[Federal Register Volume 85, Number 147 (Thursday, July 30, 2020)]
[Notices]
[Pages 45933-45938]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16469]



[[Page 45933]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89391; File No. SR-GEMX-2020-18]


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

July 24, 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 July 14, 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 Options 7, Section 3, Regular Order 
Fees and Rebates, and Options 7, Section 4, Other Options Fees and 
Rebates. The Exchange also proposes an amendment to Options 7, Section 
1, General Provisions.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/gemx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    GEMX proposes to amend its Pricing Schedule at Options 7, Section 
3, Regular Order Fees and Rebates, and Options 7, Section 4, Other 
Options Fees and Rebates. The Exchange also proposes an amendment to 
Options 7, Section 1, General Provisions. Each amendment is described 
below.
Options 7, Section 3
Penny Symbols
    Today, the Exchange assesses Penny Symbol Tier 1 through Tier 3 
Taker Fees of $0.50 per contract for all Non-Priority Customers,\3\ 
Tier 4 and 5 Taker Fees of $0.48 per contract for Market Makers and 
Non-Nasdaq GEMX Market Makers (FarMM), and Tier 4 and 5 Taker Fees of 
$0.49 per contract for Firm Proprietary/Broker-Dealer and Professional 
Customers. Further, today, the Exchange assesses Penny Symbol Taker 
Fees for Priority Customers as follows: $0.49 for Tier 1, $0.48 for 
Tiers 2 and 3, $0.43 for Tier 4 and $0.42 for Tier 5. Current note 13 
provides, with respect to Penny Symbol Tiers 1-5, that Non-Priority 
Customer orders will be charged a Taker Fee of $0.50 per contract for 
trades executed against a Priority Customer and Priority Customer 
orders will be charged a Taker Fee of $0.49 per contract for trades 
executed against a Priority Customer.
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    \3\ Non-Priority Customers consist of Market Makers (including 
Market Maker orders sent to the Exchange by EAMs), Non-Nasdaq GEMX 
Market Makers (FarMM), Firm Proprietary/Broker-Dealers, and 
Professional Customers.
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    The Exchange proposes to amend note 13, with respect to Penny 
Symbol Tiers 1-5, to instead provide that Non-Priority Customers who 
execute less than 4.0% of Customer Total Consolidated Volume will be 
charged a Taker Fee of $0.50 per contract for trades executed against a 
Priority Customer. Also, Non-Priority Customers who execute 4.0% \4\ or 
greater of Customer Total Consolidated Volume will be charged a Taker 
Fee of $0.47 per contract for trades executed against a Priority 
Customer. All Priority Customer orders will be charged a Taker Fee of 
$0.49 per contract for trades executed against a Priority Customer. For 
purposes of note 13, 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.
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    \4\ The Exchange notes that 4.0% of Customer Total Consolidated 
Volume is equivalent to approximately 1,000,000 contracts.
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    Non-Priority Customers, would continue to be charged a $0.50 per 
contract Taker Fee, in Tiers 1-5 Penny Symbols, when they trade against 
a Priority Customer, provided they execute less than 4.0% of Customer 
Total Consolidated Volume. If a Non-Priority Customer executed 4.0% or 
greater of Customer Total Consolidated Volume, they will be charged a 
Taker Fee, in Tiers 1-5 in Penny Symbols, of $0.47 per contract for 
trades executed against a Priority Customer. The addition of the volume 
criteria would cause some Non-Priority Customers, who today are 
assessed a $0.50 per contract Taker Fee, in Tiers 1-5 Penny Symbols, 
when they trade against a Priority Customer, to be assessed a reduced 
$0.47 per contract Taker Fee, in Tier 1-5 Penny Symbols, provided they 
meet the volume requirement.
    Priority Customer orders will continue to be charged a Taker Fee of 
$0.49 per contract, in Tiers 1-5 Penny Symbols, for trades executed 
against a Priority Customer. The Exchange believes that this proposal 
will continue to attract additional volume to GEMX in order to obtain 
more favorable pricing.
Non-Penny Symbols
    The Exchange proposes to increase the Non-Penny Symbol Fees for 
Responses to Crossing Orders (excluding PIM) \5\ from $1.00 to $1.10 
per contract for all Members. While the Exchange is increasing this fee 
for all market participants, the Exchange believes that this fee will 
continue to attract order flow to the Exchange.
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    \5\ This fee is $0.05 per contract for all Responses to Crossing 
Orders executed in the PIM. See note 12 within Options 7, Section 4.
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    The Exchange proposes to adopt new Tier 5 Maker Rebates in Non-
Penny Symbols (excluding Index Options).\6\ The Exchange proposes to 
pay a Market Maker a $0.75 per contract Non-Penny Symbol Tier 5 Maker 
Rebate. Non-Nasdaq GEMX Market Makers (FarMM), Firm Proprietary/Broker 
Dealers and Professional Customers would not be eligible for a Non-
Penny Symbol Tier 5 Maker Rebate. The Exchange proposes to pay a 
Priority Customer a $1.05 per contract Non-Penny Symbol Tier 5 Maker 
Rebate. These proposed Non-Penny Symbol Tier 5 Maker Rebates are the 
same as rebates paid, today, for Non-Penny Symbol Tier 4 Maker Rebates. 
As is the case with Non-Penny Symbol Tier 4 Marker Rebates, Priority 
Customers would receive the highest Non-Penny Symbol Tier 5 Maker 
Rebate. The

[[Page 45934]]

Exchange proposes to add these new Non-Penny Symbol Tier 5 Maker 
Rebates for Market Makers and Priority Customers, which are the same as 
the Non-Penny Symbol Tier 4 Maker Rebates, to make clear that any 
Member that qualifies for a Non-Penny Symbol Tier 5 Maker Rebate would 
receive the same rebates offered in Tier 4. The adoption of new Non-
Penny Symbol Tier 5 Maker Rebates will make clear, within the Options 
7, Section 3 regular order rebates, that Tier 5 qualifying volume would 
attain the same rebates as the Non-Penny Symbol Tier 4 Maker Rebates 
today. The proposed Tier 5 Non-Penny Symbol Maker Rebates would have no 
impact to Members, but will provide Members with a Tier 5 Non-Penny 
Symbol Maker Rebate to refer to for qualifying Tier 5 Maker Rebate 
volume in Non-Penny Symbols.\7\
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    \6\ The index options fees apply only to NDX. These fees are 
assessed to all executions in NDX.
    \7\ The Tier 5 Qualifying Tier Threshold, 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. The Tier 5 Qualifying Tier Threshold, with respect to 
Priority Customer Maker % of Customer Total Consolidated Volume, 
requires a member to execute Priority Customer Maker volume of 2.75% 
or greater of Customer Total Consolidated Volume.
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    The Exchange proposes to adopt new Tier 5 Taker Fees in Non-Penny 
Symbols. The Exchange proposes to assess a Market Maker, a Non-Nasdaq 
GEMX Market Maker (FarMM), Firm Proprietary/Broker Dealer and a 
Professional Customer a $0.94 per contract Tier 5 Taker Fee in Non-
Penny Symbols. Priority Customers would be assessed an $0.82 per 
contract Taker Fee in Non-Penny Symbols. As is the case with Tier 4 
Taker Fees in Non-Penny Symbols, Priority Customers would pay the 
lowest Non-Penny Symbol Tier 5 Taker Fees. The Exchange proposes to add 
these new Non-Penny Symbol Tier 5 Taker Fees, which are the same as the 
Non-Penny Symbol Tier 4 Taker Fees, to make clear that any Member that 
qualifies for a Non-Penny Symbol Tier 5 Taker Fee would pay the same 
fees as Members pay, today, for Non-Penny Symbol Tier 4 Taker Fees. The 
adoption of new Non-Penny Symbol Tier 5 Taker Fees will make clear, 
within the Options 7, Section 3 regular order fees, that Tier 5 
qualifying volume would pay the same fees as the Non-Penny Symbol Tier 
4 Taker Fees today. The proposed Tier 5 Non-Penny Symbol Taker Fees 
would have no impact to Members, but will provide Members with Tier 5 
Non-Penny Symbol Taker Fees to refer to for qualifying Tier 5 Taker Fee 
volume in Non-Penny Symbols.\8\
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    \8\ Id.
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    Proposed note 8 within Options 7, Section 3 will be discussed 
below.
Options 7, Section 4
    The Exchange proposes to adopt a Crossing Fee Cap within Options 7, 
Section 4C. By way of background, Crossing Orders are contracts that 
are submitted as part of a Facilitation, Solicitation, Price 
Improvement Mechanism (``PIM''), Block or Qualified Contingent Cross 
(``QCC'') order. The Exchange proposes to adopt a Crossing Fee Cap 
within Options 7, Section 4C, similar to Nasdaq ISE, LLC's crossing fee 
cap.\9\ Specifically, the Exchange proposes to adopt a Crossing Fee Cap 
of $85,000 per month, per Member on all Firm Proprietary transactions 
that are part of the originating or contra side of a Crossing Order. 
All eligible volume from affiliated Members would be aggregated for 
purposes of the Crossing Fee Cap, provided there is at least 75% common 
ownership between the Members as reflected on each Member's Form BD, 
Schedule A. Fees charged by the Exchange for Responses to Crossing 
Orders would not be included in the calculation of the monthly fee cap. 
Surcharge fees charged by the Exchange for licensed products and the 
fees for index options as set forth in Options 7, Section 3 would not 
be included in the calculation of the monthly fee cap. A service fee of 
$0.00 per side would apply to all order types that are eligible for the 
fee cap. The service fee would apply once a Member reached the fee cap 
level and would apply to every contract side above the fee cap. A 
Member who did not reach the monthly fee cap would not be charged the 
service fee. Once the fee cap is reached, the service fee would apply 
to eligible Firm Proprietary orders in all Nasdaq GEMX products. The 
service fee would not be calculated to reach the cap. For purposes of 
the Crossing Fee Cap, the Exchange will attribute eligible volume to 
the GEMX Member on whose behalf the Crossing Order was executed. The 
Exchange believes that the Crossing Fee Cap will cause Members to 
execute a greater number of Crossing Orders on GEMX in order to arrive 
at the cap and transact orders at no fee.
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    \9\ Nasdaq ISE, LLC has a crossing fee cap within Options 7, 
Section 6H of $90,000 per month, per Member.
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    The Exchange also proposes to add a new note 8 within Options 7, 
Section 3 to indicate that Firm Proprietary contracts traded are 
subject to the Crossing Fee Cap proposed within Options 7, Section 4C.
    Finally, the Exchange proposes to remove the term ``& SPY'' from 
Options 7, Section 4, Route-Out Fees. SPY has no separate pricing 
within Options 7, Section 3 and SPY is part of the Penny Interval 
Program and would otherwise be subject to the pricing applicable to 
Penny Symbols. For this reason, the term ``& SPY'' is proposed to be 
removed from the Penny title.
Options 7, Section 1
    The Exchange proposes an amendment to Options 7, Section 1, General 
Provisions. The Exchange proposes to replace the term ``Penny Pilot 
Program'' with ``Penny Interval Program.'' On April 1, 2020 the 
Commission approved the amendment to the OLPP to make permanent the 
Pilot Program (the ``OLPP Program'').\10\ The Exchange recently filed a 
proposal to amend GEMX Options 3, Section 3 to conform the rule to 
Section 3.1 of the Plan for the Purpose of Developing and Implementing 
Procedures Designed to Facilitate the Listing and Trading of 
Standardized Options (the ``OLPP'').\11\ The Exchange's proposal 
amended GEMX Options 3, Section 3 to refer to a Penny Interval Program 
instead of a Penny Pilot Program. This proposed change to Options 7, 
Section 1 conforms the name of the program and removes a reference to a 
list of Penny Pilot Program symbols.
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    \10\ See Securities Exchange Act Release No. 88532 (April 1, 
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval 
Order'').
    \11\ See Securities Exchange Act Release No. 89162 (June 26, 
2020) (SR-GEMX-2020-16).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 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

[[Page 45935]]

broader forms that are most important to investors and listed 
companies.'' \14\
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    \14\ 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 
\15\ (``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.\16\ 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.'' \17\
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    \15\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \16\ See NetCoalition, at 534-535.
    \17\ 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'. . . .'' \18\ 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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    \18\ 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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Options 7, Section 3
Penny Symbols
    The Exchange's proposal to amend note 13, within Options 7, Section 
4,\19\ is reasonable because the proposal will continue to attract 
additional volume to GEMX in order that Members may obtain more 
favorable pricing. With this proposal, Non-Priority Customers, would 
continue to be charged a $0.50 per contract Taker Fee, in Tiers 1-5 
Penny Symbols, when they trade against a Priority Customer and execute 
less than 4.0% of Customer Total Consolidated Volume.\20\ Non-Priority 
Customers who execute 4.0% or greater of Customer Total Consolidated 
Volume will be charged a reduced Taker Fee, in Tiers 1-5 in Penny 
Symbols, of $0.47 per contract for trades executed against a Priority 
Customer. The addition of the volume criteria would cause some Non-
Priority Customers, who today are assessed a $0.50 per contract Taker 
Fee, in Tiers 1-5 Penny Symbols, when they trade against a Priority 
Customer, to be assessed a $0.47 per contract Taker Fee, in Tier 1-5 
Penny Symbols, provided they meet the volume requirement. With this 
proposal Non-Priority Customers would have the opportunity to lower 
Taker Fees. Priority Customer orders will continue to be charged a 
Taker Fee of $0.49 per contract, in Tiers 1-5 Penny Symbols, for trades 
executed against a Priority Customer. Attracting volume to GEMX is 
beneficial to all market participants who may interact with that order 
flow. The Exchange believes that Members benefit from the additional 
liquidity which the Exchange attracts through its favorable pricing 
(higher rebates and lower fees) that is offered, today, to Priority 
Customers in Penny Symbols. Therefore, the Exchange believes that it is 
appropriate, in some cases, to assess a higher Taker Fee for trades 
executed against a Priority Customer with this proposal.
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    \19\ The Exchange proposes to amend note 13 within Options 7, 
Section 4 to state, ``Non-Priority Customers who execute less than 
4.0% of Customer Total Consolidated Volume will be charged a Taker 
Fee of $0.50 per contract for trades executed against a Priority 
Customer. Non-Priority Customers who execute 4.0% or greater of 
Customer Total Consolidated Volume will be charged a Taker Fee of 
$0.47 per contract for trades executed against a Priority Customer. 
All Priority Customer orders will be charged a Taker Fee of $0.49 
per contract for trades executed against a Priority Customer. For 
purposes of note 13, 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.''
    \20\ Today, the Exchange assesses Penny Symbol Tier 1 through 
Tier 3 Taker Fees of $0.50 per contract for all Non-Priority 
Customers, Tier 4 and 5 Taker Fees of $0.48 per contract for Market 
Makers and Non-Nasdaq GEMX Market Makers (FarMM), and Tier 4 and 5 
Taker Fees of $0.49 per contract for Firm Proprietary/Broker-Dealer 
and Professional Customers. See Options 7, Section 3.
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    The Exchange's proposal to amend note 13, within Options 7, Section 
4, is equitable and not unfairly discriminatory because Non-Priority 
Customers would have the opportunity to lower the Taker Fee, in Tiers 
1-5 in Penny Symbols, to $0.47 per contract if they execute 4.0% or 
greater of Customer Total Consolidated Volume and trade against a 
Priority Customer. Priority Customer orders will continue to be charged 
a Taker Fee of $0.49 per contract for trades executed against a 
Priority Customer. The Exchange's proposal assesses all Non-Priority 
Customers a uniform Taker Fee when trading against a Priority Customer, 
depending on the percentage of Customer Total Consolidated Volume 
Executed. The Exchange notes that Priority Customer volume is assessed 
the lowest fees and highest rebates on GEMX because 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 believes that it is 
equitable and not unfairly discriminatory to assess, in some cases, a 
higher Taker Fee to orders 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.
Non-Penny Symbols
    The Exchange's proposal to increase Non-Penny Symbol Fees for 
Responses to Crossing Orders (excluding PIM) \21\ from $1.00 to $1.10 
per contract for all Members is reasonable. While the Exchange is 
increasing this fee for all market participants, the Exchange believes 
that this fee will continue to attract order flow to the Exchange. The 
Exchange notes that its Crossing Order Fees remain competitive as GEMX 
is proposing a Crossing Fee Cap herein.
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    \21\ This fee is $0.05 per contract for all Responses to 
Crossing Orders executed in the PIM. See note 12 within Options 7, 
Section 4.
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    The Exchange's proposal to increase Non-Penny Symbol Fees for 
Responses to Crossing Orders (excluding PIM) \22\ from $1.00 to $1.10 
per contract for all Members is equitable and not unfairly 
discriminatory as the Exchange would apply the Non-Penny Symbol Fee for 
Responses to Crossing Orders of $1.10 per contract to all Members.
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    \22\ This fee is $0.05 per contract for all Responses to 
Crossing Orders executed in the PIM. See note 12 within Options 7, 
Section 4.
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    The Exchange's proposal to adopt new Tier 5 Maker Rebates in Non-
Penny Symbols (excluding Index Options) is reasonable.\23\ The Exchange 
proposes to add these new Non-Penny Symbol Tier 5 Maker Rebates for 
Market Makers and Priority Customers, which are the same as the Non-
Penny Symbol Tier 4 Maker Rebates, to make clear that any Member that 
qualifies for a Non-Penny Symbol Tier 5 Maker Rebate would receive the 
same rebates offered in Tier 4, today. The adoption of new Non-Penny 
Symbol Tier 5 Maker Rebates will make

[[Page 45936]]

clear, within Options 7, Section 3 rebates, that Tier 5 qualifying 
volume would attain the same rebates as the Non-Penny Symbol Tier 4 
Maker Rebates. The proposed Tier 5 Non-Penny Symbol Maker Rebates would 
have no impact to Members, but will provide Members with a Tier 5 Non-
Penny Symbol Maker Rebate to refer to for qualifying Tier 5 Maker 
Rebate volume in Non-Penny Symbols.\24\ Today, Options 7, Section 3 
provides that Tier 5 Qualifying Tier Threshold, 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.
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    \23\ The Exchange proposes to pay a Market Maker a $0.75 per 
contract Non-Penny Symbol Tier 5 Maker Rebate. Non-Nasdaq GEMX 
Market Makers (FarMM), Firm Proprietary/Broker Dealers and 
Professional Customers would not be eligible for a Non-Penny Symbol 
Tier 5 Maker Rebate. The Exchange proposes to pay a Priority 
Customer a $1.05 per contract Non-Penny Symbol Tier 5 Maker Rebate.
    \24\ The Tier 5 Qualifying Tier Threshold, 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. The Tier 5 Qualifying Tier Threshold, with respect to 
Priority Customer Maker % of Customer Total Consolidated Volume, 
requires a member to execute Priority Customer Maker volume of 2.75% 
or greater of Customer Total Consolidated Volume.
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    The Exchange's proposal to adopt new Tier 5 Maker Rebates in Non-
Penny Symbols (excluding Index Options) is equitable and not unfairly 
discriminatory as the addition of the Tier 5 Maker Rebates in Non-Penny 
Symbols will have no impact on any Member. The Non-Penny Symbol Tier 5 
Maker Rebates would be paid to those Members that submit qualifying 
volume on GEMX. All Members that submit qualifying volume are able to 
obtain higher rebates and lower fees with more qualifying volume. The 
pricing is the same as the Tier 4 Maker Rebates in Non-Penny Symbols, 
today, which are the highest rebates achievable for Non-Penny Symbols. 
As is the case with Non-Penny Symbol Tier 4 Marker Rebates, Priority 
Customers would receive the highest Non-Penny Symbol Tier 5 Maker 
Rebates. As has historically been the case, incentivizing Market Makers 
and Priority Customers with more favorable Maker Rebates encourages 
order flow. 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.
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    \25\ See GEMX Options 2, Section 5.
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    The Exchange's proposal to adopt new Tier 5 Taker Fees in Non-Penny 
Symbols is reasonable.\26\ The Exchange proposes to add these new Non-
Penny Symbol Tier 5 Taker Fees, which are the same as the Non-Penny 
Symbol Tier 4 Taker Fees, to make clear that any Member that qualifies 
for a Non-Penny Symbol Tier 5 Taker Fee would pay the same fees as 
Members pay, today, for Non-Penny Symbol Tier 4 Taker Fees. The 
adoption of a new Non-Penny Symbol Tier 5 Taker Fee will make clear, 
within the Options 7, Section 3 fees, that Tier 5 qualifying volume 
would pay the same fees as the Non-Penny Symbol Tier 4 Taker Fees. The 
proposed Tier 5 Non-Penny Symbol Taker Fees would have no impact to 
Members, but will provide Members with a Tier 5 Non-Penny Symbol Taker 
Fee to refer to for qualifying Tier 5 Taker Fee volume in Non-Penny 
Symbols.\27\ Today, Options 7, Section 3 provides that Tier 5 
Qualifying Tier Threshold, 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.
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    \26\ The Exchange proposes to assess a Market Maker, a Non-
Nasdaq GEMX Market Maker (FarMM), Firm Proprietary/Broker Dealer and 
a Professional Customer a $0.94 per contract Tier 5 Taker Fee in 
Non-Penny Symbols. Priority Customers would be assessed a $0.82 per 
contract Taker Fee in Non-Penny Symbols.
    \27\ The Tier 5 Qualifying Tier Threshold, 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. The Tier 5 Qualifying Tier Threshold, with respect to 
Priority Customer Maker % of Customer Total Consolidated Volume, 
requires a member to execute Priority Customer Maker volume of 2.75% 
or greater of Customer Total Consolidated Volume.
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    The Exchange's proposal to adopt new Tier 5 Taker Fees in Non-Penny 
Symbols is equitable and not unfairly discriminatory, as the addition 
of the Tier 5 Taker Fees in Non-Penny Symbols will have no impact on 
any Member. The pricing is the same as the Tier 4 Taker Fees in Non-
Penny Symbols, which are the lowest fees attainable for Non-Penny 
Symbol Taker Fees. As is the case with Non-Penny Symbol Tier 4 Taker 
Fees, Priority Customers would pay the lowest Non-Penny Symbol Tier 5 
Taker Fees.
Options 7, Section 4
    The Exchange's proposal to adopt a Crossing Fee Cap of $85,000 
within Options 7, Section 4C and add a new note 8 within Options 7, 
Section 3 is reasonable.\28\ The Crossing Fee Cap is intended to reward 
Members for executing a high volume of Firm Proprietary Crossing Orders 
on the Exchange. Specifically, the Crossing Fee Cap will continue to 
potentially lower transaction fees for Members providing liquidity on 
the Exchange. Members who reach the fee cap during a month will not 
have to pay transactional fees and will instead pay the service fee, 
thereby lowering their monthly fees. Charging a service fee is 
reasonable because it will allow the Exchange to recoup the costs 
incurred in providing certain services, which include trade matching 
and processing, post trade allocation, submission for clearing and 
customer service activities related to trading activity on the 
Exchange. The Exchange believes that the Crossing Fee Cap will benefit 
all Members and investors that trade on the Exchange as it will provide 
additional opportunities for market participants to interact with this 
Crossing Order Flow, contributing to a robust and competitive market.
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    \28\ As proposed within Options 7, Section 4C, Fees are capped 
at $85,000 per month, per Member on all Firm Proprietary 
transactions that are part of the originating or contra side of a 
Crossing Order. Crossing Orders are contracts that are submitted as 
part of a Facilitation, Solicitation, PIM, Block or QCC order. All 
eligible volume from affiliated Members will be aggregated for 
purposes of the Crossing Fee Cap, provided there is at least 75% 
common ownership between the Members as reflected on each Member's 
Form BD, Schedule A. Fees charged by the Exchange for Responses to 
Crossing Orders are not included in the calculation of the monthly 
fee cap. Surcharge fees charged by the Exchange for licensed 
products and the fees for index options as set forth in Options 7, 
Section 3 are not included in the calculation of the monthly fee 
cap. A service fee of $0.00 per side will apply to all order types 
that are eligible for the fee cap. The service fee shall apply once 
a Member reaches the fee cap level and shall apply to every contract 
side above the fee cap. A Member who does not reach the monthly fee 
cap will not be charged the service fee. Once the fee cap is 
reached, the service fee shall apply to eligible Firm Proprietary 
orders in all Nasdaq GEMX products. The service fee is not 
calculated in reaching the cap. For purposes of the Crossing Fee 
Cap, the Exchange will attribute eligible volume to the GEMX Member 
on whose behalf the Crossing Order was executed.
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    The Exchange's proposal to adopt a Crossing Fee Cap of $85,000 
within Options 7, Section 4C and add a new note 8 within Options 7, 
Section 3 is equitable and not unfairly discriminatory as all Members 
are eligible for the Crossing Fee Cap. The Crossing Fee Cap would apply 
uniformly to all Members engaged in Firm Proprietary trading in options 
classes traded on the Exchange. The Exchange believes there is nothing 
impermissible about offering the Crossing Fee Cap solely to Firm 
Proprietary transactions given that this practice is consistent with 
fee caps in

[[Page 45937]]

place on ISE.\29\ As a matter of practice, Members submitting Firm 
Proprietary orders are most likely to use the Crossing Fee Cap. 
Furthermore, to the extent the Crossing Fee Cap provides an incentive 
for Firm Proprietary orders to transact order flow on the Exchange, 
such order flow brings increased liquidity to the benefit of all market 
participants. The service fee would be assessed uniformly on all 
Members.
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    \29\ Nasdaq ISE, LLC has a crossing fee cap within Options 7, 
Section 6H of $90,000 per month, per Member.
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    The Exchange's proposal to remove the term ``& SPY'' from Options 
7, Section 4, Route-Out Fee, is reasonable, equitable and not unfairly 
discriminatory. SPY has no separate pricing within Options 7, Section 3 
and SPY is part of the Penny Interval Program and would otherwise be 
subject to the pricing applicable to Penny Symbols.
Options 7, Section 1
    The Exchange's proposal to amend Options 7, Section 1 to replace 
the term ``Penny Pilot Program'' with ``Penny Interval Program'' and 
remove a reference to a list of Penny Pilot Program symbols is 
reasonable, equitable and not unfairly discriminatory. This amendment 
seeks to conform the name of the program which governs the listing of 
certain standardized options and remove an obsolete table which linked 
to a list of pilot symbols.

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.
Options 7, Section 3
Penny Symbol
    The Exchange's proposal to amend note 13, within Options 7, Section 
4, does not impose an undue burden on competition because Non-Priority 
Customers would have the opportunity to lower the Taker Fee, in Tiers 
1-5 in Penny Symbols, to $0.47 per contract if they execute 4.0% or 
greater of Customer Total Consolidated Volume and trade against a 
Priority Customer. Priority Customer orders will continue to be charged 
a Taker Fee of $0.49 per contract for trades executed against a 
Priority Customer. The Exchange's proposal assesses all Non-Priority 
Customers a uniform Taker Fee when trading against a Priority Customer, 
depending on the percentage of Customer Total Consolidated Volume 
Executed. The Exchange notes that Priority Customer volume is assessed 
the lowest fees and highest rebates on GEMX because 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 believes that it does 
not impose an undue burden on competition to assess, in some cases, an 
increased Taker Fee to orders 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.
Non-Penny Symbol
    The Exchange's proposal to increase the Non-Penny Symbol Fee for 
Responses to Crossing Orders (excluding PIM) \30\ from $1.00 to $1.10 
per contract for all Members does not impose an undue burden on 
competition as the Exchange would apply the Non-Penny Symbol Fee for 
Responses to Crossing Orders of $1.10 per contract to all Members.
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    \30\ This fee is $0.05 per contract for all Responses to 
Crossing Orders executed in the PIM. See note 12 within Options 7, 
Section 4.
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    The Exchange's proposal to adopt new Tier 5 Maker Rebates in Non-
Penny Symbols (excluding Index Options) does not impose an undue burden 
on competition as the addition of the Tier 5 Maker Rebates in Non-Penny 
Symbols will have no impact on any Member. The Non-Penny Symbol Tier 5 
Maker Rebates would be paid to those Members that submit qualifying 
volume on GEMX. All Members that submit qualifying volume are able to 
obtain higher rebates and lower fees with more qualifying volume. The 
pricing is the same as the Tier 4 Maker Rebates in Non-Penny Symbols, 
today, which are the highest rebates achievable for Non-Penny Symbols. 
As is the case with Non-Penny Symbol Tier 4 Marker Rebates, Priority 
Customers would receive the highest Non-Penny Symbol Tier 5 Maker 
Rebates. As has historically been the case, incentivizing Market Makers 
and Priority Customers with more favorable Maker Rebates encourages 
order flow. Market Makers have different requirements and obligations 
to the Exchange that other market participants do not (such as quoting 
requirements).\31\ 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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    \31\ See GEMX Options 2, Section 5.
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    The Exchange's proposal to adopt new Tier 5 Taker Fees in Non-Penny 
Symbols does not impose an undue burden on competition as the addition 
of the Tier 5 Taker Fees in Non-Penny Symbols will have no impact on 
any Member. The pricing is the same as the Tier 4 Taker Fees in Non-
Penny Symbols, which are the lowest fees attainable for Non-Penny 
Symbol Taker Fees. As is the case with Non-Penny Symbol Tier 4 Taker 
Fees, Priority Customers would pay the lowest Non-Penny Symbol Tier 5 
Taker Fees.
Options 7, Section 4
    The Exchange's proposal to adopt a Crossing Fee Cap of $85,000 
within Options 7, Section 4C and add a new note 8 within Options 7, 
Section 3 does not impose an undue burden on

[[Page 45938]]

competition as all Members are eligible for the Crossing Fee Cap. The 
Crossing Fee Cap would apply uniformly to all Members engaged in Firm 
Proprietary trading in options classes traded on the Exchange. The 
Exchange believes there is nothing impermissible about offering the 
Crossing Fee Cap solely to Firm Proprietary transactions given that 
this practice is consistent with fee caps in place on ISE.\32\ 
Furthermore, to the extent the Crossing Fee Cap provides an incentive 
for Firm Proprietary orders to transact order flow on the Exchange, 
such order flow brings increased liquidity to the benefit of all market 
participants. The service fee would be assessed uniformly on all 
Members.
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    \32\ Nasdaq ISE, LLC has a crossing fee cap within Options 7, 
Section 6H of $90,000 per month, per Member.
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    The Exchange's proposal to remove the term ``& SPY'' from Options 
7, Section 4, Route-Out Fee, does not impose an undue burden on 
competition. SPY has no separate pricing within Options 7, Section 3 
and SPY is part of the Penny Interval Program and would otherwise be 
subject to the pricing applicable to Penny Symbols.
Options 7, Section 1
    The Exchange's proposal to amend Options 7, Section 1 to replace 
the term ``Penny Pilot Program'' with ``Penny Interval Program'' and 
remove a reference to a list of Penny Pilot Program symbols does not 
impose an undue burden on competition. This amendment seeks to conform 
the name of the program which governs the listing of certain 
standardized options and remove an obsolete table which linked to a 
list of pilot symbols.

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\33\ and Rule 19b-4(f)(2) \34\ 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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    \33\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \34\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-GEMX-2020-18 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-2020-18. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-GEMX-2020-18 and should be submitted on 
or before August 20, 2020.
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    \35\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-16469 Filed 7-29-20; 8:45 am]
BILLING CODE 8011-01-P


