Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Pricing Schedule at Options 7 To Specify Pricing Related to Unrelated Market or Marketable Interest, 77649-77652 [2023-24867]

Download as PDF Federal Register / Vol. 88, No. 217 / Monday, November 13, 2023 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98866; File No. SR–GEMX– 2023–13] Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Pricing Schedule at Options 7 To Specify Pricing Related to Unrelated Market or Marketable Interest November 6, 2023. 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 23, 2023, Nasdaq GEMX, LLC (‘‘GEMX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Pricing Schedule at Options 7 to specify pricing related to unrelated market or marketable interest. 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. khammond on DSKJM1Z7X2PROD 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 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 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 17:12 Nov 09, 2023 Jkt 262001 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 the Exchange’s Pricing Schedule at Options 7 to specify pricing related to unrelated market or marketable interest. Specifically, the Exchange proposes to specify the current manner in which the Exchange assesses fees and rebates with respect to unrelated market or marketable interest received prior to the commencement of an auction in the Facilitation Mechanism (‘‘FAC’’),3 Solicited Order Mechanism (‘‘SOL’’),4 and Price Improvement Mechanism (‘‘PIM’’),5 and during such auctions. In addition, the Exchange also proposes a few non-substantive amendments to Options 7 that will bring more clarity to the Exchange’s Pricing Schedule. Each change is discussed below. Unrelated Interest As a general rule, today, if an order executed in FAC (‘‘FAC Order’’), SOL (‘‘SOL Order’’), or PIM (‘‘PIM Order’’) executes against unrelated market or marketable interest received during an auction, the Exchange would assess the applicable Crossing Order 6 pricing in its Pricing Schedule. If the FAC, SOL, or PIM Order executes against unrelated market or marketable interest received prior to an auction, the Exchange would assess applicable order book pricing in its Pricing Schedule. As discussed below, the Exchange applies these concepts to unrelated market or 3 The Facilitation Mechanism is a process by which an Electronic Access Member can execute a transaction wherein the Electronic Access Member seeks to facilitate a block-size order it represents as agent, and/or a transaction wherein the Electronic Access Member solicited interest to execute against a block-size order it represents as agent. Electronic Access Members must be willing to execute the entire size of orders entered into the Facilitation Mechanism. See Options 3, Section 11(b). 4 The Solicited Order Mechanism is a process by which an Electronic Access Member can attempt to execute orders of 500 or more contracts it represents as agent (the ‘‘Agency Order’’) against contra orders that it solicited. Each order entered into the Solicited Order Mechanism shall be designated as all-or-none. See Options 3, Section 11(d). 5 The Price Improvement Mechanism is a process by which an Electronic Access Member can provide price improvement opportunities for a transaction wherein the Electronic Access Member seeks to facilitate an order it represents as agent, and/or a transaction wherein the Electronic Access Member solicited interest to execute against an order it represents as agent. See Options 3, Section 13(a). 6 A ‘‘Crossing Order’’ is an order executed in the Exchange’s Facilitation Mechanism, Solicited Order Mechanism, Price Improvement Mechanism or submitted as a Qualified Contingent Cross order. For purposes of this Pricing Schedule, orders executed in the Block Order Mechanism are also considered Crossing Orders. PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 77649 marketable interest in line with Member expectations and to treat similarly situated Members in a uniform manner. The Exchange notes that it currently denotes in the Pricing Schedule that it would apply separate Crossing Order pricing for any contra-side interest submitted after the commencement of an auction in FAC, SOL, or PIM (which includes unrelated market and marketable interest received during the auction) by grouping such interest as Responses to Crossing Orders.7 The Exchange further notes that today, it specifies throughout Options 7 how it will price Responses to Crossing Orders.8 While the Exchange has delineated the treatment of unrelated market and marketable interest received by the Exchange during a FAC, SOL, and PIM auction in its Pricing Schedule, the Exchange believes that further clarity would be beneficial to Members as to how the Exchange currently assesses pricing for such interest received prior to the commencement of the auction. As such, the Exchange proposes to memorialize these concepts in its Pricing Schedule by adding new paragraph (d) to Options 7, Section 1, titled ‘‘Unrelated Market or Marketable Interest Pricing.’’ Proposed paragraph (d) would state that the following concepts would apply to FAC, SOL, and PIM Orders in Penny Symbols and NonPenny Symbols (excluding Index Options).9 The Exchange also proposes to note that all transactions in Index Options are subject to separate pricing in Options 7, Section 3. Today, the Exchange charges separate transaction fees for all executions (including executions in FAC, SOL, and PIM) in Index Options.10 As such, the Exchange believes it is appropriate to clarify that these Index Options fees are excluded from the unrelated interest concepts in new paragraph (d). Specifically, under new paragraph (d)(1), when the FAC Order or SOL 7 ‘‘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 Price Improvement Mechanism. Contra-side interest in this context therefore includes both contra-side interest submitted specifically in response to an auction notification, and unrelated market and marketable contra-side interest submitted to the order book during the auction. 8 See Section 3 (setting forth fees for Responses to Crossing Orders except PIM Orders); and Section 3, note 12 (setting forth fees for Responses to PIM Orders). 9 Today, the index options fees in Options 7, Section 3 apply only to NDX, and are assessed to all executions in NDX. See Options 7, Section 3, note 6. 10 Currently, the transaction fees are $0.75 per contract for all non-Priority Customer NDX orders and $0.00 for all Priority Customer NDX orders. E:\FR\FM\13NON1.SGM 13NON1 77650 Federal Register / Vol. 88, No. 217 / Monday, November 13, 2023 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Order executes against unrelated market or marketable interest received during an auction, the FAC Order or SOL Order will be assessed the applicable Fees for Crossing Orders (excluding PIM Orders) in Options 7, Section 3.11 The unrelated market or marketable interest received during an auction will be assessed the applicable Fees for Responses to Crossing Orders (excluding PIM Orders) in Options 7, Section 3.12 Under new paragraph (d)(2), when the PIM Order executes against unrelated market or marketable interest received during an auction, the PIM Order will be assessed the applicable Fees for PIM Orders in Options 7, Section 3, note 11.13 The unrelated market or marketable interest received during an auction will be assessed the applicable Fees for Responses to PIM Orders in Options 7, Section 3, note 12.14 Under new paragraph (d)(3), when the FAC Order, SOL Order, or PIM Order executes against unrelated market or marketable interest received prior to the commencement of an auction, the FAC Order, SOL Order, or PIM Order would be subject to the applicable taker pricing in Options 7, Section 3.15 The unrelated market or marketable interest received prior to the commencement of an auction will be assessed the applicable maker pricing in Options 7, Section 3.16 Unrelated market or marketable interest resting on the Exchange’s order book, whether received prior to the commencement of a FAC, SOL, or PIM auction or during such auction, would be allocated in accordance with Options 3, Section 11(b)(4) (FAC), Section 11(d)(3) (SOL), and Section 13(d) (PIM). 11 Thus the FAC and SOL Order would be assessed the current Fee for Crossing Orders (excluding PIM Orders) of $0.20 per contract for all non-Priority Customer orders, and $0.00 per contract for Priority Customer orders. 12 Thus, unrelated interest would be assessed the current Penny Symbol Fee for Responses to Crossing Orders (excluding PIM Orders) of $0.50 per contract for all market participant orders in Penny Symbols and $1.10 per contract for all market participant orders in Non-Penny Symbols. 13 Thus PIM Orders would be assessed the current Fee for PIM Orders of $0.05 per contract for all nonPriority Customer orders and Priority Customer orders on the contra-side of a PIM auction. There is currently no fee for Priority Customer orders on the agency side of a PIM auction. 14 Thus, unrelated interest would be assessed the current Fee for Responses to PIM Orders of $0.05 per contract for all market participant orders. 15 Thus the FAC, SOL, and PIM Order would be assessed the current volume-based Tiers 1–5 taker fees in Options 7, Section 3 by market participant category. 16 Thus, unrelated interest would be assessed the current volume-based Tiers 1–5 maker rebates in Options 7, Section 3 by market participant category. Note that today, Market Maker and Priority Customer orders are eligible for the higher maker rebates in Tiers 2–5 whereas all other market participant orders would receive the Tier 1 maker rebate. VerDate Sep<11>2014 17:12 Nov 09, 2023 Jkt 262001 The Exchange applies order book pricing in accordance with Options 7, Section 3 to interest received prior to a FAC, SOL, and PIM auction that subsequently trades with a FAC, SOL, or PIM Order (which is considered unrelated market or marketable interest for purposes of the auction) because the Exchange seeks to treat the Member who submitted such interest in a similar manner as any other Member who submits interest to the order book. The Member that submitted such interest would not have been aware at the time that a FAC, SOL, or PIM auction was in progress, and therefore would not have expected to be assessed separate Crossing Order pricing.17 In such instances, the unrelated market or marketable interest that posted to the order book prior to the commencement of the auction would be treated as posting liquidity to the order book (makers of liquidity) and assessed maker pricing in accordance with Options 7, Section 3. The FAC, SOL, and PIM Order that trades against the unrelated interest would be considered as removing liquidity from the order book (takers of liquidity) and assessed taker pricing in accordance with Options 7, Section 3. This is consistent with taker pricing assessed to any Member that removes liquidity from the order book. In contrast, the Exchange applies Crossing Order pricing in Options 7, Section 3 to the unrelated market or marketable interest when the interest arrived during a FAC, SOL, and PIM auction. Members submitting interest to the order book during one of these auctions are aware that they may be allocated in the auction.18 The Exchange assesses the applicable response fee in Options 7, Section 3 to Members submitting such interest in the same manner that responders to the FAC, SOL, and PIM auction are assessed fees for their auction responses. In other words, the unrelated market or marketable interest that received an allocation within the FAC, SOL, or PIM auction would be uniformly subject to the same fees as those Members that submitted auction responses and were allocated. The Exchange’s pricing models for the order book and FAC/SOL/PIM auctions each seek to attract liquidity to the 17 Members become aware of ongoing FAC, SOL, and PIM auctions as the Exchange disseminates an auction notification in the form of a ‘‘broadcast message’’ when the Exchange receives a FAC, SOL, and PIM Order for auction processing. The broadcast message is sent by the Exchange to all Members and includes the series, price, side, and size of the Agency Order. See Options 3, Sections 11(b)(2), 11(d)(2), and 13(c). 18 See supra note 17. PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 Exchange and reward Members differently for the different types of order flow. To this end, the Exchange’s pricing considers the manner in which orders interact with the FAC/SOL/PIM auction based on the timing of when the order entered the order book. The Exchange’s pricing is consistent with its current practice of assigning the applicable pricing for auctions versus order book pricing depending on how and when the order was submitted to the Exchange. Technical Amendments The Exchange proposes a few technical, non-substantive amendments throughout Options 7. Specifically, the Exchange proposes to title paragraph (b) in Options 7, Section 1 as ‘‘Fee Disputes’’ and paragraph (c) as ‘‘Definitions’’ to more clearly identify the applicable rules within the Pricing Schedule. 2. Statutory Basis The Exchange believes that its proposal is consistent with section 6(b) of the Act,19 in general, and furthers the objectives of sections 6(b)(4) and 6(b)(5) of the Act,20 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. Further the proposal is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. Unrelated Interest The Exchange believes that its proposal to specify how the Exchange currently prices unrelated market or marketable interest received is consistent with the Act because memorializing these concepts in new paragraph (d) of Options 7, Section 1 will promote greater clarity and transparency in the rules and make the Pricing Schedule easier to navigate for market participants. As discussed above, the Exchange already denotes how unrelated market or marketable interest received during a FAC, SOL, and PIM auction is priced by grouping such interest as Responses to Crossing Orders and Responses to PIM Orders today. How the Exchange prices unrelated market or marketable interest 19 15 20 15 E:\FR\FM\13NON1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 13NON1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 88, No. 217 / Monday, November 13, 2023 / Notices received prior to a FAC, SOL, and PIM auction, however, is not currently detailed in the Exchange’s Pricing Schedule. As such, the Exchange believes that by consolidating and describing these concepts in one place in the Pricing Schedule, Members can more easily locate the related rules and avoid any potential investor confusion. As discussed above, the Exchange will memorialize that it will assess book pricing for unrelated market or marketable interest received prior to the commencement of a FAC, SOL, or PIM auction by stating that such interest would be assessed the applicable maker pricing. The FAC, SOL and PIM Order that such interest executes against would be assessed applicable taker pricing. The Exchange applies order book pricing in this scenario because at the time the unrelated market or marketable interest was submitted and posted to the order book, Members would not have been aware of an ongoing FAC/SOL/PIM auction and therefore would not expect to be subject to Responses to Crossing Order fees in Section 3 and Responses to PIM Order fees in Section 3, note 12.21 In contrast, the Exchange applies Responses to Crossing Order fees in Section 3 and Responses to PIM Order fees in Section 3, note 12 to the unrelated market or marketable interest when it arrives during the FAC/SOL/PIM auction because Members submitting interest to the order book at that time would be aware that they may be allocated in the FAC/SOL/PIM auction.22 Additionally, the Exchange’s pricing models for the order book and FAC/SOL/PIM auctions each seek to attract liquidity to the Exchange and reward Members differently for different types of order flow. To this end, the Exchange’s pricing considers the manner in which interest interacts with the FAC/SOL/ PIM auction based on the timing of when such interest entered which order book. The Exchange’s pricing is consistent with its current practice of assigning the applicable pricing for auctions versus order book pricing depending on how and when the order was submitted to the Exchange. Further, the Exchange’s proposal to memorialize current practice that unrelated market or marketable interest received prior to the commencement of a FAC/SOL/PIM auction would be assessed the applicable maker pricing is reasonable, equitable, and not unfairly discriminatory because all Members who submitted such interest that posted to the order book prior to the 21 See 22 See supra note 17. supra note 17. VerDate Sep<11>2014 17:12 Nov 09, 2023 commencement of the auction (and executes against the FAC/SOL/PIM Order) would be uniformly assessed the same pricing as any other Member who posted liquidity on the order book. Further, all Members who submitted a FAC/SOL/PIM Order that executed against such interest would be uniformly assessed the same pricing as any other Member who removed liquidity from the order book. Similarly, the Exchange believes that its proposal to specify current practice that unrelated market or marketable interest received during a FAC/SOL/ PIM auction would be assessed the applicable Responses to Crossing Order (including PIM Order) pricing as described above is reasonable, equitable, and not unfairly discriminatory because all Members who submitted such interest would be uniformly assessed the same pricing as any other Member who submitted responses into the FAC/ SOL/PIM auction. Lastly, the Exchange believes that its proposal to specify that Index Options fees are excluded from the unrelated interest concepts in new paragraph (d) is reasonable, equitable, and not unfairly discriminatory because all transactions in Index Options (including transactions in FAC, SOL, and PIM) are presently subject to separate pricing in Options 7, Section 3.23 By clarifying this exclusion, the Exchange believes it will avoid potential confusion as to the applicability of its Pricing Schedule to the benefit of all market participants. Technical Amendments The Exchange believes that adding titles to paragraphs (b) and (c) of Options 7, Section 1 is consistent with the Act because they will promote clarity so that market participants can more easily locate the relevant rules in the Pricing Schedule. 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. The Exchange does not believe that its proposal would impose an undue burden on intra-market competition. The pricing of unrelated interest in the manner described above uniformly treats similarly situated market participants. Specifically, all Members who submitted unrelated market or marketable interest that posted to the order book prior to the commencement of the auction (and executes against the FAC/SOL/PIM Order) would be uniformly assessed the same pricing as any other Member who posted liquidity on the order book. All Members who submitted a FAC/SOL/PIM Order that executed against such interest would be uniformly assessed the same pricing as any other Member who removed liquidity from the order book. Additionally, all Members who submitted unrelated market or marketable interest to the order book during the FAC/SOL/PIM auction (which ends up participating and executing against the auction order) would be uniformly assessed the same pricing as any other Member who submitted responses into the FAC/SOL/ PIM auction. In terms of inter-market competition, the Exchange continues to believe that the way that it prices unrelated market or marketable interest remains competitive with other options markets given that the Exchange’s current pricing models for the order book and for FAC/SOL/PIM auctions are all designed to attract order flow to the Exchange. 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. 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. 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 24 and Rule 19b–4(f)(2) 25 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) 24 15 23 See Jkt 262001 PO 00000 supra notes 9 and 10. Frm 00103 Fmt 4703 Sfmt 4703 77651 25 17 E:\FR\FM\13NON1.SGM U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). 13NON1 77652 Federal Register / Vol. 88, No. 217 / Monday, November 13, 2023 / Notices 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: khammond on DSKJM1Z7X2PROD with NOTICES 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–2023–13 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–2023–13. 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number VerDate Sep<11>2014 17:12 Nov 09, 2023 Jkt 262001 SR–GEMX–2023–13 and should be submitted on or before December 4, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–24867 Filed 11–9–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98863; File No. SR–NYSE– 2023–35] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Withdrawal of Proposed Rule Change To Amend Its Price List November 6, 2023. On September 28, 2023, New York Stock Exchange LLC (‘‘NYSE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder 2 a proposed rule change to amend its Price List to: (1) modify fee rates and requirements for transactions that remove liquidity from the Exchange; (2) offer a monthly rebate for Designated Market Maker units with 150 or fewer assigned securities along with incentives for affiliated Supplemental Liquidity Providers; and (3) eliminate an underutilized fee for transactions that remove liquidity from the Exchange in Tape B and C securities. The proposed rule change was published for comment on October 4, 2023.3 On November 1, 2023, NYSE withdrew the proposed rule change (SR–NYSE–2023– 35). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.4 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–24865 Filed 11–9–23; 8:45 am] BILLING CODE 8011–01–P 26 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 98666 (September 29, 2023), 88 FR 68718 (October 4, 2023). 4 17 CFR 200.30–3(a)(12). 1 15 PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–238, OMB Control No. 3235–0214] Submission for OMB Review; Comment Request; Extension: Rule 17a–7 Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget a request for extension of the previously approved collection of information described below. Rule 17a–7 (17 CFR 270.17a–7) (the ‘‘rule’’) under the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.) (the ‘‘Act’’) is entitled ‘‘Exemption of certain purchase or sale transactions between an investment company and certain affiliated persons thereof.’’ It provides an exemption from section 17(a) of the Act for purchases and sales of securities between registered investment companies (‘‘funds’’), that are affiliated persons (‘‘first-tier affiliates’’) or affiliated persons of affiliated persons (‘‘second-tier affiliates’’), or between a fund and a first- or second-tier affiliate other than another fund, when the affiliation arises solely because of a common investment adviser, director, or officer. Rule 17a–7 requires funds to keep various records in connection with purchase or sale transactions effected in reliance on the rule. The rule requires the fund’s board of directors to establish procedures reasonably designed to ensure that the rule’s conditions have been satisfied. The board is also required to determine, at least on a quarterly basis, that all affiliated transactions effected during the preceding quarter in reliance on the rule were made in compliance with these established procedures. If a fund enters into a purchase or sale transaction with an affiliated person, the rule requires the fund to compile and maintain written records of the transaction.1 The Commission’s 1 Rule 17a–7(g) requires the written record of the affiliated transaction to include the following information: a description of the security purchased or sold, the identity of the person on the other side of the transaction, the terms of the purchase or sale transaction, and the information or materials upon which the board determined that the purchase or sale complied with the procedures set by the board. E:\FR\FM\13NON1.SGM 13NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 88, Number 217 (Monday, November 13, 2023)]
[Notices]
[Pages 77649-77652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-24867]



[[Page 77649]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98866; File No. SR-GEMX-2023-13]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Pricing Schedule at Options 7 To Specify Pricing Related to Unrelated 
Market or Marketable Interest

November 6, 2023.
    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 23, 2023, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Pricing Schedule at Options 7 to 
specify pricing related to unrelated market or marketable interest.
    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 the Exchange's Pricing Schedule at 
Options 7 to specify pricing related to unrelated market or marketable 
interest. Specifically, the Exchange proposes to specify the current 
manner in which the Exchange assesses fees and rebates with respect to 
unrelated market or marketable interest received prior to the 
commencement of an auction in the Facilitation Mechanism (``FAC''),\3\ 
Solicited Order Mechanism (``SOL''),\4\ and Price Improvement Mechanism 
(``PIM''),\5\ and during such auctions. In addition, the Exchange also 
proposes a few non-substantive amendments to Options 7 that will bring 
more clarity to the Exchange's Pricing Schedule. Each change is 
discussed below.
---------------------------------------------------------------------------

    \3\ The Facilitation Mechanism is a process by which an 
Electronic Access Member can execute a transaction wherein the 
Electronic Access Member seeks to facilitate a block-size order it 
represents as agent, and/or a transaction wherein the Electronic 
Access Member solicited interest to execute against a block-size 
order it represents as agent. Electronic Access Members must be 
willing to execute the entire size of orders entered into the 
Facilitation Mechanism. See Options 3, Section 11(b).
    \4\ The Solicited Order Mechanism is a process by which an 
Electronic Access Member can attempt to execute orders of 500 or 
more contracts it represents as agent (the ``Agency Order'') against 
contra orders that it solicited. Each order entered into the 
Solicited Order Mechanism shall be designated as all-or-none. See 
Options 3, Section 11(d).
    \5\ The Price Improvement Mechanism is a process by which an 
Electronic Access Member can provide price improvement opportunities 
for a transaction wherein the Electronic Access Member seeks to 
facilitate an order it represents as agent, and/or a transaction 
wherein the Electronic Access Member solicited interest to execute 
against an order it represents as agent. See Options 3, Section 
13(a).
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Unrelated Interest
    As a general rule, today, if an order executed in FAC (``FAC 
Order''), SOL (``SOL Order''), or PIM (``PIM Order'') executes against 
unrelated market or marketable interest received during an auction, the 
Exchange would assess the applicable Crossing Order \6\ pricing in its 
Pricing Schedule. If the FAC, SOL, or PIM Order executes against 
unrelated market or marketable interest received prior to an auction, 
the Exchange would assess applicable order book pricing in its Pricing 
Schedule. As discussed below, the Exchange applies these concepts to 
unrelated market or marketable interest in line with Member 
expectations and to treat similarly situated Members in a uniform 
manner. The Exchange notes that it currently denotes in the Pricing 
Schedule that it would apply separate Crossing Order pricing for any 
contra-side interest submitted after the commencement of an auction in 
FAC, SOL, or PIM (which includes unrelated market and marketable 
interest received during the auction) by grouping such interest as 
Responses to Crossing Orders.\7\ The Exchange further notes that today, 
it specifies throughout Options 7 how it will price Responses to 
Crossing Orders.\8\ While the Exchange has delineated the treatment of 
unrelated market and marketable interest received by the Exchange 
during a FAC, SOL, and PIM auction in its Pricing Schedule, the 
Exchange believes that further clarity would be beneficial to Members 
as to how the Exchange currently assesses pricing for such interest 
received prior to the commencement of the auction. As such, the 
Exchange proposes to memorialize these concepts in its Pricing Schedule 
by adding new paragraph (d) to Options 7, Section 1, titled ``Unrelated 
Market or Marketable Interest Pricing.'' Proposed paragraph (d) would 
state that the following concepts would apply to FAC, SOL, and PIM 
Orders in Penny Symbols and Non-Penny Symbols (excluding Index 
Options).\9\ The Exchange also proposes to note that all transactions 
in Index Options are subject to separate pricing in Options 7, Section 
3. Today, the Exchange charges separate transaction fees for all 
executions (including executions in FAC, SOL, and PIM) in Index 
Options.\10\ As such, the Exchange believes it is appropriate to 
clarify that these Index Options fees are excluded from the unrelated 
interest concepts in new paragraph (d).
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    \6\ A ``Crossing Order'' is an order executed in the Exchange's 
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement 
Mechanism or submitted as a Qualified Contingent Cross order. For 
purposes of this Pricing Schedule, orders executed in the Block 
Order Mechanism are also considered Crossing Orders.
    \7\ ``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 Price Improvement Mechanism. 
Contra-side interest in this context therefore includes both contra-
side interest submitted specifically in response to an auction 
notification, and unrelated market and marketable contra-side 
interest submitted to the order book during the auction.
    \8\ See Section 3 (setting forth fees for Responses to Crossing 
Orders except PIM Orders); and Section 3, note 12 (setting forth 
fees for Responses to PIM Orders).
    \9\ Today, the index options fees in Options 7, Section 3 apply 
only to NDX, and are assessed to all executions in NDX. See Options 
7, Section 3, note 6.
    \10\ Currently, the transaction fees are $0.75 per contract for 
all non-Priority Customer NDX orders and $0.00 for all Priority 
Customer NDX orders.
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    Specifically, under new paragraph (d)(1), when the FAC Order or SOL

[[Page 77650]]

Order executes against unrelated market or marketable interest received 
during an auction, the FAC Order or SOL Order will be assessed the 
applicable Fees for Crossing Orders (excluding PIM Orders) in Options 
7, Section 3.\11\ The unrelated market or marketable interest received 
during an auction will be assessed the applicable Fees for Responses to 
Crossing Orders (excluding PIM Orders) in Options 7, Section 3.\12\
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    \11\ Thus the FAC and SOL Order would be assessed the current 
Fee for Crossing Orders (excluding PIM Orders) of $0.20 per contract 
for all non-Priority Customer orders, and $0.00 per contract for 
Priority Customer orders.
    \12\ Thus, unrelated interest would be assessed the current 
Penny Symbol Fee for Responses to Crossing Orders (excluding PIM 
Orders) of $0.50 per contract for all market participant orders in 
Penny Symbols and $1.10 per contract for all market participant 
orders in Non-Penny Symbols.
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    Under new paragraph (d)(2), when the PIM Order executes against 
unrelated market or marketable interest received during an auction, the 
PIM Order will be assessed the applicable Fees for PIM Orders in 
Options 7, Section 3, note 11.\13\ The unrelated market or marketable 
interest received during an auction will be assessed the applicable 
Fees for Responses to PIM Orders in Options 7, Section 3, note 12.\14\
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    \13\ Thus PIM Orders would be assessed the current Fee for PIM 
Orders of $0.05 per contract for all non-Priority Customer orders 
and Priority Customer orders on the contra-side of a PIM auction. 
There is currently no fee for Priority Customer orders on the agency 
side of a PIM auction.
    \14\ Thus, unrelated interest would be assessed the current Fee 
for Responses to PIM Orders of $0.05 per contract for all market 
participant orders.
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    Under new paragraph (d)(3), when the FAC Order, SOL Order, or PIM 
Order executes against unrelated market or marketable interest received 
prior to the commencement of an auction, the FAC Order, SOL Order, or 
PIM Order would be subject to the applicable taker pricing in Options 
7, Section 3.\15\ The unrelated market or marketable interest received 
prior to the commencement of an auction will be assessed the applicable 
maker pricing in Options 7, Section 3.\16\
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    \15\ Thus the FAC, SOL, and PIM Order would be assessed the 
current volume-based Tiers 1-5 taker fees in Options 7, Section 3 by 
market participant category.
    \16\ Thus, unrelated interest would be assessed the current 
volume-based Tiers 1-5 maker rebates in Options 7, Section 3 by 
market participant category. Note that today, Market Maker and 
Priority Customer orders are eligible for the higher maker rebates 
in Tiers 2-5 whereas all other market participant orders would 
receive the Tier 1 maker rebate.
---------------------------------------------------------------------------

    Unrelated market or marketable interest resting on the Exchange's 
order book, whether received prior to the commencement of a FAC, SOL, 
or PIM auction or during such auction, would be allocated in accordance 
with Options 3, Section 11(b)(4) (FAC), Section 11(d)(3) (SOL), and 
Section 13(d) (PIM).
    The Exchange applies order book pricing in accordance with Options 
7, Section 3 to interest received prior to a FAC, SOL, and PIM auction 
that subsequently trades with a FAC, SOL, or PIM Order (which is 
considered unrelated market or marketable interest for purposes of the 
auction) because the Exchange seeks to treat the Member who submitted 
such interest in a similar manner as any other Member who submits 
interest to the order book. The Member that submitted such interest 
would not have been aware at the time that a FAC, SOL, or PIM auction 
was in progress, and therefore would not have expected to be assessed 
separate Crossing Order pricing.\17\ In such instances, the unrelated 
market or marketable interest that posted to the order book prior to 
the commencement of the auction would be treated as posting liquidity 
to the order book (makers of liquidity) and assessed maker pricing in 
accordance with Options 7, Section 3. The FAC, SOL, and PIM Order that 
trades against the unrelated interest would be considered as removing 
liquidity from the order book (takers of liquidity) and assessed taker 
pricing in accordance with Options 7, Section 3. This is consistent 
with taker pricing assessed to any Member that removes liquidity from 
the order book.
---------------------------------------------------------------------------

    \17\ Members become aware of ongoing FAC, SOL, and PIM auctions 
as the Exchange disseminates an auction notification in the form of 
a ``broadcast message'' when the Exchange receives a FAC, SOL, and 
PIM Order for auction processing. The broadcast message is sent by 
the Exchange to all Members and includes the series, price, side, 
and size of the Agency Order. See Options 3, Sections 11(b)(2), 
11(d)(2), and 13(c).
---------------------------------------------------------------------------

    In contrast, the Exchange applies Crossing Order pricing in Options 
7, Section 3 to the unrelated market or marketable interest when the 
interest arrived during a FAC, SOL, and PIM auction. Members submitting 
interest to the order book during one of these auctions are aware that 
they may be allocated in the auction.\18\ The Exchange assesses the 
applicable response fee in Options 7, Section 3 to Members submitting 
such interest in the same manner that responders to the FAC, SOL, and 
PIM auction are assessed fees for their auction responses. In other 
words, the unrelated market or marketable interest that received an 
allocation within the FAC, SOL, or PIM auction would be uniformly 
subject to the same fees as those Members that submitted auction 
responses and were allocated.
---------------------------------------------------------------------------

    \18\ See supra note 17.
---------------------------------------------------------------------------

    The Exchange's pricing models for the order book and FAC/SOL/PIM 
auctions each seek to attract liquidity to the Exchange and reward 
Members differently for the different types of order flow. To this end, 
the Exchange's pricing considers the manner in which orders interact 
with the FAC/SOL/PIM auction based on the timing of when the order 
entered the order book. The Exchange's pricing is consistent with its 
current practice of assigning the applicable pricing for auctions 
versus order book pricing depending on how and when the order was 
submitted to the Exchange.
Technical Amendments
    The Exchange proposes a few technical, non-substantive amendments 
throughout Options 7. Specifically, the Exchange proposes to title 
paragraph (b) in Options 7, Section 1 as ``Fee Disputes'' and paragraph 
(c) as ``Definitions'' to more clearly identify the applicable rules 
within the Pricing Schedule.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\19\ in general, and furthers the objectives of 
sections 6(b)(4) and 6(b)(5) of the Act,\20\ 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. Further the proposal is 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

Unrelated Interest
    The Exchange believes that its proposal to specify how the Exchange 
currently prices unrelated market or marketable interest received is 
consistent with the Act because memorializing these concepts in new 
paragraph (d) of Options 7, Section 1 will promote greater clarity and 
transparency in the rules and make the Pricing Schedule easier to 
navigate for market participants. As discussed above, the Exchange 
already denotes how unrelated market or marketable interest received 
during a FAC, SOL, and PIM auction is priced by grouping such interest 
as Responses to Crossing Orders and Responses to PIM Orders today. How 
the Exchange prices unrelated market or marketable interest

[[Page 77651]]

received prior to a FAC, SOL, and PIM auction, however, is not 
currently detailed in the Exchange's Pricing Schedule. As such, the 
Exchange believes that by consolidating and describing these concepts 
in one place in the Pricing Schedule, Members can more easily locate 
the related rules and avoid any potential investor confusion.
    As discussed above, the Exchange will memorialize that it will 
assess book pricing for unrelated market or marketable interest 
received prior to the commencement of a FAC, SOL, or PIM auction by 
stating that such interest would be assessed the applicable maker 
pricing. The FAC, SOL and PIM Order that such interest executes against 
would be assessed applicable taker pricing. The Exchange applies order 
book pricing in this scenario because at the time the unrelated market 
or marketable interest was submitted and posted to the order book, 
Members would not have been aware of an ongoing FAC/SOL/PIM auction and 
therefore would not expect to be subject to Responses to Crossing Order 
fees in Section 3 and Responses to PIM Order fees in Section 3, note 
12.\21\ In contrast, the Exchange applies Responses to Crossing Order 
fees in Section 3 and Responses to PIM Order fees in Section 3, note 12 
to the unrelated market or marketable interest when it arrives during 
the FAC/SOL/PIM auction because Members submitting interest to the 
order book at that time would be aware that they may be allocated in 
the FAC/SOL/PIM auction.\22\ Additionally, the Exchange's pricing 
models for the order book and FAC/SOL/PIM auctions each seek to attract 
liquidity to the Exchange and reward Members differently for different 
types of order flow. To this end, the Exchange's pricing considers the 
manner in which interest interacts with the FAC/SOL/PIM auction based 
on the timing of when such interest entered which order book. The 
Exchange's pricing is consistent with its current practice of assigning 
the applicable pricing for auctions versus order book pricing depending 
on how and when the order was submitted to the Exchange.
---------------------------------------------------------------------------

    \21\ See supra note 17.
    \22\ See supra note 17.
---------------------------------------------------------------------------

    Further, the Exchange's proposal to memorialize current practice 
that unrelated market or marketable interest received prior to the 
commencement of a FAC/SOL/PIM auction would be assessed the applicable 
maker pricing is reasonable, equitable, and not unfairly discriminatory 
because all Members who submitted such interest that posted to the 
order book prior to the commencement of the auction (and executes 
against the FAC/SOL/PIM Order) would be uniformly assessed the same 
pricing as any other Member who posted liquidity on the order book. 
Further, all Members who submitted a FAC/SOL/PIM Order that executed 
against such interest would be uniformly assessed the same pricing as 
any other Member who removed liquidity from the order book.
    Similarly, the Exchange believes that its proposal to specify 
current practice that unrelated market or marketable interest received 
during a FAC/SOL/PIM auction would be assessed the applicable Responses 
to Crossing Order (including PIM Order) pricing as described above is 
reasonable, equitable, and not unfairly discriminatory because all 
Members who submitted such interest would be uniformly assessed the 
same pricing as any other Member who submitted responses into the FAC/
SOL/PIM auction.
    Lastly, the Exchange believes that its proposal to specify that 
Index Options fees are excluded from the unrelated interest concepts in 
new paragraph (d) is reasonable, equitable, and not unfairly 
discriminatory because all transactions in Index Options (including 
transactions in FAC, SOL, and PIM) are presently subject to separate 
pricing in Options 7, Section 3.\23\ By clarifying this exclusion, the 
Exchange believes it will avoid potential confusion as to the 
applicability of its Pricing Schedule to the benefit of all market 
participants.
---------------------------------------------------------------------------

    \23\ See supra notes 9 and 10.
---------------------------------------------------------------------------

Technical Amendments
    The Exchange believes that adding titles to paragraphs (b) and (c) 
of Options 7, Section 1 is consistent with the Act because they will 
promote clarity so that market participants can more easily locate the 
relevant rules in the Pricing Schedule.

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.
    The Exchange does not believe that its proposal would impose an 
undue burden on intra-market competition. The pricing of unrelated 
interest in the manner described above uniformly treats similarly 
situated market participants. Specifically, all Members who submitted 
unrelated market or marketable interest that posted to the order book 
prior to the commencement of the auction (and executes against the FAC/
SOL/PIM Order) would be uniformly assessed the same pricing as any 
other Member who posted liquidity on the order book. All Members who 
submitted a FAC/SOL/PIM Order that executed against such interest would 
be uniformly assessed the same pricing as any other Member who removed 
liquidity from the order book. Additionally, all Members who submitted 
unrelated market or marketable interest to the order book during the 
FAC/SOL/PIM auction (which ends up participating and executing against 
the auction order) would be uniformly assessed the same pricing as any 
other Member who submitted responses into the FAC/SOL/PIM auction.
    In terms of inter-market competition, the Exchange continues to 
believe that the way that it prices unrelated market or marketable 
interest remains competitive with other options markets given that the 
Exchange's current pricing models for the order book and for FAC/SOL/
PIM auctions are all designed to attract order flow to the Exchange. 
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. 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.

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 \24\ and Rule 19b-4(f)(2) \25\ 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)

[[Page 77652]]

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.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \25\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2023-13 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-2023-13. 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-GEMX-2023-13 and should be 
submitted on or before December 4, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-24867 Filed 11-9-23; 8:45 am]
BILLING CODE 8011-01-P

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