Document ID: SEC-2023-0496-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2023-05-08T04:00Z

[Federal Register Volume 88, Number 88 (Monday, May 8, 2023)]
[Notices]
[Pages 29769-29771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-09678]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97416; File No. SR-Phlx-2023-14]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, 
Section 4 Regarding Qualified Contingent Cross Growth Tier Rebate

May 2, 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 April 20, 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).'' \3\
---------------------------------------------------------------------------

    \3\ On April 20, 2023 the Exchange withdrew SR-Phlx-2023-12 and 
replaced it with the instant rule change.
---------------------------------------------------------------------------

    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).'' 
Specifically, Phlx proposes to amend its Qualified Contingent Cross 
(``QCC'') Growth Tier Rebate, in Section B of Options 7, Section 4, to 
sunset the QCC Growth Tier Rebate. The QCC Growth Tier Rebate will be 
available through July 31, 2023.
    Today, the Exchange offers a QCC Growth Tier Rebate 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,\4\ and 
electronic QCC Orders

[[Page 29770]]

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 \5\ 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.
---------------------------------------------------------------------------

    \4\ 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''.
    \5\ 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.
---------------------------------------------------------------------------

    The Exchange also offers an alternative qualification to achieve 
the QCC Growth Tier Rebate. A member's or member organization's Open 
Outcry Floor Transaction volume \6\ in a given month must exceed 
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.
---------------------------------------------------------------------------

    \6\ 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 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. The Exchange pays 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 30I 
[sic], 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). Finally, 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 sunset the QCC Growth Tier 
Rebate. The QCC Growth Tier Rebate will be available through July 31, 
2023.\7\ Despite only offering this program for 6 months, the Exchange 
believes that it will continue to encourage members and member 
organizations to earn larger QCC rebates by executing a larger amount 
of floor transactions, QCC transaction volume, and Open Outcry Floor 
Transaction volume on Phlx's trading floor.
---------------------------------------------------------------------------

    \7\ The QCC Growth Tier Rebate will be available through the 
close of business on July 31, 2023 but would not be available 
thereafter. For example, as of August 1, 2023 the Exchange would no 
longer offer the QCC Growth Tier Rebate.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\8\ in general, and furthers the objectives of sections 
6(b)(4) and 6(b)(5) of the Act,\9\ 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 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.'' \10\
---------------------------------------------------------------------------

    \10\ 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 
\11\ (``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.\12\ 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.'' \13\
---------------------------------------------------------------------------

    \11\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \12\ See NetCoalition, at 534-535.
    \13\ 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' . . . .'' \14\ 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.
---------------------------------------------------------------------------

    \14\ 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 sunset the QCC Growth Tier Rebate is 
reasonable because the Exchange believes that despite only offering 
this program for 6 months, the rebate will continue to encourage 
members and member organizations to earn larger QCC rebates by 
executing a larger amount of floor transactions, QCC transaction 
volume, and Open Outcry Floor Transaction volume on Phlx's trading 
floor during the remaining months of the program. The Exchange believes 
the rebate will continue to incentivize 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. Also, this 
incentive should continue to encourage members and member organizations 
to commence sending such order flow to Phlx for the

[[Page 29771]]

opportunity to earn this rebate until the program expires.
    The Exchange's proposal to sunset the QCC Growth Tier Rebate is 
equitable and not unfairly discriminatory because all members and 
member organizations will be subject to the program during the 6 months 
it is offered. The Exchange would no longer offer the rebate to any 
member or member organization after the sunset date. Additionally, the 
Exchange's proposal to establish a QCC Growth Tier Rebate is equitable 
and not unfairly discriminatory because any member or member 
organization may qualify for this rebate.

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's proposal to sunset the QCC Growth Tier Rebate does not 
impose an undue burden on competition because all members and member 
organizations will be subject to the program during the 6 months it is 
offered. The Exchange would no longer offer the rebate to any member or 
member organization after the sunset date. Additionally, the Exchange's 
proposal to establish a QCC Growth Tier Rebate is equitable and not 
unfairly discriminatory because any member or member organization may 
qualify for this rebate.

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2023-14 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-2023-14. 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 
10:00 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. 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-2023-14 and should 
be submitted on or before May 30, 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. 2023-09678 Filed 5-5-23; 8:45 am]
BILLING CODE 8011-01-P