Document ID: SEC-2023-1335-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2023-11-21T05:00Z

[Federal Register Volume 88, Number 223 (Tuesday, November 21, 2023)]
[Notices]
[Pages 81150-81154]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25657]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98941; File No. SR-Phlx-2023-47]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Its 
Pricing Schedule at Options 7, Sections 4 and 7 Regarding Multiply 
Listed Options Fees and Routing Fees

November 15, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 1, 2023, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III, below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx's Pricing Schedule at Options 
7, Section 4, Multiply Listed Options Fees, and Options 7, Section 7, 
Routing Fees.
    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.

[[Page 81151]]

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

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

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

1. Purpose
    Phlx proposes to amend its Pricing Schedule at Options 7, Section 
4, Multiply Listed Options Fees, and Options 7, Section 7, Routing 
Fees. Each pricing change will be described below.
Options 7, Section 4
    Phlx proposes to amend its Pricing Schedule at Options 7, Section 
4, ``Multiply Listed Options Fees (Includes options overlying equities, 
ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY and 
broad-based index options symbols listed within Options 7, Section 
5.A).'' Specifically, Phlx proposes to amend its Qualified Contingent 
Cross (``QCC'') Rebates.
    Today, the Exchange assesses a $.20 per contract QCC Transaction 
Fee for a Lead Market Maker,\3\ Market Maker,\4\ Firm \5\ and Broker-
Dealer.\6\ Customers \7\ and Professionals \8\ are not assessed a QCC 
Transaction Fee. QCC Transaction Fees apply to electronic QCC Orders 
\9\ and Floor QCC Orders.\10\ Additionally, today, Phlx pays QCC 
rebates. Specifically, Phlx pays a QCC Rebate of $0.12 per contract on 
electronic QCC Orders, as defined in Options 3, Section 12, and Floor 
QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is 
comprised of a Customer or Professional order on one side and a Lead 
Market Maker, Market Maker, Broker-Dealer, or Firm order on the other 
side. This rebate is $0.17 per contract in the event that a member or 
member organization executes greater than 1,000,000 qualifying QCC 
contracts in a given month. Further, this rebate is $0.22 per contract 
in the event that a member or member organization executes: (1) greater 
than 1,000,000 qualifying QCC contracts in a given month, (2) Floor 
Originated Strategy Executions in excess of 3,500,000 contracts in a 
given month, and (3) at least 40% of the member or member 
organization's QCC executed contracts in that month are comprised of a 
Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one 
side and Lead Market Maker, Market Maker, Broker-Dealer, or Firm order 
on the other side.
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    \3\ 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).
    \4\ 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).
    \5\ 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).
    \6\ 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).
    \7\ 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).
    \8\ 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).
    \9\ Electronic QCC Orders are described in Options 3, Section 
12.
    \10\ Floor QCC Orders are described in Options 8, Section 30(e).
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    Also, the Exchange pays a QCC Rebate of $0.14 per contract on 
electronic QCC Orders, as defined in Options 3, Section 12, and Floor 
QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is 
comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm 
order on one side and a Lead Market Maker, Market Maker, Broker-Dealer, 
or Firm order on the other side. This rebate is $0.19 per contract in 
the event that a member or member organization executes greater than 
1,000,000 qualifying QCC contracts in a given month. Further, this 
rebate is $0.27 per contract in the event that a member or member 
organization executes: (1) greater than 1,000,000 qualifying QCC 
contracts in a given month, (2) Floor Originated Strategy Executions in 
excess of 3,500,000 contracts in a given month, and (3) at least 40% of 
the member or member organization's QCC executed contracts in that 
month are comprised of a Lead Market Maker, Market Maker, Broker-
Dealer, or Firm order on one side and Lead Market Maker, Market Maker, 
Broker-Dealer, or Firm order on the other side.
    At this time, the Exchange proposes to amend the number of 
qualifying QCC contracts that must be executed in a given month with 
respect to these aforementioned rebates. The Exchange proposes to amend 
the current 1,000,000 qualifying QCC contracts to 750,000 qualifying 
QCC contracts in. With this proposed changed, the rule text would 
provide:
     A QCC Rebate of $0.12 per contract will be paid on 
electronic QCC Orders, as defined in Options 3, Section 12, and Floor 
QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is 
comprised of a Customer or Professional order on one side and a Lead 
Market Maker, Market Maker, Broker-Dealer, or Firm order on the other 
side. This rebate will be $0.17 per contract in the event that a member 
or member organization executes greater than 750,000 qualifying QCC 
contracts in a given month. This rebate will be $0.22 per contract in 
the event that a member or member organization executes: (1) greater 
than 750,000 qualifying QCC contracts in a given month, (2) Floor 
Originated Strategy Executions in excess of 3,500,000 contracts in a 
given month, and (3) at least 40% of the member or member 
organization's QCC executed contracts in that month are comprised of a 
Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one 
side and Lead Market Maker, Market Maker, Broker-Dealer, or Firm order 
on the other side.
     A QCC Rebate of $0.14 per contract will be paid on 
electronic QCC Orders, as defined in Options 3, Section 12, and Floor 
QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is 
comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm 
order on one side and a Lead Market Maker, Market Maker, Broker-Dealer, 
or Firm order on the other side. This rebate will be $0.19 per contract 
in the event

[[Page 81152]]

that a member or member organization executes greater than 750,000 
qualifying QCC contracts in a given month. This rebate will be $0.27 
per contract in the event that a member or member organization 
executes: (1) greater than 750,000 qualifying QCC contracts in a given 
month, (2) Floor Originated Strategy Executions in excess of 3,500,000 
contracts in a given month, and (3) at least 40% of the member or 
member organization's QCC executed contracts in that month are 
comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm 
order on one side and Lead Market Maker, Market Maker, Broker-Dealer, 
or Firm order on the other side.
The Exchange believes that lowering the number of qualifying QCC 
contracts for purpose of qualifying for these QCC Rebates from 
1,000,000 to 750,000 qualifying QCC contracts will incentivize Phlx 
members and member organizations to transact a greater amount of QCC 
Orders on Phlx.
Options 7, Section 7
    Currently, Phlx assesses a Non-Customer routing fee of $0.99 per 
contract and a Customer routing fee of $0.23 per contract, in addition 
to the actual transaction fee assessed by the away market, for routing 
contracts to markets other than The Nasdaq Options Market LLC (``NOM'') 
and Nasdaq BX, Inc. (``BX''). Currently, if the away market pays a 
rebate, the Exchange assesses a Customer a Routing Fee of $0.13 per 
contract for markets other than NOM and BX. Currently, Phlx assesses a 
Customer a $0.13 per contract Fixed Fee in addition to the actual 
transaction fee assessed when routing to NOM and BX.
    At this time, the Exchange proposes to assess a Non-Customer an 
increased routing fee to route to any options exchange of $1.20 per 
contract. The Exchange also proposes to assess a Customer a Fixed Fee 
of $0.23 per contract, in addition to the actual transaction fee 
assessed by the away market, for routing contracts to any options 
exchange. The Exchange would no longer assess the lower routing of 
$0.13 per contract, in addition to the actual transaction fee assessed, 
when routing to NOM and BX. The Exchange will continue to assess a 
$0.13 per contract routing fee if the away market pays a rebate, 
including NOM and BX. The purpose of the proposed routing fees is to 
recoup costs incurred by the Exchange when routing orders to other 
options exchanges on behalf of options members and member 
organizations. In determining its proposed routing fees, the Exchange 
took into account transaction fees assessed by other options exchanges, 
the Exchange's projected clearing costs, and the projected 
administrative, regulatory, and technical costs associated with routing 
orders to other options exchanges. The Exchange will continue to use 
its affiliated broker-dealer, Nasdaq Execution Services, to route 
orders to other options exchanges. Routing services offered by the 
Exchange are completely optional and market participants can readily 
select between various providers of routing services, including other 
exchanges and broker-dealers. Also, the Exchange notes that market 
participants may elect to mark their orders as ``Do Not Route'' to 
avoid any routing fees.\11\ The Exchange believes that the proposed 
Routing Fees would enable the Exchange to recover the costs it incurs 
to route orders to away markets after taking into account the other 
costs associated with routing orders to other options exchanges. Also, 
the Exchange's proposal would uniformly assess the same Customer 
routing fees, regardless of the away venue, of $0.23 per contract, in 
addition to the actual transaction fee assessed, or $0.13 per contract 
if the away market pays a rebate.
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    \11\ See Phlx Options 3, Section 7(d).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed changes to its Pricing Schedule are 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 \14\ 
(``NetCoalition''), the D.C. Circuit stated, ``[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' . . . .'' \15\
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    \14\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \15\ 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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    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 only one of seventeen 
options exchanges to which market participants may direct their order 
flow. Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules. Within the 
foregoing context, the proposal represents a reasonable attempt by the 
Exchange to attract additional order flow to the Exchange and increase 
its market share relative to its competitors.
Options 7, Section 4
    The Exchange's proposal to amend a qualifier for several QCC 
Rebates to lower the number of qualifying QCC contracts that must be 
executed in a given month from 1,000,000 to 750,000 qualifying QCC 
contracts is reasonable because lowering the number of qualifying QCC 
contracts for purpose of these QCC Rebates from 1,000,000 to 750,000 
qualifying QCC contracts will incentivize Phlx members and member 
organizations to transact a greater number of QCC Orders on Phlx.
    The Exchange's proposal to amend a qualifier for several QCC 
Rebates to lower the number of qualifying QCC contracts that must be 
executed in a given month from 1,000,000 qualifying QCC contracts to 
750,000 qualifying QCC contracts is equitable and not unfairly 
discriminatory because all members and member organizations may qualify 
for QCC Rebates, provided they transact the requisite volume.
Options 7, Section 7
    The Exchange's proposal to assess a Non-Customer an increased 
routing fee of $1.20 to route to another options exchange and a 
Customer a Fixed Fee of $0.23 per contract, in addition to the actual 
transaction fee assessed by the away market, for routing contracts to 
any options exchange \16\ is reasonable

[[Page 81153]]

because the proposed Routing Fees would enable the Exchange to recover 
the costs it incurs to route orders to away markets after taking into 
account the other costs associated with routing orders to other options 
exchanges. In determining its proposed routing fees, the Exchange took 
into account transaction fees assessed by other options exchanges, the 
Exchange's projected clearing costs, and the projected administrative, 
regulatory, and technical costs associated with routing orders to other 
options exchanges. While the Exchange is no longer offering a 
discounted Routing Fee to route to NOM and BX, the Exchange notes that 
the Routing Fee will be $0.13 for these markets, similar to other 
options markets, if they pay a rebate.\17\ Routing services offered by 
the Exchange are completely optional and market participants can 
readily select between various providers of routing services, including 
other exchanges and broker-dealers. Also, the Exchange notes that 
market participants may elect to mark their orders as ``Do Not Route'' 
to avoid any routing fees.\18\
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    \16\ The Exchange would no longer assess the lower routing of 
$0.13 per contract, in addition to the actual transaction fee 
assessed, when routing to NOM and BX.
    \17\ Both NOM and BX offer rebates. See NOM's Pricing Schedule 
at Options 7, Section 2 and BX's Pricing Schedule at Options 7, 
Section 2.
    \18\ See Phlx Options 3, Section 7(d).
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    The Exchange's proposal to assess a Non-Customer an increased 
routing fee of $1.20 to route to another options exchange and a 
Customer a Fixed Fee of $0.23 per contract, in addition to the actual 
transaction fee assessed by the away market, for routing contracts to 
any options exchange is equitable and not unfairly discriminatory as 
all Non-Customers would be assessed a uniform routing fee. 
Additionally, Customers will be uniformly assessed the same fee, 
regardless of the destination market. Customers will continue to 
receive favorable pricing as compared to other market participants 
because Customer liquidity enhances market quality on the Exchange by 
providing more trading opportunities, which benefits all market 
participants. Finally, the Exchange notes that market participants may 
elect to market orders as Do Not Route to avoid any routing fees.

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. Because competitors are free to modify their own fees in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee changes in this market may impose any burden on competition is 
extremely limited.
Intra-Market Competition
    The proposed amendments do not impose an undue burden on intra-
market competition.
Options 7, Section 4
    The Exchange's proposal to amend a qualifier for several QCC 
Rebates to lower the number of qualifying QCC contracts that must be 
executed in a given month from 1,000,000 qualifying QCC contracts to 
750,000 qualifying QCC contracts does not impose an undue burden on 
competition because all members and member organizations may qualify 
for QCC Rebates, provided they transact the requisite volume.
Options 7, Section 7
    The Exchange's proposal to assess a Non-Customer an increased 
routing fee of $1.20 to route to another options exchange and a 
Customer a Fixed Fee of $0.23 per contract, in addition to the actual 
transaction fee assessed by the away market, for routing contracts to 
any options exchange does not impose an undue burden on competition as 
all Non-Customers would be assessed a uniform routing fee. 
Additionally, Customers will be uniformly assessed the same fee, 
regardless of the destination market. Customers will continue to 
receive favorable pricing as compared to other market participants 
because Customer liquidity enhances market quality on the Exchange by 
providing more trading opportunities, which benefits all market 
participants. Finally, the Exchange notes that market participants may 
elect to market orders as Do Not Route to avoid any routing fees.

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.\19\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-Phlx-2023-47 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-Phlx-2023-47. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written

[[Page 81154]]

communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. Do not include personal identifiable 
information in submissions; you should submit only information that you 
wish to make available publicly. We may redact in part or withhold 
entirely from publication submitted material that is obscene or subject 
to copyright protection. All submissions should refer to file number 
SR-Phlx-2023-47 and should be submitted on or before December 12, 2023.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25657 Filed 11-20-23; 8:45 am]
BILLING CODE 8011-01-P