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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
Number SRPhlx202137 and should be submitted on or before July 19, 2021.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11
J. Matthew DeLesDernier, Assistant Secretary.
FR Doc. 202113658 Filed 62521; 8:45 am
A. Self-Regulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
BILLING CODE 801101P

SECURITIES AND EXCHANGE
COMMISSION

1. Purpose
Release No. 3492227; File No. SRGEMX
202105

Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Options 2, Section 4
Obligations of Market Makers June 22, 2021.

Pursuant to Section 19b1 of the Securities Exchange Act of 1934
Act,1 and Rule 19b4 thereunder,2
notice is hereby given that on June 9, 2021, 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.

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I. Self-Regulatory Organizations Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Options 2, Section 4, Obligations of Market Makers. The Exchange also proposes to add a new Options 4C.
The text of the proposed rule change is available on the Exchanges website at https listingcenter.nasdaq.com/
rulebook/gemx/rules, at the principal office of the Exchange, and at the Commissions Public Reference Room.
II. Self-Regulatory Organizations 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 11 17

CFR 200.303a12.
U.S.C. 78sb1.
2 17 CFR 240.19b4.
3 See Securities Exchange Act Release No. 70050
July 26, 2013, 78 FR 46622 August 1, 2013
Application of Topaz Exchange, LLC for Registration as a National Securities Exchange;
Findings, Opinion, and Order of the Commission.
1 15

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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.

The Exchange proposes to amend Options 2, Section 4, Obligations of Market Makers. The Exchange also proposes to add a new Options 4C.
Options 2, Section 4a The Exchange proposes to remove the following rule text from Options 2, Section 4a, which has been in place since GEMXs inception: 3
. . . Ordinarily, Market Makers are expected to:
1 Refrain from purchasing a call option or a put option at a price more than $0.25 below parity, although a larger amount may be appropriate considering the particular market conditions. In the case of calls, parity is measured by the bid in the underlying security, and in the case of puts, parity is measured by the offer in the underlying security.
2 The $0.25 amount above may be increased, or the provisions of this Rule may be waived, by the Exchange on a series-byseries basis. This proposed rule text also previously existed on Cboe Exchange, Inc.
within prior Rule 8.7 4 and was removed from Cboes Rulebook in 2019.5 The Exchange likewise desires to remove this restriction on Market Makers which does not exist on Cboe or other Nasdaq affiliated 4 Prior Interpretation and Policy .02 to Rule 8.7
provided, Market-Makers are expected ordinarily to refrain from purchasing a call option or a put option at a price more than $0.25 below parity, although a larger amount may be appropriate considering the particular market conditions. In the case of calls, parity is measured by the bid in the underlying security, and in the case of puts, parity is measured by the offer in the underlying security.
The $0.25 amount above may be increased, or the provisions of this Interpretation may be waived, by the Exchange on a series-by-series basis.
5 Cboes rule change merely noted, with respect to the removal of Cboes parity rule, that the filing makes non-substantive changes to the rule governing a Market-Makers general obligations current Rule 8.7, in part, most of which remove redundant provisions that are already covered under the umbrella of a Market-Makers obligation to engage in dealing to maintain fair and orderly markets. No specific argument is provided with respect to removing this provision. See Securities Exchange Act 87024 September 19, 2019, 84 FR
50545 September 25, 2019 SRCBOE2019059
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend Certain Rules Relating To Market-Makers Upon Migration to the Trading System Used by Cboe Affiliated Exchanges.

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markets.6 The proposed rule text is currently waived on GEMX pursuant to Options 2, Section 4a2. The Exchange proposes to remove this rule text from Options 2, Section 4 as the Exchange does not desire to enforce this provision in the future. The Exchange believes that this market maker provision is no longer necessary. Today, GEMX
incentivizes Market Makers through allocation 7 to quote tightly in their assigned options series. Primary Market Makers and Competitive Market Makers also have other obligations with respect to market making 8
in addition to other quoting obligations 9 that they must abide by when quoting on GEMX.
Also, since the adoption of the rule, the Exchange has adopted the obvious error rule 10 which permits the Exchange to review a transaction as potentially erroneous based on a theoretical price. Also, GEMX orders are subject to trade-through compliance, thereby limiting the prices at which orders may execute.11 Market Makers are relied upon to provide liquidity on GEMX, which benefits other Members who have the opportunity to interact with the order flow. The Exchange believes that the obligation to refrain from purchasing a call option or a put option at a price more than $0.25 below parity places yet another obligation on GEMX Market Makers that is not required on Cboe or other Nasdaq markets. The Exchange believes that this additional obligation is not necessary to maintain fair and orderly markets and notes the Exchange has waived this obligation.

Bid/Ask Differentials The Exchange proposes to amend Options 2, Section 4b4 and Options 4A, Section 12bi to centralize the bid/ask differentials. Specifically, the Exchange proposes to state within new Options 2, Section 4b4iii that, 6 See Nasdaq Phlx LLC, The Nasdaq Options Market LLC and Nasdaq BX, Inc. at Options 2, Section 4 Obligations of Market Makers.
7 See Options 3, Section 10 Priority of Quotes and Orders. Primary Market Makers are offered an enhanced allocation provided the Primary Market Maker is quoting at same price as a non-Priority Customer Order or Market Maker quote.
8 See Options 2, Section 4. GEMX Market Makers must for example: 1 Compete with other Market Makers to improve the market in all series of options classes to which the Market Maker is appointed; 2 make markets that, absent changed market conditions, will be honored for the number of contracts entered into the Exchanges System in all series of options classes to which the Market Maker is appointed; 3 update market quotations in response to changed market conditions in all series of options classes to which the Market Maker is appointed; and 4 price options contracts fairly by, among other things, bidding and offering so as to create differences of no more than $5 between the bid and offer following the opening rotation in an equity or index options contract. See Options 2, Section 4b.
9 See Options 2, Section 5 Electronic Market Maker Obligations and Quoting Requirements.
Further, Options 3, Section 8c3 requires Primary Market Makers to submit a Valid Width Quote during the Opening Process.
10 See Options 3, Section 20 Nullification and Adjustment of Options Transactions including Obvious Errors.
11 See Options 3, Section 4b6.

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