Document ID: SEC-2023-1461-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2023-12-18T05:00Z

[Federal Register Volume 88, Number 241 (Monday, December 18, 2023)]
[Notices]
[Pages 87466-87468]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27676]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99141; File No. SR-Phlx-2023-55]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change to Amend the Fees 
for Options on the Nasdaq 100 Index in the Exchange's Pricing Schedule 
at Options 7

December 12, 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 November 30, 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 the fees for Nasdaq 100 Index 
options in the Exchange's Pricing Schedule at Options 7, Section 5A. 
While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on December 1, 2023.
    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
    The purpose of the proposed rule change is to amend the fees for 
NDX \3\ and NDXP.\4\ As set forth in Options 7, Section 5A, the 
Exchange currently charges all Non-Customer \5\ orders in NDX and NDXP 
a $0.75 per contract transaction fee. Customer \6\ orders receive free 
executions in NDX and NDXP today. These transaction fees apply to 
electronic simple and complex executions as well as floor transactions.
---------------------------------------------------------------------------

    \3\ NDX represents A.M.-settled options on the full value of the 
Nasdaq 100 Index traded under the symbol NDX.
    \4\ NDXP represents P.M.-settled options on the full value of 
the Nasdaq 100 Index traded under the symbol NDXP.
    \5\ The term ``Non-Customer'' applies to transactions for the 
accounts of Lead Market Makers, Market Makers, Firms, Professionals, 
Broker-Dealers and JBOs.
    \6\ 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)).
---------------------------------------------------------------------------

    The Exchange now proposes to begin assessing Customer NDX and NDXP 
orders a $0.25 per contract transaction fee. The Exchange notes that 
the proposed fee amount is in line with customer transaction fees 
assessed on other index products.\7\ The Exchange also proposes to 
assess a surcharge of $0.50 per contract to all Non-Customer complex 
executions in NDX and NDXP, and a surcharge of 0.25 per contract to all 
Customer complex executions in NDX and NDXP.\8\ The Exchange notes that 
the proposed surcharge amounts are within the range of various 
surcharges assessed at another options exchange.\9\
---------------------------------------------------------------------------

    \7\ For example, Cboe Options (``Cboe'') currently assesses a 
$0.25 per contract customer transaction fee for MXEA and MXEF 
options, $0.35 per contract for OEX and XEO options, and $0.36 per 
contract (if premium < $1.00) or $0.45 per contract (if premium >= 
$1.00) for SPX and SPESG options. See Cboe Fees Schedule.
    \8\ See proposed notes 5 and 6 of Options 7, Section 5.A.
    \9\ For example, Cboe currently assesses customers a $0.25 per 
contract exotic surcharge and a $0.21 per contract execution 
surcharge in SPX and SPESG options. Cboe also assesses non-customers 
a $0.45 per contract license surcharge in RUT, and LEAPS surcharge 
fees in SPX ranging from $1.00 to $2.50 per contract, according to 
time-to-expiration. See Cboe Fees Schedule.
---------------------------------------------------------------------------

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)

[[Page 87467]]

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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to begin assessing a $0.25 
per contract transaction fee to all Customer orders in NDX and NDXP, a 
$0.25 per contract complex surcharge to Customer complex orders in NDX 
and NDXP, and a $0.50 per contract complex surcharge to Non-Customer 
complex orders in NDX and NDXP because the proposed pricing reflects 
the proprietary nature of this product. Similar to other proprietary 
products like options overlying the Nasdaq 100 Micro Index (``XND''), 
the Exchange seeks to recoup the operational costs of listing 
proprietary products.\12\ Also, pricing by symbol is a common practice 
on many U.S. options exchanges as a means to incentivize order flow to 
be sent to an exchange for execution in particular products. Other 
options exchanges price by symbol.\13\ Further, the Exchange notes that 
market participants are offered different ways to gain exposure to the 
Nasdaq 100 Index, whether through the Exchange's proprietary products 
like options overlying NDX, NDPX, or XND, or separately through multi-
listed options overlying Invesco QQQ Trust (``QQQ'').\14\ Offering such 
products provides market participants with a variety of choices in 
selecting the product they desire to utilize in order to gain exposure 
to the Nasdaq 100 Index. When exchanges are able to recoup costs 
associated with offering proprietary products, it incentivizes growth 
and competition for the innovation of additional products.
---------------------------------------------------------------------------

    \12\ By way of example, in analyzing an obvious error, the 
Exchange would have additional data points available in establishing 
a theoretical price for a multiply listed option as compared to a 
proprietary product, which requires additional analysis and 
administrative time to comply with Exchange rules to resolve an 
obvious error.
    \13\ See supra note 7.
    \14\ QQQ is an exchange-traded fund based on the same Nasdaq 100 
Index as NDX, NDXP, and XND.
---------------------------------------------------------------------------

    The Exchange further believes that the proposed pricing described 
above is reasonable because the proposal is designed to update fees for 
the Exchange's services to reflect their current value--rather than 
their value when the Exchange last updated NDX and NDXP pricing five 
years ago \15\--based on the Exchange's ability to deliver value to its 
customers by offering proprietary products on its market like NDX and 
NDXP.
---------------------------------------------------------------------------

    \15\ The Exchange has not amended NDX and NDXP transaction fees 
since 2018, so the fees have remained at $0.75 per contract for Non-
Customers and $0.00 for Priority Customers during this time. See 
Securities Exchange Act Release No. 82499 (January 12, 2018), 83 FR 
2834 (January 19, 2018) (SR-Phlx-2018-02).
---------------------------------------------------------------------------

    While NDX and NDXP pricing is increasing for all market 
participants under this proposal, the Exchange believes that the 
proposal is reasonable and would continue to incentivize market 
participants to transact in NDX and NDXP, and especially in Customer 
NDX and NDXP orders because Customers would continue to be charged at a 
lower rate for NDX and NDXP than Non-Customers. As a result, the 
Exchange believes that the proposed pricing is structured in a way that 
continues to encourage market participants, especially Customers, to 
transact in NDX and NDXP on Phlx. An increase in Customer order flow 
would benefit all market participants through quality of order 
interaction and increased trading opportunities. As noted above, the 
proposed fee and surcharge amounts are in line with fees and surcharges 
assessed on other products at another options exchange.\16\
---------------------------------------------------------------------------

    \16\ See supra notes 7 and 9.
---------------------------------------------------------------------------

    The Exchange's proposal to assess a $0.25 per contract transaction 
fee to Customer orders in NDX and NDXP is equitable and not unfairly 
discriminatory it will apply uniformly to all similarly situated market 
participants. The Exchange believes it is equitable and not unfairly 
discriminatory to continue charging Customers a lower transaction fee 
for NDX and NDXP orders because Customer orders bring valuable 
liquidity to the market by providing more trading opportunities, which, 
in turn, attracts Market Makers. An increase in the activity of these 
market participants in turn facilitates tighter spreads, which may 
cause an additional corresponding increase in order flow to the benefit 
of all market participants.
    The Exchange also believes that it is equitable and not unfairly 
discriminatory to assess the $0.25 per contract surcharge to Customer 
complex orders in NDX and NDXP and the $0.50 per contract surcharge to 
Non-Customer complex orders in NDX and NDXP because the proposed 
surcharges will apply uniformly to all similarly situated participants. 
The Exchange believes it is equitable and not unfairly discriminatory 
to assess a lower complex surcharge to Customers than Non-Customers as 
the Exchange has historically provided more favorable pricing to 
Customers in its Pricing Schedule.\17\ In addition, Customer orders 
bring valuable liquidity to the market by providing more trading 
opportunities. This, in turn, attracts Market Maker activity, which 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow to the benefit of all market 
participants.
---------------------------------------------------------------------------

    \17\ For example, the Exchange offers a Customer Rebate Program 
in Options 7, Section 2.
---------------------------------------------------------------------------

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. As noted above, market participants are offered an 
opportunity to transact in NDX, NDXP, or XND, or separately execute 
options overlying QQQ. Offering these products provides market 
participants with a variety of choices in selecting the product they 
desire to use to gain exposure to the Nasdaq 100 Index. Furthermore, 
the proposed fee amounts are in line with customer transaction fees and 
surcharges assessed on other products at another options exchange.\18\
---------------------------------------------------------------------------

    \18\ See supra notes 7 and 9.
---------------------------------------------------------------------------

    Further, the Exchange does not believe that the proposed changes 
will impose an undue burden on intra-market competition because 
Customers will continue to be assessed lower fees in NDX and NDXP than 
Non-Customers, which is in line with how the Exchange historically 
assessed fees. As discussed above, Customer order flow enhances 
liquidity on the Exchange for the benefit of all market participants.

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.\19\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the

[[Page 87468]]

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-Phlx-2023-55 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-2023-55. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-Phlx-2023-55 and should be 
submitted on or before January 8, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27676 Filed 12-15-23; 8:45 am]
BILLING CODE 8011-01-P