Nasdaq GEMX files index options surcharge change with U.S. SEC

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Nasdaq GEMX index options surcharge

Highlights

Nasdaq GEMX filed with the SEC to change its Index Options surcharge, proposing a tiered premium-based fee schedule for NDX electronic simple Non-Priority Customer orders that remove liquidity.
Under the proposal, surcharges for affected NDX trades would range from $1.00 for premiums below $3.00 up to $3.00 for premiums $50.00 or higher.
GEMX states the revised schedule matches surcharge to risk and impact, aiming to attract NDX order flow by objectively linking fees to premium size.

Premium-based fee structure for NDX trades

As reported by the Securities and Exchange Commission, Nasdaq GEMX filed the proposal under Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4, and the regulator is publishing the notice to solicit comments from interested parties.

The exchange proposes to amend its Pricing Schedule at Options 7, Section 3 for Index Options by replacing the current surcharge in note 20 with a tiered schedule tied to premium value for NDX electronic simple Non-Priority Customer orders that remove liquidity.

Under the proposed structure, orders with premiums below $3.00 would face a $1.00 surcharge. Orders with premiums of at least $3.00 but below $10.00 would be charged $1.50, those from $10.00 to below $25.00 would pay $2.00, those from $25.00 to below $50.00 would pay $2.50, and orders at $50.00 or more would incur a $3.00 surcharge.

Exchange argues change supports order flow

GEMX says the scaled surcharge reflects meaningful differences in risk and market impact across premium levels. The exchange argues that higher-premium options indicate greater implied volatility, larger notional exposure, higher sensitivity to index moves, more significant leverage, and economic exposure that can approximate or exceed comparable futures contracts.

The exchange also says the revised pricing is designed to continue attracting NDX order flow to its market. It adds that the approach distinguishes among transactions rather than among market participants, using premium price as an objective market-based variable that it says is directly linked to the costs imposed on the exchange.

The text of the proposed rule change is available on GEMX's website and at the exchange's principal office.

Our earlier article on Nasdaq-100 hedging with QQQ put spreads described how traders use defined-risk put spreads to reduce the upfront premium while still protecting against sharp drawdowns in growth stocks. It outlined typical entry conditions such as targeting about 40 days to expiration and avoiding periods of elevated volatility, and showed how a spread can gain value during a fast QQQ selloff to help limit portfolio drawdowns.

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