Document ID: SEC-2022-1373-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq GEMX, LLC
Posted Date: 2022-10-19T04:00Z

[Federal Register Volume 87, Number 201 (Wednesday, October 19, 2022)]
[Notices]
[Pages 63544-63548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22657]

[[Page 63544]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96062; File No. SR-GEMX-2022-09]

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

October 13, 2022.
    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 October 3, 2022, 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 the Exchange's Pricing Schedule at 
Options 7.
    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
    The Exchange proposes to amend Options 7, Sections 1, 3 and 4 in 
connection with adopting an Affiliated Entity program. The Exchange 
also proposes to amend Options 7, Section 3 to amend its Regular Order 
Fees and Rebates for Penny Symbols and Non-Penny Symbols and Qualifying 
Tier Thresholds and remove note 13 from the Pricing Schedule. Each 
change is described below.
Affiliated Entity Program
    The Exchange proposes to permit Affiliated Entities to aggregate 
certain volume for purposes of paying lower fees or receiving higher 
rebates. Today, Nasdaq MRX, LLC (``MRX'') and Nasdaq ISE, LLC (``ISE'') 
\3\ also permit Affiliated Entities to aggregate volume for purposes of 
qualifying for certain pricing.
---------------------------------------------------------------------------

    \3\ See MRX and ISE Options 7, Section 1.
---------------------------------------------------------------------------

    Specifically, the Exchange proposes to adopt the term ``Affiliated 
Entity'' within Options 7, Section 1(c).\4\ An ``Affiliated Entity'' 
would be a relationship between an Appointed Market Maker and an 
Appointed OFP for purposes of qualifying for certain pricing specified 
in the Pricing Schedule. An ``Appointed Market Maker'' is proposed to 
be defined within Options 7, Section 1(c) as a Market Maker who has 
been appointed by an OFP for purposes of qualifying as an Affiliated 
Entity. An ``Order Flow Provider'' or ``OFP'' is proposed to be defined 
within Options 7, Section 1(c) as any Member, other than a Market 
Maker, that submits orders, as agent or principal, to the Exchange.\5\ 
Finally, an ``Appointed OFP'' would be defined within Options 7, 
Section 1(c) as an OFP who has been appointed by a Market Maker for 
purposes of qualifying as an Affiliated Entity.
---------------------------------------------------------------------------

    \4\ The Exchange proposes to add a ``c'' before the term 
references within Options 7, Section 1 to further describe this 
section of the Pricing Schedule.
    \5\ Market Makers shall not be considered Appointed OFPs for the 
purpose of becoming an Affiliated Entity.
---------------------------------------------------------------------------

    In order to become an Affiliated Entity, Market Makers and OFPs 
would be required to send an email to the Exchange to appoint their 
counterpart, at least 3 business days prior to the last day of the 
month to qualify for the next month.\6\ For example, with this 
proposal, market participants should have submitted emails to the 
Exchange to become Affiliated Entities to qualify for discounted 
pricing by September 28, 2022, which is 3 business days prior to the 
first business day of October 3, 2022. The Exchange will acknowledge 
receipt of the emails and specify the date the Affiliated Entity is 
eligible for applicable pricing, as specified in the Pricing Schedule 
within Options 7, Section 1(c).
---------------------------------------------------------------------------

    \6\ The Exchange issued an Options Trader Alert which provided 
the email address and details required to apply to become an 
Affiliated Entity.
---------------------------------------------------------------------------

    Each Affiliated Entity relationship will commence on the 1st of a 
month and may not be terminated prior to the end of any month. An 
Affiliated Entity relationship will automatically renew each month 
until or unless either party terminates earlier in writing by sending 
an email to the Exchange at least 3 business days prior to the last day 
of the month to terminate for the next month. Affiliated Members \7\ 
may not qualify as a counterparty comprising an Affiliated Entity. Each 
Member may qualify for only one (1) Affiliated Entity relationship at 
any given time. As proposed, an Affiliated Entity shall be eligible to 
aggregate their volume for purposes of qualifying for certain pricing 
specified in the Pricing Schedule, as described below.
---------------------------------------------------------------------------

    \7\ An ``Affiliated Member'' is Member that shares at least 75% 
common ownership with a particular Member as reflected on the 
Member's Form BD, Schedule A. This term is currently described 
within Options 7, Sections 3 and 4. The Exchange proposes to remove 
the description of an Affiliated Member from Options 7, Sections 3 
and 4 and instead describe an Affiliated Member within Options 7, 
Section 1(c). The Exchange also proposes to capitalize the word 
``affiliated'' within Options 7, Section 4 to refer to the defined 
term.
---------------------------------------------------------------------------

    The Exchange proposes to amend Options 7, Section 3, Regular Order 
Fees and Rebates, to indicate that with respect to the Qualifying Tier 
Thresholds, for purposes of measuring Total Affiliated Member or 
Affiliated Entity % of Customer Total Consolidated Volume, 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. Further, the Exchange proposes to provide that all eligible 
volume from Affiliated Members or an Affiliated Entity will be 
aggregated in determining applicable tiers for each of the Qualifying 
Tier Thresholds in Table 1. Finally, the Exchange proposes to note that 
the Total Affiliated Member or Affiliated Entity % of Customer Total 
Consolidated Volume 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.
    With these proposed amendments, an Affiliated Entity would be 
permitted to aggregate its volume to qualify for the Qualifying Tier 
Thresholds. By aggregating volume, the Appointed Market Maker and 
Appointed OFP will both have an opportunity to receive lower Taker Fees 
and higher Maker Rebates as a result of the aggregation. The Exchange 
believes that the

[[Page 63545]]

Affiliated Entity program will encourage Appointed Market Makers and 
Appointed OFPs to submit additional liquidity on GEMX.
    As noted above, with this proposed change, a GEMX Member may 
aggregate either as an Affiliated Member or an Affiliated Entity during 
the same time period, but may not aggregate under both programs during 
the same time period. The Exchange proposes to incentivize certain 
Members, who are not Affiliated Members, to enter into an Affiliated 
Entity relationship for the purpose of aggregating volume executed on 
the Exchange to qualify to for certain Maker or Taker tiers.
Options 7, Section 3
    The Exchange proposes to amend Options 7, Section 3, Regular Order 
Fees and Rebates, to: (1) renumber current Penny and Non-Penny Symbol 
Maker Rebate Tier 4 and Taker Fee Tier 4 as Maker Rebate Tier 5 and 
Taker Fee Tier 5, respectively, (2) add a new Maker Rebate Tier 4 and 
Taker Fee Tier 4; (3) amend new Priority Customer \8\ Maker Rebate Tier 
5; and (4) eliminate current note 13. Each change will be described 
below.
---------------------------------------------------------------------------

    \8\ 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 this Pricing 
Schedule the term ``Priority Customer'' includes ``Retail'' as 
defined below. See Options 7, Section 1(c), as proposed.
---------------------------------------------------------------------------

Maker Rebates
    Today, GEMX pays the following Tier 4 Penny Symbol Maker Rebates: 
$0.41 per contract to Market Makers \9\ and $0.52 per contract to 
Priority Customers. Non-Nasdaq GEMX Market Makers (FarMM),\10\ Firm 
Proprietary \11\/Broker Dealers \12\ and Professional Customers \13\ 
are not eligible for Tier 4 Penny Symbol Maker Rebates. Today, GEMX 
pays the following Tier 4 Non-Penny Symbol Maker Rebates: $0.75 per 
contract to Market Makers and $1.05 per contract to Priority Customers. 
Non-Nasdaq GEMX Market Makers (FarMM), Firm Proprietary/Broker Dealers 
and Professional Customers are not eligible for Tier 4 Non-Penny Symbol 
Maker Rebates.
---------------------------------------------------------------------------

    \9\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21).
    \10\ 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 GEMX Options 7, Section 1.
    \11\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account. See GEMX Options 7, Section 
1.
    \12\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account. 
See GEMX Options 7, Section 1.
    \13\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer. See GEMX Options 
7, Section 1.
---------------------------------------------------------------------------

    At this time, the Exchange proposes to renumber Penny and Non-Penny 
Symbol Maker Rebate Tiers 4 as Tier 5.
    The Exchange also proposes to increase the Priority Customer Penny 
Symbol newly renumbered Maker Rebate Tier 5 from $0.52 to $0.53 per 
contract.
    The Exchange also proposes to adopt a new Penny Symbol Maker Rebate 
Tier 4 as follows: $0.32 per contract to Market Makers and $0.51 per 
contract to Priority Customers. Non-Nasdaq GEMX Market Makers (FarMM), 
Firm Proprietary/Broker Dealers and Professional Customers will not be 
eligible for proposed Tier 4 Penny Symbol Maker Rebates.
    The Exchange also proposes to adopt a new Non-Penny Symbol Maker 
Rebate Tier 4 as follows: $0.50 per contract to Market Makers and $0.90 
per contract to Priority Customers. Non-Nasdaq GEMX Market Makers 
(FarMM), Firm Proprietary/Broker Dealers and Professional Customers 
will not be eligible for proposed Tier 4 Non-Penny Symbol Maker 
Rebates.
Taker Fees
    Today, GEMX pays the following Tier 4 Penny Symbol Taker Fees: 
$0.48 per contract to Market Makers and Non-Nasdaq GEMX Market Makers 
(FarMM), $0.49 per contract to Firm Proprietary/Broker Dealers and 
Professional Customers, and $0.43 per contract to Priority Customers. 
Today, GEMX pays the following Tier 4 Non-Penny Symbol Taker Fees: 
$0.94 per contract to Market Makers, Non-Nasdaq GEMX Market Makers 
(FarMM), Firm Proprietary/Broker Dealers and Professional Customers and 
$0.82 per contract to Priority Customers
    At this time, the Exchange proposes to renumber Penny and Non-Penny 
Symbol Taker Fee Tiers 4 as Tier 5.
    The Exchange also proposes to adopt a new Penny Symbol Taker Fee 
Tier 4 as follows: $0.50 per contract to Market Makers, Non-Nasdaq GEMX 
Market Makers (FarMM), Firm Proprietary/Broker Dealers and Professional 
Customers, and $0.48 per contract to Priority Customers. Similar to 
current Penny Symbol Taker Fees, non-Priority Customer \14\ orders will 
be charged the Penny Symbol Taker Fee for trades executed during the 
Opening Process for Penny Symbol Tier 4 Taker Fees. Priority Customer 
orders executed during the Opening Process will receive the applicable 
Penny Symbol Maker Rebate based on the tier achieved.\15\
---------------------------------------------------------------------------

    \14\ Non-Priority Customer Orders includes order for the 
accounts of Market Makers, Non-Nasdaq GEMX Market Makers (FarMM), 
Firm Proprietary/Broker Dealers and Professional Customers.
    \15\ See note 4 in Options 7, Section 3 of the Pricing Schedule.
---------------------------------------------------------------------------

    The Exchange also proposes to adopt a new Non-Penny Symbol Taker 
Fee Tier 4 as follows: $0.99 per contract to Market Makers, Non-Nasdaq 
GEMX Market Makers (FarMM), Firm Proprietary/Broker Dealers and 
Professional Customers, and $0.85 per contract to Priority Customers. 
Similar to current Non-Penny Symbol Taker Fees, non-Priority Customer 
orders will be charged the Non-Penny Taker Fee for trades executed 
during the Opening Process for Non-Penny Symbol Tier 4 Taker Fees. 
Priority Customer orders executed during the Opening Process will 
receive the applicable Non-Penny Symbol Maker Rebate based on the tier 
achieved.\16\ Additionally, Non-Priority Customer orders will be 
charged a Non-Penny Symbol Taker Fee of $1.10 per contract for trades 
executed against a Priority Customer. Priority Customer orders will be 
charged a Non-Penny Symbol Taker Fee of $0.85 per contract for trades 
executed against a Priority Customer.\17\
---------------------------------------------------------------------------

    \16\ See note 4 in Options 7, Section 3 of the Pricing Schedule.
    \17\ See note 16 in Options 7, Section 3 of the Pricing 
Schedule.
---------------------------------------------------------------------------

    Today, for Penny Symbol Taker Fees 1,\18\ 2,\19\ 3 \20\ and 4, non-
Priority Customers who execute less than 4.0% of Customer Total 
Consolidated Volume \21\ will be charged a Penny Symbol Taker Fee of 
$0.48 per contract for trades executed against a Priority Customer. 
Non-Priority Customers who execute 4.0% or greater of Customer Total 
Consolidated Volume will be charged a Penny Symbol Taker Fee of $0.47 
per contract for trades executed against a Priority Customer. All 
Priority Customer orders will be charged a Penny Symbol Taker Fee of 
$0.48 per

[[Page 63546]]

contract for trades executed against a Priority Customer.\22\
---------------------------------------------------------------------------

    \18\ Today, the Exchange assesses $0.50 per contract for Penny 
Symbol Taker Fee 1 for all non-Priority Customers and $0.48 per 
contract for Priority Customers.
    \19\ Today, the Exchange assesses $0.50 per contract for Penny 
Symbol Taker Fee 2 for all non-Priority Customers and $0.48 per 
contract for Priority Customers.
    \20\ Today, the Exchange assesses $0.50 per contract for Penny 
Symbol Taker Fee 3 for all non-Priority Customers and $0.48 per 
contract for Priority Customers.
    \21\ 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.
    \22\ See note 13 in Options 7, Section 3 of the Pricing 
Schedule.
---------------------------------------------------------------------------

    At this time, the Exchange proposes to remove note 13 from the 
Pricing Schedule within Options 7, Section 3. While the Exchange is 
eliminating certain incentives to lower the Penny Symbol Taker Fee when 
trading against a Priority Customer, the Exchange believes that the 
amendments proposed herein to the Taker Fees offer market participants 
the ability to obtain lower Taker Fees, if they are currently in Penny 
Symbol Taker Fee Tiers 1-3, by submitting additional order flow to 
GEMX.
    Finally, the Exchange proposes to amend the criteria to qualify for 
the tier thresholds within Options 7, Section 3. The Exchange proposes 
to add tier qualifications for new Tier 4 which would require a Member 
to execute 2.25% to less than 2.50% of Customer Total Consolidated 
Volume for the qualifying percentage of Customer Total Consolidated 
Volume. Also, for Tier 4, a Member would be required to execute 
Priority Customer Maker volume of 1.05% to less than 1.20% of Customer 
Total Consolidated Volume for the qualifying Priority Customer Maker % 
of Customer Total Consolidated Volume.
    With the addition of new Tier 4 in the Qualifying Tier Thresholds, 
the Exchange proposes to also amend Tier 3 to accommodate the new tier. 
The Exchange proposes to amend the range in Tier 3 for the qualifying 
percentage of Customer Total Consolidated Volume to require a Member to 
execute 1.5% to less than 2.25% of Customer Total Consolidated Volume 
(from 1.5% to less than 2.50% of Customer Total Consolidated Volume). 
Also, the Exchange proposes to amend the range in Tier 3 for the 
qualifying Priority Customer Maker % of Customer Total Consolidated 
Volume to require a Member to execute Priority Customer Maker volume of 
0.65% to less than 1.05% of Customer Total Consolidated Volume (from 
0.65% to less than 1.20% of Customer Total Consolidated Volume). 
Finally, the Exchange proposes to renumber Tier 4 as Tier 5 within the 
Qualifying Tier Thresholds.
    The Exchange believes that the addition of Tier 4 will incentive 
GEMX Members in Penny and Non-Penny Symbol Tiers 1 through 3 to submit 
additional order flow to GEMX to obtain lower Taker Fees and higher 
Maker Rebates.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\23\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\24\ 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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

The Proposal Is Reasonable
    The proposed changes to its Pricing Schedule are reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for options transaction 
services that constrain its pricing determinations in that market. The 
fact that this market is competitive has long been recognized by the 
courts. In NetCoalition v. Securities and Exchange Commission \25\ 
(``NetCoalition''), 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' . . . .'' \26\
---------------------------------------------------------------------------

    \25\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \26\ 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)).
---------------------------------------------------------------------------

    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.
Affiliated Entity Program
    The Exchange's proposal to permit an Affiliated Entity to aggregate 
certain volume for purposes of paying lower fees or receiving higher 
rebates is reasonable because the Exchange believes this program will 
incentivize certain GEMX Members, who are not Affiliated Members, to 
enter into an Affiliated Entity relationship for the purpose of 
aggregating volume executed on the Exchange to qualify for certain 
lower Market Maker fees. By aggregating volume, the Appointed Market 
Maker and Appointed OFP will both have an opportunity to receive lower 
Taker Fees and higher Maker Rebates as a result of the aggregation. 
Additionally, this proposal will harmonize GEMX's program with MRX's 
and ISE's programs.\27\ While a GEMX Member may not utilize both the 
Affiliated Member and the Affiliated Entity program to aggregate volume 
for purposes of achieving lower fees or higher rebates, the Exchange 
believes that permitting aggregation individually under each program, 
Affiliated Member and the Affiliated Entity program, will encourage 
Appointed Market Makers and Appointed OFPs to submit additional 
liquidity on GEMX if they chose to enter into this relationship.
---------------------------------------------------------------------------

    \27\ See MRX and ISE Options 7, Section 1.
---------------------------------------------------------------------------

    The Exchange's proposal to permit Affiliated Entities to aggregate 
certain volume for purposes of paying lower fees or receiving higher 
rebates is equitable and not unfairly discriminatory as all market 
participants may enter into an Affiliated Entity relationship, provided 
they have not elected to aggregate as an Affiliated Member. As 
proposed, Affiliated Members, who are eligible to aggregate volume 
today, are not eligible to also enter into an Affiliated Entity 
relationship. The Exchange's proposal to exclude Affiliated Members 
from qualifying as an Affiliated Entity is equitable and not unfairly 
discriminatory because, today, Affiliated Members may aggregate volume 
for purposes of lowering fees or increasing rebates on GEMX. Also, as 
proposed no GEMX Member may utilize both the Affiliated Member and the 
Affiliated Entity program to aggregate volume for purposes of achieving 
lower fees or higher rebates. Also, the Exchange will apply all 
qualifications in a uniform manner for an Affiliated Entity.
Options 7, Section 3
    The Exchange's proposal to amend Options 7, Section 3, Regular 
Order Fees

[[Page 63547]]

and Rebates, to renumber current Penny and Non-Penny Symbol Maker 
Rebate Tier 4 and Taker Fee Tier 4 as Maker Rebate Tier 5 and Taker Fee 
Tier 5, respectively, and add a new Maker Rebate Tier 4 and Taker Fee 
Tier 4 is reasonable because the addition of new Tier 4 will incentive 
GEMX Members to submit additional order flow to GEMX to obtain lower 
fees and higher rebates. Specifically, Members currently in Penny and 
Non-Penny Symbol Tiers 1 through 3 may be assessed lower Taker Fees or 
receive higher Maker Rebates if they are able to submit additional 
order to qualify for new Tier 4.
    The Exchange's proposal to amend Options 7, Section 3, Regular 
Order Fees and Rebates, to renumber current Penny and Non-Penny Symbol 
Maker Rebate Tier 4 and Taker Fee Tier 4 as Maker Rebate Tier 5 and 
Taker Fee Tier 5, respectively, and add a new Maker Rebate Tier 4 and 
Taker Fee Tier 4 is equitable and not unfairly discriminatory because 
the Exchange's maker/taker model continues to incentivize Priority 
Customers by assessing them the lowest fees and paying them the highest 
rebates as compared to all other non-Priority Customer market 
participants. 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. 
Continuing to pay Maker Rebates to Priority Customers is equitable and 
not unfairly discriminatory for these reasons as well. Paying Maker 
Rebates to Market Makers is equitable and not unfairly discriminatory 
because Market Makers have different requirements and obligations to 
the Exchange that other market participants do not (such as quoting 
requirements).\28\ Incentivizing Market Makers to provide greater 
liquidity benefits all market participants through the quality of order 
interaction.
---------------------------------------------------------------------------

    \28\ See GEMX Options 2, Section 5.
---------------------------------------------------------------------------

    The Exchange's proposal to amend new Priority Customer Maker Rebate 
Tier 5 to increase the Priority Customer Penny Symbol Maker Rebate from 
$0.52 to $0.53 per contract is reasonable because the Exchange believes 
this increased rebate will attract additional Priority Customer order 
flow to GEMX.
    The Exchange's proposal to amend new Priority Customer Maker Rebate 
Tier 5 to increase the Priority Customer Penny Symbol Maker Rebate from 
$0.52 to $0.53 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.
    The Exchange's proposal to eliminate note 13 from the Pricing 
Schedule at Options 7, Section 3 is reasonable because while the 
Exchange is eliminating certain incentives to lower the Penny Symbol 
Taker Fee when trading against a Priority Customer, the Exchange 
believes that the amendments proposed herein to the Penny Symbol Taker 
Fees offer market participants the ability to obtain lower fees, if 
they are currently in Penny Symbol Taker Fee Tiers 1-3, by submitting 
additional order flow to GEMX.
    The Exchange's proposal to eliminate note 13 from the Pricing 
Schedule at Options 7, Section 3 is equitable and not unfairly 
discriminatory because no market participant will be entitled to a 
lower Penny Symbol Taker Fee as a result of the removal of note 13.
    The Exchange's proposal to amend the criteria to qualify for the 
tier thresholds within Options 7, Section 3 is reasonable because the 
addition of new Tier 4 would allow Members to qualify for lower fees or 
higher rebates if they are able to execute 2.25% to less than 2.50% of 
Customer Total Consolidated Volume for the qualifying percentage of 
Customer Total Consolidated Volume and execute Priority Customer Maker 
volume of 1.05% to less than 1.20% of Customer Total Consolidated 
Volume for the qualifying Priority Customer Maker % of Customer Total 
Consolidated Volume. The criteria for new Tier 4 requires less order 
flow than the criteria for re-numbered Tier 5 and pays lower Taker Fees 
and higher Maker Rebates than Tier 3.\29\
---------------------------------------------------------------------------

    \29\ The Exchange proposes to amend Tier 3 to accommodate the 
new tier 4. The Exchange proposes to amend the range in Tier 3 for 
the qualifying percentage of Customer Total Consolidated Volume to 
require a Member to execute 1.5% to less than 2.25% of Customer 
Total Consolidated Volume (from 1.5% to less than 2.50% of Customer 
Total Consolidated Volume). Also, the Exchange proposes to amend the 
range in Tier 3 for the qualifying Priority Customer Maker % of 
Customer Total Consolidated Volume to require a Member to execute 
Priority Customer Maker volume of 0.65% to less than 1.05% of 
Customer Total Consolidated Volume (from 0.65% to less than 1.20% of 
Customer Total Consolidated Volume).
---------------------------------------------------------------------------

    The Exchange's proposal to amend the criteria to qualify for the 
tier thresholds within Options 7, Section 3 is equitable and not 
unfairly discriminatory because the Qualifying Tier Thresholds are the 
same for all Members and would be uniformly applied to all Members in 
determining a Member's applicable tier.

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 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 
with other exchanges. 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 because other options exchanges offer similar 
affiliation programs and have maker/taker models akin to GEMX's model.
    Moreover, as noted above, price competition between exchanges is 
fierce, with liquidity and market share moving freely between exchanges 
in reaction to fee and rebate changes. In sum, if the changes proposed 
herein are unattractive to market participants, it is likely that the 
Exchange will lose market share as a result. Accordingly, 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.
Intramarket Competition
Affiliated Entity Program
    The Exchange's proposal to permit Affiliated Entities to aggregate 
certain volume for purposes of paying lower Taker Fees or receiving 
higher Maker Rebates does not impose an undue burden on competition 
because all market participants may enter into an Affiliated Entity 
relationship, provided they have not elected to aggregate as an 
Affiliated Member. As proposed, Affiliated Members, who are eligible to 
aggregate volume today, are not eligible to also enter into an 
Affiliated Entity relationship. Today, Affiliated Members

[[Page 63548]]

may aggregate volume for purposes of lowering fees or increasing 
rebates on GEMX. Also, as proposed no GEMX Member may utilize both the 
Affiliated Member and the Affiliated Entity program to aggregate volume 
for purposes of achieving lower fees or higher rebates. Also, the 
Exchange will apply all qualifications in a uniform manner for an 
Affiliated Entity.
Options 7, Section 3
    The Exchange's proposal to amend Options 7, Section 3, Regular 
Order Fees and Rebates, to renumber current Penny and Non-Penny Symbol 
Maker Rebate Tier 4 and Taker Fee Tier 4 as Maker Rebate Tier 5 and 
Taker Fee Tier 5, respectively, and add a new Maker Rebate Tier 4 and 
Taker Fee Tier 4 does not impose an undue burden on competition because 
the Exchange's maker/taker model continues to incentivize Priority 
Customers by assessing them the lowest fees and paying them the highest 
rebates as compared to all other non-Priority Customer market 
participants. 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. 
Continuing to pay Maker Rebates to Priority Customers is equitable and 
not unfairly discriminatory for these reasons as well. Paying Maker 
Rebates to Market Makers is equitable and not unfairly discriminatory 
because Market Makers have different requirements and obligations to 
the Exchange that other market participants do not (such as quoting 
requirements).\30\ Incentivizing Market Makers to provide greater 
liquidity benefits all market participants through the quality of order 
interaction.
---------------------------------------------------------------------------

    \30\ See GEMX Options 2, Section 5.
---------------------------------------------------------------------------

    The Exchange's proposal to amend new Priority Customer Maker Rebate 
Tier 5 to increase the Priority Customer Penny Symbol Maker Rebate from 
$0.52 to $0.53 per contract does not impose an undue burden on 
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.
    The Exchange's proposal to eliminate note 13 from the Pricing 
Schedule at Options 7, Section 3 does not impose an undue burden on 
competition because no market participant will be entitled to a lower 
Penny Symbol Taker Fee as a result of the removal of note 13.
    The Exchange's proposal to amend the criteria to qualify for the 
tier thresholds within Options 7, Section 3 does not impose an undue 
burden on competition because the Qualifying Tier Thresholds are the 
same for all Members and would be uniformly applied to all Members in 
determining a Member's applicable tier.

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) of the Act \31\ and paragraph (f) of Rule 19b-4 \32\ 
thereunder.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(3)(A).
    \32\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

    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

     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-2022-09 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-2022-09. 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-2022-09 and should be submitted on 
or before November 9, 2022.
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22657 Filed 10-18-22; 8:45 am]
BILLING CODE 8011-01-P