Document ID: SEC-2023-0558-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq GEMX, LLC
Posted Date: 2023-05-23T04:00Z

[Federal Register Volume 88, Number 99 (Tuesday, May 23, 2023)]
[Notices]
[Pages 33179-33181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-10906]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97521; File No. SR-GEMX-2023-07]

Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, 
Section 3

DATES: May 17, 2023.
    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 May 9, 2023, 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, 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 GEMX's Pricing Schedule at Options 
7, Section 3, ``Regular Order Fees and Rebates.'' \3\
---------------------------------------------------------------------------

    \3\ The Exchange originally filed SR-GEMX-2023-06 on May 1, 
2023. On May 9, 2023, the Exchange withdrew SR-GEMX-2023-06 and 
replaced that filing with the instant 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 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 its Pricing Schedule at Options 7, Section 
3, ``Regular Order Fees and Rebates'' to decrease the Penny Symbol 
Priority Customer \4\ Taker Fees.
---------------------------------------------------------------------------

    \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), as defined in Nasdaq GEMX Options 1, 
Section 1(a)(36). Unless otherwise noted, when used in the Pricing 
Schedule the term ``Priority Customer'' includes ``Retail''. See 
Options 7, Section 1(c).
---------------------------------------------------------------------------

    Today, GEMX assesses 5 tiers of Penny Symbol Taker Fees. Market 
Makers,\5\ and Non-Nasdaq GEMX Market Makers (FarMM) \6\ are assessed 
the following Penny Symbol Taker Fees: a Tier 1 Taker Fee of $0.50 per 
contract; a Tier 2 Taker Fee of $0.50 per contract; a Tier 3 Taker Fee 
of $0.50 per contract; a Tier 4 Taker Fee of $0.50 per contract; and a 
Tier 5 Taker Fee of $0.48 per contract. In comparison, GEMX assesses 
Firm Proprietary \7\/Broker Dealers \8\ and Professional Customers \9\ 
the following Penny Symbol Taker Fees: a Tier 1 Taker Fee of $0.50 per 
contract; a Tier 2 Taker Fee of $0.50 per contract; a Tier 3 Taker Fee 
of $0.50 per contract; a Tier 4 Taker Fee of $0.50 per contract; and a 
Tier 5 Taker Fee of $0.49 per contract. Finally, Priority Customers are 
assessed the following Penny Symbol Taker Fees: a Tier 1 Taker Fee of 
$0.48 per contract; a Tier 2 Taker Fee of $0.48 per contract; a Tier 3 
Taker Fee of $0.48 per contract; a Tier 4 Taker Fee of $0.48 per 
contract; and a Tier 5 Taker Fee of $0.43 per contract.
---------------------------------------------------------------------------

    \5\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21).
    \6\ 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. See Options 7, Section 1(c).
    \7\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account. See Options 7, Section 1(c).
    \8\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account. 
See Options 7, Section 1(c).
    \9\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
---------------------------------------------------------------------------

    At this time, GEMX proposes to decrease the Penny Symbol Priority 
Customer Taker Fees. Specifically, GEMX proposes to decrease Penny 
Symbol Priority Customer Taker Fees Tiers 1 through 4 from $0.48 per 
contract to $0.41 per contract. Additionally, GEMX proposes to decrease 
Penny Symbol Priority Customer Taker Fee Tier 5 from $0.43 to $0.41 per 
contract. GEMX is not proposing to amend the Qualifying Tier Thresholds 
to achieve these tiers. GEMX believes that decreasing the Priority 
Customer Taker Fees in Penny Symbols will incentivize GEMX Members to 
send additional order flow to GEMX.
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)

[[Page 33180]]

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

    The proposed changes to the Pricing Schedule are reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for order flow, which 
constrains its pricing determinations. The fact that the market for 
order flow is competitive has long been recognized by the courts. In 
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit 
stated, ``[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'. . . .'' \12\
---------------------------------------------------------------------------

    \12\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting 
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options transaction services. The Exchange is only one of sixteen 
options exchanges to which market participants may direct their order 
flow. Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules. Within the 
foregoing context, the proposal represents a reasonable attempt by the 
Exchange to attract additional order flow to the Exchange and increase 
its market share relative to its competitors.
    GEMX's proposal to decrease Penny Symbol Priority Customer Taker 
Fees Tiers 1 through 4 from $0.48 per contract to $0.41 per contract 
and Penny Symbol Priority Customer Taker Fee Tier 5 from $0.43 to $0.41 
per contract is reasonable because decreasing the Priority Customer 
Taker Fees in Penny Symbols should incentivize GEMX Members to send 
additional order flow to GEMX.
    GEMX's proposal to decrease Penny Symbol Priority Customer Taker 
Fees Tiers 1 through 4 from $0.48 per contract to $0.41 per contract 
and Penny Symbol Priority Customer Taker Fee Tier 5 from $0.43 to $0.41 
per contract is equitable and not unfairly discriminatory because 
Priority Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts market makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants, to 
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 Exchange believes its proposal remains competitive with other 
options markets, and will offer market participants with another choice 
of venue to transact options. 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, or rebate opportunities available at other venues to be 
more favorable. 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.
Intramarket Competition
    GEMX's proposal to decrease Penny Symbol Priority Customer Taker 
Fees Tiers 1 through 4 from $0.48 per contract to $0.41 per contract 
and Penny Symbol Priority Customer Taker Fee Tier 5 from $0.43 to $0.41 
per contract does not impose an undue burden on intermarket competition 
because Priority Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts market makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants, to 
the benefit of all market participants.

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.\13\ 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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-2023-07 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-2023-07. 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 (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

[[Page 33181]]

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. 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-2023-07 and should 
be submitted on or before June 13, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10906 Filed 5-22-23; 8:45 am]
BILLING CODE 8011-01-P