Federal Register / Vol. 86, No. 12 / Thursday, January 21, 2021 / Notices 6383 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78f(b). 

4 15 U.S.C. 78f(b)(4) and (5). 

5NetCoalition v. SEC, 615 F.3d 525, 539 (DC Cir. 

2010) (quoting Securities Exchange Act Release No. 

59039 (December 2, 2008), 73 FR 74770, 74782–83 

(December 9, 2008) (SR–NYSEArca–2006–21)). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90918; File No. SR-Phlx2021–01] 

Self-Regulatory Organizations; Nasdaq 

PHLX LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend the 

Exchange’s Pricing Schedule at Equity 

7, Section 3 

January 13, 2021. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) ,1 and Rule 19b–4 thereunder,2

notice is hereby given that on January 4, 

2021, Nasdaq PHLX LLC (‘‘Phlx’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend the 

Exchange’s pricing schedule at Equity 7, 

Section 3, as described further below. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/phlx/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

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 

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. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend its 

pricing schedule, at Equity 7, Section 3, 

to make several changes to its Qualified 

Market Maker (‘‘QMM’’) Program. The 

QMM Program provides supplemental 

incentives to member organizations that 

meet certain quality standards in acting 

as market makers for securities on the 

Exchange. 

Specifically, the Exchange proposes to 

adjust upward the average number of 

securities for which a member 

organization that qualifies as a QMM 

must quote at the national best bid and 

offer (‘‘NBBO’’) during a month to 

receive a supplemental credit of $0.0002 

per share executed, as set forth in Equity 

7, Section 3(c)(3). Currently, a member 

organization must quote at the NBBO at 

least 10% of the time for an average of 

at least 500 securities per day to qualify 

for the $0.0002 per share executed 

supplemental credit. The Exchange 

proposes to increase this number to 650 

securities. 

The Exchange proposes to increase 

the threshold number of securities in 

which a member organization must 

quote at the NBBO during a month to 

qualify for this supplemental credit as a 

means of encouraging QMMs to broaden 

the scope of their quoting activities on 

the Exchange. The Exchange believes 

that QMM activity on the Exchange is 

already robust enough to accommodate 

the establishment of a higher 

qualification threshold without 

compromising the ability of existing 

QMMs to maintain their current statuses 

in the program. 

Second, the Exchange proposes to 

adjust downward the average number of 

securities for which a member 

organization must quote at the NBBO at 

least 10% of the time during market 

hours during a month to receive a 

supplemental credit of $0.0003 per 

share executed in Tape A securities or 

$0.0002 per share executed in Tape B 

and Tape C securities, as set forth in 

Equity 7, Section 3(c)(4). Currently, a 

member organization must quote at the 

NBBO at least 10% of the time for an 

average of at least 850 securities per 

day, and provide 0.12% or more of total 

Consolidated Volume during a month, 

to qualify for this supplemental credit. 

The Exchange proposes to reduce the 

threshold number of securities that must 

be quoted to 800 securities. 

The Exchange proposes to lower the 

number of securities in which a member 

organization must quote at the NBBO 

during a month to qualify for this 

supplemental credit so as to render this 

credit more readily attainable for 

QMMs. The Exchange hopes that the 

proposal will lead to additional member 

organizations qualifying for the credit, 

which in turn would entail more QMMs 

quoting at the NBBO at least 10% of the 

time during the trading day in more 

securities than they do now, to the 

benefit of market quality. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,3 in general, and furthers the 

objectives of Sections 6(b)(4) and 6(b)(5) 

of the Act,4 in particular, in that it 

provides for the equitable allocation of 

reasonable dues, fees and other charges 

among members and issuers and other 

persons using any facility, and is not 

designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. 

The Proposal is Reasonable 

The Exchange’s proposed changes to 

its schedule of credits and QMM 

Program are reasonable in several 

respects. As a threshold matter, the 

Exchange is subject to significant 

competitive forces in the market for 

equity securities transaction services 

that constrain its pricing determinations 

in that market. The fact that this market 

is competitive has long been recognized 

by the courts. In NetCoalition v. 

Securities and Exchange Commission, 

the D.C. Circuit stated as follows: ‘‘[n]o 

one disputes that competition for order 

flow is ‘fierce.’ . . . As the SEC 

explained, ‘[i]n the U.S. national market 

system, buyers and sellers of securities, 

and the broker-dealers that act as their 

order-routing agents, have a wide range 

of choices of where to route orders for 

execution’; [and] ‘no exchange can 

afford to take its market share 

percentages for granted’ because ‘no 

exchange possesses a monopoly, 

regulatory or otherwise, in the execution 

of order flow from broker 

dealers’. . . .’’ 5

The Commission and the courts have 

repeatedly expressed their preference 

for competition over regulatory 

intervention in determining prices, 

products, and services in the securities 

markets. In Regulation NMS, while 

adopting a series of steps to improve the 

current market model, the Commission 

highlighted the importance of market 

forces in determining prices and SRO 

revenues and, also, recognized that 

current regulation of the market system 

‘‘has been remarkably successful in 

promoting market competition in its 


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6384 Federal Register / Vol. 86, No. 12 / Thursday, January 21, 2021 / Notices 

6Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) 

(‘‘Regulation NMS Adopting Release’’). 

7See Cboe EDGX U.S. Equities Exchange Fee 

Schedule, available at https://markets.cboe.com/us/ 

equities/membership/fee_schedule/edgx/. 

8The Exchange perceives no regulatory, 

structural, or cost impediments to market 

participants shifting order flow away from it. In 

particular, the Exchange notes that such shifts in 

liquidity and market share occur within the context 

of market participants’ existing duties of Best 

Execution and obligations under the Order 

Protection Rule under Regulation NMS. 

broader forms that are most important to 

investors and listed companies.’’ 6

Numerous indicia demonstrate the 

competitive nature of this market. For 

example, clear substitutes to the 

Exchange exist in the market for equity 

security transaction services. The 

Exchange is only one of several equity 

venues to which market participants 

may direct their order flow. Competing 

equity exchanges offer similar tiered 

pricing structures to that of the 

Exchange, including schedules of 

rebates and fees that apply based upon 

members achieving certain volume 

thresholds.7

Within this environment, market 

participants can freely and often do shift 

their order flow among the Exchange 

and competing venues in response to 

changes in their respective pricing 

schedules.8 Within the foregoing 

context, the proposal represents a 

reasonable attempt by the Exchange to 

increase its market share relative to its 

competitors. 

The Exchange’s proposal to increase 

the threshold numbers of securities in 

which QMMs must quote at the NBBO 

during a month to qualify for the 

supplemental credit at Equity 7, Section 

3(c)(2) [sic] will encourage QMMs to 

broaden the scope of their quoting 

activities on the Exchange. The 

Exchange believes that it is appropriate 

to periodically reassess and recalibrate 

the baselines for its pricing tiers when 

participant activity is adequate to 

support doing so. In this instance, QMM 

activity on the Exchange is robust 

enough to accommodate the 

establishment of a higher qualification 

threshold without compromising the 

ability of existing QMMs to maintain 

their current statuses in the program. 

Additionally, the Exchange’s proposal 

to ease one of its qualifications for the 

$0.0003/$0.0002 per share executed 

supplemental credit set forth in Equity 

7, Section 3(c)(4) is also a reasonable 

attempt to improve the accessibility of 

that supplemental credit and will 

encourage member organizations to try 

to qualify for it. 

The Proposals Are an Equitable 

Allocation of Credits 

The Exchange believes its proposals 

will allocate its proposed credits fairly 

among its market participants. 

The Exchange believes its proposal to 

raise the qualification criteria applicable 

its QMM supplemental credit, at Equity 

7, Section 3(c)(2) [sic], is equitable 

because the proposal will encourage 

member organizations to quote 

significantly at the NBBO for a larger 

number of securities, which in turn will 

contribute to market quality in a 

meaningful way. At the same time, the 

proposed recalibrated qualification 

threshold will not compromise the 

ability of QMMs that currently qualify 

for this supplemental credit to continue 

to do so. 

The Exchange also believes that it is 

equitable to lower a qualification 

threshold for its highest supplemental 

credit, at Equity 7, Section 3(c)(4), 

because the proposal will render the 

credit more readily attainable to 

member organizations. It is equitable for 

the Exchange to make it easier for 

member organizations to qualify for this 

supplemental credit because doing so 

may encourage member organizations to 

broaden the extent to which they quote 

securities at the NBBO, which in turn 

stands to improve the quality of the 

Exchange’s equity market and increase 

its attractiveness to existing and 

prospective participants. 

The Proposal Is Not Unfairly 

Discriminatory 

The Exchange believes that the 

proposals are not unfairly 

discriminatory. As an initial matter, the 

Exchange believes that nothing about its 

volume-based tiered pricing model is 

inherently unfair; instead, it is a rational 

pricing model that is well-established 

and ubiquitous in today’s economy 

among firms in various industries—from 

co-branded credit cards to grocery stores 

to cellular telephone data plans—that 

use it to reward the loyalty of their best 

customers that provide high levels of 

business activity and incent other 

customers to increase the extent of their 

business activity. It is also a pricing 

model that the Exchange and its 

competitors have long employed with 

the assent of the Commission. It is fair 

because it incentivizes customer activity 

that increases liquidity, enhances price 

discovery, and improves the overall 

quality of the equity markets. 

The Exchange intends for its 

proposals to increase participation and 

the extent of participation in its QMM 

program, which in turn would improve 

market quality for all member 

organizations on the Exchange. 

The Exchange’s proposal to raise the 

qualification requirements for its 

supplemental QMM credit, at Equity 7, 

Section 3(c)(2) [sic], is not unfairly 

discriminatory because no member 

organization that presently qualifies for 

this supplemental credit will fail to 

qualify for it upon raising the 

requirements. Although any member 

organization that newly qualifies for this 

credit will need to quote at the NBBO 

for a larger number of securities than 

they would need to do now, this is fair 

because meeting the heightened 

requirement will improve market 

quality. Meanwhile, the proposal to 

lower the qualification criteria for the 

highest supplemental QMM credit, at 

Equity 7, Section 3(c)(4), will improve 

the accessibility of that credit to 

member organizations. Again, if this 

proposal results in more member 

organizations meeting the requirements 

for this supplemental credit, then 

market quality will improve. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

Intramarket Competition 

The Exchange does not believe that its 

proposals will place any category of 

Exchange participants at a competitive 

disadvantage. As noted above, all 

members of the Exchange will benefit 

from an increase in the addition of 

liquidity by those that choose to meet 

the criteria. Members may grow their 

businesses so that they have the 

capacity to receive credits for providing 

liquidity. Moreover, members are free to 

trade on other venues to the extent they 

believe that the credits provided are not 

attractive. As one can observe by 

looking at any market share chart, price 

competition between exchanges is 

fierce, with liquidity and market share 

moving freely between exchanges in 

reaction to fee and credit changes. The 

Exchange notes that the tier structure is 

consistent with broker-dealer fee 

practices as well as the other industries, 

as described above. 

Moreover, the Exchange’s proposal to 

modify its QMM program will not 

burden intramarket competition because 

the QMM Program, as modified, will 

continue to provide all member 

organizations with an opportunity to 

obtain supplemental credits for 

transactions if they improve the market 

by providing significant quoting at the 


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Federal Register / Vol. 86, No. 12 / Thursday, January 21, 2021 / Notices 6385 

9 15 U.S.C. 78s(b)(3)(A)(ii). 10 17 CFR 200.30–3(a)(12). 

NBBO in a large number of securities 

which the Exchange believes will 

improve market quality. By relaxing the 

qualification criteria, the modifications 

will make the Program more accessible 

to new member organizations and easier 

for existing QMMs to remain in the 

Program. 

Intermarket Competition 

Addressing whether the proposed fee 

could impose a burden on competition 

on other SROs that is not necessary or 

appropriate, the Exchange believes that 

its proposed modifications to its 

schedule of credits and charges will not 

impose a burden on competition 

because the Exchange’s execution 

services are completely voluntary and 

subject to extensive competition both 

from the other live exchanges and from 

off-exchange venues, which include 

alternative trading systems that trade 

national market system stock. The 

Exchange notes that it operates in a 

highly competitive market in which 

market participants can readily favor 

competing venues if they deem fee 

levels at a particular venue to be 

excessive, or rebate opportunities 

available at other venues to be more 

favorable. In such an environment, the 

Exchange must continually adjust its 

fees to remain competitive with other 

exchanges and with alternative trading 

systems that have been exempted from 

compliance with the statutory standards 

applicable to exchanges. Because 

competitors are free to modify their own 

fees in response, and because market 

participants may readily adjust their 

order routing practices, the Exchange 

believes that the degree to which fee 

changes in this market may impose any 

burden on competition is extremely 

limited. 

The proposed credit for adding 

liquidity and the proposed 

modifications to the QMM Program are 

reflective of this competition because, as 

a threshold issue, the Exchange is a 

relatively small market so its ability to 

burden intermarket competition is 

limited. In this regard, even the largest 

U.S. equities exchange by volume only 

has 17–18% market share, which in 

most markets could hardly be 

categorized as having enough market 

power to burden competition. Moreover, 

as noted above, price competition 

between exchanges is fierce, with 

liquidity and market share moving 

freely between exchanges in reaction to 

fee and credit changes. This is in 

addition to free flow of order flow to 

and among off-exchange venues which 

comprises more than 40% of industry 

volume in recent months. 

In sum, the Exchange intends for the 

modified QMM Program to increase 

member organizations incentives to 

quote more securities at the NBBO for 

at least 10 percent of the day, which 

stands to improve the quality of the 

Exchange’s market and its attractiveness 

to participants; however, if the 

proposals are unattractive to market 

participants, it is likely that the 

Exchange will either fail to increase its 

market share or even lose market share 

as a result. Accordingly, the Exchange 

does not believe that the proposed 

amended credits will impair the ability 

of members or competing order 

execution venues to maintain their 

competitive standing in the financial 

markets. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act.9

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is: (i) Necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) otherwise in 

furtherance of the purposes of the Act. 

If the Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

Phlx–2021–01 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2021–01. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–Phlx–2021–01 and should 

be submitted on or before February 9, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–01136 Filed 1–19–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90910; File No. SR– 

CboeBZX–2021–005] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change Relating To 

Amend Its Fees Schedule 

January 13, 2021. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 


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