Document ID: SEC-2023-0611-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2023-06-13T04:00Z

[Federal Register Volume 88, Number 113 (Tuesday, June 13, 2023)]
[Notices]
[Pages 38580-38582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12578]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97666; File No. SR-Phlx-2023-23]

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

June 7, 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 June 1, 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).''
    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 amend its Floor Transaction (Open 
Outcry) Floor Broker Incentive Program.
    Today, the Exchange offers an incentive program for Floor Brokers 
\3\ that is designed to attract order flow to Phlx's trading floor for 
execution in open outcry. Today, the Exchange pays Floor Transaction 
(Open Outcry) Floor Broker Incentive Program rebates on qualifying 
volume at each threshold level per the below schedule.
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    \3\ 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).

------------------------------------------------------------------------
                                                           Per contract
                  Qualifying contracts                        rebate
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0-5,000,000.............................................           $0.03
5,000,001-10,000,000....................................            0.06
Greater than 10,000,000.................................            0.09
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[[Page 38581]]

    By way of example, a Floor Broker that executes floor transactions 
in a given month totaling 10,500,000 contracts is 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. The Exchange caps rebates for the Floor 
Transaction (Open Outcry) Floor Broker Incentive Program at $1,000,000 
per member or member organization in a given month.
    Today, the following floor transactions are not 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); \4\ (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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    \4\ 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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    At this time, the Exchange proposes to amend the rebates that will 
be paid on qualifying volume at each threshold level. The Exchange 
proposes to increase the rebate from $0.03 to $0.05 per contract for 
qualifying contracts from 1-5,000,000. The Exchange proposes to 
increase the rebate from $0.06 to $0.08 per contract for qualifying 
contracts from 5,000,001 to 10,000,000. Finally, the Exchange proposes 
to increase rebate from $0.09 to $0.11 per contract for qualifying 
contracts greater than 10,000,000. The Exchange is not amending 
qualifying floor transactions that are subject to the rebates. The 
Exchange would make corresponding changes to the example beneath the 
rebate table in Options 7, Section 4.
    The Exchange believes that the Floor Transaction (Open Outcry) 
Floor Broker Incentive Program will continue to attract greater order 
flow to Phlx's trading floor.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\6\ 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 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.'' \7\
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    \7\ 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 \8\ 
(``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.\9\ 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.'' \10\
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    \8\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \9\ See NetCoalition, at 534-535.
    \10\ 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'. . . .'' \11\ 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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    \11\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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    The Exchange's proposal to increase the Floor Transaction (Open 
Outcry) Floor Broker Incentive Program rebates that will be paid on 
qualifying volume at each threshold level ($0.03 to $0.05 per contract 
for 1-5,000,000; $0.06 to $0.08 per contract for 5,000,001 to 
10,000,000; and $0.09 to $0.11 per contract for greater than 
10,000,000) is reasonable because the Exchange believes that these 
rebates will serve to continue to incentivize Floor Brokers to execute 
a greater number of orders in the Exchange's trading crowd. Any market 
participant may send an order to a Phlx Floor Broker for execution on 
Phlx's trading floor. The Exchange notes that other Phlx floor members 
\12\ may interact with orders exposed in open outcry on the Exchange's 
trading floor.
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    \12\ Floor members include all members who have acquired a 
permit to trade on Phlx's trading floor.
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    The Exchange's proposal to increase the Floor Transaction (Open 
Outcry) Floor Broker Incentive Program rebates that will be paid on 
qualifying volume at each threshold level ($0.03 to $0.05 per contract 
for 1-5,000,000; $0.06 to $0.08 per contract for 5,000,001 to 
10,000,000; and $0.09 to $0.11 per contract for greater than 
10,000,000) 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 up to $1,000,000 in rebates a month.

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

[[Page 38582]]

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 proposed Floor Broker 
Incentive Program rebates 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.
    The Exchange's proposal to increase the Floor Transaction (Open 
Outcry) Floor Broker Incentive Program rebates that will be paid on 
qualifying volume at each threshold level ($0.03 to $0.05 per contract 
for 1-5,000,000; $0.06 to $0.08 per contract for 5,000,001 to 
10,000,000; and $0.09 to $0.11 per contract for greater than 
10,000,000) 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 up to $1,000,000 in rebates a month.

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.\13\
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    \13\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2023-23 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-2023-23. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-Phlx-2023-23 and should be 
submitted on or before July 5, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12578 Filed 6-12-23; 8:45 am]
BILLING CODE 8011-01-P