8011-01p
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100406; File No. SR-GEMX-2024-13]
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to Amend Options 7, Section 6
June 24, 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 June 12, 2024, Nasdaq GEMX, LLC (“GEMX”
or “Exchange”) filed with the Securities and Exchange Commission (“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.
I.

Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed
Rule Change
The Exchange proposes to amend its Rules at Options 7, Section 6.3 The Exchange

proposes to sunset the amendments to Options 7, Section 6, C on July 1, 2024. The amendments
to Options 7, Section 6, C proposed herein will remain in effect through the month of June 2024.
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.

15 U.S.C. 78s(b)(1).

17 CFR 240.19b-4.

The Exchange initially filed the proposed pricing changes on November 28, 2023 (SR-GEMX-2023-16) to
be effective on December 1, 2023. On December 5, 2023, the Exchange withdrew SR-GEMX-2023-16 and
replaced it with SR-GEMX-2023-19. On January 16, 2023, the Exchange withdrew SR-GEMX-2023-19
and submitted SR-GEMX-2024-03. On March 7, 2024, the Exchange withdrew SR-GEMX-2024-03 and
submitted SR-GEMX-2024-07. On May 1, 2024, the Exchange withdrew SR-GEMX-2024-07 and
submitted SR-GEMX-2024-10. On June 12, 2024, the Exchange withdrew SR-GEMX-2024-10 and
submitted this filing.

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 7, Section 6, C, Ports and Other Services.
Specifically, the Exchange proposes to amend the monthly caps for SQF Ports4 and SQF Purge
Ports.5 The Exchange proposes to sunset the amendments to Options 7, Section 6, C on July 1,
2024. The amendments to Options 7, Section 6, C proposed herein will remain in effect through
the month of June 2024.
Today, GEMX assesses $1,250 per port, per month for an SQF Port as well as an SQF

“Specialized Quote Feed” or “SQF” is an interface that allows Market Makers to connect, send, and receive
messages related to quotes, Immediate-or-Cancel Orders, and auction responses to the Exchange. Features
include the following: (1) options symbol directory messages (e.g., underlying instruments); (2) System
event messages (e.g., start of trading hours messages and start of opening); (3) trading action messages
(e.g., halts and resumes); (4) execution messages; (5) quote messages; (6) Immediate-or-Cancel Order
messages; (7) risk protection triggers and purge notifications; (8) opening imbalance messages; (9) auction
notifications; and (10) auction responses. The SQF Purge Interface only receives and notifies of purge
requests from the Market Maker. Market Makers may only enter interest into SQF in their assigned options
series. Immediate-or-Cancel Orders entered into SQF are not subject to the Order Price Protection, Market
Order Spread Protection, and Size Limitation Protection in Options 3, Section 15(a)(1)(A), (1)(B), and
(2)(B) respectively. See Supplementary Material .03(c) to Options 3, Section 7.

SQF Purge is a specific port for the SQF interface that only receives and notifies of purge requests from the
Market Maker. Dedicated SQF Purge Ports enable Market Makers to seamlessly manage their ability to
remove their quotes in a swift manner. The SQF Purge Port is designed to assist Market Makers in the
management of, and risk control over, their quotes. Market Makers may utilize a purge port to reduce
uncertainty and to manage risk by purging all quotes in their assigned options series. Of note, Market
Makers may only enter interest into SQF in their assigned options series. Additionally, the SQF Purge Port
may be utilized by a Market Maker in the event that the Member has a system issue and determines to
purge its quotes from the order book.

Purge Port.6 Also, today, SQF Ports and SQF Purge Ports are subject to a monthly cap of
$17,500, which cap is applicable to Market Makers.
At this time, the Exchange proposes to establish an increased SQF Fee and SQF Purge
Port Cap to Primary Market Makers and Market Makers that do not provide a minimum amount
of liquidity on GEMX. This proposed increased SQF Fee and SQF Purge Port Cap is intended to
incentivize Primary Market Makers and Market Makers to add liquidity on GEMX for the
benefit of other market participants in order to lower their fees. GEMX proposes to increase the
SQF Port and SQF Purge Port Cap to $27,500 a month if a Primary Market Maker or Market
Maker does not transact 0.50% of Total Customer Volume in electronic simple orders that adds
liquidity in a month.7 Today, GEMX caps an SQF Port and SQF Purge Port at $17,500 a
month.8 With this proposal, the Exchange would not assess Primary Market Makers and Market
Makers an SQF Port and SQF Purge Port Cap beyond the monthly cap of $27,500, instead of
$17,500, once the Member has exceeded the proposed port cap for the respective month.
Primary Market Makers and Market Makers who transact 0.50% of Total Customer Volume in
electronic simple orders that adds liquidity in a month will continue to be subject to the $17,500
SQF Port and SQF Purge Port Cap.
Pursuant to Supplementary Material .03(c) to Options 3, Section 7, Market Makers may
only enter interest into SQF in their assigned options series. Pursuant to Supplementary Material
.03(c) to Options 3, Section 7, the SQF interface allows Market Makers to connect, send, and
receive messages related to quotes, Immediate-or-Cancel Orders, and auction responses to the
Exchange. An SQF Purge is a specific port for the SQF interface that only receives and notifies
of purge requests from the Market Maker. . A GEMX Market Maker requires only one SQF
The Exchange proposes to add a comma between “per port” and “per month” in the Options 7, Section 6,
C, SQF Port and SQF Purge Port Fee rule text. The Exchange also proposes to remove an extraneous
period in Options 7, Section 6, C, in the second paragraph.

For purposes of this cap, “Total Customer Volume” shall be defined as a percentage of all cleared customer
volume at The Options Clearing Corporation in Multiply Listed Equity Options and Exchange-Traded
Products (“TCV”).

The Exchange also proposes a technical amendment to remove an extra period in Options 7, Section 6, C.

Port to submit quotes in its assigned options series into GEMX. While a Market Maker may
elect to obtain multiple SQF Ports and SQF Purge Ports to organize its business,9 only one SQF
Port and SQF Purge Port is necessary for a Market Maker to fulfill its regulatory quoting
obligations.10
2.

Statutory Basis

The Exchange believes that its proposal is consistent with Section 6(b) of the Act,11 in
general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,12 in particular, in
that it provides for the equitable allocation of reasonable dues, fees, and other charges among
members and issuers and other persons using any facility, and is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
The proposed pricing change to increase the SQF Port and SQF Purge Port monthly cap
from $17,500 per month to $27,500 per month if Primary Market Makers or Market Makers do
not transact 0.50% of Total Customer Volume in electronic simple orders that adds liquidity in a
month is reasonable because it will incentivize Primary Market Makers and Market Makers to
add liquidity on GEMX to lower their costs. The Exchange believes that the total volume
required to achieve the cap is reasonable as the Exchange has limited the volume to simple
orders, as not all Market Makers transact complex orders. Further, 0.50% of Total Customer
Volume in electronic simple orders that adds liquidity in a month is an achievable number for
Market Makers who currently add volume to the Exchange. Additionally, the Exchange believes
that an SQF Fee and SQF Purge Port Cap of $27,500, in lieu of $17, 500, is reasonable because
Primary Market Makers and Market Makers are obligated, among other things, to compete with

For example, a Market Maker may desire to utilize multiple SQF Ports for accounting purposes, to measure
performance, for regulatory reasons or other determinations that are specific to that Member.

GEMX Market Makers have various regulatory requirements as provided for in Options 2, Section 4.
Additionally, GEMX Market Makers have certain quoting requirements with respect to their assigned
options series as provided in Options 2, Section 5. SQF Ports are the only quoting protocol available on
GEMX and only Market Makers may utilize SQF Ports. The same is true for SQF Purge Ports.

15 U.S.C. 78f(b).

15 U.S.C. 78f(b)(4) and (5).

other Market Makers to improve the market in all series of options classes to which the Market
Maker is appointed and to update market quotations in response to changed market conditions in
all series of options classes to which the Market Maker is appointed.13 The Exchange believes
that it is reasonable to increase the SQF Port and SQF Purge Port Cap to $27,500 for Primary
Market Makers and Market Makers that do not transact 0.50% of Total Customer Volume in
electronic simple orders that adds liquidity in a month because the Exchange believes that
Primary Market Makers and Market Makers that do not contribute a minimum amount of
liquidity on GEMX should not be subject to the same opportunities to lower their costs as those
Primary Market Makers and Market Makers that do contribute to liquidity and therefore provide
the ability for other market participants to engage with that order flow. The Exchange believes
that the increase is modest and would serve to encourage Primary Market Makers and Market
Makers to submit order flow to GEMX in order to lower their cost and would result in additional
order competition, which also benefits market participants. The Exchange believes this proposal
promotes liquidity, quote competition, and trading opportunities.
SQF Ports and SQF Purge Ports are utilized by Primary Market Makers and Market
Makers to quote on GEMX. A Market Maker may submit all quotes through one SQF Port and
utilize one SQF Purge Port to view its purge requests. While a Market Maker may elect to obtain
multiple SQF Ports to organize its business,14 only one SQF Port is necessary for a Market
Maker to fulfill its regulatory quoting obligations.15 For those Market Makers that elect to
organize themselves by obtaining a greater number of SQF Ports or SQF Purge Ports, they will
be subject to a cap.16 For Market Makers that only take 1 SQF Port or only a few SQF Ports or

See Options 2, Section 4(b)(1) and (3).

For example, a Market Maker may desire to utilize multiple SQF Ports and SQF Purge Ports for accounting
purposes, to measure performance, for regulatory reasons or other determinations that are specific to that
member organization.

Market Makers have various regulatory requirements as provided for in Options 2, Section 4. Additionally,
Market Makers have certain quoting requirements with respect to their assigned options series as provided
in Options 2, Section 5. SQF Ports are the only quoting protocol available on GEMX.

The number of ports that members choose to purchase varies widely. Today, on GEMX, no Market
Makers have 1 SQF Port/SQF Purge Port, 1 Market Maker had 2-5 SQF Ports/SQF Purge Ports, 4 Market

SQF Purge Ports, their costs would be far below the $27,500 or $17,500 threshold for the cap.
The proposed pricing change to increase the SQF Fee and SQF Purge Cap for Primary
Market Makers and Market Makers to $27,500 a month if Primary Market Makers or Market
Makers do not transact 0.50% of Total Customer Volume in electronic simple orders that adds
liquidity in a month is equitable and not unfairly discriminatory as all Primary Market Makers
and Market Makers would be able to cap their SQF Port and SQF Purge Port costs at $17,500,
provided they transacted the requisite volume, otherwise Primary Market Makers and Market
Makers would be uniformly subject to the $27,500 SQF Port and SQF Purge Port Cap. The
Exchange notes that unlike other market participants, Primary Market Makers are obligated to
quote in the Opening Process and intra-day.17 Additionally, Market Makers may enter quotes in
the Opening Process to open an option series and they are required to quote intra-day.18 Further,
unlike other market participants, Primary Market Makers and Market Makers have obligations to
compete with other Market Makers to improve the market in all series of options classes to
which the Market Maker is appointed and to update market quotations in response to changed
market conditions in all series of options classes to which the Market Maker is appointed.19
Finally, unlike other market participants, Primary Market Makers and Market Makers incur other
costs related to their quoting obligations in addition to other fees paid by other market
participants. Market Makers are subject to a number of fees, unlike other market participants.
Market Makers pay separate Membership Fees,20 and CMM Trading Right Fees,21 in addition to
other fees paid by other market participants. These liquidity providers are critical market
participants in that they are the only market participants that provide liquidity to GEMX and are

Makers have between 6-10 SQF Ports/SQF Purge Ports, and 8 Market Makers have more than 11 SQF
Ports/SQF Purge Ports.
See Options 3, Section 8 and Options 2, Section 5.

Id.

See Options 2, Section 4(b)(1) and (3).

See Options 7, Section 6, A.

See Options 7, Section 6, B.

necessary for opening the market. Allowing Primary Market Makers and Market Makers to
manage their costs by capping SQF Ports and SQF Purge Ports in addition to transaction fees
enables these essential market participants to manage their business model more effectively and
better allocate resources to other technologies that are necessary to manage risk and capacity to
ensure that these market participants continue to compete effectively on GEMX. The following
chart represents the classification of GEMX members and the percentage of Market Makers.

GEMX believes Primary Market Makers and Market Makers should be eligible for certain
incentives because they fulfill a unique role on the Exchange and are the only market participants
required to submit quotes to the Exchange. The proposed SQF Port and SQF Purge Cap is
designed to ensure that Primary Market Makers and Market Makers add a certain amount of
liquidity on GEMX in order to be able to cap their SQF Port and SQF Purge Port Fees at the
lower cap of $17,500 as compared to the increased cap of $27,500. The Exchange would apply
the criteria uniformly when applying the SQF Fee and SQF Purge Cap to Primary Market
Makers and Market Makers.
Finally, GEMX believes the proposed SQF Fee and SQF Purge Cap is constrained by
competitive forces and reasonably designed in consideration of the competitive environment in

which the Exchange operates. This fee structure incents Primary Market Makers and Market
Makers to support increased liquidity, quote competition, and trading opportunities on the
Exchange, for the benefit of all market participants.
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 who also offer
order entry protocols. 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. The chart below shows the February 2024 market share for
multiply listed options by exchange. Of the 17 operating options exchanges, none currently has
more than a 17.6% market share. Customers widely distribute their transactions across
exchanges according to their business needs and the ability of each exchange to meet those needs
through technology, liquidity and functionality.

Market share is the percentage of volume on a particular exchange relative to the total volume
across all exchanges, and indicates the amount of order flow directed to that exchange. High
levels of market share enhance the value of trading and ports.
In such an environment, the Exchange must continually adjust its fees to remain
competitive with other 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 pricing change to increase the SQF Fee and SQF Purge Cap for Primary
Market Makers and Market Makers to $27,500 a month if Primary Market Makers or Market
Makers do not transact 0.50% of Total Customer Volume in electronic simple orders that adds
liquidity in a month does not impose an undue burden on competition as all Primary Market
Makers and Market Makers would be able to cap their SQF Port and SQF Purge Port costs at
$17,500, provided they transacted the requisite volume, otherwise Primary Market Makers and
Market Makers would be uniformly subject to the $27,500 SQF Port and SQF Purge Port Cap.
The Exchange notes that unlike other market participants, Primary Market Makers are obligated
to quote in the Opening Process and intra-day.22 Additionally, Market Makers may enter quotes
in the Opening Process to open an option series and they are required to quote intra-day.23
Further, unlike other market participants, Primary Market Makers and Market Makers have
obligations to compete with other Market Makers to improve the market in all series of options
classes to which the Market Maker is appointed and to update market quotations in response to
changed market conditions in all series of options classes to which the Market Maker is

See Options 3, Section 8 and Options 2, Section 5.

Id.

appointed.24 Finally, unlike other market participants, Primary Market Makers and Market
Makers incur other costs related to their quoting obligations in addition to other fees paid by
other market participants. Market Makers are subject to a number of fees, unlike other market
participants. Market Makers pay separate Membership Fees,25 and CMM Trading Right Fees,26
in addition to other fees paid by other market participants. These liquidity providers are critical
market participants in that they are the only market participants that provide liquidity to GEMX
and are necessary for opening the market. Allowing Primary Market Makers and Market Makers
to manage their costs by capping SQF Ports and SQF Purge Ports in addition to transaction fees
enables these essential market participants to manage their business model more effectively and
better allocate resources to other technologies that are necessary to manage risk and capacity to
ensure that these market participants continue to compete effectively on GEMX. GEMX
believes Primary Market Makers and Market Makers should be eligible for certain incentives
because they fulfill a unique role on the Exchange and are the only market participants required
to submit quotes to the Exchange. The proposed SQF Port Cap is designed to ensure that
Primary Market Makers and Market Makers add a certain amount of liquidity on GEMX in order
to be able to cap their SQF Port and SQF Purge Port Fees at the lower cap of $17,500 as
compared to the increased cap of $27,500. The Exchange would apply the criteria uniformly
when applying the SQF Fee and SQF Purge Cap to Primary Market Makers and Market Makers.
Finally, GEMX believes the proposed SQF Fee and SQF Purge Cap is constrained by
competitive forces and reasonably designed in consideration of the competitive environment in
which the Exchange operates. This fee structure incents Primary Market Makers and Market
Makers to support increased liquidity, quote competition, and trading opportunities on the
Exchange, for the benefit of all market participants.
C.

Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change

See Options 2, Section 4(b)(1) and (3).

See Options 7, Section 6, A.

See Options 7, Section 6, B.

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.27 At any time within 60 days of the filing of the proposed rule change, the Commission
summarily may temporarily suspend such rule change if it appears to the Commission that such
action is: (i) necessary or appropriate in the public interest; (ii) for the protection of investors; or
(iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action,
the Commission shall institute proceedings to determine whether the proposed rule should be
approved or disapproved.
IV.

Solicitation of Comments
Interested persons are invited to submit written data, views and arguments concerning the

foregoing, including whether the proposed rule change is consistent with the Act. Comments
may be submitted by any of the following methods:
Electronic Comments:
•

Use the Commission’s internet comment form
(https://www.sec.gov/rules/sro.shtml); or

•

Send an email to rule-comments@sec.gov. Please include file number
SR-GEMX-2024-13 on the subject line.

Paper Comments:
•

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

All submissions should refer to file number SR-GEMX-2024-13. This file number
should be included on the subject line if email is used. To help the Commission process and

15 U.S.C. 78s(b)(3)(A)(ii).

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-2024-13 and should be
submitted on or before [INSERT DATE 21 DAYS AFTER DATE OF PUBLICATION IN THE
FEDERAL REGISTER].
For the Commission, by the Division of Trading and Markets, pursuant to delegated
authority.28
Vanessa A. Countryman,
Secretary.

[FR Doc. 2024-14209 Filed: 6/27/2024 8:45 am; Publication Date: 6/28/2024]

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