Nasdaq GEMX, LLC, an options exchange operated by Nasdaq, filed a proposed rule change with the Securities and Exchange Commission on November 20, 2025, to amend its Pricing Schedule under Options 7, Section 3. The changes, effective November 13, 2025, include an increase in the Tier 4 Penny Symbol Maker Rebate for Market Makers from $0.38 to $0.39 per contract, a new incentive for Priority Customer orders exceeding certain volume thresholds, and a technical renumbering of an existing note. This filing, designated as SR-GEMX-2025-32, became immediately effective under Section 19(b)(3)(A)(ii) of the Securities Exchange Act of 1934, allowing the exchange to implement pricing adjustments without prior approval while soliciting public comments. The proposal reflects ongoing efforts by options exchanges to enhance competitiveness through targeted rebates, potentially influencing trading activity and liquidity provision in a highly competitive market.
Background and Purpose of the Proposal
GEMX operates as a self-regulatory organization under the oversight of the SEC, providing a platform for trading standardized options contracts. Its Pricing Schedule in Options 7, Section 3 outlines fees and rebates for regular orders in Penny Symbols, which are options classes priced in increments of $0.01 or $0.05. The exchange employs a tiered rebate structure to incentivize market participants, particularly Market Makers, who are required to maintain continuous quotes and facilitate orderly markets.
The current structure offers rebates based on four tiers, determined by a member's total consolidated volume in Priority Customer orders. For Market Makers, these rebates range from $0.20 in Tier 1 to $0.38 in Tier 4 per contract. Priority Customers, defined as non-professional retail investors placing fewer than 390 orders per day on average, receive higher rebates, up to $0.53 in Tiers 3 and 4. Other participants, such as Non-Nasdaq GEMX Market Makers and Professional Customers, receive limited or no rebates in higher tiers.
GEMX's proposal stems from a desire to attract more order flow amid fierce competition among the 18 U.S. options exchanges. As noted in the filing, the exchange aims to encourage Market Makers to increase liquidity provision, which could benefit all participants through tighter spreads and improved order interaction. This aligns with broader industry trends, where exchanges like Cboe and NYSE Arca have similarly adjusted rebates to capture market share.
Key Changes to Rebates and Incentives
The primary amendment increases the Tier 4 Maker Rebate for Market Makers in Penny Symbols from $0.38 to $0.39 per contract. This adjustment applies uniformly to qualifying Market Makers who achieve the highest volume tier, defined as Priority Customer volume exceeding 1.75% of total industry customer equity and ETF options volume in a month.
Additionally, the proposal introduces note 19, offering an extra $0.01 per contract rebate on marginal Priority Customer add-liquidity volume above 2.00% of Customer Total Consolidated Volume. For instance, if monthly Customer TCV is 1 billion contracts, the threshold is 20 million contracts, with the bonus applying to executions beyond that level. This incentive targets high-volume participants, including Members, Affiliated Members, and Affiliated Entities eligible for Tier 4 rebates.
A minor technical change renumbers an existing note from 18 to 20, addressing a duplication from prior filings (SR-GEMX-2025-12 and SR-GEMX-2025-13). The note imposes a $1.50 per contract surcharge on Non-Priority Customer orders removing liquidity in NDX options. This correction clarifies the Pricing Schedule without altering substantive fees.
Legal and Statutory Basis
GEMX justifies the changes under Section 6(b) of the Securities Exchange Act, emphasizing equitable allocation of fees and promotion of competition. The filing cites precedents like NetCoalition v. SEC (615 F.3d 525, D.C. Cir. 2010), which recognized the competitive nature of order flow, and Regulation NMS, which favors market-driven pricing over regulatory intervention.
The exchange argues the rebate increase is reasonable as it encourages Market Makers to add liquidity, potentially leading to better pricing for all traders. It deems the structure non-discriminatory, noting Priority Customers receive preferential treatment due to their role in attracting overall market activity. Market Makers, with quoting obligations under GEMX Options 2, Section 5, are distinguished from other participants who lack such duties.
From a competitive standpoint, the proposal avoids undue burdens by applying uniformly and allowing market participants to shift order flow to rivals if fees become uncompetitive. GEMX references the 18 options venues, asserting that similar rebate programs elsewhere validate this approach.
Perspectives and Implications
Stakeholders may view these changes differently. Market Makers could welcome the enhanced rebates as a means to offset costs and improve profitability, potentially increasing GEMX's market share. Retail investors, through Priority Customer incentives, might benefit from greater liquidity and narrower spreads, aligning with SEC goals of investor protection.
Critics, including competing exchanges or advocacy groups, might argue that tiered rebates favor large-volume players, potentially disadvantaging smaller firms and exacerbating market concentration. The immediate effectiveness provision, while efficient, could raise concerns about limited pre-implementation scrutiny, though the 60-day comment period allows for public input.
Short-term implications include possible shifts in order routing, with GEMX gaining flow from venues like MIAX or BOX. Long-term, sustained rebate increases could pressure industry-wide pricing, influencing overall transaction costs and exchange revenues.
In conclusion, GEMX's adjustments underscore the dynamic interplay of competition and regulation in options markets. Key takeaways include the targeted incentives for liquidity providers and the emphasis on equitable fee structures. Potential next steps involve SEC review of comments, which could lead to modifications or suspension within 60 days. Ongoing debates may focus on the balance between rebate-driven competition and fair access, with challenges arising if similar proposals proliferate across exchanges. Future trajectories could see further refinements to tier thresholds or expansions to non-Penny Symbols, depending on market response and regulatory feedback.
