Document ID: SEC-2018-0046-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq GEMX, LLC
Posted Date: 2018-01-11T05:00Z

[Federal Register Volume 83, Number 8 (Thursday, January 11, 2018)]
[Notices]
[Pages 1388-1391]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00308]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82449; File No. SR-GEMX-2017-60]

Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Various 
Fees and Rebates Set Forth in Section I of the Exchanges Schedule of 
Fees

January 5, 2018.
    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 December 22, 2017, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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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 various fees and rebates set forth 
in Section I of the Exchanges Schedule of Fees.
    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
    The purpose of the proposed rule change is to amend various fees 
and

[[Page 1389]]

rebates set forth in Section I of the Exchange's Schedule of Fees. Each 
proposed change is described in more detail below.
Changes to Maker Rebates and Taker Fees Based on Qualifying Tier 
Thresholds
    By way of background, GEMX currently provides volume-based maker 
rebates to Market Maker \3\ and Priority Customer \4\ orders in four 
tiers based on a member's average daily volume (``ADV'') in the 
following categories: (i) Total Affiliated Member ADV \5\ and (ii) 
Priority Customer Maker ADV,\6\ as shown in the table below.\7\ In 
addition, GEMX charges volume-based taker fees to market participants 
based on achieving these volume thresholds.
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    \3\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively.
    \4\ A ``Priority Customer'' is a person or entity that is not a 
broker/dealer in securities, and does not place more than 390 orders 
in listed options per day on average during a calendar month for its 
own beneficial account(s).
    \5\ The Total Affiliated Member ADV category includes all volume 
in all symbols and order types, including both maker and taker 
volume and volume executed in the PIM, Facilitation, Solicitation, 
and QCC mechanisms. For purposes of determining a member's 
eligibility for the volume-based tiers in the Total Affiliated 
Member ADV category, the Exchange uses either numeric thresholds 
that measure a member's absolute volume or, as an alternative, a 
percentage-based calculation that considers a member's volume 
relative to total customer industry volume (i.e., the ``Customer 
Total Consolidated Volume''). For purposes of measuring Total 
Affiliated Member ADV, Customer Total Consolidated Volume means the 
total volume cleared at The Options Clearing Corporation in the 
Customer range in equity and ETF options in that month.
    \6\ The Priority Customer Maker ADV category includes all 
Priority Customer volume that adds liquidity in all symbols.
    \7\ All eligible volume from affiliated Members will be 
aggregated in determining applicable tiers, provided there is at 
least 75% common ownership between the Members as reflected on each 
Member's Form BD, Schedule A.
     The highest tier threshold attained above applies retroactively 
in a given month to all eligible traded contracts and applies to all 
eligible market participants.
     Any day that the market is not open for the entire trading day 
or the Exchange instructs members in writing to route their orders 
to other markets may be excluded from the ADV calculation; provided 
that the Exchange will only remove the day for members that would 
have a lower ADV with the day included.

                   Table 1--Qualifying Tier Thresholds
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                                                      Priority customer
       Tier           Total affiliated member ADV         maker ADV
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Tier 1............  0-99,999......................              0-19,999
Tier 2............  100,000-224,999, or executes           20,000-99,999
                     1% to less than 2% of
                     Customer Total Consolidated
                     Volume.
Tier 3............  225,000-349,999, or executes         100,000-149,999
                     2% to less than 3% of
                     Customer Total Consolidated
                     Volume.
Tier 4............  350,000 or more, or executes         150,000 or more
                     3% or greater of Customer
                     Total Consolidated Volume.
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Maker Rebates in Penny Symbols and SPY
    Currently, the Exchange provides a maker rebate to Market Maker 
orders in Penny Symbols and SPY that is $0.30 per contract in Tier 1, 
$0.32 per contract in Tier 2, $0.34 per contract in Tier 3, and $0.45 
per contract in Tier 4. The Exchange proposes the following changes to 
the maker rebate provided to Market Maker orders in Penny Symbols and 
SPY in Tiers 1-3: (i) Decrease the maker rebate to $0.28 per contract 
in Tier 1, (ii) decrease the maker rebate to $0.30 per contract in Tier 
2, and (iii) increase the maker rebate to $0.35 per contract in Tier 3.
    Currently, the Exchange provides a maker rebate to Priority 
Customer orders in Penny Symbols and SPY that is $0.25 per contract in 
Tier 1 (or $0.32 per contract for members that execute a Priority 
Customer Maker ADV of 5,000 to 19,999 contracts in a given month), 
$0.40 per contract in Tier 2, $0.48 per contract in Tier 3, and $0.53 
per contract in Tier 4. The Exchange proposes to eliminate the higher 
maker rebate provided in Tier 1 for members that execute a Priority 
Customer ADV of 5,000 to 19,999 contracts in a given month.
Maker Rebates in Non-Penny Symbols (Excluding Index Options)
    Currently, the Exchange provides a maker rebate to Market Maker 
orders in Non-Penny Symbols (excluding index options) that is $0.40 per 
contract in Tier 1, $0.42 per contract in Tier 2, $0.50 per contract in 
Tier 3, and $0.75 per contract in Tier 4. The Exchange proposes to 
decrease the maker rebate provided to Market Maker orders in Non-Penny 
Symbols (excluding index options) to $0.45 in Tier 3.
    Currently, the Exchange provides a maker rebate to Priority 
Customer orders in Non-Penny Symbols (excluding index options) that is 
$0.75 per contract in Tier 1 (or $0.76 per contract for members that 
execute a Priority Customer Maker ADV of 5,000 to 19,999 contracts in a 
given month), $0.80 per contract in Tier 2, $0.85 per contract in Tier 
3, and $1.05 per contract in Tier 4. The Exchange proposes to eliminate 
the higher maker rebate provided in Tier 1 for members that execute a 
Priority Customer Maker ADV of 5,000 to 19,999 contracts in a given 
month.
Taker Fees in Penny Symbols and SPY
    Currently, the Exchange charges a taker fee for Market Makers and 
Non-Nasdaq GEMX Market Maker \8\ orders in Penny Symbols and SPY that 
is $0.49 per contract in Tiers 1-3, and $0.48 per contract in Tier 4, 
for trades executed against a Non-Priority Customer.\9\ Firm 
Proprietary,\10\ Broker-Dealer,\11\ and Professional Customer \12\ 
orders in Penny Symbols and SPY are charged a $0.49 per contract taker 
fee for trades executed against a Non-Priority Customer, regardless of 
the tier achieved. The taker fee is $0.50 per contract for all Non-
Priority Customer orders in Penny Symbols and SPY for trades executed 
against a Priority Customer. The Exchange now proposes to increase the 
taker fee charged to Non-Priority Customer orders in Penny Symbols and 
SPY to $0.50 per contract in Tiers 1-3 for trades executed against a 
Non-Priority Customer.
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    \8\ A ``Non-Nasdaq GEMX Market Maker'' is a market maker as 
defined in Section 3(a)(38) of the Securities Exchange Act of 1934, 
as amended, registered in the same options class on another options 
exchange.
    \9\ Non-Priority Customer includes Market Maker, Non-Nasdaq GEMX 
Market Maker, Firm Proprietary, Broker-Dealer, and Professional 
Customer.
    \10\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \11\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \12\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
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Taker Fees in Non-Penny Symbols (Excluding Index Options)
    Currently, the Exchange charges a taker fee for Non-Priority 
Customer orders in Non-Penny Symbols

[[Page 1390]]

(excluding index options) that is $0.89 per contract for trades 
executed against a Non-Priority Customer, regardless of the tier 
achieved. The taker fee is $1.10 per contract for all Non-Priority 
Customer orders in Non-Penny Symbols (excluding index options) for 
trades executed against a Priority Customer. The Exchange now proposes 
to increase the taker fee charged to Non-Priority Customer orders in 
Non-Penny Symbols (excluding index options) to $0.99 per contract in 
Tiers 1-3 and $0.94 per contract in Tier 4, in each case for trades 
executed against a Non-Priority Customer.
    Currently, the Exchange charges a taker fee for Priority Customer 
orders in Non-Penny Symbols (excluding index options) that is $0.82 per 
contract in Tier 1, and $0.81 per contract for Tiers 2-4, for trades 
executed against a Non-Priority Customer. The taker fee is $0.85 per 
contract for all Priority Customer orders in Non-Penny Symbols 
(excluding index options) for trades executed against a Priority 
Customer. The Exchange now proposes to increase the taker fee charged 
to Priority Customer orders in Non-Penny Symbols (excluding index 
options) to $0.85 per contract in Tiers 1-3 and $0.82 per contract in 
Tier 4, in each case for trades executed against a Non-Priority 
Customer.
Changes to the Fee for Responses to Crossing Orders (Excluding PIM)
    GEMX currently charges a fee for Responses to Crossing Orders \13\ 
(excluding PIM orders). In Penny Symbols and SPY, this fee is $0.49 per 
contract for Non-Priority Customer orders and $0.45 per contract for 
Priority Customer orders. In Non-Penny Symbols (excluding index 
options), this fee is $0.89 per contract for Non-Priority Customer 
orders and $0.82 per contract for Priority Customer orders.
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    \13\ ``Responses to Crossing Order'' is any contra-side interest 
(i.e., orders & quotes) submitted after the commencement of an 
auction in the Exchange's Facilitation Mechanism, Solicited Order 
Mechanism, Block Order Mechanism or Price Improvement Mechanism 
(``PIM'').
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    The Exchange now proposes to increase this fee to $0.50 per 
contract for all market participants in Penny Symbols and SPY, and 
$1.00 per contract for all market participants in Non-Penny Symbols 
(excluding index options).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\15\ 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.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4) and (5).
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Changes to Maker Rebates and Taker Fees Based on Qualifying Tier 
Thresholds
    The Exchange believes that it is reasonable to make the proposed 
changes to the maker rebates provided to Market Maker and Priority 
Customer orders in Penny Symbols and SPY, and in Non-Penny Symbols 
(excluding index options), as further discussed above. While the 
Exchange is primarily decreasing or eliminating the maker rebates 
currently provided to certain Market Maker and Priority Customer orders 
(except for increasing the Tier 3 maker rebate for Market Maker orders 
in Penny Symbols and SPY), the maker rebates provided to Market Makers 
and Priority Customers generally remain more favorable than the maker 
rebates provided to all other GEMX market participants. As such, the 
Exchange believes that the proposed changes to the Market Maker and 
Priority Customer maker rebates will continue to incentivize these 
market participants to send additional order flow to GEMX, thereby 
creating additional liquidity to the benefit of members and investors 
that trade on the Exchange. Furthermore, with the proposed changes to 
the Market Maker rebate amounts, the tiered maker rebates (i.e., 
ranging from $0.28 to $0.45 per contract for Penny Symbols and SPY, and 
from $0.40 to $0.75 per contract for Non-Penny Symbols (excluding index 
options)) remain competitive with similar rebates provided by other 
options exchanges. For example, MIAX PEARL offers its market makers 
tiered makers rebates that range from $0.25 to $0.48 per contract for 
penny classes, and from $0.30 to $0.70 per contract for non-penny 
classes.\16\
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    \16\ See MIAX PEARL Fee Schedule, Section 1)a). See also Nasdaq 
Options Market (``NOM'') Rules, Chapter XV Options Pricing, Sec. 
2(1). NOM offers its market makers tiered rebates to add liquidity 
that range from $0.20 to $0.42 per contract in penny pilot options. 
In non-penny pilot options, the rebate to add liquidity for NOM 
market makers is $0.30 per contract if participants add NOM market 
maker liquidity in non-penny pilot options of 10,000 or more ADV 
contracts per day in a month. See NOM Rules, Chapter XV Options 
Pricing, Sec. 2(1).
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    The Exchange also believes that the proposed changes to the maker 
rebates as described above are equitable and not unfairly 
discriminatory. As has historically been the case, Market Maker and 
Priority Customer orders will continue to earn more favorable maker 
rebates in order to encourage that order flow. Market Makers have 
different requirements and obligations to the Exchange that other 
market participants do not (such as quoting requirements). In addition, 
a Priority Customer is by definition not a broker or dealer in 
securities, and does not place more than 390 orders in listed options 
per day on average during a calendar month for its own beneficial 
account(s). This limitation does not apply to participants whose 
behavior is substantially similar to that of market professionals, 
including Professional Customers, who will generally submit a higher 
number of orders than Priority Customers. As such, Priority Customer 
orders remain entitled to more favorable pricing than other market 
participants.
    The Exchange believes that it is reasonable to increase the taker 
fees charged to all Non-Priority Customer orders in Penny Symbols and 
SPY from $0.49 to $0.50 per contract in Tiers 1-3 because the proposed 
change is a modest increase in fees. Furthermore, the proposed taker 
fees are within the range of similar fees currently charged by other 
options exchanges, including NOM, which assesses all NOM participants 
(including customers) a fee for removing liquidity of up to $0.50 per 
contract in penny pilot options.\17\ Similarly, the Exchange believes 
that the proposed increase in the taker fees assessed to all market 
participant orders in Non-Penny Symbols (excluding index options) as 
discussed above is reasonable as the increased fees (ranging from $0.94 
to $0.99 per contract for all Non-Priority Customers, and from $0.82 to 
$0.85 per contract for all Priority Customers) are still within the 
range of (or lower than) similar fees currently charged by other 
options exchanges. For example, MIAX PEARL charges tiered taker fees 
for non-penny classes ranging from $1.02 to $1.05 per contract for all 
MIAX PEARL non-priority customer orders, and from $0.84 to $0.87 per 
contract for priority customer orders.\18\
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    \17\ See NOM Rules, Chapter XV, Sec. 2(1). See also MIAX PEARL 
Fee Schedule, Section 1)a) (assessing all MIAX PEARL participants 
(other than priority customers) taker fees of up to $0.50 per 
contract in penny classes).
    \18\ See MIAX PEARL Fee Schedule, Section 1(a). See also NOM 
Rules, Chapter XV, Sec. 2(1) (charging a fee for removing liquidity 
in non-penny pilot options that is $0.85 per contract for customers 
and professionals, and $1.10 per contract for all other NOM 
participants).
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    Furthermore, the Exchange believes that the proposed increase in 
the taker fees for Penny Symbols and SPY, and for Non-Penny Symbols 
(excluding

[[Page 1391]]

index options), is equitable and not unfairly discriminatory because 
the proposed changes will apply uniformly to all similarly-situated 
market participants.
Changes to the Fee for Responses to Crossing Orders (Excluding PIM)
    The Exchange believes that the proposed fees for Responses to 
Crossing Orders (excluding PIM orders), which are being increased for 
all market participants to $0.50 per contract in Penny Symbols and SPY, 
and $1.00 per contract in Non-Penny Symbols (excluding index options), 
are reasonable because they remain competitive with similar fees 
assessed by other options exchanges, including, for example, BOX 
Options Exchange (``BOX''), which charges up to $0.50 and $1.15 per 
contract for responses in its solicitation or facilitation auction 
mechanisms for penny pilot and non-penny pilot classes, 
respectively.\19\ As such, the Exchange believes that the response fees 
proposed herein are set at levels that the Exchange believes will 
remain attractive to market participants that trade on GEMX.
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    \19\ BOX charges a fee for responses in the solicitation or 
facilitation auction mechanisms for all account types that is $0.25 
per contract (for penny pilot classes) and $0.40 per contract (for 
non-penny pilot classes). See BOX Fee Schedule, Section I.C. As set 
forth in the BOX Fee Schedule, ``[r]esponses to Facilitation and 
Solicitation Orders executed in these mechanisms shall be charged 
the ``add'' fee.'' Id. at Section III.B, second bullet. For all 
account types, this fee (i.e., the Fee for Adding Liquidity) is 
$0.25 (for penny pilot classes) and $0.75 (for non-penny pilot 
classes). Id. Thus, BOX may charge a fee for responses in its 
solicitation or facilitation auction mechanisms of up to $0.50 per 
contract (for penny pilot classes) and $1.15 per contract (for non-
penny pilot classes).
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    Finally, the Exchange believes that the proposed fees for Responses 
to Crossing Orders (excluding PIM orders) are equitable and not 
unfairly discriminatory because they would uniformly apply to all 
similarly-situated 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. As discussed above, the 
Exchange believes that the proposed fees and rebates in Section I of 
the Exchange's Schedule of Fees remain competitive with similar fees 
and rebates offered on other options exchanges. The Exchange operates 
in a highly competitive market in which market participants can readily 
favor competing venues if they deem fee levels at a particular venue to 
be excessive, or rebate opportunities available at other venues to be 
more favorable. In such an environment, the Exchange must continually 
adjust its fees to remain competitive. Because competitors are free to 
modify their own fees in response, and because market participants may 
readily adjust their order routing practices, the Exchange believes 
that the degree to which fee changes in this market may impose any 
burden on competition is extremely limited.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\20\ and Rule 19b-4(f)(2) \21\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is: (i) Necessary or 
appropriate in the public interest; (ii) for the protection of 
investors; or (iii) otherwise in furtherance of the purposes of the 
Act. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or disapproved.
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    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \21\ 17 CFR 240.19b-4(f)(2).
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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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-GEMX-2017-60 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-2017-60. 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 the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-GEMX-2017-60 and should be submitted on 
or before February 1,  2018.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00308 Filed 1-10-18; 8:45 am]
 BILLING CODE 8011-01-P