[Federal Register Volume 89, Number 149 (Friday, August 2, 2024)]
[Notices]
[Pages 63230-63236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-17027]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100612; File No. SR-GEMX-2024-20]
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 2,
Sections 5, 6 and 10; and Options 3, Sections 7 and 17; and Options 7,
Section 6
July 29, 2024.
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 24, 2024, 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, II, and III, below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 2, Sections 5, 6 and 10; and
Options 3, Sections 7 and 17; and Options 7, Section 6.
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
The Exchange proposes to amend Options 2, Section 5, Market Maker
Quotations, to amend intra-day quoting requirements. The Exchange
proposes to amend Options 2, Section 6, Market Maker Orders, and
Options 3, Section 7(g), Reserve Orders, to bring additional clarity to
the types of orders available to Market Makers. The Exchange proposes
to amend Options 2, Section 10, Preferenced Orders, to define various
terms related to Preferenced Orders and harmonize the rule text to
other Nasdaq affiliated markets. The Exchange proposes to amend Options
3, Section 17, Kill Switch, to indicate the configurations available in
the Kill Switch. Finally, the Exchange proposes to remove dated rule
text in Options 7, Section 6, Ports and Other Services. Each change is
described below.
Options 2, Section 5
The Exchange proposes to amend the quoting requirements of a
Competitive Market Maker and a Preferred CMM in Options 2, Section 5.
With respect to a Competitive Market Maker, today, a Competitive
Market Maker is not required to enter quotations in the options classes
to which it is appointed. A Competitive Market Maker may initiate
quoting in options classes to which it is appointed intra-day. If a
Competitive Market Maker initiates quoting in an options class, the
Competitive Market Maker, associated with the same Member, is
collectively required to provide two-sided quotations in 60% of the
cumulative number of seconds, or such higher percentage as the Exchange
may announce in advance, for which that Member's assigned options class
is open for trading.
The Exchange proposes to amend the quoting obligations for a
Competitive Market Maker by requiring a Competitive Market Maker to
enter quotations each day in the options classes to which it is
appointed. Specifically, the Exchange proposes to require in proposed
Options 2, Section 5(e)(1) that,
Competitive Market Makers, associated with the same Member, are
collectively required to provide two-sided quotations in 60% of the
cumulative number of seconds, or such higher percentage as the
Exchange may announce in advance, for which that Member's assigned
options class is open for trading. Competitive Market Maker are not
required to make two-sided markets pursuant
[[Page 63231]]
to this Rule in any Quarterly Options Series, any Adjusted Options
Series, and any options series with an expiration of nine months or
greater for options on equities and exchange-traded funds (``ETFs'')
or with an expiration of twelve months or greater for index options.
As is the case today, Competitive Market Makers may continue to
choose to quote a Quarterly Options Series, any adjusted options
series, and any options series with an expiration of nine months or
greater for options on equities and ETFs or with an expiration of
twelve months or greater for index option, in addition to regular
series in the options class. Such quotations will not be considered
when determining whether a Competitive Market Maker has met the
obligation contained in Options 2, Section 5(e)(1). The Exchange
believes that requiring a Competitive Market Maker to quote each day
will increase liquidity on the Exchange.
Additionally, the Exchange proposes to amend the quoting
requirements for a Preferred CMM. Today, the last sentence of Options
2, Section 5(e) provides, ``A Competitive Market Maker who receives a
Preferenced Order, as described in Options 2, Section 10 and Options 3,
Section 10, (``Preferred CMM'') shall be held to the standard of a
Preferred CMM in the options series of any options class in which it
receives the Preferenced Order.'' Further, today, Options 2, Section
5(e)(3) provides,
Preferred CMMs, associated with the same Member, are
collectively required to provide two-sided quotations in 90% of the
cumulative number of seconds, or such higher percentage as the
Exchange may announce in advance, for which that Member's assigned
options class is open for trading. A Member shall be considered
preferenced in an assigned options class once the Member receives a
Preferenced Order in any option class in which they are assigned and
shall be considered preferenced for that day in all series for that
option class in which it received the Preferenced Order.
Notwithstanding the foregoing, a Preferred CMM shall not be required
to make two-sided markets pursuant to this Rule in any Quarterly
Options Series, any Adjusted Options Series, and any options series
with an expiration of nine months or greater for options on equities
and ETFs or with an expiration of twelve months or greater for index
options. Preferred CMMs may choose to quote such series in addition
to regular series in the options class, but such quotations will not
be considered when determining whether a Preferred CMM has met the
obligation contained in this paragraph (e)(3). A Preferred CMM may
be preferenced in such series and receive enhanced allocations
pursuant to Options 3, Section 10(c)(1)(C), only if it complies with
the heightened 90% quoting requirement contained in this paragraph
(e)(3).
Today, Preferred CMMs, associated with the same Member, are
collectively required to provide two-sided quotations in 90% of the
cumulative number of seconds, or such higher percentage as the Exchange
may announce in advance, for which that Member's assigned options class
is open for trading. A Member is considered preferenced in an assigned
options class once the Member receives a Preferenced Order in any
option class in which they are assigned and shall be considered a
Preferred CMM/Preferred PMM for that day in all series for that option
class in which it received the Preferenced Order. Today, the Member
must be quoting at the NBBO at the time the Preferenced Order is
received and must execute the order. If a CMM does not receive a
Preferenced Order, it will not be considered a Preferred CMM in that
options class and any quotations in that options class by the CMM will
not be considered when determining whether it met its Preferred CMM
quoting obligations.
At this time, the Exchange proposes to utilize the term ``Preferred
Market Maker'' instead of ``Preferred CMM'' as both Competitive Market
Makers and Primary Market Makers are Preferred Market Makers pursuant
to proposed renumbered Options 2, Section 10(a)(1)(iii).\3\ Also, the
Exchange proposes replacing the word ``receives'' with the word
``executes'' in Options 2, Section 5(e). The proposed new sentence
would provide, ``A Market Maker who executes a Preferenced Order, as
described in Options 2, Section 10 and Options 3, Section 10,
(``Preferred Market Maker'') shall be held to the standard of a
Preferred Market Maker among all options series of any options class in
which it executes the Preferenced Order.'' The Exchange proposes to
amend this sentence to specify that the 90% quoting obligation
described herein would be among all options series instead of in each
assigned option series.
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\3\ Renumbered Options 2, Section 10(a)(1)(iii) states that a
Preferred Market Maker may be the Primary Market Maker appointed to
the options class or any Competitive Market Maker appointed to the
options class.
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Additionally, the Exchange proposes amendments to Options 2,
Section 5(e)(3) to utilize the term ``Preferred Market Maker'' and
amend the quoting obligation as stated in the last sentence of Options
2, Section 5(e) to require that the Preferred Market Maker collectively
meet the 90% quoting obligation among all options series in which the
Preferred Market Maker executes a Preferenced Order. The Exchange
proposes to replace the word ``receives'' with ``executes.'' As
amended, Options 2, Section 5(e)(3) would state,
Preferred Market Makers, associated with the same Member, are
collectively required to provide two-sided quotations in 90% of the
cumulative number of seconds, or such higher percentage as the
Exchange may announce in advance, among all options series in which
the Preferred Market Maker has executed a Preferenced Order on a
daily basis, except that a Preferred Market Maker shall not be
required to make two-sided markets in any Quarterly Options Series,
any Adjusted Options Series, and any options series with an
expiration of nine months or greater for options on equities and
ETFs or with an expiration of twelve months or greater for index
options. A Preferred Market Maker has the ongoing quoting obligation
from the time a Preferred Market Maker executes its first
Preferenced Order in the options in which the Preferred Market Maker
is assigned until a Preferred Market Maker notifies the Exchange
that the Preferred Market Maker is no longer preferenced.
A Preferred Market Maker shall not be required to make two-sided
markets in any Quarterly Options Series, any Adjusted Options
Series, and any options series with an expiration of nine months or
greater for options on equities and ETFs or with an expiration of
twelve months or greater for index options and would receive a
participation entitlement in the Quarterly Options Series, the
Adjusted Options Series, and an options series with an expiration of
nine months or greater for options on equities and ETFs or with an
expiration of twelve months or greater for index options for the
Preferenced Order, only if it complies with the heightened 90%
quoting requirement.
The Exchange is amending the Preferred Market Maker quoting
obligation to first require that a Market Maker indicate interest in
the program with the Exchange.\4\ Once the Market Maker indicates it
would like to receive a Preferenced Order, that Market Maker would be
obligated, collectively, to provide two-sided quotations in 90% of the
cumulative number of seconds, or such higher percentage as the Exchange
may announce in advance, among all options series in which the
Preferred Market Maker has executed a Preferenced Order on a daily
basis, except that a Preferred Market Maker shall not be required to
make two-sided markets in any Quarterly Options Series, any Adjusted
Options Series, and any options series with an expiration of nine
months or greater for options on equities and ETFs or with an
expiration of twelve months or greater for index options.
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\4\ The Exchange would issue an Options Trader Alert to notify
Members that they are required to express their interest in
receiving Preferenced Orders.
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A Preferred Market Maker has an ongoing 90% quoting obligation, on
a
[[Page 63232]]
daily basis, from the time a Preferred Market Maker executes its first
Preferenced Order in the option in which the Preferred Market Maker is
assigned until a Preferred Market Maker notifies the Exchange that it
is no longer preferenced.
The Exchange proposes to replace the word ``receives'' with
``executes'' in Options 2, Section 5(e) and (e)(3) rule text because
for a Market Maker to become aware of their quoting obligations, the
Market Maker must be allocated pursuant to Options 2, Section 10 as a
Preferenced Order. Market Makers are unaware if an order is preferenced
to them until such time as they execute the Preferenced Order and
received their enhanced allocation. A Market Maker must be quoting at
the NBBO at the time the Preferenced Order is received to be allocated.
A Preferred Market Maker shall not be required to make two-sided
markets in any Quarterly Options Series, any Adjusted Options Series,
and any options series with an expiration of nine months or greater for
options on equities and ETFs or with an expiration of twelve months or
greater for index options and would receive a participation entitlement
in the Quarterly Option Series, the Adjusted Option Series, and an
option series with an expiration of nine months or greater for options
on equities and ETFs or with an expiration of twelve months or greater
for index options for the Preferenced Order, only if it complies with
the heightened 90% quoting requirement.
To make clear the manner in which the quoting obligations will be
applied, below are some examples.
Example 1
[ssquf] Assume a Competitive Market Maker was assigned in options
overlying AAPL, SPY, NFLX, ORCL and ADBE.
[ssquf] Assume this Competitive Market Maker had previously
executed a Preferenced Order and executes a Preferenced Order in NFLX
and ADBE on February 27, 2024.
[ssquf] The Preferred Market Maker obligation is a daily obligation
once triggered and continues until the Preferred Market Maker notifies
the Exchange that it no longer desires to be a part of the Preferenced
Order program.
[ssquf] Moreover, on February 28, 2024 and each day thereafter the
Preferred Market Maker is required to provide two-sided quotations in
90% of the cumulative number of seconds among all options series in
which the Preferred Market Maker has executed a Preferenced Order on a
daily basis until a Preferred Market Maker notifies the Exchange that
it is no longer preferenced. Therefore, the Preferred Market Maker
would be required to quote at 90% of the cumulative number of seconds
among all options series in which the Preferred Market Maker has
executed a Preferenced Order each day, regardless of whether the
Preferred Market Maker executed a Preferenced Order that day.
Obligations
This Competitive Market Maker is required to provide two-sided
quotations in 60% of the cumulative number of seconds, or such higher
percentage as the Exchange may announce in advance, for which that
Member's assigned options series are open for trading among AAPL, SPY,
and ORCL to fulfill its Competitive Market Maker obligation.
Separately, this Competitive Market Maker would be obligated,
separate and apart from its Competitive Market Maker obligations
described in this example, to provide two-sided quotations in 90% of
the cumulative number of seconds, or such higher percentage as the
Exchange may announce in advance, among NFLX and ADBE to fulfill its
Preferred Market Maker Obligation.
This Competitive Market Maker would not be required to make two-
sided markets in any Quarterly Option Series, any Adjusted Option
Series, and any option series with an expiration of nine months or
greater for options on equities and ETFs or with an expiration of
twelve months or greater for index options in AAPL, SPY, NFLX, ORCL and
ADBE when meeting its Competitive Market Maker or Preferred Market
Maker requirements.
Example 2
[ssquf] Assume a Primary Market Maker \5\ was assigned in options
overlying AAPL, SPY, NFLX, ORCL and ADBE.
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\5\ Pursuant to Options 2, Section 5(e), a Member is required to
meet each market making obligation separately. Quotes submitted
through the Specialized Quote Feed interface, utilizing badges and
options series assigned to a Primary Market Maker, will be counted
toward the requirement to provide two-sided quotations in 90% of the
cumulative number of seconds, or such higher percentage as GEMX may
announce. Quotes submitted through the Specialized Quote Feed
interface, utilizing badges and options series assigned to a
Competitive Market Maker, will be counted toward the requirement to
provide two-sided quotations in 60% of the cumulative number of
seconds, or such higher percentage as GEMX may announce. Today, a
Primary Market Maker who executes a Preferenced Order, as described
in Options 2, Section 10 and Options 3, Section 10, (``Preferred
PMM'') shall be held to the standard of a Preferred PMM in the
options series of any options class in which it receives the
Preferenced Order.
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[ssquf] Assume this Primary Market Maker had previously executed a
Preferenced Order and executes a Preferenced Order in NFLX and ADBE on
February 27, 2024.
[ssquf] The Preferred Market Maker obligation is a daily obligation
once triggered and continues until the Preferred Market Maker notifies
the Exchange that it no longer desires to be a part of the Preferenced
Order program.
[ssquf] Moreover, on February 28, 2024 and each day thereafter the
Preferred Market Maker is required to provide two-sided quotations in
90% of the cumulative number of seconds among all options series in
which the Preferred Market Maker has executed a Preferenced Order on a
daily basis until a Preferred Market Maker notifies the Exchange that
it is no longer preferenced. Therefore, the Preferred Market Maker
would be required to quote at 90% of the cumulative number of seconds
among all options series in which the Preferred Market Maker has
executed a Preferenced Order each day, regardless of whether the
Preferred Market Maker executed a Preferenced Order that day.
Obligations
This Primary Market Maker, associated with the same Options
Participant, is collectively required to provide two-sided quotations
in 90% of the cumulative number of seconds, or such higher percentage
as the Exchange may announce in advance, among AAPL, SPY, and ORCL to
fulfill its Primary Market Maker obligation.\6\
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\6\ See Options 2, Section 4(j)(1).
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Separately, this Primary Market Maker would be obligated, separate
and apart from its Primary Market Maker obligations described in this
example, to provide two-sided quotations in 90% of the cumulative
number of seconds, or such higher percentage as the Exchange may
announce in advance, among NFLX and ADBE to fulfill its Preferred
Market Maker obligation.
A Primary Market Maker would not be required to make two-sided
markets in any Quarterly Option Series, any Adjusted Option Series, and
any option series with an expiration of nine months or greater for
options on equities and ETFs or with an expiration of twelve months or
greater for index options in AAPL, SPY, NFLX, ORCL and ADBE when
meeting its Primary Market Maker or Preferred Market Maker
requirements.
The Exchange proposes to amend Options 2, Section 5(e)(5) that
currently states, ``GEMX Regulation may consider exceptions to the
above-referenced requirement to quote based on
[[Page 63233]]
demonstrated legal or regulatory requirements or other mitigating
circumstances. For purposes of the Exchange's surveillance of Member
compliance with this Rule, the Exchange will determine compliance on a
monthly basis.'' The Exchange proposes to instead provide that ``For
purposes of the Exchange's surveillance of Member compliance with this
Rule, the Exchange will determine compliance on at least a monthly
basis.'' The Exchange notes that it may increase the frequency of the
surveillance in particular circumstances but that it would conduct
monthly surveillance at a minimum.
The Exchange will implement the amendments to Options 2, Section 5
on or before April 30, 2025.\7\
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\7\ The Exchange will provide Members with notification of these
changes in an Options Regulatory Alert and the Exchange will
announce the implementation date in a second Options Regulatory
Alert.
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Options 2, Section 6 and Options 3, Section 7
Options 2, Section 6, Market Maker Orders, provides Market Makers
with information as to the types of orders that may be entered on the
Exchange. The current rule text at Options 2, Section 6(a) provides
that, in options classes in which the Market Maker is appointed, a
Market Maker may enter all order types defined in Options 3, Section 7
in the options classes to which they are appointed under Options 2,
Section 3, except Reserve Orders and Customer Cross Orders. Competitive
Market Makers shall comply with the provisions of Options 2, Section
5(e)(1) upon the entry of such orders if they were not previously
quoting in the series.
With the changes proposed to the Competitive Market Maker quoting
requirements, the Exchange is also removing the last sentence of
Options 2, Section 6 which provides, ``Competitive Market Makers shall
comply with the provisions of Options 2, Section 5(e)(1) upon the entry
of such orders if they were not previously quoting in the series.''
Competitive Market Makers will be required to quote throughout the day
with the proposed amendments to Options 2, Section 5.
The Exchange is not proposing to amend the restrictions applicable
to Market Maker Orders. The Exchange proposes to modify the current
rule text so that it will read clearly and harmonize with rule text on
Phlx and BX at Options 2, Section 6. The Exchange proposes to first
note that, today, Market Makers may enter all Complex Order types. To
make this clear in the rule text, the Exchange proposes to cite to
Options 3, Section 14, which governs Complex Orders, in addition to
citing to Options 3, Section 7 which governs single-leg orders.
Further, the Exchange proposes to remove the current rule text in
Options 3, Section 6(b)(1) as the language is superfluous. In its
place, the Exchange proposes to amend the text in Options 2, Section
6(a) to remove the title ``Options Classes to Which Appointed'' and add
``non-appointed'' to the paragraph so that it reflects all the order
types for Market Makers in both appointed and non-appointed classes.
The current language in Options 2, Section 6(b)(1) provides,
A Market Maker may enter all order types permitted to be entered
by non-customer participants under the Rules to buy or sell options
in classes of options listed on the Exchange to which the Market
Maker is not appointed under Options 2, Section 3, except for
Reserve Orders, provided that:
(i) the spread between a limit order to buy and a limit order to
sell the same options contract complies with the parameters
contained in Options 2, Section 4(b)(4); and
(ii) the Market Maker does not enter orders in options classes
to which it is otherwise appointed, either as a Competitive or
Primary Market Maker.
The Exchange believes that the rule will read more clearly by
adding non-appointed to Options 2, Section 6(a) and removing current
Options 2, Section 6(b)(1) which says the same thing. Today, Market
Makers may not enter Customer Cross Orders in non-appointed options
classes because only Priority Customers may enter Customer Cross Orders
pursuant to Options 3, Section 7(i). Further Options 2, Section
6(b)(1)(i) is a requirement provided for in Options 2, Section 4(b)(4)
and does not need to be repeated in this rule. Finally, Options 2,
Section 6(b)(1)(ii) is circular because Options 2, Section 6(a) allows
Market Makers to enter all orders in appointed options classes except
for Reserve Orders which is the same restriction applicable to non-
appointed options classes.
The Exchange also proposes to amend Options 3, Section 7, Types of
Orders and Order and Quote Protocols. The Exchange proposes to amend
Options 3, Section 7(g), concerning Reserve Orders, that Market Makers
may not enter Reserve Orders pursuant to Options 2, Section 6. The
Exchange believes that the addition of this language will remind Market
Makers of the obligations noted within Options 2, Section 6.
Options 2, Section 10
Options 2, Section 10 describes Preferenced Orders. An Electronic
Access Member may designate a ``Preferred Market Maker'' on orders it
enters into the System (``Preferenced Orders'').\8\ The Exchange
proposes to amend the definition of a ``Preferenced Order'' and add a
definition for ``Order Flow Provider'' in new subsection (1). The
Exchange proposes to amend the definition of a ``Preferenced Order'' to
mean any order to buy or sell which has been directed to a particular
Market Maker by an Order Flow Provider.\9\ The Exchange proposes to
provide that the term ``Order Flow Provider'' means any Member that
submits, as agent, orders to the Exchange.\10\ Finally, the Exchange
proposes to renumber current Options 2, Section 10(a)(1) which states,
``A Preferred Market Maker may be the Primary Market Maker appointed to
the options class or any Competitive Market Maker appointed to the
options class'' as Options 2, Section 10(a)(1)(iii). These definitions
will bring greater clarity to Options 2, Section 10 and Options 2,
Section 5 and will harmonize these definitions to those of Phlx at
Options 2, Section 10.
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\8\ See Options 2, Section 10(a).
\9\ See proposed Options 2, Section 10(a)(1)(i).
\10\ See proposed Options 2, Section 10(a)(1)(ii).
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Options 3, Section 17
The Exchange proposes to amend Options 3, Section 17, Kill Switch.
Previously, the Exchange amended Options 3, Section 17 in order to
decommission graphical user interface (``GUI'') functionality.\11\ In
eliminating the GUI functionality, the Exchange amended Options 3,
Section 17(a)(1) to remove language related to the GUI functionality,
including rule text related to purging orders at both the user and
group level. While the GUI permitted a purge at both the user and group
level, the remaining port functionality only removes orders at the user
level, as specified in Options 3, Section 17(a)(1). At this time, the
Exchanges proposes to remove the group level language from Options 3,
Section 17(a).\12\ This proposed change is intended to clarify the
current rule text.
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\11\ See Securities Exchange Act Release No. 96817 (February 6,
2023), 88 FR 8922 (February 10, 2023) (SR-GEMX-2023-02).
\12\ The Exchange proposes to remove the words ``or group'' and
the following sentence that applies to a group. The Exchange
proposes to remove this sentence, ``Permissible groups must reside
within a single broker-dealer.''
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Options 2, Section 6
The Exchange proposes to remove the italicized language in Options
7, Section 6. C related to a technology migration that took place in
2023. In 2023, GEMX
[[Page 63234]]
filed a pricing change \13\ to permit Members to request certain
duplicative ports at no additional cost, from November 1, 2023 through
November 30, 2023, to facilitate a technology migration. The rule text
related to the 2023 technology migration is no longer necessary because
the migration is complete and the pricing is no longer applicable. At
this time, the Exchange proposes to remove this rule text.
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\13\ See Securities Exchange Act Release No. 97360 (April 24,
2023), 88 FR 26349 (April 28, 2023) (SR-GEMX-2023-05) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
GEMX's Pricing Schedule at Options 7).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\14\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\15\ in particular, in that it
is designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general to protect
investors and the public interest.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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Options 2, Section 5
The Exchange's proposal to amend the quoting obligations of a
Competitive Market Maker are consistent with the act as the enhanced
requirement to provide two-sided quotations, collectively, in 60% of
the cumulative number of seconds, or such higher percentage as the
Exchange may announce in advance, for which that Member's assigned
options class is open for trading each day will increase liquidity on
the Exchange. The Exchange notes that other markets have similar
requirements.\16\
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\16\ See Nasdaq Phlx LLC and Nasdaq BX, Inc. Options 2, Section
5.
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The Exchange's proposal to amend the quoting obligations for a
Preferred CMM are consistent with the Act. The Exchange proposes to
amend the current rule text in Options 2, Section 5 to apply the
obligation to a Preferred Market Maker more generally for ease of
understanding the rule. The obligations for a Preferred CMM and
Preferred PMM are the same and combining the obligations will make this
clear. Today, pursuant to Options 2, Section 10, a Preferred Market
Maker may be the Primary Market Maker appointed to the options class or
any Competitive Market Maker appointed to the options class. Further,
the Exchange proposes to first require that a Market Maker indicate
interest in the program with the Exchange.\17\ Once a Market Maker
indicates interest in the program, the Preferred Market Maker has an
ongoing obligation, collectively, to quote in 90% of the cumulative
number of seconds among all options series in which the Preferred
Market Maker has executed a Preferenced Order on a daily basis until a
Preferred Market Maker notifies the Exchange that it is no longer
preferenced. The Exchange notes that other markets have similar
requirements to quote, collectively, in 90% of the cumulative number of
seconds among all options series on a daily basis.\18\
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\17\ The Exchange would issue an Options Trader Alert to notify
Members that they are required to express their interest in
receiving Preferenced Orders.
\18\ See NYSE Arca, Inc. (``NYSE Arca'') Rule 6.88-O and NYSE
American LLC (``NYSE American'') Rule 964.1NY. NYSE Arca Rule 6.88-
O(iv) states that these obligations will apply collectively to all
series in all of the issues for which the Directed Order Market
Maker receives Directed Orders, rather than on an issue-by-issue
basis.
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Similar to the last sentence of Options 2, Section 5(e), the
Exchange proposes to revise Options 2, Section 5(e) to require a
Preferred Market Maker who executes a Preferenced Order, as described
in Options 2, Section 10, to be held to the standard of a Preferred
Market Maker among all options series in which the Preferred Market
Maker executed a Preferenced Order and to quote, collectively, in 90%
of the cumulative number of seconds among all options series in which
the Preferred Market Maker has executed a Preferenced Order on a daily
basis.
The Preferred Market Maker requirement to quote, collectively, in
90% of the cumulative number of seconds among all options series in
which the Preferred Market Maker has executed a Preferenced Order on a
daily basis is in addition to the quoting requirements for a
Competitive Market Maker and Primary Market Maker. The Exchange
believes that these quoting requirements create a direct nexus between
the allocation that would be received by a Preferred Market Maker
pursuant to Options 3, Section 10 and the liquidity that the Preferred
Market Maker would be required to provide to the market in that
particular options series. The Exchange notes that any Preferred Market
Maker would need, collectively, to provide two-sided quotes in 90% of
the cumulative number of seconds or such higher percentage as the
Exchange may announce in advance, among all options series in which the
Preferred Market Maker has executed a Preferenced Order for the entire
day and on a daily basis. The Exchange believes that this quoting
obligation is designed to promote just and equitable principles of
trade by ensuring that Preferred Market Makers quote competitively in
as many series as possible to attract Preferenced Orders so that they
may receive an enhanced allocation as a Preferred Market Maker.
The Exchange's proposal to replace the word ``receives'' with the
word ``executes'' in Options 2, Section 5(e) and (e)(3) is consistent
with the Act and protects investors and the public interest because for
a Market Maker to become aware of their quoting obligations, the Market
Maker must be allocated pursuant to Options 2, Section 10 as a
Preferenced Order. Market Makers are unaware if an order is preferenced
to them until such time as they execute the Preferenced Order and
receive their enhanced allocation. Of note, a Market Maker must be
quoting at the NBBO at the time the Preferenced Order is received to be
allocated. Therefore, a Preferred Market Maker has an ongoing quoting
obligation from the time a Preferred Market Maker executes its first
Preferenced Order in the options in which the Preferred Market Maker is
assigned until a Preferred Market Maker notifies the Exchange that the
Preferred Market Maker is no longer preferenced.
The Exchange's proposal to amend Options 2, Section 5(e)(5) to
provide that ``For purposes of the Exchange's surveillance of Member
compliance with this Rule, the Exchange will determine compliance on at
least a monthly basis'' is consistent with the Act. The Exchange notes
that it may increase the frequency of the surveillance in particular
circumstances but that it would conduct monthly surveillance at a
minimum.
Options 2, Section 6 and Options 3, Section 7
The Exchange's proposal to amend Options 2, Section 6, Market Maker
Orders, to cite to Options 3, Section 14, which governs Complex Orders,
remove the title ``Options Classes to Which Appointed'' and add ``non-
appointed'' to the paragraph is consistent with the Act for several
reasons. Market Makers may not enter Reserve Orders, as is the case
today, but may utilize all other single-leg and Complex Order types, in
their appointed and non-appointed classes. Today, Market Makers may not
enter Customer Cross Orders in their appointed or non-appointed options
classes as only Priority Customers may enter Customer Cross Orders
pursuant to Options 3, Section 7(i). With this proposal, the Exchange
is not proposing to amend the restrictions applicable to Market Maker
Orders. Removing the last sentence of Options 2, Section 6 is
consistent with the Act because
[[Page 63235]]
Competitive Market Makers will be required to quote throughout the day
with the proposed amendments to Options 2, Section 5. Removing Options
2, Section 6(b) is consistent with the Act because the language is
repetitive of rule text contained in Options 2, Section 6(a) and
Options 2, Section 4(b)(4). Finally, adding rule text that states that
``Market Makers may not enter Reserve Orders pursuant to Options 2,
Section 6'' in Options 3, Section 7(g) is consistent with the Act
because it will remind Market Makers of the obligations noted within
Options 2, Section 6. The language would harmonize GEMX's rule text to
that of BX and Phlx in Options 2, Section 6.
Options 2, Section 10
The Exchange's proposal to amend the definition of a ``Preferenced
Order'' and add a definition for ``Order Flow Provider'' in new
subsection (1) are consistent with the Act and protect investors and
the general public because they clarify the meaning of terms utilized
with respect to Preferenced Orders. The definitions will bring greater
clarity to Options 2, Section 10 and Options 2, Section 5 and will
harmonize these definitions to those of Phlx at Options 2, Section 10.
Options 3, Section 17
The Exchange's proposal to remove rule text from Options 3, Section
17(a) related to GUI functionality which is being decommissioned is
consistent with the Act. The Exchange notes that purging orders through
ports can only occur at the user level as specified in Options 3,
Section 17(a)(1). The amendment will clarify the current rule text.
Options 7, Section 6
The Exchange's proposal to remove the italicized language in
Options 7, Section 6.C related to a technology migration that took
place in 2023 is reasonable, equitable and not unfairly discriminatory
because the rule text related to the technology migration is no longer
necessary because the migration is complete and the fees are no longer
applicable. No Member is subject to the pricing described for the 2023
technology migration.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act.
Options 2, Section 5
The Exchange's proposal to amend the quoting obligations of a
Competitive Market Maker does not impose an undue burden on competition
as the enhanced requirement to provide two-sided quotations,
collectively, in 60% of the cumulative number of seconds, or such
higher percentage as the Exchange may announce in advance, for which
that Member's assigned options class is open for trading each day would
apply uniformly to all Electronic Access Members that elect to become
Competitive Market Makers.
The Exchange's proposal to amend the quoting obligations for a
Preferred Market Maker does not impose an undue burden on competition
because as amended the quoting obligations of Preferred Market Maker
would apply uniformly to all Electronic Access Members that elect to
become Competitive Market Makers or Primary Market Makers. The proposal
does not impose an undue burden on inter-market competition as other
options markets may impose similar quoting obligations.
Finally, amending Options 2, Section 5(e)(5) to provide that ``For
purposes of the Exchange's surveillance of Member compliance with this
Rule, the Exchange will determine compliance on at least a monthly
basis'' does not impose an undue burden on competition. The Exchange
notes that it may increase the frequency of the surveillance in
particular circumstances but that it would conduct monthly surveillance
at a minimum. Nor does the amendment to Options 2, Section 5(e)(5)
impose an undue burden on inter-market competition as other markets may
elect to perform their surveillance in a similar fashion.
Options 2, Section 6 and Options 3, Section 7
The Exchange's proposal to amend Options 2, Section 6, Market Maker
Orders, to cite to Options 3, Section 14, which governs Complex Orders,
remove the title ``Options Classes to Which Appointed'' and add ``non-
appointed'' to the paragraph does not impose an undue burden on
competition as the Exchange is not amending the restrictions applicable
to Market Maker Orders. Rather, the changes will make clear that Market
Makers may not enter Reserve Orders, as is the case today, but may
utilize all other single-leg and Complex Order types, as is the case
today. Additionally, today, Market Makers may not enter Customer Cross
Orders in non-appointed options classes because only Priority Customers
may enter Customer Cross Orders pursuant to Options 3, Section 7(i).
Adding rule text that states that ``Market Makers may not enter Reserve
Orders pursuant to Options 2, Section 6'' in Options 3, Section 7(g)
does not impose an undue burden on competition because it will remind
Market Makers of the obligations noted within Options 2, Section 6.
Removing the last sentence of Options 2, Section 6 does not impose an
undue burden on competition because all Competitive Market Makers will
be required to quote throughout the day with the proposed amendments to
Options 2, Section 5. The rule text will harmonize GEMX's language to
Phlx and BX Options 2, Section 6. The proposal does not impose an undue
burden on inter-market competition as other options markets may
similarly copy GEMX's order types and impose similar restrictions.
Options 2, Section 10
The Exchange's proposal to amend the definition of ``Preferenced
Order'' and add a definition for ``Order Flow Provider'' in new
subsection (1) does not impose an undue burden on competition because
the defined terms provide additional clarity and harmonize to rule text
in Phlx at Options 2, Section 10. The proposed changes are not
substantive in nature.
Options 3, Section 17
The Exchange's proposal to remove rule text from Options 3, Section
17(a) related to GUI functionality which is being decommissioned does
not impose an undue burden on competition because no Member may purge
orders at the group level. The amendment will clarify the current rule
text. The proposal does not impose an undue burden on inter-market
competition as other options markets may similarly copy GEMX's Kill
Switch functionality.
Options 7, Section 6
The Exchange's proposal to remove the italicized language in
Options 7, Section 6. C related to a technology migration that took
place in 2023 does not impose an undue burden on competition because
the rule text related to the technology migration is no longer
necessary because the migration is complete and the fees are no longer
applicable. No Member is subject to the pricing described for the 2023
technology migration.
[[Page 63236]]
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 \19\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\20\
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\19\ 15 U.S.C. 78s(b)(3)(A)(iii).
\20\ 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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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 necessary or
appropriate in the public interest, for the protection of investors, or
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-GEMX-2024-20 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-2024-20. 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 (https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-GEMX-2024-20 and should be
submitted on or before August 23, 2024.
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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-17027 Filed 8-1-24; 8:45 am]
BILLING CODE 8011-01-P