Document ID: SEC-2021-0485-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2021-04-12T04:00Z

[Federal Register Volume 86, Number 68 (Monday, April 12, 2021)]
[Notices]
[Pages 19064-19066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-07384]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91481; File No. SR-Phlx-2021-19]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx's 
Pricing Schedule at Options 7, Section 8, ``Membership Fees''

April 6, 2021.
    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 March 25, 2021, 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 and II 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.''
    While the changes proposed herein are effective upon filing, the 
Exchange has designated the amendments become operative on April 1, 
2021.
    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'' to (1) waive the Inactive Nominee Fee for a six 
month period; and (2) remove obsolete language. Each change is 
described below.
Options 7, Section 8
    First, Phlx proposes to amend Options 7, Section 8, ``Membership 
Fees,'' at Part A, ``Permit and Registration Fees,'' to waive the 
Inactive Nominee \3\ Fee which is a fee of $600 for 6 months.\4\ Phlx 
proposes to waive the Inactive Nominee Fee from April 1, 2021 through 
September 30, 2021. The Exchange notes that the Clerk Fee \5\ of $100 
per month will continue to be assessed.
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    \3\ The term ``inactive nominee'' shall mean a natural person 
associated with and designated as such by a member organization and 
who has been approved for such status and is registered as such with 
the Membership Department. An inactive nominee shall have no rights 
or privileges under a permit unless and until said inactive nominee 
becomes admitted as a member of the Exchange pursuant to the By-Laws 
and Rules of the Exchange. An inactive nominee merely stands ready 
to exercise rights under a permit upon notice by the member 
organization to the Membership Department on an expedited basis. See 
Options 8, Section 2(a)(3). An Inactive Nominee shall be deemed a 
Clerk pursuant to Options 8, Section 12(a). An inactive nominee's 
status expires after six months unless it has been reaffirmed in 
writing by the member organization or is sooner terminated. A member 
organization is assessed the Inactive Nominee Fee every time the 
status is reaffirmed. An inactive nominee is also assessed 
Application and Initiation Fees when such person applies to be an 
inactive nominee. Such fees are reassessed if there is a lapse in 
their inactive nominee status. However, an inactive nominee is not 
assessed Application and Initiation Fees if such inactive nominee 
applied for membership without any lapse in that individual's 
association with a particular member organization. An Inactive 
Nominee is also assessed the Clerk Fee.
    \4\ The member organization is assessed $100 per month for the 
applicable six month period unless the member organization provides 
proper notice of its intent to terminate an inactive nominee prior 
to the first day of the next billing month.
    \5\ The Clerk Fee is imposed on any registered on-floor person 
employed by or associated with a member or member organization 
pursuant to Options 3, Section 19, including Inactive Nominees 
pursuant to Options 8, Section 7. The Clerk Fee is not imposed on 
permit holders. See Phlx Rules at Options 7, Section 8A.
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    By way of background, on March 17, 2019 [sic],\6\ Phlx suspended 
open outcry trading as a result of precautions taken with respect to 
COVID-19. When the Trading Floor reopened on June 3, 2020,\7\ the 
Exchange permitted each Trading Floor member organization to

[[Page 19065]]

be represented on the Trading Floor. However, due to the social 
distancing measures that were put in place to comply with Commonwealth 
of Pennsylvania health standards as well as Nasdaq's safety measures 
designed to prevent the spread of COVID-19, not all members and 
employees associated with a Phlx member organization were able to 
return to the Trading Floor. Certain floor members have utilized 
Inactive Nominees to staff the Trading Floor due to illness or other 
circumstances which necessitated a change in staff.
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    \6\ See Options Trader Alert #2020--07.
    \7\ See Options Trader Alert #2020--13.
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    An Inactive Nominee allows a floor member to have additional 
flexibility in obtaining coverage on the trading floor. An Inactive 
Nominee stands ready to assume a membership upon notice by the member 
requesting that a specific permit be transferred intra-firm on an 
expedited and temporary basis. By way of example, an Inactive Nominee 
would be activated in the event of an emergency due to illness or other 
factors. An Inactive Nominee allows a member organization to have a 
full staff available to conduct business on the Exchange trading floor 
in the event of unplanned circumstances.
    At this time, with COVID-19 precautions still in place on Phlx's 
trading floor, the Exchange proposes this waiver to provide floor 
members with greater flexibility in registering Inactive Nominees to be 
activated in the event of illness or other factors without a fee. The 
Exchange believes that this waiver will enable floor members to plan 
staffing more efficiently in the upcoming months, including staffing 
needs during the summer, while the Trading Floor remains socially 
distanced. With this waiver, member organizations may choose to 
register Inactive Nominees so that they have back-ups available if they 
require coverage on the Trading Floor.
    Second, Phlx proposes to remove the following obsolete rule text 
from Options 7, Section 8:

    Phlx waives the Floor Lead Market Maker and Floor Market Maker 
Permit Fee, 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.

The above rule text is no longer relevant as the timeframe for which 
the waiver was in effect for certain fees has passed.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\9\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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.'' \10\
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    \10\ 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 
\11\ (``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.\12\ 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.'' \13\
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    \11\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \12\ See NetCoalition, at 534-535.
    \13\ 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'. . . .'' \14\ 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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    \14\ 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 Inactive 
Nominee Fee from April 1, 2021 through September 30, 2021 is 
reasonable. An Inactive Nominee allows a floor member to have 
additional flexibility in obtaining coverage on the trading floor. An 
Inactive Nominee stands ready to assume a membership upon notice by the 
member requesting that a specific permit be transferred intra-firm on 
an expedited and temporary basis. An Inactive Nominee allows a member 
organization to have a full staff available to conduct business on the 
Exchange trading floor in the event of unplanned circumstances. At this 
time, with COVID-19 precautions still in place on Phlx's trading floor, 
the Exchange proposes this waiver to provide floor members with greater 
flexibility in registering Inactive Nominees to be activated in the 
event of illness or other factors without a fee.
    Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,'' 
at Part A, ``Permit and Registration Fees,'' to waive the Inactive 
Nominee Fee from April 1, 2021 through September 30, 2021 is equitable 
and not unfairly discriminatory. All member organizations may register 
an Inactive Nominee and therefore take advantage of the fee waiver.
    The Exchange's proposal to remove obsolete rule text from Options 
7, Section 8 is reasonable, equitable and not unfairly discriminatory. 
The rule text is no longer relevant as the timeframe for which the 
waiver was in effect for certain fees has passed.

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

[[Page 19066]]

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 to a 
proposal, 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 Inactive 
Nominee Fee from April 1, 2021 through September 30, 2021 does not 
impose an undue burden on competition. All member organizations may 
register an Inactive Nominee and therefore take advantage of the fee 
waiver.
    The Exchange's proposal to remove obsolete rule text from Options 
7, Section 8 does not impose an undue burden on competition. The rule 
text is no longer relevant as the timeframe for which the waiver was in 
effect for certain fees has passed.

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 \15\ and paragraph (f) of Rule 19b-4 
thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
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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-2021-19 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-2021-19. 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-2021-19 and should be submitted on 
or before May 3, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.

[FR Doc. 2021-07384 Filed 4-9-21; 8:45 am]
BILLING CODE 8011-01-P