Cboe''),\20\ NYSE American Options (``NYSE
American''),\21\ NYSE Arca Options (``NYSE Arca''),\22\ BOX Options
Market LLC (``BOX''),\23\ MIAX Pearl Options Exchange (``Pearl''),\24\
and others. In general, the relative value of these products depends on
the volume of transactions included; the greater the volume of
transactions, the greater the value of the data. The current purchasers
of Trade Profile are investment banks, market makers, asset managers
and other buy-side investors.
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\17\ See Securities Exchange Act Release No. 62887 (September
10, 2010), 75 FR 57092 (September 17, 2010) (SR-Phlx-2010-121)
(introducing PHOTO on September 1, 2010).
\18\ See Nasdaq Stock Market Rules, Options 7, Section 4 (Nasdaq
Options Market Data Distributor Fees).
\19\ See Nasdaq ISE Rules, Options 7, Section 10(A) and (B)
(Nasdaq ISE Open/Close Trade Profile End of Day; Nasdaq ISE Open/
Close Trade Profile Intraday).
\20\ See, e.g., Securities Exchange Act Release No. 94913 (May
13, 2022), 87 FR 30534 (May 19, 2022) (SR-Cboe-2022-023) (describing
End of Day and Intra-Day Open-Close Data as a summary of trading
activity on the exchange at the option level by origin, side of the
market, price, and transaction type).
\21\ See, e.g., Securities Exchange Act Release No. 93803
(December 16, 2021, 86 FR 72647 (December 22, 2021) (SR-NYSEAMER-
2021-46) (describing the NYSE Options Open-Close Volume Summary as a
volume summary of trading activity on the exchange at the option
level by origin, side of the market, contract volume and transaction
type).
\22\ See, e.g., Securities Exchange Act Release No. 93132
(September 27, 2021), 86 FR 54499 (October 1, 2021) (SR-NYSEArca-
2021-82) (describing the NYSE Options Open-Close Volume Summary as a
volume summary of trading activity on the exchange at the option
level by origin, side of the market, contract volume and transaction
type).
\23\ See, e.g., Securities Exchange Act Release No. 97174 (March
21, 2023), 88 FR 18201 (March 27, 2023) (SR-BOX-2023-09) (describing
the BOX exchange Open-Close Data report as providing volume by
origin, buying/selling, and opening/closing criteria).
\24\ See, e.g., Securities Exchange Act Release No. 91964 (May
21, 2021), 86 FR 28667 (May 27, 2021) (SR-PEARL-2021-24)
(introducing the Open-Close Report).
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Proposed Changes
Definition of GEMX Open/Close Trade Profile
The Exchange proposes to codify the definition of GEMX Open/Close
Trade Profile. Nothing in this codification is intended to change the
product in any way, but rather is intended to describe the product
exactly as it exists. Specifically, the Exchange proposes the following
definition:
GEMX Open/Close Trade Profile provides aggregate quantity and
volume information for trades on the Exchange for all series during
a trading session. Information is provided in the following
categories: (i) total exchange volume for Intra-Day information and
total exchange and industry volume for End of Day information for
each reported series; (ii) open interest for the series; (iii)
aggregate quantity of trades and aggregate trade volume effected to
open a position, characterized by origin type (Priority Customer,
Broker-Dealer, Firm Proprietary, and Professional Customer), and for
Priority Customers and Professional Customers, further subdivided by
trade size buckets; and (iv) aggregate quantity of trades and
aggregate trade volume effected to close a position, characterized
by origin type (Priority Customer, Broker-Dealer, Firm Proprietary,
and Professional Customer), and for Priority Customers and
Professional Customers, further subdivided by trade size buckets.
GEMX Open/Close Trade Profile End of Day will also provide
opening buy, closing buy, opening sell and closing sell information,
which shall include option first trade price, underlying close,
option close, and moneyness.
End of Day information will be available the next business day.
Intra-Day information is updated at 10-minute intervals over the
course of the trading day. Historical information will be available
upon request.
The purpose of the proposed change is to add clarity and
specificity to the GEMX rulebook.
Previously Introduced Fee Changes
Fee Changes for End of Day and Intraday Products
The Exchange proposes to increase the fee for the End of Day
product from $500 to $575, and the Intraday Product from $1,000 to
$1,500.
In addition, the Exchange proposes to insert a comma after the
phrase ``or the Intraday Product for the current month'' into the
definition of Current Distributor. The revised sentence will read as
follows:
A ``Current Distributor'' is any firm that purchases either the
End of Day Product for the current month, or the Intraday Product
for the current month, in the same month that the 36 months of
historical End of Day or Intraday data is ordered.
The change is designed to clarify that the phrase ``the same month
that the 36 months of historical End of Day or Intraday data is
ordered'' applies to both firms that purchase End of Day data in the
current month and firms that purchase Intraday data for the current
month. The clarification will not change how the fee is charged.
Discount for Historical Data
The Exchange proposes to offer a discount for historical data for
Current Intraday or End of Day Distributors.\25\ Historical data is
currently available for $400 per request per month for End of Day
information, and $750 per request per month for Intraday information.
The Exchange proposes to offer the most recent 36 months of historical
data for current end of day product distributors for $4,800, and the
most recent 36 months of historical data for current Intraday product
distributors for $9,000.
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\25\ The Exchange proposes to define ``Current Distributor'' as
any firm that purchases either the End of Day Product for the
current month, or the Intraday Product for the current month in the
same month that the 36 months of historical End of Day or Intraday
data is ordered.
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These changes would substantially reduce fees for historical data.
Under the current fee schedule, 36 months of end of day data at $400
per month would cost $14,400. The proposal would reduce this to $4,800.
Thirty-six months of intraday data would cost $27,000 at the current
rate of $750 per month. The proposal would reduce this to $9,000.
Customers would be able to purchase historical information that exceeds
36 months at the current rates.
The historical data will continue to provide the same categories of
information available for current subscribers under the new proposal.
Eligibility for the discount will depend on the type of current
subscription. A current purchaser of End of Day data would be eligible
for the historical End of Day product at the reduced rate. A current
purchaser of the Intraday product would similarly be able to purchase
the historical Intraday product at the reduced rate. A purchaser of
both the current End of Day and Intraday products would be entitled to
[[Page 78411]]
purchase both types of history at the reduced rate.
The 36-month period will be based on the date of purchase of the
current subscription by a Current Distributor. For example, a customer
that buys the current End of Day product for the first time in July
2024 would also be able to purchase historical End of Day data for the
period July 2021 through July 2024 (inclusive) at the discounted rate.
Similarly, a customer with an existing End of Day subscription that is
current in July 2024 would be able to purchase the historical End of
Day data from July 2021 through July 2024 at the discounted rate. The
same reasoning would apply to Intraday customers.\26\
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\26\ A customer may use the proposed historical data discount
more than once. For example, a Current Distributor that purchases 36
months of historical data at a discount, but later terminates that
subscription, would be eligible to purchase another 36 months of
historical data (based on the date of purchase) upon renewing that
subscription. (Current Distributors that never terminate would have
no need for a second purchase, as they would already possess the
most recent months of historical data.).
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The fees for historical data are linked to the current product
because effective historical testing requires a comparison of similar
products. Effective testing of the End of Day product, for example,
requires End of Day historical data, and the same would hold true for
Intraday data.
Historical data is useful in analyzing option trade and volume
data, evaluating historical trends in the trading activity of a
particular option series, and creating and testing trading models and
analytical strategies, and is often purchased concurrently with a new
subscription to GEMX Open/Close Trade Profile. Many customers use
historical data to test their strategies and models, and our
discussions with current and former customers and experience indicate
that 36 months of data is sufficient for most customer needs, and is an
effective baseline for review.
External Distribution of Derived Data
The Exchange proposes to offer a license for the unlimited external
distribution of Derived Data from GEMX Trade Profile for $3,000 per
month. Derived Data is ``any Information generated in whole or in part
from Exchange Information such that the Information generated cannot be
reverse engineered to recreate Exchange Information,\27\ or be used to
create other data that is recognizable as a reasonable substitute for
such Exchange Information.''
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\27\ ``Exchange Information'' is any data or information that
has been collected, validated, processed and/or recorded by the
Exchange and made available for transmission relating to: (i)
Eligible securities or other financial instruments, markets,
products, vehicles, indicators, or devices; (ii) activities of the
Exchange; or (iii) other information or data from the Exchange.
Information includes, but is not limited to, any element of
information used or processed in such a way that Exchange
Information or a substitute for such Information can be identified,
recalculated or re-engineered from the processed information.
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Fees for external distribution of Derived Data from GEMX Trade
Profile are in addition to fees for the End of Day product or the
Intraday product, or both, as applicable.
This is a new license; external distribution of Derived Data is not
currently permitted. The proposal, based on a similar license offered
by the Phlx exchange,\28\ will allow the external distribution of
analytic products derived from GEMX Trade Profile to the general
investing public. A similar product is also being proposed for the
Nasdaq Options Market and the ISE Exchange.
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\28\ See Securities Exchange Act Release No. 93293 (October 12,
2021), 86 FR 57716 (October 18, 2021) (SR-Phlx-2021-58).
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Experience with Phlx indicates that this license provides an
effective mechanism for market data vendors to identify, develop, and
sell derived market data products, such as sentiment indicators,
harnessing the power of the competitive marketplace to promote
innovation. The Exchange expects that this product will have the
greatest utility for the general investing public.
2. Statutory Basis
The Exchange believes that its proposal to codify the definition of
GEMX Open/Close Trade Profile is consistent with Section 6(b) of the
Act,\29\ in general, and furthers the objectives of Section 6(b)(5) of
the Act,\30\ in particular, in that it 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.
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\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
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Adding the definition of GEMX Open/Close Trade Profile will provide
additional clarity and specificity to the GEMX rulebook. Nothing in
this codification is intended to change the product or the way it
functions, but rather is intended to describe the product exactly as it
exists today. Providing additional clarity about an exchange product
will help investors make better informed decisions about GEMX Open/
Close Trade Profile, and therefore will help protect investors and
promote the public interest.
Similarly, clarifying the definition of Current Distributor will
also add specificity to the rulebook without changing the underlying
fees. This additional clarity will help investors make better informed
decisions about GEMX Open/Close Trade Profile, and thereby help protect
investors and promote the public interest.
The Exchange also believes that its proposal to change fees is
consistent with Section 6(b) of the Act,\31\ in general, and furthers
the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\32\ 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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\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(4) and (5).
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Equitable Allocation of Reasonable Dues, Fees and Other Charges
The proposed changes are an equitable allocation of reasonable
dues, fees and other charges because: (i) the trade outline products
offered by multiple exchanges are substitutes, and customers are free
to choose which product they purchase; and (ii) the proposed fees are
comparable to the fees charged by other exchanges, and customers are
free to purchase other products if the Exchange has mistaken the value
of its product.
Substitution
Products similar to Trade Profile have been available on multiple
exchanges for many years and are well-established in the market. Such
products are available from Phlx,\33\ ISE,\34\ GEMX,\35\ Cboe,\36\ NYSE
American,\37\ NYSE
[[Page 78412]]
Arca,\38\ BOX,\39\ MIAX Pearl,\40\ and others.
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\33\ See Securities Exchange Act Release No. 62887 (September
10, 2010), 75 FR 57092 (September 17, 2010) (SR-Phlx-2010-121)
(introducing PHOTO on September 1, 2010).
\34\ See Nasdaq ISE Rules, Options 7, Section 10(A) and (B)
(Nasdaq ISE Open/Close Trade Profile End of Day; Nasdaq ISE Open/
Close Trade Profile Intraday).
\35\ See Nasdaq GEMX Rules, Options 7, Sections 7(D) (Nasdaq
GEMX Open/Close End of Day Trade Profile) and 7(E) (Nasdaq GEMX
Open/Close Intraday Trade Profile).
\36\ See, e.g., Securities Exchange Act Release No. 94913 (May
13, 2022), 87 FR 30534 (May 19, 2022) (SR-Cboe-2022-023) (describing
End of Day and Intra-Day Open-Close Data as a summary of trading
activity on the exchange at the option level by origin, side of the
market, price and transaction type).
\37\ See, e.g., Securities Exchange Act Release No. 93803
(December 16, 2021, 86 FR 72647 (December 22, 2021) (SR-NYSEAMER-
2021-46) (describing the NYSE Options Open-Close Volume Summary as a
volume summary of trading activity on the exchange at the option
level by origin, side of the market, contract volume and transaction
type).
\38\ See, e.g., Securities Exchange Act Release No. 93132
(September 27, 2021), 86 FR 54499 (October 1, 2021) (SR-NYSEArca-
2021-82) (describing the NYSE Options Open-Close Volume Summary as a
volume summary of trading activity on the exchange at the option
level by origin, side of the market, contract volume and transaction
type).
\39\ See, e.g., Securities Exchange Act Release No. 97174 (March
21, 2023), 88 FR 18201 (March 27, 2023) (SR-BOX-2023-09) (describing
the BOX exchange Open-Close Data report as providing volume by
origin, buying/selling, and opening/closing criteria).
\40\ See, e.g., Securities Exchange Act Release No. 91964 (May
21, 2021), 86 FR 28667 (May 27, 2021) (SR-PEARL-2021-24)
(introducing the Open-Close Report).
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Trade outline products offer the same categories of data through
end of day or intraday reports. The information provided by one
exchange is generally similar to that provided by other exchanges
because order flow can move from one exchange to another, and market
sentiment trends that appear on one exchange are likely to be similar
to the sentiment trends on other exchanges. The key differentiator in
the quality of the data depends on the volume of transactions on a
given exchange; the greater the volume of transactions, the greater the
value of the data. Customers can choose not to purchase the trade
outline product of one exchange and substitute it for that of another
exchange.
Customers can also choose not to purchase a trade outline product
at all. Trade outline products are designed to help investors
understand underlying market trends to improve the quality of
investment decisions, but are not necessary to execute a trade.
Customers can, and do, choose to forego the information from Trade
Profile or any of its competitor products when making a trade.
Nasdaq and its affiliates have observed that customers purchase
sufficient data to provide a view of the market, but not more, as the
value of data from each additional exchange yields diminishing returns.
As a result, all exchanges are limited in what they will be able to
charge for Trade Profile.
As the Commission and courts \41\ have recognized, ``[i]f
competitive forces are operative, the self-interest of the exchanges
themselves will work powerfully to constrain unreasonable or unfair
behavior.'' \42\ Accordingly, ``the existence of significant
competition provides a substantial basis for finding that the terms of
an exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.'' \43\ 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.'' \44\ Trade Profile is in direct competition with multiple
exchanges that offer similar products in end of day and intraday
formats.\45\
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\41\ The decision of the United States Court of Appeals for the
District of Columbia Circuit in NetCoalition v. SEC 615 F.3d 525
(D.C. Cir. 2010). upheld the Commission's reliance upon competitive
markets to set reasonable and equitably allocated fees for market
data. ``In fact, the legislative history indicates that the Congress
intended that the market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed and that the SEC wield its regulatory power in those
situations where competition may not be sufficient, such as in the
creation of a consolidated transactional reporting system.''
NetCoalition I at 535. (quoting H.R. Rep. No. 94-229, at 92 (1975),
as reprinted in 1975 U.S.C.C.A.N. 321, 323) (internal quotation
marks omitted). The court agreed with the Commission's conclusion
that ``Congress intended that competitive forces should dictate the
services and practices that constitute the U.S. national market
system for trading equity securities.'' Id. (quoting Securities
Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770,
74771 (December 9, 2008) (SR-NYSEArca-2006-21)).
\42\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\43\ See id.
\44\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
\45\ These substitute products include NOTO, ISE Trade Profile,
GEMX Trade Profile data; open-close data from Cboe C1, C2, BZX, and
EDGX; and Open Close Reports from MIAX Options, Pearl, and Emerald.
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The license to allow the external distribution of Derived Data,
like the purchase of the end of day and intraday licenses, is also
subject to competition. Any exchange that wishes to allow distribution
of a Derived Data product based on options trading information would be
able to do so with an immediately effective fee filing similar to this
proposal.
Moreover, as explained above, the proposal is designed to promote
the dissemination of a variety of analytical insights--generally used
only by investment banks, market makers, asset managers and other buy-
side investors--to the general investing public by creating an
incentive for market data vendors to identify, develop, and sell such
indicators. As such, the proposal will spur competition among not only
exchanges, but vendors as well.
The discounted fees for historical data, like the purchase of the
end of day, intraday and Derived Data licenses, is also subject to
competition. Any exchange that wishes to provide discounts for
historical data would be able to do so with an immediately effective
fee filing in response.
Comparability of Proposed Fees
The proposed fees are comparable to the fees charged by similarly
situated exchanges.
As explained above, the value of Trade Profile is determined in
part by the number of underlying transactions reflected in the data.
GEMX has a market share comparable to Cboe C2 and MIAX Emerald, at
approximately 3% to 4% during the second quarter of 2024.\46\ For
intraday products, MIAX Emerald charges $2,000 \47\ and Cboe C2 charges
$1,000.\48\ The proposed fee of $1,500 is within that range. For End of
Day products, MIAX Emerald charges $600,\49\ and Cboe C2 charges
$500.\50\ The proposed fees of $575 are within the range of fees
charged by these exchanges.
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\46\ See <a href="http://NasdaqTrader.com">NasdaqTrader.com</a>, ``Options Market Statistics,''
available at <a href="https://www.nasdaqtrader.com/Trader.aspx?id=OptionsVolumeSummary">https://www.nasdaqtrader.com/Trader.aspx?id=OptionsVolumeSummary</a>.
\47\ See MIAX Emerald Options Exchange Fee Schedule as of April
18, 2024,'' available at <a href="https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_04182024.pdf">https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_04182024.pdf</a>.
\48\ See Cboe DataShop, ``Cboe Open-Close Volume Summary,''
available at <a href="https://datashop.cboe.com/cboe-options-open-close-volume-summary">https://datashop.cboe.com/cboe-options-open-close-volume-summary</a>.
\49\ See MIAX Emerald Options Exchange Fee Schedule as of April
18, 2024,'' available at <a href="https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_04182024.pdf">https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_04182024.pdf</a>.
\50\ See Cboe DataShop, ``Cboe Open-Close Volume Summary,''
available at <a href="https://datashop.cboe.com/cboe-options-open-close-volume-summary">https://datashop.cboe.com/cboe-options-open-close-volume-summary</a>.
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Nasdaq is not aware of another exchange that provides a similar
discount for historical data other than its own affiliates. The Phlx
exchange, which is affiliated with Nasdaq, offers the most recent 36
months of historical End of Day data to Current Distributors for
$6,000, and the most recent 36 months of Intraday data for $12,000. The
proposed GEMX fees of $4,800 for 36 months of historical End of Day
data and $9,000 for 36 months of Intraday data are reasonable in
comparison to Phlx because GEMX has a much lower market share
(approximately 9% for Phlx and about 3% for GEMX).
If the Exchange is incorrect in its assessment, current and
prospective customers will elect not to purchase Trade Profile.
[[Page 78413]]
As noted above, clarifying the definition of Current Distributor
will not change fees, and therefore will not impact the equitable
allocation of reasonable dues, fees and other charges.
The Proposal Does Not Permit Unfair Discrimination
Nothing in the proposal treats any category of market participant
any differently from any other category of market participant. On the
contrary, the proposal expands distribution of Trade Profile beyond
investment banks, market makers, asset managers and other buy-side
investors to market data vendors and the general investing public.
Allowing the distribution of Derived Data to the general investing
public will broaden the availability of such information while not
treating any current recipient of the product differently in any way.
The new fee structure, which modifies fees to reflect current market
value and offers historical data at a discount, applies equally to all
current and potential distributors. Trade Profile is available to all
market participants, including members and non-members, and all market
participants receive the same information in the Trade Profile data
feed.
With respect to the specific fee changes, it is reasonable and not
unfair discrimination to charge an external distributor of Derived Data
a $3,000 licensing fee. Vendors will ordinarily charge a fee to their
downstream customers for this service, and, even if the vendor is not
charging a specific fee for this particular service, derived data
products from the Exchange will be part of a suite of offerings that
generally promote sales. External distribution is fundamentally
different than internal use, in that the former generates revenue from
external sales while the latter does not. It is not unfair
discrimination to charge a licensing fee for a product that generates
downstream revenue.
Nor is it unfair discrimination to allow the redistribution of
Derived Data, but not the underlying information, to the general
investing public. As explained above, neither exchanges nor vendors
ordinarily allow redistribution of analytic products--such products are
typically designed solely for the use of direct customers, not for
redistribution to the customers of customers in the manner of a data
feed. Allowing the redistribution of Derived Data provides an incentive
for vendors to innovate with new compelling and varied analytic
products for the general investing public that will provide access to
market sentiment insights that are now generally used by sophisticated
investors. This proposal is therefore not unfair discrimination, but
rather allows for more equitable access to market sentiment information
for the general investing public.
It is also not unfair discrimination to provide a discount for 36
months of historical data to Current Distributors, but not former
distributors or firms that have never purchased the product. Any firm
would be able to become a Current Distributor at any time by
subscribing to Trade Profile, and would be able to cancel the
subscription at any time after receiving the 36 months of historical
data for the proposed discounted fee. More specifically, a firm that is
not a Current Distributor may obtain access to the 36 months of
historical data at a discount by becoming a Current Distributor for a
limited time and then terminating the subscription.
It is not unfair discrimination to limit the historical data
discount to Current Distributors. Historical information is generally
used by Current Distributors to test their strategies and trading
models, and Current Distributors are therefore in the best position to
benefit from the historical data. Outside of the 36 month period, all
firms will have the opportunity to purchase historical data on an ad
hoc basis.
For all of these reasons, the proposal does not permit unfair
discrimination.
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 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.
Adding the definition of GEMX Open/Close Trade Profile will promote
competition by helping investors make better informed decisions about
GEMX Open/Close Trade Profile.
Intermarket Competition
Nothing in the proposal burdens inter-market competition (the
competition among self-regulatory organizations).
As discussed above, Trade Profile is subject to direct competition
from other options exchanges that offer substitutes. Any of these
exchanges can replicate this proposal in full or in part, and nothing
in the proposal would interfere with the ability of any exchange to do
so.
Intra-Market Competition
Nothing in the proposal burdens intra-market competition (the
competition among consumers of exchange data). Trade Profile is
available to any customer under the same fee schedule as any other
customer, and any market participant that wishes to purchase these
products can do so on a non-discriminatory basis. Indeed, the proposal
will foster competition by expanding dissemination of data to vendors
and the general investing public, and by encouraging more market
participants to use Trade Profile data to help inform their investments
strategies and analytic models.
Offering the 36 months of historical data to Current Distributors,
but not former distributors or firms that have never purchased the
product, will not burden competition because non-subscribers are free
to purchase a current subscription. Moreover, a firm that is not a
Current Distributor may become a Current Distributor and then cancel
the product after receiving the historical discount. As such, firms
that are not Current Distributors will have an opportunity to pay the
same fees for the most recent 36 months of historical data as Current
Distributors. Outside of the 36 month period, all firms will have the
opportunity to purchase historical data on an ad hoc basis.
Adding language to clarify the definition of Current Distributor
will not change fees, and will promote competition by better informing
investors.
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.
[[Page 78414]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \51\ and Rule 19b-
4(f)(6) \52\ thereunder.
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\51\ 15 U.S.C. 78s(b)(3)(A).
\52\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \53\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\54\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative upon filing. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative upon filing. The Exchange states that
adding the definition of GEMX Open/Close Trade Profile will provide
additional clarity and specificity to the GEMX rulebook, and nothing in
the clarification changes the product or the way it functions, but
rather describes the product exactly as it exists today. The Exchange
also states that the fees included in this filing have been in effect
since July 1, 2024, and waiver of the operative delay will allow
application of those fees to continue uninterrupted. For these reasons,
the Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
Therefore, the Commission hereby waives the operative delay and
designates the proposal operative upon filing.\55\
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\53\ 17 CFR 240.19b-4(f)(6).
\54\ 17 CFR 240.19b-4(f)(6)(iii).
\55\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 necessary or
appropriate in the public interest, for the protection of investors, or
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.
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#9defe8f1f8b0fef2f0f0f8f3e9eeddeef8feb3faf2eb"><span class="__cf_email__" data-cfemail="3b494e575e16585456565e554f487b485e58155c544d">[email protected]</span></a>. Please include
file number SR-GEMX-2024-35 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-2024-35. 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-2024-35 and should be
submitted on or before October 16, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
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\56\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-21869 Filed 9-24-24; 8:45 am]
BILLING CODE 8011-01-P
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