Document ID: SEC-2019-1259-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2019-09-04T04:00Z

[Federal Register Volume 84, Number 171 (Wednesday, September 4, 2019)]
[Notices]
[Pages 46578-46580]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19006]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86795; File No. SR-Phlx-2019-30]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Phlx 
Pricing at Options 7, Section 9, Titled Other Member Fees

August 28, 2019.
    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 August 22, 2019, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``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 pricing at Options 7, Section 9 
titled ``Other Member Fees.'' The amendment will describe the pricing 
with respect to an upcoming technology infrastructure migration.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated the amendments become operative on September 3, 
2019.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.cchwallstreet.com/, 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
a. Purpose
    The Exchange proposes to amend Phlx pricing at Options 7, Section 9 
titled ``Other Member Fees.'' During the month of September 2019, Phlx 
members will be required to transition from current FIX Ports \3\ and 
CTI Ports \4\ to new FIX Ports and CTI Ports in connection with an 
upcoming technology infrastructure migration.
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    \3\ Financial Information eXchange or ``FIX'' is an interface 
that allows members and their Sponsored Customers to connect, send, 
and receive messages related to orders and auction orders and 
responses to and from the Exchange. Features include the following: 
(1) Execution messages; (2) order messages; and (3) risk protection 
triggers and cancel notifications. See Rule 1080(a)(i)(A).
    \4\ Clearing Trade Interface or ``CTI'' is a real-time clearing 
trade update message that is sent to a member after an execution has 
occurred and contains trade details specific to that member. The 
information includes, among other things, the following: (i) The 
Clearing Member Trade Agreement or ``CMTA'' or ``OCC'' number; (ii) 
Exchange badge or house number; (iii) the Exchange internal firm 
identifier; (iv) an indicator which will distinguish electronic and 
non-electronically delivered orders; (v) liquidity indicators and 
transaction type for billing purposes; and (vi) capacity. See Rule 
1070(b)(1).
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Description of Migration and Pricing Impact
    In connection with this migration, members will request new FIX 
Ports and CTI Ports during the month of September 2019, which are 
duplicative of the type and quantity of their current ports, at no 
additional cost to allow for testing of the new ports and allow for 
continuous connection to the match engine during the transition 
period.\5\ For example, a a Phlx member with 3 FIX Ports and 1 CTI Port 
on September 3, 2019 could request 3 new FIX Ports and 1 new CTI Port 
for the month of September 2019 at no additional cost. The Phlx member 
would be assessed only for the legacy market ports, in this case 3 FIX 
Ports and 1 CTI Port for the month of September 2019 and would not be 
assessed for the new ports, which

[[Page 46579]]

are duplicative of the current ports. A member may acquire any 
additional legacy ports during the month of September 2019 and would be 
assessed the charges indicated in the current Pricing Schedule. The 
migration does not require a member to acquire any additional ports, 
rather the migration requires a new port to replace any existing ports 
provided the member desired to maintain the same number of ports.\6\ A 
member desiring to enter orders into Phlx is required to obtain 1 FIX 
Port. A member may also obtain order and execution ports, such as a CTI 
Port, to receive clearing messages. The number of additional FIX or 
order and execution ports obtained by a member is dependent on the 
member's business needs.
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    \5\ Members would contact Market Operations to acquire new 
duplicative FIX Ports and CTI Ports. See Options Technical Update 
#2019-3.
    \6\ The migration is 1:1 and therefore would not require a 
member to acquire new ports, nor would it reduce the number of ports 
needed to connect.
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Applicability to and Impact on Members \7\
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    \7\ On May 21, 2019, the SEC Division of Trading and Markets 
(the ``Division'') issued fee filing guidance titled ``Staff 
Guidance on SRO Rule Filings Relating to Fees'' (``Guidance''). 
Within the Guidance, the Division noted, among other things, that 
the purpose discussion should address ``how the fee may apply 
differently (e.g., additional cost vs. additional discount) to 
different types of market participants (e.g., market makers, 
institutional brokers, retail brokers, vendors, etc.) and different 
sizes of market participants.'' See Guidance (available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees). The Guidance 
also suggests that the purpose discussion should include numerical 
examples. Where possible, the Exchange is including numerical 
examples. In addition, the Exchange is providing data to the 
Commission in support of its arguments herein. The Guidance covers 
all aspects of a fee filing, which the Exchange has addressed 
throughout this filing.
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    The proposal is not intended to impose any additional fees on any 
Phlx members. All members may enter orders on Phlx. As noted above, a 
Phlx member may enter all orders on Phlx through one FIX Port. The 
Exchange does not require a Phlx member to obtain more than one FIX 
Port, however, a member may obtain multiple FIX Ports or a CTI Port to 
meet its individual business needs. This proposal is intended to permit 
a Phlx member to migrate its current FIX Ports and CTI Ports at no 
additional costs during the month of September 2019 to allow for 
continuous connection to the Exchange. Members would only be assessed a 
fee for their current FIX Ports and CTI Ports and not be assessed a fee 
for any new duplicative ports they acquire in connection with the 
technology infrastructure migration. This proposal is not intended to 
have a pricing impact.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\9\ 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. The proposal is also consistent with 
Section 11A of the Act relating to the establishment of the national 
market system for securities. Moreover, the Exchange believes that its 
proposal complies with Commission guidance on SRO fee filings that the 
Commission Staff issued on May 21, 2019.\10\
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
    \10\ See Guidance, supra note 7. Although the Exchange believes 
that this filing complies with the Guidance, the Exchange does not 
concede that the standards set forth in the Guidance are consistent 
with the Exchange Act and reserves its right to challenge those 
standards through administrative and judicial review, as 
appropriate.
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The Proposal Is Reasonable
    The Exchange's proposal is reasonable in several respects. As a 
threshold matter, the Exchange is subject to significant competitive 
forces in the market for options 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'; [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\
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    \11\ 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)).
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options transaction services. The Exchange is one of several options 
venues to which market participants may direct their order flow, and it 
represents a small percentage of the overall market. The Exchange 
believes its proposal is reasonable because it will not cause a pricing 
impact on any Phlx member, rather the proposal is intended to permit 
Phlx members to migrate their FIX Ports and CTI Ports to new technology 
at no additional cost during the month of September 2019. This 
proposal, which offers duplicative ports to members at no cost, will 
allow members to test and maintain continuous connection to the 
Exchange during the month of September 2019.
The Proposal Represents an Equitable Allocation and Is Not Unfairly 
Discriminatory
    The Exchange believes its proposal allocates its fees fairly among 
its market participants. The proposal is equitable and not unfairly 
discriminatory. All members may enter orders on Phlx. As noted above, a 
Phlx member may enter all orders on Phlx through one FIX Port. The 
Exchange does not require a Phlx member to obtain more than one FIX 
Port, however, a member may obtain multiple FIX Ports or a CTI Port to 
meet its individual business needs. This proposal is not intended to 
have a pricing impact to any Phlx member.

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. This proposal does not amend pricing or functionality. 
Rather, this technology migration will enable Phlx members to continue 
to connect to Phlx, as is the case today, for the entry of orders.
Intra-Market Competition
    The proposal does not impose an undue burden on intra-market 
competition. All members may enter orders on Phlx. As noted above, a 
Phlx member may enter all orders on Phlx through one FIX Port. The 
Exchange does not require a Phlx member to obtain more than one FIX 
Port, however, a member may obtain multiple FIX Ports or a CTI Port to 
meet its individual business needs. This proposal is not intended to 
have a pricing impact to any Phlx member.

[[Page 46580]]

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.\12\
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    \12\ 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 rule-comments@sec.gov. Please include 
File Number SR-Phlx-2019-30 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-2019-30. 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-2019-30 and should be submitted on 
or before September 25, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19006 Filed 9-3-19; 8:45 am]
 BILLING CODE 8011-01-P