Document ID: SEC-2023-0241-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2023-03-03T05:00Z

[Federal Register Volume 88, Number 42 (Friday, March 3, 2023)]
[Notices]
[Pages 13477-13486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-04357]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96990; File No. SR-Phlx-2023-06]

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

February 27, 2023.
    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 February 22, 2023, 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).'' \3\
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    \3\ On February 10, 2023, the Exchange withdrew SR-Phlx-2023-03 
and replaced it with SR-Phlx-2023-05. On February 22, 2023, SR-Phlx-
2023-05 was withdrawn and replaced with the instant filing.
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    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: (1) to remove its current Qualified 
Contingent Cross (``QCC'') Rebate Schedule and propose a new QCC Rebate 
and QCC Growth Tier Rebate; (2) amend the Monthly Firm Fee

[[Page 13478]]

Cap; and (3) propose a new Floor Transaction (Open Outcry) Floor Broker 
Incentive Program. Each change is described below.
QCC Rebates
    Today, the Exchange assesses a $.20 per contract QCC Transaction 
Fee for a Lead Market Maker,\4\ Market Maker,\5\ Firm \6\ and Broker-
Dealer.\7\ Customers \8\ and Professionals \9\ are not assessed a QCC 
Transaction Fee. QCC Transaction Fees apply to electronic QCC Orders 
\10\ and Floor QCC Orders.\11\ Rebates are paid on all qualifying 
executed electronic QCC Orders and Floor QCC Orders based on the below 
QCC Rebate Schedule: \12\
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    \4\ 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).
    \5\ 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).
    \6\ 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).
    \7\ 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).
    \8\ 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).
    \9\ 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).
    \10\ Electronic QCC Orders are described in Options 3, Section 
12.
    \11\ Floor QCC Orders are described in Options 8, Section 30(e).
    \12\ 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.

                           QCC Rebate Schedule
------------------------------------------------------------------------
                                                                 Rebate
           Tier                         Threshold                 per
                                                                contract
------------------------------------------------------------------------
Tier 1....................  0 to 999,999 contracts in a month      $0.09
Tier 2....................  1,000,000 contracts or more in a        0.20
                             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 proposes to remove the existing QCC Rebate Schedule 
and replace those rebates with new QCC Rebates in new Section A as well 
as a QCC Growth Tier Rebate in new Section B. The Exchange proposes to 
insert a new title ``QCC Transaction Fee'' before the paragraph which 
describes QCC fees.
    The Exchange proposes to add a new title ``A. QCC Rebate'' to 
describe its proposed QCC Rebates. The Exchange proposes to pay a QCC 
Rebate of $0.12 per contract on electronic QCC Orders, as defined in 
Options 3, Section 12, and Floor QCC Orders, as defined in Options 8, 
Section 30(e), when a QCC Order is comprised of a Customer or 
Professional order on one side and a Lead Market Maker, Market Maker, 
Broker-Dealer, or Firm order on the other side. The Exchange proposes 
to increase this rebate to $0.17 per contract in the event that a 
member or member organization executes greater than 1,000,000 
qualifying QCC contracts in a given month. The Exchange also proposes 
to pay a new QCC Rebate of $0.14 per contract on electronic QCC Orders, 
as defined in Options 3, Section 12, and Floor QCC Orders, as defined 
in Options 8, Section 30(e), when a QCC Order is comprised of a Lead 
Market Maker, Market Maker, Broker-Dealer, or Firm order on one side 
and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on 
the other side. The Exchange proposes to increase this rebate to $0.19 
per contract in the event that a member or member organization executes 
greater than 1,000,000 qualifying QCC contracts in a given month.
    As is the case today, the two new proposed QCC rebates would be 
paid on all qualifying executed electronic QCC Orders, as defined in 
Options 3, Section 12, and Floor QCC Orders, as defined in Options 8, 
Section 30(e), except where the transaction is either: (i) Customer-to-
Customer; (ii) Customer-to-Professional; and (iii) Professional-to-
Professional. Today, the Exchange excludes dividend, merger, short 
stock interest or reversal or conversion strategy executions, as 
defined in Options 7, Section 4, as qualifying transactions. At this 
time, the Exchange proposes to exclude all strategy executions within 
Options 7, Section 4, (dividend, merger, short stock interest, reversal 
and conversion, jelly roll, and box spread strategy executions) as 
qualifying transactions.
    Further, as is the case today, 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. With this proposed change, the 
Exchange would aggregate the applicable member or member organization 
qualifying QCC contract volume in a given month which includes volume 
resulting from all executed electronic QCC Orders and Floor QCC Orders, 
including Customer-to-Customer, Customer-to-Professional, and 
Professional-to-Professional transactions, as is the case today, and 
would exclude all strategy executions within Options 7, Section 4, 
(dividend, merger, short stock interest, reversal and conversion, jelly 
roll, and box spread strategy executions) as qualifying transactions.
    The Exchange notes that Customers and Professionals are not 
assessed a QCC Transaction Fee while all other market participants pay 
a QCC Transaction Fee of $0.20 per contract. The Exchange proposes to 
pay greater rebates where the two contra-parties to a QCC Order are not 
Customers and Professionals as greater QCC transaction fees are being 
assessed to Lead Market Maker, Market Maker, Broker-Dealer or Firm 
orders. These QCC Rebates are intended to encourage Phlx members and 
member organizations to transact a greater number of QCC Orders on 
Phlx.
    Additionally, the Exchange proposes to establish a new QCC Growth 
Tier Rebate and title that new section as ``B. QCC Growth Tier 
Rebate''. This QCC Growth Tier Rebate is intended to encourage Phlx 
members and member organizations to transact a greater number of QCC 
Orders on Phlx. In order to qualify for the QCC Growth Tier Rebate, a 
member's or member

[[Page 13479]]

organization's total floor transaction,\13\ and electronic QCC Orders 
and Floor QCC Orders volume (``QCC transaction volume'') must exceed 
12,500,000 contracts in a given month. In addition to the 
aforementioned criteria, the member's or member organization's 
respective Phlx House Account \14\ must execute QCC transaction volume 
of 250,000 or more contracts in excess of the member's or member 
organization's QCC transaction volume in January 2023. For members or 
member organizations with no QCC transaction volume in January 2023, 
the QCC transaction volume, in their respective Phlx House Account, 
must be 250,000 or more contracts in a given month.
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    \13\ The term ``floor transaction'' is a transaction that is 
effected in open outcry on the Exchange's trading floor. See Phlx 
Options 7, Section 1(c). Of note, the term ``floor transaction'' is 
more broadly defined than the term ``Open Outcry Floor Transaction'' 
which is discussed herein and is a subset of the term ``floor 
transaction''.
    \14\ Each Phlx member or member organization is required to 
establish one Phlx House Account with the Exchange's Membership 
Department. Only one Phlx House Account is required to transact 
business on Phlx. The Exchange assesses a $50.00 a month account fee 
for this account as provided for within Options 7, Section 8A. A 
Phlx member or member organization has the option of acquiring 
multiple Phlx House Accounts depending on a member's or member 
organization's business model and how they elect to organize their 
business.
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    The Exchange also proposes to offer an alternative qualification to 
achieve the QCC Growth Tier Rebate. A member's or member organization's 
Open Outcry Floor Transaction volume in a given month must exceed 
500,000 contracts. In addition to the aforementioned criteria, a 
member's or member organization's respective Phlx House Account must 
execute QCC transaction volume of 2,500,000 or more contracts in excess 
of the member's or member organization's QCC transaction volume in 
January 2023. For members or member organizations with no QCC 
transaction volume in January 2023, the QCC transaction volume, in 
their respective Phlx House Account, must be 2,500,000 or more 
contracts in a given month.
    As proposed for the QCC Growth Tier Rebate, the term ``Open Outcry 
Floor Transaction'' includes all transactions executed in open outcry 
on Phlx's trading floor except: (1) dividend, merger, short stock 
interest, reversal and conversion, jelly roll, and box spread strategy 
executions as defined in this Options 7, Section 4; (2) Cabinet 
Transactions as defined in Options 8, Section 33; and (3) Customer-to-
Customer transactions.
    The Exchange proposes to pay the QCC Growth Tier Rebates per Phlx 
House Account. The Exchange will pay a $0.20 per contract QCC Growth 
Tier Rebate on a QCC Order comprised of a Customer or Professional 
order on one side and a Lead Market Maker, Market Maker, Broker-Dealer, 
or Firm order on the other side. Further, the Exchange will pay a $0.26 
per contract QCC Growth Tier Rebate on a QCC Order comprised of a Lead 
Market Maker, Market Maker, Broker-Dealer, or Firm order on one side 
and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on 
the other side. Finally, members and member organizations will be 
entitled to one QCC Rebate in a given month, either the QCC Rebate in 
Section A or the QCC Growth Tier Rebate in Section B in a given month, 
but not both.
    The Exchange believes that the proposed QCC Rebates in proposed 
Section A and the proposed QCC Growth Tier Rebate in Section B will 
encourage market participants to send QCC orders to Phlx for execution 
in an effort to earn higher QCC Rebates.
    The Exchange proposes to add a new title before the Monthly Market 
Maker Cap rule text which states, ``Monthly Market Maker Cap''.
Monthly Firm Fee Cap
    The Exchange proposes to add a new title prior to the paragraph 
which describes Phlx's Monthly Firm Fee Cap which states, ``Monthly 
Firm Fee Cap and Facilitation''.
    Today, Firms are subject to a maximum fee of $150,000 (``Monthly 
Firm Fee Cap''). Firm Floor Option Transaction Charges and QCC 
Transaction Fees, in the aggregate, for one billing month do not exceed 
the Monthly Firm Fee Cap per member or member organization provided 
such members or member organizations are trading in their own 
proprietary account. Today, the Monthly Firm Fee Cap and all dividend, 
merger, and short stock interest strategy executions; transactions in 
broad-based index options symbols listed within Options 7, Section 5.A 
are excluded from the Monthly Firm Fee Cap. Today, reversal and 
conversion, jelly roll and box spread strategy executions and QCC 
Transaction Fees are included in the Monthly Firm Fee Cap.\15\
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    \15\ Members and member organizations must notify the Exchange 
in writing of all accounts in which the member or member 
organization is not trading in its own proprietary account. The 
Exchange will not make adjustments to billing invoices where 
transactions are commingled in accounts which are not subject to the 
Monthly Firm Fee Cap.
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    At this time, the Exchange proposes two changes to the Monthly Firm 
Fee Cap. First, the Exchange proposes to increase the Monthly Firm Fee 
Cap from $150,000 to $200,000. Second, instead of not assessing Firms 
any fee once the Monthly Firm Fee Cap is exceeded, the Exchange 
proposes to instead assess a nominal transaction fee of $0.02 per 
capped contract once a Firm exceeds the Monthly Firm Fee Cap unless no 
fee \16\ is charged or the fee is waived.\17\ The Exchange proposes to 
amend the text within Options 7, Section 4 to state,
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    \16\ Today, Firms pay an electronic Options Transaction Charge 
of $0.48 per contract in Penny Symbols for simple orders and $0.40 
per contract in Penny Symbols for complex orders. Also, Firms pay a 
Floor Options Transaction Charge of $0.25 per contract in Penny 
Symbols. Today, Firms pay an electronic Options Transaction Charge 
of $0.75 per contract in Non-Penny Symbols and a Floor Options 
Transactions Charge of $0.25 per contract in Non-Penny Symbols. See 
Options 7, Section 4.
    \17\ Today, the Firm Floor Options Transaction Charges is waived 
for members executing facilitation orders pursuant to Options 8, 
Section 30 when such members are trading in their own proprietary 
account (including Cabinet Options Transaction Charges). The Firm 
Floor Options Transaction Charges will be waived for the buy side of 
a transaction if the same member or its affiliates under Common 
Ownership represents both sides of a Firm transaction when such 
members are trading in their own proprietary account. See Options 7, 
Section 4.

    Firms are subject to a $200,000 ``Monthly Firm Fee Cap''. Firm 
Floor Option Transaction Charges and QCC Transaction Fees, as 
defined in this section above, in the aggregate, for one billing 
month that exceed the Monthly Firm Fee Cap per member or member 
organization, when such members or member organizations are trading 
in their own proprietary account, will be subject to a reduced 
transaction fee of $0.02 per capped contract unless there is no fee 
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or the fee is waived.

While the Exchange would be increasing the cap as well as fees for 
Firms with this proposal, the Exchange believes that the Monthly Firm 
Fee Cap still serves to lower fees for Firms that transact certain 
qualifying volume on Phlx, thus enabling these Firms the ability to 
lower costs.
    Additionally, the Exchange proposes to amend the types of strategy 
executions that will be included in the Monthly Firm Fee Cap. Today, 
dividend, merger, and short stock interest strategies are excluded from 
the Monthly Firm Fee Cap and reversal and conversion, jelly roll and 
box spread strategy executions are included in the Monthly Firm Fee 
Cap. At this time, the Exchange proposes to exclude all strategy 
executions from the Monthly Firm Fee Cap (dividend, merger, short stock 
interest, reversal and conversion, jelly roll, and box spread strategy 
executions).

[[Page 13480]]

Floor Transaction (Open Outcry) Floor Broker Incentive Program
    The Exchange proposes to create a new incentive program for Floor 
Brokers \18\ that is designed to attract order flow to Phlx's trading 
floor for execution in open outcry. The Exchange proposes to pay Floor 
Broker certain rebates for transaction they execute on Phlx's trading 
floor in open outcry. The Exchange proposes to title this new section, 
``Floor Transaction (Open Outcry) Floor Broker Incentive Program''.
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    \18\ The term ``Floor Broker'' means an individual who is 
registered with the Exchange for the purpose, while on the Options 
Floor, of accepting and handling options orders. See Phlx Options 7, 
Section 1(c).
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    The following floor transactions would not be subject to the 
rebates offered within the Floor Transaction (Open Outcry) Floor Broker 
Incentive Program: (1) Floor QCC Orders, as defined in Options 8, 
Section 30(e); \19\ (2) dividend, merger, short stock interest, 
reversal and conversion, jelly roll and box spread strategy executions 
as defined in this Options 7, Section 4; (3) Firm Floor Options 
Transactions Charges for members executing facilitation orders pursuant 
to Options 8, Section 30 when such members are trading in their own 
proprietary account (including Cabinet Options Transaction Charges); 
and (4) Customer-to-Customer transactions.
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    \19\ Today, Floor QCC Orders are not transacted in open outcry. 
The Exchange proposes to include Floor QCC Orders in the list of 
exclusions to remind members and member organizations that Floor QCC 
Orders will not be paid the Floor Transaction (Open Outcry) Floor 
Broker Incentive Program rebate.
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    The Exchange would pay Floor Transaction (Open Outcry) Floor Broker 
Incentive Program rebates on qualifying volume at each threshold level 
per the below schedule.

------------------------------------------------------------------------
                                                                  Per
                     Qualifying contracts                       contract
                                                                 rebate
------------------------------------------------------------------------
0-5,000,000..................................................      $0.03
5,000,001-10,000,000.........................................       0.06
Greater than 10,000,000......................................       0.09
------------------------------------------------------------------------

    By way of example, a Floor Broker that executes floor transactions 
in a given month totaling 10,500,000 contracts will be paid $0.03 for 
the first 5,000,000 floor transaction contracts ($150,000), $0.06 for 
the next 5,000,000 floor transaction contracts ($300,000), and $0.09 
for the final 500,000 floor transaction contracts ($45,000) for a total 
rebate of $495,000 for that month. Further, as an additional clarifying 
example, if a Floor Broker executes a floor transaction in the amount 
of 1,000,000 contracts, represents both sides of the floor transaction, 
and executes the floor transaction as a crossing transaction pursuant 
to Options 8, Section 30(a) for 700,000 of the 1,000,000 contracts, 
then trades the remaining 300,000 contracts with the trading crowd, the 
Floor Transaction (Open Outcry) Floor Broker Incentive Program rebate 
for this transaction will be paid on the qualifying floor transaction 
volume of 1,000,000 contracts.
    Finally, the Exchange proposes to cap rebates for the Floor 
Transaction (Open Outcry) Floor Broker Incentive Program at $1,000,000 
per member or member organization in a given month.
    The Exchange believes that the Floor Transaction (Open Outcry) 
Floor Broker Incentive Program will attract greater order flow to 
Phlx's trading floor.
Technical Amendments
    The Exchange proposes to add a title before the rule text related 
to strategies which states, ``Floor Originated Strategy Executions''. 
The Exchange believes the proposed new titles throughout Options 7, 
Section 4 will assist market participants in locating certain pricing 
within this rule. The Exchange also proposes to adjust rule text within 
Options 7, Section 4 in the Strategies pricing to make clear that all 
dividend, merger, short stock interest, reversal and conversion, jelly 
roll and box spread strategy executions, as defined in this Options 7, 
Section 4, will be excluded from the Monthly Firm Fee Cap as proposed 
herein.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\20\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\21\ 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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    \20\ 15 U.S.C. 78f(b).
    \21\ 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.'' \22\
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    \22\ 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 
\23\ (``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.\24\ 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.'' \25\
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    \23\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \24\ See NetCoalition, at 534-535.
    \25\ 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 
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' . . . .'' \26\ 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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    \26\ 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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QCC Rebates
Section A QCC Rebates
    The Exchange's proposal to remove the existing QCC Rebate Schedule 
and replace those rebates with new rebates as well as a QCC Growth Tier 
Rebate is reasonable because the Exchange proposes to offer its members 
and member organizations additional qualifications to obtain 
potentially greater QCC Rebates. The Exchange believes the opportunity 
to earn larger rebates will incentivize members and member 
organizations to execute a larger amount of floor transactions, QCC 
transaction volume, and Open Outcry Floor Transaction volume on Phlx's 
trading floor. The Exchange's proposal to remove the existing QCC 
Rebate Schedule and replace those rebates with

[[Page 13481]]

new rebates as well as a QCC Growth Tier Rebate is equitable and not 
unfairly discriminatory because all members and member organizations 
may execute QCC trades, electronically or on the Exchange's trading 
floor.
    Today, the Exchange pays a $0.09 QCC rebate for executing up to 
999,999 QCC contracts in a month and a $0.20 per contract QCC Rebate 
for executing 1,000,000 or more QCC contracts in a month. With the two 
new proposed QCC Rebates within Section A the Exchange offers to pay a 
QCC Rebate of $0.12 per contract on electronic QCC Orders, as defined 
in Options 3, Section 12, and Floor QCC Orders, as defined in Options 
8, Section 30(e), when a QCC Order is comprised of a Customer or 
Professional order on one side and a Lead Market Maker, Market Maker, 
Broker-Dealer, or Firm order on the other side. This proposed QCC 
Rebate is greater than the lowest tier QCC Rebate offered today ($0.09 
(old) vs. $0.12 (new)). Additionally, the Exchange proposes to pay an 
increased QCC Rebate of $0.17 per contract in the event that a member 
or member organization executes greater than 1,000,000 qualifying QCC 
contracts in a given month which is less than the current QCC rebate 
for 1,000,000 or more contracts today ($0.20 (old) vs. $0.17 (new)). 
Additionally, depending on the contra-parties to the QCC Order, the 
Exchange would pay a $0.14 per contract QCC Rebate on electronic QCC 
Orders, as defined in Options 3, Section 12, and Floor QCC Orders, as 
defined in Options 8, Section 30(e), when a QCC Order is comprised of a 
Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one 
side and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm 
order on the other side. This rebate is also greater than the lowest 
tier QCC Rebate offered today ($0.09 (old) vs. $0.14 (new)). 
Additionally, the Exchange proposes to pay an increased QCC Rebate of 
$0.19 per contract in the event that a member or member organization 
executes greater than 1,000,000 qualifying QCC contracts in a given 
month which is less than the current QCC rebate for 1,000,000 or more 
contracts today ($0.20 (old) vs. $0.19 (new)). The Exchange believes 
that while some QCC Rebates are higher and some QCC Rebates are lower, 
the range of QCC Rebates offered by Phlx remains competitive and the 
Exchange believes these QCC Rebates will continue to attract QCC Orders 
to Phlx. The Exchange believes its proposal to offer these two new QCC 
Rebates is equitable and not unfairly discriminatory because any market 
participant may qualify for a QCC Rebate provided they qualified for 
the QCC Rebate. Further, the Exchange's proposal which pays greater 
rebates where the two contra-parties to a QCC Order are not Customers 
and Professionals is equitable and not unfairly discriminatory because, 
today, the Exchange assesses greater fees to Lead Market Maker, Market 
Maker, Broker-Dealer and Firms for QCC Orders. Customers and 
Professionals are not assessed a QCC Transaction Fee, while all other 
market participants pay a QCC Transaction Fee of $0.20 per contract.
    The Exchange's proposal to amend the QCC Rebate qualifications such 
that all strategy executions (dividend, merger, short stock interest, 
reversal and conversion, jelly roll, and box spread) will be excluded 
and, as proposed, will aggregate the applicable member or member 
organization qualifying QCC contract volume in a given month, excluding 
all strategy executions, is reasonable. Today, the Exchange offers 
strategy caps \27\ for these strategy executions and, therefore, 
members and member organizations have the ability to pay no fees on 
strategy executions once the cap is met. The Exchange's proposal to 
amend the QCC Rebate qualification such that all strategy executions 
(dividend, merger, short stock interest, reversal and conversion, jelly 
roll, and box spread) will be excluded and, as proposed, will aggregate 
the applicable member or member organization qualifying QCC contract 
volume in a given month, excluding all strategy executions is equitable 
and not unfairly discriminatory because the Exchange would uniformly 
apply the QCC Rebate qualifications as well as calculate the QCC 
Rebates.
---------------------------------------------------------------------------

    \27\ Today, the Exchange offers certain strategy caps for 
dividend, merger, short stock interest, reversal and conversion, 
jelly roll, and box spread strategy executions. To qualify for a 
strategy cap, the buy and sell side of a transaction must originate 
either from the Exchange's trading floor or as a Floor Qualified 
Contingent Cross Order. See Options 7, Section 4.
---------------------------------------------------------------------------

Section B QCC Growth Tier Rebate
    The Exchange's proposal to establish a new QCC Growth Tier Rebate 
is reasonable because this rebate should provide additional incentives 
for members and member organizations to engage in substantial amounts 
of trading activity which would serve to bring additional open outcry 
liquidity to the trading floor and additional QCC Order Flow to Phlx. 
This incentive may also encourage members and member organizations to 
commence sending such order flow to Phlx for the opportunity to earn 
this rebate. Additionally, the Exchange's proposal to establish a new 
QCC Growth Tier Rebate is equitable and not unfairly discriminatory 
because any member or member organization may qualify for this rebate.
    The Exchange's proposal offers member and member organizations two 
paths to qualify for a QCC Growth Tier Rebate. In the first instance, a 
member's or member organization's total floor transaction, and 
electronic QCC Orders and Floor QCC Orders volume (``QCC transaction 
volume'') must exceed 12,500,000 contracts in a given month and the 
member's or member organization's respective Phlx House Account must 
execute QCC transaction volume of 250,000 or more contracts in excess 
of the member's or member organization's QCC transaction volume in 
January 2023. For members or member organizations with no QCC 
transaction volume in January 2023, the QCC transaction volume, in 
their respective Phlx House Account, must be 250,000 or more contracts 
in a given month. In the second instance, a member's or member 
organization's Open Outcry Floor Transaction volume in a given month 
must exceed 500,000 contracts and a member's or member organization's 
respective Phlx House Account must execute QCC transaction volume of 
2,500,000 or more contracts in excess of the member's or member 
organization's QCC transaction volume in January 2023. For members or 
member organizations with no QCC transaction volume in January 2023, 
the QCC transaction volume, in their respective Phlx House Account, 
must be 2,500,000 or more contracts in a given month. The Exchange 
believes that these qualifications are reasonable because they offer 
members and member organizations optional qualifications to achieve a 
QCC Growth Tier Rebate. Additionally, the Exchange believes that these 
qualifications are equitable and not unfairly discriminatory as all 
members and member organizations may qualify for the QCC Growth Tier 
Rebate.\28\ All members and member organizations may enter order flow 
to obtain a QCC Growth Tier Rebate.
---------------------------------------------------------------------------

    \28\ The Exchange notes that while all Phlx member organizations 
may transact an options business electronically or on the Exchange's 
trading floor, each member located on Phlx's trading floor must have 
an individual permit. Alternatively, Phlx members or member 
organizations may transact business on the trading floor through a 
Floor Broker.
---------------------------------------------------------------------------

    The Exchange's exclusion of strategy executions, cabinet 
transactions and

[[Page 13482]]

Customer-to-Customer transactions is reasonable. Cabinet transactions 
and Customer-to-Customer transactions are excluded today from QCC 
Rebates. This proposal would exclude all strategy executions, which is 
a change from the current QCC Rebate exclusions which only excludes 
dividend, merger, short stock interest, and reversal or conversion 
strategies. Today, the Exchange offers strategy caps \29\ for these 
types of open outcry transactions and, therefore, members and member 
organizations have the ability to pay no fees on strategy executions 
once the cap is met. The Exchange's exclusion of strategy executions, 
cabinet transactions and Customer-to-Customer transactions are 
equitable and not unfairly discriminatory as the qualifications for the 
QCC Growth Tier Rebate will be uniformly applied.
---------------------------------------------------------------------------

    \29\ Today, the Exchange offers certain strategy caps for 
dividend, merger, short stock interest, reversal and conversion, 
jelly roll, and box spread strategy executions. To qualify for a 
strategy cap, the buy and sell side of a transaction must originate 
either from the Exchange's trading floor or as a Floor Qualified 
Contingent Cross Order. See Options 7, Section 4.
---------------------------------------------------------------------------

    The Exchange's proposal to utilize January 2023 as a baseline to 
add 250,000 or more contracts for the QCC Growth Tier Rebate and permit 
members or member organizations with no QCC transaction volume in 
January 2023, to add 250,000 or more contracts in a given month is 
reasonable as it will create an incentive for members and member 
organizations to bring liquidity to Phlx's trading floor relative to a 
benchmark. The Exchange believes that if the proposed incentive is 
effective, then any ensuing increase in trading activity on the 
Exchange will improve the quality of the market overall, to the benefit 
of all market participants. Further, it is reasonable to consider any 
new liquidity volume for members or member organizations who have no 
volume for the month of January 2023 for those members or member 
organizations to qualify to receive the proposed QCC Growth Tier Rebate 
because this program is designed to attract additional liquidity from 
new members and member organizations. To the extent this proposal 
attracts new members and member organization volume to the Exchange, 
all market participants should benefit through more trading 
opportunities. The Exchange's proposal to utilize January 2023 as a 
baseline to add 250,000 or more contracts for the QCC Growth Tier 
Rebate and permit members or member organizations with no QCC 
transaction volume in January 2023, to add 250,000 or more contracts in 
a given month is equitable and not unfairly discriminatory for the 
reasons which follow. The Exchange's proposal is designed to increase 
participation in Phlx's trading floor and reward those members and 
member organizations for the unique role they play in ensuring a robust 
market. As discussed above, the proposal is designed to encourage 
members and member organizations to substantially execute additional 
volume on the trading floor. To the extent the Exchange succeeds in 
increasing the levels of liquidity and activity on the Exchange, the 
Exchange will experience improvements in market quality, which stands 
to benefit all floor members. The Exchange believes that it is 
equitable and not unfairly discriminatory to consider any new volume 
for members and member organizations with no such volume for the month 
of January 2023 for those members and member organizations to qualify 
to receive the proposed QCC Growth Tier Rebate because the program is 
designed to attract additional liquidity from new members and member 
organizations to the Exchange. In turn, this additional liquidity 
should benefit all market participants through increased liquidity and 
order interaction.
    The Exchange's proposal to pay the QCC Growth Tier Rebates per Phlx 
House Account is reasonable, equitable and not unfairly discriminatory. 
Today, each Phlx member or member organization is required to establish 
one Phlx House Account with the Exchange's Membership Department. Only 
one Phlx House Account is required to transact business on Phlx.\30\ A 
Phlx member or member organization has the option of acquiring multiple 
Phlx House Accounts depending on a member's or member organization's 
business model and how they elect to organize their business.
---------------------------------------------------------------------------

    \30\ The Exchange assesses a $50.00 a month account fee for this 
account as provided for within Options 7, Section 8A.
---------------------------------------------------------------------------

    The Exchange's proposal to pay a $0.20 per contract QCC Growth Tier 
Rebate on a QCC Order comprised of a Customer or Professional order on 
one side and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm 
order on the other side and a $0.26 per contract QCC Growth Tier Rebate 
on a QCC Order is comprised of a Lead Market Maker, Market Maker, 
Broker-Dealer, or Firm order on one side and a Lead Market Maker, 
Market Maker, Broker-Dealer, or Firm order on the other side is 
reasonable because these rebates are both higher than the rebates 
offered today for QCC Rebates. Today, the QCC Rebate for Tier 1 is 
$0.09 per contract and the QCC Rebate for Tier 2 is $0.20 per contract. 
Further, the Exchange's proposal to pay greater rebates where both 
sides are not a Customer or a Professional is reasonable because, 
today, Customers and Professionals are not assessed a QCC Transaction 
Fee. Lead Market Makers, Market Makers, Broker-Dealers, and Firms pay a 
QCC Transaction Fee of $0.20 per contract. The Exchange's proposal to 
pay a $0.20 per contract QCC Growth Tier Rebate on a QCC Order 
comprised of a Customer or Professional order on one side and a Lead 
Market Maker, Market Maker, Broker-Dealer, or Firm order on the other 
side and a $0.26 per contract QCC Growth Tier Rebate on a QCC Order is 
comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm 
order on one side and a Lead Market Maker, Market Maker, Broker-Dealer, 
or Firm order on the other side is equitable and not unfairly 
discriminatory because the Exchange will uniformly apply the 
qualifications and to pay the QCC Growth Tier Rebate.
    The Exchange's proposal to pay members and member organizations the 
greater of the QCC Rebate in Section A or the QCC Growth Tier Rebate in 
Section B in a given month, but not both QCC Rebates, is reasonable, 
equitable and not unfairly discriminatory because each of the 
Exchange's QCC rebates remain competitive with today's QCC Rebate and 
the Exchange would uniformly only pay the greater of the two QCC 
Rebates.
Monthly Firm Fee Cap
    The Exchange's proposal to amend the Monthly Firm Fee Cap from 
$150,000 to $200,000 and assess a nominal fee of $0.02 per capped 
contract once a Firm exceeds the Monthly Firm Fee Cap, instead of not 
assessing Firms any fee once the Monthly Firm Fee Cap is exceeded is 
reasonable. While the Exchange would be increasing the cap as well as 
fees for Firms with this proposal, the Exchange believes that the 
Monthly Firm Fee Cap still serves to lower fees for Firms that transact 
certain qualifying volume on Phlx, thus enabling these firms the 
ability to lower costs. The Exchange believes that the Monthly Firm Fee 
Cap would continue to incentivize Firms to direct order flow to the 
Exchange to achieve the benefits of reducing their fees. The Exchange's 
proposal to not assess the $0.02 per contract transaction fee if no fee 
\31\ is charged or the fee is

[[Page 13483]]

waived \32\ is reasonable because the Exchange wants to ensure that 
members and member organizations get the most favorable incentive that 
they qualify for under its Pricing Schedule. The Exchange's proposal to 
amend the Monthly Firm Fee Cap from $150,000 to $200,000 and assess a 
nominal fee of $0.02 per capped contract once a Firm exceeds the 
Monthly Firm Fee Cap, instead of not assessing Firms any fee once the 
Monthly Firm Fee Cap is exceeded is equitable and not unfairly 
discriminatory as other market participants benefit from an opportunity 
to pay reduced fees on Phlx as do Firms. Today, Customers are not 
assessed an Options Transaction Charge in multiply-listed Penny or non-
Penny Symbols.\33\ Customer liquidity benefits all market participants 
by providing more trading opportunities. An increase in the activity of 
these market participants in turn facilitates tighter spreads, which 
may cause an additional corresponding increase in order flow from other 
market participants. Today, Lead Market Makers and Market Makers are 
subject to a Monthly Market Maker Cap.\34\ With respect to Broker-
Dealers, today, the Exchange waives the Floor Options Transaction 
Charge for Broker-Dealers executing facilitation orders pursuant to 
Options 8, Section 30 when such members would otherwise incur this 
charge for trading in their own proprietary account contra to a 
Customer (``BD-Customer Facilitation''), if the member's BD-Customer 
Facilitation average daily volume (including both FLEX and non-FLEX 
transactions) exceeds 10,000 contracts per day in a given month.\35\ 
Finally, today, Professional Floor Options Transaction Charges are less 
favorable than Customers but more favorable than Firms.\36\ 
Additionally, the Exchange believes that the proposal is equitable and 
not unfairly discriminatory because members and member organizations 
that are JBOs \37\ could be subject to the Monthly Firm Fee Cap,\38\ as 
are other members, as long as the JBO trades for their own proprietary 
account. Additionally, the proposed change would encourage JBOs that 
are not members or member organizations to seek to become members or 
member organizations to further reduce their transaction fees. Finally, 
other market participants may interact with the order flow submitted by 
Firms to Phlx to reach the cap. The Exchange's proposal to not assess 
the $0.02 per contract transaction fee if no fee is charged or the fee 
is waived is equitable and not unfairly discriminatory as the Exchange 
would uniformly not assess the transaction fee in this case.
---------------------------------------------------------------------------

    \31\ Today, Firms pay an electronic Options Transaction Charge 
of $0.48 per contract in Penny Symbols for simple orders and $0.40 
per contract in Penny Symbols for complex orders. Also, Firms pay a 
Floor Options Transaction Charge of $0.25 per contract in Penny 
Symbols. Today, Firms pay an electronic Options Transaction Charge 
of $0.75 per contract in Non-Penny Symbols and a Floor Options 
Transactions Charge of $0.25 per contract in Non-Penny Symbols. See 
Options 7, Section 4.
    \32\ Today, the Firm Floor Options Transaction Charges is waived 
for members executing facilitation orders pursuant to Options 8, 
Section 30 when such members are trading in their own proprietary 
account (including Cabinet Options Transaction Charges). The Firm 
Floor Options Transaction Charges will be waived for the buy side of 
a transaction if the same member or its affiliates under Common 
Ownership represents both sides of a Firm transaction when such 
members are trading in their own proprietary account. See Options 7, 
Section 4.
    \33\ See Options 7, Section 4.
    \34\ See Options 7, Section 4. Lead Market Makers and Market 
Makers are subject to a ``Monthly Market Maker Cap'' of $500,000 
for: (i) electronic Option Transaction Charges, excluding surcharges 
and excluding options overlying broad-based index options symbols 
listed within Options 7, Section 5.A; and (ii) QCC Transaction Fees 
(as defined in Exchange Options 3, Section 12 and Floor QCC Orders, 
as defined in Options 8, Section 30(e)). The trading activity of 
separate Lead Market Maker and Market Maker member organizations is 
aggregated in calculating the Monthly Market Maker Cap if there is 
Common Ownership between the member organizations. All dividend, 
merger, short stock interest, reversal and conversion, jelly roll 
and box spread strategy executions (as defined in this Options 7, 
Section 4) is excluded from the Monthly Market Maker Cap. Lead 
Market Makers or Market Makers that (i) are on the contra-side of an 
electronically-delivered and executed Customer order, excluding 
responses to a PIXL auction; and (ii) have reached the Monthly 
Market Maker Cap will be assessed fees as follows: $0.05 per 
contract Fee for Adding Liquidity in Penny Symbols; $0.18 per 
contract Fee for Removing Liquidity in Penny Symbols; $0.18 per 
contract in Non-Penny Symbols; and $0.18 per contract in a non-
Complex electronic auction, including the Quote Exhaust auction and, 
for purposes of this fee, the opening process. A Complex electronic 
auction includes, but is not limited to, the Complex Order Live 
Auction (``COLA''). Transactions which execute against an order for 
which the Exchange broadcast an order exposure alert in an 
electronic auction will be subject to this fee.
    \35\ See Options 7, Section 4.
    \36\ See Options 7, Section 4.
    \37\ 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 is priced the same as a Broker-Dealer. A 
JBO participant is a member, member organization or non-member 
organization that maintains a JBO arrangement with a clearing 
broker-dealer (``JBO Broker'') subject to the requirements of 
Regulation T Section 220.7 of the Federal Reserve System as further 
discussed at Options 6D, Section 1. See Options 7, Section 1(c).
    \38\ Firms are subject to a Monthly Firm Fee Cap. See Options 7, 
Section 4.
---------------------------------------------------------------------------

    The Exchange's proposal to amend the types of strategy executions 
that will be included in the Monthly Firm Fee Cap to exclude all 
strategy executions from the Monthly Firm Fee Cap is reasonable because 
the Exchange offers strategy caps \39\ for these types of open outcry 
transactions and, therefore, members and member organizations have the 
ability to pay no fees on strategy executions once the cap is met. The 
Exchange's proposal to amend the types of strategy executions that will 
be included in the Monthly Firm Fee Cap to exclude all strategy 
executions from the Monthly Firm Fee Cap is equitable and not unfairly 
discriminatory because the Exchange would uniformly calculate 
qualifying transactions to arrive at the Monthly Firm Fee Cap.
---------------------------------------------------------------------------

    \39\ Today, the Exchange offers certain strategy caps for 
dividend, merger, short stock interest, reversal and conversion, 
jelly roll, and box spread strategy executions. To qualify for a 
strategy cap, the buy and sell side of a transaction must originate 
either from the Exchange's trading floor or as a Floor Qualified 
Contingent Cross Order. See Options 7, Section 4.
---------------------------------------------------------------------------

Floor Transaction (Open Outcry) Floor Broker Incentive Program
    The Exchange's proposal to create a new incentive program for Floor 
Brokers that is designed to attract order flow to Phlx's trading floor 
for execution in open outcry is reasonable, equitable and not unfairly 
discriminatory because the Exchange's program seeks to attract greater 
order flow to the Exchange's trading floor. The Exchange notes that 
other Phlx floor members may interact with orders exposed in open 
outcry on the Exchange's trading floor. Other floor members \40\ may 
interact with the order flow that Floor Brokers attract to Phlx's 
trading floor.
---------------------------------------------------------------------------

    \40\ Floor members include all members who have acquired a 
permit to trade on Phlx's trading floor.
---------------------------------------------------------------------------

    The Exchange's proposal to exclude Floor QCC Orders, dividend, 
merger, short stock interest, reversal and conversion, jelly roll and 
box spread strategy executions as defined in this Options 7, Section 4; 
Firm Floor Options Transaction Charges for members executing 
facilitation orders pursuant to Options 8, Section 30 when such members 
are trading in their own proprietary account (including Cabinet Options 
Transaction Charges); and Customer-to-Customer transactions from the 
Floor Transaction (Open Outcry) Floor Broker Incentive Program is 
reasonable. Within this proposal, the Exchange offers to pay 
significant QCC Rebates for Floor QCC Orders. As noted herein, with 
respect to strategy transactions, the Exchange offers strategy caps 
\41\ for these types of open outcry transactions and, therefore, 
members and member organizations have the ability to pay no fees on

[[Page 13484]]

strategy executions once the cap is met. The Exchange is excluding Firm 
Floor Options Transaction Charges for members executing facilitation 
orders pursuant to Options 8, Section 30 when such members are trading 
in their own proprietary account (including Cabinet Options Transaction 
Charges) because, today, Firm Floor Options Transaction Charges are 
waived pursuant to Options 7, Section 4. Finally, the Exchange is 
excluding Customer-to-Customer transaction as Customers are not subject 
to Options Transaction Charges within Options 7, Section 4. The 
Exchange's proposal to exclude Floor QCC Orders, dividend, merger, 
short stock interest, reversal and conversion, jelly roll and box 
spread strategy executions as defined in this Options 7, Section 4; 
Firm Floor Options Transaction Charges for members executing 
facilitation orders pursuant to Options 8, Section 30 when such members 
are trading in their own proprietary account (including Cabinet Options 
Transaction Charges); and Customer-to-Customer transactions from the 
Floor Transaction (Open Outcry) Floor Broker Incentive Program is 
equitable and not unfairly discriminatory because the Exchange would 
uniformly apply the qualification criteria to calculate rebates.
---------------------------------------------------------------------------

    \41\ Today, the Exchange offers certain strategy caps for 
dividend, merger, short stock interest, reversal and conversion, 
jelly roll, and box spread strategy executions. To qualify for a 
strategy cap, the buy and sell side of a transaction must originate 
either from the Exchange's trading floor or as a Floor Qualified 
Contingent Cross Order. See Options 7, Section 4.
---------------------------------------------------------------------------

    The Exchange's proposal to pay Floor Brokers rebates on qualifying 
open outcry volume at each of three threshold levels, with rebates 
ranging from $0.03 to $0.09 per contract, is reasonable because the 
Exchange believes that these rebates will serve to incentivize Floor 
Brokers to execute a greater number of orders in the Exchange's trading 
crowd. The Exchange's proposal to pay Floor Brokers rebates on 
qualifying open outcry volume at each of three threshold levels, with 
rebates ranging from $0.03 to $0.09 per contract, is equitable and not 
unfairly discriminatory as the Exchange would uniformly calculate all 
qualifying volume and uniformly pay rebates associated with the Floor 
Transaction (Open Outcry) Floor Broker Incentive Program.
    The Exchange's proposal to cap rebates for the Floor Transaction 
(Open Outcry) Floor Broker Incentive Program at $1,000,000 per member 
or member organization in a given month is reasonable. The Exchange's 
program will pay Floor Brokers up to $1,000,000 in rebates a month to 
incentivize them to bring additional order flow to the Exchange's 
trading crowd. The Exchange believes that the incentive, despite the 
cap, will attract order flow to Phlx. All other floor members may 
interact with that order flow. The Exchange's proposal to cap rebates 
for the Floor Transaction (Open Outcry) Floor Broker Incentive Program 
at $1,000,000 per member or member organization in a given month is 
equitable and not unfairly discriminatory as all Floor Brokers would be 
subject to the same cap.
Technical Amendments
    The Exchange's proposal to add certain titles within Options 7, 
Section 4 is reasonable, equitable and not unfairly discriminatory as 
the titles will assist market participants in locating certain pricing 
within Phlx's Options 7, Section 4 rule. The addition of these titles 
are non-substantive amendments.

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. In terms of intra-market competition, the Exchange 
does not believe that its proposals will place any category of market 
participant at a competitive disadvantage. The Exchange believes that 
the proposed QCC Rebate and QCC Rebate Growth Tier Rebates will 
encourage market participants to send a greater amount of electronic 
QCC orders and Floor QCC Orders to Phlx for execution in order to 
obtain greater rebates and lower their costs. Further, the proposed QCC 
Growth Tier Rebate should incentivize a greater amount of floor 
transactions on Phlx, thereby allowing Phlx to compete more effectively 
with other options floor models. The proposed Floor Broker Incentive 
Program should encourage Floor Brokers to send additional order flow to 
Phlx to obtain rebates and lower their costs. Any market participant 
may send an order to a Phlx Floor Broker for execution on Phlx's 
trading floor. The Exchange believes that the additional liquidity will 
enhance the quality of the Exchange's market and increase certain 
trading opportunities on the Exchange's trading floor for floor 
members.
QCC Rebates
Section A QCC Rebates
    The Exchange's proposal to remove the existing QCC Rebate Schedule 
and replace those rebates with new rebates as well as a QCC Growth Tier 
Rebate does not impose an undue burden on competition because all 
members and member organizations may execute QCC rebates, 
electronically or on the Exchange's trading floor. The Exchange 
believes its proposal to offer these two new QCC Rebates does not 
impose an undue burden on competition because any market participant 
may qualify for a QCC Rebate provided they qualified for the QCC 
Rebate. Further, the Exchange's proposal which pays greater rebates 
where the two contra-parties to a QCC Order are not Customers and 
Professionals does not impose an undue burden on competition because, 
today, the Exchange assesses greater fees to Lead Market Maker, Market 
Maker, Broker-Dealer and Firms for QCC Orders. Customers and 
Professionals are not assessed a QCC Transaction Fee, while all other 
market participants pay a QCC Transaction Fee of $0.20 per contract. 
The Exchange's proposal to amend the QCC Rebate qualification such that 
all strategy executions (dividend, merger, short stock interest, 
reversal and conversion, jelly roll, and box spread) will be excluded 
and, as proposed, will aggregate the applicable member or member 
organization qualifying QCC contract volume in a given month, excluding 
all strategy executions does not impose an undue burden on competition 
because the Exchange would uniformly apply the QCC Rebate 
qualifications as well as calculate the QCC Rebates.
Section B QCC Growth Tier Rebate
    The Exchange's proposal to establish a new QCC Growth Tier Rebate 
does not impose an undue burden on competition, rather is it pro-
competitive in that would serve to increase liquidity

[[Page 13485]]

on Phlx, thus rendering Phlx a more attractive and vibrant venue to 
market participants. The QCC Growth Tier Rebate qualifications do not 
impose an undue burden on competition because all members and member 
organizations may qualify for the QCC Growth Tier Rebate.\42\ All 
members and member organizations may enter order flow to obtain a QCC 
Growth Tier Rebate. The Exchange's exclusion of strategy executions, 
cabinet transactions and Customer-to-Customer transactions does not 
impose an undue burden on competition as the qualifications for the QCC 
Growth Tier Rebate will be uniformly applied. The Exchange's proposal 
to utilize January 2023 as a baseline to add 250,000 or more contracts 
for the QCC Growth Tier Rebate and permit members or member 
organizations with no QCC transaction volume in January 2023, to add 
250,000 or more contracts in a given month does not impose an undue 
burden on competition because the proposal is designed to increase 
participation in Phlx's trading floor and reward those members and 
member organizations for the unique role they play in ensuring a robust 
market. Further, the proposal is designed to encourage members and 
member organizations to substantially add liquidity to the trading 
floor. To the extent the Exchange succeeds in increasing the levels of 
liquidity and activity on the Exchange, the Exchange will experience 
improvements in market quality, which stands to benefit all floor 
members. The proposal considers any new volume for members and member 
organizations with no such volume for the month of January 2023 for 
those members and member organizations to qualify to receive the 
proposed QCC Growth Tier Rebate. This does not impose an undue burden 
on competition because the program is designed to attract additional 
liquidity from new members and member organizations to the Exchange. In 
turn, this additional liquidity should benefit all market participants 
through increased liquidity and order interaction. The Exchange's 
proposal to pay the QCC Growth Tier Rebates per Phlx House Account does 
not impose an undue burden on competition. Today, each Phlx member or 
member organization is required to establish one Phlx House Account 
with the Exchange's Membership Department. Only one Phlx House Account 
is required to transact business on Phlx.\43\ A Phlx member or member 
organization has the option of acquiring multiple Phlx House Accounts 
depending on a member's or member organization's business model and how 
they elect to organize their business. The Exchange's proposal to pay a 
$0.20 per contract QCC Growth Tier Rebate on a QCC Order comprised of a 
Customer or Professional order on one side and a Lead Market Maker, 
Market Maker, Broker-Dealer, or Firm order on the other side and a 
$0.26 per contract QCC Growth Tier Rebate on a QCC Order is comprised 
of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on 
one side and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm 
order on the other side does not impose an undue burden on competition 
because the Exchange will uniformly apply the qualifications and to pay 
the QCC Growth Tier Rebate. The Exchange's proposal to pay members and 
member organizations the greater of the QCC Rebate in Section A or the 
QCC Growth Tier Rebate in Section B in a given month, but not both QCC 
Rebates, does not impose an undue burden on competition because each of 
the Exchange's QCC rebates remain competitive with today's QCC Rebate 
and the Exchange would uniformly only pay the greater of the two QCC 
Rebates.
---------------------------------------------------------------------------

    \42\ The Exchange notes that while all Phlx member organizations 
may transact an options business electronically or on the Exchange's 
trading floor, each member located on Phlx's trading floor must have 
an individual permit. Alternatively, Phlx members or member 
organizations may transact business on the trading floor through a 
Floor Broker.
    \43\ The Exchange assesses a $50.00 a month account fee for this 
account as provided for within Options 7, Section 8A.
---------------------------------------------------------------------------

Monthly Firm Fee Cap
    The Exchange's proposal to amend the Monthly Firm Fee Cap from 
$150,000 to $200,000 and assess a nominal fee of $0.02 per capped 
contract once a Firm exceeds the Monthly Firm Fee Cap, instead of not 
assessing Firms any fee once the Monthly Firm Fee Cap is exceeded does 
not impose an undue burden on competition as other market participants 
benefit from an opportunity to pay reduced fees on Phlx as do Firms. 
Today, Customers are not assessed an Options Transaction Charge in 
multiply-listed Penny or non-Penny Symbols.\44\ Customer liquidity 
benefits all market participants by providing more trading 
opportunities. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
Today, Lead Market Makers and Market Makers are subject to a Monthly 
Market Maker Cap.\45\ With respect to Broker-Dealers, today, the 
Exchange waives the Floor Options Transaction Charge for Broker-Dealers 
executing facilitation orders pursuant to Options 8, Section 30 when 
such members would otherwise incur this charge for trading in their own 
proprietary account contra to a Customer (``BD-Customer 
Facilitation''), if the member's BD-Customer Facilitation average daily 
volume (including both FLEX and non-FLEX transactions) exceeds 10,000 
contracts per day in a given month.\46\ Finally, today, Professional 
Floor Options Transaction Charges are less favorable than Customers but 
more favorable than Firms.\47\ Additionally, the Exchange believes that 
the proposal is equitable and not unfairly discriminatory because 
members and member organizations that are JBOs \48\ could be subject to 
the Firm Related Equity Option Cap, as are other members, as long as 
the JBO trades for their own proprietary account. Additionally, the 
proposed change would encourage JBOs that are not

[[Page 13486]]

members or member organizations to seek to become members or member 
organizations to further reduce their transaction fees. Finally, other 
market participants may interact with the order flow submitted by Firms 
to Phlx to reach the cap. The Exchange's proposal to not assess the 
$0.02 per contract transaction fee if no fee is charged or the fee is 
waived does not impose an undue burden on competition as the Exchange 
would uniformly not assess the transaction fee in this case.
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    \44\ See Options 7, Section 4.
    \45\ See Options 7, Section 4. Lead Market Makers and Market 
Makers are subject to a ``Monthly Market Maker Cap'' of $500,000 
for: (i) electronic Option Transaction Charges, excluding surcharges 
and excluding options overlying broad-based index options symbols 
listed within Options 7, Section 5.A; and (ii) QCC Transaction Fees 
(as defined in Exchange Options 3, Section 12 and Floor QCC Orders, 
as defined in Options 8, Section 30(e)). The trading activity of 
separate Lead Market Maker and Market Maker member organizations is 
aggregated in calculating the Monthly Market Maker Cap if there is 
Common Ownership between the member organizations. All dividend, 
merger, short stock interest, reversal and conversion, jelly roll 
and box spread strategy executions (as defined in this Options 7, 
Section 4) is excluded from the Monthly Market Maker Cap. Lead 
Market Makers or Market Makers that (i) are on the contra-side of an 
electronically-delivered and executed Customer order, excluding 
responses to a PIXL auction; and (ii) have reached the Monthly 
Market Maker Cap will be assessed fees as follows: $0.05 per 
contract Fee for Adding Liquidity in Penny Symbols; $0.18 per 
contract Fee for Removing Liquidity in Penny Symbols; $0.18 per 
contract in Non-Penny Symbols; and $0.18 per contract in a non-
Complex electronic auction, including the Quote Exhaust auction and, 
for purposes of this fee, the opening process. A Complex electronic 
auction includes, but is not limited to, the Complex Order Live 
Auction (``COLA''). Transactions which execute against an order for 
which the Exchange broadcast an order exposure alert in an 
electronic auction will be subject to this fee.
    \46\ See Options 7, Section 4.
    \47\ See Options 7, Section 4.
    \48\ 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 is priced the same as a Broker-Dealer. A 
JBO participant is a member, member organization or non-member 
organization that maintains a JBO arrangement with a clearing 
broker-dealer (``JBO Broker'') subject to the requirements of 
Regulation T Section 220.7 of the Federal Reserve System as further 
discussed at Options 6D, Section 1. See Options 7, Section 1(c).
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Floor Transaction (Open Outcry) Floor Broker Incentive Program
    The Exchange's proposal to create a new incentive program for Floor 
Brokers that is designed to attract order flow to Phlx's trading floor 
for execution in open outcry does not impose an undue burden on 
competition because the Exchange's program seeks to attract greater 
order flow to the Exchange. Other floor members may interact with the 
order flow that Floor Brokers attract to Phlx's trading floor. The 
Exchange's proposal to exclude Floor QCC Orders, dividend, merger, 
short stock interest, reversal and conversion, jelly roll and box 
spread strategy executions as defined in this Options 7, Section 4; 
Firm Floor Options Transaction Charges for members executing 
facilitation orders pursuant to Options 8, Section 30 when such members 
are trading in their own proprietary account (including Cabinet Options 
Transaction Charges); and Customer-to-Customer transactions from the 
Floor Transaction (Open Outcry) Floor Broker Incentive Program does not 
impose an undue burden on competition because the Exchange would 
uniformly apply the qualification criteria to calculate rebates. The 
Exchange's proposal to pay Floor Brokers rebates on qualifying open 
outcry volume at each of three threshold levels, with rebates ranging 
from $0.03 to $0.09 per contract, does not impose an undue burden on 
competition as the Exchange would uniformly calculate all qualifying 
volume and uniformly pay rebates associated with the Floor Transaction 
(Open Outcry) Floor Broker Incentive Program. The Exchange's proposal 
to cap rebates for the Floor Transaction (Open Outcry) Floor Broker 
Incentive Program at $1,000,000 per member or member organization in a 
given month does not impose an undue burden on competition as all Floor 
Brokers would be subject to the same cap.
Technical Amendments
    The Exchange's proposal to add certain titles within Options 7, 
Section 4 does not impose an undue burden on competition as the titles 
will assist market participants in locating certain pricing within 
Phlx's Options 7, Section 4 rule. The addition of these titles are non-
substantive amendments.

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.\49\
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    \49\ 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-2023-06 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-2023-06. 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-2023-06 and should be submitted on 
or before March 24, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
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    \50\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-04357 Filed 3-2-23; 8:45 am]
BILLING CODE 8011-01-P