[Federal Register Volume 87, Number 119 (Wednesday, June 22, 2022)]
[Notices]
[Pages 37361-37363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13270]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95108; File No. SR-Phlx-2022-23]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, 
Section 4, Multiply Listed Options Fees

June 15, 2022.
    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 May 31, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx's Pricing Schedule at Options 
7, Section 4, ``Multiply Listed Options Fees (Includes options 
overlying equities, ETFs, ETNs and indexes which are Multiply Listed) 
(Excludes SPY).''
    While the changes proposed herein are effective upon filing, the 
Exchange

[[Page 37362]]

has designated that the amendments be operative on June 1, 2022.
    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
    Phlx proposes to amend its Pricing Schedule at Options 7, Section 
4, ``Multiply Listed Options Fees (Includes options overlying equities, 
ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY).'' 
Specifically, Phlx proposes to increase the maximum Qualified 
Contingent Cross (``QCC'') rebate that will be paid by the Exchange in 
a given month. The Exchange believes that increasing the maximum QCC 
Rebate to be paid by the Exchange in a given month will incentivize 
market participants to transact a greater amount of QCC Orders on Phlx.
    Today, the Exchange assesses a $.20 per contract QCC Transaction 
Fee for a Lead Market Maker,\3\ Market Maker,\4\ Firm \5\ and Broker-
Dealer.\6\ Customers \7\ and Professionals \8\ are not assessed a QCC 
Transaction Fee. QCC Transaction Fees apply to electronic QCC Orders 
\9\ and Floor QCC Orders.\10\ Rebates are paid on all qualifying 
executed electronic QCC Orders and Floor QCC Orders based on the 
following six tier rebate schedule:\11\
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    \3\ The term ``Lead Market Maker'' applies to transactions for 
the account of a Lead Market Maker (as defined in Options 2, Section 
12(a)). A Lead Market Maker is an Exchange member who is registered 
as an options Lead Market Maker pursuant to Options 2, Section 
12(a). An options Lead Market Maker includes a Remote Lead Market 
Maker which is defined as an options Lead Market Maker in one or 
more classes that does not have a physical presence on an Exchange 
floor and is approved by the Exchange pursuant to Options 2, Section 
11. See Options 7, Section 1(c). The term ``Floor Lead Market 
Maker'' is a member who is registered as an options Lead Market 
Maker pursuant to Options 2, Section 12(a) and has a physical 
presence on the Exchange's trading floor. See Options 8, Section 
2(a)(3).
    \4\ The term ``Market Maker'' is defined in Options 1, Section 
1(b)(28) as a member of the Exchange who is registered as an options 
Market Maker pursuant to Options 2, Section 12(a). A Market Maker 
includes SQTs and RSQTs as well as Floor Market Makers. See Options 
7, Section 1(c). The term ``Floor Market Maker'' is a Market Maker 
who is neither an SQT or an RSQT. A Floor Market Maker may provide a 
quote in open outcry. See Options 8, Section 2(a)(4).
    \5\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at The Options Clearing Corporation. See Options 7, 
Section 1(c).
    \6\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category. See Options 7, Section 1(c).
    \7\ The term ``Customer'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Customer range at The Options Clearing Corporation (``OCC'') which 
is not for the account of a broker or dealer or for the account of a 
``Professional'' (as that term is defined in Options 1, Section 
1(b)(45)). See Options 7, Section 1(c).
    \8\ The term ``Professional'' applies to transactions for the 
accounts of Professionals, as defined in Options 1, Section 1(b)(45) 
means any person or entity that (i) is not a broker or dealer in 
securities, and (ii) places more than 390 orders in listed options 
per day on average during a calendar month for its own beneficial 
account(s). See Options 7, Section 1(c).
    \9\ Electronic QCC Orders are described in Options 3, Section 
12.
    \10\ Floor QCC Orders are described in Options 8, Section 30(e).
    \11\ Volume resulting from all executed electronic QCC Orders 
and Floor QCC Orders, including Customer-to-Customer, Customer-to-
Professional, and Professional-to-Professional transactions and 
excluding dividend, merger, short stock interest or reversal or 
conversion strategy executions, is aggregated in determining the 
applicable volume tier.

------------------------------------------------------------------------
                                                                 Rebate
           Tier                         Threshold                 per
                                                                contract
------------------------------------------------------------------------
Tier 1....................  0 to 99,999 contracts in a month.      $0.00
Tier 2....................  100,000 to 299,999 contracts in a       0.05
                             month.
Tier 3....................  300,000 to 499,999 contracts in a       0.07
                             month.
Tier 4....................  500,000 to 699,999 contracts in a       0.08
                             month.
Tier 5....................  700,000 to 999,999 contracts in a       0.09
                             month.
Tier 6....................  Over 1,000,000 contracts in a           0.11
                             month.
------------------------------------------------------------------------

    The Exchange does not pay a QCC Rebate where the transaction is 
either: (i) Customer-to-Customer; (ii) Customer-to-Professional; (iii) 
Professional-to-Professional; or (iv) a dividend, merger, short stock 
interest or reversal or conversion strategy execution (as defined in 
Options 7, Section 4). The Exchange will continue to pay rebates on QCC 
Orders as described above.
    Today, the maximum QCC Rebate to be paid in a given month may not 
exceed $550,000. The Exchange proposes to increase the maximum QCC 
Rebate that will be paid in a given month from $550,000 per month to 
$750,000 per month. The continued elevated options volume is the 
primary reason for this amendment.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    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.'' \14\
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    \14\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\15\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\16\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \17\
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    \15\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \16\ See NetCoalition, at 534-535.
    \17\ Id. at 537.
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    Further, ``[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

[[Page 37363]]

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'. . . .'' \18\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \18\ Id. at 539 (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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    The Exchange believes that it is reasonable to increase the maximum 
QCC Rebate the Exchange would pay a market participant in a given month 
from $550,000 to $750,000 because it will incentivize market 
participants to transact a greater amount of QCC Orders on Phlx in 
order to obtain the maximum QCC Rebate offered by the Exchange. 
Additionally, the Exchange believes the elevated maximum QCC Rebate is 
in line with increased options volumes.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to increase the maximum QCC Rebate the Exchange would 
pay a market participant in a given month from $550,000 to $750,000 
because all qualifying market participants are eligible to transact QCC 
Orders, either electronically or on the Trading Floor, and would, 
therefore, be eligible to receive up to the maximum amount of QCC 
Rebate, provided they transacted the qualifying number of QCC Orders.

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.
Inter-Market Competition
    The proposal does not impose an undue burden on inter-market 
competition. The Exchange believes its proposal remains competitive 
with other options markets and will offer market participants with 
another choice of where to transact options. 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. 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.
Intra-Market Competition
    The proposed amendments do not impose an undue burden on intra-
market competition. The Exchange believes that increasing the maximum 
QCC Rebate the Exchange would pay a market participant in a given month 
from $550,000 to $750,000 does not impose an undue burden on 
competition because all qualifying market participants are eligible to 
transact QCC Orders, either electronically or on the Trading Floor, and 
would, therefore, be eligible to receive up to the maximum amount of 
QCC Rebate, provided they transacted the qualifying number of QCC 
Orders.

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.\19\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#8efcfbe2eba3ede1e3e3ebe0fafdcefdebeda0e9e1f8"><span class="__cf_email__" data-cfemail="5123243d347c323e3c3c343f2522112234327f363e27">[email protected]</span></a>. Please include 
File Number SR-Phlx-2022-23 on the subject line.

Paper Comments

    <bullet> 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-2022-23. 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-2022-23 and should be submitted on 
or before July 13, 2022.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13270 Filed 6-21-22; 8:45 am]
BILLING CODE 8011-01-P


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