Document ID: SEC-2020-0310-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq GEMX, LLC
Posted Date: 2020-03-03T05:00Z

[Federal Register Volume 85, Number 42 (Tuesday, March 3, 2020)]
[Notices]
[Pages 12623-12626]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04291]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88293; File No. SR-GEMX-2020-04]

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

February 26, 2020.
    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 February 12, 2020, 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 GEMX's Pricing Schedule. 
Specifically, the Exchange proposes to amend Options 7, Section 3, 
titled ``Regular Order Fees and Rebates.''
    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
    GEMX proposes to amend its Pricing Schedule at Options 7, Section 
3, titled ``Regular Order Fees and Rebates.'' Specifically, GEMX 
proposes to amend the Qualifying Tier Thresholds in Table 1.
    The Exchange originally filed the proposed pricing changes on 
February 3, 2020 (SR-GEMX-2020-01). On February 12, 2020, the Exchange 
withdrew that filing and submitted this filing.
    Today, GEMX has 4 tiers as part of its Qualifying Tier Thresholds 
in Table 1 of Options 7, Section 3 as follows:

Qualifying Tier Thresholds

                                 Table 1
------------------------------------------------------------------------
                                                       Priority customer
       Tier           Total affiliated member ADV          maker ADV
------------------------------------------------------------------------
Tier 1...........  0-99,999.........................  0-19,999.
Tier 2...........  100,000-224,999, or executes 1%    20,000-99,999.
                    to less than 2% of Customer
                    Total Consolidated Volume.
Tier 3...........  225,000-349,999, or executes 2%    100,000-149,999.
                    to less than 3% of Customer
                    Total Consolidated Volume.
Tier 4...........  350,000 or more, or executes 3%    150,000 or more.
                    or greater of Customer Total
                    Consolidated Volume.
------------------------------------------------------------------------

    All market participants can qualify for Tiers 1 through 4, provided 
they meet the requisite volume thresholds specified in Table 1 above. 
The maker and taker fees for all market participants represented in 
Table 1, displayed above, are dependent on qualifying for a particular 
tier. With respect to these tiers, the highest tier threshold attained 
applies retroactively in a given month to all eligible traded contracts 
and applies to all eligible market participants. 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 Exchange proposes to amend the current Qualifying Tier 
Thresholds for Non-Priority Customers by replacing the ADV thresholds 
with total industry

[[Page 12624]]

percentage thresholds for the Total Affiliated Member.\3\ Specifically, 
the Exchange proposes that a Member would be eligible for Tier 1 if it 
executes less than 0.65% \4\ of Customer Total Consolidated Volume.\5\ 
A Member would be eligible for Tier 2 if it executes 0.65% to less than 
1.5% of Customer Total Consolidated Volume. A Member would be eligible 
for Tier 3 if it executes 1.5% to less than 2.50% of Customer Total 
Consolidated Volume. Finally, a Member would be eligible for Tier 4 if 
it executes 2.5% or greater of Customer Total Consolidated Volume. The 
Exchange notes by way of comparison that the proposed new percentage 
tiers for Non-Priority Customer are equivalent in terms of requisite 
volume to the current tiers.
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    \3\ As proposed, the Total Affiliated Member % 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. 
See proposed Pricing Schedule at Options 7, Section 3.
    \4\ For example, 0.65% of Customer Total Consolidated Volume is 
approximately 100,000 contracts per day.
    \5\ As proposed, for purposes of measuring Total Affiliated 
Member % 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. See proposed Pricing Schedule at Options 7, Section 
3.
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    The Exchange also proposes to amend the current Qualifying Tier 
Thresholds by replacing the ADV thresholds with total industry 
percentage thresholds with respect to tier volumes for Members that 
submit Priority Customer maker orders.\6\ Specifically, the Exchange 
proposes that a Member would be eligible for Tier 1 if it executes 
Priority Customer maker volume of less than 0.10% of Customer Total 
Consolidated Volume. A Member would be eligible for Tier 2 if it 
executes Priority Customer maker volume of 0.10% to less than 0.65% of 
Customer Total Consolidated Volume. A Member would be eligible for Tier 
3 if it executes Priority Customer maker Volume of 0.65% to less than 
1.20% of Customer Total Consolidated Volume. Finally, a Member would be 
eligible for Tier 4 if it executes Priority Customer maker volume of 
1.20% or greater of Customer Total Consolidated Volume. The Exchange 
notes that the proposed new percentage for Priority Customer maker 1-3 
tiers are equivalent in terms of requisite volume to the existing 
tiers. Priority maker Tier 4 requires additional volume to meet the 
proposed criteria of 1.20% of Customer Total Consolidated Volume, which 
is approximately 180,000 contracts per day, as compared to a current 
ADV of 150,000 contracts.
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    \6\ As proposed, the Priority Customer maker % of Customer Total 
Consolidated Volume category includes all Priority Customer volume 
that adds liquidity in all symbols. See proposed Pricing Schedule at 
Options 7, Section 3.
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    The Exchange is proposing to amend these volume requirements to 
align with increasing Member activity on GEMX over time. The Exchange 
believes that Members will not be impacted by this proposal with the 
exception of the Tier 4 Priority Customer maker tier, which is more 
stringent as a result of this proposal.\7\ While the Tier 4 Priority 
Customer tier is more stringent, the proposed pricing is intended to 
continue to reward Members that submit Priority Customer order flow to 
the Exchange and thereby increase liquidity and trading opportunities 
for all Members. The Total Affiliated Member % of Customer Total 
Consolidated Volume category, as proposed and described below, includes 
all volume executed on the Exchange in all symbols and order types, as 
is the case today. The maker/taker fees will remain the same for all 
Member orders \8\ regardless of the tier achieved.
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    \7\ Based on 2019 participant tier qualifications, the Exchange 
anticipates that market participants will continue to qualify for 
the Tier 4 Priority Customer maker tier, notwithstanding the 
additional volume requirements.
    \8\ The Exchange is not proposing to amend any GEMX maker or 
taker fees within Options 7, Section 3 for Penny and Non-Penny 
Symbols.
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    Finally, the Exchange proposes to amend the notes within Options 7, 
Section 3, which follow the Qualifying Tier Thresholds, to replace the 
term ``ADV'' with ``% of Customer Total Consolidated Volume'' to 
conform the text to the amendments proposed herein.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    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, the D.C. 
Circuit stated as follows: ``[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'. . . .'' \11\
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    \11\ NetCoalition v. SEC, 615 F.3d 525, 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)).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \12\
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    \12\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    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 options 
venues to which market participants may direct their order flow. 
Competing options exchanges offer similar tiered pricing structures to 
that of the Exchange, including schedules of rebates and fees that 
apply based upon Members achieving certain volume thresholds.
    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. As such, the 
proposal represents a reasonable attempt by the Exchange to increase 
its liquidity and market share relative to its competitors.
    The Exchange's proposal to amend the current Qualifying Tier 
Thresholds for Non-Priority Customers by replacing the ADV thresholds 
with total industry percentage thresholds for the Total Affiliated 
Member is consistent with the

[[Page 12625]]

Act.\13\ The Exchange is proposing to base Tiers 1 through 4 on a 
percentage of industry volume in recognition of the fact that the 
volume executed by a Member may rise or fall with industry volume. A 
percentage of industry volume calculation allows the Exchange's tiers 
to be calibrated to current market volumes rather than requiring the 
same amount of volume regardless of market conditions. While the amount 
of volume required by the proposed tiers may change in any given month 
due to increases or decreases in industry volume, the Exchange believes 
that the proposed tier requirements are set at appropriate levels. 
These proposed percentage of industry volume tier requirements are no 
more stringent than the current ADV requirements. The Exchange is 
proposing to effectively equalize the volume thresholds with the 
current Qualifying Tier Thresholds so that the Exchange may continue to 
align the tier requirements with GEMX's anticipated growth as a venue 
(and corresponding increased Member activity) over time. These proposed 
percentage of industry volume tier requirements are no more stringent 
than the current ADV requirements and therefore the Exchange does not 
anticipate any impact to Non-Priority Customers as a result of 
replacing the ADV thresholds with total industry percentage thresholds 
for the Total Affiliated Member.
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    \13\ The Exchange proposes that a Member would be eligible for 
Tier 1 if it executes less than 0.65% of Customer Total Consolidated 
Volume. A Member would be eligible for Tier 2 if it executes 0.65% 
to less than 1.5% of Customer Total Consolidated Volume. A Member 
would be eligible for Tier 3 if it executes 1.5% to less than 2.50% 
of Customer Total Consolidated Volume. Finally, a Member would be 
eligible for Tier 4 if it executes 2.5% or greater of Customer Total 
Consolidated Volume. As proposed, for purposes of measuring Total 
Affiliated and/or Appointed Member % 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.
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    The Exchange's proposal to amend the current Qualifying Tier 
Thresholds for Priority Customers makers by replacing the ADV 
thresholds with total industry percentage thresholds for the Total 
Affiliated Member is consistent with the Act.\14\ The Exchange is 
proposing to base Tiers 1 through 4 on a percentage of industry volume 
in recognition of the fact that the volume executed by a Member may 
rise or fall with industry volume. A percentage of industry volume 
calculation allows the Exchange's tiers to be calibrated to current 
market volumes rather than requiring the same amount of volume 
regardless of market conditions. While the amount of volume required by 
the proposed tiers may change in any given month due to increases or 
decreases in industry volume, the Exchange believes that the proposed 
tier requirements are set at appropriate levels. These proposed 
percentage of industry volume tier requirements are no more stringent 
than the current ADV requirements for Tier 1 through 3 and therefore 
the Exchange does not anticipate any impact to Members that submit 
Priority Customer maker orders as a result of replacing the ADV 
thresholds with total industry percentage thresholds. However, with 
this proposal, Priority Customer Tier 4 is more stringent than the 
current tier level. Despite the increased volume amount to qualify for 
proposed Priority Customer Tier 4 of 1.20% of Customer Total 
Consolidated Volume, which is approximately 180,000 contracts per day 
as compared to a current ADV of 150,000 contracts, the maker/taker 
tiered fee structure is intended to continue to reward Members to bring 
more order flow to the Exchange and thereby increase liquidity and 
trading opportunities for all Members. Overall, the Exchange is 
proposing to effectively equalize the volume thresholds with the 
current Qualifying Tier Thresholds so that the Exchange may continue to 
align the tier requirements with GEMX's anticipated growth as a venue 
(and corresponding increased Member activity) over time.
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    \14\ The Exchange proposes that a Member would be eligible for 
Tier 1 if it executes Priority Customer maker volume of less than 
0.10% of Customer Total Consolidated Volume. A Member would be 
eligible for Tier 2 if it executes Priority Customer maker volume of 
0.10% to less than 0.65% of Customer Total Consolidated Volume. A 
Member would be eligible for Tier 3 if it executes Priority Customer 
maker Volume of 0.65% to less than 1.20% of Customer Total 
Consolidated Volume. Finally, a Member would be eligible for Tier 4 
if it executes Priority Customer maker volume of 1.20% or greater of 
Customer Total Consolidated Volume.
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    The Exchange's proposal to amend the current Non-Priority Customer 
and Priority Customer maker Qualifying Tier Thresholds is equitable and 
not unfairly discriminatory. The proposed tiers will be applied 
uniformly to all market participants, respectively. Furthermore, the 
Exchange believes that the qualifying tier thresholds are equitable and 
not unfairly discriminatory as all market participants may qualify for 
a higher tier by executing the required volume of contracts, either 
through the Member or its affiliates, as is the case today. The 
Exchange believes that Members will not be impacted by this proposal, 
with the exception of the Tier 4 Priority Customer maker. With this 
proposal, Tier 4 Priority Customers will be required to submit a 
greater amount of order flow to qualify for proposed Tier 4 as compared 
to today (1.20% of Customer Total Consolidated Volume is approximately 
180,000 contracts per day as compared to a current ADV of 150,000 
contracts). Priority Customer orders bring valuable liquidity to the 
market which liquidity benefits other market participants. Further, the 
maker/taker fees will remain the same for all Member orders \15\ 
regardless of the tier achieved.
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    \15\ The Exchange is not proposing to amend any GEMX maker or 
taker fees within Options 7, Section 3 for Penny and Non-Penny 
Symbols.
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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 proposal does not impose an undue burden on intermarket 
competition. The Exchange believes its proposal remains competitive 
with other options markets and will offer market participants with 
another choice of where 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. In such an environment, the Exchange 
must continually adjust its fees to remain competitive with other 
exchanges that have been exempted from compliance with the statutory 
standards applicable to 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.
Intramarket Competition
    The proposed amendments do not impose an undue burden on 
intramarket competition. The Exchange's proposal to amend the current 
Non-Priority Customer and Priority Customer Qualifying Tier Thresholds 
do not impose an undue burden on intramarket competition. The tiers 
will be applied uniformly to all market participants. Furthermore, all 
market participants may qualify for a higher tier by executing the 
required volume of contracts, either through the Member or its 
affiliates, as is the case today. These

[[Page 12626]]

proposed percentage of industry volume tier requirements are no more 
stringent than the current ADV requirements, with the exception of the 
Tier 4 Priority Customer maker. With this proposal, Tier 4 Priority 
Customers will be required to submit a greater amount of order flow to 
qualify for the current Tier 4. Priority Customer orders bring valuable 
liquidity to the market which liquidity benefits other market 
participants. As to the remainder of the proposed tiers, the Exchange 
does not anticipate any impact to market participants as a result of 
replacing the ADV thresholds with total industry percentage thresholds. 
Finally, the maker/taker fees will remain the same for all Member 
orders \16\ regardless of the tier achieved. For the foregoing reasons, 
the Exchange does not believe that its proposal will have an undue 
burden on intramarket competition.
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    \16\ The Exchange is not proposing to amend any GEMX maker or 
taker fees within Options 7, Section 3 for Penny and Non-Penny 
Symbols.
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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,\17\ and Rule 19b-4(f)(2) \18\ 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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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 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 rule-comments@sec.gov. Please include 
File Number SR-GEMX-2020-04 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-2020-04. 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-2020-04 and should be submitted on 
or before March 24, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04291 Filed 3-2-20; 8:45 am]
 BILLING CODE 8011-01-P