Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 6, 21099-21104 [2024-06324]

Download as PDF Federal Register / Vol. 89, No. 59 / Tuesday, March 26, 2024 / Notices Purge Ports are only utilized in the Market Maker’s assigned options series. Unlike other market participants, Market Makers are subject to market making and quoting obligations.29 These liquidity providers are critical market participants in that they are the only market participants that provide liquidity to MRX on a continuous basis. In addition, the Exchange notes that Lead Market Makers are required to submit quotes in the Opening Process to open an options series.30 Market Makers are subject to a number of fees, unlike other market participants. Market Makers pay separate Membership Fees,31 and CMM Trading Right Fees,32 in addition to other fees paid by other market participants. Providing Market Makers a means to cap their cost related to quoting and enabling all Market Makers to acquire SQF Ports and SQF Purge Ports at no cost beyond a certain dollar amount enables these market participants to provide the necessary liquidity to MRX at lower costs. Therefore, because Market Makers fulfill a unique role on the Exchange, are the only market participant required to submit quotes as part of their obligations to operate on the Exchange, and, in light of that role, they are eligible for certain incentives. The proposed SQF Port and SQF Purge Fee cap is designed to continue to incent Market Makers to quote on MRX, thereby promoting liquidity, quote competition, and trading opportunities. The Exchange’s proposal to remove the italicized language in Options 7, Section 6 related to a technology migration that took place in 2022 does not impose an undue burden on competition because the rule text related to the technology migration is no longer necessary because the migration is complete and the fees are no longer applicable. No Member is subject to the pricing described for the 2022 technology migration. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others ddrumheller on DSK120RN23PROD with NOTICES1 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 29 See Options 2, Sections 4 and 5. Options 3, Section 8. 31 See Options 7, Section 5, E. 32 See Options 7, Section 5, F. 30 See VerDate Sep<11>2014 18:10 Mar 25, 2024 19(b)(3)(A)(ii) of the Act.33 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– MRX–2024–07 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–MRX–2024–07. 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 33 15 Jkt 262001 PO 00000 U.S.C. 78s(b)(3)(A)(ii). Frm 00160 Fmt 4703 Sfmt 4703 21099 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–MRX–2024–07 and should be submitted on or before April 16, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.34 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–06323 Filed 3–25–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99787; File No. SR–GEMX– 2024–07] Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 6 March 20, 2024. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 7, 2024, Nasdaq GEMX, LLC (‘‘GEMX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘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 its Rules at Options 7, Section 6, C, Ports and Other Services.3 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 34 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 The Exchange initially filed the proposed pricing changes on November 28, 2023 (SR–GEMX– 2023–16) to be effective on December 1, 2023. On December 5, 2023, the Exchange withdrew SR– GEMX–2023–16 and replaced it with SR–GEMX– 2023–19. On January 16, 2023, the Exchange withdrew SR–GEMX–2023–19 and submitted SR– GEMX–2024–03. On March 7, 2024, the Exchange withdrew SR–GEMX–2024–03 and submitted this filing. 1 15 E:\FR\FM\26MRN1.SGM 26MRN1 21100 Federal Register / Vol. 89, No. 59 / Tuesday, March 26, 2024 / Notices 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 ddrumheller on DSK120RN23PROD with NOTICES1 The Exchange proposes to amend Options 7, Section 6, C, Ports and Other Services. Specifically, the Exchange proposes to amend the monthly caps for SQF Ports 4 and SQF Purge Ports.5 Today, GEMX assesses $1,250 per port, per month for an SQF Port as well as an SQF Purge Port.6 Also, today, SQF 4 ‘‘Specialized Quote Feed’’ or ‘‘SQF’’ is an interface that allows Market Makers to connect, send, and receive messages related to quotes, Immediate-or-Cancel Orders, and auction responses to the Exchange. Features include the following: (1) options symbol directory messages (e.g., underlying instruments); (2) System event messages (e.g., start of trading hours messages and start of opening); (3) trading action messages (e.g., halts and resumes); (4) execution messages; (5) quote messages; (6) Immediate-or-Cancel Order messages; (7) risk protection triggers and purge notifications; (8) opening imbalance messages; (9) auction notifications; and (10) auction responses. The SQF Purge Interface only receives and notifies of purge requests from the Market Maker. Market Makers may only enter interest into SQF in their assigned options series. Immediate-or-Cancel Orders entered into SQF are not subject to the Order Price Protection, Market Order Spread Protection, and Size Limitation Protection in Options 3, Section 15(a)(1)(A), (1)(B), and (2)(B) respectively. See Supplementary Material .03(c) to Options 3, Section 7. 5 SQF Purge is a specific port for the SQF interface that only receives and notifies of purge requests from the Market Maker. Dedicated SQF Purge Ports enable Market Makers to seamlessly manage their ability to remove their quotes in a swift manner. The SQF Purge Port is designed to assist Market Makers in the management of, and risk control over, their quotes. Market Makers may utilize a purge port to reduce uncertainty and to manage risk by purging all quotes in their assigned options series. Of note, Market Makers may only enter interest into SQF in their assigned options series. Additionally, the SQF Purge Port may be utilized by a Market Maker in the event that the Member has a system issue and determines to purge its quotes from the order book. 6 The Exchange proposes to add a comma between ‘‘per port’’ and ‘‘per month’’ in the Options VerDate Sep<11>2014 18:10 Mar 25, 2024 Jkt 262001 Ports and SQF Purge Ports are subject to a monthly cap of $17,500, which cap is applicable to Market Makers. At this time, the Exchange proposes to increase the SQF Port and SQF Purge Port monthly cap fee of $17,500 per month to $27,500 per month.7 The Exchange is not amending the $1,250 per port, per month SQF Port and SQF Purge Port. As is the case today, the Exchange would not assess a Member an SQF Port or SQF Purge Port fee beyond the monthly cap once the Member has exceeded the monthly cap for the respective month. Despite increasing the monthly cap for SQF Ports and SQF Purge Ports from $17,500 per month to $27,500 per month, the Exchange will continue to offer Members the opportunity to cap their SQF Port and SQF Purge Port fees so that they would not be assessed these fees beyond the cap. Pursuant to Supplementary Material .03(c) to Options 3, Section 7, Market Makers may only enter interest into SQF in their assigned options series. Pursuant to Supplementary Material .03(c) to Options 3, Section 7, the SQF interface allows Market Makers to connect, send, and receive messages related to quotes, Immediate-or-Cancel Orders, and auction responses to the Exchange. A GEMX Market Maker requires only one SQF Port to submit quotes in its assigned options series into GEMX. An SQF Purge is a specific port for the SQF interface that only receives and notifies of purge requests from the Market Maker. A GEMX Market Maker may submit all quotes through one SQF Port and utilize one SQF Purge Port to view its purge requests. While a Market Maker may elect to obtain multiple SQF Ports and SQF Purge Ports to organize its business,8 only one SQF Port and SQF Purge Port is necessary for a Market Maker to fulfill its regulatory quoting obligations.9 7, Section 6, C, SQF Port and SQF Purge Port Fee rule text. The Exchange also proposes to remove an extraneous period in Options 7, Section 6, C, in the second paragraph. 7 Today, 62% of GEMX Market Makers have capped their SQF Ports and SQF Purge Ports on GEMX. The Exchange notes that of the Market Makers currently registered on GEMX, there is a mix of size of Market Makers that cap. 8 For example, a Market Maker may desire to utilize multiple SQF Ports for accounting purposes, to measure performance, for regulatory reasons or other determinations that are specific to that Member. 9 GEMX Market Makers have various regulatory requirements as provided for in Options 2, Section 4. Additionally, GEMX Market Makers have certain quoting requirements with respect to their assigned options series as provided in Options 2, Section 5. SQF Ports are the only quoting protocol available on GEMX and only Market Makers may utilize SQF Ports. The same is true for SQF Purge Ports. PO 00000 Frm 00161 Fmt 4703 Sfmt 4703 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,10 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,11 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 proposed pricing change to increase the SQF Port and SQF Purge Port monthly cap from $17,500 per month to $27,500 per month is reasonable because despite the increase in the monthly cap, the Exchange will continue to offer Members the opportunity to cap their SQF Port and SQF Purge Port fees so that they would not be assessed these fees beyond the cap. Additionally, a GEMX Market Maker requires only one SQF Port to submit quotes in its assigned options series into GEMX. A GEMX Market Maker may submit all quotes through one SQF Port and utilize one SQF Purge Port to view its purge requests. While a Market Maker may elect to obtain multiple SQF Ports and SQF Purge Ports to organize its business,12 only one SQF Port and SQF Purge Port is necessary for a Market Maker to fulfill its regulatory quoting obligations.13 Members may choose a greater number of SQF Ports or SQF Purge Ports, beyond one port, depending on that Member’s particular business model. Additionally, the Exchange believes that the caps are reasonable for two reasons. First, SQF Ports are a secure method for Market Makers to submit quotes into the Exchange’s match engine and for the Exchange to send messages related to those quotes to Market Makers. GEMX must manage the security and message traffic, among other things, for each port. Utilizing the cap to manage a Market Maker’s costs while also managing the quantity of SQF Ports issued on GEMX has led the Exchange to select $27,500 as the amended monthly cap for SQF Ports and SQF 10 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 12 For example, a Market Maker or may desire to utilize multiple SQF Ports for accounting purposes, to measure performance, for regulatory reasons or other determinations that are specific to that Member. 13 GEMX Market Makers have various regulatory requirements as provided for in Options 2, Section 4. Additionally, GEMX Market Makers have certain quoting requirements with respect to their assigned options series as provided in Options 2, Section 5. SQF Ports are the only quoting protocol available on GEMX and only Market Makers may utilize SQF Ports. 11 15 E:\FR\FM\26MRN1.SGM 26MRN1 Federal Register / Vol. 89, No. 59 / Tuesday, March 26, 2024 / Notices Purge Ports. By capping the ports at a different level, the Exchange is considering the message traffic and message rates associated with the current number of outstanding ports and its ability to process messages. The ability to have a cap and amend that cap permits the Exchange to scale its needs with respect to processing messages in an efficient manner. The Exchange notes that Cboe Exchange, Inc. (‘‘Cboe’’) limits usage on each port and assesses fees for incremental usage.14 Second, the Exchange notes that multiple ports are not necessary, however, to the extent that some Market Makers elect to obtain multiple ports, the Exchange is offering to cap their total port cost at $27,500 per month. GEMX believes the existence of a cap allows for efficiencies and permits Market Makers to increase their number of ports beyond the cap. The cap levels the playing field by allowing those Market Makers that want to obtain a larger number of ports to do so with the certainty of a fee cap. Without the cap, GEMX Market Makers may pay more to obtain multiple ports on GEMX. BOX Exchange LLC (‘‘BOX’’) assesses $1,000 per month for all SAIL Ports for Market Making and $500 per month per port up to 5 ports for order entry and $150 per month for each additional port.15 MIAX’s MIAX Express Interface (‘‘MEI’’) Fee levels are based on a tiered fee 21101 structure based on the Market Maker’s total monthly executed volume during the relevant month.16 The number of ports that members choose to purchase varies widely. Today, on GEMX, no Marker Makers have 1 SQF Port/SQF Purge Port, 1 Market Maker had 2–5 SQF Ports/SQF Purge Ports, 4 Market Makers have between 6–10 SQF Ports/SQF Purge Ports, and 8 Market Makers have more than 11 SQF Ports/SQF Purge Ports. The chart below represents the number of SQF Ports and SQF Purge Ports that are subscribed to by members across the six Nasdaq affiliated options markets. SQF & SQF Purge Ports Across Nasdaq Exchanges Data as of/t,.farch 1r 2024 B!.!tket 2~5 Ports Bu.cket:•l?ort "¥~,ofTi:ttit!: 0.24% %ofTvtai: 0.82% ::s{if?-.ort~:·27 :::-ofP.orts.-:8 Buck-Br: 6,.lOPorts 'bvfTctaL4.43%, ;;of Ports~ 146 8-Jt:i->et: l.l+ Ports <:"◊OfTotaJ:94.51% The Exchange’s proposed pricing change to increase the SQF Port and SQF Purge Port monthly cap from $17,500 per month to $27,500 per month is equitable and not unfairly discriminatory because the Exchange would uniformly not assess any Market Makers that exceeded the proposed monthly cap any SQF Port and SQF Purge Port fees for that month beyond the cap. Market Makers are the only market participants that are assessed SQF Port and SQF Purge Port fees because they are the only market participants that are permitted to quote on the Exchange. SQF Ports and SQF Purge Ports are only utilized in the Market Maker’s assigned options series. The following chart represents the classification of GEMX Members and the percentage of Market Makers. 14 Each Cboe Binary Order Entry (‘‘BOE’’) or FIX Logical Port incur the logical port fee indicated when used to enter up to 70,000 orders per trading day per logical port as measured on average in a single month. For each incremental usage of up to 70,000 per day per logical port will incur an additional logical port fee of $800 per month. BOE or FIX Logical Ports provide users the ability to enter order/quotes. See Cboe’s Fees Schedule. 15 See BOX’s Fee Schedule. 16 MEI is a connection to MIAX systems that enables Market Makers to submit simple and complex electronic quotes to MIAX. MIAX caps its MEI Ports. For these Monthly MIAX MEI Fees levels, if the Market Maker’s total monthly executed volume during the relevant month is less than 0.060% of the total monthly executed volume reported by OCC in the market maker account type for MIAX-listed option classes for that month, then the fee will be $14,500 instead of the fee otherwise applicable to such level. See MIAX’s Fee Schedule. VerDate Sep<11>2014 18:10 Mar 25, 2024 Jkt 262001 PO 00000 Frm 00162 Fmt 4703 Sfmt 4703 E:\FR\FM\26MRN1.SGM 26MRN1 EN26MR24.011</GPH> ddrumheller on DSK120RN23PROD with NOTICES1 z. of f'orts· 3,116 21102 Federal Register / Vol. 89, No. 59 / Tuesday, March 26, 2024 / Notices GEMX Member Type Distribution March2024 Unlike other market participants, Market Makers are subject to market making and quoting obligations.17 These liquidity providers are critical market participants in that they are the only market participants that provide liquidity to GEMX on a continuous basis. In addition, the Exchange notes that Lead Market Makers are required to submit quotes in the Opening Process to open an options series.18 Market Makers are subject to a number of fees, unlike other market participants. Market Makers pay separate Membership Fees,19 and CMM Trading Right Fees,20 in addition to other fees paid by other market participants. Providing Market Makers a means to cap their cost related to quoting and enabling all Market Makers to acquire SQF Ports and SQF Purge Ports at no cost beyond a certain dollar amount enables these market participants to provide the necessary liquidity to GEMX at lower costs. Therefore, because Market Makers fulfill a unique role on the Exchange, are the only market participant required to submit quotes as part of their obligations to operate on the Exchange, and, in light of that role, they are eligible for certain incentives. The proposed SQF Port and SQF Purge Fee cap is designed to continue to incent Market Makers to quote on GEMX, 17 See Options 2, Sections 4 and 5. Options 3, Section 8. 19 See Options 7, Section 6, A. 20 See Options 7, Section 6, B. 18 See VerDate Sep<11>2014 18:10 Mar 25, 2024 Jkt 262001 thereby promoting liquidity, quote competition, and trading opportunities. In 2022, NYSE Arca, Inc. (‘‘NYSE Arca’’) proposed to restructure fees relating to OTPs for Market Makers.21 In that rule change,22 NYSE Arca argued that, Market Makers serve a unique and important function on the Exchange (and other options exchanges) given the quotedriven nature of options markets. Because options exchanges rely on actively quoting Market Makers to facilitate a robust marketplace that attracts order flow, options exchanges must attract and retain Market Makers, including by setting competitive Market Maker permit fees. Stated otherwise, changes to Market Maker permit fees can have a direct effect on the ability of an exchange to compete for order flow. The Exchange also believes that the number of options exchanges on which Market Makers can effect option transactions also ensures competition in the marketplace and constrains the ability of exchanges to charge supracompetitive fees for access to its market by Market Makers. Further, NYSE ARCA noted that,23 The Exchange further believes that its ability to set Market Maker permit fees is constrained by competitive forces based on the fact that Market Makers can, and have, chosen to terminate their status as a Market 21 See Securities Exchange Act Release No. 95412 (June 23, 2022), 87 FR 38786 (June 29, 2022) (SR– NYSEArca–2022–36). NYSE Arca proposed to increase both the monthly fee per Market Maker OTP and the number of issues covered by each additional OTP because, among other reasons, the number of issues traded on the Exchange has increased significantly in recent years. 22 Id at 38788. 23 Id at 38790. PO 00000 Frm 00163 Fmt 4703 Sfmt 4703 Maker if they deem Market Maker permit fees to be unreasonable or excessive. Specifically, the Exchange notes that a BOX participant modified its access to BOX in connection with the implementation of a proposed change to BOX’s Market Maker permit fees. The Exchange has also observed that another options exchange group experienced decreases in market share following its proposed modifications of its access fees (including Market Maker trading permit fees), suggesting that market participants (including Market Makers) are sensitive to changes in exchanges’ access fees and may respond by shifting their order flow elsewhere if they deem the fees to be unreasonable or excessive. There is no requirement, regulatory or otherwise, that any Market Maker connect to and access any (or all of) the available options exchanges. The Exchange also is not aware of any reason why a Market Maker could not cease being a permit holder in response to unreasonable price increases. The Exchange does not assess any termination fee for a Market Maker to drop its OTP, nor is the Exchange aware of any other costs that would be incurred by a Market Maker to do so. The Exchange likewise believes that its ability to cap SQF Port and SQF Purge fees is constrained by competitive forces and that its proposed modifications to the SQF Port and SQF Purge Fee cap is reasonably designed in consideration of the competitive environment in which the Exchange operates, by balancing the value of the enhanced benefits available to Market Makers due to the current level of activity on the Exchange with a fee structure that will continue to incent Market Makers to support increased E:\FR\FM\26MRN1.SGM 26MRN1 EN26MR24.012</GPH> ddrumheller on DSK120RN23PROD with NOTICES1 Clearinga!id EAM· 52.38%. Federal Register / Vol. 89, No. 59 / Tuesday, March 26, 2024 / Notices liquidity, quote competition, and trading opportunities on the Exchange, for the benefit of all market participants. 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 proposal does not impose an undue burden on intermarket competition. The Exchange believes its proposal remains competitive with other options markets who also offer order entry protocols. 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 21103 particular venue to be excessive. The chart below shows the February 2024 market share for multiply listed options by exchange. Of the 17 operating options exchanges, none currently has more than a 17.6% market share. Customers widely distribute their transactions across exchanges according to their business needs and the ability of each exchange to meet those needs through technology, liquidity and functionality. Options Market Share by Exchange: February 2024 CBOE 17.6% ARCA 12.5% PHLX 9.3% AMEX 7.0% EDGX 6.6% !SE 6.0% MIAX 6.0% BOX Options Exchanges- Parent Company BOX 5.8% MPRL 5.5% NOM 5.0% BATS 4.0% EMLD 3.5% C2 MEMX 3.1% 1.4% GEMX 2.4% MRX 2.4% BXOP-2.0% MEMX-1.4% Market share is the percentage of volume on a particular exchange relative to the total volume across all exchanges, and indicates the amount of order flow directed to that exchange. High levels of market share enhance the value of trading and ports. 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. Other exchanges amended certain costs attributed to Market Makers.24 In 2022, MRX proposed a monthly cap for SQF Ports and SQF Purge Ports of 17,500.25 MRX noted in its rule change 24 See Securities Exchange Act Release No. 95412 (June 23, 2022), 87 FR 38786 (June 29, 2022) (SR– NYSEArca–2022–36). 25 See Securities Exchange Act No. 96824 (February 7, 2023), 88 FR 8975 (February 10, 2023) VerDate Sep<11>2014 18:10 Mar 25, 2024 Jkt 262001 that, ‘‘Only one SQF quote protocol is required for an MRX Market Maker to submit quotes into MRX and to meet its regulatory requirements.’’ 26 Additionally, BOX Exchange LLC (‘‘BOX’’) assesses $1,000 per month for all SAIL Ports for Market Making and $500 per month per port up to 5 ports for order entry and $150 per month for each additional port.27 MIAX’s MIAX Express Interface (‘‘MEI’’) Fee levels are based on a tiered fee structure based on the Market Maker’s total monthly executed volume during the relevant month.28 (SR–MRX–2023–05) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend MRX Options 7, Section 6). 26 Id at 8976. 27 See BOX’s Fee Schedule. 28 MEI is a connection to MIAX systems that enables Market Makers to submit simple and complex electronic quotes to MIAX. MIAX caps its MEI Ports. For these Monthly MIAX MEI Fees levels, if the Market Maker’s total monthly executed volume during the relevant month is less than 0.060% of the total monthly executed volume reported by OCC in the market maker account type for MIAX-listed option classes for that month, then PO 00000 Frm 00164 Fmt 4703 Sfmt 4703 If the Commission were to apply a different standard of review this proposal than it applied to other exchange fee filings, where Market Maker fees were increased and port fee caps were established, it would create a burden on competition such that it would impair GEMX’s ability to compete among other options markets. Intramarket Competition The Exchange’s proposed pricing change to increase the SQF Port and SQF Purge Port monthly cap from $17,500 per month to $27,500 per month does not impose an undue burden on competition because the Exchange would uniformly not assess any Market Makers that exceeded the proposed monthly cap any SQF Port and SQF Purge Port fees for that month beyond the cap. Market Makers are the only market participants that are assessed SQF Port and SQF Purge Port fees because they are the only market the fee will be $14,500 instead of the fee otherwise applicable to such level. See MIAX’s Fee Schedule. E:\FR\FM\26MRN1.SGM 26MRN1 EN26MR24.013</GPH> ddrumheller on DSK120RN23PROD with NOTICES1 Source; OCC., Nadsaq Economic Research 21104 Federal Register / Vol. 89, No. 59 / Tuesday, March 26, 2024 / Notices participants that are permitted to quote on the Exchange. SQF Ports and SQF Purge Ports are only utilized in the Market Maker’s assigned options series. Unlike other market participants, Market Makers are subject to market making and quoting obligations.29 These liquidity providers are critical market participants in that they are the only market participants that provide liquidity to GEMX on a continuous basis. In addition, the Exchange notes that Lead Market Makers are required to submit quotes in the Opening Process to open an options series.30 Market Makers are subject to a number of fees, unlike other market participants. Market Makers pay separate Membership Fees,31 and CMM Trading Right Fees,32 in addition to other fees paid by other market participants. Providing Market Makers a means to cap their cost related to quoting and enabling all Market Makers to acquire SQF Ports and SQF Purge Ports at no cost beyond a certain dollar amount enables these market participants to provide the necessary liquidity to GEMX at lower costs. Therefore, because Market Makers fulfill a unique role on the Exchange, are the only market participant required to submit quotes as part of their obligations to operate on the Exchange, and, in light of that role, they are eligible for certain incentives. The proposed SQF Port and SQF Purge Fee cap is designed to continue to incent Market Makers to quote on GEMX, thereby promoting liquidity, quote competition, and trading opportunities. ddrumheller on DSK120RN23PROD with NOTICES1 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.33 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. 29 See Options 2, Sections 4 and 5. Options 3, Section 8. 31 See Options 7, Section 6, A. 32 See Options 7, Section 6, B. 33 15 U.S.C. 78s(b)(3)(A)(ii). 30 See VerDate Sep<11>2014 18:10 Mar 25, 2024 Jkt 262001 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 [FR Doc. 2024–06324 Filed 3–25–24; 8:45 am] 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–2024–07 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–2024–07. 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–2024–07 and should be submitted on or before April 16, 2024. PO 00000 Frm 00165 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.34 Sherry R. Haywood, Assistant Secretary. BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99801; File No. SR– NYSEARCA–2024–27] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the 7RCC Spot Bitcoin and Carbon Credit Futures ETF March 20, 2024. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on March 13, 2024, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade shares of the 7RCC Spot Bitcoin and Carbon Credit Futures ETF under NYSE Arca Rule 8.500–E (Trust Units). The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, 34 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 E:\FR\FM\26MRN1.SGM 26MRN1

Agencies

[Federal Register Volume 89, Number 59 (Tuesday, March 26, 2024)]
[Notices]
[Pages 21099-21104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06324]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99787; File No. SR-GEMX-2024-07]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, 
Section 6

March 20, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 7, 2024, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``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 its Rules at Options 7, Section 6, 
C, Ports and Other Services.\3\
---------------------------------------------------------------------------

    \3\ The Exchange initially filed the proposed pricing changes on 
November 28, 2023 (SR-GEMX-2023-16) to be effective on December 1, 
2023. On December 5, 2023, the Exchange withdrew SR-GEMX-2023-16 and 
replaced it with SR-GEMX-2023-19. On January 16, 2023, the Exchange 
withdrew SR-GEMX-2023-19 and submitted SR-GEMX-2024-03. On March 7, 
2024, the Exchange withdrew SR-GEMX-2024-03 and submitted this 
filing.
---------------------------------------------------------------------------

    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

[[Page 21100]]

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, Section 6, C, Ports and 
Other Services. Specifically, the Exchange proposes to amend the 
monthly caps for SQF Ports \4\ and SQF Purge Ports.\5\
---------------------------------------------------------------------------

    \4\ ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Market Makers to connect, send, and receive messages related 
to quotes, Immediate-or-Cancel Orders, and auction responses to the 
Exchange. Features include the following: (1) options symbol 
directory messages (e.g., underlying instruments); (2) System event 
messages (e.g., start of trading hours messages and start of 
opening); (3) trading action messages (e.g., halts and resumes); (4) 
execution messages; (5) quote messages; (6) Immediate-or-Cancel 
Order messages; (7) risk protection triggers and purge 
notifications; (8) opening imbalance messages; (9) auction 
notifications; and (10) auction responses. The SQF Purge Interface 
only receives and notifies of purge requests from the Market Maker. 
Market Makers may only enter interest into SQF in their assigned 
options series. Immediate-or-Cancel Orders entered into SQF are not 
subject to the Order Price Protection, Market Order Spread 
Protection, and Size Limitation Protection in Options 3, Section 
15(a)(1)(A), (1)(B), and (2)(B) respectively. See Supplementary 
Material .03(c) to Options 3, Section 7.
    \5\ SQF Purge is a specific port for the SQF interface that only 
receives and notifies of purge requests from the Market Maker. 
Dedicated SQF Purge Ports enable Market Makers to seamlessly manage 
their ability to remove their quotes in a swift manner. The SQF 
Purge Port is designed to assist Market Makers in the management of, 
and risk control over, their quotes. Market Makers may utilize a 
purge port to reduce uncertainty and to manage risk by purging all 
quotes in their assigned options series. Of note, Market Makers may 
only enter interest into SQF in their assigned options series. 
Additionally, the SQF Purge Port may be utilized by a Market Maker 
in the event that the Member has a system issue and determines to 
purge its quotes from the order book.
---------------------------------------------------------------------------

    Today, GEMX assesses $1,250 per port, per month for an SQF Port as 
well as an SQF Purge Port.\6\ Also, today, SQF Ports and SQF Purge 
Ports are subject to a monthly cap of $17,500, which cap is applicable 
to Market Makers.
---------------------------------------------------------------------------

    \6\ The Exchange proposes to add a comma between ``per port'' 
and ``per month'' in the Options 7, Section 6, C, SQF Port and SQF 
Purge Port Fee rule text. The Exchange also proposes to remove an 
extraneous period in Options 7, Section 6, C, in the second 
paragraph.
---------------------------------------------------------------------------

    At this time, the Exchange proposes to increase the SQF Port and 
SQF Purge Port monthly cap fee of $17,500 per month to $27,500 per 
month.\7\ The Exchange is not amending the $1,250 per port, per month 
SQF Port and SQF Purge Port. As is the case today, the Exchange would 
not assess a Member an SQF Port or SQF Purge Port fee beyond the 
monthly cap once the Member has exceeded the monthly cap for the 
respective month.
---------------------------------------------------------------------------

    \7\ Today, 62% of GEMX Market Makers have capped their SQF Ports 
and SQF Purge Ports on GEMX. The Exchange notes that of the Market 
Makers currently registered on GEMX, there is a mix of size of 
Market Makers that cap.
---------------------------------------------------------------------------

    Despite increasing the monthly cap for SQF Ports and SQF Purge 
Ports from $17,500 per month to $27,500 per month, the Exchange will 
continue to offer Members the opportunity to cap their SQF Port and SQF 
Purge Port fees so that they would not be assessed these fees beyond 
the cap.
    Pursuant to Supplementary Material .03(c) to Options 3, Section 7, 
Market Makers may only enter interest into SQF in their assigned 
options series. Pursuant to Supplementary Material .03(c) to Options 3, 
Section 7, the SQF interface allows Market Makers to connect, send, and 
receive messages related to quotes, Immediate-or-Cancel Orders, and 
auction responses to the Exchange. A GEMX Market Maker requires only 
one SQF Port to submit quotes in its assigned options series into GEMX. 
An SQF Purge is a specific port for the SQF interface that only 
receives and notifies of purge requests from the Market Maker. A GEMX 
Market Maker may submit all quotes through one SQF Port and utilize one 
SQF Purge Port to view its purge requests. While a Market Maker may 
elect to obtain multiple SQF Ports and SQF Purge Ports to organize its 
business,\8\ only one SQF Port and SQF Purge Port is necessary for a 
Market Maker to fulfill its regulatory quoting obligations.\9\
---------------------------------------------------------------------------

    \8\ For example, a Market Maker may desire to utilize multiple 
SQF Ports for accounting purposes, to measure performance, for 
regulatory reasons or other determinations that are specific to that 
Member.
    \9\ GEMX Market Makers have various regulatory requirements as 
provided for in Options 2, Section 4. Additionally, GEMX Market 
Makers have certain quoting requirements with respect to their 
assigned options series as provided in Options 2, Section 5. SQF 
Ports are the only quoting protocol available on GEMX and only 
Market Makers may utilize SQF Ports. The same is true for SQF Purge 
Ports.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The proposed pricing change to increase the SQF Port and SQF Purge 
Port monthly cap from $17,500 per month to $27,500 per month is 
reasonable because despite the increase in the monthly cap, the 
Exchange will continue to offer Members the opportunity to cap their 
SQF Port and SQF Purge Port fees so that they would not be assessed 
these fees beyond the cap. Additionally, a GEMX Market Maker requires 
only one SQF Port to submit quotes in its assigned options series into 
GEMX. A GEMX Market Maker may submit all quotes through one SQF Port 
and utilize one SQF Purge Port to view its purge requests. While a 
Market Maker may elect to obtain multiple SQF Ports and SQF Purge Ports 
to organize its business,\12\ only one SQF Port and SQF Purge Port is 
necessary for a Market Maker to fulfill its regulatory quoting 
obligations.\13\ Members may choose a greater number of SQF Ports or 
SQF Purge Ports, beyond one port, depending on that Member's particular 
business model. Additionally, the Exchange believes that the caps are 
reasonable for two reasons.
---------------------------------------------------------------------------

    \12\ For example, a Market Maker or may desire to utilize 
multiple SQF Ports for accounting purposes, to measure performance, 
for regulatory reasons or other determinations that are specific to 
that Member.
    \13\ GEMX Market Makers have various regulatory requirements as 
provided for in Options 2, Section 4. Additionally, GEMX Market 
Makers have certain quoting requirements with respect to their 
assigned options series as provided in Options 2, Section 5. SQF 
Ports are the only quoting protocol available on GEMX and only 
Market Makers may utilize SQF Ports.
---------------------------------------------------------------------------

    First, SQF Ports are a secure method for Market Makers to submit 
quotes into the Exchange's match engine and for the Exchange to send 
messages related to those quotes to Market Makers. GEMX must manage the 
security and message traffic, among other things, for each port. 
Utilizing the cap to manage a Market Maker's costs while also managing 
the quantity of SQF Ports issued on GEMX has led the Exchange to select 
$27,500 as the amended monthly cap for SQF Ports and SQF

[[Page 21101]]

Purge Ports. By capping the ports at a different level, the Exchange is 
considering the message traffic and message rates associated with the 
current number of outstanding ports and its ability to process 
messages. The ability to have a cap and amend that cap permits the 
Exchange to scale its needs with respect to processing messages in an 
efficient manner. The Exchange notes that Cboe Exchange, Inc. 
(``Cboe'') limits usage on each port and assesses fees for incremental 
usage.\14\
---------------------------------------------------------------------------

    \14\ Each Cboe Binary Order Entry (``BOE'') or FIX Logical Port 
incur the logical port fee indicated when used to enter up to 70,000 
orders per trading day per logical port as measured on average in a 
single month. For each incremental usage of up to 70,000 per day per 
logical port will incur an additional logical port fee of $800 per 
month. BOE or FIX Logical Ports provide users the ability to enter 
order/quotes. See Cboe's Fees Schedule.
---------------------------------------------------------------------------

    Second, the Exchange notes that multiple ports are not necessary, 
however, to the extent that some Market Makers elect to obtain multiple 
ports, the Exchange is offering to cap their total port cost at $27,500 
per month. GEMX believes the existence of a cap allows for efficiencies 
and permits Market Makers to increase their number of ports beyond the 
cap. The cap levels the playing field by allowing those Market Makers 
that want to obtain a larger number of ports to do so with the 
certainty of a fee cap. Without the cap, GEMX Market Makers may pay 
more to obtain multiple ports on GEMX. BOX Exchange LLC (``BOX'') 
assesses $1,000 per month for all SAIL Ports for Market Making and $500 
per month per port up to 5 ports for order entry and $150 per month for 
each additional port.\15\ MIAX's MIAX Express Interface (``MEI'') Fee 
levels are based on a tiered fee structure based on the Market Maker's 
total monthly executed volume during the relevant month.\16\
---------------------------------------------------------------------------

    \15\ See BOX's Fee Schedule.
    \16\ MEI is a connection to MIAX systems that enables Market 
Makers to submit simple and complex electronic quotes to MIAX. MIAX 
caps its MEI Ports. For these Monthly MIAX MEI Fees levels, if the 
Market Maker's total monthly executed volume during the relevant 
month is less than 0.060% of the total monthly executed volume 
reported by OCC in the market maker account type for MIAX-listed 
option classes for that month, then the fee will be $14,500 instead 
of the fee otherwise applicable to such level. See MIAX's Fee 
Schedule.
---------------------------------------------------------------------------

    The number of ports that members choose to purchase varies widely. 
Today, on GEMX, no Marker Makers have 1 SQF Port/SQF Purge Port, 1 
Market Maker had 2-5 SQF Ports/SQF Purge Ports, 4 Market Makers have 
between 6-10 SQF Ports/SQF Purge Ports, and 8 Market Makers have more 
than 11 SQF Ports/SQF Purge Ports. The chart below represents the 
number of SQF Ports and SQF Purge Ports that are subscribed to by 
members across the six Nasdaq affiliated options markets.
[GRAPHIC] [TIFF OMITTED] TN26MR24.011

    The Exchange's proposed pricing change to increase the SQF Port and 
SQF Purge Port monthly cap from $17,500 per month to $27,500 per month 
is equitable and not unfairly discriminatory because the Exchange would 
uniformly not assess any Market Makers that exceeded the proposed 
monthly cap any SQF Port and SQF Purge Port fees for that month beyond 
the cap. Market Makers are the only market participants that are 
assessed SQF Port and SQF Purge Port fees because they are the only 
market participants that are permitted to quote on the Exchange. SQF 
Ports and SQF Purge Ports are only utilized in the Market Maker's 
assigned options series. The following chart represents the 
classification of GEMX Members and the percentage of Market Makers.

[[Page 21102]]

[GRAPHIC] [TIFF OMITTED] TN26MR24.012

    Unlike other market participants, Market Makers are subject to 
market making and quoting obligations.\17\ These liquidity providers 
are critical market participants in that they are the only market 
participants that provide liquidity to GEMX on a continuous basis. In 
addition, the Exchange notes that Lead Market Makers are required to 
submit quotes in the Opening Process to open an options series.\18\ 
Market Makers are subject to a number of fees, unlike other market 
participants. Market Makers pay separate Membership Fees,\19\ and CMM 
Trading Right Fees,\20\ in addition to other fees paid by other market 
participants. Providing Market Makers a means to cap their cost related 
to quoting and enabling all Market Makers to acquire SQF Ports and SQF 
Purge Ports at no cost beyond a certain dollar amount enables these 
market participants to provide the necessary liquidity to GEMX at lower 
costs. Therefore, because Market Makers fulfill a unique role on the 
Exchange, are the only market participant required to submit quotes as 
part of their obligations to operate on the Exchange, and, in light of 
that role, they are eligible for certain incentives. The proposed SQF 
Port and SQF Purge Fee cap is designed to continue to incent Market 
Makers to quote on GEMX, thereby promoting liquidity, quote 
competition, and trading opportunities.
---------------------------------------------------------------------------

    \17\ See Options 2, Sections 4 and 5.
    \18\ See Options 3, Section 8.
    \19\ See Options 7, Section 6, A.
    \20\ See Options 7, Section 6, B.
---------------------------------------------------------------------------

    In 2022, NYSE Arca, Inc. (``NYSE Arca'') proposed to restructure 
fees relating to OTPs for Market Makers.\21\ In that rule change,\22\ 
NYSE Arca argued that,
---------------------------------------------------------------------------

    \21\ See Securities Exchange Act Release No. 95412 (June 23, 
2022), 87 FR 38786 (June 29, 2022) (SR-NYSEArca-2022-36). NYSE Arca 
proposed to increase both the monthly fee per Market Maker OTP and 
the number of issues covered by each additional OTP because, among 
other reasons, the number of issues traded on the Exchange has 
increased significantly in recent years.
    \22\ Id at 38788.

    Market Makers serve a unique and important function on the 
Exchange (and other options exchanges) given the quote-driven nature 
of options markets. Because options exchanges rely on actively 
quoting Market Makers to facilitate a robust marketplace that 
attracts order flow, options exchanges must attract and retain 
Market Makers, including by setting competitive Market Maker permit 
fees. Stated otherwise, changes to Market Maker permit fees can have 
a direct effect on the ability of an exchange to compete for order 
flow. The Exchange also believes that the number of options 
exchanges on which Market Makers can effect option transactions also 
ensures competition in the marketplace and constrains the ability of 
exchanges to charge supracompetitive fees for access to its market 
---------------------------------------------------------------------------
by Market Makers.

    Further, NYSE ARCA noted that,\23\
---------------------------------------------------------------------------

    \23\ Id at 38790.

    The Exchange further believes that its ability to set Market 
Maker permit fees is constrained by competitive forces based on the 
fact that Market Makers can, and have, chosen to terminate their 
status as a Market Maker if they deem Market Maker permit fees to be 
unreasonable or excessive. Specifically, the Exchange notes that a 
BOX participant modified its access to BOX in connection with the 
implementation of a proposed change to BOX's Market Maker permit 
fees. The Exchange has also observed that another options exchange 
group experienced decreases in market share following its proposed 
modifications of its access fees (including Market Maker trading 
permit fees), suggesting that market participants (including Market 
Makers) are sensitive to changes in exchanges' access fees and may 
respond by shifting their order flow elsewhere if they deem the fees 
to be unreasonable or excessive.
    There is no requirement, regulatory or otherwise, that any 
Market Maker connect to and access any (or all of) the available 
options exchanges. The Exchange also is not aware of any reason why 
a Market Maker could not cease being a permit holder in response to 
unreasonable price increases. The Exchange does not assess any 
termination fee for a Market Maker to drop its OTP, nor is the 
Exchange aware of any other costs that would be incurred by a Market 
Maker to do so.

    The Exchange likewise believes that its ability to cap SQF Port and 
SQF Purge fees is constrained by competitive forces and that its 
proposed modifications to the SQF Port and SQF Purge Fee cap is 
reasonably designed in consideration of the competitive environment in 
which the Exchange operates, by balancing the value of the enhanced 
benefits available to Market Makers due to the current level of 
activity on the Exchange with a fee structure that will continue to 
incent Market Makers to support increased

[[Page 21103]]

liquidity, quote competition, and trading opportunities on the 
Exchange, for the benefit of all market participants.

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 proposal does not impose an undue burden on intermarket 
competition. The Exchange believes its proposal remains competitive 
with other options markets who also offer order entry protocols. 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. The chart below shows the 
February 2024 market share for multiply listed options by exchange. Of 
the 17 operating options exchanges, none currently has more than a 
17.6% market share. Customers widely distribute their transactions 
across exchanges according to their business needs and the ability of 
each exchange to meet those needs through technology, liquidity and 
functionality.
[GRAPHIC] [TIFF OMITTED] TN26MR24.013

    Market share is the percentage of volume on a particular exchange 
relative to the total volume across all exchanges, and indicates the 
amount of order flow directed to that exchange. High levels of market 
share enhance the value of trading and ports.
    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.
    Other exchanges amended certain costs attributed to Market 
Makers.\24\ In 2022, MRX proposed a monthly cap for SQF Ports and SQF 
Purge Ports of 17,500.\25\ MRX noted in its rule change that, ``Only 
one SQF quote protocol is required for an MRX Market Maker to submit 
quotes into MRX and to meet its regulatory requirements.'' \26\ 
Additionally, BOX Exchange LLC (``BOX'') assesses $1,000 per month for 
all SAIL Ports for Market Making and $500 per month per port up to 5 
ports for order entry and $150 per month for each additional port.\27\ 
MIAX's MIAX Express Interface (``MEI'') Fee levels are based on a 
tiered fee structure based on the Market Maker's total monthly executed 
volume during the relevant month.\28\
---------------------------------------------------------------------------

    \24\ See Securities Exchange Act Release No. 95412 (June 23, 
2022), 87 FR 38786 (June 29, 2022) (SR-NYSEArca-2022-36).
    \25\ See Securities Exchange Act No. 96824 (February 7, 2023), 
88 FR 8975 (February 10, 2023) (SR-MRX-2023-05) (Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend MRX 
Options 7, Section 6).
    \26\ Id at 8976.
    \27\ See BOX's Fee Schedule.
    \28\ MEI is a connection to MIAX systems that enables Market 
Makers to submit simple and complex electronic quotes to MIAX. MIAX 
caps its MEI Ports. For these Monthly MIAX MEI Fees levels, if the 
Market Maker's total monthly executed volume during the relevant 
month is less than 0.060% of the total monthly executed volume 
reported by OCC in the market maker account type for MIAX-listed 
option classes for that month, then the fee will be $14,500 instead 
of the fee otherwise applicable to such level. See MIAX's Fee 
Schedule.
---------------------------------------------------------------------------

    If the Commission were to apply a different standard of review this 
proposal than it applied to other exchange fee filings, where Market 
Maker fees were increased and port fee caps were established, it would 
create a burden on competition such that it would impair GEMX's ability 
to compete among other options markets.
Intramarket Competition
    The Exchange's proposed pricing change to increase the SQF Port and 
SQF Purge Port monthly cap from $17,500 per month to $27,500 per month 
does not impose an undue burden on competition because the Exchange 
would uniformly not assess any Market Makers that exceeded the proposed 
monthly cap any SQF Port and SQF Purge Port fees for that month beyond 
the cap. Market Makers are the only market participants that are 
assessed SQF Port and SQF Purge Port fees because they are the only 
market

[[Page 21104]]

participants that are permitted to quote on the Exchange. SQF Ports and 
SQF Purge Ports are only utilized in the Market Maker's assigned 
options series. Unlike other market participants, Market Makers are 
subject to market making and quoting obligations.\29\ These liquidity 
providers are critical market participants in that they are the only 
market participants that provide liquidity to GEMX on a continuous 
basis. In addition, the Exchange notes that Lead Market Makers are 
required to submit quotes in the Opening Process to open an options 
series.\30\ Market Makers are subject to a number of fees, unlike other 
market participants. Market Makers pay separate Membership Fees,\31\ 
and CMM Trading Right Fees,\32\ in addition to other fees paid by other 
market participants. Providing Market Makers a means to cap their cost 
related to quoting and enabling all Market Makers to acquire SQF Ports 
and SQF Purge Ports at no cost beyond a certain dollar amount enables 
these market participants to provide the necessary liquidity to GEMX at 
lower costs. Therefore, because Market Makers fulfill a unique role on 
the Exchange, are the only market participant required to submit quotes 
as part of their obligations to operate on the Exchange, and, in light 
of that role, they are eligible for certain incentives. The proposed 
SQF Port and SQF Purge Fee cap is designed to continue to incent Market 
Makers to quote on GEMX, thereby promoting liquidity, quote 
competition, and trading opportunities.
---------------------------------------------------------------------------

    \29\ See Options 2, Sections 4 and 5.
    \30\ See Options 3, Section 8.
    \31\ See Options 7, Section 6, A.
    \32\ See Options 7, Section 6, B.
---------------------------------------------------------------------------

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.\33\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is: (i) necessary or appropriate in the public 
interest; (ii) for the protection of investors; or (iii) otherwise in 
furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \33\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-GEMX-2024-07 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-2024-07. 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-2024-07 and should be 
submitted on or before April 16, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06324 Filed 3-25-24; 8:45 am]
BILLING CODE 8011-01-P
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