Document ID: SEC-2020-0596-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2020-04-17T04:00Z

[Federal Register Volume 85, Number 75 (Friday, April 17, 2020)]
[Notices]
[Pages 21490-21493]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08087]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88626; File No. SR-Phlx-2020-19]

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

April 13, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 3, 2020, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I, II, and III, below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx's Pricing Schedule. 
Specifically, the Exchange proposes to amend rule text within Options 
7, Section 8, ``Membership Fees.''
    While the changes proposed herein are effective upon filing, the 
Exchange has designated the amendments to become operative on May 1, 
2020.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

[[Page 21491]]

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 Options 7, Section 8, ``Membership Fees'' 
concerning a May 2020 credit. In addition, Phlx proposes to remove 
outdated rule text.
Prior Proposal
    In light of the recent closure of open outcry trading on the Phlx 
Trading Floor as of March 17, 2020,\3\ Phlx waived certain floor-
related fees within Options 7, Section 8, ``Membership Fees.'' \4\ 
Specifically, Phlx's Prior Proposal waived: (1) A Permit Fee of $4,000 
per month to Floor Brokers; \5\ (2) a Clerk \6\ Fee \7\ of $100 per 
month; and (3) Streaming Quote Trader (``SQT'') \8\ Fees within Options 
8, Section 8B.\9\ Phlx's 7 tier SQT Fees are as follows:
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    \3\ See Options Trader Alert #2020-7.
    \4\ See Securities Exchange Act Release No. 88525 (March 31, 
2020) (not yet published) (SR-Phlx-2020-12) (``Prior Proposal'').
    \5\ See Phlx Rules at Options 7, Section 8A.
    \6\ The term ``Clerk'' means any registered on-floor person 
employed by or associated with a member or member organization who 
is not a member and is not eligible to effect transactions on the 
Options Floor as a Lead Market Maker, Floor Market Maker, or Floor 
Broker. An Inactive Nominee is deemed a Clerk. See Options 8, 
Section 12(a).
    \7\ 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.
    \8\ The term ``Streaming Quote Trader'' is defined in Options 1, 
Section 1(b)(54) as a Market Maker who has received permission from 
the Exchange to generate and submit option quotations electronically 
in options to which such SQT is assigned. See Options 7, Section 1. 
Further, Options 1, Section 1(b)(54) provides that an SQT means a 
Market Maker who has received permission from the Exchange to 
generate and submit option quotations electronically in options to 
which such SQT is assigned. An SQT may only submit such quotations 
while such SQT is physically present on the trading floor of the 
Exchange. An SQT may only submit quotes in classes of options in 
which the SQT is assigned.
    \9\ The Prior Proposal also waived the Floor Facility Fee of 
$330 per month, which is applicable Clerks (excluding Inactive 
Nominees pursuant to Options 8, Section 7), Floor Brokers, Market 
Makers (including SQTs) and individual Lead Market Makers), within 
Options 7, Section 9, for the month of April 2020 and May 2020.

------------------------------------------------------------------------
                                                          SQT Fees  (per
           Number of option class  assignments               calendar
                                                              month)
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Tier 1: Up to 200 classes...............................           $0.00
Tier 2: Up to 400 classes...............................       $2,200.00
Tier 3: Up to 600 classes...............................       $3,200.00
Tier 4: Up to 800 classes...............................       $4,200.00
Tier 5: Up to 1,000 classes.............................       $5,200.00
Tier 6: Up to 1,200 classes.............................       $6,200.00
Tier 7: All equity issues...............................       $7,200.00
------------------------------------------------------------------------

    Additionally, Phlx paid a credit to Trading Floor member 
organizations of $5,000 per Clerk based on the number of Clerks those 
member organizations had registered as of April 1, 2020. Phlx also 
stated it would pay the aforementioned credit for the month of May 
2020, in the event that open outcry trading is unavailable as of May 1, 
2020 and the Clerk is registered as of May 1, 2020.
    At this time, the Exchange proposes to amend Options 7, Section 8 
to remove the language regarding the April 2020 waiver and credits, 
which were already waived and paid, and amend the language regarding 
May credits to state that Phlx will credit each member organization an 
amount of $5,000 per associated person that was registered as a Clerk 
as of April 1, 2020 and remains registered on May 1, 2020, in the event 
that open outcry trading is unavailable as of May 1, 2020. The credit 
was not intended to pay any new Clerks that registered within the time 
period that open outcry was closed, rather it was intended to ensure 
that Clerks continued to be registered with the Exchange during the 
closure of open outcry.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \12\
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    \12\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\13\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\14\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \15\
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    \13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \14\ See NetCoalition, at 534-535.
    \15\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers' . . . .'' \16\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \16\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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    The Exchange's proposal to pay a credit of $5,000 per associated 
person that was registered as a Clerk as of April 1, 2020 and remains 
registered as of May 1, 2020 for the month of May 2020, in the event 
that open outcry trading is unavailable as of May 1, 2020, is 
reasonable. The intent of the credit was to provide relief to member 
organizations that are currently unable to transact options in open 
outcry on the Phlx Trading Floor by paying a credit

[[Page 21492]]

for their Clerks who were registered with the Exchange. The Exchange 
intended to pay a May 2020 credit to member organizations, provided 
those Clerks were registered as of April 1, 2020 and were retained by 
the Phlx member organizations as of May 1, 2020, in the event that open 
outcry trading was unavailable as of May 1, 2020. The credit was not 
intended to attract new Clerks to the Trading Floor during the closure 
of open outcry. Inserting rule text to make clear the Clerks that 
receive the credit had to be registered as of April 1, 2020 and remain 
registered as of May 1, 2020 will achieve the goal for which the credit 
was intended. Phlx believes this credit will assist member 
organizations to continue to maintain their business operations during 
the time period that open outcry trading is unavailable.
    The Exchange's proposal to pay a credit of $5,000 per associated 
person that was registered as a Clerk as of April 1, 2020 and remains 
registered as of May 1, 2020 for the month of May 2020, in the event 
that open outcry trading is unavailable as of May 1, 2020, is equitable 
and not unfairly discriminatory. The Exchange proposes to pay all 
member organizations a credit for each Clerk the firm has registered as 
of April 1, 2020 and remains registered as of May 1, 2020 in a uniform 
manner, in the event that open outcry trading is unavailable as of May 
1, 2020. The Exchange believes that paying a credit to member 
organizations for each Clerk would alleviate some of the financial 
burden for each member organization. A Clerk is any registered on-floor 
person employed by or associated with a member or member organization 
who is not a member and is not eligible to effect transactions on the 
Options Floor as a Lead Market Maker, Floor Market Maker, or Floor 
Broker. As such, Clerks are employees of Phlx Trading Floor member 
organizations that would not otherwise be able to transact an options 
business as a Lead Market Maker, Floor Market Maker, or Floor Broker. 
The Exchange believes the credit to member organizations for each Clerk 
will assist member organizations in continuing to employee Clerks 
during the closure of open outcry trading.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Inter-Market Competition
    The proposal does not impose an undue burden on inter-market 
competition. The Exchange believes its proposal remains competitive 
with other options markets and will offer market participants with 
another choice of where to transact options. The Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem fee levels at a 
particular venue to be excessive, or rebate opportunities available at 
other venues to be more favorable. In such an environment, the Exchange 
must continually adjust its fees to remain competitive with other 
exchanges that have been exempted from compliance with the statutory 
standards applicable to exchanges. Because competitors are free to 
modify their own fees in response, and because market participants may 
readily adjust their order routing practices, the Exchange believes 
that the degree to which fee changes in this market may impose any 
burden on competition is extremely limited.
Intra-Market Competition
    The proposed amendments do not impose an undue burden on intra-
market competition.
    The Exchange's proposal to pay a credit of $5,000 per associated 
person that was registered as a Clerk as of April 1, 2020 and remains 
registered as of May 1, 2020 for the month of May 2020, in the event 
that open outcry trading is unavailable as of May 1, 2020, does not 
impose an undue burden on competition. The Exchange proposes to pay all 
member organizations a credit for each Clerk the firm has registered as 
of April 1, 2020 and remains registered as of May 1, 2020 in a uniform 
manner. The Exchange believes that paying a credit to member 
organizations for each Clerk would alleviate some of the financial 
burden for each member organization. A Clerk is any registered on-floor 
person employed by or associated with a member or member organization 
who is not a member and is not eligible to effect transactions on the 
Options Floor as a Lead Market Maker, Floor Market Maker, or Floor 
Broker. As such, Clerks are employees of Phlx Trading Floor member 
organizations that would not otherwise be able to transact an options 
business as a Lead Market Maker, Floor Market Maker, or Floor Broker. 
The Exchange believes the credit to member organizations for each Clerk 
will assist member organizations in continuing to employee Clerks 
during the closure of open outcry trading.

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.\17\
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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2020-19 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-2020-19. 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

[[Page 21493]]

communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
Phlx-2020-19 and should be submitted on or before May 8, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08087 Filed 4-16-20; 8:45 am]
BILLING CODE 8011-01-P