Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend GEMX Options 7, 63544-63548 [2022-22657]
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Federal Register / Vol. 87, No. 201 / Wednesday, October 19, 2022 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96062; File No. SR–GEMX–
2022–09]
Self-Regulatory Organizations; Nasdaq
GEMX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend GEMX Options
7
October 13, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 thereunder,2
notice is hereby given that on October
3, 2022, Nasdaq GEMX, LLC (‘‘GEMX’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s Pricing Schedule at Options
7.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/gemx/rules, 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.
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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 Exchange proposes to amend
Options 7, Sections 1, 3 and 4 in
connection with adopting an Affiliated
Entity program. The Exchange also
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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proposes to amend Options 7, Section 3
to amend its Regular Order Fees and
Rebates for Penny Symbols and NonPenny Symbols and Qualifying Tier
Thresholds and remove note 13 from the
Pricing Schedule. Each change is
described below.
Affiliated Entity Program
The Exchange proposes to permit
Affiliated Entities to aggregate certain
volume for purposes of paying lower
fees or receiving higher rebates. Today,
Nasdaq MRX, LLC (‘‘MRX’’) and Nasdaq
ISE, LLC (‘‘ISE’’) 3 also permit Affiliated
Entities to aggregate volume for
purposes of qualifying for certain
pricing.
Specifically, the Exchange proposes to
adopt the term ‘‘Affiliated Entity’’
within Options 7, Section 1(c).4 An
‘‘Affiliated Entity’’ would be a
relationship between an Appointed
Market Maker and an Appointed OFP
for purposes of qualifying for certain
pricing specified in the Pricing
Schedule. An ‘‘Appointed Market
Maker’’ is proposed to be defined within
Options 7, Section 1(c) as a Market
Maker who has been appointed by an
OFP for purposes of qualifying as an
Affiliated Entity. An ‘‘Order Flow
Provider’’ or ‘‘OFP’’ is proposed to be
defined within Options 7, Section 1(c)
as any Member, other than a Market
Maker, that submits orders, as agent or
principal, to the Exchange.5 Finally, an
‘‘Appointed OFP’’ would be defined
within Options 7, Section 1(c) as an
OFP who has been appointed by a
Market Maker for purposes of qualifying
as an Affiliated Entity.
In order to become an Affiliated
Entity, Market Makers and OFPs would
be required to send an email to the
Exchange to appoint their counterpart,
at least 3 business days prior to the last
day of the month to qualify for the next
month.6 For example, with this
proposal, market participants should
have submitted emails to the Exchange
to become Affiliated Entities to qualify
for discounted pricing by September 28,
2022, which is 3 business days prior to
the first business day of October 3, 2022.
The Exchange will acknowledge receipt
of the emails and specify the date the
Affiliated Entity is eligible for
applicable pricing, as specified in the
3 See
MRX and ISE Options 7, Section 1.
Exchange proposes to add a ‘‘c’’ before the
term references within Options 7, Section 1 to
further describe this section of the Pricing
Schedule.
5 Market Makers shall not be considered
Appointed OFPs for the purpose of becoming an
Affiliated Entity.
6 The Exchange issued an Options Trader Alert
which provided the email address and details
required to apply to become an Affiliated Entity.
4 The
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Pricing Schedule within Options 7,
Section 1(c).
Each Affiliated Entity relationship
will commence on the 1st of a month
and may not be terminated prior to the
end of any month. An Affiliated Entity
relationship will automatically renew
each month until or unless either party
terminates earlier in writing by sending
an email to the Exchange at least 3
business days prior to the last day of the
month to terminate for the next month.
Affiliated Members 7 may not qualify as
a counterparty comprising an Affiliated
Entity. Each Member may qualify for
only one (1) Affiliated Entity
relationship at any given time. As
proposed, an Affiliated Entity shall be
eligible to aggregate their volume for
purposes of qualifying for certain
pricing specified in the Pricing
Schedule, as described below.
The Exchange proposes to amend
Options 7, Section 3, Regular Order Fees
and Rebates, to indicate that with
respect to the Qualifying Tier
Thresholds, for purposes of measuring
Total Affiliated Member or Affiliated
Entity % of Customer Total
Consolidated Volume, Customer Total
Consolidated Volume means the total
volume cleared at The Options Clearing
Corporation in the Customer range in
equity and ETF options in that month.
Further, the Exchange proposes to
provide that all eligible volume from
Affiliated Members or an Affiliated
Entity will be aggregated in determining
applicable tiers for each of the
Qualifying Tier Thresholds in Table 1.
Finally, the Exchange proposes to note
that the Total Affiliated Member or
Affiliated Entity % of Customer Total
Consolidated Volume 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.
With these proposed amendments, an
Affiliated Entity would be permitted to
aggregate its volume to qualify for the
Qualifying Tier Thresholds. By
aggregating volume, the Appointed
Market Maker and Appointed OFP will
both have an opportunity to receive
lower Taker Fees and higher Maker
Rebates as a result of the aggregation.
The Exchange believes that the
7 An ‘‘Affiliated Member’’ is Member that shares
at least 75% common ownership with a particular
Member as reflected on the Member’s Form BD,
Schedule A. This term is currently described within
Options 7, Sections 3 and 4. The Exchange proposes
to remove the description of an Affiliated Member
from Options 7, Sections 3 and 4 and instead
describe an Affiliated Member within Options 7,
Section 1(c). The Exchange also proposes to
capitalize the word ‘‘affiliated’’ within Options 7,
Section 4 to refer to the defined term.
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Federal Register / Vol. 87, No. 201 / Wednesday, October 19, 2022 / Notices
Affiliated Entity program will encourage
Appointed Market Makers and
Appointed OFPs to submit additional
liquidity on GEMX.
As noted above, with this proposed
change, a GEMX Member may aggregate
either as an Affiliated Member or an
Affiliated Entity during the same time
period, but may not aggregate under
both programs during the same time
period. The Exchange proposes to
incentivize certain Members, who are
not Affiliated Members, to enter into an
Affiliated Entity relationship for the
purpose of aggregating volume executed
on the Exchange to qualify to for certain
Maker or Taker tiers.
Options 7, Section 3
The Exchange proposes to amend
Options 7, Section 3, Regular Order Fees
and Rebates, to: (1) renumber current
Penny and Non-Penny Symbol Maker
Rebate Tier 4 and Taker Fee Tier 4 as
Maker Rebate Tier 5 and Taker Fee Tier
5, respectively, (2) add a new Maker
Rebate Tier 4 and Taker Fee Tier 4; (3)
amend new Priority Customer 8 Maker
Rebate Tier 5; and (4) eliminate current
note 13. Each change will be described
below.
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Maker Rebates
Today, GEMX pays the following Tier
4 Penny Symbol Maker Rebates: $0.41
per contract to Market Makers 9 and
$0.52 per contract to Priority Customers.
Non-Nasdaq GEMX Market Makers
(FarMM),10 Firm Proprietary 11/Broker
Dealers 12 and Professional Customers 13
are not eligible for Tier 4 Penny Symbol
Maker Rebates. Today, GEMX pays the
following Tier 4 Non-Penny Symbol
Maker Rebates: $0.75 per contract to
Market Makers and $1.05 per contract to
8 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). Unless otherwise noted,
when used in this Pricing Schedule the term
‘‘Priority Customer’’ includes ‘‘Retail’’ as defined
below. See Options 7, Section 1(c), as proposed.
9 The term ‘‘Market Makers’’ refers to
‘‘Competitive Market Makers’’ and ‘‘Primary Market
Makers’’ collectively. See Options 1, Section
1(a)(21).
10 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. See GEMX Options 7, Section 1.
11 A ‘‘Firm Proprietary’’ order is an order
submitted by a member for its own proprietary
account. See GEMX Options 7, Section 1.
12 A ‘‘Broker-Dealer’’ order is an order submitted
by a member for a broker-dealer account that is not
its own proprietary account. See GEMX Options 7,
Section 1.
13 A ‘‘Professional Customer’’ is a person or entity
that is not a broker/dealer and is not a Priority
Customer. See GEMX Options 7, Section 1.
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Priority Customers. Non-Nasdaq GEMX
Market Makers (FarMM), Firm
Proprietary/Broker Dealers and
Professional Customers are not eligible
for Tier 4 Non-Penny Symbol Maker
Rebates.
At this time, the Exchange proposes to
renumber Penny and Non-Penny
Symbol Maker Rebate Tiers 4 as Tier 5.
The Exchange also proposes to
increase the Priority Customer Penny
Symbol newly renumbered Maker
Rebate Tier 5 from $0.52 to $0.53 per
contract.
The Exchange also proposes to adopt
a new Penny Symbol Maker Rebate Tier
4 as follows: $0.32 per contract to
Market Makers and $0.51 per contract to
Priority Customers. Non-Nasdaq GEMX
Market Makers (FarMM), Firm
Proprietary/Broker Dealers and
Professional Customers will not be
eligible for proposed Tier 4 Penny
Symbol Maker Rebates.
The Exchange also proposes to adopt
a new Non-Penny Symbol Maker Rebate
Tier 4 as follows: $0.50 per contract to
Market Makers and $0.90 per contract to
Priority Customers. Non-Nasdaq GEMX
Market Makers (FarMM), Firm
Proprietary/Broker Dealers and
Professional Customers will not be
eligible for proposed Tier 4 Non-Penny
Symbol Maker Rebates.
Taker Fees
Today, GEMX pays the following Tier
4 Penny Symbol Taker Fees: $0.48 per
contract to Market Makers and NonNasdaq GEMX Market Makers (FarMM),
$0.49 per contract to Firm Proprietary/
Broker Dealers and Professional
Customers, and $0.43 per contract to
Priority Customers. Today, GEMX pays
the following Tier 4 Non-Penny Symbol
Taker Fees: $0.94 per contract to Market
Makers, Non-Nasdaq GEMX Market
Makers (FarMM), Firm Proprietary/
Broker Dealers and Professional
Customers and $0.82 per contract to
Priority Customers
At this time, the Exchange proposes to
renumber Penny and Non-Penny
Symbol Taker Fee Tiers 4 as Tier 5.
The Exchange also proposes to adopt
a new Penny Symbol Taker Fee Tier 4
as follows: $0.50 per contract to Market
Makers, Non-Nasdaq GEMX Market
Makers (FarMM), Firm Proprietary/
Broker Dealers and Professional
Customers, and $0.48 per contract to
Priority Customers. Similar to current
Penny Symbol Taker Fees, non-Priority
Customer 14 orders will be charged the
Penny Symbol Taker Fee for trades
14 Non-Priority Customer Orders includes order
for the accounts of Market Makers, Non-Nasdaq
GEMX Market Makers (FarMM), Firm Proprietary/
Broker Dealers and Professional Customers.
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63545
executed during the Opening Process for
Penny Symbol Tier 4 Taker Fees.
Priority Customer orders executed
during the Opening Process will receive
the applicable Penny Symbol Maker
Rebate based on the tier achieved.15
The Exchange also proposes to adopt
a new Non-Penny Symbol Taker Fee
Tier 4 as follows: $0.99 per contract to
Market Makers, Non-Nasdaq GEMX
Market Makers (FarMM), Firm
Proprietary/Broker Dealers and
Professional Customers, and $0.85 per
contract to Priority Customers. Similar
to current Non-Penny Symbol Taker
Fees, non-Priority Customer orders will
be charged the Non-Penny Taker Fee for
trades executed during the Opening
Process for Non-Penny Symbol Tier 4
Taker Fees. Priority Customer orders
executed during the Opening Process
will receive the applicable Non-Penny
Symbol Maker Rebate based on the tier
achieved.16 Additionally, Non-Priority
Customer orders will be charged a NonPenny Symbol Taker Fee of $1.10 per
contract for trades executed against a
Priority Customer. Priority Customer
orders will be charged a Non-Penny
Symbol Taker Fee of $0.85 per contract
for trades executed against a Priority
Customer.17
Today, for Penny Symbol Taker Fees
1,18 2,19 3 20 and 4, non-Priority
Customers who execute less than 4.0%
of Customer Total Consolidated
Volume 21 will be charged a Penny
Symbol Taker Fee of $0.48 per contract
for trades executed against a Priority
Customer. Non-Priority Customers who
execute 4.0% or greater of Customer
Total Consolidated Volume will be
charged a Penny Symbol Taker Fee of
$0.47 per contract for trades executed
against a Priority Customer. All Priority
Customer orders will be charged a
Penny Symbol Taker Fee of $0.48 per
15 See note 4 in Options 7, Section 3 of the Pricing
Schedule.
16 See note 4 in Options 7, Section 3 of the Pricing
Schedule.
17 See note 16 in Options 7, Section 3 of the
Pricing Schedule.
18 Today, the Exchange assesses $0.50 per
contract for Penny Symbol Taker Fee 1 for all nonPriority Customers and $0.48 per contract for
Priority Customers.
19 Today, the Exchange assesses $0.50 per
contract for Penny Symbol Taker Fee 2 for all nonPriority Customers and $0.48 per contract for
Priority Customers.
20 Today, the Exchange assesses $0.50 per
contract for Penny Symbol Taker Fee 3 for all nonPriority Customers and $0.48 per contract for
Priority Customers.
21 Customer Total Consolidated Volume means
the total volume cleared at The Options Clearing
Corporation in the Customer range in equity and
ETF options in that month.
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Federal Register / Vol. 87, No. 201 / Wednesday, October 19, 2022 / Notices
contract for trades executed against a
Priority Customer.22
At this time, the Exchange proposes to
remove note 13 from the Pricing
Schedule within Options 7, Section 3.
While the Exchange is eliminating
certain incentives to lower the Penny
Symbol Taker Fee when trading against
a Priority Customer, the Exchange
believes that the amendments proposed
herein to the Taker Fees offer market
participants the ability to obtain lower
Taker Fees, if they are currently in
Penny Symbol Taker Fee Tiers 1–3, by
submitting additional order flow to
GEMX.
Finally, the Exchange proposes to
amend the criteria to qualify for the tier
thresholds within Options 7, Section 3.
The Exchange proposes to add tier
qualifications for new Tier 4 which
would require a Member to execute
2.25% to less than 2.50% of Customer
Total Consolidated Volume for the
qualifying percentage of Customer Total
Consolidated Volume. Also, for Tier 4,
a Member would be required to execute
Priority Customer Maker volume of
1.05% to less than 1.20% of Customer
Total Consolidated Volume for the
qualifying Priority Customer Maker %
of Customer Total Consolidated
Volume.
With the addition of new Tier 4 in the
Qualifying Tier Thresholds, the
Exchange proposes to also amend Tier
3 to accommodate the new tier. The
Exchange proposes to amend the range
in Tier 3 for the qualifying percentage
of Customer Total Consolidated Volume
to require a Member to execute 1.5% to
less than 2.25% of Customer Total
Consolidated Volume (from 1.5% to less
than 2.50% of Customer Total
Consolidated Volume). Also, the
Exchange proposes to amend the range
in Tier 3 for the qualifying Priority
Customer Maker % of Customer Total
Consolidated Volume to require a
Member to execute Priority Customer
Maker volume of 0.65% to less than
1.05% of Customer Total Consolidated
Volume (from 0.65% to less than 1.20%
of Customer Total Consolidated
Volume). Finally, the Exchange
proposes to renumber Tier 4 as Tier 5
within the Qualifying Tier Thresholds.
The Exchange believes that the
addition of Tier 4 will incentive GEMX
Members in Penny and Non-Penny
Symbol Tiers 1 through 3 to submit
additional order flow to GEMX to obtain
lower Taker Fees and higher Maker
Rebates.
22 See note 13 in Options 7, Section 3 of the
Pricing Schedule.
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2. Statutory Basis
Affiliated Entity Program
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,23 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,24 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 Exchange’s proposal to permit an
Affiliated Entity to aggregate certain
volume for purposes of paying lower
fees or receiving higher rebates is
reasonable because the Exchange
believes this program will incentivize
certain GEMX Members, who are not
Affiliated Members, to enter into an
Affiliated Entity relationship for the
purpose of aggregating volume executed
on the Exchange to qualify for certain
lower Market Maker fees. By aggregating
volume, the Appointed Market Maker
and Appointed OFP will both have an
opportunity to receive lower Taker Fees
and higher Maker Rebates as a result of
the aggregation. Additionally, this
proposal will harmonize GEMX’s
program with MRX’s and ISE’s
programs.27 While a GEMX Member
may not utilize both the Affiliated
Member and the Affiliated Entity
program to aggregate volume for
purposes of achieving lower fees or
higher rebates, the Exchange believes
that permitting aggregation individually
under each program, Affiliated Member
and the Affiliated Entity program, will
encourage Appointed Market Makers
and Appointed OFPs to submit
additional liquidity on GEMX if they
chose to enter into this relationship.
The Exchange’s proposal to permit
Affiliated Entities to aggregate certain
volume for purposes of paying lower
fees or receiving higher rebates is
equitable and not unfairly
discriminatory as all market participants
may enter into an Affiliated Entity
relationship, provided they have not
elected to aggregate as an Affiliated
Member. As proposed, Affiliated
Members, who are eligible to aggregate
volume today, are not eligible to also
enter into an Affiliated Entity
relationship. The Exchange’s proposal
to exclude Affiliated Members from
qualifying as an Affiliated Entity is
equitable and not unfairly
discriminatory because, today,
Affiliated Members may aggregate
volume for purposes of lowering fees or
increasing rebates on GEMX. Also, as
proposed no GEMX Member may utilize
both the Affiliated Member and the
Affiliated Entity program to aggregate
volume for purposes of achieving lower
fees or higher rebates. Also, the
Exchange will apply all qualifications in
a uniform manner for an Affiliated
Entity.
The Proposal Is Reasonable
The proposed changes to its Pricing
Schedule are reasonable in several
respects. As a threshold matter, the
Exchange is subject to significant
competitive forces in the market for
options transaction services that
constrain its pricing determinations in
that market. The fact that this market is
competitive has long been recognized by
the courts. In NetCoalition v. Securities
and Exchange Commission 25
(‘‘NetCoalition’’), the D.C. Circuit stated,
‘‘[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’
. . . .’’ 26
Numerous indicia demonstrate the
competitive nature of this market. For
example, clear substitutes to the
Exchange exist in the market for options
transaction services. The Exchange is
only one of sixteen options exchanges to
which market participants may direct
their order flow. Within this
environment, market participants can
freely and often do shift their order flow
among the Exchange and competing
venues in response to changes in their
respective pricing schedules. Within the
foregoing context, the proposal
represents a reasonable attempt by the
Exchange to attract additional order
flow to the Exchange and increase its
market share relative to its competitors.
23 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
25 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
26 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)).
24 15
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Options 7, Section 3
The Exchange’s proposal to amend
Options 7, Section 3, Regular Order Fees
27 See
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and Rebates, to renumber current Penny
and Non-Penny Symbol Maker Rebate
Tier 4 and Taker Fee Tier 4 as Maker
Rebate Tier 5 and Taker Fee Tier 5,
respectively, and add a new Maker
Rebate Tier 4 and Taker Fee Tier 4 is
reasonable because the addition of new
Tier 4 will incentive GEMX Members to
submit additional order flow to GEMX
to obtain lower fees and higher rebates.
Specifically, Members currently in
Penny and Non-Penny Symbol Tiers 1
through 3 may be assessed lower Taker
Fees or receive higher Maker Rebates if
they are able to submit additional order
to qualify for new Tier 4.
The Exchange’s proposal to amend
Options 7, Section 3, Regular Order Fees
and Rebates, to renumber current Penny
and Non-Penny Symbol Maker Rebate
Tier 4 and Taker Fee Tier 4 as Maker
Rebate Tier 5 and Taker Fee Tier 5,
respectively, and add a new Maker
Rebate Tier 4 and Taker Fee Tier 4 is
equitable and not unfairly
discriminatory because the Exchange’s
maker/taker model continues to
incentivize Priority Customers by
assessing them the lowest fees and
paying them the highest rebates as
compared to all other non-Priority
Customer market participants. Priority
Customer liquidity benefits all market
participants by providing more trading
opportunities, which attracts Market
Makers. An increase in the activity of
these market participants in turn
facilitates tighter spreads, which may
cause an additional corresponding
increase in order flow from other market
participants. Continuing to pay Maker
Rebates to Priority Customers is
equitable and not unfairly
discriminatory for these reasons as well.
Paying Maker Rebates to Market Makers
is equitable and not unfairly
discriminatory because Market Makers
have different requirements and
obligations to the Exchange that other
market participants do not (such as
quoting requirements).28 Incentivizing
Market Makers to provide greater
liquidity benefits all market participants
through the quality of order interaction.
The Exchange’s proposal to amend
new Priority Customer Maker Rebate
Tier 5 to increase the Priority Customer
Penny Symbol Maker Rebate from $0.52
to $0.53 per contract is reasonable
because the Exchange believes this
increased rebate will attract additional
Priority Customer order flow to GEMX.
The Exchange’s proposal to amend
new Priority Customer Maker Rebate
Tier 5 to increase the Priority Customer
Penny Symbol Maker Rebate from $0.52
to $0.53 per contract is equitable and
28 See
GEMX Options 2, Section 5.
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not unfairly discriminatory because
Priority Customer liquidity benefits all
market participants by providing more
trading opportunities, which attracts
Market Makers. An increase in the
activity of these market participants in
turn facilitates tighter spreads, which
may cause an additional corresponding
increase in order flow from other market
participants.
The Exchange’s proposal to eliminate
note 13 from the Pricing Schedule at
Options 7, Section 3 is reasonable
because while the Exchange is
eliminating certain incentives to lower
the Penny Symbol Taker Fee when
trading against a Priority Customer, the
Exchange believes that the amendments
proposed herein to the Penny Symbol
Taker Fees offer market participants the
ability to obtain lower fees, if they are
currently in Penny Symbol Taker Fee
Tiers 1–3, by submitting additional
order flow to GEMX.
The Exchange’s proposal to eliminate
note 13 from the Pricing Schedule at
Options 7, Section 3 is equitable and not
unfairly discriminatory because no
market participant will be entitled to a
lower Penny Symbol Taker Fee as a
result of the removal of note 13.
The Exchange’s proposal to amend
the criteria to qualify for the tier
thresholds within Options 7, Section 3
is reasonable because the addition of
new Tier 4 would allow Members to
qualify for lower fees or higher rebates
if they are able to execute 2.25% to less
than 2.50% of Customer Total
Consolidated Volume for the qualifying
percentage of Customer Total
Consolidated Volume and execute
Priority Customer Maker volume of
1.05% to less than 1.20% of Customer
Total Consolidated Volume for the
qualifying Priority Customer Maker %
of Customer Total Consolidated
Volume. The criteria for new Tier 4
requires less order flow than the criteria
for re-numbered Tier 5 and pays lower
Taker Fees and higher Maker Rebates
than Tier 3.29
The Exchange’s proposal to amend
the criteria to qualify for the tier
thresholds within Options 7, Section 3
29 The Exchange proposes to amend Tier 3 to
accommodate the new tier 4. The Exchange
proposes to amend the range in Tier 3 for the
qualifying percentage of Customer Total
Consolidated Volume to require a Member to
execute 1.5% to less than 2.25% of Customer Total
Consolidated Volume (from 1.5% to less than
2.50% of Customer Total Consolidated Volume).
Also, the Exchange proposes to amend the range in
Tier 3 for the qualifying Priority Customer Maker
% of Customer Total Consolidated Volume to
require a Member to execute Priority Customer
Maker volume of 0.65% to less than 1.05% of
Customer Total Consolidated Volume (from 0.65%
to less than 1.20% of Customer Total Consolidated
Volume).
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63547
is equitable and not unfairly
discriminatory because the Qualifying
Tier Thresholds are the same for all
Members and would be uniformly
applied to all Members in determining
a Member’s applicable tier.
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.
Intermarket Competition
The Exchange operates in a highly
competitive market in which market
participants can readily favor competing
venues if they deem fee levels at a
particular venue to be excessive, or
rebate opportunities available at other
venues to be more favorable. In such an
environment, the Exchange must
continually adjust its fees to remain
competitive with other exchanges.
Because competitors are free to modify
their own fees in response, and because
market participants may readily adjust
their order routing practices, the
Exchange believes that the degree to
which fee changes in this market may
impose any burden on competition is
extremely limited because other options
exchanges offer similar affiliation
programs and have maker/taker models
akin to GEMX’s model.
Moreover, as noted above, price
competition between exchanges is
fierce, with liquidity and market share
moving freely between exchanges in
reaction to fee and rebate changes. In
sum, if the changes proposed herein are
unattractive to market participants, it is
likely that the Exchange will lose
market share as a result. Accordingly,
the Exchange does not believe that the
proposed changes will impair the ability
of Members or competing order
execution venues to maintain their
competitive standing in the financial
markets.
Intramarket Competition
Affiliated Entity Program
The Exchange’s proposal to permit
Affiliated Entities to aggregate certain
volume for purposes of paying lower
Taker Fees or receiving higher Maker
Rebates does not impose an undue
burden on competition because all
market participants may enter into an
Affiliated Entity relationship, provided
they have not elected to aggregate as an
Affiliated Member. As proposed,
Affiliated Members, who are eligible to
aggregate volume today, are not eligible
to also enter into an Affiliated Entity
relationship. Today, Affiliated Members
E:\FR\FM\19OCN1.SGM
19OCN1
63548
Federal Register / Vol. 87, No. 201 / Wednesday, October 19, 2022 / Notices
jspears on DSK121TN23PROD with NOTICES
may aggregate volume for purposes of
lowering fees or increasing rebates on
GEMX. Also, as proposed no GEMX
Member may utilize both the Affiliated
Member and the Affiliated Entity
program to aggregate volume for
purposes of achieving lower fees or
higher rebates. Also, the Exchange will
apply all qualifications in a uniform
manner for an Affiliated Entity.
Options 7, Section 3
The Exchange’s proposal to amend
Options 7, Section 3, Regular Order Fees
and Rebates, to renumber current Penny
and Non-Penny Symbol Maker Rebate
Tier 4 and Taker Fee Tier 4 as Maker
Rebate Tier 5 and Taker Fee Tier 5,
respectively, and add a new Maker
Rebate Tier 4 and Taker Fee Tier 4 does
not impose an undue burden on
competition because the Exchange’s
maker/taker model continues to
incentivize Priority Customers by
assessing them the lowest fees and
paying them the highest rebates as
compared to all other non-Priority
Customer market participants. Priority
Customer liquidity benefits all market
participants by providing more trading
opportunities, which attracts Market
Makers. An increase in the activity of
these market participants in turn
facilitates tighter spreads, which may
cause an additional corresponding
increase in order flow from other market
participants. Continuing to pay Maker
Rebates to Priority Customers is
equitable and not unfairly
discriminatory for these reasons as well.
Paying Maker Rebates to Market Makers
is equitable and not unfairly
discriminatory because Market Makers
have different requirements and
obligations to the Exchange that other
market participants do not (such as
quoting requirements).30 Incentivizing
Market Makers to provide greater
liquidity benefits all market participants
through the quality of order interaction.
The Exchange’s proposal to amend
new Priority Customer Maker Rebate
Tier 5 to increase the Priority Customer
Penny Symbol Maker Rebate from $0.52
to $0.53 per contract does not impose an
undue burden on competition because
Priority Customer liquidity benefits all
market participants by providing more
trading opportunities, which attracts
Market Makers. An increase in the
activity of these market participants in
turn facilitates tighter spreads, which
may cause an additional corresponding
increase in order flow from other market
participants.
The Exchange’s proposal to eliminate
note 13 from the Pricing Schedule at
Options 7, Section 3 does not impose an
undue burden on competition because
no market participant will be entitled to
a lower Penny Symbol Taker Fee as a
result of the removal of note 13.
The Exchange’s proposal to amend
the criteria to qualify for the tier
thresholds within Options 7, Section 3
does not impose an undue burden on
competition because the Qualifying Tier
Thresholds are the same for all Members
and would be uniformly applied to all
Members in determining a Member’s
applicable tier.
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)
of the Act 31 and paragraph (f) of Rule
19b–4 32 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.
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–2022–09 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–2022–09. This file
VerDate Sep<11>2014
17:58 Oct 18, 2022
Jkt 259001
[FR Doc. 2022–22657 Filed 10–18–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96061; File No. SR–FICC–
2022–007]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Clarify and
Update GSD Rules, MBSD Rules and
EPN Rules
October 13, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
U.S.C. 78s(b)(3)(A).
32 17 CFR 240.19b–4(f).
GEMX Options 2, Section 5.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
J. Matthew DeLesDernier,
Deputy Secretary.
33 17
31 15
30 See
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 (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 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
10:00 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–GEMX–2022–09 and
should be submitted on or before
November 9,2022.
PO 00000
Frm 00075
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]]>Agencies
[Federal Register Volume 87, Number 201 (Wednesday, October 19, 2022)]
[Notices]
[Pages 63544-63548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22657]
[[Page 63544]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96062; File No. SR-GEMX-2022-09]
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend GEMX
Options 7
October 13, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 3, 2022, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's Pricing Schedule at
Options 7.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/gemx/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Options 7, Sections 1, 3 and 4 in
connection with adopting an Affiliated Entity program. The Exchange
also proposes to amend Options 7, Section 3 to amend its Regular Order
Fees and Rebates for Penny Symbols and Non-Penny Symbols and Qualifying
Tier Thresholds and remove note 13 from the Pricing Schedule. Each
change is described below.
Affiliated Entity Program
The Exchange proposes to permit Affiliated Entities to aggregate
certain volume for purposes of paying lower fees or receiving higher
rebates. Today, Nasdaq MRX, LLC (``MRX'') and Nasdaq ISE, LLC (``ISE'')
\3\ also permit Affiliated Entities to aggregate volume for purposes of
qualifying for certain pricing.
---------------------------------------------------------------------------
\3\ See MRX and ISE Options 7, Section 1.
---------------------------------------------------------------------------
Specifically, the Exchange proposes to adopt the term ``Affiliated
Entity'' within Options 7, Section 1(c).\4\ An ``Affiliated Entity''
would be a relationship between an Appointed Market Maker and an
Appointed OFP for purposes of qualifying for certain pricing specified
in the Pricing Schedule. An ``Appointed Market Maker'' is proposed to
be defined within Options 7, Section 1(c) as a Market Maker who has
been appointed by an OFP for purposes of qualifying as an Affiliated
Entity. An ``Order Flow Provider'' or ``OFP'' is proposed to be defined
within Options 7, Section 1(c) as any Member, other than a Market
Maker, that submits orders, as agent or principal, to the Exchange.\5\
Finally, an ``Appointed OFP'' would be defined within Options 7,
Section 1(c) as an OFP who has been appointed by a Market Maker for
purposes of qualifying as an Affiliated Entity.
---------------------------------------------------------------------------
\4\ The Exchange proposes to add a ``c'' before the term
references within Options 7, Section 1 to further describe this
section of the Pricing Schedule.
\5\ Market Makers shall not be considered Appointed OFPs for the
purpose of becoming an Affiliated Entity.
---------------------------------------------------------------------------
In order to become an Affiliated Entity, Market Makers and OFPs
would be required to send an email to the Exchange to appoint their
counterpart, at least 3 business days prior to the last day of the
month to qualify for the next month.\6\ For example, with this
proposal, market participants should have submitted emails to the
Exchange to become Affiliated Entities to qualify for discounted
pricing by September 28, 2022, which is 3 business days prior to the
first business day of October 3, 2022. The Exchange will acknowledge
receipt of the emails and specify the date the Affiliated Entity is
eligible for applicable pricing, as specified in the Pricing Schedule
within Options 7, Section 1(c).
---------------------------------------------------------------------------
\6\ The Exchange issued an Options Trader Alert which provided
the email address and details required to apply to become an
Affiliated Entity.
---------------------------------------------------------------------------
Each Affiliated Entity relationship will commence on the 1st of a
month and may not be terminated prior to the end of any month. An
Affiliated Entity relationship will automatically renew each month
until or unless either party terminates earlier in writing by sending
an email to the Exchange at least 3 business days prior to the last day
of the month to terminate for the next month. Affiliated Members \7\
may not qualify as a counterparty comprising an Affiliated Entity. Each
Member may qualify for only one (1) Affiliated Entity relationship at
any given time. As proposed, an Affiliated Entity shall be eligible to
aggregate their volume for purposes of qualifying for certain pricing
specified in the Pricing Schedule, as described below.
---------------------------------------------------------------------------
\7\ An ``Affiliated Member'' is Member that shares at least 75%
common ownership with a particular Member as reflected on the
Member's Form BD, Schedule A. This term is currently described
within Options 7, Sections 3 and 4. The Exchange proposes to remove
the description of an Affiliated Member from Options 7, Sections 3
and 4 and instead describe an Affiliated Member within Options 7,
Section 1(c). The Exchange also proposes to capitalize the word
``affiliated'' within Options 7, Section 4 to refer to the defined
term.
---------------------------------------------------------------------------
The Exchange proposes to amend Options 7, Section 3, Regular Order
Fees and Rebates, to indicate that with respect to the Qualifying Tier
Thresholds, for purposes of measuring Total Affiliated Member or
Affiliated Entity % of Customer Total Consolidated Volume, Customer
Total Consolidated Volume means the total volume cleared at The Options
Clearing Corporation in the Customer range in equity and ETF options in
that month. Further, the Exchange proposes to provide that all eligible
volume from Affiliated Members or an Affiliated Entity will be
aggregated in determining applicable tiers for each of the Qualifying
Tier Thresholds in Table 1. Finally, the Exchange proposes to note that
the Total Affiliated Member or Affiliated Entity % of Customer Total
Consolidated Volume 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.
With these proposed amendments, an Affiliated Entity would be
permitted to aggregate its volume to qualify for the Qualifying Tier
Thresholds. By aggregating volume, the Appointed Market Maker and
Appointed OFP will both have an opportunity to receive lower Taker Fees
and higher Maker Rebates as a result of the aggregation. The Exchange
believes that the
[[Page 63545]]
Affiliated Entity program will encourage Appointed Market Makers and
Appointed OFPs to submit additional liquidity on GEMX.
As noted above, with this proposed change, a GEMX Member may
aggregate either as an Affiliated Member or an Affiliated Entity during
the same time period, but may not aggregate under both programs during
the same time period. The Exchange proposes to incentivize certain
Members, who are not Affiliated Members, to enter into an Affiliated
Entity relationship for the purpose of aggregating volume executed on
the Exchange to qualify to for certain Maker or Taker tiers.
Options 7, Section 3
The Exchange proposes to amend Options 7, Section 3, Regular Order
Fees and Rebates, to: (1) renumber current Penny and Non-Penny Symbol
Maker Rebate Tier 4 and Taker Fee Tier 4 as Maker Rebate Tier 5 and
Taker Fee Tier 5, respectively, (2) add a new Maker Rebate Tier 4 and
Taker Fee Tier 4; (3) amend new Priority Customer \8\ Maker Rebate Tier
5; and (4) eliminate current note 13. Each change will be described
below.
---------------------------------------------------------------------------
\8\ 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). Unless otherwise noted, when used in this Pricing
Schedule the term ``Priority Customer'' includes ``Retail'' as
defined below. See Options 7, Section 1(c), as proposed.
---------------------------------------------------------------------------
Maker Rebates
Today, GEMX pays the following Tier 4 Penny Symbol Maker Rebates:
$0.41 per contract to Market Makers \9\ and $0.52 per contract to
Priority Customers. Non-Nasdaq GEMX Market Makers (FarMM),\10\ Firm
Proprietary \11\/Broker Dealers \12\ and Professional Customers \13\
are not eligible for Tier 4 Penny Symbol Maker Rebates. Today, GEMX
pays the following Tier 4 Non-Penny Symbol Maker Rebates: $0.75 per
contract to Market Makers and $1.05 per contract to Priority Customers.
Non-Nasdaq GEMX Market Makers (FarMM), Firm Proprietary/Broker Dealers
and Professional Customers are not eligible for Tier 4 Non-Penny Symbol
Maker Rebates.
---------------------------------------------------------------------------
\9\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See Options 1,
Section 1(a)(21).
\10\ 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. See GEMX Options 7, Section 1.
\11\ A ``Firm Proprietary'' order is an order submitted by a
member for its own proprietary account. See GEMX Options 7, Section
1.
\12\ A ``Broker-Dealer'' order is an order submitted by a member
for a broker-dealer account that is not its own proprietary account.
See GEMX Options 7, Section 1.
\13\ A ``Professional Customer'' is a person or entity that is
not a broker/dealer and is not a Priority Customer. See GEMX Options
7, Section 1.
---------------------------------------------------------------------------
At this time, the Exchange proposes to renumber Penny and Non-Penny
Symbol Maker Rebate Tiers 4 as Tier 5.
The Exchange also proposes to increase the Priority Customer Penny
Symbol newly renumbered Maker Rebate Tier 5 from $0.52 to $0.53 per
contract.
The Exchange also proposes to adopt a new Penny Symbol Maker Rebate
Tier 4 as follows: $0.32 per contract to Market Makers and $0.51 per
contract to Priority Customers. Non-Nasdaq GEMX Market Makers (FarMM),
Firm Proprietary/Broker Dealers and Professional Customers will not be
eligible for proposed Tier 4 Penny Symbol Maker Rebates.
The Exchange also proposes to adopt a new Non-Penny Symbol Maker
Rebate Tier 4 as follows: $0.50 per contract to Market Makers and $0.90
per contract to Priority Customers. Non-Nasdaq GEMX Market Makers
(FarMM), Firm Proprietary/Broker Dealers and Professional Customers
will not be eligible for proposed Tier 4 Non-Penny Symbol Maker
Rebates.
Taker Fees
Today, GEMX pays the following Tier 4 Penny Symbol Taker Fees:
$0.48 per contract to Market Makers and Non-Nasdaq GEMX Market Makers
(FarMM), $0.49 per contract to Firm Proprietary/Broker Dealers and
Professional Customers, and $0.43 per contract to Priority Customers.
Today, GEMX pays the following Tier 4 Non-Penny Symbol Taker Fees:
$0.94 per contract to Market Makers, Non-Nasdaq GEMX Market Makers
(FarMM), Firm Proprietary/Broker Dealers and Professional Customers and
$0.82 per contract to Priority Customers
At this time, the Exchange proposes to renumber Penny and Non-Penny
Symbol Taker Fee Tiers 4 as Tier 5.
The Exchange also proposes to adopt a new Penny Symbol Taker Fee
Tier 4 as follows: $0.50 per contract to Market Makers, Non-Nasdaq GEMX
Market Makers (FarMM), Firm Proprietary/Broker Dealers and Professional
Customers, and $0.48 per contract to Priority Customers. Similar to
current Penny Symbol Taker Fees, non-Priority Customer \14\ orders will
be charged the Penny Symbol Taker Fee for trades executed during the
Opening Process for Penny Symbol Tier 4 Taker Fees. Priority Customer
orders executed during the Opening Process will receive the applicable
Penny Symbol Maker Rebate based on the tier achieved.\15\
---------------------------------------------------------------------------
\14\ Non-Priority Customer Orders includes order for the
accounts of Market Makers, Non-Nasdaq GEMX Market Makers (FarMM),
Firm Proprietary/Broker Dealers and Professional Customers.
\15\ See note 4 in Options 7, Section 3 of the Pricing Schedule.
---------------------------------------------------------------------------
The Exchange also proposes to adopt a new Non-Penny Symbol Taker
Fee Tier 4 as follows: $0.99 per contract to Market Makers, Non-Nasdaq
GEMX Market Makers (FarMM), Firm Proprietary/Broker Dealers and
Professional Customers, and $0.85 per contract to Priority Customers.
Similar to current Non-Penny Symbol Taker Fees, non-Priority Customer
orders will be charged the Non-Penny Taker Fee for trades executed
during the Opening Process for Non-Penny Symbol Tier 4 Taker Fees.
Priority Customer orders executed during the Opening Process will
receive the applicable Non-Penny Symbol Maker Rebate based on the tier
achieved.\16\ Additionally, Non-Priority Customer orders will be
charged a Non-Penny Symbol Taker Fee of $1.10 per contract for trades
executed against a Priority Customer. Priority Customer orders will be
charged a Non-Penny Symbol Taker Fee of $0.85 per contract for trades
executed against a Priority Customer.\17\
---------------------------------------------------------------------------
\16\ See note 4 in Options 7, Section 3 of the Pricing Schedule.
\17\ See note 16 in Options 7, Section 3 of the Pricing
Schedule.
---------------------------------------------------------------------------
Today, for Penny Symbol Taker Fees 1,\18\ 2,\19\ 3 \20\ and 4, non-
Priority Customers who execute less than 4.0% of Customer Total
Consolidated Volume \21\ will be charged a Penny Symbol Taker Fee of
$0.48 per contract for trades executed against a Priority Customer.
Non-Priority Customers who execute 4.0% or greater of Customer Total
Consolidated Volume will be charged a Penny Symbol Taker Fee of $0.47
per contract for trades executed against a Priority Customer. All
Priority Customer orders will be charged a Penny Symbol Taker Fee of
$0.48 per
[[Page 63546]]
contract for trades executed against a Priority Customer.\22\
---------------------------------------------------------------------------
\18\ Today, the Exchange assesses $0.50 per contract for Penny
Symbol Taker Fee 1 for all non-Priority Customers and $0.48 per
contract for Priority Customers.
\19\ Today, the Exchange assesses $0.50 per contract for Penny
Symbol Taker Fee 2 for all non-Priority Customers and $0.48 per
contract for Priority Customers.
\20\ Today, the Exchange assesses $0.50 per contract for Penny
Symbol Taker Fee 3 for all non-Priority Customers and $0.48 per
contract for Priority Customers.
\21\ Customer Total Consolidated Volume means the total volume
cleared at The Options Clearing Corporation in the Customer range in
equity and ETF options in that month.
\22\ See note 13 in Options 7, Section 3 of the Pricing
Schedule.
---------------------------------------------------------------------------
At this time, the Exchange proposes to remove note 13 from the
Pricing Schedule within Options 7, Section 3. While the Exchange is
eliminating certain incentives to lower the Penny Symbol Taker Fee when
trading against a Priority Customer, the Exchange believes that the
amendments proposed herein to the Taker Fees offer market participants
the ability to obtain lower Taker Fees, if they are currently in Penny
Symbol Taker Fee Tiers 1-3, by submitting additional order flow to
GEMX.
Finally, the Exchange proposes to amend the criteria to qualify for
the tier thresholds within Options 7, Section 3. The Exchange proposes
to add tier qualifications for new Tier 4 which would require a Member
to execute 2.25% to less than 2.50% of Customer Total Consolidated
Volume for the qualifying percentage of Customer Total Consolidated
Volume. Also, for Tier 4, a Member would be required to execute
Priority Customer Maker volume of 1.05% to less than 1.20% of Customer
Total Consolidated Volume for the qualifying Priority Customer Maker %
of Customer Total Consolidated Volume.
With the addition of new Tier 4 in the Qualifying Tier Thresholds,
the Exchange proposes to also amend Tier 3 to accommodate the new tier.
The Exchange proposes to amend the range in Tier 3 for the qualifying
percentage of Customer Total Consolidated Volume to require a Member to
execute 1.5% to less than 2.25% of Customer Total Consolidated Volume
(from 1.5% to less than 2.50% of Customer Total Consolidated Volume).
Also, the Exchange proposes to amend the range in Tier 3 for the
qualifying Priority Customer Maker % of Customer Total Consolidated
Volume to require a Member to execute Priority Customer Maker volume of
0.65% to less than 1.05% of Customer Total Consolidated Volume (from
0.65% to less than 1.20% of Customer Total Consolidated Volume).
Finally, the Exchange proposes to renumber Tier 4 as Tier 5 within the
Qualifying Tier Thresholds.
The Exchange believes that the addition of Tier 4 will incentive
GEMX Members in Penny and Non-Penny Symbol Tiers 1 through 3 to submit
additional order flow to GEMX to obtain lower Taker Fees and higher
Maker Rebates.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\23\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\24\ 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.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Proposal Is Reasonable
The proposed changes to its Pricing Schedule are reasonable in
several respects. As a threshold matter, the Exchange is subject to
significant competitive forces in the market for options transaction
services that constrain its pricing determinations in that market. The
fact that this market is competitive has long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission \25\
(``NetCoalition''), the D.C. Circuit stated, ``[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' . . . .'' \26\
---------------------------------------------------------------------------
\25\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\26\ 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)).
---------------------------------------------------------------------------
Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options transaction services. The Exchange is only one of sixteen
options exchanges to which market participants may direct their order
flow. Within this environment, market participants can freely and often
do shift their order flow among the Exchange and competing venues in
response to changes in their respective pricing schedules. Within the
foregoing context, the proposal represents a reasonable attempt by the
Exchange to attract additional order flow to the Exchange and increase
its market share relative to its competitors.
Affiliated Entity Program
The Exchange's proposal to permit an Affiliated Entity to aggregate
certain volume for purposes of paying lower fees or receiving higher
rebates is reasonable because the Exchange believes this program will
incentivize certain GEMX Members, who are not Affiliated Members, to
enter into an Affiliated Entity relationship for the purpose of
aggregating volume executed on the Exchange to qualify for certain
lower Market Maker fees. By aggregating volume, the Appointed Market
Maker and Appointed OFP will both have an opportunity to receive lower
Taker Fees and higher Maker Rebates as a result of the aggregation.
Additionally, this proposal will harmonize GEMX's program with MRX's
and ISE's programs.\27\ While a GEMX Member may not utilize both the
Affiliated Member and the Affiliated Entity program to aggregate volume
for purposes of achieving lower fees or higher rebates, the Exchange
believes that permitting aggregation individually under each program,
Affiliated Member and the Affiliated Entity program, will encourage
Appointed Market Makers and Appointed OFPs to submit additional
liquidity on GEMX if they chose to enter into this relationship.
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\27\ See MRX and ISE Options 7, Section 1.
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The Exchange's proposal to permit Affiliated Entities to aggregate
certain volume for purposes of paying lower fees or receiving higher
rebates is equitable and not unfairly discriminatory as all market
participants may enter into an Affiliated Entity relationship, provided
they have not elected to aggregate as an Affiliated Member. As
proposed, Affiliated Members, who are eligible to aggregate volume
today, are not eligible to also enter into an Affiliated Entity
relationship. The Exchange's proposal to exclude Affiliated Members
from qualifying as an Affiliated Entity is equitable and not unfairly
discriminatory because, today, Affiliated Members may aggregate volume
for purposes of lowering fees or increasing rebates on GEMX. Also, as
proposed no GEMX Member may utilize both the Affiliated Member and the
Affiliated Entity program to aggregate volume for purposes of achieving
lower fees or higher rebates. Also, the Exchange will apply all
qualifications in a uniform manner for an Affiliated Entity.
Options 7, Section 3
The Exchange's proposal to amend Options 7, Section 3, Regular
Order Fees
[[Page 63547]]
and Rebates, to renumber current Penny and Non-Penny Symbol Maker
Rebate Tier 4 and Taker Fee Tier 4 as Maker Rebate Tier 5 and Taker Fee
Tier 5, respectively, and add a new Maker Rebate Tier 4 and Taker Fee
Tier 4 is reasonable because the addition of new Tier 4 will incentive
GEMX Members to submit additional order flow to GEMX to obtain lower
fees and higher rebates. Specifically, Members currently in Penny and
Non-Penny Symbol Tiers 1 through 3 may be assessed lower Taker Fees or
receive higher Maker Rebates if they are able to submit additional
order to qualify for new Tier 4.
The Exchange's proposal to amend Options 7, Section 3, Regular
Order Fees and Rebates, to renumber current Penny and Non-Penny Symbol
Maker Rebate Tier 4 and Taker Fee Tier 4 as Maker Rebate Tier 5 and
Taker Fee Tier 5, respectively, and add a new Maker Rebate Tier 4 and
Taker Fee Tier 4 is equitable and not unfairly discriminatory because
the Exchange's maker/taker model continues to incentivize Priority
Customers by assessing them the lowest fees and paying them the highest
rebates as compared to all other non-Priority Customer market
participants. Priority Customer liquidity benefits all market
participants by providing more trading opportunities, which attracts
Market Makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Continuing to pay Maker Rebates to Priority Customers is equitable and
not unfairly discriminatory for these reasons as well. Paying Maker
Rebates to Market Makers is equitable and not unfairly discriminatory
because Market Makers have different requirements and obligations to
the Exchange that other market participants do not (such as quoting
requirements).\28\ Incentivizing Market Makers to provide greater
liquidity benefits all market participants through the quality of order
interaction.
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\28\ See GEMX Options 2, Section 5.
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The Exchange's proposal to amend new Priority Customer Maker Rebate
Tier 5 to increase the Priority Customer Penny Symbol Maker Rebate from
$0.52 to $0.53 per contract is reasonable because the Exchange believes
this increased rebate will attract additional Priority Customer order
flow to GEMX.
The Exchange's proposal to amend new Priority Customer Maker Rebate
Tier 5 to increase the Priority Customer Penny Symbol Maker Rebate from
$0.52 to $0.53 per contract is equitable and not unfairly
discriminatory because Priority Customer liquidity benefits all market
participants by providing more trading opportunities, which attracts
Market Makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
The Exchange's proposal to eliminate note 13 from the Pricing
Schedule at Options 7, Section 3 is reasonable because while the
Exchange is eliminating certain incentives to lower the Penny Symbol
Taker Fee when trading against a Priority Customer, the Exchange
believes that the amendments proposed herein to the Penny Symbol Taker
Fees offer market participants the ability to obtain lower fees, if
they are currently in Penny Symbol Taker Fee Tiers 1-3, by submitting
additional order flow to GEMX.
The Exchange's proposal to eliminate note 13 from the Pricing
Schedule at Options 7, Section 3 is equitable and not unfairly
discriminatory because no market participant will be entitled to a
lower Penny Symbol Taker Fee as a result of the removal of note 13.
The Exchange's proposal to amend the criteria to qualify for the
tier thresholds within Options 7, Section 3 is reasonable because the
addition of new Tier 4 would allow Members to qualify for lower fees or
higher rebates if they are able to execute 2.25% to less than 2.50% of
Customer Total Consolidated Volume for the qualifying percentage of
Customer Total Consolidated Volume and execute Priority Customer Maker
volume of 1.05% to less than 1.20% of Customer Total Consolidated
Volume for the qualifying Priority Customer Maker % of Customer Total
Consolidated Volume. The criteria for new Tier 4 requires less order
flow than the criteria for re-numbered Tier 5 and pays lower Taker Fees
and higher Maker Rebates than Tier 3.\29\
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\29\ The Exchange proposes to amend Tier 3 to accommodate the
new tier 4. The Exchange proposes to amend the range in Tier 3 for
the qualifying percentage of Customer Total Consolidated Volume to
require a Member to execute 1.5% to less than 2.25% of Customer
Total Consolidated Volume (from 1.5% to less than 2.50% of Customer
Total Consolidated Volume). Also, the Exchange proposes to amend the
range in Tier 3 for the qualifying Priority Customer Maker % of
Customer Total Consolidated Volume to require a Member to execute
Priority Customer Maker volume of 0.65% to less than 1.05% of
Customer Total Consolidated Volume (from 0.65% to less than 1.20% of
Customer Total Consolidated Volume).
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The Exchange's proposal to amend the criteria to qualify for the
tier thresholds within Options 7, Section 3 is equitable and not
unfairly discriminatory because the Qualifying Tier Thresholds are the
same for all Members and would be uniformly applied to all Members in
determining a Member's applicable tier.
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.
Intermarket Competition
The Exchange operates in a highly competitive market in which
market participants can readily favor competing venues if they deem fee
levels at a particular venue to be excessive, or rebate opportunities
available at other venues to be more favorable. In such an environment,
the Exchange must continually adjust its fees to remain competitive
with other exchanges. Because competitors are free to modify their own
fees in response, and because market participants may readily adjust
their order routing practices, the Exchange believes that the degree to
which fee changes in this market may impose any burden on competition
is extremely limited because other options exchanges offer similar
affiliation programs and have maker/taker models akin to GEMX's model.
Moreover, as noted above, price competition between exchanges is
fierce, with liquidity and market share moving freely between exchanges
in reaction to fee and rebate changes. In sum, if the changes proposed
herein are unattractive to market participants, it is likely that the
Exchange will lose market share as a result. Accordingly, the Exchange
does not believe that the proposed changes will impair the ability of
Members or competing order execution venues to maintain their
competitive standing in the financial markets.
Intramarket Competition
Affiliated Entity Program
The Exchange's proposal to permit Affiliated Entities to aggregate
certain volume for purposes of paying lower Taker Fees or receiving
higher Maker Rebates does not impose an undue burden on competition
because all market participants may enter into an Affiliated Entity
relationship, provided they have not elected to aggregate as an
Affiliated Member. As proposed, Affiliated Members, who are eligible to
aggregate volume today, are not eligible to also enter into an
Affiliated Entity relationship. Today, Affiliated Members
[[Page 63548]]
may aggregate volume for purposes of lowering fees or increasing
rebates on GEMX. Also, as proposed no GEMX Member may utilize both the
Affiliated Member and the Affiliated Entity program to aggregate volume
for purposes of achieving lower fees or higher rebates. Also, the
Exchange will apply all qualifications in a uniform manner for an
Affiliated Entity.
Options 7, Section 3
The Exchange's proposal to amend Options 7, Section 3, Regular
Order Fees and Rebates, to renumber current Penny and Non-Penny Symbol
Maker Rebate Tier 4 and Taker Fee Tier 4 as Maker Rebate Tier 5 and
Taker Fee Tier 5, respectively, and add a new Maker Rebate Tier 4 and
Taker Fee Tier 4 does not impose an undue burden on competition because
the Exchange's maker/taker model continues to incentivize Priority
Customers by assessing them the lowest fees and paying them the highest
rebates as compared to all other non-Priority Customer market
participants. Priority Customer liquidity benefits all market
participants by providing more trading opportunities, which attracts
Market Makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Continuing to pay Maker Rebates to Priority Customers is equitable and
not unfairly discriminatory for these reasons as well. Paying Maker
Rebates to Market Makers is equitable and not unfairly discriminatory
because Market Makers have different requirements and obligations to
the Exchange that other market participants do not (such as quoting
requirements).\30\ Incentivizing Market Makers to provide greater
liquidity benefits all market participants through the quality of order
interaction.
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\30\ See GEMX Options 2, Section 5.
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The Exchange's proposal to amend new Priority Customer Maker Rebate
Tier 5 to increase the Priority Customer Penny Symbol Maker Rebate from
$0.52 to $0.53 per contract does not impose an undue burden on
competition because Priority Customer liquidity benefits all market
participants by providing more trading opportunities, which attracts
Market Makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
The Exchange's proposal to eliminate note 13 from the Pricing
Schedule at Options 7, Section 3 does not impose an undue burden on
competition because no market participant will be entitled to a lower
Penny Symbol Taker Fee as a result of the removal of note 13.
The Exchange's proposal to amend the criteria to qualify for the
tier thresholds within Options 7, Section 3 does not impose an undue
burden on competition because the Qualifying Tier Thresholds are the
same for all Members and would be uniformly applied to all Members in
determining a Member's applicable tier.
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) of the Act \31\ and paragraph (f) of Rule 19b-4 \32\
thereunder.
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\31\ 15 U.S.C. 78s(b)(3)(A).
\32\ 17 CFR 240.19b-4(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: (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.
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 [email protected]. Please include
File Number SR-GEMX-2022-09 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-2022-09. 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 (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 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 10:00 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-GEMX-2022-09 and should be submitted on
or before November 9, 2022.
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\33\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22657 Filed 10-18-22; 8:45 am]
BILLING CODE 8011-01-P
