Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Schedule of Fees to Amend Pricing Related to Options Overlying NDX and MNX, 22568-22572 [2017-09811]
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22568
Federal Register / Vol. 82, No. 93 / Tuesday, May 16, 2017 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80636; File No. SR–GEMX–
2017–05)
Self-Regulatory Organizations; Nasdaq
GEMX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change to Schedule of Fees to
Amend Pricing Related to Options
Overlying NDX and MNX
May 10, 2017.
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 April 25,
2017, 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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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes amend the
Exchange’s Schedule of Fees to amend
pricing related to options overlying
NDX 3 and MNX,4 as described further
below. While changes to the Schedule of
Fees pursuant to this proposal are
effective upon filing, the Exchange has
designated these changes to be operative
on May 1, 2017.
The text of the proposed rule change
is available on the Exchange’s Web site
at www.ise.com, 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.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 NDX represents options on the Nasdaq 100
Index traded under the symbol NDX (‘‘NDX’’).
4 MNX represents options on one-tenth the value
of the Nasdaq 100 Index traded under the symbol
MNX (‘‘MNX’’).
2 17
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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
Schedule of Fees to make changes to
pricing related to NDX and MNX. The
proposed changes are discussed in the
following sections.
Fees and Rebates in NDX
The Exchange proposes to amend its
Schedule of Fees to make pricing
changes related to NDX. The Exchange
notes that NDX is transitioning to be
exclusively listed on the Exchange and
its affiliated markets in 2017.5 In light
of this transition, the Exchange seeks to
amend its NDX pricing structure.
Today, as set forth in Section I of the
Schedule of Fees, the Exchange
provides volume-based maker rebates to
Market Maker 6 and Priority Customer 7
orders in Non-Penny Symbols 8 in four
tiers based on a member’s average daily
volume (‘‘ADV’’) in the following
categories: (1) Total Affiliated Member
ADV,9 and (2) Priority Customer Maker
ADV,10 as shown in the table below.11
In addition, the Exchange charges
volume-based taker fees to market
5 The Exchange and its affiliates will exclusively
list NDX in the near future upon expiration of open
expiries in this product on other markets.
6 The term Market Maker refers to ‘‘Competitive
Market Makers’’ and ‘‘Primary Market Makers’’
collectively. Market Maker orders sent to the
Exchange by an Electronic Access Member (‘‘EAM’’)
are assessed fees and rebates at the same level as
Market Maker orders.
7 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 GEMX Rule
100(a)(37A).
8 ‘‘Non-Penny Symbols’’ are options overlying all
symbols excluding Penny Symbols. NDX is a NonPenny Symbol.
9 The Total Affiliated Member ADV category
includes all volume in all symbols and order types,
including both maker and taker volume and volume
executed in the PIM, Facilitation, Solicitation, and
QCC mechanisms.
10 The Priority Customer Maker ADV category
includes all Priority Customer volume that adds
liquidity in all symbols.
11 All eligible volume from affiliated Members
will be aggregated in determining applicable tiers,
provided there is at least 75% common ownership
between the Members as reflected on each
Member’s Form BD, Schedule A. The highest tier
threshold attained above applies retroactively in a
given month to all eligible traded contracts and
applies to all eligible market participants. Any day
that the market is not open for the entire trading
day or the Exchange instructs members in writing
to route their orders to other markets may be
excluded from the ADV calculation; provided that
the Exchange will only remove the day for members
that would have a lower ADV with the day
included.
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participants based on achieving these
volume thresholds.
TABLE 1
Tier
Total affiliated
member ADV
Priority
customer
maker ADV
Tier 1 ...
Tier 2 ...
0–99,999 ..........
100,000–
224,999.
225,000–
349,999.
350,000 or
more.
0–19,999.
20,000–99,999.
Tier 3 ...
Tier 4 ...
100,000–
149,999.
150,000 or
more.
Specifically, the Exchange provides a
maker rebate to Market Maker orders in
Non-Penny Symbols that is $0.40 per
contract in Tier 1, $0.42 per contract in
Tier 2, $0.50 per contract in Tier 3, and
$0.75 per contract in Tier 4. The
Exchange also provides a maker rebate
to Priority Customer orders in NonPenny Symbols that is $0.75 per
contract in Tier 1 (or $0.76 per contract
for members that execute a Priority
Customer Maker ADV of 5,000 to 19,999
contracts in a given month), $0.80 per
contract in Tier 2, $0.85 per contract in
Tier 3, and $1.05 per contract in Tier 4.
Additionally, the Exchange provides a
maker rebate to Non-Nasdaq GEMX
Market Maker,12 Firm Proprietary 13/
Broker-Dealer,14 and Professional
Customer 15 orders in Non-Penny
Symbols that is $0.25 per contract.16
The Exchange also charges volumebased taker fees in Non-Penny Symbols
to market participants based on
achieving the volume thresholds in the
table above. Currently, the Exchange
charges a taker fee for Non-Priority
Customer 17 orders in Non-Penny
Symbols that is $0.89 per contract,
regardless of the tier achieved.18 The
Exchange also charges a taker fee for
12 A ‘‘Non-Nasdaq GEMX Market Maker’’ is a
market maker as defined in Section 3(a)(38) of the
Securities Exchange Act of 1934, as amended,
registered in the same options class on another
options exchange.
13 A ‘‘Firm Proprietary’’ order is an order
submitted by a member for its own proprietary
account.
14 A ‘‘Broker-Dealer’’ order is an order submitted
by a member for a broker-dealer account that is not
its own proprietary account.
15 A ‘‘Professional Customer’’ is a person or entity
that is not a broker/dealer and is not a Priority
Customer.
16 The maker rebates for these market participants
are not volume-based.
17 Non-Priority Customer includes Market Maker,
Non-Nasdaq GEMX Market Maker, Firm
Proprietary, Broker-Dealer, and Professional
Customer.
18 Non-Priority Customer orders are also charged
the taker fee for trades executed during the opening
rotation. Priority Customer orders executed during
the opening rotation receive the applicable maker
rebate based on the tier achieved.
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Federal Register / Vol. 82, No. 93 / Tuesday, May 16, 2017 / Notices
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Priority Customer orders that is $0.82
per contract for Tier 1 and $0.81 per
contract for Tiers 2 through 4.
In addition, different taker fees are
charged for trades executed against a
Priority Customer in Non-Penny
Symbols. In particular, Non-Priority
Customer orders are charged a taker fee
of $1.10 per contract for trades executed
against a Priority Customer. Priority
Customer orders are charged a taker fee
of $0.85 per contract for trades executed
against a Priority Customer. Orders in
Non-Penny Symbols that do not trade
against a Priority Customer are currently
charged at the rates described in the
paragraph above and as set forth in the
Non-Penny Symbols table in Section I of
the Schedule of Fees.
The Exchange also currently assesses
different fees for regular Non-Penny
Symbol orders executed in the
Exchange’s crossing mechanisms, as set
forth in Schedule I of the Schedule of
Fees (such orders, ‘‘Auction Orders’’).
Specifically, the Exchange charges a fee
for Non-Priority Customer Crossing
Orders 19 (excluding PIM orders) in
Non-Penny Symbols. This fee is
currently $0.20 per contract for NonPriority Customer orders on both the
originating and contra side of a Crossing
Order. The Exchange does not assess a
fee for Priority Customer Crossing
Orders (excluding PIM orders) in NonPenny Symbols. The Exchange also
charges a separate fee for Crossing
Orders in Non- Penny Symbols for PIM
orders only. This fee is currently $0.05
per contract for all Non-Priority
Customer orders executed in the PIM,
and also for Priority Customer orders on
the contra-side of a PIM auction. There
is no fee for Priority Customer orders on
the agency side of a PIM auction. Lastly,
for Responses to Crossing Orders 20
(excluding PIM orders) in Non-Penny
Symbols, the Exchange charges a fee of
$0.89 per contract for Non-Priority
Customers orders and a fee of $0.82 per
contract for Priority Customer orders.
For all Responses to Crossing Orders
executed in the PIM, the Exchange
charges a $0.05 per contract fee for all
market participant types.
In light of NDX’s transition to
becoming exclusively listed, the
Exchange seeks to amend its pricing
19 A ‘‘Crossing Order’’ is an order executed in the
Exchange’s Facilitation Mechanism, Solicited Order
Mechanism, Price Improvement Mechanism
(‘‘PIM’’) or submitted as a Qualified Contingent
Cross order. For purposes of this Fee Schedule,
orders executed in the Block Order Mechanism are
also considered Crossing Orders.
20 ‘‘Responses to Crossing Order’’ is any contraside interest (i.e., orders & quotes) submitted after
the commencement of an auction in the Exchange’s
Facilitation Mechanism, Solicited Order
Mechanism, Block Order Mechanism or PIM.
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structure. Specifically, the Exchange
seeks to eliminate the current pricing
structure for NDX by excluding this
index option from the fees and rebates
applicable to all Non-Penny Symbol
orders, and instead adopt standard
transaction fees as set forth in a new
table in Section I of the Schedule of
Fees.21 The Exchange also seeks to
eliminate the maker rebates for all
market participant orders in NDX.22 As
such, all Non-Priority Customer
orders 23 in NDX (including NonPriority Customer Auction Orders) will
be assessed a transaction fee of $0.75,
which will be uniform for these market
participants, regardless of the tier
achieved.24 All Priority Customer orders
in NDX (including Priority Customer
Auction Orders) will not be assessed
fees in any of the volume-based tiers.25
Non-Priority Customer License
Surcharge for NDX and MNX
Currently, a number of index options
are traded on the Exchange pursuant to
license agreements for which the
Exchange charges license surcharges. As
set forth in Section II.B of the Schedule
of Fees, the Exchange currently charges
a $0.22 per contract license surcharge
for all orders in NDX and MNX other
than Priority Customer orders. For NDX
21 The Exchange will therefore add note 6 in
Section I of the Schedule of Fees to provide that the
fees set forth in the new pricing table for index
options will apply only to NDX. Furthermore, note
6 will state that these fees are assessed to all
executions in NDX to clarify that the proposing
pricing also applies to Auction Orders in NDX.
22 Orders in NDX will continue, however, to
count toward volume-based tiers under the
proposed pricing structure. As such, maker rebates
will no longer be paid on NDX contracts, but NDX
contracts will count toward the volume requirement
to qualify for a rebate tier. For example, a Market
Maker that executes a Total Affiliated Member ADV
of 350,000 contracts in a given month would
normally qualify for the maker rebate of $0.75 per
contract in Tier 4. With the proposed changes, that
Market Maker would not be paid a maker rebate for
trades in NDX, but its executions in NDX would
still count towards the monthly volume calculation
(i.e., to reach the Total Affiliated Member ADV Tier
4 threshold of 350,000 contracts).
23 Market Maker orders in NDX sent to the
Exchange by an EAM will continue to be assessed
fees at the same level as Market Maker orders in
NDX.
24 The Exchange will therefore add note 10 in
Section I of the Schedule of Fees to provide that
this fee will not be subject to tier discounts. Orders
in NDX, however, will still count toward volumebased tiers. For example, a Market Maker that
executes a Total Affiliated Member ADV of 350,000
contracts in a given month would normally be
charged a taker fee of $0.89 per contract for orders
in Non-Penny Symbols. With the proposed changes,
that Market Maker would pay a fee of $0.75 for
trades in NDX, regardless of the tier achieved. That
Market Maker’s executions in NDX, however,
would still be counted towards the monthly volume
calculation (i.e., to reach the Total Affiliated
Member ADV Tier 4 threshold of 350,000
contracts). See also note 22 above.
25 See notes 22 and 24 above.
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22569
only, the Exchange is proposing to
amend Section II.B of the Schedule of
Fees to increase the Non-Priority
Customer License Surcharge from $0.22
to $0.25 per contract (‘‘NDX
Surcharge’’), and to relocate the NDX
Surcharge to note 9 in Section I of the
Schedule of Fees, instead of stating the
pricing within the current table in
Section II.B of the Schedule of Fees. The
proposed increase to $0.25 per contract
will align the Exchange’s NDX
Surcharge with those of its affiliated
markets, International Securities
Exchange, LLC (‘‘ISE’’) and NASDAQ
PHLX LLC (‘‘Phlx’’).26
As it relates to MNX, the Exchange
seeks to eliminate the $0.22 NonPriority Customer License Surcharge
(‘‘MNX Surcharge’’), and proposes to
remove any references to MNX currently
in Section II.B of the Schedule of Fees.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,27 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,28 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.
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.’’ 29
Likewise, in NetCoalition v. Securities
and Exchange Commission 30
(‘‘NetCoalition’’) the D.C. Circuit upheld
the Commission’s use of a market-based
approach in evaluating the fairness of
market data fees against a challenge
claiming that Congress mandated a cost26 See ISE’s Schedule of Fees, Section IV.B. See
also Phlx’s Pricing Schedule, Section II.
27 15 U.S.C. 78f(b).
28 15 U.S.C. 78f(b)(4) and (5).
29 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
30 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
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Federal Register / Vol. 82, No. 93 / Tuesday, May 16, 2017 / Notices
based approach.31 As the court
emphasized, the Commission ‘‘intended
in Regulation NMS that ‘market forces,
rather than regulatory requirements’
play a role in determining the market
data . . . to be made available to
investors and at what cost.’’ 32
Further, ‘‘[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 brokerdealers 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’. . . .’’ 33 Although the court
and the SEC were discussing the cash
equities markets, the Exchange believes
that these views apply with equal force
to the options markets.
Fees and Rebates in NDX
The Exchange believes that the
proposed pricing changes for NDX are
reasonable, equitable and not unfairly
discriminatory as NDX transitions to an
exclusively-listed product. Similar to
other proprietary products, the
Exchange seeks to recoup the
operational costs for listing proprietary
products.34 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.35
Further, the Exchange notes that with its
products, market participants are
offered an opportunity to either transact
options overlying NDX or separately
execute options overlying PowerShares
QQQ Trust (‘‘QQQ’’).36 Offering
products such as QQQ provides market
participants with a variety of choices in
selecting the product they desire to
utilize to transact NDX.37 When
31 See
NetCoalition, at 534–535.
at 537.
33 Id. at 539 (quoting Securities Exchange Act
Release No. 59039 (December 2, 2008), 73 FR
74770, 74782–83 (December 9, 2008) (SR–
NYSEArca–2006–21)).
34 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.
35 See pricing for Russell 2000 Index (‘‘RUT’’) on
Chicago Board Options Exchange, Incorporated’s
(‘‘CBOE’’) Fees Schedule.
36 QQQ is an exchange-traded fund based on the
Nasdaq-100 Index®.
37 By comparison, a market participant may trade
options overlying RUT or separately the market
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32 Id.
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exchanges are able to recoup costs
associated with offering proprietary
products, it incentivizes growth and
competition for the innovation of
additional products.
As proposed, the Exchange seeks to
eliminate the existing fee and rebate
structure for NDX orders, and instead
adopt standard transaction fees for all
such orders. Specifically, the proposed
pricing changes for NDX will result in
a flat fee of $0.75 per contract for all
Non-Priority Customer NDX orders
(including Non-Priority Customer
Auction Orders), and no fees for any
Priority Customer NDX orders
(including Priority Customer Auction
Orders). The Exchange believes that it is
reasonable to eliminate the maker
rebates for all market participant orders
in NDX because it is similar to other
exchanges, which do not provide
rebates for certain proprietary products.
On Phlx, no rebates are paid on NDX
contracts.38 Additionally, C2 Options
Exchange, Inc. (‘‘C2’’) does not provide
any rebates for RUT, which is another
broad-based index option and similar
proprietary product.39 Furthermore, the
Exchange believes that it is reasonable
to eliminate the maker rebate for
Priority Customer orders in NDX
because even after the elimination of the
rebate, Priority Customer orders
(including Priority Customer Auction
Orders) in NDX will not be assessed any
fees under the proposed pricing
structure.
Further, the Exchange’s proposal to
eliminate the maker rebates for all
market participant orders in NDX is an
equitable allocation and is not unfairly
discriminatory because the Exchange
will eliminate the rebate for all
similarly-situated market participant
types. As noted above, the Exchange
believes it is equitable and not unfairly
discriminatory to eliminate the rebate
for Priority Customer orders as well
because these orders (including Priority
Customer Auction Orders) will no
longer be assessed any fees under the
proposed pricing structure.
The proposed pricing changes for
NDX will result in a uniform fee of
$0.75 per contract for all Non-Priority
Customer orders (including Non-Priority
Customer Auction Orders), and no fees
for all Priority Customer orders
(including Priority Customer Auction
Orders). While the proposed $0.75
transaction fee for all Non-Priority
Customer NDX orders is higher than the
participant has the choice of trading iShares Russell
2000 Index Fund (‘‘IWM’’) Exchange-Traded Fund
Shares options, which are also multiply listed.
38 See Phlx’s Pricing Schedule, Section B.
39 See pricing for RUT on C2’s Fees Schedule.
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current fees assessed to all Non-Priority
Customer Crossing Orders and PIM
orders in Non-Penny Symbols
(including NDX), the Exchange believes
that the proposed pricing for NDX is
reasonable because the increased fees in
those categories are offset by decreased
fees proposed in other categories. In
particular, the proposed $0.75 fee is
lower than the existing taker fees and
existing fees for Responses to Crossing
Orders (excluding PIM), in both cases
currently assessed to all market
participant orders in Non-Penny
Symbols (including NDX). Additionally,
as it relates to all Non-Priority
Customers other than Market Makers,
the increased fee amounts for NonPriority Customer Crossing Orders and
PIM orders in NDX are reasonable
because the total fee of $1.00 per
contract under the Exchange’s proposal
is comparable to the total amounts
charged for similar proprietary products
on other exchanges. For example, C2
charges all market participants other
than public customers and C2 market
makers a $0.55 transaction fee and a
$0.45 index license surcharge fee in
RUT, for a total of $1.00.40
Furthermore, the proposed uniform
$0.75 per contract fee for Non-Priority
Customer orders in NDX is reasonable
because it is in line with Phlx’s $0.75
per contract options transaction charge
in NDX assessed to all electronic market
participant orders other than customer
orders.41 Finally, the Exchange will not
charge a transaction fee for any regular
Priority Customer orders in NDX, which
also is in line with Phlx, where
customers are not charged an options
transaction charge in NDX.42
The Exchange’s proposed $0.75 per
contract fee for all Non-Priority
Customer orders in NDX is also
equitable and not unfairly
discriminatory because the Exchange
will uniformly assess a $0.75 per
contract fee for all such market
participant orders. The Exchange
believes it is equitable and not unfairly
discriminatory to assess this fee on all
participants except Priority Customers
because the Exchange seeks to
encourage Priority Customer order flow
and the liquidity such order flow brings
to the marketplace, which in turn
benefits all market participants.
40 See C2’s Fees Schedule, Section 1C. As it
relates to the market participants noted above, C2
applies the $0.55 transaction fee to all executions
in RUT other than trades on the open.
41 See Phlx’s Pricing Schedule, Section II.
42 Id.
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Non-Priority Customer License
Surcharge for NDX and MNX
The Exchange believes that its
proposal to increase the NDX Surcharge
from $0.22 to $0.25 is reasonable
because it is in line with the options
surcharge of $0.25 for NDX transactions
on ISE and Phlx, and is in fact lower
than the $0.45 C2 Options Exchange
surcharge applicable to non-public
customer transactions in RUT.43
The Exchange believes that its
proposal to increase the NDX Surcharge
is an equitable allocation and is not
unfairly discriminatory because the
Exchange will apply the increase to all
similarly-situated members. The
Exchange believes it is equitable and not
unfairly discriminatory to assess this
increased surcharge on all participants
except Priority Customers because the
Exchange seeks to encourage Priority
Customer order flow and the liquidity
such order flow brings to the
marketplace, which in turn benefits all
market participants.
Furthermore, the Exchange believes
that its proposal to remove any
references to MNX in Section II.B of the
Schedule of Fees is reasonable because
the Exchange seeks to eliminate the
$0.22 MNX Surcharge. The Exchange’s
proposal to remove references to the
MNX Surcharge is also equitable and
not unfairly discriminatory because the
Exchange will eliminate the surcharge
for all similarly-situated members.
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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 inter-market or intramarket competition that is not necessary
or appropriate in furtherance of the
purposes of the Act. In terms of intermarket 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
43 See
C2’s Fees Schedule, Section 1D.
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burden on competition is extremely
limited.
In terms of intra-market competition,
the proposed changes to adopt separate
pricing for orders in NDX will result in
total fees for orders in NDX becoming
more uniform across all classes of
market participants, while still
permitting Priority Customers to
transact in NDX free of any transaction
charge. Likewise, the increase in the
NDX Surcharge will impact all NonPriority Customers equally, and is
designed to raise revenue for the
Exchange without negatively impacting
Priority Customers whose orders may
enhance market quality for all Exchange
members. Removing the maker rebate
will also enhance the Exchange’s ability
to offer other rebates or reduced fees
that could incentivize behavior that
would enhance market quality on the
Exchange, which would benefit all
members.44 Finally, the Exchange’s
proposal to remove any references to
MNX from Section II.B of the Schedule
of Fees will not have an impact on
competition as it is simply designed to
eliminate the MNX Surcharge for all
Non-Priority Customers. Lastly, it is also
important to note that notwithstanding
the proposed fee changes to NDX,
members may continue to separately
execute options overlying PowerShares
QQQ Trust (‘‘QQQ’’).45
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,46 and Rule
19b–4(f)(2) 47 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is: (i)
Necessary or appropriate in the public
interest; (ii) for the protection of
investors; or (iii) otherwise in
furtherance of the purposes of the Act.
44 The Exchange offers rebates to market
participants to encourage behavior on the Exchange
such as adding more liquidity in a certain product.
45 By comparison, a market participant may trade
options overlying RUT or separately the market
participant has the choice of trading iShares Russell
2000 Index Fund (‘‘IWM’’) Exchange-Traded Fund
Shares options, which are also multiply listed.
46 15 U.S.C. 78s(b)(3)(A)(ii).
47 17 CFR 240.19b–4(f)(2).
PO 00000
Frm 00095
Fmt 4703
Sfmt 4703
22571
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
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
GEMX–2017–05 on the subject line.
Paper Comments
• 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–2017–05. 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 Web site (https://www.sec.gov/
rules/sro.shtml). 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 Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–GEMX–
2017–05 and should be submitted on or
before June 6, 2017.
E:\FR\FM\16MYN1.SGM
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22572
Federal Register / Vol. 82, No. 93 / Tuesday, May 16, 2017 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.48
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–09811 Filed 5–15–17; 8:45 am]
BILLING CODE 8011–01–P
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80642; File No. SR–NYSE–
2017–19]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Rule
67 To Modify the Date of Appendix B
Web Site Data Publication Pursuant to
the Regulation NMS Plan To Implement
a Tick Size Pilot Program
May 10, 2017.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on April 27,
2017, New York Stock Exchange LLC
(‘‘NYSE’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 67 to modify the date of Appendix
B Web site data publication pursuant to
the Regulation NMS Plan to Implement
a Tick Size Pilot Program (‘‘Plan’’). The
proposed rule change is available on the
Exchange’s Web site at www.nyse.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
sradovich on DSK3GMQ082PROD with NOTICES
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
self-regulatory organization 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
48 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
16:42 May 15, 2017
Jkt 241001
of those 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 parts of such
statements.
1. Purpose
Rule 67(b) (Compliance with Data
Collection Requirements) 4 implements
the data collection and Web site
publication requirements of the Plan.5
Supplementary Material .70 to Rule 67
currently provides, among other things,
that the requirement that the Exchange
or their DEA make certain data for the
Pre-Pilot Period and Pilot Period 6
publicly available on the Exchange’s or
DEA’s Web site pursuant to Appendix B
to the Plan shall commence on April 28,
2017.7 The Exchange is proposing to
amend Supplementary Material .70 to
Rule 67 to delay the Appendix B data
Web site publication date until August
31, 2017. The Exchange is proposing to
further delay the Web site publication of
Appendix B data until August 31, 2017
to permit additional time to consider a
methodology to mitigate concerns raised
4 See Securities Exchange Act Release No. 77468
(March 29, 2016), 81 FR 19269 (April 4, 2016)
(Immediate Effectiveness of Proposed Rule Change
Adopting Requirements for the Collection and
Transmission of Data Pursuant to Appendices B and
C of Regulation NMS Plan to Implement a Tick Size
Pilot Program) (SR–NYSE–2016–27); see also
Securities Exchange Act Release No. 78813
(September 12, 2016), 81 FR 63825 (September 16,
2016) (Immediate Effectiveness of Proposed Rule
Change to Amend Rule 67 to Modify Certain Data
Collection Requirements of the Regulation NMS
Plan to Implement a Tick Size Pilot Program) (SR–
NYSE–2016–63); see also Letter from John C.
Roeser, Associate Director, Division of Trading and
Markets, Commission, to Sherry Sandler, Associate
General Counsel, NYSE, dated April 4, 2016.
5 The Participants filed the Plan to comply with
an order issued by the Commission on June 24,
2014. See Letter from Brendon J. Weiss, Vice
President, Intercontinental Exchange, Inc., to
Secretary, Commission, dated August 25, 2014
(‘‘SRO Tick Size Plan Proposal’’). See Securities
Exchange Act Release No 72460 (June 24, 2014), 79
FR 36840 (June 30, 2014); see also Securities
Exchange Act Release No. 74892 (May 6, 2015), 80
FR 27513 (May 13, 2015).
6 Unless otherwise defined herein, capitalized
terms have the meaning ascribed to them in the
Plan.
7 See Supplementary Material .70 to Rule 67. See
also Securities Exchange Act Release No. 80172
(March 8, 2017), 82 FR 13685 (March 14, 2017). See
also Letter from David S. Shillman, Associate
Director, Division of Trading and Markets,
Commission, to Robert L.D. Colby, Executive Vice
President and Chief Legal Officer, Financial
Industry Regulatory Authority, Inc. (‘‘FINRA’’),
dated February 28, 2017.
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
in connection with the publication of
Appendix B data.8
Pursuant to this proposed
amendment, the Exchange would
publish the required Appendix B data
for the Pre-Pilot Period through April
30, 2017, by August 31, 2017.
Thereafter, Appendix B data for a given
month would be published within 120
calendar days following month end.9
Thus, for example, Appendix B data for
May 2017 would be made available on
the Exchange’s or DEA’s Web site by
September 28, 2017, and data for the
month of June 2017 would be made
available on the Exchange’s or DEA’s
Web site by October 28, 2017.
As noted in Item 2 of this filing, the
Exchange has filed the proposed rule
change for immediate effectiveness and
has requested that the Commission
waive the 30-day operative delay. If the
Commission waives the 30-day
operative delay, the operative date of
the proposed rule change will be the
date of filing.
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 Section 6(b)(5) of the Act,11
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, 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.
The Plan is designed to allow the
Commission, market participants, and
the public to study and assess the
impact of increment conventions on the
liquidity and trading of the common
stock of small-capitalization companies.
The Exchange believes that this
proposal is consistent with the Act
because it is in furtherance of the
objectives of Section VII(A) of the Plan
in that it is designed to provide the
Exchange with additional time to
consider a methodology to mitigate
concerns raised in connection with the
publication of Appendix B data.
8 On March 3, 2017, FINRA filed a proposed rule
change to implement an anonymous, grouped
masking methodology for Appendix B.I, B.II. and
B.IV. data. The comment period ended on April 5,
2017, and the Commission received three comment
letters. See Securities Exchange Act Release No.
80193 (March 9, 2017) 82 FR 13901 (March 15,
2017).
9 FINRA also submitted an exemptive request, on
behalf of all Participants, to the SEC in connection
with the instant filing.
10 15 U.S.C. 78f(b).
11 15 U.S.C. 78f(b)(5).
E:\FR\FM\16MYN1.SGM
16MYN1
]]>Agencies
[Federal Register Volume 82, Number 93 (Tuesday, May 16, 2017)]
[Notices]
[Pages 22568-22572]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09811]
[[Page 22568]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80636; File No. SR-GEMX-2017-05)
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change to Schedule of Fees
to Amend Pricing Related to Options Overlying NDX and MNX
May 10, 2017.
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 April 25, 2017, 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.
---------------------------------------------------------------------------
\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 amend the Exchange's Schedule of Fees to
amend pricing related to options overlying NDX \3\ and MNX,\4\ as
described further below. While changes to the Schedule of Fees pursuant
to this proposal are effective upon filing, the Exchange has designated
these changes to be operative on May 1, 2017.
---------------------------------------------------------------------------
\3\ NDX represents options on the Nasdaq 100 Index traded under
the symbol NDX (``NDX'').
\4\ MNX represents options on one-tenth the value of the Nasdaq
100 Index traded under the symbol MNX (``MNX'').
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at www.ise.com, 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
Schedule of Fees to make changes to pricing related to NDX and MNX. The
proposed changes are discussed in the following sections.
Fees and Rebates in NDX
The Exchange proposes to amend its Schedule of Fees to make pricing
changes related to NDX. The Exchange notes that NDX is transitioning to
be exclusively listed on the Exchange and its affiliated markets in
2017.\5\ In light of this transition, the Exchange seeks to amend its
NDX pricing structure.
---------------------------------------------------------------------------
\5\ The Exchange and its affiliates will exclusively list NDX in
the near future upon expiration of open expiries in this product on
other markets.
---------------------------------------------------------------------------
Today, as set forth in Section I of the Schedule of Fees, the
Exchange provides volume-based maker rebates to Market Maker \6\ and
Priority Customer \7\ orders in Non-Penny Symbols \8\ in four tiers
based on a member's average daily volume (``ADV'') in the following
categories: (1) Total Affiliated Member ADV,\9\ and (2) Priority
Customer Maker ADV,\10\ as shown in the table below.\11\ In addition,
the Exchange charges volume-based taker fees to market participants
based on achieving these volume thresholds.
---------------------------------------------------------------------------
\6\ The term Market Maker refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. Market Maker
orders sent to the Exchange by an Electronic Access Member (``EAM'')
are assessed fees and rebates at the same level as Market Maker
orders.
\7\ 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 GEMX Rule 100(a)(37A).
\8\ ``Non-Penny Symbols'' are options overlying all symbols
excluding Penny Symbols. NDX is a Non-Penny Symbol.
\9\ The Total Affiliated Member ADV category includes all volume
in all symbols and order types, including both maker and taker
volume and volume executed in the PIM, Facilitation, Solicitation,
and QCC mechanisms.
\10\ The Priority Customer Maker ADV category includes all
Priority Customer volume that adds liquidity in all symbols.
\11\ All eligible volume from affiliated Members will be
aggregated in determining applicable tiers, provided there is at
least 75% common ownership between the Members as reflected on each
Member's Form BD, Schedule A. The highest tier threshold attained
above applies retroactively in a given month to all eligible traded
contracts and applies to all eligible market participants. Any day
that the market is not open for the entire trading day or the
Exchange instructs members in writing to route their orders to other
markets may be excluded from the ADV calculation; provided that the
Exchange will only remove the day for members that would have a
lower ADV with the day included.
Table 1
------------------------------------------------------------------------
Total affiliated Priority customer
Tier member ADV maker ADV
------------------------------------------------------------------------
Tier 1.......................... 0-99,999.......... 0-19,999.
Tier 2.......................... 100,000-224,999... 20,000-99,999.
Tier 3.......................... 225,000-349,999... 100,000-149,999.
Tier 4.......................... 350,000 or more... 150,000 or more.
------------------------------------------------------------------------
Specifically, the Exchange provides a maker rebate to Market Maker
orders in Non-Penny Symbols that is $0.40 per contract in Tier 1, $0.42
per contract in Tier 2, $0.50 per contract in Tier 3, and $0.75 per
contract in Tier 4. The Exchange also provides a maker rebate to
Priority Customer orders in Non-Penny Symbols that is $0.75 per
contract in Tier 1 (or $0.76 per contract for members that execute a
Priority Customer Maker ADV of 5,000 to 19,999 contracts in a given
month), $0.80 per contract in Tier 2, $0.85 per contract in Tier 3, and
$1.05 per contract in Tier 4. Additionally, the Exchange provides a
maker rebate to Non-Nasdaq GEMX Market Maker,\12\ Firm Proprietary
\13\/Broker-Dealer,\14\ and Professional Customer \15\ orders in Non-
Penny Symbols that is $0.25 per contract.\16\
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\12\ A ``Non-Nasdaq GEMX Market Maker'' is a market maker as
defined in Section 3(a)(38) of the Securities Exchange Act of 1934,
as amended, registered in the same options class on another options
exchange.
\13\ A ``Firm Proprietary'' order is an order submitted by a
member for its own proprietary account.
\14\ A ``Broker-Dealer'' order is an order submitted by a member
for a broker-dealer account that is not its own proprietary account.
\15\ A ``Professional Customer'' is a person or entity that is
not a broker/dealer and is not a Priority Customer.
\16\ The maker rebates for these market participants are not
volume-based.
---------------------------------------------------------------------------
The Exchange also charges volume-based taker fees in Non-Penny
Symbols to market participants based on achieving the volume thresholds
in the table above. Currently, the Exchange charges a taker fee for
Non-Priority Customer \17\ orders in Non-Penny Symbols that is $0.89
per contract, regardless of the tier achieved.\18\ The Exchange also
charges a taker fee for
[[Page 22569]]
Priority Customer orders that is $0.82 per contract for Tier 1 and
$0.81 per contract for Tiers 2 through 4.
---------------------------------------------------------------------------
\17\ Non-Priority Customer includes Market Maker, Non-Nasdaq
GEMX Market Maker, Firm Proprietary, Broker-Dealer, and Professional
Customer.
\18\ Non-Priority Customer orders are also charged the taker fee
for trades executed during the opening rotation. Priority Customer
orders executed during the opening rotation receive the applicable
maker rebate based on the tier achieved.
---------------------------------------------------------------------------
In addition, different taker fees are charged for trades executed
against a Priority Customer in Non-Penny Symbols. In particular, Non-
Priority Customer orders are charged a taker fee of $1.10 per contract
for trades executed against a Priority Customer. Priority Customer
orders are charged a taker fee of $0.85 per contract for trades
executed against a Priority Customer. Orders in Non-Penny Symbols that
do not trade against a Priority Customer are currently charged at the
rates described in the paragraph above and as set forth in the Non-
Penny Symbols table in Section I of the Schedule of Fees.
The Exchange also currently assesses different fees for regular
Non-Penny Symbol orders executed in the Exchange's crossing mechanisms,
as set forth in Schedule I of the Schedule of Fees (such orders,
``Auction Orders''). Specifically, the Exchange charges a fee for Non-
Priority Customer Crossing Orders \19\ (excluding PIM orders) in Non-
Penny Symbols. This fee is currently $0.20 per contract for Non-
Priority Customer orders on both the originating and contra side of a
Crossing Order. The Exchange does not assess a fee for Priority
Customer Crossing Orders (excluding PIM orders) in Non-Penny Symbols.
The Exchange also charges a separate fee for Crossing Orders in Non-
Penny Symbols for PIM orders only. This fee is currently $0.05 per
contract for all Non-Priority Customer orders executed in the PIM, and
also for Priority Customer orders on the contra-side of a PIM auction.
There is no fee for Priority Customer orders on the agency side of a
PIM auction. Lastly, for Responses to Crossing Orders \20\ (excluding
PIM orders) in Non-Penny Symbols, the Exchange charges a fee of $0.89
per contract for Non-Priority Customers orders and a fee of $0.82 per
contract for Priority Customer orders. For all Responses to Crossing
Orders executed in the PIM, the Exchange charges a $0.05 per contract
fee for all market participant types.
---------------------------------------------------------------------------
\19\ A ``Crossing Order'' is an order executed in the Exchange's
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement
Mechanism (``PIM'') or submitted as a Qualified Contingent Cross
order. For purposes of this Fee Schedule, orders executed in the
Block Order Mechanism are also considered Crossing Orders.
\20\ ``Responses to Crossing Order'' is any contra-side interest
(i.e., orders & quotes) submitted after the commencement of an
auction in the Exchange's Facilitation Mechanism, Solicited Order
Mechanism, Block Order Mechanism or PIM.
---------------------------------------------------------------------------
In light of NDX's transition to becoming exclusively listed, the
Exchange seeks to amend its pricing structure. Specifically, the
Exchange seeks to eliminate the current pricing structure for NDX by
excluding this index option from the fees and rebates applicable to all
Non-Penny Symbol orders, and instead adopt standard transaction fees as
set forth in a new table in Section I of the Schedule of Fees.\21\ The
Exchange also seeks to eliminate the maker rebates for all market
participant orders in NDX.\22\ As such, all Non-Priority Customer
orders \23\ in NDX (including Non-Priority Customer Auction Orders)
will be assessed a transaction fee of $0.75, which will be uniform for
these market participants, regardless of the tier achieved.\24\ All
Priority Customer orders in NDX (including Priority Customer Auction
Orders) will not be assessed fees in any of the volume-based tiers.\25\
---------------------------------------------------------------------------
\21\ The Exchange will therefore add note 6 in Section I of the
Schedule of Fees to provide that the fees set forth in the new
pricing table for index options will apply only to NDX. Furthermore,
note 6 will state that these fees are assessed to all executions in
NDX to clarify that the proposing pricing also applies to Auction
Orders in NDX.
\22\ Orders in NDX will continue, however, to count toward
volume-based tiers under the proposed pricing structure. As such,
maker rebates will no longer be paid on NDX contracts, but NDX
contracts will count toward the volume requirement to qualify for a
rebate tier. For example, a Market Maker that executes a Total
Affiliated Member ADV of 350,000 contracts in a given month would
normally qualify for the maker rebate of $0.75 per contract in Tier
4. With the proposed changes, that Market Maker would not be paid a
maker rebate for trades in NDX, but its executions in NDX would
still count towards the monthly volume calculation (i.e., to reach
the Total Affiliated Member ADV Tier 4 threshold of 350,000
contracts).
\23\ Market Maker orders in NDX sent to the Exchange by an EAM
will continue to be assessed fees at the same level as Market Maker
orders in NDX.
\24\ The Exchange will therefore add note 10 in Section I of the
Schedule of Fees to provide that this fee will not be subject to
tier discounts. Orders in NDX, however, will still count toward
volume-based tiers. For example, a Market Maker that executes a
Total Affiliated Member ADV of 350,000 contracts in a given month
would normally be charged a taker fee of $0.89 per contract for
orders in Non-Penny Symbols. With the proposed changes, that Market
Maker would pay a fee of $0.75 for trades in NDX, regardless of the
tier achieved. That Market Maker's executions in NDX, however, would
still be counted towards the monthly volume calculation (i.e., to
reach the Total Affiliated Member ADV Tier 4 threshold of 350,000
contracts). See also note 22 above.
\25\ See notes 22 and 24 above.
---------------------------------------------------------------------------
Non-Priority Customer License Surcharge for NDX and MNX
Currently, a number of index options are traded on the Exchange
pursuant to license agreements for which the Exchange charges license
surcharges. As set forth in Section II.B of the Schedule of Fees, the
Exchange currently charges a $0.22 per contract license surcharge for
all orders in NDX and MNX other than Priority Customer orders. For NDX
only, the Exchange is proposing to amend Section II.B of the Schedule
of Fees to increase the Non-Priority Customer License Surcharge from
$0.22 to $0.25 per contract (``NDX Surcharge''), and to relocate the
NDX Surcharge to note 9 in Section I of the Schedule of Fees, instead
of stating the pricing within the current table in Section II.B of the
Schedule of Fees. The proposed increase to $0.25 per contract will
align the Exchange's NDX Surcharge with those of its affiliated
markets, International Securities Exchange, LLC (``ISE'') and NASDAQ
PHLX LLC (``Phlx'').\26\
---------------------------------------------------------------------------
\26\ See ISE's Schedule of Fees, Section IV.B. See also Phlx's
Pricing Schedule, Section II.
---------------------------------------------------------------------------
As it relates to MNX, the Exchange seeks to eliminate the $0.22
Non-Priority Customer License Surcharge (``MNX Surcharge''), and
proposes to remove any references to MNX currently in Section II.B of
the Schedule of Fees.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\27\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\28\ 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.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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.'' \29\
---------------------------------------------------------------------------
\29\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
Likewise, in NetCoalition v. Securities and Exchange Commission
\30\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of
a market-based approach in evaluating the fairness of market data fees
against a challenge claiming that Congress mandated a cost-
[[Page 22570]]
based approach.\31\ As the court emphasized, the Commission ``intended
in Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \32\
---------------------------------------------------------------------------
\30\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\31\ See NetCoalition, at 534-535.
\32\ Id. at 537.
---------------------------------------------------------------------------
Further, ``[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'. . . .'' \33\ Although the court and
the SEC were discussing the cash equities markets, the Exchange
believes that these views apply with equal force to the options
markets.
---------------------------------------------------------------------------
\33\ Id. at 539 (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008)
(SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------
Fees and Rebates in NDX
The Exchange believes that the proposed pricing changes for NDX are
reasonable, equitable and not unfairly discriminatory as NDX
transitions to an exclusively-listed product. Similar to other
proprietary products, the Exchange seeks to recoup the operational
costs for listing proprietary products.\34\ 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.\35\
Further, the Exchange notes that with its products, market participants
are offered an opportunity to either transact options overlying NDX or
separately execute options overlying PowerShares QQQ Trust
(``QQQ'').\36\ Offering products such as QQQ provides market
participants with a variety of choices in selecting the product they
desire to utilize to transact NDX.\37\ When exchanges are able to
recoup costs associated with offering proprietary products, it
incentivizes growth and competition for the innovation of additional
products.
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\34\ 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.
\35\ See pricing for Russell 2000 Index (``RUT'') on Chicago
Board Options Exchange, Incorporated's (``CBOE'') Fees Schedule.
\36\ QQQ is an exchange-traded fund based on the Nasdaq-100
Index[supreg].
\37\ By comparison, a market participant may trade options
overlying RUT or separately the market participant has the choice of
trading iShares Russell 2000 Index Fund (``IWM'') Exchange-Traded
Fund Shares options, which are also multiply listed.
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As proposed, the Exchange seeks to eliminate the existing fee and
rebate structure for NDX orders, and instead adopt standard transaction
fees for all such orders. Specifically, the proposed pricing changes
for NDX will result in a flat fee of $0.75 per contract for all Non-
Priority Customer NDX orders (including Non-Priority Customer Auction
Orders), and no fees for any Priority Customer NDX orders (including
Priority Customer Auction Orders). The Exchange believes that it is
reasonable to eliminate the maker rebates for all market participant
orders in NDX because it is similar to other exchanges, which do not
provide rebates for certain proprietary products. On Phlx, no rebates
are paid on NDX contracts.\38\ Additionally, C2 Options Exchange, Inc.
(``C2'') does not provide any rebates for RUT, which is another broad-
based index option and similar proprietary product.\39\ Furthermore,
the Exchange believes that it is reasonable to eliminate the maker
rebate for Priority Customer orders in NDX because even after the
elimination of the rebate, Priority Customer orders (including Priority
Customer Auction Orders) in NDX will not be assessed any fees under the
proposed pricing structure.
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\38\ See Phlx's Pricing Schedule, Section B.
\39\ See pricing for RUT on C2's Fees Schedule.
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Further, the Exchange's proposal to eliminate the maker rebates for
all market participant orders in NDX is an equitable allocation and is
not unfairly discriminatory because the Exchange will eliminate the
rebate for all similarly-situated market participant types. As noted
above, the Exchange believes it is equitable and not unfairly
discriminatory to eliminate the rebate for Priority Customer orders as
well because these orders (including Priority Customer Auction Orders)
will no longer be assessed any fees under the proposed pricing
structure.
The proposed pricing changes for NDX will result in a uniform fee
of $0.75 per contract for all Non-Priority Customer orders (including
Non-Priority Customer Auction Orders), and no fees for all Priority
Customer orders (including Priority Customer Auction Orders). While the
proposed $0.75 transaction fee for all Non-Priority Customer NDX orders
is higher than the current fees assessed to all Non-Priority Customer
Crossing Orders and PIM orders in Non-Penny Symbols (including NDX),
the Exchange believes that the proposed pricing for NDX is reasonable
because the increased fees in those categories are offset by decreased
fees proposed in other categories. In particular, the proposed $0.75
fee is lower than the existing taker fees and existing fees for
Responses to Crossing Orders (excluding PIM), in both cases currently
assessed to all market participant orders in Non-Penny Symbols
(including NDX). Additionally, as it relates to all Non-Priority
Customers other than Market Makers, the increased fee amounts for Non-
Priority Customer Crossing Orders and PIM orders in NDX are reasonable
because the total fee of $1.00 per contract under the Exchange's
proposal is comparable to the total amounts charged for similar
proprietary products on other exchanges. For example, C2 charges all
market participants other than public customers and C2 market makers a
$0.55 transaction fee and a $0.45 index license surcharge fee in RUT,
for a total of $1.00.\40\
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\40\ See C2's Fees Schedule, Section 1C. As it relates to the
market participants noted above, C2 applies the $0.55 transaction
fee to all executions in RUT other than trades on the open.
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Furthermore, the proposed uniform $0.75 per contract fee for Non-
Priority Customer orders in NDX is reasonable because it is in line
with Phlx's $0.75 per contract options transaction charge in NDX
assessed to all electronic market participant orders other than
customer orders.\41\ Finally, the Exchange will not charge a
transaction fee for any regular Priority Customer orders in NDX, which
also is in line with Phlx, where customers are not charged an options
transaction charge in NDX.\42\
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\41\ See Phlx's Pricing Schedule, Section II.
\42\ Id.
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The Exchange's proposed $0.75 per contract fee for all Non-Priority
Customer orders in NDX is also equitable and not unfairly
discriminatory because the Exchange will uniformly assess a $0.75 per
contract fee for all such market participant orders. The Exchange
believes it is equitable and not unfairly discriminatory to assess this
fee on all participants except Priority Customers because the Exchange
seeks to encourage Priority Customer order flow and the liquidity such
order flow brings to the marketplace, which in turn benefits all market
participants.
[[Page 22571]]
Non-Priority Customer License Surcharge for NDX and MNX
The Exchange believes that its proposal to increase the NDX
Surcharge from $0.22 to $0.25 is reasonable because it is in line with
the options surcharge of $0.25 for NDX transactions on ISE and Phlx,
and is in fact lower than the $0.45 C2 Options Exchange surcharge
applicable to non-public customer transactions in RUT.\43\
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\43\ See C2's Fees Schedule, Section 1D.
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The Exchange believes that its proposal to increase the NDX
Surcharge is an equitable allocation and is not unfairly discriminatory
because the Exchange will apply the increase to all similarly-situated
members. The Exchange believes it is equitable and not unfairly
discriminatory to assess this increased surcharge on all participants
except Priority Customers because the Exchange seeks to encourage
Priority Customer order flow and the liquidity such order flow brings
to the marketplace, which in turn benefits all market participants.
Furthermore, the Exchange believes that its proposal to remove any
references to MNX in Section II.B of the Schedule of Fees is reasonable
because the Exchange seeks to eliminate the $0.22 MNX Surcharge. The
Exchange's proposal to remove references to the MNX Surcharge is also
equitable and not unfairly discriminatory because the Exchange will
eliminate the surcharge for all similarly-situated members.
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 inter-market or intra-market competition that is
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.
In terms of intra-market competition, the proposed changes to adopt
separate pricing for orders in NDX will result in total fees for orders
in NDX becoming more uniform across all classes of market participants,
while still permitting Priority Customers to transact in NDX free of
any transaction charge. Likewise, the increase in the NDX Surcharge
will impact all Non-Priority Customers equally, and is designed to
raise revenue for the Exchange without negatively impacting Priority
Customers whose orders may enhance market quality for all Exchange
members. Removing the maker rebate will also enhance the Exchange's
ability to offer other rebates or reduced fees that could incentivize
behavior that would enhance market quality on the Exchange, which would
benefit all members.\44\ Finally, the Exchange's proposal to remove any
references to MNX from Section II.B of the Schedule of Fees will not
have an impact on competition as it is simply designed to eliminate the
MNX Surcharge for all Non-Priority Customers. Lastly, it is also
important to note that notwithstanding the proposed fee changes to NDX,
members may continue to separately execute options overlying
PowerShares QQQ Trust (``QQQ'').\45\
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\44\ The Exchange offers rebates to market participants to
encourage behavior on the Exchange such as adding more liquidity in
a certain product.
\45\ By comparison, a market participant may trade options
overlying RUT or separately the market participant has the choice of
trading iShares Russell 2000 Index Fund (``IWM'') Exchange-Traded
Fund Shares options, which are also multiply listed.
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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,\46\ and Rule 19b-4(f)(2) \47\ thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is: (i) 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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\46\ 15 U.S.C. 78s(b)(3)(A)(ii).
\47\ 17 CFR 240.19b-4(f)(2).
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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
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-GEMX-2017-05 on the subject line.
Paper Comments
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-2017-05. 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 Web site (https://www.sec.gov/rules/sro.shtml). 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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-GEMX-2017-05 and should be
submitted on or before June 6, 2017.
[[Page 22572]]
For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\48\
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\48\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09811 Filed 5-15-17; 8:45 am]
BILLING CODE 8011-01-P
