[Federal Register Volume 82, Number 182 (Thursday, September 21, 2017)]
[Notices]
[Pages 44235-44238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-20088]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81632; File No. SR-GEMX-2017-42]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Its 
Schedule of Fees To Offer Monthly Subscriptions for Open and Close 
Trade Profile Information

September 15, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 1, 2017, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I and II, below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \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 Schedule of Fees to offer 
monthly subscriptions for Open and Close Trade Profile Information.
    The text of the proposed rule change is available on the Exchange's 
Web site at www.ise.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend its Schedule of Fees to offer 
monthly

[[Page 44236]]

subscriptions for Open and Close Trade Profile Information; 
subscriptions will be available for both end-of-day and intraday 
updates.\3\
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    \3\ The Exchange initially filed this proposal as a fee filing 
on August 25, 2017 (SR-GEMX-2017-41). The proposal was rejected on 
August 31, 2017, and is being resubmitted as a proposal that (i) 
does not significantly affect the protection of investors or the 
public interest, and (ii) does not impose any significant burden on 
competition under Exchange Act Rule 19b-4(f)(6)(iii).
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    The Open/Close Trade Profile provides over 80 fields of trading and 
volume data for GEMX-listed options that can be used to create and test 
trading models and analytical strategies. Trade Profile data includes: 
``Origin Code'' (the type of trader participating in the transaction); 
\4\ opening and closing buys and sells; \5\ trading volume and number 
of trades categorized by day and series; \6\ the degree to which a 
series is ``in'' or ``out'' of the ``money'' ; \7\ the number of days 
to expiration; an indication of the degree to which there is ``Open 
Interest'' \8\ for each series; and a comparison of the volume of 
trading at GEMX relative to the industry as a whole.
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    \4\ ``Origin Code'' categories include Customer, Professional 
Customer, Firm and Market Maker. ``Customer'' applies to any 
transaction identified by a member or a member organization for 
clearing in the Customer range at the Options Clearing Corporation 
which is not for the account of a broker or dealer or a 
Professional. A ``Professional Customer'' is a high-activity 
customer that enters into more than 390 orders per day over the 
course of a one-month period. A ``Firm'' is a broker-dealer trading 
in its own proprietary account or on behalf of another broker-
dealer. A ``Market Maker'' is a broker-dealer that assumes the risk 
of holding a position in a series to facilitate trading.
    \5\ An opening buy is a transaction that creates or increases a 
long position and an opening sell is a transaction that creates or 
increases a short position. A closing buy is a transaction made to 
close out an existing position. A closing sell is a transaction to 
reduce or eliminate a long position.
    \6\ Trading volume is the number of contracts traded; the number 
of trades is the number of transactions.
    \7\ The degree to which a series is ``in'' or ``out'' of the 
``money'' is identified according to the following five levels of 
``moneyness'': (i) ``Deep in the Money'' means that the strike price 
of this option is more than 12% lower than the price of the 
underlying security if it is a call or more than 12% higher if it is 
a put; (ii) ``In the Money'' means that the strike price of this 
option is within the range of 5%-12% lower than the price of the 
underlying security if it is a call or within the range of 5%-12% 
higher if it is a put; (iii) ``At the Money'' means that the strike 
price of this option is within the range of 5% higher or lower than 
the price of the underlying security; (iv) ``Out of the Money'' 
means that the strike price of this option is within the range of 
5%-12% higher than the price of the underlying security if it is a 
call or 5%-12% lower if it is a put; and (v) ``Deep out of the 
Money'' means that the strike price of this option is more than 12% 
higher than the price of the underlying security if it is a call or 
more than 12% lower if it is a put.
    \8\ ``Open Interest'' is the total number of outstanding 
contracts for each series across all options exchanges for the trade 
date of the file.
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    The GEMX Open/Close Trade Profile is currently available as an 
historical database available upon request, and the Exchange proposes 
to offer intraday and end-of-day subscriptions to Trade Profile 
information as well. Such subscriptions will be available to both 
members and non-members, similar to the ISE Open/Close Trade 
Profile.\9\ The end-of-day file is updated overnight and available for 
download the following morning. The intraday file is updated at 10 
minute intervals to provide a cumulative record of transactions that 
take place over the course of the trading day. The end-of-day 
subscription will be available for $500 per month; the intraday 
subscription will be available for $1,000 per month.
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    \9\ Nasdaq ISE Rulebook, Fee Schedule, Chapter VIII (Market 
Data), A (offering an annual subscription to Nasdaq ISE Open/Close 
Trade Profile End of Day for $759 per month) and B (offering a 
monthly subscription to the Nasdaq ISE Open/Close Trade Profile 
Intraday for $2,000 per month).
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    The proposed rule change will increase transparency in the market 
by increasing the amount of information available to market 
participants to assist them in making investment decisions related to 
GEMX-listed options.
    The proposed fees are optional in that they apply only to firms 
that elect to purchase these products. The changes do not impact the 
cost of any other GEMX product.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\11\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. The proposal is to make open and close trade profile 
information, currently available only on an historical basis, available 
at 10 minute intervals over the course of the trading day and in 
summary form at the end of the trading day, thereby increasing the flow 
of information and removing impediments to a free and open market.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \12\
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    \12\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\13\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\14\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \15\
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    \13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \14\ See NetCoalition, at 534--535.
    \15\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers' . . .'' \16\ Although the court and the 
SEC were discussing the cash equities markets, the Exchange believes 
that these views apply with equal force to the options markets.
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    \16\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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    The Exchange believes that adding the proposed subscriptions to the 
Exchange's Open/Close Trade Profile is reasonable and equitable in 
accordance with Section 6(b)(4) of the Act, and not unreasonably 
discriminatory in accordance with Section 6(b)(5) of the Act. The 
proposed changes will increase transparency by providing information 
about options activity throughout and at the end of the trading day. 
The proposed fees, like all proprietary data fees, are constrained by 
the Exchange's need to compete for order flow, and are subject to 
competition from other options exchanges. As explained in

[[Page 44237]]

further detail below, the proposal will impose no burden on competition 
because GEMX transaction information is disseminated by the Options 
Price Reporting Authority, LLC (``OPRA''), and customers would not pay 
a premium for GEMX information when similar transaction information is 
available at a lower cost from OPRA, and because the price of GEMX 
proprietary data is constrained by the need for GEMX to compete for 
order flow. The Exchange further notes that GEMX Open/Close Trade 
Profile information is an optional service that only applies to firms 
that elect to purchase the product. Moreover, the proposed service is 
similar to services already provided by other exchanges, such as the 
ISE Open/Close Trade Profile.\17\
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    \17\ Nasdaq ISE Rulebook, Fee Schedule, Chapter VIII (Market 
Data), A (offering an annual subscription to Nasdaq ISE Open/Close 
Trade Profile End of Day for $759 per month) and B (offering a 
monthly subscription to the Nasdaq ISE Open/Close Trade Profile 
Intraday for $2,000 per month).
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    The proposed changes are an equitable allocation of reasonable 
dues, fees, and other charges because fees will be the same for all of 
the purchasers of each product and it is equitable to charge more for 
the intraday product--which provides updates at 10 minute intervals 
over the course of the trading day--than the end-of-day product, which 
provides updates once per day.

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 proposed changes will allow 
the Exchange to offer intraday and end-of-day subscriptions to options 
trading data. If the price of the proposed subscriptions were to be set 
above a competitive price, the Exchange may lose revenue as a result.
    GEMX market data fees are constrained by competition among 
exchanges and other entities seeking to attract order flow, and the 
existence of substitutes that are offered, or may be offered, by other 
entities. Order flow is the ``life blood'' of the exchanges. For a 
variety of reasons, competition from new entrants, especially for order 
execution, has increased dramatically over the last decade, as 
demonstrated by the proliferation of new options exchanges such as EDGX 
Exchange and MIAX Options within the last four years. Each options 
exchange is permitted to produce proprietary data products.
    The markets for order flow and proprietary data are inextricably 
linked: A trading platform cannot generate market information unless it 
receives trade orders. As a result, the competition for order flow 
constrains the prices that platforms can charge for proprietary data 
products. Firms make decisions on how much and what types of data to 
consume based on the total cost of interacting with GEMX and other 
exchanges. Data fees are but one factor in a total platform analysis. 
If the cost of the product exceeds its expected value, the prospective 
customer will choose not to buy it. A supracompetitive increase in the 
fees charged for either transactions or proprietary data has the 
potential to impair revenues from both products.
    The price of options data is also constrained by the existence of 
multiple substitutes offered by a number of entities, and non-
proprietary data disseminated by OPRA. OPRA is a securities information 
processor that disseminates last sale reports and quotations, as well 
as the number of options contracts traded, open interest and end-of-day 
summaries. Many customers that obtain information from OPRA do not also 
purchase proprietary data, but in cases in which customers buy both 
products, they may shift purchasing decisions based on price changes. 
OPRA constrains the price of proprietary data products on options 
exchanges because no customer would pay an excessive price for these 
products when they already have data from OPRA. Similarly, no customer 
would pay an excessive price for Exchange data when they have the 
ability to obtain similar proprietary data from other exchanges. It is 
not necessary that products be identical in order to be reasonable 
substitutes for each other.
    As such, the price of the GEMX Open/Close Trade Profile product is 
constrained by other exchanges in the competition for order flow and 
the availability of similar data from OPRA. Customers choose exchanges 
based on the total cost of interacting with the exchange; if the GEMX 
Open/Close Trade Profile were set above market price, the total cost of 
interacting with GEMX would be above market price, and GEMX would lose 
market share as a result. In addition, the availability of trading 
information from OPRA will constrain the price of the GEMX Open/Close 
Trade Profile because customers would not pay an excessive amount for 
proprietary data when similar information is available at a lower 
price; two products need not be identical for each product to act as a 
constraint on the price of the other. For these reasons, the Exchange 
does not believe that the proposed changes will impair the ability of 
members or competing order execution venues to maintain their 
competitive standing in the financial markets.

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 foregoing 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)(iii) of the Act \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\21\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requests 
that the Commission waive the 30-day operative delay. The Exchange 
notes that a product similar to the proposed product is already being 
sold by another exchange. The Exchange also asserts that the addition 
of the proposed product can increase competition, and will not harm 
firms that do not purchase the product as the service is optional. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission hereby waives the 30-day operative delay 
and designates the

[[Page 44238]]

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 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: (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

    <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#2250574e470f414d4f4f474c5651625147410c454d54"><span class="__cf_email__" data-cfemail="493b3c252c642a2624242c273d3a093a2c2a672e263f">[email protected]</span></a>. Please include 
File Number SR-GEMX-2017-42 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-GEMX-2017-42. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-GEMX-2017-42 and should be 
submitted on or before October 12, 2017.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-20088 Filed 9-20-17; 8:45 am]
 BILLING CODE 8011-01-P


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