Document ID: SEC-2022-0102-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq GEMX, LLC
Posted Date: 2022-01-25T05:00Z

[Federal Register Volume 87, Number 16 (Tuesday, January 25, 2022)]
[Notices]
[Pages 3866-3869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01325]

[[Page 3866]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93999; File No. SR-GEMX-2022-01]

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

January 19, 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 January 4, 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 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 at 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 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 Regular Order Fees and Rebates within 
Options 7, Section 3. Specifically, the Exchange proposes to: (1) 
Decrease the Priority Customer \3\ Tier 1 Taker Fee in Penny Symbols; 
\4\ and (2) eliminate the Tier 5 Maker Rebates and Taker Fees in Penny 
Symbols and Non-Penny Symbols.\5\ Each amendment is described below.
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    \3\ 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.
    \4\ ``Penny Symbols'' are options overlying all symbols listed 
on Nasdaq GEMX that are in the Penny Interval Program. See Options 
7, Section 1.
    \5\ ``Non-Penny Symbols'' are options overlying all symbols 
excluding Penny Symbols. See Options 7, Section 1.
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Priority Customer Taker Fee
    Currently, Priority Customers are assessed Penny Symbol Taker Fees 
as follows: A Tier 1 Taker Fee of $0.49 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 $0.43 per contract; and a Tier 5 Taker Fee of $0.42 
per contract. Other GEMX market participants are assessed higher Penny 
Symbol Taker Fees as compared to Priority Customers. Market Makers \6\ 
and Non-Nasdaq GEMX Market Makers (FarMM) \7\ are assessed Tier 1 
through Tier 3 Penny Symbol Taker Fee of $0.50 per contract and a Tier 
4 and Tier 5 Penny Symbol Taker Fee of $0.48 per contract.\8\ Firm 
Proprietary \9\/Broker Dealers \10\ and Professional Customers \11\ are 
assessed Tier 1 through Tier 3 Penny Symbol Taker Fee of $0.50 per 
contract and a Tier 4 and Tier 5 Penny Symbol Taker Fee of $0.49 per 
contract.\12\
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    \6\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21).
    \7\ 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.
    \8\ Non-Priority Customer orders are charged the Taker Fee for 
trades executed during the Opening Process. Priority Customer orders 
executed during the Opening Process receive the applicable Maker 
Rebate based on the tier achieved. Non-Priority Customers who 
execute less than 4.0% of Customer Total Consolidated Volume are 
charged a Taker Fee of $0.50 per contract for trades executed 
against a Priority Customer. Non-Priority Customers who execute 4.0% 
or greater of Customer Total Consolidated Volume are charged a Taker 
Fee of $0.47 per contract for trades executed against a Priority 
Customer. All Priority Customer orders are charged a Taker Fee of 
$0.49 per contract for trades executed against a Priority Customer. 
For purposes of note 13 within Options 7, Section 3, 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 notes 4 and 16 of Options 7, Section 3.
    \9\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account. See GEMX Options 7, Section 
1.
    \10\ 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.
    \11\ 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.
    \12\ See note 8 above.
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    At this time, the Exchange proposes to decrease the current Tier 1 
Priority Customer Penny Symbol Taker Fee from $0.49 to $0.48 per 
contract. The Exchange believes that lowering the Tier 1 Priority 
Customer Penny Symbol Taker Fee will attract additional order flow to 
the Exchange. With this proposal, Priority Customers continue to be 
assessed the lowest Penny Symbol Taker Fees.
Tier 5 Maker Rebates and Taker Fees
    Today, GEMX pays the following Tier 5 Penny Symbol Maker Rebates: 
$0.45 per contract to Market Makers and $0.53 per contract to Priority 
Customers. Non-Nasdaq GEMX Market Makers (FarMM), Firm Proprietary/
Broker Dealers and Professional Customers are not eligible for Tier 5 
Penny Symbol Maker Rebates. Today, GEMX pays the following Tier 5 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 5 Non-Penny Symbol Maker Rebates. Market Maker 
and Priority Customer orders are eligible for higher Penny and Non-
Penny Symbol Maker Rebates based on achieving volume thresholds in 
Table 1 within Options 7, Section 3.\13\
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    \13\ See note 5 of Options 7, Section 3.
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    Today, GEMX assesses the following Tier 5 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 $0.42 per contract to Priority 
Customers.\14\ Today, GEMX assesses the following Tier 5 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.\15\
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    \14\ See note 8 above.
    \15\ See note 8 above.
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    At this time, the Exchange proposes to eliminate Penny and Non-
Penny Symbol Tier 5 Maker Rebates and Taker

[[Page 3867]]

Fees. The Exchange also proposes to amend the criteria for Tier 4 of 
the Qualifying Tier Thresholds, within Table 1 of Options 7, Section 3, 
so that volume that is 2.5% or greater of Customer Total Consolidated 
Volume and Priority Customer Maker Percentage of Customer Total 
Consolidated Volume of 1.20% or greater would qualify a GEMX Member for 
the Tier 4 Penny and Non-Penny Symbol Maker Rebates and Taker Fees.
    The elimination of the Tier 5 Penny Symbol Maker Rebates would 
result in no change as the same Tier 5 Penny Symbol Maker Rebates exist 
for Tier 4 Penny Symbol Maker Rebates, with the exception of the Penny 
Symbol Market Maker Rebate. The Tier 5 Penny Symbol Market Maker Rebate 
is $0.45 per contract, while the Tier 4 Penny Symbol Market Maker 
Rebate is $0.41 per contract. With this proposal, the highest Penny 
Symbol Market Maker Rebate that can be achieved would now be $0.41 per 
contract.
    The elimination of the Tier 5 Penny Symbol Taker Fees would result 
in no change as the same Tier 5 Penny Symbol Taker Fees exist for Tier 
4 Penny Symbol Taker Fees, with the exception of the Priority Customer 
Penny Symbol Taker Fee. The Tier 5 Penny Symbol Priority Customer Taker 
Fee is $0.42 per contract, while the Tier 4 Penny Symbol Priority 
Customer Taker Fee is $0.43 per contract. With this proposal, the 
lowest Penny Symbol Priority Customer Taker Fee that would be assessed 
would now be $0.43 per contract.
    The elimination of the Tier 5 Non-Penny Symbol Maker Rebates and 
Taker Fees would result in no change as the same Tier 5 Non-Penny 
Symbol Maker Rebates and Taker Fees exist for Tier 4 Non-Penny Symbol 
Maker Rebates and Taker Fees. As noted, with the amended Tier 4 
criteria, a GEMX Member would continue to be able to achieve the same 
Non-Penny Symbol Maker Rebates and Taker Fees that are currently 
offered for Tier 4 Non-Penny Symbol Maker Rebates and Taker Fees.
    With these proposed changes, Priority Customers would continue to 
be paid the highest Market Rebates and be assessed the lowest Taker 
Fees in both Penny and Non-Penny Symbols.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\16\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\17\ 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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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4) and (5).
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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.'' \18\
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    \18\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\19\ (``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.\20\ 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.'' \21\
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    \19\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \20\ See NetCoalition, at 534-535.
    \21\ Id. at 537.
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    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' . . . .'' \22\ 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.
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    \22\ 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)).
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Priority Customer Taker Fee
    The Exchange's proposal to decrease the current Tier 1 Priority 
Customer Penny Symbol Taker Fee from $0.49 to $0.48 per contract is 
reasonable as this decrease would result in a lower Tier 1 Priority 
Customer Penny Symbol Taker Fee. The Exchange believes that lowering 
the Tier 1 Priority Customer Penny Symbol Taker Fee will attract 
additional order flow to the Exchange. With this proposal, Priority 
Customers continue to be assessed the lowest Penny Symbol Taker Fees.
    The Exchange's proposal to decrease the current Tier 1 Priority 
Customer Penny Symbol Taker Fee from $0.49 to $0.48 per contract is 
equitable and not unfairly discriminatory. Priority Customers continue 
to be assessed the lowest Penny Symbol Taker Fees. 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.
Tier 5 Maker Rebates and Taker Fees
    The Exchange's proposal to eliminate Penny and Non-Penny Symbol 
Tier 5 Maker Rebates and Taker Fees is reasonable. The elimination of 
the Tier 5 Penny Symbol Maker Rebates would result in no change as the 
same Tier 5 Penny Symbol Maker Rebates exist for Tier 4 Penny Symbol 
Maker Rebates, with the exception of the Penny Symbol Market Maker 
Rebate. The Tier 5 Penny Symbol Market Maker Rebate is $0.45 per 
contract, while the Tier 4 Penny Symbol Market Maker Rebate is $0.41 
per contract. With this proposal, the highest Penny Symbol Market Maker 
Rebate that can be achieved would now be $0.41 per contract. The 
elimination of the Tier 5 Penny Symbol Taker Fees would result in no 
change as the same Tier 5 Penny Symbol Taker Fees exist for Tier 4 
Penny Symbol Taker Fees, with the exception of the Priority Customer 
Penny Symbol Taker Fee. The Tier 5 Penny Symbol Priority Customer Taker 
Fee is $0.42 per contract, while the Tier 4 Penny Symbol Priority 
Customer Taker Fee is $0.43 per contract. With this proposal, the 
lowest Priority Customer Penny Symbol Taker Fee that would be assessed 
would now be $0.43 per contract. Notwithstanding, the decreased Penny 
Symbol Market Maker Rebate of $0.45 per contract and the increased 
Priority Customer Penny Symbol Taker Fee of $0.43 per contract, the 
Exchange believes that the Market and Taker Tier 4 pricing in Penny 
Symbols will continue to attract order flow to GEMX. The elimination of 
the Tier 5 Non-Penny Symbol Maker

[[Page 3868]]

Rebates and Taker Fees would result in no change as the same Tier 5 
Non-Penny Symbol Maker Rebates and Taker Fees exist for Tier 4 Non-
Penny Symbol Maker Rebates and Taker Fees. As noted, with the amended 
Tier 4 criteria a GEMX Member would continue to be able to achieve the 
same Non-Penny Symbol Maker Rebates and Taker Fees that are currently 
offered for Tier 4 Non-Penny Symbol Maker Rebates and Taker Fees. With 
these proposed changes, Priority Customers would continue to be paid 
the highest Market Rebates and be assessed the lowest Taker Fees in 
Penny and Non-Penny Symbols.
    The Exchange's proposal to eliminate the Penny and Non-Penny Symbol 
Tier 5 Maker Rebates and Taker Fees is equitable and not unfairly 
discriminatory. All Members that meet the qualifications of the Tier 1 
through Tier 4 Qualifying Tier Thresholds would continue to be 
eligible, uniformly, to receive the corresponding rebates and fees.
Qualifying Tier Thresholds
    The Exchange's proposal to amend the description of Tier 4 of the 
Qualifying Tier Thresholds, within Table 1 of Options 7, Section 3, 
with respect to the Total Affiliated Member % of Customer Total 
Consolidated Volume,\23\ to require that a member execute 2.5% or 
greater of Customer Total Consolidated Volume is reasonable, equitable 
and not unfairly discriminatory. Also, the Exchange's proposal to amend 
the description of the Tier 4 of Qualifying Tier Threshold with respect 
to the Priority Customer Maker % of Customer Total Consolidated 
Volume,\24\ to require that a member executes Priority Customer Maker 
volume of 1.20% or greater of Customer Total Consolidated Volume is 
reasonable, equitable and not unfairly discriminatory. With the 
elimination of Tier 5 Penny and Non-Penny Symbol Maker Rebates and 
Taker Fees, the Tier 4 Penny and Non-Penny Symbol Maker Rebates and 
Taker Fees would be the highest Maker Rebate and lowest Taker Fee. All 
Members that meet the qualifications of the Tier 4 Qualifying Tier 
Threshold would be eligible, uniformly, to receive the corresponding 
rebates and fees.
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    \23\ 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.
    \24\ The Priority Customer Maker % of Customer Total 
Consolidated Volume category includes all Priority Customer volume 
that adds liquidity in all 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.
Inter-Market Competition
    The proposal does not impose an undue burden on inter-market 
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.
Intra-Market Competition
    The proposed amendments do not impose an undue burden on intra-
market competition.
Priority Customer Taker Fee
    The Exchange's proposal to decrease the current Tier 1 Priority 
Customer Penny Symbol Taker Fee from $0.49 to $0.48 per contract does 
not impose an undue burden on competition. Priority Customers continue 
to be assessed the lowest Penny Symbol Taker Fees. 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.
Tier 5 Maker Rebates and Taker Fees
    The Exchange's proposal to eliminate Penny and Non-Penny Symbol 
Tier 5 Maker Rebates and Taker Fees does not impose an undue burden on 
competition. Exchange's proposal to eliminate the Penny and Non-Penny 
Symbol Tier 5 Maker Rebates and Taker Fees is equitable and not 
unfairly discriminatory. All Members that meet the qualifications of 
the Tier 1 through Tier 4 Qualifying Tier Thresholds would continue to 
be eligible, uniformly, to receive the corresponding rebates and fees.

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,\25\ and Rule 19b-4(f)(2) \26\ 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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    \25\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \26\ 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 [email protected]. Please include 
File Number SR-GEMX-2022-01 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-2022-01. 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

[[Page 3869]]

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-2022-01 and should be submitted on 
or before February 15, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01325 Filed 1-24-22; 8:45 am]
BILLING CODE 8011-01-P