Document ID: SEC-2023-0042-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2023-01-18T05:00Z

[Federal Register Volume 88, Number 11 (Wednesday, January 18, 2023)]
[Notices]
[Pages 2983-2985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-00776]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96638; File No. SR-Phlx-2023-02]

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

January 11, 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 January 3, 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.
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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.
    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 Schedule at Options 7, Section 
4, ``Multiply Listed Options Fees (Includes options overlying equities, 
ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY and 
broad-based index options symbols listed within Options 7, Section 
5.A).'' Specifically, Phlx proposes an increase to its Qualified 
Contingent Cross (``QCC'') rebates that are paid by the Exchange in a 
given month.
    Today, the Exchange assesses a $0.20 per contract QCC Transaction 
Fee for a Lead Market Maker,\3\ Market Maker,\4\

[[Page 2984]]

Firm \5\ and Broker-Dealer.\6\ Customers \7\ and Professionals \8\ are 
not assessed a QCC Transaction Fee. QCC Transaction Fees apply to 
electronic QCC Orders \9\ and Floor QCC Orders.\10\ Rebates are paid on 
all qualifying executed electronic QCC Orders and Floor QCC Orders 
based on the following two tier rebate schedule:\11\
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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 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(c). The term ``Floor Lead Market 
Maker'' is a member who is registered as an options Lead Market 
Maker pursuant to Options 2, Section 12(a) and has a physical 
presence on the Exchange's trading floor. See Options 8, Section 
2(a)(3).
    \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 Floor Market Makers. See Options 
7, Section 1(c). The term ``Floor Market Maker'' is a Market Maker 
who is neither an SQT or an RSQT. A Floor Market Maker may provide a 
quote in open outcry. See Options 8, Section 2(a)(4).
    \5\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at The Options Clearing Corporation. See Options 7, 
Section 1(c).
    \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(c).
    \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(c).
    \8\ The term ``Professional'' applies to transactions for the 
accounts of Professionals, as defined in Options 1, Section 1(b)(45) 
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(c).
    \9\ Electronic QCC Orders are described in Options 3, Section 
12.
    \10\ Floor QCC Orders are described in Options 8, Section 30(e).
    \11\ Volume resulting from all executed electronic QCC Orders 
and Floor QCC Orders, including Customer-to-Customer, Customer-to-
Professional, and Professional-to-Professional transactions and 
excluding dividend, merger, short stock interest or reversal or 
conversion strategy executions, is aggregated in determining the 
applicable volume tier.

                           QCC Rebate Schedule
------------------------------------------------------------------------
                                                                 Rebate
                Tier                         Threshold            per
                                                                contract
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Tier 1..............................  0 to 999,999 contracts       $0.09
                                       in a month.
Tier 2..............................  1,000,000 contracts or        0.17
                                       more in a month.
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    The Exchange does not pay a QCC Rebate 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 (as defined in 
Options 7, Section 4).
    At this time, the Exchange proposes to increase the Tier 2 QCC 
Rebate from $0.17 to $0.20 per contract. The Tier 2 QCC Rebate requires 
market participants to transact 1,000,000 QCC contracts or more in a 
month.\12\ The Exchange believes that increasing this Tier 2 QCC Rebate 
will permit Phlx to compete more effectively with other options 
exchanges for QCC Orders by incentivizing market participants to 
transact a greater amount of QCC Orders on Phlx in order to receive a 
greater rebate in a given month.
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    \12\ Tier 1 of the QCC Rebate Schedule requires market 
participants to transact from 0 to 999,999 QCC contracts in a month.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 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.'' \15\
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    \15\ 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 
\16\ (``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.\17\ 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.'' \18\
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    \16\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \17\ See NetCoalition, at 534-535.
    \18\ 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'. . . .'' \19\ 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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    \19\ 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 believes that it is reasonable to increase the Tier 2 
QCC Rebate from $0.17 to $0.20 per contract.\20\ The Exchange believes 
that increasing this QCC Rebate will permit Phlx to compete more 
effectively with other options exchange for QCC Orders by incentivizing 
market participants to transact a greater amount of QCC Orders on Phlx 
in order to receive a greater rebate in a given month.
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    \20\ The Tier 2 QCC Rebate requires market participants to 
transact 1,000,000 QCC contracts or more in a month.
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    The Exchange believes that it is equitable and not unfairly 
discriminatory to increase the Tier 2 QCC Rebate from $0.17 to $0.20 
per contract. All market participants are eligible to transact QCC 
Orders, either electronically or on the Trading Floor, and would, 
therefore, be eligible to receive QCC Rebates for all qualifying 
executed QCC Orders, without limitation.

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 QCC orders. 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

[[Page 2985]]

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 believes that increasing the Tier 2 
QCC Rebate from $0.17 to $0.20 per contract does not impose an undue 
burden on competition because all market participants are eligible to 
transact QCC Orders, either electronically or on the Trading Floor, and 
would, therefore, be eligible to receive QCC Rebates for all qualifying 
executed QCC Orders, without limitation.

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\
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    \21\ 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 [email protected]. Please include 
File Number SR-Phlx-2023-02 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-2023-02. 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-2023-02, and should be submitted on 
or before February 8, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00776 Filed 1-17-23; 8:45 am]
BILLING CODE 8011-01-P