Document ID: SEC-2018-0454-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2018-03-19T04:00Z

[Federal Register Volume 83, Number 53 (Monday, March 19, 2018)]
[Notices]
[Pages 12066-12069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05450]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82865; File No. SR-Phlx-2018-21]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Transaction Fees at Section VIII

March 13, 2018.
    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 1, 2018, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's transaction fees at 
Section VIII (NASDAQ PSX fees) of Phlx's Pricing Schedule to remove the 
current transaction fees for any PSCN order (other than a PSKP order) 
that receives an execution on NASDAQ PSX (``PSX'') or that is routed 
away from PSX and receives an execution at an away market.
    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.

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
    The purpose of the proposed rule change is to amend the Exchange's 
transaction fees at Section VIII of Phlx's Pricing Schedule to remove 
the current transaction fee for any PSCN order (other than a PSKP 
order) that receives an execution on PSX or that is routed away from 
PSX and receives an execution at an away market.
    Currently, the Exchange assesses a charge of $0.0026 per share 
executed for PSCN orders,\3\ other than PSKP orders,\4\ that execute on 
PSX or that are routed to other venues and receive an execution on 
another venue. By way of comparison, for an order that executes on PSX, 
the execution fees for non-PSCN orders (including PSKP orders) for all 
securities that PSX trades that are priced at $1 or more per share 
range from $0.0028 per share executed to $0.0030 per share executed, 
depending on where that security is listed and whether the member meets 
certain established volume thresholds. For orders in securities that 
are priced at $1 or more per share that are routed to, and execute on 
other venues, the Exchange charges fees ranging from $0.0000 per share 
executed to $0.0035 per share executed (including PKSP orders).
---------------------------------------------------------------------------

    \3\ PSCN is a routing option that is designed to attract users 
to PSX. An order using the PSCN routing option will check the System 
for available shares and simultaneously route the remaining shares 
to destinations on the System routing table. If shares remain 
unexecuted after routing, they are posted on the book. Once on the 
book, should the order subsequently be locked or crossed by another 
market center, the System will not route the order to the locking or 
crossing market center. See Rule 3315(a)(1)(A)(iv).
    \4\ PSKP is a form of PSCN, pursuant to which the entering firm 
instructs the System to bypass any market centers included in the 
PSCN System routing table that are not posting Protected Quotations 
within the meaning of Regulation NMS. Id.
---------------------------------------------------------------------------

    The Exchange introduced the fee for PSCN orders in 2017.\5\ Prior 
to the 2017 Proposal, a PSCN order that executed on PSX would be 
assessed a charge ranging from $0.0028-$0.0030 per share executed 
depending on the applicability of other factors set forth in the 
Pricing Schedule, e.g., if the order was for a security that was listed 
on The Nasdaq Stock Market LLC (``Nasdaq''), or if the order was for a 
security that is listed on the New York Stock Exchange LLC (``NYSE''), 
and whether the member met the applicable volume thresholds.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 80938 (June 15, 
2017), 82 FR 28171 (June 20, 2017) (SR-Phlx-2017-44) (``2017 
Proposal'').
---------------------------------------------------------------------------

    Prior to the 2017 Proposal, a PSCN order that routed to another 
venue would be charged $0.0030 per share executed at NYSE, $0.0000 per 
share executed at Nasdaq BX, Inc. (``Nasdaq BX'') and $0.0030 per share 
executed in other venues. Pursuant to the 2017 Proposal, PSCN orders 
that execute on a venue other than PSX are charged $0.0026 per share 
executed. PSKP orders continue to be charged $0.0030 per share executed 
at NYSE, $0.0000 per share executed at Nasdaq BX, and $0.0030 per share 
executed in other venues.\6\
---------------------------------------------------------------------------

    \6\ In the 2017 Proposal, the Exchange noted that member 
organizations sending PSCN orders that executed at Nasdaq BX would 
pay an increased fee of $0.0026 per share executed, instead of the 
then-current $0.0000 per share executed for those orders. The 
Exchange stated that this fee increase for PSCN orders that executed 
on Nasdaq BX would help offset the cost to the Exchange in offering 
the reduced fees for all other PSCN executions. Id.

---------------------------------------------------------------------------

[[Page 12067]]

    In the 2017 Proposal, the Exchange noted that PSCN is designed to 
attract users to PSX, and that generally providing a discount to member 
organizations for PSCN executions will provide a greater incentive to 
member organizations to use PSX as a venue. The Exchange stated that 
assessing a lowered rate will encourage member organizations to 
interact with PSX liquidity, while also encouraging such participants 
to take advantage of the sophisticated routing functionality offered by 
PSX. Additionally, since PSCN does not re-route when it is locked or 
crossed by an away market, the Exchange also believed that increased 
use of PSCN would also increase displayed liquidity on PSX.\7\
---------------------------------------------------------------------------

    \7\ As noted above, the current transaction fee for PSCN orders 
does not include PSKP orders. When adopting the current transaction 
fee for PSCN orders (and the corresponding exclusion for PSKP 
orders), the Exchange noted that it had only limited funds to apply 
to the PSCN fees, which it was generally reducing. The Exchange 
noted that PSCN orders route to both venues with protected 
quotations and venues without protected quotations, which are often 
low-cost venues, based on the System routing table following the 
principal of best execution. By contrast, PSKP orders are routed 
only to venues with protected quotations, which typically assess the 
Exchange higher fees for execution thereon. Consequently, extending 
the proposed pricing to PSKP would result in significant cost to the 
Exchange in comparison to the proposed fee assessed for such 
executions. See 2017 Proposal, supra note 5.
---------------------------------------------------------------------------

    Since the adoption of the reduced transaction fee for PSCN orders, 
the Exchange has not observed a change in the activity of member 
organizations that would indicate that the reduced PSCN fees are 
incentivizing member organizations to send additional order flow to the 
Exchange, or to increase additional displayed liquidity on the 
Exchange. Accordingly, the Exchange is discontinuing the $0.0026 fee 
for PSCN orders that execute on PSX or on other venues.
    With this change, PSCN orders that execute on PSX will revert to 
the pricing that existed prior to the 2017 Proposal, and will be 
charged $0.0028-$0.0030 per share executed, depending on other 
applicable factors, e.g., if the order is for a security that is listed 
on Nasdaq or NYSE, and whether the member meets the applicable volume 
thresholds.
    Similarly, PSCN orders that execute on a venue other than PSX will 
revert to the pricing that existed prior to the 2017 Proposal, and will 
be charged $0.0030 per share executed at NYSE, $0.0000 per share 
executed at Nasdaq BX, and $0.0030 per share executed in other venues. 
Since the 2017 Proposal excluded PSKP orders from the $0.0026 fee, the 
transaction fees assessed for PSKP orders will remain the same.\8\
---------------------------------------------------------------------------

    \8\ Specifically, the charge for a PSKP order that executes on 
PSX will range from $0.0028-$0.0030 per share, depending on the 
applicability of the other relevant factors set forth in the Pricing 
Schedule. A PSKP order that executes on a venue besides PSX will be 
charged $0.0030 per share executed at NYSE, $0.0000 per share 
executed at Nasdaq BX, and $0.0030 per share executed in other 
venues. Since a PSKP order is a subset of a PSCN order, the proposed 
change in the Pricing Schedule from ``PSKP'' to ``PSCN'' in the part 
of the Pricing Schedule relating to routing fees will cover both 
PSCN and PSKP orders.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    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.'' \11\
---------------------------------------------------------------------------

    \11\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Likewise, in NetCoalition v. Securities and Exchange Commission 
\12\ (``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.\13\ 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.'' \14\
---------------------------------------------------------------------------

    \12\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \13\ See NetCoalition, at 534-535.
    \14\ Id. at 537.
---------------------------------------------------------------------------

    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'. . . .'' \15\
---------------------------------------------------------------------------

    \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)).
---------------------------------------------------------------------------

    The Exchange believes that eliminating the current fee of $0.0026 
per share executed for PSCN orders that execute on PSX or that execute 
on other venues is reasonable. The PSCN routing option is designed to 
attract users to PSX, and the current PSCN transaction fees, by 
extension, were designed to provide a greater incentive to member 
organizations to use PSX as a venue. Since the adoption of the current 
transaction fees for PSCN orders, however, the Exchange has not 
observed a change in the activity of member organizations that would 
indicate that the current PSCN fees are incentivizing member 
organizations to send additional order flow to the Exchange, or to 
increase additional displayed liquidity on the Exchange. Accordingly, 
the Exchange believes that it is reasonable to eliminate the current 
PSCN fees since those fees are not achieving their intended purpose.
    With respect to orders that execute on PSX, the Exchange further 
believes the proposal is reasonable because the Pricing Schedule will 
no longer distinguish between PSCN orders and orders with other routing 
options.
    In eliminating the current PSCN fees, the fees for PSCN orders will 
revert to the fees for PSCN orders prior to the 2017 Proposal. The 
Exchange has previously stated why it believes those fees are 
reasonable,\16\ and continues to

[[Page 12068]]

believe such fees are reasonable. For example, the Exchange continues 
to believe that the current fees for orders that execute on PSX in 
securities listed on Nasdaq, NYSE or an exchange other than Nasdaq or 
NYSE are reasonable because they reflect the costs and benefits 
provided by the Exchange, including credits to market participants that 
provide beneficial liquidity to PSX, to the benefit of all of its 
participants.\17\ Similarly, the Exchange believes that the fees for 
routing orders to other venues are reasonable because those fees are 
designed to incentivize member organizations to send orders and quotes 
to PSX, even if such orders ultimately execute on other venues.\18\
---------------------------------------------------------------------------

    \16\ See Securities Exchange Act Release No. 76631 (December 11, 
2015), 80 FR 78797 (December 17, 2015) (SR-Phlx-2015-98) (adopting 
the current fees for transactions on PSX of $0.0029 per share 
executed in Nasdaq-listed securities, $0.0028 per share executed for 
NYSE-listed securities, and $0.0028 per share executed for 
executions in securities listed on exchanges other than Nasdaq and 
NYSE); Release No. 78027 (June 9, 2016), 81 FR 39078 (June 15, 2016) 
(SR-Phlx-2016-64) (adopting the current volume thresholds and the 
``default'' fee for transactions on PSX of $0.0030 per share 
executed for orders for all other member organizations that execute 
on PSX); Release No. 71520 (February 11, 2014), 79 FR 9302 (February 
18, 2014) (SR-Phlx-2014-09) and Release No. 74292 (February 18, 
2015), 80 FR 9807 (February 24, 2015) (SR-Phlx-2015-14) (adopting 
the current fee of $0.0000 for PSCN orders that are routed to Nasdaq 
BX); Release No. 70874 (November 14, 2013), 78 FR 69725 (November 
20, 2013) (SR-Phlx-2013-111) (adopting the current fee of $0.0030 
per share executed for PSCN orders that are routed to NYSE or to 
other venues).
    \17\ See Securities Exchange Act Release No. 76631 (December 11, 
2015), 80 FR 78797 (December 17, 2015) (SR-Phlx-2015-98).
    \18\ See Securities Exchange Act Release No. 70874, November 14, 
2013, 78 FR 69725 (November 20, 2013) (SR-Phlx-2013-111).
---------------------------------------------------------------------------

    Finally, as discussed above, the transaction fees for a PSKP order, 
which is a subset of a PSCN order, remain unchanged.
    The Exchange also believes that eliminating the $0.0026 fee for 
PSCN orders that execute on PSX and on other venues is an equitable 
allocation and is not unfairly discriminatory. With this change, member 
organizations that use PSCN orders may pay greater fees (e.g., $0.0029 
per share executed for an order in a Nasdaq-listed security that 
executes on PSX) or lower fees (e.g., $0.0000 per share executed for an 
order that executes on Nasdaq BX) than pursuant to the current PSCN 
fees. However, the Exchange will apply the same fee to all similarly 
situated member organizations, e.g., to all member organizations that 
execute an order in a Nasdaq-listed security on PSX. With respect to 
orders that execute on PSX, the Exchange further believes that the 
proposal is equitable and not unfairly discriminatory because the 
Pricing Schedule will eliminate the distinction between PSCN orders and 
orders with other routing options.
    Further, this change will revert the fees for PSCN orders that 
execute on PSX and on other venues to their levels prior to the 2017 
Proposal. The Exchange has previously stated that it believes those 
fees are equitable and not unfairly discriminatory,\19\ and continues 
to believe such fees are equitable and not unfairly discriminatory. 
Specifically, the Exchange continues to believe that these fees reflect 
the costs and benefits provided by the Exchange, while also attempting 
to incentivize order flow to the Exchange.
---------------------------------------------------------------------------

    \19\ See supra note 16.
---------------------------------------------------------------------------

    Finally, as discussed above, the transaction fees for a PSKP order, 
which is a subset of a PSCN order, remain unchanged.

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. In terms of inter-market 
competition, 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 and with 
alternative trading systems 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.
    In this instance, the proposed changes to the charges assessed to 
member organizations for the execution of securities do not impose a 
burden on competition because the Exchange's execution services are 
completely voluntary and subject to extensive competition both from 
other exchanges and from off-exchange venues. The Exchange is 
eliminating the current PSCN fees because the Exchange has not observed 
that the current PSCN fees achieved their intended effect, i.e., to 
incentivize member organizations to send additional order flow to the 
Exchange, or to increase additional displayed liquidity on the 
Exchange.
    With the elimination of the current PSCN fees, this change will 
revert the fees for PSCN orders that execute on PSX and on other venues 
to their levels prior to the 2017 Proposal. The Exchange has previously 
stated that it does not believe that the fees in effect prior to the 
2017 Proposal impose a burden on competition that is not necessary or 
appropriate,\20\ and continues to believe that to be the case. 
Additionally, the Exchange will apply the same fee for PSCN orders to 
all similarly situated member organizations.
---------------------------------------------------------------------------

    \20\ See supra note 16.
---------------------------------------------------------------------------

    With respect to orders that execute on PSX, the Exchange also does 
not believe that the proposal will impose a burden on competition that 
is not necessary or appropriate because the Pricing Schedule will 
eliminate the distinction between PSCN orders and orders with other 
routing options.
    Finally, the Exchange does not believe that the proposal will 
impose a burden on competition that is not necessary or appropriate 
because, as discussed above, the transaction fees for a PSKP order, 
which is a subset of a PSCN order, remain unchanged.
    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of member organizations or competing 
order execution venues to maintain their competitive standing in the 
financial markets.

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.\21\
---------------------------------------------------------------------------

    \21\ 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:

[[Page 12069]]

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-2018-21 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-2018-21. 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-2018-21 and should be submitted on 
or before April 9, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05450 Filed 3-16-18; 8:45 am]
 BILLING CODE 8011-01-P