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###### Securities and Exchange Commission

          - [Release No. 34-95103; File No. SR-Phlx-2022-24]

                    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 June 1, 2022, 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 schedule of credits, 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: (1) adopt a new $0.0025 per share executed credit for member organizations that provide non-displayed liquidity with midpoint pegging of at least one million shares average daily value during the month; and (2) modify the per share executed credit for member organizations that provide non-displayed liquidity with midpoint pegging for all other orders from $0.0023 to $0.0018.

Pursuant to Equity 7, Section 3, the Exchange currently provides a credit of $0.0023 per share executed to member organizations for all non-displayed orders with midpoint pegging that provide liquidity. The Exchange proposes to establish credit tiers for member organizations providing liquidity for non-displayed orders with midpoint pegging to provide an incentive for member organizations to engage in a significant amount of liquidity adding activity on the Exchange.

                    The Exchange proposes establishing a new credit that will reward a member organization with a credit of $0.0025 per share executed to the extent that it provides a daily average volume of at least one million shares of non-displayed liquidity with midpoint pegging during the month. The proposed new credit for non-displayed orders with midpoint pegging will provide an additional incentive to member organizations to add liquidity to the Exchange. Insofar as the proposed new credit will require a qualifying member organization to provide at least one million shares average daily value during the month in order to qualify for the $0.0025 per share credit, the Exchange believes it is reasonable for                           ( print page 36907)                        the amount of the proposed credit to be larger than the credit for other non-displayed orders with midpoint pegging, which the Exchange proposes to modify to $0.0018. To the extent that the proposed new credit structure succeeds in increasing liquidity on the Exchange, the quality of the Exchange's market will improve, to the benefit of all participants.                

In addition, the Exchange proposes lowering the credit to member organizations for all other non-displayed orders with midpoint pegging that provide liquidity during the month from $0.0023 to $0.0018 per share executed. The Exchange has limited resources available to it to offer its member organizations market-improving incentives, and it allocates those limited resources to those segments of the market where it perceives the need to be greatest and/or where it determines that the incentive is likely to achieve its intended objective, such as the proposed new credit and away from those that are less effective, such as this existing credit for midpoint pegged orders that add liquidity to the Exchange. Accordingly, the Exchange is reducing the amount of this credit from $0.0023 to $0.0018 per share executed.

#### 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 member organizations and issuers and other persons using any facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.                

                    The Exchange's proposed changes to its schedule of credits 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 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 member organizations achieving certain volume thresholds.

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. As such, the proposal represents a reasonable attempt by the Exchange to increase its liquidity and market share relative to its competitors.

The Exchange believes that its proposals are reasonable, equitable, and not unfairly discriminatory to: (1) establish a new $0.0025 per share executed credit for non-displayed orders with midpoint pegging that provide liquidity of at least one million shares average daily value during the month; and (2) reduce from $0.0023 to $0.0018 per share executed its existing credit for all other non-displayed orders with midpoint pegging that provide liquidity to the Exchange. The Exchange assesses a particular need to increase liquidity on the Exchange as a means of improving market quality. The proposal is reasonable in serving that purpose by providing a new incentive for member organizations to add a substantial amount of liquidity to the Exchange, while reducing an existing incentive for member organizations that add a lesser amount of liquidity to the Exchange. As noted above, the Exchange has limited resources available to it to offer its member organizations market-improving incentives, and it allocates those limited resources to those segments of the market where it perceives the need to be greatest and/or where it determines that the incentive is likely to achieve its intended objective. It is reasonable and equitable to address the need for increased liquidity on the Exchange by allocating its limited resources to establish a new credit that rewards member organizations that provide a substantial volume of liquidity to the Exchange and reduce an existing credit that rewards member organizations for providing a lesser volume of liquidity to the Exchange.

The Exchange also believes that these proposals are an equitable allocation and not unfairly discriminatory because all market participants stand to benefit to the extent that the proposal is successful in increasing liquidity on the Exchange and improving market quality. Insofar as the $0.0025 credit will require a member organization to provide a daily average volume of at least one million shares of liquidity on the Exchange during the month, the Exchange believes it is reasonable, equitable, and not unfairly discriminatory for the amount of the proposed credit to be larger than the credit for all other non-displayed orders with midpoint pegging.

Any member organization that is dissatisfied with the proposed credits is free to shift their order flow to competing venues that provide more favorable rates or less stringent qualifying criteria.

### 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 proposal will place any category of Exchange participants at a competitive disadvantage. As noted above, all member organizations of the Exchange will benefit from an increase in activity on the Exchange. Moreover, member organizations are free to trade on other venues to the extent they believe that the credits provided are not attractive or                           ( print page 36908)                        the qualifying criteria for such credits is too stringent. 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.                

#### Intermarket Competition

The Exchange believes that the proposed changes to its schedule of credits for non-displayed orders with midpoint pegging 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 credits 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 credits and fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which credit changes in this market may impose any burden on competition is extremely limited.

The proposed changes to the Exchange's credits for non-displayed orders with midpoint pegging 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 proposed changes to credits for non-displayed orders with midpoint pegging to incent member organizations to add liquidity to the Exchange and to thereby contribute to market quality, which is reflective of fierce competition for order flow noted above; however, if the change proposed herein is 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 change will impair the ability of member organizations 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.[7] 

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-2022-24 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-2022-24. 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-2022-24 and should be submitted on or before July 12, 2022.                

                        For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[8] 

J. Matthew DeLesDernier,

Assistant Secretary.

# Footnotes

1.                             15 U.S.C. 78s(b)(1).                    
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2.                             17 CFR 240.19b-4.                    
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3.                             15 U.S.C. 78f(b).                    
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4.                             15 U.S.C. 78f(b)(4) and (5).                    
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5.                                                     *NetCoalition*                         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)).                    
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6.                             Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (“Regulation NMS Adopting Release”).                    
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7.                             15 U.S.C. 78s(b)(3)(A)(ii).                    
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8.                                 17 CFR 200.30-3(a)(12).                        
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[FR Doc. 2022-13151 Filed 6-17-22; 8:45 am]

BILLING CODE 8011-01-P