Document ID: SEC-2020-1094-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2020-07-14T04:00Z

[Federal Register Volume 85, Number 135 (Tuesday, July 14, 2020)]
[Notices]
[Pages 42459-42462]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15112]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89256; File No. SR-Phlx-2020-33]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx's 
Pricing Schedule To Waive Certain Fees

July 8, 2020.
    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 25, 2020, 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 8, ``Membership Fees'' and Options 7, Section 9, ``Other 
Member Fees.'' Phlx also proposes other technical amendments to various 
sections of Options 7.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated the amendments become operative on July 1, 
2020.
    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 within Options 7, Section 8, 
``Membership Fees'' and Options 7, Section 9, ``Other Member Fees.'' 
Phlx also proposes to update the name of the ``Penny Pilot Program'' 
within Options 7. Each change will be described below.
Options 7, Section 8
    Phlx proposes to amend Options 7, Section 8, ``Membership Fees,'' 
at Part A, ``Permit and Registration Fees,'' to waive the Floor Lead 
Market Maker and Floor Market Maker \3\ Permit Fee of $6,000, for the 
months of July and August 2020, for those members and member 
organizations who paid the Floor Lead Market Maker and Floor Market 
Maker Permit Fee in March 2020 and were not otherwise registered as a 
Streaming Quote Trader \4\ or Remote Streaming Quote Trader \5\ in 
March 2020.
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    \3\ A ``Floor Market Maker'' is a Market Maker who is neither an 
SQT or an RSQT.
    \4\ A ``Streaming Quote Trader'' or ``SQT'' means a Market Maker 
who has received permission from the Exchange to generate and submit 
option quotations electronically in options to which such SQT is 
assigned. An SQT may only submit such quotations while such SQT is 
physically present on the trading floor of the Exchange. An SQT may 
only submit quotes in classes of options in which the SQT is 
assigned. See Options 1, Section 1(b)(54).
    \5\ A ``Remote Streaming Quote Trader'' or ``RSQT'' means a 
Market Maker that is a member affiliated with an Remote Streaming 
Quote Trader Organization with no physical trading floor presence 
who has received permission from the Exchange to generate and submit 
option quotations electronically in options to which such RSQT has 
been assigned. A qualified RSQT may function as a Remote Lead Market 
Maker upon Exchange approval. An RSQT is also known as a Remote 
Market Maker (``RMM'') pursuant to Options 2, Section 11. A Remote 
Streaming Quote Organization (``RSQTO'') or Remote Market Maker 
Organization (``RMO'') are Exchange member organizations that have 
qualified pursuant to Options 2, Section 1. See Options 1, Section 
1(b)(49).
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    Open outcry on the Exchange's Trading Floor was closed on March 17, 
2020 \6\ and did not re-open until June 3, 2020.\7\ At the time that 
open outcry trading became unavailable in March 2020, Floor Lead Market 
Makers and Floor Market Makers were unable to transact business on the 
Phlx Trading Floor. The Exchange assessed these members and member 
organizations the monthly Floor Lead Market Maker and Floor Market 
Maker Fee of $6,000 during the time period when open outcry trading was 
unavailable. The Exchange seeks to waive the Floor Lead Market Maker 
and Floor Market Maker Permit Fee, for the months of July and August 
2020, for those members and member organizations that paid the Floor 
Lead Market Maker and Floor Market Maker Permit Fee in March 2020, and 
were not otherwise registered as a Streaming Quote Trader or as a 
Remote Streaming Quote Trader in March 2020. This waiver of the Floor 
Lead Market Maker and Floor Market Maker Permit Fee, for the months of 
July and August 2020, is intended to relieve Floor Lead Market Makers 
and Floor Market Makers, who do not otherwise stream quotes, of these 
fees for two months to ensure that these market makers continue to 
provide liquidity to the Trading Floor.
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    \6\ See Options Trader Alert #2020-07.
    \7\ See Options Trader Alert #2020-08.
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    The Exchange proposes to remove obsolete rule text, which was 
relevant in June 2020, regarding fee waivers for the Floor Broker 
Permit Fee, the Clerk Fee and the Streaming Quote Trader (``SQT'') 
Fees, which are no longer available. The Exchange also proposes to 
remove obsolete rule text related to an electronic Permit Fee credit 
that was offered in June 2020 and is no longer available.
Options 7, Section 9
    The Exchange proposes to remove obsolete rule text, which was 
relevant in June 2020, regarding a fee waiver for the Floor Facility 
Fee, which is no longer available.

[[Page 42460]]

Penny Pilot
    The Exchange proposes to amend the description of Penny Symbols to 
replace the term ``Penny Pilot Program'' with ``Penny Interval 
Program,'' and replace the terms ``Penny Pilot Options'' and ``Penny 
Pilot'' with ``Penny Symbol.'' On April 1, 2020, the Commission 
approved the amendment to the OLPP to make permanent the Pilot Program 
(the ``OLPP Program'').\8\ The Exchange recently filed a proposal to 
amend Phlx Options 3, Section 3 to conform the rule to Section 3.1 of 
the Plan for the Purpose of Developing and Implementing Procedures 
Designed to Facilitate the Listing and Trading of Standardized Options 
(the ``OLPP'').\9\ The Exchange's proposal amended Phlx Options 3, 
Section 3 to refer to a Penny Interval Program instead of a Penny Pilot 
Program. The proposed amendments conform the name of the program and 
also amend other references by removing the term ``pilot options'' and 
instead referring to Penny or Non-Penny Symbols. Specifically, the 
Exchange proposes to amend Options 7, Section 1; Options 7, Section 4; 
and Options 7, Section 6.
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    \8\ See Securities Exchange Act Release No. 88532 (April 1, 
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval 
Order'').
    \9\ See SR-Phlx-2020-32 (not yet published).
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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.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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.'' \12\
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    \12\ 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 
\13\ (``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.\14\ 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.'' \15\
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    \13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \14\ See NetCoalition, at 534-535.
    \15\ 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'. . . .'' \16\ 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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    \16\ 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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Options 7, Section 8
    Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,'' 
at Part A, ``Permit and Registration Fees,'' to waive the Floor Lead 
Market Maker and Floor Market Maker Permit Fee,\17\ for the months of 
July and August 2020, provided a member or member organization (1) paid 
the Floor Lead Market Maker or Floor Market Maker Permit Fee in March 
2020; and (2) was not otherwise registered as a Streaming Quote Trader 
or as a Remote Streaming Quote Trader in March 2020, is reasonable. 
Open outcry on the Exchange's Trading Floor was closed on March 17, 
2020 \18\ and did not re-open until June 3, 2020.\19\ At the time that 
open outcry trading became unavailable in March 2020, certain Floor 
Lead Market Makers and Floor Market Makers were unable to transact 
business on the Phlx Trading Floor. The Exchange assessed these members 
and member organizations the monthly Floor Lead Market Maker and Floor 
Market Maker Fee of $6,000 during the time period that open outcry was 
unavailable for trading. The Exchange seeks to waive the Floor Lead 
Market Maker and Floor Market Maker Permit Fee, for the months of July 
and August 2020, for those members and member organizations that paid 
the Floor Lead Market Maker and Floor Market Maker Permit Fee in March 
2020, and were not otherwise registered as a Streaming Quote Trader or 
as a Remote Streaming Quote Trader in March 2020. This waiver of the 
Floor Lead Market Maker and Floor Market Maker Permit Fee, for the 
months of July and August 2020, is intended to relieve Floor Lead 
Market Makers and Floor Market Makers, who do not otherwise stream 
quotes, of these fees for two months to ensure that these market makers 
continue to provide liquidity to the Trading Floor.
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    \17\ Phlx assesses a Floor Lead Market Maker and Floor Market 
Maker Permit Fee of $6,000.
    \18\ See Options Trader Alert #2020-07.
    \19\ See Options Trader Alert #2020-08.
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    Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,'' 
at Part A, ``Permit and Registration Fees,'' to waive the Floor Lead 
Market Maker and Floor Market Maker Permit Fee,\20\ for the months of 
July and August 2020, provided a member or member organization (1) paid 
the Floor Lead Market Maker or Floor Market Maker Permit Fee in March 
2020; and (2) was not otherwise registered as a Streaming Quote Trader 
or as a Remote Streaming Quote Trader in March 2020, is equitable and 
not unfairly discriminatory. The Exchange is proposing to waive fees 
for members and member organizations that solely conducted a business 
within open outcry trading and did not otherwise conduct an electronic 
business during the time period that open outcry trading was 
unavailable. Floor Lead Market Makers and Floor Market Makers are by 
definition not Streaming Quote Traders \21\ or Remote Streaming Quote 
Traders. Some members and member organizations are registered to 
transact a market making business both on the Trading Floor and also 
electronically. The Exchange proposes to compensate members and member 
organizations who conducted a market making business on the Trading 
Floor in March

[[Page 42461]]

2020, and did not conduct an electronic business, because these members 
and member organizations were not able to transact any business on Phlx 
from March 17, 2020 through June 3, 2020, when open outcry trading was 
unavailable. Floor Lead Market Makers and Floor Market Maker have 
certain trading obligations, pursuant to Options 8, Section 27,\22\ and 
incur certain infrastructure costs to provide liquidity on the 
Exchange's Trading Floor. The Exchange will uniformly apply the waiver 
to all members and member organizations who only conducted a market 
making business on Phlx's Trading Floor in March 2020 as a Floor Lead 
Market Maker or Floor Market Maker, and did not otherwise act in a 
market making capacity electronically on Phlx.
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    \20\ Phlx assesses a Floor Lead Market Maker and Floor Market 
Maker Permit Fee of $6,000.
    \21\ The Exchange notes that Streaming Quote Traders were able 
to register as Remote Market Makers, pursuant to Options 2, Section 
11, during the period of time that the Trading Floor was 
unavailable. In addition, the Exchange waived Streaming Quote Trader 
Fees from April 2020 through June 2020. See Securities Exchange Act 
Release Nos. 88525 (March 31, 2020), 85 FR 19185 (April 6, 2020) 
(SR-Phlx-2020-12); and 89041 (June 10, 2020), 85 FR 36438 (June 16, 
2020) (SR-Phlx-2020-28).
    \22\ Phlx Options 8, Section 27(f) provides, ``(f) A Floor 
Market Maker is required to trade either (a) 1,000 contracts and 300 
transactions, or (b) 10,000 contracts and 100 transactions, on the 
Exchange each quarter. Transactions executed in the trading crowd 
where the contra-side is an ROT are not included.''
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    The Exchange's proposal to remove obsolete rule text, which was 
relevant in June 2020, regarding fee waivers for the Floor Broker 
Permit Fee, the Clerk Fee and the SQT Fees, as well as an electronic 
Permit Fee credit, which fee waivers and credit are no longer 
available, is reasonable, equitable and not unfairly discriminatory.
Options 7, Section 9
    The Exchange's proposal to remove obsolete rule text, which was 
relevant in June 2020, regarding a fee waiver for the Floor Facility 
Fee, which is no longer available, is reasonable, equitable and not 
unfairly discriminatory.
Penny Pilot
    The Exchange's proposal to amend rule text relating to the Penny 
Pilot Program to replace the term ``Penny Pilot Program'' with ``Penny 
Interval Program,'' and replace the terms ``Penny Pilot Options'' and 
``Penny Pilot'' with ``Penny Symbol'' is reasonable, equitable and not 
unfairly discriminatory. The proposed amendments conform the name of 
the program and also amend other references by removing the term 
``pilot options'' and instead referring to Penny or Non-Penny Symbols. 
Specifically, the Exchange proposes to amend Options 7, Section 1; 
Options 7, Section 4; and Options 7, Section 6.

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 that have been exempted from compliance with the statutory 
standards applicable to exchanges. Because competitors are free to 
modify their own fees in response, and because market participants may 
readily adjust their order routing practices, the Exchange believes 
that the degree to which fee changes in this market may impose any 
burden on competition is extremely limited.
Intra-Market Competition
Options 7, Section 8
    Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,'' 
at Part A, ``Permit and Registration Fees,'' to waive the Floor Lead 
Market Maker and Floor Market Maker Permit Fee,\23\ for the months of 
July and August 2020, provided a member or member organization (1) paid 
the Floor Lead Market Maker or Floor Market Maker Permit Fee in March 
2020; and (2) was not otherwise registered as a Streaming Quote Trader 
or as a Remote Streaming Quote Trader in March 2020, does not impose an 
undue burden on competition. The Exchange is proposing to waive fees 
for members and member organizations that solely conducted a business 
within open outcry trading and did not otherwise conduct an electronic 
business during the time period that open outcry trading was 
unavailable. Floor Lead Market Makers and Floor Market Makers are by 
definition not Streaming Quote Traders \24\ or Remote Streaming Quote 
Traders. Some members and member organizations are registered to 
transact a market making business both on the Trading Floor and also 
electronically. The Exchange proposes to compensate members and member 
organizations who conducted a market making business on the Trading 
Floor in March 2020, and did not conduct an electronic business, 
because these members and member organizations were not able to 
transact any business on Phlx from March 17, 2020 through June 3, 2020, 
when open outcry trading was unavailable. Floor Lead Market Makers and 
Floor Market Maker have certain trading obligations, pursuant to 
Options 8, Section 27,\25\ and incur certain infrastructure costs to 
provide liquidity on the Exchange's Trading Floor. The Exchange will 
uniformly apply the waiver to all members and member organizations who 
only conducted a market making business on Phlx's Trading Floor in 
March 2020 as a Floor Lead Market Maker or Floor Market Maker, and did 
not otherwise act in a market making capacity electronically on Phlx.
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    \23\ Phlx assesses a Floor Lead Market Maker and Floor Market 
Maker Permit Fee of $6,000.
    \24\ The Exchange notes that Streaming Quote Traders were able 
to register as Remote Market Makers, pursuant to Options 2, Section 
11, during the period of time that the Trading Floor was 
unavailable. In addition, the Exchange waived Streaming Quote Trader 
Fees from April 2020 through June 2020. See Securities Exchange Act 
Release Nos. 88525 (March 31, 2020), 85 FR 19185 (April 6, 2020) 
(SR-Phlx-2020-12); and 89041 (June 10, 2020), 85 FR 36438 (June 16, 
2020) (SR-Phlx-2020-28).
    \25\ Phlx Options 8, Section 27(f) provides, ``(f) A Floor 
Market Maker is required to trade either (a) 1,000 contracts and 300 
transactions, or (b) 10,000 contracts and 100 transactions, on the 
Exchange each quarter. Transactions executed in the trading crowd 
where the contra-side is an ROT are not included.''
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    The Exchange's proposal to remove obsolete rule text, which was 
relevant in June 2020, regarding fee waivers for the Floor Broker 
Permit Fee, the Clerk Fee and the SQT Fees, as well as an electronic 
Permit Fee credit, which fee waivers and credit are no longer 
available, does not impose an undue burden on competition.
Options 7, Section 9
    The Exchange's proposal to remove obsolete rule text, which was 
relevant in June 2020, regarding a fee waiver for the Floor Facility 
Fee, which is no longer available, does not impose an undue burden on 
competition.
Penny Pilot
    The Exchange's proposal to amend rule text relating to the Penny 
Pilot Program to replace the term ``Penny Pilot Program'' with ``Penny 
Interval Program,'' and replace the terms ``Penny Pilot Options'' and 
``Penny Pilot'' with ``Penny Symbol'' does not impose an undue burden 
on competition. The proposed amendments conform the name of the program 
and also amend other references by removing the term

[[Page 42462]]

``pilot options'' and instead referring to Penny or Non-Penny Symbols. 
Specifically, the Exchange proposes to amend Options 7, Section 1; 
Options 7, Section 4; and Options 7, Section 6.

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.\26\
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    \26\ 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-2020-33 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-2020-33. 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-2020-33 and should be submitted on 
or before August 4, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15112 Filed 7-13-20; 8:45 am]
BILLING CODE 8011-01-P