Document ID: SEC-2017-1036-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq GEMX, LLC
Posted Date: 2017-06-20T04:00Z

[Federal Register Volume 82, Number 117 (Tuesday, June 20, 2017)]
[Notices]
[Pages 28204-28207]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-12762]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80921; File No. SR-GEMX-2017-23]

Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change to Amend the Fee 
Schedule

June 14, 2017.
    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 June 1, 2017, 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.
---------------------------------------------------------------------------

    \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 Fee Schedule to add a 
percentage measurement as an alternative way of qualifying for Tiers 2-
4 of the Total Affiliated Member ADV for purposes of calculating a 
member's fees and rebates for purposes of Section I, as described 
further below.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqgemx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
Fee Schedule to add a percentage measurement as an alternative way of 
qualifying for Tiers 2-4 of the Total Affiliated Member ADV for 
purposes of calculating a member's fees and rebates for purposes of 
Section I.
    The Exchange currently uses volume-based tiers, referred to as the 
Total Affiliated Member ADV, to assess the level of taker fees and 
maker rebates applicable to members. These tiers apply to both Penny 
Symbols and SPY, and to Non-Penny Symbols (excluding index options). 
These tiers apply to all different categories of market participants 
set forth in Section I, such as Market Makers, Firm Proprietary/Broker-
Dealer, and Priority Customers.\3\ The Total Affiliated Member ADV 
category includes all volume in all symbols and order types, including 
both maker and taker volume and volume executed in the Price 
Improvement Mechanism (``PIM''), Facilitation, Solicitation, and 
Qualified Contingent Cross (``QCC'') mechanisms. 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.
---------------------------------------------------------------------------

    \3\ The Exchange also uses a separate set of tiers to determine 
the amount of a Priority Customer's maker rebate. These volume 
requirements of these tiers are a subset of a member's Total 
Affiliated Member ADV. The Exchange is not changing the Priority 
Customer Maker ADV tiers as part of this proposed rule change.
---------------------------------------------------------------------------

    The Exchange currently uses numeric thresholds for the purpose of 
determining a member's eligibility for Tiers 1-4. Currently, a member 
would qualify for Tier 1 if its ADV is 0-99,999 contracts in a given 
month; Tier 2 if its ADV is 100,000-224,999 contracts in a given month; 
Tier 3 if its ADV is 225,000-349,999 contracts in a given month, and 
Tier 4 if its ADV is 350,000 or more contracts in a given month.
    The Exchange now proposes to add a percentage-based calculation 
that may be used as an alternative to the numeric

[[Page 28205]]

thresholds for determining a member's eligibility for the Total 
Affiliated Member ADV tiers. Specifically, a member would be eligible 
for Tier 2 if it executes 100,000-224,999 contracts or 1% to less than 
2% of Customer Total Consolidated Volume; Tier 3 if it executes 
225,000-349,999 contracts or 2% to less than 3% of Customer Total 
Consolidated Volume; and Tier 4 if it executes 350,000 or more 
contracts or 3% or greater of Customer Total Consolidated Volume. For 
purposes of measuring Total Affiliated Member ADV, Customer Total 
Consolidated Volume means the total volume cleared at The Options 
Clearing Corporation in the Customer range in equity and ETF options in 
that month. The Exchange developed these percentage requirements based 
on historical data, and believes that there is a close correlation 
between the proposed percentage requirements and the current numeric 
requirements.
    As is the case currently, the Total Affiliated Member ADV category 
will continue to include 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. Similarly, all eligible 
volume from affiliated members will continue to 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 fees and rebates in Section I to which the Total Affiliated 
Member ADV tiers apply remain unchanged.
    In using a percentage-based measurement that considers a member's 
volume relative to total customer industry volume, rather than a 
member's absolute volume, the Exchange is providing members with an 
alternative way to achieve a tier even if that member's absolute volume 
no longer meets the tier's requirements. In using a relative 
measurement, the Exchange is recognizing that both the industry and a 
member's volume may change due to a variety of factors, and is 
providing an alternative measurement that may allow that member to 
continue to meet its existing tier. At the same time, the proposed 
requirements, which are closely aligned to the current numeric 
requirements, still require a member to add meaningful volume in order 
to qualify for a given tier.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ 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.
---------------------------------------------------------------------------

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

    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.'' \6\
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Likewise, in NetCoalition v. Securities and Exchange Commission \7\ 
(``NetCoalition'') the D.C. Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\8\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \9\
---------------------------------------------------------------------------

    \7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \8\ See NetCoalition, at 534-535.
    \9\ Id. at 537.
---------------------------------------------------------------------------

    Further, ``[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' . . . .'' \10\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
---------------------------------------------------------------------------

    \10\ 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)).
---------------------------------------------------------------------------

    The Exchange believes that determining a member's eligibility for a 
Total Affiliated Member ADV tier by using percentage requirements as an 
alternative to the existing numeric requirements is reasonable. In 
using a percentage-based measurement that considers a member's volume 
relative to total customer industry volume, rather than a member's 
absolute volume, the Exchange is providing members with an alternative 
way to achieve a tier even if that member's absolute volume no longer 
meets the tier's requirements. The Exchange also believes that the 
actual proposed percentage requirements are reasonable. Using 
historical data, the Exchange has formulated percentage requirements 
that it believes are closely correlated to the existing numeric 
requirements. In using a relative measurement, the Exchange is 
recognizing that both the industry and a member's volume may change due 
to a variety of factors, and is providing an alternative measurement 
that may allow that member to continue to meet its existing tier. At 
the same time, the proposed requirements, which are closely aligned to 
the current numeric requirements, still require a member to add 
meaningful volume in order to qualify for a given tier.
    The Exchange believes that it is reasonable to calculate the 
percentage based on the total volume cleared at the OCC in the Customer 
range in that month. The Exchange notes that other exchanges have 
similar programs that use percentage requirements based on national 
customer volume. For example, NASDAQ PHLX LLC (``Phlx'') operates a 
Customer Rebate Program, which has five volume tiers that consist of 
percentage thresholds of national customer volume in multiply-listed 
equity and ETF options classes (excluding monthly SPY options).\11\ 
Similarly, the NASDAQ Options Market (``NOM'') operates a tiered rebate 
program, which consists of eight tiers, using both numeric and 
percentage thresholds, that is based on the total industry customer 
equity and ETF option average daily volume contracts per day in a 
month.\12\ As with these programs, the Exchange believes that the use 
of customer volume in equity and ETF options here as the baseline 
provides a meaningful metric by which to measure a member's activity.
---------------------------------------------------------------------------

    \11\ See Phlx Pricing Schedule, Preface B.
    \12\ See NOM Chapter XV, Section 2.
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable to add the percentage 
requirements to Tiers 2-4. Since a

[[Page 28206]]

member may qualify for the Tier 1 with an ADV of 0, the Exchange does 
not believes that a percentage requirement is necessary for this Tier.
    The Exchange also believes that it is reasonable to add percentage 
requirements to the Total Affiliated Member ADV, and not Priority 
Customer Maker ADV, because the proposed change will apply to all 
members subject to maker rebates and taker fees in Section I, not just 
the subset of market participants and activity that is covered by the 
Priority Customer Maker ADV tiers.
    The Exchange also believes that the proposal is an equitable 
allocation and is not unfairly discriminatory. As noted above, the 
Total Affiliated Member ADV applies to all market participants that are 
subject to Maker Rebates and Taker Fees pursuant to Section I, and the 
proposed percentage requirements will correspondingly apply. The 
percentage requirements, which are closely aligned to the current 
numeric requirements, recognize that both a member's and industry 
volume may change for a number of reasons, and provides members with an 
alternative way to qualify for a given tier that uses a relative, 
rather than an absolute, measurement. At the same time, the Exchange 
will apply the same percentage requirements to all similarly situated 
members. The Exchange believes it is equitable and not unfairly 
discriminatory to add the percentage requirements to Tiers 2-4, since, 
as described above, it believes the percentage requirement for Tier 1 
is unnecessary. The Exchange believes that it is equitable and not 
unfairly discriminatory to add percentage requirement to the Total 
Affiliated Member ADV, and not Priority Customer Maker ADV, because the 
proposed change will apply to all members subject to maker rebates and 
taker fees in Section I, not just the subset of market participants and 
activity that is covered by the Priority Customer Maker ADV tiers.

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. In terms of inter-market 
competition, 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 and with 
alternative trading systems 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.
    The proposed addition of percentage requirements to Tiers 2-4 of 
the Total Affiliated Member ADV tiers does not impose a burden on 
competition not necessary or appropriate because the Exchange's 
execution services are completely voluntary and subject to extensive 
competition both from other exchanges and from off-exchange venues. 
More specifically, the Total Affiliated Member ADV applies to all 
market participants that are subject to Maker Rebates and Taker Fees 
pursuant to Section I, and the proposed percentage requirements will 
correspondingly apply. The percentage requirements recognize that both 
a member's and industry volume may change for a number of reasons, and 
provides members with an alternative way to qualify for a given tier 
that uses a relative, rather than an absolute, measurement. At the same 
time, the Exchange will apply the same percentage requirements to all 
similarly situated members.
    The Exchange believes that adding the percentage requirements to 
Tiers 2-4 does not impose a burden on competition not necessary or 
appropriate since, as described above, it believes the percentage 
requirement for Tier 1 is unnecessary. The Exchange believes that 
adding the percentage requirement to the Total Affiliated Member ADV, 
and not Priority Customer Maker ADV, does not impose a burden on 
competition not necessary or appropriate because the proposed change 
will apply to all members subject to maker rebates and taker fees in 
Section I, not just the subset of market participants and activity that 
is covered by the Priority Customer Maker ADV tiers.
    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.

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\ and Rule 19b-4(f)(2) \14\ 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2017-23 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-GEMX-2017-23. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements

[[Page 28207]]

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 Web site 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; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-GEMX-2017-23 and should be 
submitted on or before July 11, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-12762 Filed 6-19-17; 8:45 am]
 BILLING CODE 8011-01-P