Document ID: SEC-2020-0861-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq GEMX, LLC
Posted Date: 2020-06-01T04:00Z

[Federal Register Volume 85, Number 105 (Monday, June 1, 2020)]
[Notices]
[Pages 33224-33231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11647]

[[Page 33224]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88940; File No. SR-GEMX-2020-12]

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

May 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 May 11, 2020, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``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 GEMX's Pricing Schedule. 
Specifically, the Exchange proposes to amend Options 7, Section 3, 
titled ``Regular Order Fees and Rebates.''
    The Exchange originally filed the proposed pricing changes on April 
30, 2020 (SR-GEMX-2020-11). On May 11, 2020, the Exchange withdrew that 
filing and submitted this filing.
    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.'' GEMX proposes to amend 
its Regular Order Fees and Rebates in Penny Symbols. Specifically, the 
Exchange proposes various amendments to its Maker Rebates and Taker 
Fees, as well as qualification tiers. Each amendment is described 
below.
Technical Correction
    The Exchange proposes to remove ``and SPY'' from the title ``Penny 
Symbols and SPY'' as SPY has no separate pricing within Options 7, 
Section 3 and SPY is part of the Penny Pilot Program and would 
otherwise be subject to the pricing applicable to Penny Symbols.
Maker Rebates
    With respect to the Tier 1 Maker Rebate in Penny Symbols, the 
Exchange currently pays a Market Maker \3\ a $0.28 per contract rebate, 
a Non-Nasdaq GEMX Market Maker (FarMM) \4\ a $0.25 per contract rebate, 
a Firm Proprietary/Broker Dealer \5\ a $0.25 per contract rebate, a 
Professional Customer \6\ a $0.25 per contract rebate and a Priority 
Customer \7\ a $0.25 per contract rebate. The Exchange proposes to 
lower Tier 1 Maker Rebates for all non-Priority Customers. 
Specifically, the Exchange proposes to lower a Market Maker from $0.28 
to $0.20 per contract, a Non-Nasdaq GEMX Market Maker (FarMM) from 
$0.25 to $0.20 per contract, a Firm Proprietary/Broker Dealer from 
$0.25 to $0.20 per contract, and a Professional Customer from $0.25 to 
$0.20 per contract. A Priority Customer will continue to receive a Tier 
1 Maker Rebate of $0.25 per contract. Priority Customers would receive 
the highest Tier 1 Maker Rebate with this proposal. While the Exchange 
is lowering the Tier 1 Maker Rebate for all non-Priority Customers to 
$0.20 per contract in Penny Symbols, the Exchange is proposing to add a 
new Tier 5 Maker Rebate, as described in more detail below. This new 
Tier 5 Maker Rebate will pay higher rebates to Market Makers.
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    \3\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21).
    \4\ 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.
    \5\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account. 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.
    \6\ 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.
    \7\ 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''. A 
``Retail'' order is a Priority Customer order that originates from a 
natural person, provided that no change is made to the terms of the 
order with respect to price or side of market and the order does not 
originate from a trading algorithm or any other computerized 
methodology. See GEMX Options 7, Section 1.
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    With respect to the Tier 2 Maker Rebate in Penny Symbols, the 
Exchange currently pays a Market Maker a $0.30 per contract rebate, 
Non-Nasdaq GEMX Market Makers (FarMM), Firm Proprietary/Broker Dealers 
and Professional Customers are not eligible for a Tier 2 Maker Rebate. 
Priority Customers receive a $0.40 per contract Tier 2 Maker Rebate. 
The Exchange is proposing to amend the Tier 2 Maker Rebate for Market 
Makers from $0.30 to $0.25 per contract. The Exchange is not otherwise 
amending the Tier 2 Maker Rebates. Priority Customers would continue to 
receive the highest Tier 2 Maker Rebates with this proposal. While the 
Exchange is lowering the Tier 2 Maker Rebate for Market Makers to $0.25 
per contract in Penny Symbols, the Exchange is proposing to add a new 
Tier 5 Maker Rebate, as described in more detail below. This new Tier 5 
Maker Rebate will pay higher rebates to Market Makers.
    With respect to the Tier 3 Maker Rebate in Penny Symbols, the 
Exchange currently pays a Market Maker a $0.35 per contract rebate, 
Non-Nasdaq GEMX Market Makers (FarMM), Firm Proprietary/Broker Dealers 
and Professional Customers are not eligible for a Tier 3 Maker Rebate. 
Priority Customers receive a $0.48 per contract Tier 3 Maker Rebate. 
The Exchange is proposing to amend the Tier 3 Maker Rebate for Market 
Makers from $0.35 to $0.30 per contract. The Exchange is not otherwise 
amending the Tier 3 Maker Rebates. Priority Customers would continue to 
receive the highest Tier 3 Maker Rebates with this proposal. While the 
Exchange is lowering the Tier 3 Maker Rebate for Market Makers to $0.30 
per contract in Penny Symbols, the Exchange is proposing to add a new 
Tier 5 Maker Rebate, as described in more detail below. This new Tier 5

[[Page 33225]]

Maker Rebate will pay higher rebates to Market Makers.
    With respect to the Tier 4 Maker Rebate in Penny Symbols, the 
Exchange currently pays a Market Maker a $0.45 per contract rebate, 
Non-Nasdaq GEMX Market Makers (FarMM), Firm Proprietary/Broker Dealers 
and Professional Customers are not eligible for a Tier 4 Maker Rebate. 
Priority Customers receive a $0.53 per contract Tier 4 Maker Rebate. 
The Exchange is proposing to amend the Tier 4 Maker Rebate for Market 
Makers from $0.45 to $0.41 per contract. The Exchange is not otherwise 
amending the Tier 4 Maker Rebates. Priority Customers would continue to 
receive the highest Tier 4 Maker Rebates with this proposal. While the 
Exchange is lowering the Tier 4 Maker Rebate for Market Makers to $0.41 
per contract in Penny Symbols, the Exchange is proposing to add a new 
Tier 5 Maker Rebate, as described in more detail below. This new Tier 5 
Maker Rebate will pay higher rebates to Market Makers.
    The Exchange proposes to adopt new Tier 5 Maker Rebates in Penny 
Symbols. The Exchange proposes to pay a Market Maker a $0.45 per 
contract rebate, Non-Nasdaq GEMX Market Makers (FarMM), Firm 
Proprietary/Broker Dealers and Professional Customers would not be 
eligible for a Tier 5 Maker Rebate. Priority Customers would receive a 
$0.53 per contract Tier 5 Maker Rebate. With this proposal, Priority 
Customers would receive the highest Tier 5 Maker Rebate. The Exchange 
believes that these new Tier 5 Maker Rebates for Market Makers and 
Priority Customers will attract a greater amount of order flow on GEMX 
in Penny Symbols because of the opportunity to receive these rebates.
Taker Fees
    With respect to the Tier 1 Taker Fee in Penny Symbols, the Exchange 
currently assesses Market Makers, Non-Nasdaq GEMX Market Makers 
(FarMM), Firm Proprietary/Broker Dealers and Professional Customers a 
$0.50 per contract fee. Priority Customers are assessed a $0.48 per 
contract fee. The Exchange is proposing to increase the Tier 1 Taker 
Fee for Priority Customers from $0.48 to $0.49 per contract. The 
Exchange is not otherwise amending the Tier 1 Taker Fees. Priority 
Customers would continue to pay the lowest Tier 1 Taker Fee with this 
proposal. While the Exchange is increasing the Tier 1 Taker Fees for 
Priority Customers to $0.49 per contract in Penny Symbols, the Exchange 
is proposing to add new Tier 5 Taker Fees, as described in more detail 
below. The new Tier 5 Taker Fee will offer lower fees for Priority 
Customers.
    With respect to the Tier 2 Taker Fee in Penny Symbols, the Exchange 
currently assesses Market Makers, Non-Nasdaq GEMX Market Makers 
(FarMM), Firm Proprietary/Broker Dealers and Professional Customers a 
$0.50 per contract fee. Priority Customers are assessed a $0.47 per 
contract fee. The Exchange is proposing to increase the Tier 2 Taker 
Fee for Priority Customers from $0.47 to $0.48 per contract. The 
Exchange is not otherwise amending the Tier 2 Taker Fees. Priority 
Customers would continue to pay the lowest Tier 2 Taker Fee with this 
proposal. While the Exchange is increasing the Tier 2 Taker Fees for 
Priority Customers to $0.48 per contract in Penny Symbols, the Exchange 
is proposing to add a new Tier 5 Taker Fee, as described in more detail 
below. The new Tier 5 Taker Fee will offer lower fees for Priority 
Customers.
    With respect to the Tier 3 Taker Fee in Penny Symbols, the Exchange 
currently assesses Market Makers, Non-Nasdaq GEMX Market Makers 
(FarMM), Firm Proprietary/Broker Dealers and Professional Customers a 
$0.50 per contract fee. Priority Customers are assessed a $0.47 per 
contract fee. The Exchange is proposing to increase the Tier 3 Taker 
Fee for Priority Customers from $0.47 to $0.48 per contract. The 
Exchange is not otherwise amending the Tier 3 Taker Fees. Priority 
Customers would continue to pay the lowest Tier 3 Taker Fee with this 
proposal. While the Exchange is increasing the Tier 3 Taker Fees for 
Priority Customers to $0.48 per contract in Penny Symbols, the Exchange 
is proposing to add a new Tier 5 Taker Fee, as described in more detail 
below. The new Tier 5 Taker Fee will offer lower fees for Priority 
Customers.
    With respect to the Tier 4 Taker Fee in Penny Symbols, the Exchange 
currently assesses Market Makers and Non-Nasdaq GEMX Market Makers 
(FarMM) a $0.48 per contract fee. The Exchange currently assesses Firm 
Proprietary/Broker Dealers and Professional Customers a $0.49 per 
contract fee. Priority Customers are assessed a $0.45 per contract fee. 
The Exchange is proposing to decrease the Tier 4 Taker Fee for Priority 
Customers from $0.45 to $0.43 per contract. The Exchange is not 
otherwise amending the Tier 4 Taker Fees. Priority Customers would pay 
an even lower Tier 4 Taker Fee with this proposal, which should attract 
a greater amount of Priority Customer order flow on GEMX in Penny 
Symbols because of the opportunity to obtain lower fees.
    The Exchange proposes to adopt new Tier 5 Taker Fees in Penny 
Symbols. The Exchange proposes to assess a Market Maker and a Non-
Nasdaq GEMX Market Maker (FarMM) a $0.48 per contract fee. The Exchange 
proposes to assess a Firm Proprietary/Broker Dealer and a Professional 
Customer a $0.49 per contract fee. Priority Customers would be assessed 
a $0.42 per contract fee. With this proposal, Priority Customers would 
pay the lowest Tier 5 Taker Fee. Proposed Tier 5 Taker Fees will 
attract a greater amount of order flow on GEMX in Penny Symbols because 
of the opportunity to obtain lower Priority Customer fees.
    Further, note 4 in Options 7, Section 3 would be applicable to this 
new Tier 5 Taker Fee. Therefore, non-Priority Customer orders would be 
charged the Taker Fee for trades executed during the Opening Process. 
Priority Customer orders executed during the Opening Process will 
receive the applicable Maker Rebate based on the tier achieved.\8\ 
Additionally, note 13 would be applicable to this new Tier 5 Taker Fee. 
Therefore, non-Priority Customer orders will be charged a Taker Fee of 
$0.50 per contract for trades executed against a Priority Customer. 
Priority Customer orders will be charged a Taker Fee of $0.49 per 
contract for trades executed against a Priority Customer. Currently, 
Taker Fee Tiers 1-4 are subject to notes 4 and 13.
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    \8\ The Exchange proposes to replace the phrase ``opening 
rotation'' with ``Opening Process'' to conform the title within note 
4 to the title of Options 3, Section 8. The Exchange also proposes 
to capitalize the terms ``Maker Rebate'' and ``Taker Fee'' in notes 
3, 4, 5, 13 and 16.
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Qualifying Tier Thresholds
    The Exchange proposes to amend the Qualifying Tiers within Options 
7, Section 3. Currently, there are 4 qualifying tiers:

[[Page 33226]]

                                 Table 1
------------------------------------------------------------------------
                        Total affiliated member  Priority customer maker
         Tier             % of customer  total     % of customer  total
                          consolidated volume      consolidated volume
------------------------------------------------------------------------
Tier 1................  Executes less than       Executes Priority
                         0.65% of Customer        Customer Maker volume
                         Total Consolidated       of less than 0.10% of
                         Volume.                  Customer Total
                                                  Consolidated Volume.
Tier 2................  Executes 0.65% to less   Executes Priority
                         than 1.5% of Customer    Customer Maker volume
                         Total Consolidated       of 0.10% to less than
                         Volume.                  0.65% of Customer
                                                  Total Consolidated
                                                  Volume.
Tier 3................  Executes 1.5% to less    Executes Priority
                         than 2.50% of Customer   Customer Maker volume
                         Total Consolidated       of 0.65% to less than
                         Volume.                  1.20% of Customer
                                                  Total Consolidated
                                                  Volume.
Tier 4................  Executes 2.5% or         Executes Priority
                         greater of Customer      Customer Maker volume
                         Total Consolidated       of 1.20% or greater of
                         Volume.                  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. Specifically, the Exchange proposes to amend the Tier 4 
Qualifying Tier Threshold. The Exchange proposes to amend the 
description of Tier 4 in the Total Affiliated Member % of Customer 
Total Consolidated Volume,\9\ which currently requires that a member 
execute 2.5% or greater of Customer Total Consolidated Volume. The 
Exchange proposes to instead require that a member execute 2.5% to less 
than 3.5% of Customer Total Consolidated Volume. The Exchange also 
proposes to amend the description of the Tier 4 Priority Customer Maker 
% of Customer Total Consolidated Volume,\10\ which currently requires 
that a member executes Priority Customer Maker volume of 1.20% or 
greater of Customer Total Consolidated Volume. The Exchange proposes to 
instead require that a member execute Priority Customer Maker volume of 
1.20% to less than 2.75% of Customer Total Consolidated Volume.
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    \9\ 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.
    \10\ 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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    The Exchange proposes to adopt a new Tier 5 Qualifying Tier 
Threshold which for purposes of Total Affiliated Member % of Customer 
Total Consolidated Volume requires a member to execute 3.5% or greater 
of Customer Total Consolidated Volume. Also, the Exchange proposes to 
adopt a new Tier 5 Qualifying Tier Threshold, with respect to Priority 
Customer Maker % of Customer Total Consolidated Volume, which requires 
a member to execute Priority Customer Maker volume of 2.75% or greater 
of Customer Total Consolidated Volume.
    The Exchange is amending the Tier 4 Qualifying Tier Threshold so 
that it may add a new Tier 5 Qualifying Tier Threshold. The Exchange 
believes that Members may execute a greater amount of volume on GEMX to 
qualify for higher rebates and lower fees. 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.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the 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 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.'' \13\
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    \13\ 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 
\14\ (``NetCoalition'') the DC 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.\15\ 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.'' \16\
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    \14\ NetCoalition v. SEC, 615 F.3d 525 (DC Cir. 2010).
    \15\ See NetCoalition, at 534--535.
    \16\ 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'. . . .'' \17\ 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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    \17\ 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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Maker Rebates
    The Exchange's proposal to amend the Tier 1 Maker Rebates in Penny

[[Page 33227]]

Symbols to pay all non-Priority Customers a $0.20 per contract rebate 
and lower the Tier 2 Maker Rebate (from $0.30 to $0.25 per contract), 
the Tier 3 Maker Rebate (from $0.35 to $0.30 per contract) and the Tier 
4 Maker Rebate (from $0.45 to $0.41 per contract) for Market Makers is 
reasonable. With this proposal, Priority Customers would receive the 
highest Maker Rebates in Tiers 1-4, respectively. While the Exchange is 
lowering the Tier 1 Maker Rebate for all non-Priority Customers as well 
as the Tier 2, 3 and 4 Maker Rebates for Market Makers, the Exchange is 
proposing new Tier 5 Maker Rebates, which would provide Market Makers 
and Priority Customers an opportunity to obtain higher rebates, 
provided they meet the qualifications. While the proposal generally 
decreases Maker Rebates for Market Makers and non-Priority Customers, 
the Exchange believes that the proposed rebate structure will remain 
attractive to all Members.
    The Exchange's proposal to amend the Tier 1 Maker Rebates in Penny 
Symbols to pay all non-Priority Customers a $0.20 per contract rebate 
and lower the Tier 2 Maker Rebate (from $0.30 to $0.25 per contract), 
the Tier 3 Maker Rebate (from $0.35 to $0.30 per contract) and the Tier 
4 Maker Rebate (from $0.45 to $0.41 per contract) for Market Makers is 
equitable and not unfairly discriminatory. The Tier 1 Maker Rebates 
will uniformly pay all non-Priority Customers a $0.20 per contract 
rebate. Also, Priority Customers would receive the highest Tier 1 Maker 
Rebate with the proposal. While the Exchange is lowering the Tier 2, 3 
and 4 Maker Rebates for Market Makers, the proposal will continue to 
pay Priority Customers the highest Tier 2, 3 and 4 Maker Rebates, 
respectively. Market Makers have different requirements and obligations 
to the Exchange that other market participants do not (such as quoting 
requirements).\18\ Incentivizing Market Makers to provide greater 
liquidity benefits all market participants through the quality of order 
interaction. Also, 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.
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    \18\ See GEMX Options 2, Section 5.
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    The Exchange's proposal to adopt new Tier 5 Maker Rebates in Penny 
Symbols is reasonable. The Exchange proposes to pay a Market Maker a 
$0.45 per contract Tier 5 rebate and Priority Customers a $0.53 per 
contract Tier 5 rebate. Priority Customers would receive the highest 
Tier 5 Maker Rebate. As has historically been the case, incentivizing 
Market Makers and Priority Customers with more favorable Maker Rebates 
encourages order flow. More specifically, the Exchange's proposal 
amends the Tier 4 Taker Fee for Priority Customers from $0.45 to $0.43 
per contract. The Exchange believes that this amendment, along with the 
potential to qualify for an even lower Tier 5 Taker Fee of $0.42 per 
contract, will encourage Members to send order flow to GEMX.
    The Exchange's proposal to adopt new Tier 5 Maker Rebates in Penny 
Symbols is equitable and not unfairly discriminatory. Market Makers 
have different requirements and obligations to the Exchange that other 
market participants do not (such as quoting requirements).\19\ 
Incentivizing Market Makers to provide greater liquidity benefits all 
market participants through the quality of order interaction. Also, 
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.
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    \19\ Id.
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Taker Fees
    The Exchange's proposal to amend the Tier 1-4 Taker Fees for 
Priority Customers \20\ is reasonable. The Exchange's proposal, while 
increasing the Tier 1-3 Taker Fees for Priority Customers, will remain 
attractive to all Members. Priority Customers would continue to pay the 
lowest Tier 1-3 Taker Fees with this proposal. Further, decreasing the 
Tier 4 Taker Fee for Priority Customers will attract a greater amount 
of Priority Customer order flow on GEMX in Penny Symbols because of the 
opportunity to receive this lower fee. Also, the Tier 4 Taker Fee for 
Priority Customer will remain the lowest Tier 4 Taker Fee. With this 
proposal, Market Makers and Priority Customers will continue to be 
incentivized to submit order flow on GEMX.
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    \20\ The Exchange's proposal increases the Tier 1 Priority 
Customer Taker fee from $0.48 to $0.49 per contract. The Tier 2 
Priority Customer Taker fee is being increased from $0.47 to $0.48 
per contract. The Tier 3 Priority Customer Taker Fee is being 
increased from $0.47 to $0.48 per contract. Finally, the Tier 4 
Priority Customer Taker Fee is being decreased from $0.45 to $0.43 
per contract.
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    The Exchange's proposal to amend the Tier 1--4 Taker Fees for 
Priority Customers is equitable and not unfairly discriminatory. The 
proposed amendments continue to provide Priority Customers with the 
lowest Tier 1--4 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.
    The Exchange's proposal to amend the Tier 1-4 Taker Fees for 
Priority Customers is equitable and not unfairly discriminatory. The 
proposed amendments continue to provide Priority Customers with the 
lowest Tier 1-4 Taker Fees. Priority Customer liquidity benefits all 
market participants by providing more trading opportunites, 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 adopt new Tier 5 Taker Fees \21\ is 
reasonable. The proposed Tier 5 Taker Fees will attract a greater 
amount of Priority Customer orders on GEMX in Penny Symbols because of 
the opportunity to obtain these lower fees by submitting qualifying 
order flow. All Members may obtain the Tier 5 Taker Fees provided they 
submit qualifying order flow.
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    \21\ The Exchange proposes the following Tier 5 Taker Fees: 
Market Makers and Non-Nasdaq GEMX Market Makers (FarMM) would be 
assessed a $0.48 per contract fee; Firm Proprietary/Broker Dealers 
and Professional Customers would be assessed a $0.49 per contract 
fee; and Priority Customers would be assessed a $0.42 per contract 
fee.
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    The Exchange's proposal to adopt new Tier 5 Taker Fees is equitable 
and not unfairly discriminatory. Market Makers and Non-Nasdaq GEMX 
Market Maker (FarMM) would be assessed lower fees as compared to other 
non-Priority Customer market participants. The Exchange does not 
believe that it is unfairly discriminatory to assess lower Tier 5 Taker 
Fees for Market Makers and Non-Nasdaq GEMX Market Makers (FarMM) as 
these market participants have obligations in the marketplace, which 
other market participants do not have, such as quoting. Also these 
market participants provide liquidity. With this proposal, Priority 
Customers would pay the lowest Tier 5 Taker Fees. The Tier 5 Taker Fees 
would be assessed to those

[[Page 33228]]

participants that submit qualifying volume on GEMX. All market 
participants that submit qualifying volume are able to obtain lower 
fees with more qualifying volume.
    The Exchange's proposal to apply current note 4 of GEMX Options 7, 
Section 3 to the Tier 5 Taker Fee is reasonable, equitable and not 
unfairly discriminatory. Similar to Tiers 1-4 of the Taker Fees, the 
Exchange states that during the Opening Process, non-Priority Customers 
would be charged the Taker Fee for trades executed. Also, Priority 
Customers executed during the Opening Process will receive the 
applicable Maker Rebate based on the tier achieved. The Exchange 
believes that it is fair and equitable to charge its ``taker'' fee for 
non-Priority Customers executed during the Opening Process in order to 
avoid the negative economics associated with paying a rebate on both 
sides of each trade. In addition, the fee is reasonable, because the 
Exchange desires to attract Priority Customers into its Opening Process 
and therefore proposes to pay those orders certain rebates. The 
Exchange does not believe that it is unfairly discriminatory not to 
similarly charge its ``taker'' fee to Priority Customers. In general, 
Priority Customers are provided higher rebates and lower fees than 
other market participants on the Exchange. The Exchange believes 
continuing to provide rebates to Priority Customers whose orders are 
executed during the Opening Process, similar to the Tier 1-4 Taker 
Fees, will attract order flow to GEMX and thereby create liquidity to 
the benefit of all market participants who trade on the Exchange.
    The Exchange's proposal to apply current note 13 of GEMX Options 7, 
Section 3 to the Tier 5 Taker Fee is reasonable, equitable and not 
unfairly discriminatory. Non-Priority Customers will be charged a Taker 
Fee of $0.50 per contract for trades executed against a Priority 
Customer. Also, Priority Customers will be charged a Taker Fee of $0.49 
per contract for trades executed against a Priority Customer. This 
proposed fee structure in note 13 is similar to the Tier 1-4 Taker 
Fees. The Exchange's pricing structure for Penny Symbols offers 
Priority Customers the highest rebates and lowest fees. The Exchange 
believes that it is reasonable and equitable to increase the fee 
charged to non-Priority Customers that trade against a Priority 
Customer or a Priority Customer that trades against another Priority 
Customer as this proposal is designed to offset the higher rebates and 
lower fees offered to Priority Customers. The Exchange believes that 
Members will benefit from the additional liquidity which the Exchange 
attracts through its favorable pricing (higher rebates and lower fees) 
that is offered to Priority Customers in Penny Symbols. Therefore, the 
Exchange believes that it is appropriate to assess a higher Taker Fee 
for trades executed against a Priority Customer. Finally, the Exchange 
will uniformly assess the higher Taker Fee to Non-Priority Customers 
and Priority Customers for trades executed against a Priority Customer.
Qualifying Tier Thresholds
    The Exchange's proposal to amend the description of Tier 4 of the 
Qualifying Tier Thresholds with respect to the Total Affiliated Member 
% of Customer Total Consolidated Volume,\22\ which currently requires 
that a member execute 2.5% or greater of Customer Total Consolidated 
Volume, to instead require that a member execute 2.5%, to less than 
3.5% of Customer Total Consolidated Volume is reasonable. 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,\23\ which currently requires 
that a member executes Priority Customer Maker volume of 1.20% or 
greater of Customer Total Consolidated Volume, to instead require that 
a member execute Priority Customer Maker volume of 1.20% to less than 
2.75% of Customer Total Consolidated Volume is reasonable. With this 
proposal, the Exchange adopts a new Tier 5 Maker Rebate and a new Tier 
5 Taker Fee with certain qualifications that currently would fall 
within the Tier 4 Maker Rebate and the Tier 4 Taker Fee, respectively. 
The new Tier 5 Maker Rebate offers higher rebates and the new Tier 5 
Taker Fee offers lower fees than the equivalent Tier 4 Maker Rebate and 
Tier 4 Taker Fee. The Exchange believes that amending the Tier 4 
Qualifying Tier Threshold will allow Members to continue to receive the 
same rebates and fees as today, provided they continue to submit the 
same qualifying volume, with the possibility of achieving higher 
rebates and lower fees with the new Tier 5 Maker Rebate and Tier 5 
Taker Fee.
---------------------------------------------------------------------------

    \22\ 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.
    \23\ The Priority Customer Maker % of Customer Total 
Consolidated Volume category includes all Priority Customer volume 
that adds liquidity in all symbols.
---------------------------------------------------------------------------

    The Exchange's proposal to amend the description of Tier 4 of the 
Qualifying Tier Thresholds with respect to the Total Affiliated Member 
% of Customer Total Consolidated Volume, which currently requires that 
a member execute 2.5% or greater of Customer Total Consolidated Volume, 
to instead require that a member execute 2.5%, to less than 3.5% of 
Customer Total Consolidated Volume is 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, which currently 
requires that a member executes Priority Customer Maker volume of 1.20% 
or greater of Customer Total Consolidated Volume, to instead require 
that a member execute Priority Customer Maker volume of 1.20% to less 
than 2.75% of Customer Total Consolidated Volume is equitable and not 
unfairly discriminatory. All Members that meet the qualifications of 
the Tier 4 Qualifying Tier Threshold would be eligible, uniformly, to 
receive the corresponding rebates and fees.
    The Exchange's proposal to adopt a new Tier 5 Qualifying Tier 
Threshold that for purposes of Total Affiliated Member % of Customer 
Total Consolidated Volume requires a member to execute 3.5% or greater 
of Customer Total Consolidated Volume is reasonable. Further, the 
Exchange's proposal to adopt a new Tier 5 Qualifying Tier Threshold 
with respect to Priority Customer Maker % of Customer Total 
Consolidated Volume that requires a member to execute Priority Customer 
Maker volume of 2.75% or greater of Customer Total Consolidated Volume 
is reasonable. The Exchange's proposal seeks to incentivize Members to 
submit a greater amount of order flow on GEMX in order to earn higher 
rebates and lower fees. The Exchange believes that adopting a new Tier 
5 Qualifying Tier Threshold in conjunction with a new Tier 5 Maker 
Rebate and a new Tier 5 Taker Fee will encourage Members to submit a 
greater amount of order flow on GEMX in Penny Symbols.
    The Exchange's proposal to adopt a new Tier 5 Qualifying Tier 
Threshold that for purposes of Total Affiliated Member % of Customer 
Total Consolidated Volume requires a member to execute 3.5% or greater 
of Customer Total Consolidated Volume is equitable and not unfairly 
discriminatory. Further, the Exchange's proposal to adopt a new Tier 5 
Qualifying Tier Threshold with respect to Priority Customer Maker % of 
Customer Total Consolidated Volume that requires a member to execute 
Priority Customer Maker volume of

[[Page 33229]]

2.75% or greater of Customer Total Consolidated Volume is equitable and 
not unfairly discriminatory. Members that meet the qualifications for 
these Tier 5 Qualifying Tier Thresholds would be eligible, uniformly, 
to receive the corresponding Tier 5 Maker Rebates and Tier 5 Taker Fees 
in Penny Symbols. As has historically been the case, incentivizing 
Market Makers and Priority Customers with more favorable Maker Rebates 
encourages order flow. More specifically, the Exchange's proposal 
amends the Tier 4 Taker Fee for Priority Customers from $0.45 to $0.43 
per contract. The Exchange believes that this amendment, along with the 
potential to qualify for an
even lower Tier 5 Taker Fee of $0.42 per contract, will encourage 
Members to send order flow to GEMX.
Technical Correction
    The Exchange's proposal to remove ``and SPY'' from the title 
``Penny Symbols and SPY'' is reasonable as SPY has no separate pricing 
within Options 7, Section 3 and SPY is part of the Penny Pilot Program 
and would otherwise be subject to the pricing applicable to Penny 
Symbols. The Exchange's proposal to remove ``and SPY'' from the title 
``Penny Symbols and SPY'' is equitable and not unfairly discriminatory 
as this amendment will not cause a change in pricing to any market 
participant. All other technical amendments to capitalize terms and 
rename the ``opening rotation'' to refer to ``Opening Process'' are 
non-substantive amendments.

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.
Maker Rebates
    The Exchange's proposal to amend the Tier 1 Maker Rebates in Penny 
Symbols to pay all non-Priority Customers a $0.20 per contract rebate 
and lower the Tier 2 Maker Rebate (from $0.30 to $0.25 per contract), 
the Tier 3 Maker Rebate (from $0.35 to $0.30 per contract) and the Tier 
4 Maker Rebate (from $0.45 to $0.41 per contract) for Market Makers 
does not impose an undue burden on competition. The Tier 1 Maker 
Rebates will uniformly pay all non-Priority Customers a $0.20 per 
contract rebate. Also, Priority Customers would receive the highest 
Tier 1 Maker Rebate with the proposal. While the Exchange is lowering 
the Tier 2, 3 and 4 Maker Rebates for Market Makers, the proposal will 
continue to pay Priority Customers the highest Tier 2, 3 and 4 Maker 
Rebates, respectively. Market Makers have different requirements and 
obligations to the Exchange that other market participants do not (such 
as quoting requirements).\24\ Incentivizing Market Makers to provide 
greater liquidity benefits all market participants through the quality 
of order interaction. Also, 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.
---------------------------------------------------------------------------

    \24\ See GEMX Options 2, Section 5.
---------------------------------------------------------------------------

    The Exchange's proposal to adopt new Tier 5 Maker Rebates in Penny 
Symbols does not impose an undue burden on competition. Market Makers 
have different requirements and obligations to the Exchange that other 
market participants do not (such as quoting requirements).\25\ 
Incentivizing Market Makers to provide greater liquidity benefits all 
market participants through the quality of order interaction. Also, 
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.
---------------------------------------------------------------------------

    \25\ Id.
---------------------------------------------------------------------------

Taker Fees
    The Exchange's proposal to amend the Tier 1-4 Taker Fees for 
Priority Customers does not impose an undue burden on competition. The 
proposed amendments continue to provide Priority Customers with the 
lowest Tier 1-4 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.
    The Exchange's proposal to adopt new Tier 5 Taker Fees does not 
impose an undue burden on competition. Market Makers and Non-Nasdaq 
GEMX Market Maker (FarMM) would be assessed lower fees as compared to 
other non-Priority Customer market participants. The Exchange does not 
believe that it is unfairly discriminatory to assess lower Tier 5 Taker 
Fees for Market Makers and Non-Nasdaq GEMX Market Makers (FarMM) as 
these market participants have obligations in the marketplace, which 
other market participants do not have, such as quoting. Also these 
market participants provide liquidity. With this proposal, Priority 
Customers would pay the lowest Tier 5 Taker Fees. The Tier 5 Taker Fees 
would be uniformly assessed to those participants that submit 
qualifying volume on GEMX. All market participants that submit 
qualifying volume are able to obtain lower fees with more qualifying 
volume.
    The Exchange's proposal to apply current note 4 of GEMX Options 7, 
Section 3 to the Tier 5 Taker Fee does not impose an undue burden on 
competition. Assessing a ``taker'' fee for non-Priority Customers 
executed during the Opening Process avoids the negative economics 
associated with paying a rebate on both sides of each trade. In 
general, Priority Customers are provided higher rebates and lower fees 
than other market participants on the Exchange. Providing rebates to 
Priority Customers executed during the Opening Process, similar to the 
Tier 1-4 Taker Fees, will attract that order flow to GEMX and thereby 
create liquidity to the benefit of

[[Page 33230]]

all market participants who trade on the Exchange.
    The Exchange's proposal to apply current note 13 of GEMX Options 7, 
Section 3 to the Tier 5 Taker Fee does not impose an undue burden on 
competition. This proposed fee structure in note 13 is similar to the 
Tier 1-4 Taker Fees. The Exchange's pricing structure for Penny Symbols 
offers Priority Customers the highest rebates and lowest fees. The 
Exchange believes that it does not impose an undue burden on 
competition to increase the fee charged to non-Priority Customers that 
trade against a Priority Customer or a Priority Customer that trades 
against another Priority Customer as this proposal is designed to 
offset the higher rebates and lower fees offered to Priority Customers. 
The Exchange believes that Members will benefit from the additional 
liquidity which the Exchange attracts through its favorable pricing 
(higher rebates and lower fees) that is offered to Priority Customers 
in Penny Symbols. Therefore, the Exchange believes that it is 
appropriate to assess a higher Taker Fee for trades executed against a 
Priority Customer. Finally, the Exchange will uniformly assess the 
higher Taker Fee to Non-Priority Customers and Priority Customers for 
trades executed against a Priority Customer.
Qualifying Tier Thresholds
    The Exchange's proposal to amend the description of Tier 4 of the 
Qualifying Tier Thresholds with respect to the Total Affiliated Member 
% of Customer Total Consolidated Volume, which currently requires that 
a member execute 2.5% or greater of Customer Total Consolidated Volume, 
to instead require that a member execute 2.5%, to less than 3.5% of 
Customer Total Consolidated Volume does not impose an undue burden on 
competition. 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, which currently 
requires that a member executes Priority Customer Maker volume of 1.20% 
or greater of Customer Total Consolidated Volume, to instead require 
that a member execute Priority Customer Maker volume of 1.20% to less 
than 2.75% of Customer Total Consolidated Volume does not impose an 
undue burden on competition. All Members that meet the qualifications 
of the Tier 4 Qualifying Tier Threshold would be eligible, uniformly, 
to receive the corresponding rebates and fees.
    The Exchange's proposal to adopt a new Tier 5 Qualifying Tier 
Threshold that for purposes of Total Affiliated Member % of Customer 
Total Consolidated Volume requires a member to execute 3.5% or greater 
of Customer Total Consolidated Volume does not impose an undue burden 
on competition. Further, the Exchange's proposal to adopt a new Tier 5 
Qualifying Tier Threshold with respect to Priority Customer Maker % of 
Customer Total Consolidated Volume that requires a member to execute 
Priority Customer Maker volume of 2.75% or greater of Customer Total 
Consolidated Volume does not impose an undue burden on competition. 
Members that meet the qualifications for these Tier 5 Qualifying Tier 
Thresholds would be eligible, uniformly, to receive the corresponding 
Tier 5 Maker Rebates and Tier 5 Taker Fees in Penny Symbols. As has 
historically been the case, incentivizing Market Makers and Priority 
Customers with more favorable Maker Rebates encourages order flow. More 
specifically, the Exchange's proposal amends the Tier 4 Taker Fee for 
Priority Customers from $0.45 to $0.43 per contract. The Exchange 
believes that this amendment, along with the potential to qualify for 
an even lower Tier 5 Taker Fee of $0.42 per contract, will encourage 
Members to send order flow to GEMX.
Technical Correction
    The Exchange's proposal to remove ``and SPY'' from the title 
``Penny Symbols and SPY'' does not impose an undue burden on 
competition because the amendment will not cause a change in pricing to 
any market participant. All other technical amendments to capitalize 
terms and rename the ``opening rotation'' to refer to ``Opening 
Process'' are non-substantive amendments.

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

    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,\26\ and Rule 19b-4(f)(2) \27\ 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.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \27\ 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-2020-12 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-2020-12. 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

[[Page 33231]]

submissions should refer to File Number SR-GEMX-2020-12 and should be 
submitted on or before June 22, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11647 Filed 5-29-20; 8:45 am]
 BILLING CODE 8011-01-P