Document ID: SEC-2022-1515-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2022-11-22T05:00Z

[Federal Register Volume 87, Number 224 (Tuesday, November 22, 2022)]
[Notices]
[Pages 71372-71375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-25353]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96329; File No. SR-Phlx-2022-46]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Pricing Schedule at Options 7, Section 5

November 16, 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 November 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.
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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 the Exchange's Pricing Schedule at 
Options 7, Section 5.D.
    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 the pricing for its singly-listed 
U.S. dollar-settled foreign currency options (``FX options'' or 
``FCOs'') \3\ in Options 7, Section 5.D. Today, the Exchange assesses 
fees and rebates for executions that add or remove liquidity in simple 
and complex FX options orders. For simple FX options, Part A of Section 
5.D outlines the following rebates for adding liquidity and fees for 
removing liquidity:
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    \3\ The Exchange will add the term ``FCOs'' in the Options 7, 
Section 5.D header. FCOs include XDB, XDE, XDN, XDS, XDA, XDZ and 
XDC, and trade pursuant to Options 4C.

----------------------------------------------------------------------------------------------------------------
                                                  Lead
                                   Customer      market       Market        Firm       Broker-     Professional
                                                 maker        maker                     dealer
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Rebate for Adding Liquidity....        $0.00        $0.20        $0.20        $0.00        $0.00           $0.00
Fee for Removing Liquidity.....         0.40         0.40         0.40         0.40         0.40            0.40
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    For complex FX options, Part B of Section 5.D outlines the 
following fees for removing liquidity:

----------------------------------------------------------------------------------------------------------------
                                                  Lead
                                   Customer      market       Market        Firm       Broker-     Professional
                                                 maker        maker                     dealer
----------------------------------------------------------------------------------------------------------------
Fee for Adding Liquidity.......        $0.40        $0.40        $0.40        $0.40        $0.40           $0.40

[[Page 71373]]

 
Fee for Removing Liquidity.....         0.40         0.40         0.40         0.40         0.40            0.40
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    Simple FX options orders that are executed against the individual 
components of complex FX options orders are assessed the fees and paid 
the rebates in Part A. However, the individual components of complex FX 
options orders are assessed the fees in Part B. Transactions in FX 
options originating on the Exchange floor are subject to the fees for 
removing liquidity described above. However, if one side of the 
transaction originates on the Exchange floor and any other side of the 
trade was the result of an electronically submitted order or a quote, 
then the fees for removing liquidity apply to the transactions which 
originated on the Exchange floor, and the contracts that are executed 
electronically are subject to the rebates and fees, as applicable, for 
simple and complex orders.
    The fees for FX options executions in all electronic auctions 
including, but not limited to, the Quote Exhaust auction,\4\ the 
opening process and complex electronic auction, including the Complex 
Order Live Auction (``COLA''),\5\ are $0.40 per contract for 
Customer,\6\ Professional,\7\ Firm,\8\ Broker-Dealer,\9\ Lead Market 
Maker \10\ and Market Maker.\11\ Furthermore, PIXL \12\ executions in 
FX options are charged as follows: $0.20 per contract for Initiating 
Orders,\13\ and $0.40 per contract for all other participants.
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    \4\ A Quote Exhaust occurs when the Exchange's disseminated 
market at a particular price level includes a quote, and such market 
is exhausted by an inbound contra-side quote or order (``initiating 
quote or order''), and following such exhaustion, contracts remain 
to be executed from the initiating quote or order through the 
initial execution price. See Options 3, Section 6(a)(2)(B)(2).
    \5\ Complex orders on the complex order book may be subject to 
an automated auction process pursuant to Options 3, Section 14(e).
    \6\ 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)).
    \7\ 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).
    \8\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at OCC.
    \9\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
    \10\ 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.
    \11\ 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.
    \12\ PIXL is the Exchange's electronic price improvement 
auction. See Options 3, Section 13.
    \13\ A member may electronically submit for execution an order 
it represents as agent on behalf of a Public Customer, broker-
dealer, or any other entity (``PIXL Order'') against principal 
interest or against any other order (except as provided in sub-
paragraph (a)(6) of Options 3, Section 13) it represents as agent 
(an ``Initiating Order'') provided it submits the PIXL Order for 
electronic execution into the PIXL Auction (``Auction'') pursuant to 
Options 3, Section 13. See Options 3, Section 13.
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    The Exchange now proposes to replace the pricing described above 
for simple and complex FCOs with a streamlined pricing schedule that 
would remove the maker/taker model as well as the current auction, 
floor/electronic, and simple/complex segmentations. As proposed, all 
Non-Customers \14\ will be assessed a uniform Options Transaction 
Charge of $0.50 per contract for all transactions in FCOs while 
Customers will not be assessed any Options Transaction Charges. To 
effectuate the foregoing changes, the Exchange proposes to delete Parts 
A and B of Section 5.D in their entirety and replace them with the 
following fee schedule:
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    \14\ The term ``Non-Customer'' applies to transactions for the 
accounts of Lead Market Makers, Market Makers, Firms, Professionals, 
Broker-Dealers and JBOs. The term ``Joint Back Office'' or ``JBO'' 
applies to any transaction that is identified by a member or member 
organization for clearing in the Firm range at OCC and is identified 
with an origin code as a JBO. A JBO will be priced the same as a 
Broker-Dealer.

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                                                                                                         Lead market
                                                                         Customer       Professional      maker and     Broker-  dealer        Firm
                                                                                                         market maker
--------------------------------------------------------------------------------------------------------------------------------------------------------
Options Transaction Charge.........................................           $0.00            $0.50            $0.50            $0.50            $0.50
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    The Exchange also proposes to assess all market participants a 
surcharge of $0.25 per contract for all complex orders traded in FCOs.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\15\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed changes in Options 7, 
Section 5.D in connection with the standard options transaction fees 
and complex surcharges for singly-listed FCOs are reasonable, 
equitable, and not unfairly discriminatory because the proposed changes 
will streamline FCO pricing for all market participants, and will 
incentivize market participants to transact in more FCOs on Phlx. 
Specifically, the Exchange will simplify pricing by removing the maker/
taker model as well as the current auction, floor/electronic, and 
simple/complex segmentations. The Exchange believes that it is 
reasonable to eliminate the $0.20 per contract rebate currently offered 
to Lead Market Makers and Market Makers for adding liquidity in simple 
FCOs because this incentive has not been effective at encouraging these 
market participants to add increased liquidity in simple FCOs. The 
Exchange further believes that eliminating the differentiated pricing 
between maker/taker, auction, floor/electronic, and

[[Page 71374]]

simple/complex FCO transactions is reasonable as it will simplify the 
fee structure in a manner that may make the fee schedule more 
comprehensible and administrable and thus, more appealing to, market 
participants.
    As proposed, all Non-Customers will instead be assessed a uniform 
Options Transaction Charge of $0.50 per contract for all transactions 
in FCOs while Customers will not be assessed any Options Transaction 
Charges. While Non-Customers will be charged higher Options Transaction 
Fees under the proposed pricing program,\17\ the Exchange believes that 
the proposal is reasonable and would continue to incentivize these 
market participants to transact in singly-listed FCOs because the 
proposed fees generally remain lower than the fees currently charged 
for the Exchange's other singly-listed options.\18\ In addition, 
Customers would no longer be assessed any standard transaction charges 
for FCOs whereas today, they would be assessed a $0.40 per contract fee 
for removing liquidity. As a result, the Exchange believes that the 
proposed pricing is structured in a way that continues to encourage 
market participants, including Customers in particular, to transact in 
singly-listed FCOs on Phlx.
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    \17\ As discussed above, Non-Customers are currently charged a 
$0.40 per contract fee for removing liquidity in simple and complex 
FCOs. For simple FCOs, Firms, Broker-Dealers, and Professionals have 
the opportunity to receive free executions for adding liquidity in 
FCOs, while Lead Market Makers and Market Makers may receive a $0.20 
per contract rebate for adding liquidity. See Options 7, Section 
5.D.
    \18\ As set forth in Options 7, Section 5.C, the Exchange 
currently charges Firms, Broker-Dealers, and Professionals an 
Options Transaction Charge of $0.75 per contract in singly-listed 
options. Lead Market Makers and Market Makers are currently charged 
$0.40 per contract. Lastly, Customers are charged $0.40 per contract 
for transactions in singly-listed options.
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    The Exchange believes that the proposed standard Options 
Transaction Charges are equitable and not unfairly discriminatory 
because they will apply uniformly to all similarly situated market 
participants. With respect to the proposal to assess no Options 
Transaction Charges to Customers, the Exchange notes that there is a 
history in the options markets of providing preferential treatment to 
customers, and customer order flow attracts additional liquidity to the 
Exchange. The Exchange believes that additional Customer order flow in 
FCOs will provide all market participants with more trading 
opportunities and encourage an increase in Lead Market Maker and Market 
Maker activity, which facilitates tighter spreads. This may cause an 
additional corresponding increase in order flow from other market 
participants, contributing overall towards a robust and well-balance 
market ecosystem, particularly in FCOs.
    The Exchange believes that the proposed complex surcharge is 
reasonable as the surcharge is designed to update fees for Phlx's 
services to reflect their current value--rather than their value when 
the FCO pricing was adopted in its present form eight years ago \19\--
based on Phlx's ability to deliver value to its customers by offering 
singly-listed products on its market like FCOs. Even with the complex 
surcharge, all market participants except Lead Market Makers and Market 
Makers would be assessed consistent or lower fees for their singly-
listed FCO orders compared to the fees currently assessed to other 
singly-listed options orders.\20\ Customer FCO transactions, in 
particular, will continue to get the benefit of lower pricing even with 
the complex surcharge. Customer orders bring valuable liquidity to the 
market, which liquidity benefits other market participants through more 
trading opportunities. This, in turn, attracts Lead Market Maker and 
Market Maker activity, which facilitates tighter spreads, which may 
cause an additional corresponding increase in order flow from other 
market participants. Further, the Exchange believes that applying the 
complex surcharge consistently across all market participants, in 
conjunction with the uniform pricing described above, will streamline 
the fee structure in a manner that may make the fee schedule may be 
more comprehensible and administrable to the benefit of all market 
participants. Lastly, the Exchange believes that the proposed complex 
surcharge is equitable and not unfairly discriminatory as the surcharge 
will apply uniformly to all market participants.
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    \19\ The Exchange has not amended pricing for FCOs since 2014. 
See Securities Exchange Act Release No. 72806 (August 11, 2014), 79 
FR 48269 (August 15, 2014) (SR-Phlx-2014-51).
    \20\ Aggregating the proposed complex surcharge and options 
transaction charges, all Non-Customers would be assessed $0.75 per 
contract for complex trades in singly-listed FCOs while Customers 
would be assessed $0.25 per contract. In contrast, under the singly-
listed options pricing schedule in Options 7, Section 5.C, Firms, 
Broker-Dealers, and Professionals would be assessed $0.75 per 
contract, and Lead Market Makers, Market Makers, and Customers would 
be charged $0.40 per contract.
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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. In terms of intra-market 
competition, the proposed pricing for singly-listed FCOs will apply 
uniformly to all similarly situated market participants. Specifically, 
all Non-Priority Customers will be assessed a uniform Options 
Transaction Charge while Customers will not be assessed any Options 
Transaction Charges. In addition, all market participants will be 
assessed a uniform surcharge on their complex FCO transactions. Even 
with the complex surcharge, Customers will continue to be charged lower 
fees for FCO trades. Accordingly, the proposed FCO pricing is designed 
to incentivize Customer order flow in particular, which the Exchange 
believes will benefit all market participants by providing more trading 
opportunities, which attracts other market participants, thus 
facilitating tighter spreads and increased order flow.
    In terms of inter-market competition, 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. In sum, if the changes proposed herein are unattractive to 
market participants, it is likely that the Exchange will lose market 
share as a result. Accordingly, the Exchange does not believe that the 
proposed changes 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.

[[Page 71375]]

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.\21\
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    \21\ 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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or send an email to [email protected]. Please include File Number SR-Phlx-2022-46 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-2022-46. 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-2022-46 and 
should be submitted on or before December 13, 2022.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25353 Filed 11-21-22; 8:45 am]
BILLING CODE 8011-01-P