Document ID: SEC-2022-1441-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2022-11-07T05:00Z

[Federal Register Volume 87, Number 214 (Monday, November 7, 2022)]
[Notices]
[Pages 67091-67098]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24142]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96197; File No. SR-Phlx-2022-41]

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

November 1, 2022.
    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 October 17, 2022, 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.\3\
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    \3\ The Exchange initially filed the proposed pricing changes on 
October 3, 2022 as SR-Phlx-2022-40. The instant filing replaced SR-
Phlx-2022-40 which was withdrawn on October 17, 2022.
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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. 
Specifically, Phlx proposes to amend: (1) Options 7, Section 3, Rebates 
and Fees for Adding and Removing Liquidity in SPY, with respect to its 
pricing for Price Improvement XL (``PIXL'') executions in SPY; (2) 
Options 7, Section 4, Multiply Listed Options Fees (Includes options 
overlying equities, ETFs, ETNs and indexes which are Multiply Listed) 
(Excludes SPY and broad-based index options symbols listed within 
Options 7, Section 5.A), with respect to its Qualified Contingent Cross 
(``QCC'') Rebates and Monthly Firm Fee Cap; and (3) Options 7, Section 
6, Other Transaction Fees, with respect to PIXL pricing other than 
options in SPY. Each change will be described below.
Options 7, Section 3
    The Exchange proposes to amend Options 7, Section 3, Rebates and 
Fees for Adding and Removing Liquidity in SPY, with respect to its PIXL 
executions in SPY. Today, SPY PIXL Initiating Orders \4\ are assessed a 
$0.05 per contract fee, however, members or member organizations that 
qualify for Options 7, Section 2, Customer \5\ Rebate Tiers 2 through 6 
or qualify for the Monthly Firm Fee Cap \6\ are eligible for a rebate 
of $0.12 per contract for all SPY Complex PIXL Orders greater than 499 
contracts, provided the member or member organization executes an 
average of 2,500 contracts per day of SPY Complex PIXL Orders in a 
month.\7\ The Exchange separately assesses fees for PIXL Orders contra 
the Initiating Order \8\ which are not being amended at this time.
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    \4\ An order entered into a PIXL Auction mechanism shall be 
comprised of two orders, a PIXL agency order and a contra-side 
Initiating Order. See Options 3, Section 13.
    \5\ 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).
    \6\ Today, Firms are subject to a Monthly Firm Fee Cap of 
$75,000. See Options 7, Section 4.
    \7\ A member may electronically submit for execution an order it 
represents as agent on behalf of a public customer, broker-dealer, 
or any other entity (``PIXL Order'') against principal interest or 
against any other order (except as provided in Options 3, Section 
13(a)(6)) it represents as agent (``Initiating Order'') provided it 
submits the PIXL order for electronic execution into the PIXL 
Auction (``Auction'') pursuant to Options 3, Section 13.
    \8\ When the PIXL Order is contra to the Initiating Order, a 
Customer PIXL Order is assessed $0.00 per contract and all other 
Non-Customer market participants are assessed a $0.38 per contract 
fee when contra to an Initiating Order. Further, when the PIXL Order 
is contra to other than the Initiating Order, the PIXL Order is 
assessed $0.00 per contract, unless the PIXL Order is a Customer, in 
which case the Customer receives a rebate of $0.40 per contract. 
Finally, all other Non-Customer contra parties to the PIXL Order 
that are not the Initiating Order are assessed a Fee for Removing 
Liquidity of $0.50 per contract or are entitled to receive the 
Rebate for Adding Liquidity. When the PIXL Order is contra to a Lead 
Market Maker or Market Maker quote, which was established at the 
initiation of a PIXL auction, the Customer PIXL Order is not be 
eligible for a rebate. See Options 7, Section 3.
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    At this time, the Exchange proposes to continue to assess SPY PIXL 
Initiating Orders a $0.05 per contract fee. Members or member 
organizations that qualify for Options 7, Section 2, Customer Rebate 
Tiers 2 through 6 or qualify for the Monthly Firm Fee Cap will continue 
to be eligible for a rebate of $0.12 per contract for all SPY Complex 
PIXL Orders greater than 499 contracts when contra to an Initiating 
Order, provided the member or member organization executes an average 
of 2,500 contracts per day of SPY Complex PIXL Orders in a month. The 
Exchange's proposal to further qualify that the SPY Complex PIXL Orders 
greater than 499 contracts must be contra to an Initiating Order, in 
addition to the member or member organization having executed an 
average of 2,500 contracts per day of SPY Complex PIXL Orders in a 
month. As is the case today, when the PIXL Order is contra to other 
than the Initiating Order, the PIXL Order is assessed $0.00 per 
contract, unless the PIXL Order is a Customer, in which case the 
Customer receives a rebate of $0.40 per contract.
    Below is an example of the proposed change which presumes the 
market participant has met the qualifications for the rebate.

[[Page 67092]]

    Assume:

NBBO and PHLX are both $1.00 x $1.50
Initiator sends PIXL Complex Order in SPY to buy 500 spreads (1000 
contracts) for $1.45 (Market Maker not assigned in SPY is contra-side)
Instance 1
    When no outside response to interact with the PIXL order--no change 
from Sep to Oct in pricing.
Oct 3 Pricing
Public Customer fee to execute PIXL Complex Order = $0.00 per contract
Initiating Order fee = $0.05 fee--$50.00
PIXL Order rebate = $0.12 per contract ($120.00)

    The rebate is achieved because the PIXL Order trades against the 
Initiating Order in its entirety.
Instance 2
    Assume:

Responders to the PIXL Complex Order indicate the following allocation 
process:
Initiating Order = 40% (400 contracts)
Auction Responders = 60% (600 contracts)
Sept Pricing
Public Customer fee to execute PIXL Complex Order = $0.00
(paired) = $0.05 fee--$20.00 ($0.05 x 400 contracts)
Responder fee = $0.50 per contract--$300.00
Break-Up rebate = ($0.40) per contract ($240.00)
PIXL Order rebate = $0.12 per contract ($120.00)
Oct 3 Pricing
Public Customer Charge to execute PIXL Complex Order = $0.00
Initiating Order (paired) = $0.05 fee--$20.00 ($0.05 x 400 contracts)
Responder fee = $0.50 per contract--$300.00
Break-Up rebate = ($0.40) per contract ($240.00)
Additional PIXL Order rebate = ($0.12) per contract ($48.00) ($0.12 x 
400 contracts contra PIXL order)

    With this change the rebate would be paid only to PIXL Complex 
Order contracts that were executed against the Initiating Order. The 
prior pricing rebate was for $120 (1000 contracts x $0.12) and the 
October pricing would be $48 (400 contracts x $0.12).
    The Exchange desires to continue to incentivize members and member 
organizations to transact a greater number of SPY Complex PIXL Orders 
while also incentivizing members and member organizations to submit 
Customer order flow on Phlx. While the proposal no longer offers the 
$0.12 per contract rebate that is available today for the PIXL Agency 
Order when that PIXL Order is contra to other than the Initiating 
Order, the Exchange believes that market participants will continue to 
be incentivized to submit PIXL Agency Orders to Phlx because the 
Exchange continues to offer a rebate of $0.40 per contract when the 
PIXL Order is contra to other than the Initiating Order.
Options 7, Section 4
QCC
    The Exchange proposes to amend Options 7, Section 4, Multiply 
Listed Options Fees (Includes options overlying equities, ETFs, ETNs 
and indexes which are Multiply Listed) (Excludes SPY and broad-based 
index options symbols listed within Options 7, Section 5.A) with 
respect to its QCC Rebates.
    Today, the Exchange assesses a $0.20 per contract QCC Transaction 
Fees \9\ to a Lead Market Maker,\10\ Market Maker,\11\ Firm \12\ and 
Broker-Dealer.\13\ Customers and Professionals \14\ are not assessed a 
QCC Transaction Fee. QCC Transaction Fees apply to electronic QCC 
Orders \15\ and Floor QCC Orders.\16\ Rebates are paid on all 
qualifying executed electronic QCC Orders and Floor QCC Orders based on 
the following six tier rebate schedule:\17\
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    \9\ QCC Transaction Fees apply to electronic QCC Orders, as 
defined in Options 3, Section 12, and Floor QCC Orders, as defined 
in Options 8, Section 30(e).
    \10\ 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).
    \11\ 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).
    \12\ 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).
    \13\ 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).
    \14\ 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).
    \15\ Electronic QCC Orders are described in Options 3, Section 
12.
    \16\ Floor QCC Orders are described in Options 8, Section 30(e).
    \17\ 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
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                 Tier                                        Threshold                       Rebate per contract
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Tier 1................................  0 to 99,999 contracts in a month..................                 $0.00
Tier 2................................  100,000 to 299,999 contracts in a month...........                  0.05
Tier 3................................  300,000 to 499,999 contracts in a month...........                  0.07
Tier 4................................  500,000 to 699,999 contracts in a month...........                  0.08
Tier 5................................  700,000 to 999,999 contracts in a month...........                  0.09
Tier 6................................  Over 1,000,000 contracts in a month...............                  0.11
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    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).

[[Page 67093]]

    At this time, the Exchange proposes to reduce the six tier rebate 
schedule to a two tier schedule as follows:

                                               QCC Rebate Schedule
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                 Tier                                        Threshold                       Rebate per contract
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Tier 1................................  0 to 999,999 contracts in a month.................                 $0.09
Tier 2................................  1,000,000 contracts or more in a month............                  0.17
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    The Exchange would pay a Tier 1 QCC Rebate of $0.09 per contract on 
all qualifying executed electronic QCC Orders and Floor QCC Orders up 
to 999,999 contracts in a month. The Exchange would pay a Tier 2 QCC 
Rebate of $0.17 per contract on all qualifying executed electronic QCC 
Orders and Floor QCC Orders of $1,000,000 contracts or more in a month. 
With this change, the Exchange would pay a $0.09 per contract QCC 
Rebate for each contract from the first execution up to 999,999 
contracts in a month. Today, Members that execute 0 to 99,999 contracts 
in a month do not receive a QCC Tier 1 Rebate. Additionally, while 
today the Exchange pays a Tier 5 QCC Rebate of $0.09 per contract for 
700,000 to 999,999 contracts in a month, with this proposal the 
proposed $0.09 per contract Tier 1 QCC Rebate may be up to 999,999 
contracts in a month. Also, while today, the Exchange pays a Tier 6 QCC 
Rebate of $0.11 per contract for qualifying executed electronic QCC 
Orders and Floor QCC Orders over $1,000,000 contracts in a month, the 
proposed Tier 2 QCC Rebate would be increased to $0.17 per contract for 
$1,000,000 contracts or more in a month.
    The Exchange believes that its proposal will incentivize members 
and member organizations to submit a greater amount of QCC Orders to 
Phlx in order to obtain a rebate.
Monthly Firm Fee Cap
    The Exchange proposes to amend Options 7, Section 4, Multiply 
Listed Options Fees (Includes options overlying equities, ETFs, ETNs 
and indexes which are Multiply Listed) (Excludes SPY and broad-based 
index options symbols listed within Options 7, Section 5.A), with 
respect to its Monthly Firm Fee Cap. Today, Firms are subject to a 
maximum fee of $75,000 known as the ``Monthly Firm Fee Cap''. Firm 
Floor Option Transaction Charges and QCC Transaction Fees, as defined 
in Options 7, Section 4, in the aggregate, for one billing month may 
not exceed the Monthly Firm Fee Cap per member organization when such 
members are trading in their own proprietary account. The following 
pricing is excluded from the Monthly Firm Fee Cap: (1) all dividend, 
merger, and short stock interest strategy executions, as defined in 
Options 7, Section 4; (2) transactions in broad-based index options 
symbols listed within Options 7, Section 5.A.; and (3) reversal and 
conversion, jelly roll and box spread strategy executions as defined in 
this Options 7, Section 4. QCC Transaction Fees are included in the 
calculation of the Monthly Firm Fee Cap.\18\
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    \18\ Member organizations are required to notify the Exchange in 
writing of all accounts in which the member is not trading in its 
own proprietary account.
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    At this time, the Exchange proposes to amend the Monthly Firm Fee 
Cap from $75,000 to $150,000. The Monthly Firm Fee Cap has remained at 
$75,000 since 2010.\19\ The Exchange believes that while this cap is 
being increased, Firms will continue to be incentivized by the cap.
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    \19\ The Monthly Firm Fee Cap was previously called the Firm 
Related Equity Option Cap. See Securities Exchange Act Release No. 
65888 (December 5, 2011), 76 FR 77046 (December 9, 2011) (SR-Phlx-
2011-160).
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Options 7, Section 6
    The Exchange proposes to amend Options 7, Section 6, Other 
Transaction Fees, at A. PIXL Pricing with respect to PIXL pricing other 
than options in SPY. Today, an Initiating Order in PIXL is assessed a 
$0.07 per contract fee, with the exception of SPY PIXL Orders which are 
assessed the pricing within Options 7, Section 4. Today, if the member 
or member organization qualifies for the Tier 3, 4 or 5 Customer Rebate 
in Options 7, Section 2 the member or member organization is assessed 
$0.05 per contract. If the member or member organization executes equal 
to or greater than 3.00% of National Customer Volume in Multiply-Listed 
equity and ETF Options Classes (excluding SPY Options) in a given 
month, the member or member organization is not assessed a fee for 
Complex PIXL Orders. Any member or member organization under Common 
Ownership with another member or member organization that qualifies for 
a Customer Rebate Tier 4 or 5 in Options 7, Section 2, or executes 
equal to or greater than 3.00% of National Customer Volume in Multiply-
Listed equity and ETF Options Classes (excluding SPY Options) in a 
given month receives one of the PIXL Initiating Order discounts noted 
herein. Finally, members or member organizations that qualify for 
Customer Rebate Tiers 2 through 6 or qualify for the Monthly Firm Fee 
Cap are eligible for a rebate of $0.12 per contract for all Complex 
PIXL Orders (excluding SPY Options) greater than 499 contracts, 
provided the member or member organization executes an average of 2,500 
contracts per day of Complex PIXL Orders in a month.
    Similar to the change proposed for SPY PIXL within Options 7, 
Section 3, the Exchange proposes to amend Options 7, 6A. to provide 
that members or member organizations that qualify for Customer Rebate 
Tiers 2 through 6 or qualify for the Monthly Firm Fee Cap are eligible 
for a rebate of $0.12 per contract for all Complex PIXL Orders 
(excluding SPY Options) greater than 499 contracts when contra to an 
Initiating Order, provided the member executes an average of 2,500 
contracts per day of Complex PIXL Orders in a month.
    Below is an example of the proposed change which presumes the 
market participant has met the qualifications for the rebate.
    Assume for Options 7, Section 6A:

NBBO and PHLX are both $1.00 x $1.50
Initiator sends PIXL Complex Order in AAPL to buy 500 spreads (1000 
contracts) for $1.45 (Market Maker not assigned in AAPL is contra-side)
PIXL Agency Order qualifies for Customer Rebate Tier 5
Instance 1
    When no outside response to interact with the PIXL order--no change 
from Sep to Oct in pricing.
Oct 3 Pricing
Public Customer fee to execute PIXL Complex Order = $0.00 per contract
Initiating Order fee = $0.07 fee--$70.00
PIXL Order rebate = $0.12 per contract ($120.00)

[[Page 67094]]

    The rebate is achieved because the PIXL Complex Order trades 
against the Initiating Order in its entirety.
Instance 2
    Assume:

Responders to the PIXL Complex Order indicate the following allocation 
process:

Initiating Order = 40% (400 contracts)
Auction Responders = 60% (600 contracts)
PIXL Agency Order qualifies for Customer Rebate Tier 5
Sept Pricing
Public Customer fee to execute PIXL Complex Order = $0.00
(paired) = $0.07 fee--$28.00 ($0.07 x 400 contracts)
Market Maker Responder Penny Symbol fee = $0.25 per contract ($0.25 x 
600 contracts)--$150.00
PIXL Order rebate = $0.12 per contract ($0.12 x 1000 = $120.00)
PIXL Agency Order qualifies for $0.22 per contract rebate ($132.00) for 
Category C Customer Rebate which applies to PIXL Complex Orders ($0.22 
x 600 contracts)
Oct 3 Pricing
Public Customer Charge to execute PIXL Complex Order = $0.00
Initiating Order (paired) = $0.07 fee--$28.00 ($0.07 x 400 contracts)
Market Maker Responder Penny Symbol fee = $0.25 per contract ($0.25 x 
600 contracts)--$150.00
PIXL Order rebate = $0.12 per contract ($0.12 x 400 = $48.00)
PIXL Agency Order qualifies for $0.22 per contract rebate ($132.00) for 
Category C Customer Rebate which applies to PIXL Complex Orders ($0.22 
x 600 contracts)

    With this change the rebate would be paid only to PIXL Complex 
Order contracts that were executed against the Initiating Order. The 
prior pricing rebate was for $120 (1,000 contracts x $0.12) and the 
October pricing would be $48 (400 contracts x $0.12).
    The Exchange desires to continue to incentivize members and member 
organizations to transact a greater number of Complex PIXL Orders while 
also incentivizing members and member organizations to submit Customer 
order flow on Phlx. While the proposal no longer offers the $0.12 per 
contract rebate that is available today for the PIXL Agency Order when 
that PIXL Order is contra to other than the Initiating Order, the 
Exchange believes that market participants will continue to be 
incentivized to submit PIXL Agency Orders to Phlx because the Exchange 
continues to offer Category C and D rebate for Complex Orders when the 
PIXL Order is contra to other than the Initiating Order.\20\
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    \20\ When a PIXL Order is contra to a PIXL Auction Responder, a 
Customer PIXL Order will be assessed $0.00 per contract, other Non-
Customer PIXL Orders will be assessed $0.30 per contract in Penny 
Symbols or $0.38 per contract in Non-Penny Symbols. A Responder that 
is a Lead Market Maker or a Market Maker will be assessed $0.25 per 
contract in Penny Symbols or $0.40 per contract in Non-Penny 
Symbols. Other Non-Customer Responders will be assessed $0.48 per 
contract in Penny Symbols or $0.70 per contract in Non-Penny Symbols 
when contra to a PIXL Order. A Responder that is a Customer will be 
assessed $0.00 per contract in Penny Symbols and Non-Penny Symbol. 
When a PIXL Order is contra to a resting order or quote a Customer 
PIXL Order will be assessed $0.00 per contract, other Non-Customer 
will be assessed $0.30 per contract and the resting order or quote 
will be assessed the appropriate Options Transaction Charge in 
Options 7, Section 4.
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Technical Amendments
    The Exchange proposes to add the terms ``member'' and member 
organization,'' where applicable, within the proposed rule text. 
Pursuant to General 1, Section 1(16), the term ``member'' means:

a permit holder which has not been terminated in accordance with the 
By-Laws and these Rules of the Exchange. A member is a natural 
person and must be a person associated with a member organization. 
Any references in the rules of the Exchange to the rights or 
obligations of an associated person or person associated with a 
member organization also includes a member.

    Pursuant to General 1, Section 1(17) the term ``member 
organization'' means:

a corporation, partnership (general or limited), limited liability 
partnership, limited liability company, business trust or similar 
organization, transacting business as a broker or a dealer in 
securities and which has the status of a member organization by 
virtue of (i) admission to membership given to it by the Membership 
Department pursuant to the provisions of General 3, Sections 5 and 
10 or the By-Laws or (ii) the transitional rules adopted by the 
Exchange pursuant to Section 6-4 of the By-Laws. References herein 
to officer or partner, when used in the context of a member 
organization, shall include any person holding a similar position in 
any organization other than a corporation or partnership that has 
the status of a member organization.

    An entity may be either a member or member organization on Phlx and 
therefore both terms apply when describing transaction fees and caps 
applicable to entities that have been approved for membership on Phlx.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\21\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\22\ 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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    \21\ 15 U.S.C. 78f(b).
    \22\ 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.'' \23\
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    \23\ 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 
\24\ (``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.\25\ 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.'' \26\
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    \24\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \25\ See NetCoalition, at 534-535.
    \26\ 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'. . . .'' \27\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes

[[Page 67095]]

that these views apply with equal force to the options markets.
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    \27\ 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 3
    The Exchange's proposal to amend Options 7, Section 3, with respect 
to its PIXL pricing for SPY options is reasonable because it will 
continue to incentivize members and member organizations to transact a 
greater number of SPY Complex PIXL Orders while also incentivizing 
members and member organizations to submit Customer order flow on Phlx. 
While the proposal no longer offers the $0.12 per contract rebate that 
is available today for the PIXL Agency Order when that PIXL Order is 
contra to other than the Initiating Order, the Exchange believes that 
market participants will continue to be incentivized to submit PIXL 
Agency Orders to Phlx because the Exchange continues to offer a rebate 
of $0.40 per contract when the PIXL Order is contra to other than the 
Initiating Order. Requiring SPY Complex PIXL Orders greater than 499 
contracts to be contra to an Initiating Order to receive the rebate, 
provided the member or member organization executes an average of 2,500 
contracts per day of SPY Complex PIXL Orders in a month, will continue 
to encourage members and member organizations to submit order flow to 
Phlx to obtain the rebate. As is the case today, when the PIXL Order is 
contra to other than the Initiating Order, the PIXL Order is assessed 
$0.00 per contract, unless the PIXL Order is a Customer, in which case 
the Customer receives a rebate of $0.40 per contract.
    The Exchange's proposal to amend Options 7, Section 3, Rebates and 
Fees for Adding and Removing Liquidity in SPY, with respect to its PIXL 
pricing for SPY options is equitable and not unfairly discriminatory 
because all members and member organizations are eligible for the 
proposed rebate, provided they met the requisite qualifications. Any 
member or member organization may enter a qualifying order into the 
PIXL Auction. Members and member organizations would be uniformly paid 
the applicable rebate. Additionally, all market participants may 
interact with order flow which members and member organizations must 
transact in connection with this rebate.
Options 7, Section 4
QCC
    The Exchange's proposal to amend Options 7, Section 4, with respect 
to its QCC Rebates, to reduce the current six tier rebate schedule to a 
proposed two tier schedule is reasonable because the proposal will 
incentivize members and member organizations to submit a greater amount 
of QCC Orders to Phlx. With this proposal, the Exchange would pay a 
Tier 1 QCC Rebate of $0.09 on all qualifying executed electronic QCC 
Orders and Floor QCC Orders up to 999,999 contracts in a month. The QCC 
Rebate would be paid for each contract from the first execution up to 
999,999 contracts in a month. Today, a Member will not receive a Tier 1 
QCC Rebate if they enter 99,999 contracts or fewer in a month, however 
once a Member enters 100,000 or more contracts, the Member would 
qualify for the current Tier 2 QCC Rebate for all 100,000 contracts. 
With this proposal all qualifying executed electronic QCC Orders and 
Floor QCC Orders up to 999,999 contracts in a month would be entitled 
to the proposed $0.09 per contract Tier 1 QCC Rebate. Additionally, 
while today the Exchange pays a Tier 5 QCC rebate of $0.09 per contract 
for qualifying executed electronic QCC Orders and Floor QCC Orders from 
700,000 to 999,999 contracts in a month, with this proposal the $0.09 
per contract Tier 1 QCC Rebate would be paid to Members who submit up 
to 999,999 contracts in a month. Also, the Exchange would pay a Tier 2 
QCC Rebate of $0.17 per contract on all qualifying executed electronic 
QCC Orders and Floor QCC Orders of $1,000,000 contracts or more in a 
month. Today, the Exchange pays a Tier 6 QCC Rebate of $0.11 per 
contract for qualifying executed electronic QCC Orders and Floor QCC 
Orders over $1,000,000 contracts in a month. The proposed Tier 2 QCC 
Rebate would be increased to $0.17 per contract for $1,000,000 
contracts or more in a month.
    The Exchange's proposal to amend Options 7, Section 4, with respect 
to its QCC Rebates, to reduce the current six tier rebate schedule to a 
proposed two tier schedule is equitable and not unfairly discriminatory 
because all members and member organizations may qualify for a QCC 
Rebate provided the member or member organization executed qualifying 
electronic QCC Orders and Floor QCC Orders.
Monthly Firm Fee Cap
    The Exchange's proposal to amend Options 7, Section 4, with respect 
to the Monthly Firm Fee Cap, to increase the Monthly Firm Fee Cap from 
$75,000 to $150,000 is reasonable because despite the increase, the 
Exchange believes Firms will continue to be incentivized by the 
opportunity to pay no fees beyond the $150,000 cap. The Monthly Firm 
Fee Cap has remained at $75,000 since 2010. Other members and member 
organizations may interact with the order flow submitted by Firms to 
Phlx to reach the cap.
    The Exchange's proposal to amend Options 7, Section 4, with respect 
to the Monthly Firm Fee Cap, to increase the Monthly Firm Fee Cap from 
$75,000 to $150,000 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.\28\ 
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 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)).\29\ 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

[[Page 67096]]

(including both FLEX and non-FLEX transactions) exceeds 10,000 
contracts per day in a given month.\30\ Finally, today, Professional 
Floor Options Transaction Charges are less favorable than Customers but 
more favorable than Firms as Broker-Dealers are assessed a lower 
Options Transaction Charge as compared to Floor Lead Market Makers, 
Floor Market Makers. Additionally, the Exchange believes that the 
proposal is equitable and not unfairly discriminatory because members 
and member organizations that are JBOs \31\ 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 members or member 
organizations to seek to become members or member organizations to 
further reduce their transaction fees.
---------------------------------------------------------------------------

    \28\ See Options 7, Section 4.
    \29\ See Options 7, Section 4. 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 Options 7, Section 
4) are 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.
    \30\ See Options 7, Section 4, which states, ``. . . In 
addition, the Broker-Dealer Floor Options Transaction Charge 
(including Cabinet Options Transaction Charges) will be waived for 
members 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. NDX, NDXP, and XND 
Options Transactions will be excluded from each of the waivers set 
forth in the above paragraph.''
    \31\ 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 will be 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).
---------------------------------------------------------------------------

Options 7, Section 6
    The Exchange's proposal to amend Options 7, Section 6, with respect 
to its PIXL pricing \32\ is reasonable because it will continue to 
incentivize members and member organizations to transact a greater 
number of Complex PIXL Orders while also incentivizing members and 
member organizations to submit Customer order flow on Phlx. While the 
proposal no longer offers the $0.12 per contract rebate that is 
available today for the PIXL Agency Order when that PIXL Order is 
contra to other than the Initiating Order, the Exchange believes that 
market participants will continue to be incentivized to submit PIXL 
Agency Orders to Phlx because the Exchange continues to offer Category 
C and D rebates for Complex Orders when the PIXL Order is contra to 
other than the Initiating Order.\33\ Requiring Complex PIXL Orders 
greater than 499 contracts to be contra to an Initiating Order to 
receive the rebate, provided the member or member organization executes 
an average of 2,500 contracts per day of Complex PIXL Orders in a 
month, will continue to encourage members and member organizations to 
submit order flow to Phlx to obtain the rebate.
---------------------------------------------------------------------------

    \32\ The PIXL pricing in Options 7, Section excludes SPY 
options.
    \33\ When a PIXL Order is contra to a PIXL Auction Responder, a 
Customer PIXL Order will be assessed $0.00 per contract, other Non-
Customer PIXL Orders will be assessed $0.30 per contract in Penny 
Symbols or $0.38 per contract in Non-Penny Symbols. A Responder that 
is a Lead Market Maker or a Market Maker will be assessed $0.25 per 
contract in Penny Symbols or $0.40 per contract in Non-Penny 
Symbols. Other Non-Customer Responders will be assessed $0.48 per 
contract in Penny Symbols or $0.70 per contract in Non-Penny Symbols 
when contra to a PIXL Order. A Responder that is a Customer will be 
assessed $0.00 per contract in Penny Symbols and Non-Penny Symbol. 
When a PIXL Order is contra to a resting order or quote a Customer 
PIXL Order will be assessed $0.00 per contract, other Non-Customer 
will be assessed $0.30 per contract and the resting order or quote 
will be assessed the appropriate Options Transaction Charge in 
Options 7, Section 4.
---------------------------------------------------------------------------

    The Exchange's proposal to amend Options 7, Section 6, with respect 
to its PIXL pricing is equitable and not unfairly discriminatory 
because all members and member organizations are eligible for the 
proposed rebate, provided they met the requisite qualifications. Any 
member or member organization may enter a qualifying order into the 
PIXL Auction. Members and member organizations would be uniformly paid 
the applicable rebate. Additionally, all market participants may 
interact with order flow which members or member organizations must 
transact in connection with this rebate.

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 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.
Intramarket Competition
    The proposed amendments do not impose an undue burden on 
intramarket competition.
Options 7, Section 3
    The Exchange's proposal to amend Options 7, Section 3, Rebates and 
Fees for Adding and Removing Liquidity in SPY, with respect to its PIXL 
pricing for SPY options does not impose an undue burden on competition 
because all members and member organizations are eligible for the 
proposed rebate, provided they met the requisite qualifications. Any 
member or member organization may enter a qualifying order into the 
PIXL Auction. Members and member organizations would be uniformly paid 
the applicable rebate. Additionally, all market participants may 
interact with order flow which members and member organizations must 
transact in connection with this rebate.
Options 7, Section 4
QCC
    The Exchange's proposal to amend Options 7, Section 4, with respect 
to its QCC Rebates, to reduce the current six tier rebate schedule to a 
proposed two tier schedule does not impose an undue burden on 
competition because all members and member organizations may qualify 
for a QCC Rebate provided the member or member organization executed 
qualifying electronic QCC Orders and Floor QCC Orders.
Monthly Firm Fee Cap
    The Exchange's proposal to amend Options 7, Section 4, with respect 
to the Monthly Firm Fee Cap, to increase the Monthly Firm Fee Cap from 
$75,000 to $150,000 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.\34\ 
Customer liquidity benefits all market participants by providing more 
trading opportunities. An increase in the

[[Page 67097]]

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 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)).\35\ 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.\36\ 
Finally, today, Professional Floor Options Transaction Charges are less 
favorable than Customers but more favorable than Firms as Broker-
Dealers are assessed a lower Options Transaction Charge as compared to 
Floor Lead Market Makers, Floor Market Makers. 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 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 members or member organizations to seek to become members or 
member organizations to further reduce their transaction fees.
---------------------------------------------------------------------------

    \34\ See Options 7, Section 4.
    \35\ See Options 7, Section 4. 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 Options 7, Section 
4) are 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.
    \36\ See Options 7, Section 4, which states, ``. . . In 
addition, the Broker-Dealer Floor Options Transaction Charge 
(including Cabinet Options Transaction Charges) will be waived for 
members 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. NDX, NDXP, and XND 
Options Transactions will be excluded from each of the waivers set 
forth in the above paragraph.''
    \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 will be 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).
---------------------------------------------------------------------------

Options 7, Section 6
    The Exchange's proposal to amend Options 7, Section 6, with respect 
to its PIXL pricing does not impose an undue burden on competition 
because all members and member organizations are eligible for the 
proposed rebate, provided they met the requisite qualifications. Any 
member or member organization may enter a qualifying order into the 
PIXL Auction. Members and member organizations would be uniformly paid 
the applicable rebate. Additionally, all market participants may 
interact with order flow which members and member organizations must 
transact in connection with this rebate.

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.\38\
---------------------------------------------------------------------------

    \38\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2022-41 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-2022-41. 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-2022-41 and 
should

[[Page 67098]]

be submitted on or before November 28, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
---------------------------------------------------------------------------

    \39\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24142 Filed 11-4-22; 8:45 am]
BILLING CODE 8011-01-P