[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
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Total affiliated member Priority customer maker
Tier % of customer total % of customer total
consolidated volume consolidated volume
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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.
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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.
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\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.
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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.
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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.
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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.
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\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 [email protected]. 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\
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\28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11647 Filed 5-29-20; 8:45 am]
BILLING CODE 8011-01-P