
[Federal Register Volume 82, Number 99 (Wednesday, May 24, 2017)]
[Notices]
[Pages 23891-23893]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-10590]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80722; File No. SR-GEMX-2017-13]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Schedule of Fees To Offer the Historical GEMX Open/Close 
Trade Profile

May 18, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 5, 2017, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I and II, below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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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 the Exchange's Schedule of Fees to 
offer the historical GEMX Open/Close Trade Profile, which will offer 
historical opening and closing trade data for each GEMX-listed option 
on both an intraday and end-of-day basis, as described further below.
    The text of the proposed rule change is available on the Exchange's 
Web site at www.ise.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend its Schedule of Fees to offer the 
historical GEMX Open/Close Trade Profile, which will offer historical 
opening and closing trade data for GEMX-listed options on both an 
intraday and end-of-day basis. The data provided with this product is 
similar to the historical data provided with the ISE Open/Close Trade 
Profile products.\3\ The Exchange is prepared to offer this product 
upon filing.
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    \3\ Nasdaq ISE, Schedule of Fees, Chapter VIII (Market Data), A 
(Nasdaq ISE Open/Close Trade Profile End of Day) and B (Nasdaq ISE 
Open/Close Trade Profile Intraday); see also Securities Exchange Act 
Release 56254 (August 15, 2007) 72 FR 47104 (August 22, 2007) (SR-
ISE-2007-70).
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    The historical GEMX Open/Close Trade Profile, available to both 
members and non-members, will provide subscribers with the ability to 
analyze trade and volume data for options and create and test trading 
models and analytical strategies. The service will provide over 80 
fields of data for GEMX-listed options, which will include an ``Origin 
Code'' \4\ identifying the type of trader participating in a 
transaction; data on opening buys and sells and closing buys and sells; 
\5\ trading volume and number of trades information summarized by day 
and series; a code indicating the degree to which a series is ``in'' or 
``out'' of the ``money''; \6\ the

[[Page 23892]]

number of days to expiration; an indication of the degree to which 
there is ``Open Interest'' \7\ for each series; and a comparison of the 
volume of trading at GEMX relative to the industry as a whole. The data 
will help subscribers understand the market, identifying, for example, 
the types of market participants--Customers, Professional Customers, 
Firms or Market Makers--trading in certain options or engaging in 
particular trading strategies.
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    \4\ The ``Origin Code'' identifies the type of trader involved 
in a transaction: Customer, Professional Customer, Firm or Market 
Maker. ``Customer'' includes both retail and institutional 
customers. A ``Professional Customer'' is a high-activity customer 
that enters into more than 390 orders per day over the course of a 
one-month period. A ``Firm'' is a broker-dealer trading in its own 
proprietary account or on behalf of another broker-dealer. A 
``Market Maker'' is a broker-dealer that assumes the risk of holding 
a position in a series to facilitate trading.
    \5\ An opening buy is a transaction that creates or increases a 
long position and an opening sell is a transaction that creates or 
increases a short position. A closing buy is a transaction made to 
close out an existing position. A closing sell is a transaction to 
reduce or eliminate a long position.
    \6\ The degree to which a series is ``in'' or ``out'' of the 
``money'' will be identified according to the following five levels 
of ``moneyness'': (i) ``Deep in the Money'' means that the strike 
price of this option is more than 12% lower than the price of the 
underlying security if it is a call or more than 12% higher if it is 
a put; (ii) ``In the Money'' means that the strike price of this 
option is within the range of 5%-12% lower than the price of the 
underlying security if it is a call or within the range of 5%-12% 
higher if it is a put; (iii) ``At the Money'' means that the strike 
price of this option is within the range of 5% higher or lower than 
the price of the underlying security; (iv) ``Out of the Money'' 
means that the strike price of this option is within the range of 
5%-12% higher than the price of the underlying security if it is a 
call or 5%-12% lower if it is a put; and (v) ``Deep out of the 
Money'' means that the strike price of this option is more than 12% 
higher than the price of the underlying security if it is a call or 
more than 12% lower if it is a put.
    \7\ ``Open Interest'' is the total number of outstanding 
contracts for each series across all options exchanges for the trade 
date of the file.
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    Requests for end-of-day data will be charged $400 per request per 
month, and requests for intraday data (available in 10 minute 
increments) will be charged $750 per request per month. Historical data 
is available starting in August 2013.
    The proposed rule change is fair and reasonable and will increase 
transparency in the market by making previously unavailable data on 
GEMX-listed options available to both members and non-members. This 
newly-available data will allow firms to create and test trading models 
and analytical strategies that may be used to improve market 
performance.
    The proposed fees are entirely optional in that they apply only to 
firms that elect to purchase these products. The proposed changes do 
not impact the cost of any other GEMX product.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\9\ 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(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.'' \10\
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    \10\ 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 
\11\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\12\ 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.'' \13\
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    \11\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \12\ See NetCoalition, at 534-535.
    \13\ 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'. . . .'' \14\ 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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    \14\ 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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    The Exchange believes that the creation of the historical GEMX 
Open/Close Trade Profile product is reasonable and equitable in 
accordance with Section 6(b)(4) of the Act, and not unreasonably 
discriminatory in accordance with Section 6(b)(5) of the Act. The 
proposed changes will increase transparency by allowing firms currently 
unable to access the information contained in the GEMX Open/Close Trade 
Profile the ability to analyze option trade and volume data and create 
and test trading models and analytical strategies. The proposed fees, 
like all proprietary data fees, are constrained by the Exchange's need 
to compete for order flow, and are subject to competition from other 
options exchanges.\15\ The proposed fees are not unfairly 
discriminatory because the Exchange will apply the same fee to all 
similarly-situated subscribers.
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    \15\ The Exchange notes that the fees for the proposed product 
are less than the fees for similar products sold by the Nasdaq ISE 
exchange. See Nasdaq ISE, Schedule of Fees, Chapter VIII (Market 
Data), A (Nasdaq ISE Open/Close Trade Profile End of Day) and B 
(Nasdaq ISE Open/Close Trade Profile Intraday).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed changes will amend 
the Exchange's Schedule of Fees to offer the historical GEMX Open/Close 
Trade Profile, which will offer historical opening and closing trade 
data for GEMX-listed options on both an intraday and end-of-day basis. 
End-of-day data will be available for $400 per request per month, and 
intraday data will be available for $750 per request per month.
    GEMX market data fees are constrained by competition among 
exchanges and other entities seeking to attract order flow, and the 
existence of substitutes that are offered, or may be offered, by other 
entities. Order flow is the ``life blood'' of the exchanges. For a 
variety of reasons, competition from new entrants, especially for order 
execution, has increased dramatically over the last decade, as 
demonstrated by the proliferation of new options exchanges such as EDGX 
Exchange and MIAX Options within the last four years. Each options 
exchange is permitted to produce proprietary data products.
    The markets for order flow and proprietary data are inextricably 
linked: A trading platform cannot generate market information unless it 
receives trade orders. As a result, the competition for order flow 
constrains the prices that platforms can charge for proprietary data 
products. Firms make decisions on how much and what types of data to 
consume based on the total cost of interacting with GEMX and other 
exchanges. Data fees are but one factor in a total platform analysis. 
If the cost of the product exceeds its expected value, the prospective 
customer will choose not to buy it. A supracompetitive increase in the 
fees charged for either transactions or proprietary data has the 
potential to impair revenues from both products.
    The price of options data is also constrained by the existence of 
multiple substitutes offered by a number of entities, and non-
proprietary data disseminated by the Options Price Reporting Authority, 
LLC (``OPRA'').

[[Page 23893]]

OPRA is a securities information processor that disseminates last sale 
reports and quotations, as well as the number of options contracts 
traded, open interest and end-of-day summaries. Many customers that 
obtain information from OPRA do not also purchase proprietary data, but 
in cases in which customers buy both products, they may shift 
purchasing decisions based on price changes. OPRA constrains the price 
of proprietary data products on options exchanges because no customer 
would pay an excessive price for these products when they already have 
data from OPRA. Similarly, no customer would pay an excessive price for 
Exchange data when they have the ability to obtain similar proprietary 
data from other exchanges. It is not necessary that products be 
identical in order to be reasonable substitutes for each other.
    For these reasons, the competition for order flow and the existence 
of multiple substitutes will constrain prices for the GEMX Trade 
Profile product. Accordingly, the Exchange does not believe that the 
proposed changes will impair the ability of members or competing order 
execution venues to maintain their competitive standing in the 
financial markets.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \16\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative for 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \19\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay so that the Exchange can 
immediately offer subscribers the historical GEMX Open/Close Trade 
Profile. The Exchange represents that waiver of the 30-day operative 
delay would allow it to provide data to customers who have expressed a 
specific interest in purchasing it. The Exchange also represents that 
the data is purely historical and only of use to create and test 
trading models and analytical strategies, similar data is already being 
provided by the ISE, and the purchase of such data is purely optional. 
The Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the 30-day operative delay and 
designates the proposed rule change operative upon filing.\20\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-GEMX-2017-13 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-GEMX-2017-13. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-GEMX-2017-13 and should be 
submitted on or before June 14, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10590 Filed 5-23-17; 8:45 am]
 BILLING CODE 8011-01-P


