Document ID: SEC-2017-2115-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq GEMX, LLC
Posted Date: 2017-12-20T05:00Z

[Federal Register Volume 82, Number 243 (Wednesday, December 20, 2017)]
[Notices]
[Pages 60431-60432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27339]

[[Page 60431]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82319; File No. SR-GEMX-2017-55)

Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the Market 
Access and Routing Subsidy Program

December 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 November 29, 2017, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``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.
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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 a subsidy program, the Market Access 
and Routing Subsidy (``MARS''), for GEMX Members that provide certain 
order routing functionalities \3\ to other GEMX Members and/or use such 
functionalities themselves.
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    \3\ The order routing functionalities permit a GEMX Member to 
provide access and connectivity to other Members as well utilize 
such access for themselves. The Exchange notes that under this 
arrangement it will be possible for one GEMX Member to be eligible 
for payments under MARS, while another GEMX Member might potentially 
be liable for transaction charges associated with the execution of 
the order, because those orders were delivered to the Exchange 
through a GEMX Member's connection to the Exchange and that Member 
qualified for the MARS Payment.
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    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
    The Exchange proposes to amend the definition of Eligible Contracts 
to exclude options overlying NDX \4\ as Eligible Contracts from MARS. 
Options overlying NDX would not be eligible for MARS Payments.
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    \4\ NDX represents options on the Nasdaq 100 Index traded under 
the symbol NDX (``NDX'').
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    By way of background, MARS pays a subsidy to GEMX Members that 
provide certain order routing functionalities to other GEMX Members 
and/or use such functionalities themselves. GEMX pays participating 
GEMX Members to subsidize their costs of providing routing services to 
route orders to GEMX. The Exchange believes that MARS will attract 
higher volumes of equity and ETF options volume to the Exchange from 
non-GEMX market participants as well as GEMX Members.
MARS System Eligibility
    To qualify for MARS, a GEMX Member's order routing functionality 
would be required to meet certain criteria. Specifically the Member's 
routing system (hereinafter ``System'') would be required to: (1) 
Enable the electronic routing of orders to all of the U.S. options 
exchanges, including GEMX; (2) provide current consolidated market data 
from the U.S. options exchanges; and (3) be capable of interfacing with 
GEMX's API to access current GEMX match engine functionality. The 
Member's System would also need to cause GEMX to be one of the top four 
default destination exchanges for (a) individually executed marketable 
orders if GEMX is at the national best bid or offer (``NBBO''), 
regardless of size or time or (b) orders that establish a new NBBO on 
GEMX's Order Book, but allow any user to manually override GEMX as the 
default destination on an order-by-order basis. Any GEMX Member may 
apply for MARS, provided the above-referenced requirements are met, 
including a robust and reliable System.
MARS Eligible Contracts
    A MARS Payment is paid to GEMX Members that have System Eligibility 
and have routed the requisite number of Eligible Contracts daily in a 
month, which were executed on GEMX. For the purpose of qualifying for 
the MARS Payment, Eligible Contracts include Non-Nasdaq GEMX Market 
Maker (FARMM),\5\ Firm Proprietary \6\/Broker-Dealer \7\ and 
Professional Customer \8\ Orders that are executed. Eligible Contracts 
do not include qualified contingent cross or ``QCC'' Orders \9\ or 
Price Improvement Mechanism or ``PIM'' Orders.\10\
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    \5\ 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.
    \6\ A ``Firm Proprietary'' order is an order submitted by a 
Member for its own proprietary account.
    \7\ A ``Broker-Dealer'' order is an order submitted by a Member 
for a broker-dealer account that is not its own proprietary account.
    \8\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \9\ A QCC Order is comprised of an originating order to buy or 
sell at least 1000 contracts that is identified as being part of a 
qualified contingent trade, as that term is defined in Supplementary 
Material .01 of GEMX Rule 715, coupled with a contra-side order or 
orders totaling an equal number of contracts. See Rule 715(j).
    \10\ Price Improvement Mechanism (``PIM'') is the Exchange's 
price improvement mechanism for crossing transactions. See Rule 723.
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MARS Payment
    GEMX Members that have System Eligibility and have executed the 
requisite number of Eligible Contracts in a month are paid the 
following per contract rebates:

------------------------------------------------------------------------
                                           Average daily
                  Tiers                       volume       MARS payment
                                             (``ADV'')
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1.......................................          10,000           $0.07
2.......................................          15,000            0.10
3.......................................          20,000            0.13
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    The specified MARS Payment is paid on all executed Eligible 
Contracts that add liquidity, which are routed to GEMX through a 
participating GEMX Member's System and meet the requisite Eligible 
Contracts ADV. No payment will be made with respect to orders that are 
routed to GEMX, but not executed.
Proposal
    The Exchange proposes to exclude options overlying NDX from 
Eligible Contracts for purposes of qualifying for a MARS Payment. Only 
Eligible Contracts are paid rebates, therefore no MARS Payment would be 
paid on options overlying NDX.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the

[[Page 60432]]

objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposal to exclude options overlying NDX from MARS 
Eligible Contracts is reasonable because the Exchange believes that 
despite the exclusion of NDX, the MARS program will continue to attract 
higher volumes of equity and ETF options volume to the Exchange, which 
will benefit all GEMX Members by offering greater price discovery, 
increased transparency, and an increased opportunity to trade on the 
Exchange.
    The Exchange's proposal to exclude options overlying NDX from MARS 
Eligible Contracts is equitable and not unfairly discriminatory because 
any qualifying GEMX Member that offers market access and connectivity 
to the Exchange and/or utilizes such functionality themselves may earn 
the MARS Payment for all Eligible Contracts, excluding NDX. The 
Exchange would not pay any MARS Payment on options overlying NDX 
because options overlying NDX will uniformly be excluded from the 
volume calculation for all qualifying GEMX Members for MARS. Further, 
MARS Payments are only made on Eligible Contracts so no GEMX Member 
would be paid a MARS rebate on options overlying NDX.

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 Exchange believes that excluding option overlying NDX from the 
Eligible Contracts does not create an undue burden on intra-market 
competition because options overlying NDX will uniformly be excluded 
from the volume calculation for all qualifying GEMX Members for MARS. 
Further, MARS Payments are only made on Eligible Contracts so no GEMX 
Member would be paid a MARS rebate on options overlying NDX. The MARS 
Program should continue to generate increased order flow which should 
bring increased liquidity to the Exchange for the benefit of all market 
participants. To the extent the purpose of the proposed MARS program is 
achieved, all market participants should benefit from the improved 
market liquidity.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\13\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is: (i) Necessary or appropriate in the public 
interest; (ii) for the protection of investors; or (iii) otherwise in 
furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2017-55 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-2017-55. 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-2017-55 and should be submitted on 
or before January 10, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27339 Filed 12-19-17; 8:45 am]
 BILLING CODE 8011-01-P