Nasdaq GEMX, LLC, an options exchange operated by Nasdaq, filed a proposed rule change with the Securities and Exchange Commission on December 16, 2025, to amend fees for its Specialized Quote Feed (SQF) Ports and SQF Purge Ports. The proposal introduces tiered discounts for market makers based on their trading volume as a percentage of total national volume in the prior month. Effective January 1, 2026, these changes seek to incentivize increased participation and liquidity on the exchange. Published in the Federal Register on December 30, 2025, the filing became immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934, allowing the SEC to solicit public comments while the rule takes effect. This development reflects ongoing efforts by options exchanges to balance competitive fee structures with the need to attract order flow in a fragmented market.
Background on SQF Ports and Recent Fee Adjustments
SQF Ports serve as interfaces for market makers to submit quotes, immediate-or-cancel orders, and auction responses to the exchange. They handle essential functions such as quote messages, execution notifications, and risk protection triggers. SQF Purge Ports specifically manage purge requests, enabling market makers to cancel quotes efficiently. Under GEMX rules, market makers, which include competitive market makers and primary market makers, must maintain continuous two-sided quotes in their assigned options series, making these ports critical for compliance and operations.
The current proposal builds on a prior filing, SR-GEMX-2025-22, which established tiered fees for SQF and SQF Purge Ports effective January 1, 2026. That structure assesses $1,620 per port per month for the first five ports, $1,080 for ports six through 20, and $540 for ports beyond 20. GEMX designed these fees to mirror those on Nasdaq Options Market (NOM), aggregating SQF and SQF Purge Ports for tier calculations. The exchange withdrew an earlier version, SR-GEMX-2025-33, on December 16, 2025, replacing it with this refined proposal. This alignment underscores Nasdaq's strategy to standardize pricing across its affiliated exchanges, potentially simplifying operations for members active on multiple venues.
GEMX operates in a competitive landscape where exchanges vie for order flow through pricing incentives. Market makers bear unique obligations, including quoting requirements under GEMX Options 2, Sections 4 and 5, which distinguish them from other participants like customers or brokers. The proposal excludes index options from volume calculations, focusing on multiply-listed equity options where competition is most intense.
Key Elements of the Proposed Discounts
The rule change introduces discounts on SQF and SQF Purge Port fees tied to a market maker's share of total national volume in the prior month. Volume is calculated by combining penny symbol and non-penny symbol executions, with non-penny symbols weighted five times higher to encourage trading in less liquid classes. Total national volume uses market maker executions across all options exchanges, as reported by The Options Clearing Corporation.
The tiers are as follows: no discount for less than 0.10% of total national volume, 10% for 0.10% to less than 0.25%, 30% for 0.25% to less than 0.40%, and 50% for 0.40% or more. For example, a market maker executing 3 million contracts in penny symbols and 200,000 in non-penny symbols against a national total of 1 billion would qualify for the 50% discount, as the weighted calculation yields 0.40%. GEMX clarifies that ports are aggregated for tier qualification, consolidating SQF and SQF Purge fees into a single table for transparency.
This structure resembles incentives on other exchanges, such as Cboe's credits on BOE Bulk Port fees, which offer up to 40% reductions based on volume tiers. GEMX's filing emphasizes that only one SQF Port is necessary for quoting obligations, though members may acquire more for operational reasons like performance tracking or regulatory compliance.
Legal and Statutory Basis
GEMX asserts the proposal complies with Section 6(b) of the Securities Exchange Act, promoting equitable fee allocation and preventing unfair discrimination. It argues the discounts are reasonable, as they reward higher-volume market makers who enhance liquidity and price discovery, benefiting all participants. The exchange cites precedents like Regulation NMS, which favors market-based pricing, and the NetCoalition v. SEC decision upholding competition-driven fees.
On intra-market competition, discounts apply uniformly to all market makers, with calculations based solely on objective volume data. GEMX notes that lower-volume makers can increase quoting activity to qualify, aligning with their regulatory duties to maintain active markets. Inter-market, the proposal positions GEMX competitively against rivals, potentially drawing flow without creating undue burdens, as members can route orders elsewhere if fees prove unattractive.
Perspectives and Implications
Stakeholders may view the discounts differently. Market makers could welcome reduced costs, especially those achieving higher tiers, as it mitigates expenses in a role requiring significant infrastructure investment. However, smaller or less active makers might see it as favoring larger firms, potentially concentrating liquidity. Regulators, including the SEC, will assess whether the tiers promote fair access, given the Act's emphasis on non-discriminatory practices.
Short-term, the changes could boost GEMX's market share by attracting volume in non-penny symbols, where liquidity is often thinner. Long-term, they might influence industry trends toward volume-based incentives, as seen in similar filings across exchanges. Broader debates include the impact on market fragmentation and whether such fees adequately cover exchange costs without subsidizing high-frequency trading.
In summary, GEMX's proposal refines port fee structures to foster competition and liquidity. Potential next steps include SEC review of public comments, which could lead to suspension or amendments if concerns arise. Ongoing challenges involve balancing incentives with equitable access, amid evolving regulatory scrutiny of exchange pricing models. Debates may center on whether weighted volume calculations sufficiently address liquidity disparities between symbol classes, shaping future rule changes in the options market.
