Document ID: SEC-2019-0401-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq GEMX, LLC
Posted Date: 2019-04-04T04:00Z

[Federal Register Volume 84, Number 65 (Thursday, April 4, 2019)]
[Notices]
[Pages 13351-13353]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06521]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85462; File No. SR-GEMX-2019-02]

Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend 
Supplementary Material .01 to Rule 710 To Specify Replacement Issues 
That May Be Added to the Penny Pilot on a Quarterly Basis Without 
Altering the Expiration Date of the Pilot

March 29, 2019.
    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 21, 2019, 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 Supplementary Material .01 to Rule 
710, ``Minimum Increments,'' to specify replacement issues that may be 
added to the Penny Pilot (``Pilot'') on a quarterly basis, without 
altering the expiration date of the Pilot, which is June 30, 2019.
    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 Exchange proposes to amend Commentary .01 to Rule 710, 
``Minimum Increments,'' to specify that replacement issues may be added 
to the Pilot on a quarterly basis, without altering the expiration date 
of the Pilot, which is June 30, 2019. The Exchange recently filed to 
extend the Pilot until June 30, 2019 (from December 31, 2018) and also 
updated the rule text to provide that replacement issues may be added 
to the Pilot on the second trading day following January 1, 2019.\3\ 
Currently, Commentary .01 to Rule 710 permits the Exchange to replace 
any penny pilot issues that have been delisted with the next most 
actively traded multiply listed options classes that are not yet 
included in the penny

[[Page 13352]]

pilot, based on trading activity in the previous six months.
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    \3\ See Securities Exchange Act Release No. 84955 (December 26, 
2018), 84 FR 859 (January 31, 2019) (SR-GEMX-2018-44). On January 3, 
2019, the Exchange added new issues to replace delisted Pilot 
issues, as announced by Options Trader Alert #2018-48.
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    The Exchange proposes to amend Commentary .01 to Rule 710 to permit 
the Exchange to add replacement issues for Pilot issues that have been 
delisted on a quarterly basis. The Exchange added replacement issues in 
January 2019, pursuant to Rule 710 and, with this proposal, would add 
eligible replacement issues in April, July and October 2019. The 
Exchange believes this change would allow the Exchange to update issues 
eligible for the Pilot by replacing delisted issues on a quarterly 
basis as opposed to semi-annual and would enable further analysis of 
the Pilot and a determination of how the Pilot should be structured in 
the future.
    As is the case today, the Exchange will determine replacement 
issues based on trading activity in the previous six months (the ``six 
month lookback'') but will not use the month immediately preceding the 
addition of a replacement to the Pilot. Thus, a replacement class to be 
added on the second trading day following April 1, 2019 would be 
identified based on The Option Clearing Corporation's trading volume 
data from September 1, 2018 through February 28, 2019.\4\ The Exchange 
believes the six month lookback is appropriate because this time period 
would help reduce the impact of unusual trading activity as a result of 
unique market events, such as a corporate action (i.e., it would result 
in a more reliable measure of average daily trading volume than would a 
shorter period).
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    \4\ The Exchange would announce any replacement issues via an 
Options Trader Alert. See Commentary .01 to Rule 710.
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    This filing does not propose any substantive changes to the Pilot. 
All classes currently participating will remain the same and all 
minimum increments will remain unchanged. The Exchange believes the 
benefits to Priority Customers and other market participants who will 
be able to express their true prices to buy and sell options have been 
demonstrated to outweigh the increase in quote traffic.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\5\ 
Specifically, the proposed rule change is consistent with Section 
6(b)(5) of the Act,\6\ because it is designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanisms 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposal to allow the addition of 
replacement issues the Pilot on a quarterly basis would result in the a 
more current list of Pilot eligible issues and would enable further 
analysis of the Pilot, including for a determination of how the Pilot 
should be structured in the future. Further, the Exchange believes the 
six month lookback is appropriate because this time period would help 
reduce the impact of unusual trading activity as a result of unique 
market events, such as a corporate action (i.e., it would result in a 
more reliable measure of average daily trading volume than would a 
shorter period). The Exchange believes this proposal would promote just 
and equitable principles of trade, foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system.
    The Exchanges notes that it not making any other substantive 
changes to the Pilot, other than modifying the timing for replacement 
issues and therefore the Exchange will continue to participate in a 
program that has been viewed as beneficial to traders, investors and 
public customers and viewed as successful by the other options 
exchanges participating in it. The Exchange believes that the Pilot 
would continue to promote just and equitable principles of trade by 
enabling Priority Customers and other market participants to express 
their true prices to buy and sell options to the benefit of all market 
participants.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\7\ the Exchange does 
not believe that the proposed rule change will impose any burden on 
intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \7\ 15 U.S.C. 78f(b)(8).
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    Specifically, the Exchange believes that allowing the Exchange to 
add replacement issues to the Pilot on a quarterly basis would make the 
list of Pilot-eligible issues more current and would enable further 
analysis of the Pilot, including for a determination of how the Pilot 
should be structured in the future. In doing so, the proposed rule 
change will also serve to promote regulatory clarity and consistency, 
thereby reducing burdens on the marketplace and facilitating investor 
protection. The Pilot Program is an industry-wide initiative supported 
by all other option exchanges. The Exchange believes that the proposed 
change would allow for continued competition between Exchange market 
participants trading similar products as their counterparts on other 
exchanges, while at the same time allowing the Exchange to continue to 
compete for order flow with other exchanges in option issues trading as 
part of the Pilot.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\ 
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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 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) \10\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\11\ the Commission 
may 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 the proposal 
may become operative immediately upon filing. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of

[[Page 13353]]

investors and the public interest. The change will allow the Exchange 
to add classes to the pilot that are actively traded at the start of 
the second quarter (i.e., in April 2019) and replace those that have 
been delisted and are no longer trading on a more frequent basis. This 
will help ensure that the top 363 most actively traded, multiply-listed 
classes are included in the Pilot, which will enable further analysis 
of the Pilot.\12\
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ For purposes only of waiving the operative delay for this 
proposal, 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 such 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 under 
Section 19(b)(2)(B) \13\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \13\ 15 U.S.C. 78s(b)(2)(B).
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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-2019-02 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-2019-02. 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-2019-02 and 
should be submitted on or before April 25, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06521 Filed 4-3-19; 8:45 am]
 BILLING CODE 8011-01-P