Document ID: SEC-2021-1429-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2021-10-18T04:00Z

[Federal Register Volume 86, Number 198 (Monday, October 18, 2021)]
[Notices]
[Pages 57709-57711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-22566]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93295; File No. SR-Phlx-2021-57]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, 
Section 4, Multiply Listed Options Fees

October 12, 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 October 6, 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 4, ``Multiply Listed Options Fees (Includes options 
overlying equities, ETFs, ETNs and indexes which are Multiply Listed) 
(Excludes SPY).''
    While the changes proposed herein are effective upon filing, the 
Exchange has designated the amendments become operative on October 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 at Options 7, Section 4, 
``Multiply Listed Options Fees (Includes options overlying equities, 
ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY).'' The 
Exchange proposes to amend the way it calculates qualifying Qualified 
Contingent Cross or ``QCC'' Orders for purposes of paying a QCC rebate.
    Today, the Exchange assesses a $0.20 per contract QCC Transaction 
Fee to Lead Market Makers ,\3\ Market Makers ,\4\ Firms ,\5\ and 
Broker-Dealers .\6\ Customers \7\ and Professionals \8\ are not 
assessed a QCC Transaction Fee. QCC Transaction Fees apply to 
electronic QCC Orders, as defined in Options 3, Section 12,\9\ and 
Floor QCC Orders, as defined in Options 8, Section 30(e) (collectively 
``Combined QCC Orders'').
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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 Rule 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.
    \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 on and Floor Market Makers. See 
Options 7, Section 1.
    \5\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at OCC. See Options 7, Section 1.
    \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.
    \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.
    \8\ The term ``Professional'' applies to transactions for the 
accounts of Professionals, as defined in Exchange Rule 1000(b)(43) 
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.
    \9\ QCC Orders within Options 3, Section 12 are submitted 
electronically. The Exchange proposes to add the word ``electronic'' 
before QCC Orders in several places within Options 7, Section 4 for 
clarity.
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    Today, the Exchange pays rebates on all qualifying executed 
Combined QCC Orders, except 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, pursuant to the 
below QCC rebate schedule, up to a maximum of $550,000 in a given 
month.

                           QCC Rebate Schedule
------------------------------------------------------------------------
                                                            Rebate per
           Tier                      Threshold               contract
------------------------------------------------------------------------
Tier 1...................  0 to 99,999 contracts in a              $0.00
                            month.
Tier 2...................  100,000 to 299,999 contracts             0.05
                            in a month.
Tier 3...................  300,000 to 499,999 contracts             0.07
                            in a month.
Tier 4...................  500,000 to 699,999 contracts             0.08
                            in a month.
Tier 5...................  700,000 to 999,999 contracts             0.09
                            in a month.
Tier 6...................  Over 1,000,000 contracts in a            0.11
                            month.
------------------------------------------------------------------------

    Today, the Exchange aggregates volume from all executed Combined 
QCC Orders and excludes QCC transactions where the transaction is 
either: (i) Customer-to-Customer; (ii) Customer-to-Professional; (iii)

[[Page 57710]]

Professional-to-Professional; or (iv) a dividend, merger, short stock 
interest or reversal or conversion strategy execution (as defined in 
Options 7, Section 4).
    At this time, the Exchange proposes to amend the way it calculates 
qualifying Combined QCC Orders for purposes of paying a QCC rebate. 
With this proposal, the Exchange would aggregate volume from all 
executed Combined QCC Orders, including Customer-to-Customer, Customer-
to-Professional, and Professional-to-Professional transactions for 
purposes of determining the QCC rebate tier threshold. The Exchange 
would continue to exclude dividend, merger, short stock interest or 
reversal or conversion strategy executions from the QCC rebate tier 
qualification.
    The Exchange believes that this amendment will encourage market 
participants to execute additional Customer-to-Customer, Customer-to-
Professional, and Professional-to-Professional Combined QCC Orders for 
purposes of qualifying for a higher QCC rebate tier.\10\
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    \10\ The Exchange also proposes two technical amendments to 
Options 7, Section 4. First, the Exchange proposes to change a ``,'' 
to a ``;'' after ``(ii) Customer-to-Professional.'' Second, the 
Exchange proposes to add a ``;'' after ``(iii) Professional-to-
Professional.''
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed changes to Phlx's Pricing Schedule are reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for options securities 
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, the D.C. Circuit stated as follows: ``[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'. . . .'' \13\
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    \13\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(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 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.'' \14\
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    \14\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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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 security transaction services. The Exchange is only one of 
sixteen 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. As such, 
the proposal represents a reasonable attempt by the Exchange to 
increase its liquidity and market share relative to its competitors.
    The Exchange's proposal to amend the way it calculates qualifying 
Combined QCC Orders for purposes of paying a QCC rebate is reasonable. 
The proposed amendment to qualify for a QCC rebate is intended to 
incentivize market participants to execute a greater amount of 
Customer-to-Customer, Customer-to-Professional, and Professional-to-
Professional Combined QCC Orders on Phlx to qualify for a higher QCC 
rebate tier. While the Exchange would continue not to pay a QCC rebate 
for Customer-to-Customer, Customer-to-Professional, and Professional-
to-Professional Combined QCC Orders, market participants would benefit 
by executing these orders by potentially qualifying for higher QCC 
rebate tiers. Today, Customer-to-Customer, Customer-to-Professional, 
and Professional-to-Professional Combined QCC Orders are not counted in 
the tier qualification calculation for QCC rebates but would be counted 
with this proposal. Also, today, dividend, merger, short stock interest 
or reversal or conversion strategy executions are not counted in the 
tier qualification calculation for QCC rebates and would continue to 
not be counted.
    The Exchange's proposal to amend the way it calculates qualifying 
Combined QCC Orders for purposes of paying a QCC Rebate is equitable 
and not unfairly discriminatory. The Exchange uniformly would apply the 
proposed QCC tier qualification to all market participants when paying 
QCC rebates on Combined QCC Orders for all qualifying transactions 
executed on Phlx.
    Amending rule text within Options 7, Section 4 to add the word 
``electronic'' before QCC Orders in several places within Options 7, 
Section 4, where the reference applies to QCC Orders as defined in 
Options 3, Section 12, is reasonable, equitable and not unfairly 
discriminatory because the amendments will bring additional clarity to 
the rule text.

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.

[[Page 57711]]

Intra-Market Competition
    The Exchange's proposal to amend the way it calculates qualifying 
Combined QCC Orders for purposes of paying a QCC Rebate does not impose 
an undue burden on competition. The Exchange uniformly would apply the 
proposed QCC tier qualification to all market participants when paying 
QCC rebates on Combined QCC Orders for all qualifying transactions 
executed on Phlx.
    Amending rule text within Options 7, Section 4 to add the word 
``electronic'' before QCC Orders in several places within Options 7, 
Section 4, where the reference applies to QCC Orders as defined in 
Options 3, Section 12, does not impose an undue burden on competition 
because the amendments will bring additional clarity to the rule text.

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 is effective upon filing pursuant to 
Section 19(b)(3)(A) \15\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \16\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \17\ of the Act to determine whether the proposed 
rule should be approved or disapproved.
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    \17\ 15 U.S.C. 78s(b)(2)(B).
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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-2021-57 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-2021-57. 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; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly.
    All submissions should refer to File Number SR-Phlx-2021-57 and 
should be submitted on or before November 8, 2021.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22566 Filed 10-15-21; 8:45 am]
BILLING CODE 8011-01-P