The Securities and Exchange Commission has published a notice in the Federal Register regarding a proposed rule change by Nasdaq GEMX, LLC, an options exchange operated by Nasdaq. Filed on February 12, 2026, and effective immediately, the amendment modifies the description of Add Liquidity Orders in the exchange's rulebook. This update specifies that such orders may only have a time-in-force designation of Day, aligning the written rules with current system functionality. The move addresses a need for greater clarity in exchange operations, potentially aiding market participants in understanding order handling without introducing new restrictions or capabilities. Published on February 25, 2026, in Volume 91, Number 37 of the Federal Register, the notice invites public comments and underscores the SEC's role in overseeing self-regulatory organizations to ensure fair and efficient markets.
Background on Nasdaq GEMX and Add Liquidity Orders
Nasdaq GEMX, formerly known as the International Securities Exchange Gemini, functions as a self-regulatory organization under the Securities Exchange Act of 1934. It provides a platform for trading standardized options contracts, facilitating liquidity and price discovery in the derivatives market. Add Liquidity Orders, detailed in Options 3, Section 7(n) of GEMX's rules, are limit orders designed to add liquidity to the exchange's order book rather than remove it. These orders must be displayed on the book before execution and cannot route to other markets. Members can opt to cancel or reprice them if they would lock or cross the national best bid or offer, or internal non-displayed orders.
The order type encourages displayed liquidity, which benefits market transparency and efficiency. According to the filing, Add Liquidity Orders are currently restricted in practice to a Day time-in-force, meaning they expire at the end of the trading day if not executed. This contrasts with other designations like Immediate-or-Cancel, which would allow instant execution or cancellation, or Good-Till-Date and Good-Till-Cancel, which persist beyond a single day and could participate in opening processes.
Key Details of the Proposed Rule Change
The amendment adds a single sentence to the rule text: "Add Liquidity Orders may only have a time-in-force designation of Day." As stated in the filing, this reflects existing system behavior and does not alter how orders are processed. The exchange explains that Add Liquidity Orders cannot use Immediate-or-Cancel because they are meant to rest on the book to add liquidity, not to execute immediately. Similarly, longer-term designations are incompatible as they could carry over to subsequent trading days or openings, conflicting with the order's purpose of promoting intraday displayed liquidity.
GEMX's filing cites Section 19(b)(3)(A)(iii) of the Act for immediate effectiveness, arguing the change is non-substantive and poses no significant impact on investor protection or competition. No comments were received prior to filing, and the SEC has opened a 60-day window for public input, during which it could suspend the rule if deemed necessary.
Statutory Basis and Regulatory Context
GEMX asserts the change aligns with Section 6(b)(5) of the Securities Exchange Act, which requires exchange rules to promote just and equitable principles of trade and protect investors. By codifying current practices, the amendment removes potential ambiguities, fostering a more transparent market environment. The filing references Rule 19b-4(f)(6), which allows immediate effectiveness for non-controversial proposals that do not significantly affect competition or public interest.
This fits into broader SEC oversight of options exchanges, where similar clarifications have been approved. For instance, past amendments on Nasdaq's other exchanges, like Nasdaq ISE, have addressed order type descriptions to enhance rulebook accuracy without substantive shifts. No direct legal precedents are cited in the filing, but the approach echoes routine housekeeping changes seen in self-regulatory filings, such as those updating terminology or aligning rules with technology.
Implications for Market Participants
From the perspective of exchange members, including market makers and institutional traders, this rule clarification could streamline compliance efforts. By explicitly limiting Add Liquidity Orders to Day designations, the amendment reduces the risk of inadvertent rule violations or system rejections. Retail investors indirectly benefit through potentially improved liquidity, as the order type incentivizes posting rather than taking.
Critics might argue that restricting time-in-force options limits flexibility, though the filing counters this by noting no functional change occurs. Supporters, including regulatory advocates, could view it as a step toward rulebook precision, aiding enforcement and education. The exchange maintains the proposal imposes no undue burden on competition, as all members face the same restrictions uniformly, and it does not alter inter-market dynamics.
Short-term effects may include minor adjustments in member training or software, but long-term, it could contribute to more robust market integrity by minimizing interpretive disputes. Different stakeholders, such as compliance officers versus high-frequency traders, might weigh the clarity against any perceived rigidity differently, though the non-substantive nature suggests limited controversy.
In summary, this rule change by Nasdaq GEMX enhances the transparency of its order types without altering market operations. Key takeaways include the explicit Day-only restriction for Add Liquidity Orders and the emphasis on rule clarity. Looking ahead, potential next steps involve monitoring public comments during the SEC's review period, which could lead to refinements if issues arise. Ongoing debates in options regulation often center on balancing innovation with transparency, and this filing exemplifies efforts to maintain clear rules amid evolving market technologies. Future challenges may include adapting to broader SEC initiatives on order handling or technology upgrades, ensuring exchanges like GEMX remain competitive while upholding investor protections.
