Document ID: SEC-2023-0311-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2023-03-20T04:00Z

[Federal Register Volume 88, Number 53 (Monday, March 20, 2023)]
[Notices]
[Pages 16697-16700]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05542]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97133; File No. SR-Phlx-2023-08]

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

March 14, 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 March 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.
---------------------------------------------------------------------------

    \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 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).''
    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

[[Page 16698]]

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 (Includes options overlying equities, 
ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY).''
    Recently, Phlx established a QCC Growth Tier Rebate within section 
B of Options 7, Section 4 to encourage Phlx members and member 
organizations to transact a greater number of QCC Orders on Phlx. In 
order to qualify for the QCC Growth Tier Rebate, a member's or member 
organization's total floor transaction,\3\ and electronic QCC Orders 
and Floor QCC Orders volume (``QCC transaction volume'') must exceed 
12,500,000 contracts in a given month. In addition to the 
aforementioned criteria, the member's or member organization's 
respective Phlx House Account \4\ must execute QCC transaction volume 
of 250,000 or more contracts in excess of the member's or member 
organization's QCC transaction volume in January 2023. For members or 
member organizations with no QCC transaction volume in January 2023, 
the QCC transaction volume, in their respective Phlx House Account, 
must be 250,000 or more contracts in a given month.
---------------------------------------------------------------------------

    \3\ The term ``floor transaction'' is a transaction that is 
effected in open outcry on the Exchange's trading floor. See Phlx 
Options 7, Section 1(c). Of note, the term ``floor transaction'' is 
more broadly defined than the term ``Open Outcry Floor Transaction'' 
which is discussed herein and is a subset of the term ``floor 
transaction.''
    \4\ Each Phlx member or member organization is required to 
establish one Phlx House Account with the Exchange's Membership 
Department. Only one Phlx House Account is required to transact 
business on Phlx. The Exchange assesses a $50.00 a month account fee 
for this account as provided for within Options 7, Section 8A. A 
Phlx member or member organization has the option of acquiring 
multiple Phlx House Accounts depending on a member's or member 
organization's business model and how they elect to organize their 
business.
---------------------------------------------------------------------------

    Further, a member or member organization may alternatively achieve 
the QCC Growth Tier Rebate if a member's or member organization's Open 
Outcry Floor Transaction \5\ volume in a given month exceeds 500,000 
contracts. In addition to the aforementioned criteria, a member's or 
member organization's respective Phlx House Account must execute QCC 
transaction volume of 2,500,000 or more contracts in excess of the 
member's or member organization's QCC transaction volume in January 
2023. For members or member organizations with no QCC transaction 
volume in January 2023, the QCC transaction volume, in their respective 
Phlx House Account, must be 2,500,000 or more contracts in a given 
month.
---------------------------------------------------------------------------

    \5\ The term ``Open Outcry Floor Transaction'' includes all 
transactions executed in open outcry on Phlx's trading floor except: 
(1) dividend, merger, short stock interest, reversal and conversion, 
jelly roll, and box spread strategy executions as defined in this 
Options 7, Section 4; (2) Cabinet Transactions as defined in Options 
8, Section 33; and (3) Customer-to-Customer transactions.
---------------------------------------------------------------------------

    Today, the Exchange pays the QCC Growth Tier Rebates per Phlx House 
Account. Specifically, the Exchange pays a $0.20 per contract QCC 
Growth Tier Rebate on a QCC Order 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. Further, the Exchange 
pays a $0.26 per contract QCC Growth Tier Rebate on a QCC Order 
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.\6\
---------------------------------------------------------------------------

    \6\ Members and member organizations are entitled to one QCC 
Rebate in a given month, either the QCC Rebate in Section A or the 
QCC Growth Tier Rebate in Section B in a given month, but not both.
---------------------------------------------------------------------------

    At this time, the Exchange proposes to continue to pay the QCC 
Growth Tier Rebate on all qualifying executed electronic QCC Orders, as 
defined in Options 3, Section 12, and Floor QCC Orders, as defined in 
Options 8, Section 30(e), 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, reversal and conversion, jelly roll, and box spread strategy 
executions (as defined in Options 7, Section 4).
    The proposed exclusions are similar to the exclusions for payments 
on QCC Rebates in section A of Options 7, Section 4. Of note, 
currently, QCC Growth Tier Rebates are not paid on Customer-to-
Customer, Customer-to-Professional, or Professional-to-Professional QCC 
Orders because the QCC Growth Tier Rebate specifies it is only paid on 
a QCC Order 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, and a QCC Order 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. The Exchange is including these exclusions to the QCC Growth Tier 
Rebate to mirror the exclusions within QCC Rebates in section A.
    Notwithstanding, the limitation on eligible orders to receive a QCC 
Growth Tier Rebate, the Exchange believes that the QCC Growth Tier 
Rebate will continue to encourage market participants to send QCC 
orders to Phlx for execution in an effort to earn higher QCC Rebates.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\8\ 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 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.'' \9\
---------------------------------------------------------------------------

    \9\ 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 
\10\ (``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.\11\ 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.'' \12\
---------------------------------------------------------------------------

    \10\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \11\ See NetCoalition, at 534-535.
    \12\ Id. at 537.
---------------------------------------------------------------------------

    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S.

[[Page 16699]]

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\ 
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.
---------------------------------------------------------------------------

    \13\ 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's proposal to amend the QCC Growth Tier Rebate to pay 
the QCC Growth Tier on all qualifying executed electronic QCC Orders 
except where the transaction is either Customer-to-Customer; Customer-
to-Professional; Professional-to-Professional; or a dividend, merger, 
short stock interest, reversal and conversion, jelly roll, and box 
spread strategy executions (as defined in Options 7, Section 4) is 
reasonable because despite the limitation on eligible orders to receive 
a QCC Growth Tier Rebate, the Exchange believes that this rebate will 
continue to provide incentives for members and member organizations to 
engage in substantial amounts of trading activity which would serve to 
bring additional open outcry liquidity to the trading floor and 
additional QCC Order Flow to Phlx. This incentive may also encourage 
members and member organizations to commence sending such order flow to 
Phlx for the opportunity to earn this rebate. The proposed exclusions 
are similar to the exclusions for payments on QCC Rebates in section A 
of Options 7, Section 4.\14\
---------------------------------------------------------------------------

    \14\ Of note, currently, QCC Growth Tier Rebates are not paid on 
Customer-to-Customer, Customer-to-Professional, or Professional-to-
Professional QCC Orders because the QCC Growth Tier Rebate specifies 
it is only paid on a QCC Order 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, and a QCC 
Order 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. The Exchange is 
including these exclusions to the QCC Growth Tier Rebate to mirror 
the exclusions within QCC Rebates in section A.
---------------------------------------------------------------------------

    The Exchange's proposal to amend the QCC Growth Tier Rebate to pay 
the QCC Growth Tier on all qualifying executed electronic QCC Orders 
except where the transaction is either Customer-to-Customer; Customer-
to-Professional; Professional-to-Professional; or a dividend, merger, 
short stock interest, reversal and conversion, jelly roll, and box 
spread strategy executions (as defined in Options 7, Section 4) is 
equitable and not unfairly discriminatory because any member or member 
organization may qualify for the QCC Growth Tier Rebate. Further, the 
Exchange will uniformly apply the proposed exceptions for eligible QCC 
Orders.

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. In terms of intra-market competition, the Exchange 
does not believe that its proposals will place any category of market 
participant at a competitive disadvantage. The Exchange believes that 
the proposed amendments to the QCC Rebate Growth Tier Rebates will 
continue to provide incentives for members and member organizations to 
engage in substantial amounts of trading activity which would serve to 
bring additional open outcry liquidity to the trading floor and 
additional QCC Order Flow to Phlx.
    The Exchange's proposal to amend the QCC Growth Tier Rebate to pay 
the QCC Growth Rebates on all qualifying executed electronic QCC Orders 
except where the transaction is either Customer-to-Customer; Customer-
to-Professional; Professional-to-Professional; or a dividend, merger, 
short stock interest, reversal and conversion, jelly roll, and box 
spread strategy executions (as defined in Options 7, Section 4) does 
not impose an undue burden on competition because any member or member 
organization may qualify for the QCC Growth Tier Rebate. Further, the 
Exchange will uniformly apply the proposed exceptions for eligible QCC 
Orders.

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\
---------------------------------------------------------------------------

    \15\ 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:

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-2023-08 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-2023-08. This file 
number should be included on the

[[Page 16700]]

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-2023-08 and 
should be submitted on or before April 10, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-05542 Filed 3-17-23; 8:45 am]
BILLING CODE 8011-01-P