Document ID: SEC-2023-0585-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2023-06-05T04:00Z

[Federal Register Volume 88, Number 107 (Monday, June 5, 2023)]
[Notices]
[Pages 36621-36624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-11823]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97618; File No. SR-Phlx-2023-19]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7 
To Establish Pricing for Index Options on the Nasdaq-100 ESG Index

May 30, 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 May 16, 2023, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``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 the Exchange's Pricing Schedule at 
Options 7 to adopt pricing for index options on the Nasdaq-100 ESG 
Index, as described further below.
    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

[[Page 36622]]

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 Exchange recently received approval to list index options on 
the Nasdaq-100 ESG Index (``NDXESG options'').\3\ The Nasdaq-100 ESG 
Index is a broad based, modified ESG Risk Rating Score-adjusted market-
capitalization-weighted index that is designed to measure the 
performance of the companies in the Nasdaq-100 Index (``NDX'') that 
meet specific environmental, social and governance (``ESG'') 
criteria.\4\ The Nasdaq-100 ESG Index at all times consists of a 
selection of securities in NDX.\5\ These options would trade under the 
symbol ``EXGN.''
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    \3\ See Securities Exchange Act Release No. 97506 (May 15, 2023) 
(Sr-Phlx-2023-09) (Order Granting Approval of Proposed Rule Change 
to Permit the Listing and Trading of Options on the Nasdaq-100 ESG 
Index) (not yet published).
    \4\ Companies are evaluated and weighted on the basis of their 
business activities, controversies and ESG Risk Ratings.
    \5\ See https://indexes.nasdaqomx.com/docs/methodology_NDXESG.pdf.
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Options 7, Section 5
    The Exchange now proposes to amend its Pricing Schedule at Options 
7, Section 5 to adopt pricing for NDXESG options. Specifically, the 
Exchange proposes to establish transaction fees for NDXESG that are 
identical to the transaction fees for NDX and NDXP. The Exchange 
proposes to amend Section 5.A of Options 7 to assess the following fees 
Options Transaction Charges: $0.00 for Customer \6\ orders, $0.75 per 
contract for Professional,\7\ Lead Market Maker,\8\ Market Maker,\9\ 
Broker-Dealer \10\ and Firm \11\ orders. Similar to NDX and NDXP, a 
surcharge of $0.25 per contract will be assessed to Non-Customers who 
transact EXGN.
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    \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)).
    \7\ 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).
    \8\ 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).
    \9\ 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).
    \10\ 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).
    \11\ 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).
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Other Changes to Options 7
    By way of background, the proprietary products listed within 
Options 7, Section 5.A, NDX, NDXP, XND, and VOLQ, are commonly excluded 
from a variety of pricing programs. The Exchange notes that the reason 
for such exclusion is because the Exchange has expended considerable 
resources developing and maintaining its proprietary products. NDXESG 
would be excluded from the same pricing once it is added to the list of 
proprietary products within Options 7, Section 5.A as NDXESG is also a 
proprietary product. Each exclusion is discussed below.
    Today, the Customer Rebates in Options 7, Section 2 of the Pricing 
Schedule are not paid on broad-based index options symbols listed 
within Options 7, Section 5.A. However, broad-based index options 
symbols listed within Options 7, Section 5.A. will count toward the 
volume requirement to qualify for a Customer Rebate Tier. The Exchange 
proposes to apply the Customer Rebate program in the same manner for 
NDXESG.
    Today, Options 7, Section 4 pricing for electronic orders (both 
simple and complex orders) excludes broad-based index options symbols 
listed within Options 7, Section 5.A. Also, broad-based index options 
symbols listed within Options 7, Section 5.A are excluded from a 
variety of fee programs in Options 7, Section 4 including, the 
``Monthly Market Maker Cap,'' \12\ ``Monthly Firm Fee Cap,'' \13\ 
facilitation orders pursuant to Options 8, Section 30,\14\ BD-Customer 
Facilitation,\15\ ``Strategy Caps,'' and Marketing Fees.
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    \12\ Lead Market Makers and Market Makers are subject to a 
``Monthly Market Maker Cap'' of $500,000 for: (i) electronic Option 
Transaction Charges, excluding surcharges and excluding options 
overlying broad-based index options symbols listed within Options 7, 
Section 5.A; and (ii) QCC Transaction Fees (as defined in Exchange 
Options 3, Section 12 and Floor QCC Orders, as defined in Options 8, 
Section 30(e)). See Options 7, Section 4.
    \13\ Firms are subject to a $200,000 ``Monthly Firm Fee Cap''. 
Firm Floor Option Transaction Charges and QCC Transaction Fees, in 
the aggregate, for one billing month that exceed the Monthly Firm 
Fee Cap per member or member organization, when such members or 
member organizations are trading in their own proprietary account, 
are subject to a reduced transaction fee of $0.02 per capped 
contract unless there is no fee or the fee is waived. See Options 7, 
Section 4.
    \14\ The Firm Floor Options Transaction Charges are waived for 
members executing facilitation orders pursuant to Options 8, Section 
30 when such members are trading in their own proprietary account 
(including Cabinet Options Transaction Charges). The Firm Floor 
Options Transaction Charges are waived for the buy side of a 
transaction if the same member or its affiliates under Common 
Ownership represents both sides of a Firm transaction when such 
members are trading in their own proprietary account. See Options 7, 
Section 4.
    \15\ Broker-Dealer Floor Options Transaction Charges (including 
Cabinet Options Transaction Charges) are waived for members 
executing facilitation orders pursuant to Options 8, Section 30 when 
such members would otherwise incur this charge for trading in their 
own proprietary account contra to a Customer (``BD-Customer 
Facilitation''), if the member's BD-Customer Facilitation average 
daily volume (including both FLEX and non-FLEX transactions) exceeds 
10,000 contracts per day in a given month. See Options 7, Section 4.
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    Broad-based index options symbols listed within Options 7, Section 
5.A. are not subject to Options 7, Section 6.A. PIXL \16\ Pricing.
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    \16\ A member may electronically submit for execution an order 
it represents as agent on behalf of a Public Customer, broker-
dealer, or any other entity (``PIXL Order'') against principal 
interest or against any other order it represents as agent (an 
``Initiating Order'') provided it submits the PIXL Order for 
electronic execution into the PIXL Auction (``Auction'') pursuant to 
Options 3, Section 13.
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    Today, broad-based index options symbols listed within Options 7, 
Section 5.A are not assessed the FLEX transaction fees set forth in 
Options 7, Section 6.B, because broad-based index options symbols 
listed within Options 7, Section 5.A are not considered Eligible 
Contracts.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\18\ in particular, in that it 
provides for the equitable allocation of

[[Page 36623]]

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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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4) and (5).
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Options 7, Section 5
    The Exchange believes it is reasonable to assess the proposed 
Options Transaction Charge and Non-Customer surcharge as discussed 
above for EXGN because the proposed pricing reflects the exclusive and 
proprietary nature of this product. Similar to NDX and NDXP the 
Exchange continues to expend resources to build and list proprietary 
products. Further, the Exchange notes that with its products, market 
participants are offered an opportunity to transact in NDX, NDXP, XND, 
or EXGN or separately execute options overlying PowerShares QQQ Trust 
(``QQQ'').\19\ Offering such proprietary products provides market 
participants with a variety of choices in selecting the product they 
desire to utilize in order to transact in the Nasdaq-100 Index. These 
transaction fees enable Phlx to innovate and offer new proprietary 
products, which in turn incentivizes growth and competition for the 
innovation of additional products in the options industry. Further, the 
Exchange believes that the proposed rates for EXGN are reasonable 
because the proposed fees are identical to fees assessed for NDX and 
NDXP.
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    \19\ QQQ is an exchange-traded fund based on the same Nasdaq-100 
Index as NDX, NDXP, and XND.
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    The Exchange believes that the proposed rates for EXGN are 
equitable and not unfairly discriminatory because the Exchange will 
assess this fee uniformly to all Non-Customers. The Exchange similarly 
believes that the proposed $0.25 per contract surcharge is equitable 
and not unfairly discriminatory because it will apply uniformly to all 
Non-Customers. The Exchange believes it is equitable and not unfairly 
discriminatory to assess no transaction fees to Customers for EXGN 
because Customer orders bring valuable liquidity to the market, which 
liquidity benefits other market participants. Customer liquidity 
benefits all market participants by providing more trading 
opportunities, which attracts Lead Market Makers and 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 from other market participants.
Other Fee Programs
    Excluding EXGN from the same pricing programs as all other 
proprietary products within Options 7, Section 5.A is reasonable 
because the Exchange seeks to treat EXGN in the same manner as other 
proprietary products. More specifically, NDX, NDXP, and XND, and now 
EXGN, represent similar options on the same underlying Nasdaq-100 
Index.
    It is reasonable to not pay Customer Rebates on EXGN in any rebate 
category because this index option will be exclusively listed on Phlx 
only. The original intent of the Customer Rebate Program was to pay 
rebates on electronically-delivered multiply-listed options. By 
definition, EXGN will not be a multiply-listed option, and the Exchange 
does not desire to pay rebates on EXGN because of the exclusivity of 
this option. While the Exchange will not pay any Customer Rebates on 
EXGN transactions, the Exchange also believes it is reasonable to count 
EXGN in the total volume to qualify a market participant for these 
rebates as market participants would be incentivized to transact in 
EXGN to qualify for the Customer Rebate Tiers. The Exchange believes 
that its proposal to not pay Customer Rebates on EXGN, but to count 
EXGN volume toward the volume requirement to qualify for a rebate tier 
is equitable and not unfairly discriminatory because the Exchange would 
apply the rebate program as described uniformly for all market 
participants. Any market participant is eligible to earn a Customer 
Rebate.
    The Exchange believes that the proposed updates in Options 7, 
Section 4 in connection with the application of certain fee programs to 
EXGN are reasonable, equitable, and not unfairly discriminatory. 
Particularly, the Exchange believes that it is reasonable to exclude 
EXGN from the Non-Penny complex surcharge in note 7 of Options 7, 
Section 4, the Monthly Market Maker Cap, the Monthly Firm Fee Cap, the 
Floor Options Transaction Charge waivers, the Strategy Caps, and the 
Marketing Fees in the same manner in which NDX and NDXP are currently 
excluded from the same programs today. The Exchange believes it is 
appropriate to update these fee programs in a manner that similarly 
situates EXGN with NDX and NDXP as these are all proprietary products 
that are based on the Nasdaq-100 Index. In addition, similar to NDX and 
NDXP, the Exchange seeks to exclude EXGN from programs that cap or 
waive transaction fees for market participants. As it relates to the 
Marketing Fee, the Exchange believes it is reasonable to exclude EXGN 
from this fee, similar to NDX and NDXP today, because the purpose of 
the Marketing Fee is to generate more Customer order flow to the 
Exchange. Because EXGN will be an exclusively listed product on Phlx, 
the Exchange does not believe that applying a Marketing Fee is 
necessary for this product. The Exchange's proposal to exclude EXGN 
from the various fee programs in Options 7, Section 4 as discussed 
above is equitable and not unfairly discriminatory because the programs 
will uniformly exclude all market participant orders in EXGN. The 
Exchange notes that its proposal does not alter any of the existing fee 
programs, but instead merely proposes to exclude EXGN in those programs 
in the same way that NDX and NDXP are currently excluded.
    The Exchange's proposal to exclude EXGN from PIXL pricing in 
Options 7, Section 6.A is reasonable because the Exchange intends to 
assess the same fees across the board for EXGN transactions. This will 
align the pricing structure for EXGN with NDX and NDXP. The proposed 
changes are equitable and not unfairly discriminatory because the 
Exchange will uniformly exclude EXGN from PIXL pricing for all market 
participants, and instead uniformly charge them the Options 7, Section 
5.A pricing.
    The Exchange believes that its proposal to assess FLEX EXGN options 
the Options Transaction Charges and Non-Customer options surcharge in 
Options 7, Section 5.A is reasonable because the Exchange intends to 
assess the same fees across the board for EXGN transactions. 
Specifically, the Exchange will apply the proposed EXGN options 
surcharge of $0.25 per contract to Non-Customers in FLEX EXGN options. 
Further, the Exchange will apply the proposed EXGN Options Transaction 
Charges of $0.75 per contract (Non-Customer) and $0.00 per contract 
(Customer) to FLEX EXGN options. FLEX NDX and NDXP options are likewise 
assessed the same Options Transaction Charge and Non-Customer options 
surcharge that NDX and NDXP options are assessed today. The Exchange's 
proposal is equitable and not unfairly discriminatory because the 
Exchange will uniformly apply these fees to FLEX EXGN options to all 
similarly situated market participants.
    The Exchange believes it is reasonable to exclude EXGN from 
Eligible Contracts for purposes of qualifying for a MARS Payment in the 
same manner in which NDX and NDXP are currently excluded today. The 
Exchange believes it is appropriate to update its MARS program in a 
manner that similarly

[[Page 36624]]

situates EXGN with its other proprietary products, NDX and NDXP, which 
are all based on the Nasdaq-100 Index. The Exchange believes that its 
proposal is equitable and not unfairly discriminatory because the 
Exchange will uniformly exclude EXGN from MARS for all market 
participants.

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. The Exchange notes that with its products, market 
participants are offered an opportunity to transact in NDX, NDXP, XND, 
or EXGN, or separately execute options overlying QQQ. Offering these 
products provides market participants with a variety of choices in 
selecting the product they desire to utilize to transact in the Nasdaq-
100 Index.
    Further, the Exchange does not believe that the proposed rule 
change will impose any burden on intra-market competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because the proposed EXGN pricing will apply uniformly to all similarly 
situated market participants. Specifically, all Non-Customers will be 
assessed a uniform Options Transaction Charge and options surcharge 
while Customers receive free executions. As discussed above, Customer 
liquidity benefits all market participants by providing more trading 
opportunities, which attracts other market participants, thus 
facilitating tighter spreads and increased order flow.

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.\20\
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    \20\ 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-2023-19 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-2023-19. 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. 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-2023-19 and should be submitted on 
or before June 26, 2023.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-11823 Filed 6-2-23; 8:45 am]
BILLING CODE 8011-01-P