Document ID: SEC-2023-1485-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2023-12-20T05:00Z

[Federal Register Volume 88, Number 243 (Wednesday, December 20, 2023)]
[Notices]
[Pages 88191-88193]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27927]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99186; File No. SR-Phlx-2023-56]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, 
Section 9

December 14, 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 December 5, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Rules at Options 7, Section 9, 
Other Member Fees.\3\
---------------------------------------------------------------------------

    \3\ The Exchange initially filed the proposed pricing changes on 
November 28, 2023 (SR-Phlx-2023-52). On December 5, 2023, the 
Exchange withdrew that filing and submitted this filing.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Options 7, Section 9, B, Port Fees, 
to increase the SQF Port \4\ Fee cap.
---------------------------------------------------------------------------

    \4\ ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Lead Market Makers, Streaming Quote Traders (``SQTs'') and 
Remote Streaming Quote Traders (``RSQTs'') to connect, send, and 
receive messages related to quotes, Immediate-or-Cancel Orders, and 
auction responses into and from the Exchange. Features include the 
following: (1) options symbol directory messages (e.g., underlying 
and complex instruments); (2) system event messages (e.g., start of 
trading hours messages and start of opening); (3) trading action 
messages (e.g., halts and resumes); (4) execution messages; (5) 
quote messages; (6) Immediate-or-Cancel Order messages; (7) risk 
protection triggers and purge notifications; (8) opening imbalance 
messages; (9) auction notifications; and (10) auction responses. The 
SQF Purge Interface only receives and notifies of purge requests 
from the Lead Market Maker, SQT or RSQT. Lead Market Makers, SQTs 
and RSQTs may only enter interest into SQF in their assigned options 
series. Immediate-or-Cancel Orders entered into SQF are not subject 
to the Order Price Protection, the Market Order Spread Protection, 
or Size Limitation in Options 3, Section 15(a)(1), (a)(2) and 
(b)(2), respectively. See Options 3, Section 7(a)(i)(B).
---------------------------------------------------------------------------

    Today, Phlx assesses $1,250 per port, per month up to a maximum of 
$42,000 per month for an SQF Port that receives inbound quotes at any 
time within that month.\5\ Today, member organizations are not assessed 
an active SQF Port Fee for additional ports acquired for ten business 
days for the purpose of transitioning technology.\6\ The Exchange 
proposes to add the words ``active port'' in parenthesis at the end of 
the description of SQF Port Fee to tie the definition of an active port 
to the description for the port.\7\
---------------------------------------------------------------------------

    \5\ An active port shall mean that the port was utilized to 
submit a quote to the System during a given month. See Options 7, 
Section 9, B.
    \6\ The member organization is required to provide the Exchange 
with written notification of the transition and all additional 
ports, provided at no cost, will be removed at the end of the ten 
business days. See Options 7, Section 9, B.
    \7\ The Exchange also proposes a technical amendment to add a 
comma between ``per port'' and ``per month'' for the SQF Port Fee in 
Options 7, Section 9, B.
---------------------------------------------------------------------------

    At this time, the Exchange proposes to increase the maximum SQF 
Port Fee of $42,000 per month to $50,000 per month. The Exchange is not 
amending the $1,250 per port, per month fee. As is the case today, the 
Exchange would not assess a member organization an SQF Port Fee beyond 
the monthly cap once the member organization has exceeded the monthly 
cap for the respective month. Despite increasing the maximum SQF Port 
Fee from $42,000 per month to $50,000 per month, the Exchange will 
continue to offer member organizations the opportunity to cap their SQF 
Port Fees so that they would not be assessed these fees beyond the cap. 
A Phlx Market Maker requires only one SQF Port to submit quotes in its 
assigned options series into Phlx. A Phlx Market Maker may submit all 
quotes through one SQF Port. While a Phlx Market Maker may elect to 
obtain multiple SQF Ports to organize its business,\8\ only one SQF 
Port is necessary for a Phlx Market Maker to fulfill its regulatory 
quoting obligations.\9\
---------------------------------------------------------------------------

    \8\ For example, a Phlx Market Maker may desire to utilize 
multiple SQF Ports for accounting purposes, to measure performance, 
for regulatory reasons or other determinations that are specific to 
that member organization.
    \9\ Phlx Market Makers have various regulatory requirements as 
provided for in Options 2, Section 4. Additionally, Phlx Market 
Makers have certain quoting requirements with respect to their 
assigned options series as provided in Options 2, Section 5. SQF 
Ports are the only quoting protocol available on Phlx and only 
Market Makers may utilize SQF Ports.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The proposed pricing change to increase the maximum SQF Port Fee is 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for options 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution';

[[Page 88192]]

[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'. . . .'' 
\12\
---------------------------------------------------------------------------

    \12\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------

    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.'' \13\
---------------------------------------------------------------------------

    \13\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market. 
Within this environment, market participants can freely and often do 
shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules.
    The proposed pricing change to increase the maximum SQF Port Fee 
from $42,000 to $50,000 per month is reasonable because despite the 
increase in the maximum SQF Port Fee, the Exchange will continue to 
offer member organizations the opportunity to cap their SQF Port Fees 
so that they would not be assessed SQF Port Fees beyond the cap. 
Additionally, a Phlx Market Maker requires only one SQF Port to submit 
quotes in its assigned options series into Phlx. A Phlx Market Maker 
may submit all quotes through one SQF Port. While a Phlx Market Maker 
may elect to obtain multiple SQF Ports to organize its business,\14\ 
only one SQF Port is necessary for a Phlx Market Maker to fulfill its 
regulatory quoting obligations.\15\
---------------------------------------------------------------------------

    \14\ For example, a Phlx Market Maker may desire to utilize 
multiple SQF Ports for accounting purposes, to measure performance, 
for regulatory reasons or other determinations that are specific to 
that member organization.
    \15\ Phlx Market Makers have various regulatory requirements as 
provided for in Options 2, Section 4. Additionally, Phlx Market 
Makers have certain quoting requirements with respect to their 
assigned options series as provided in Options 2, Section 5. SQF 
Ports are the only quoting protocol available on Phlx and only 
Market Makers may utilize SQF Ports.
---------------------------------------------------------------------------

    The proposed pricing change to increase the maximum SQF Port Fee 
from $42,000 to $50,000 per month is equitable and not unfairly 
discriminatory because the Exchange would uniformly not assess any 
Market Makers that exceeded the maximum SQF Port Fee any SQF Port Fees 
beyond the maximum amount. Market Makers are the only market 
participants that are assessed an SQF Port Fee because they are the 
only market participants that are permitted to quote on the Exchange.

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.
Intermarket Competition
    The proposal does not impose an undue burden on intermarket 
competition. The Exchange believes its proposal remains competitive 
with other options markets who also offer order entry protocols. 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. 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.
Intramarket Competition
    The proposed pricing change to increase the maximum SQF Port Fee 
from $42,000 to $50,000 per month does not impose an undue burden on 
competition because the Exchange would uniformly not assess any Market 
Makers that exceeded the maximum SQF Port Fee any SQF Port Fees beyond 
the maximum amount. Market Makers are the only market participants that 
are assessed an SQF Port Fee because they are the only market 
participants that are permitted to quote on the Exchange.

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.\16\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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-2023-56 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-2023-56. 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,

[[Page 88193]]

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-2023-56 and should be 
submitted on or before January 10, 2024.
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27927 Filed 12-19-23; 8:45 am]
BILLING CODE 8011-01-P