[Federal Register Volume 83, Number 140 (Friday, July 20, 2018)]
[Notices]
[Pages 34623-34625]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15501]



[[Page 34623]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83641; File No. SR-GEMX-2018-25]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to 
Improvement Orders Entered Into the Price Improvement Mechanism

July 16, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 5, 2018, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend GEMX Rule 723, entitled ``Price 
Improvement Mechanism for Crossing Transactions.''
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqgemx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    GEMX proposes to amend Rule 723, entitled ``Price Improvement 
Mechanism for Crossing Transactions.'' Specifically, the Exchange 
proposes to amend Rule 723(c)(2) to expand the types of Improvement 
Orders \3\ that may be entered into the Price Improvement Mechanism or 
``PIM.'' The Exchange also proposes to amend Rule 723(d)(1)-(3) to more 
specifically clarify terms such as ``orders'' and ``responses'' in that 
section.
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    \3\ Rule 723(c)(1) defines an Improvement Order. The Exchange 
will designate via circular a time of no less than 100 milliseconds 
and no more than 1 second for Members to indicate the size and price 
at which they want to participate in the execution of the Agency 
Order (``Improvement Orders'').
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Background
    The Exchange adopted PIM as part of its application to be 
registered as a national securities exchange under its previous name of 
Topaz Exchange, LLC.\4\ In approving PIM, the Commission noted that it 
was largely based on a similar functionality offered by the 
International Securities Exchange, LLC (now Nasdaq ISE, LLC) 
(``ISE'').\5\ ISE received approval to establish its PIM in 2004 that 
would allow an ISE Electronic Access Member (``EAM'') to enter matched 
trades (``Crossing Transactions'').\6\ As noted in the Adopting Filing, 
a Crossing Transaction would be comprised of an order that the EAM 
represents as agent (``Agency Order'') and an order that is executable 
against the Agency Order for the full size of the Agency Order (the 
``Counter-Side Order'').\7\ In the Adopting Filing, ISE specified in 
Rule 723(c)(2) that Improvement Orders may be for the account of a 
Public Customer or for the Member's own account.\8\ The Adopting Filing 
noted that ISE would broadcast Crossing Orders to all Members.\9\ 
Further, it was noted in the Adopting Filing that during a three second 
auction, all ISE Members could enter ``Improvement Orders,'' in penny 
increments, to improve the price of the Agency Order.\10\ The Adopting 
Filing stated that Improvement Orders may be for the account of a 
Public Customer or for the Member's own account.\11\ Finally, the 
Adopting Filing noted that during the exposure period, the aggregate 
size of the best prices, including the Counter-Side Order, Improvement 
Orders, and any change to either, would continually be updated and 
broadcast to all Members.\12\
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    \4\ See Securities Exchange Act Release No. 70050 (July 26, 
2013), 78 FR 46622 (August 1, 2013) (File No. 10-209) (``Exchange 
Approval Order''). The Exchange subsequently changed its name to ISE 
Gemini and then later Nasdaq GEMX.
    \5\ Id.
    \6\ See Securities Exchange Act Release No. 50819 (December 8, 
2004), 69 FR 75093 (December 15, 2004) (SR-ISE-2003-06) (Order 
Granting Approval of Proposed Rule Change and Amendment No. 1 
Thereto and Notice of Filing and Order Granting Accelerated Approval 
to Amendments No. 2 and 3 Thereto by the International Securities 
Exchange, Inc. To Establish Rules Implementing a Price Improvement 
Mechanism) (``Adopting Filing'').
    \7\ The Counter-Side Order may represent interest for the EAM's 
own account, or interest the EAM has solicited from one or more 
other parties, or a combination of both.
    \8\ Id.
    \9\ The broadcast message would include the series, price, and 
size of the Agency Order and whether it is to buy or sell.
    \10\ The ISE would broadcast Improvement Orders to all Members. 
Crossing Transactions and Improvement Orders would not be displayed 
in the ISE BBO and would not be disseminated to the Options Price 
Reporting Authority.
    \11\ GEMX Rule 723(c)(2).
    \12\ GEMX Rule 723(c)(4).
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Rule 723(c)(2)
    With respect to the current limitation of Improvement Orders for 
the account of a Public Customer or for the Member's own account, ISE 
noted in its Adopting Filing that ``all ISE Members would be permitted 
to participate in a PIM . . . unrelated orders could compete in 
standard increments to trade with the Agency Order in the PIM. Such 
unrelated orders could include agency orders on behalf of Public 
Customers, market makers on other exchanges, and non-ISE member broker-
dealers, as well as non-Improvement orders submitted by ISE members.''
    At this time, the Exchange proposes to permit any GEMX Member to 
enter an Improvement Order marked as a response to a PIM auction 
similar to Nasdaq PHLX LLC (``Phlx'') \13\ and Nasdaq BX, Inc. (``BX'') 
\14\ rules. The Exchange no longer desires to limit Members who may 
enter Improvement Orders into PIM to simply those orders for the 
account of a Public Customer or for the Member's own account. The 
Exchange desires to expand the types of orders that may be entered as 
Improvement Orders similar to Phlx and BX. The Exchange is therefore 
removing this limitation in Rule 723(c)(2) so that the proposed rule 
text would read: ``Improvement Orders may be entered by all Members in 
one-cent increments at the same price as the Crossing Transaction or at 
an improved price for the Agency Order, and for any size up to the size 
of the Agency Order.''
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    \13\ Phlx Rule 1087 permits any member to submit for execution 
an order it represents as agent on behalf of a public customer, 
broker-dealer, or any other entity (``PIXL Order'').
    \14\ BX Rules at Chapter VI, Section 9 provides that ``A 
Participant may electronically submit for execution an order it 
represents as agent on behalf of a Public Customer, broker dealer, 
or any other entity (``PRISM Order'').
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Rule 723(d)(1)-(3)
    The Exchange proposes to amend GEMX Rule 723(d)(1)-(3), which

[[Page 34624]]

explains the manner in which a PIM Order shall be allocated to conform 
this text to the change which is proposed in Rule 723(c)(2). Rule 
723(d)(1) currently provides, ``At a given price, Priority Customer 
interest is executed in full before Professional Orders \15\ and any 
other interest of Members (i.e., proprietary interest from Electronic 
Access Members and Exchange market makers).'' The Exchange proposes to 
expand upon the term interest by adopting the defined terms ``Priority 
Customer Interest'' for Priority Customer Orders and Improvement Orders 
from Priority Customers, and ``Professional Interest'' for Professional 
Orders, Improvement Orders from non-Priority Customers, and Market 
Maker quotes. The Exchange believes that adding these defined terms 
would clarify what is meant by interest. As proposed, Professional 
Interest identifies all orders (including Improvement Orders) that are 
not for the account of a Priority Customer as well as Market Maker 
quotes, thereby incorporating the current reference to ``Professional 
Orders'' within its terms and eliminating the necessity to include the 
current rule text which provides, ``any other interest of Members 
(i.e., proprietary interest from Electronic Access Members and Exchange 
market makers).''
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    \15\ GEMX Rule 100(a)(52) provides the term ``Professional 
Order'' means an order that is for the account of a person or entity 
that is not a Priority Customer.
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    The Exchange proposes to amend Rule 723(d)(2) which currently 
provides, ``After Priority Customer interest at a given price, 
Professional Orders and Members' interest will participate in the 
execution of the Agency Order based upon the percentage of the total 
number of contracts available at the price that is represented by the 
size of the Members' interest.'' The Exchange proposes to replace the 
reference to ``Priority Customer interest'' with the defined term 
``Priority Customer Interest'' proposed to be added in Rule 723(d)(1), 
as described above. The Exchange also proposes to change ``Professional 
Orders'' to ``Professional Interest'' which will be defined in Rule 
723(d)(1) to include Professional Orders as well as Improvement Orders 
from non-Priority Customers and Market Maker quotes. Since Professional 
Interest is defined in this manner, the Exchange also proposes to 
remove the language referring to ``Members' interest'' from the 
sentence because Professional Interest would include all orders from 
non-Priority Customers and Market Maker quotes.
    The Exchange proposes to amend Rule 723(d)(3) to again remove the 
rule text relating to ``Members' interest'' and instead utilize the 
defined ``Professional Interest'' term consistent with proposed changes 
to Rule 723(d)(1) and (2). The Exchange also proposes to make similar 
changes to add the term ``Professional Interest'' to the sentence in 
Rule 723(d)(3) that currently reads: ``Thereafter, all other orders, 
Responses, and quotes at the price point will participate in the 
execution of the Agency Order based upon the percentage of the total 
number of contracts available at the price that is represented by the 
size of the order, Response or quote.'' In particular, the language 
related to ``other orders, Responses, and quotes'' in this sentence 
will be replaced with ``Professional Interest'' since this term 
includes all orders from non-Priority Customers and Market Maker 
quotes, as described above. The Exchange notes that the references in 
this sentence to ``Responses,'' currently an undefined term, should 
instead refer to the defined term ``Improvement Orders,'' and the 
proposed changes should therefore clarify how Rule 723(d)(3) will 
apply. Finally, the Exchange proposes to replace the word ``Priority 
Customer Orders'' with ``Priority Customer Interest'' as defined in 
proposed Rule 723(d)(1) to clarify that those orders as well as 
responses (i.e., Improvement Orders from Priority Customers) are 
applicable. The proposed amendments add more specificity to the exact 
order/quotes and responses which apply in this section.
    The amendments to Rule 723(d)(1)-(3) conform to the proposed 
amendment to Rule 723(c)(2) and other proposed amendments as described 
above which do not change the manner in which PIM operates today, 
rather the other word changes seek to bring specificity to the manner 
in which order, quotes and responses are treated.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\16\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\17\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange's proposal to amend Rule 723(c)(2) seeks to broaden 
the types of orders that may be submitted as Improvement Orders into 
PIM. As ISE previously noted, in its Adopting Filing, all Members are 
able to participate in a PIM today as an unrelated order that rests on 
the Order Book. Unrelated orders that rest on the Order Book can 
participate in PIM and trade with the Agency Order in the PIM. The 
Exchange proposes to allow all Members to submit Improvement Orders 
directly into PIM to provide an even greater number of GEMX Members to 
more directly participate in PIM and provide price improvement. The 
Exchange's proposal is consistent with the Act because allowing a 
greater number of Members to directly respond with an Improvement Order 
in a PIM will increase the likelihood of price improvement in that 
auction thereby removing impediments to and perfecting the mechanism of 
a free and open market and a national market system. This approach will 
enable greater participation in PIM auctions.
    The Exchange's proposal to amend Rule 723(d) conforms the text with 
changes made with respect to the proposal to amend Rule 723(c)(2) for 
consistency. The proposed changes to remove the more generic ``Members' 
interest'' and instead substitute very specific terms to define 
interest and add quotes provide more specificity as to the manner in 
which interest entered into PIM will be allocated. The Exchange's 
proposed amendments to Rule 723(d)(1)-(3) are consistent with the Act 
because the amendments seek to conform the rule text to the proposed 
Rule 723(c)(2) amendment and describe in greater detail how interest 
will be allocated by defining terms and eligible interest and this 
transparency benefits investors and the public interest.

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's proposal to 
amend Rule 723(c)(2) to broaden the types of orders that may be 
submitted as Improvement Orders into PIM does not unduly burden 
competition because all Members will be permitted to submit Improvement 
Orders directly into PIM to provide an even greater number of GEMX 
Members to more directly participate in PIM. The amendments to Rule 
723(d) will conform the rule text and bring clarity to the allocation 
method for PIM.

[[Page 34625]]

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

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \20\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \21\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that it 
may allow all Members to submit Improvement Orders directly into PIM to 
provide an even greater number of GEMX Members an opportunity to more 
directly participate in PIM and provide price improvement. The Exchange 
states that it will issue an Options Trader Alert to notify Members of 
the date within which this functionality will be implemented. The 
Commission believes the waiver of the operative delay is consistent 
with the protection of investors and the public interest. Accordingly, 
the Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\22\
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    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#becccbd2db93ddd1d3d3dbd0cacdfecddbdd90d9d1c8"><span class="__cf_email__" data-cfemail="1361667f763e707c7e7e767d6760536076703d747c65">[email protected]</span></a>. Please include 
File Number SR-GEMX-2018-25 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-GEMX-2018-25. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-GEMX-2018-25, and should be submitted on 
or before August 10, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-15501 Filed 7-19-18; 8:45 am]
 BILLING CODE 8011-01-P


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