Notice2021-18676
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 3 To Adopt an Enhanced Market Quality Program
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Published
August 31, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 166 (Tuesday, August 31, 2021)</title>
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[Federal Register Volume 86, Number 166 (Tuesday, August 31, 2021)]
[Notices]
[Pages 48789-48792]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-18676]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92754; File No. SR-Phlx-2021-47]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7,
Section 3 To Adopt an Enhanced Market Quality Program
August 25, 2021.
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 August 12, 2021, Nasdaq PHLX LLC (``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 Equity 7, Section 3 to adopt an
Enhanced Market Quality Program and a related credit, as described
further below.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rules">https://listingcenter.nasdaq.com/rulebook/phlx/rules</a>, 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.
[[Page 48790]]
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 Equity 7,
Section 3 to adopt an Enhanced Market Quality Program and a related
credit.
The Enhanced Market Quality Program is intended to provide
supplemental incentives to member organizations that meet certain
quality standards in acting as market makers for securities on the
Exchange by incentivizing such member organizations to make a
significant contribution to market quality by providing liquidity at
the national best bid and offer (``NBBO'') in a large number of
securities for a significant portion of the day. Specifically, the
Exchange proposes to make a lump sum payment at the end of each month
(a ``Fixed Payment'') to a member organization to the extent that the
member organization, through one or more of its MPIDs, quotes at the
NBBO for at least a threshold percentage of the time during Market
Hours in an average number of securities per day during the month, as
specified below. On a daily basis, the Exchange will determine the
number of securities in which each of a member organization's MPIDs
satisfied the NBBO requirement. The Exchange will aggregate all of a
member organization's MPIDs to determine the number of securities for
purposes of the NBBO requirement. The program is open to all member
organizations. A member organization may but is not required to be, a
registered market maker in any security; thus, the program does not by
itself impose a two-sided quotation obligation or convey any of the
benefits associated with being a registered market maker. Accordingly,
the program is designed to attract liquidity both from traditional
market makers and from other firms that are willing to commit capital
to support liquidity at the NBBO.
For purposes of the Enhanced Market Quality Program, a member
organization will be deemed to quote at the NBBO in a security if it
quotes a displayed order of at least 100 shares in the security and
prices the order at either the national best bid or the national best
offer or both the national best bid and offer for the security. The
Exchange will determine the amount of the Fixed Payment that it pays to
a qualifying member organization by multiplying the average daily
number of its qualifying securities during the month within the range
set forth in the highest qualifying Tier (rounded to the nearest whole
number) by the applicable amounts set forth in the following tables
below and adding the specified lump sum, where applicable. For a
particular Tape A security to count towards the threshold for
qualifying for the Fixed Payment on a particular day, and receiving the
Fixed Payment, a member organization has to quote such security at the
NBBO for at least 30% of the time during Market Hours on that day. For
a particular Tape B security to count towards the threshold for
qualifying for the Fixed Payment on a particular day, and receiving the
Fixed Payment, a member organization has to quote such security at the
NBBO for at least 50% of the time during Market Hours on that day. A
member organization that qualifies for the Fixed Payment for securities
in each of Tapes A and B will receive Fixed Payments covering
qualifying securities in both Tapes, but within each Tape, a member
organization may only qualify for one Tier during a month.\3\
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\3\ Example 1: A member firm quotes an average of 250 symbols a
day in tape A over the 30% time threshold in a particular month. The
Fixed Payment due to such firm is calculated as follows: 51 (the
number of symbols over 199) times $25, which equals to $1,275 for
the month. This example shows a tape A Tier 2 Fixed Payment. Example
2: A member firm quotes an average of 350 symbols a day in tape A
over the 30% time threshold in a particular month. The Fixed Payment
due to such firm is calculated as follows: $2,500 plus 51 (the
number of symbols over 299) times $200, which equals to $12,700 for
the month. This example shows a tape A Tier 3 Fixed Payment.
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The Exchange proposes to set the tiers and the Fixed Payments as
follows:
Tape A Securities
------------------------------------------------------------------------
Average daily
number of
securities quoted
at the NBBO for at
Tiers least 30% of the Fixed payment
time during Market
Hours during the
month
------------------------------------------------------------------------
1............................... 0-199............. $0 per qualified
security per
month.
2............................... 200-299........... $25 per qualified
security over
199.
3............................... 300-399........... $2,500 + ($200 per
qualified
security over
299).
4............................... 400-499........... $22,500 + ($300
per qualified
security over
399).
5............................... 500 or greater.... $52,500 + ($400
per qualified
security over
499).
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Tape B Securities
------------------------------------------------------------------------
Average daily
number of
securities quoted
at the NBBO for at
Tiers least 50% of the Fixed payment
time during Market
Hours during the
month
------------------------------------------------------------------------
1............................... 0-299............. $0 per qualified
security per
month.
2............................... 300-399........... $100 per qualified
security over
299.
3............................... 400-499........... $10,000 + ($200
per qualified
security over
399).
4............................... 500 or greater.... $30,000 + ($300
per qualified
security over
499).
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Through the use of this incentive program, the Exchange hopes to
provide improved trading conditions for all market participants through
narrower bid-ask spreads and increased depth of liquidity available at
the inside market. In addition, the program reflects an effort to use
financial incentives to encourage a wider variety of member
organizations to make positive commitments to promote market quality.
The Exchange believes that different member organizations may respond
to different incentives, and therefore the Enhanced Market Quality
Program is designed to promote market quality through quoting activity.
The Exchange recognizes that while generally market participants will
provide quotes with the intention of trading, market makers and
liquidity
[[Page 48791]]
providers cannot control when counter parties choose to interact with
those quotes and therefore the Exchange believes it is beneficial to
the market to offer this incentive based on quoting activity directly.
The Exchange notes that it will make the Fixed Payment in addition
to other rebates or fees provided under Equity 7, Sections 3 (a)-(c).
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\4\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\5\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among member organizations 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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\4\ 15 U.S.C. 78f(b).
\5\ 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.'' \6\
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\6\ 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 \7\
(``NetCoalition'') the D.C. Circuit stated as follows: ``[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'. . . .'' \8\
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\7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\8\ 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 the proposed Enhanced Market Quality
Program is reasonable because it is similar to other incentive programs
offered by the Exchange for displayed orders that provide liquidity,
like the Qualified Market Maker Program set forth in Equity 7, Sections
3(c). The proposed Fixed Payment will provide an opportunity to member
organizations to receive an additional credit in return for certain
levels of participation on the Exchange as measured by quoting at the
NBBO. The proposed credit is set at a level that is reflective of the
beneficial contributions of market participants that quote
significantly at the NBBO for a wide range of symbols. The Exchange
believes that it is appropriate to limit applicability of the proposed
credit to displayed orders in securities in Tape A and Tape B, and set
the credits higher for the Tape A securities, insofar as the Exchange
seeks to incentivize member organizations to add liquidity to the
Exchange in such securities and improve the market therefor.
The Exchange believes that the proposed Fixed Payments set forth by
the Enhanced Market Quality Program are an equitable allocation and are
not unfairly discriminatory because the Exchange will offer the same
credit to all similarly situated member organizations. Moreover, the
proposed qualification criteria requires a member organization to quote
significantly at the NBBO therefore contributing to market quality in a
meaningful way on the Exchange. Any member organization may quote at
the NBBO at the level required by the qualification criteria of the
Enhanced Market Quality Program. The Exchange notes that it has a
similar Qualified Market Maker Program in which member organizations
are required to quote at the NBBO more than a certain amount of time
during regular market hours.\9\ For these reasons, the Exchange
believes that the proposed Enhanced Market Quality Program Fixed
Payments and qualification criteria are an equitable allocation and are
not unfairly discriminatory.
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\9\ See Qualified Market Maker Program, Equity 7, Section 3(c).
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The Exchange believes that the proposal is equitable and is not
unfairly discriminatory because the Exchange proposes to offer the same
Fixed Payments to all similarly situated member organizations. The
Exchange also believes that it is equitable and not unfairly
discriminatory to establish the Enhanced Market Quality Program only
for Tape A and Tape B securities, and set the credits higher for the
Tape A securities, because the Exchange has limited resources and the
Exchange believes that the best current application of such limited
resources is to improve the market quality for Tape A and Tape B
securities, as proposed.
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. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges and with
alternative trading systems that have been exempted from compliance
with the statutory standards applicable to 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.
In this instance, the proposed changes to the Exchange's credits
provided to member organizations do not impose a burden on competition
because the Exchange's execution services are completely voluntary and
subject to extensive competition both from other exchanges and from
off-exchange venues. The proposed Fixed Payment provides member
organizations with the opportunity to be given higher credits for
quotations if they improve the market by providing significant quoting
at the NBBO in a large number of securities which the Exchange believes
will improve market quality.
In terms of intra-market 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
because the program is open to all member organizations on the same
terms.
In sum, the proposed changes are designed to make the Exchange a
more desirable venue on which to transact; however, if the changes
proposed herein are unattractive to market participants, it is likely
that the Exchange will lose market share as a result. Accordingly, the
Exchange does not believe that the proposed changes will impair the
ability of member organizations or competing
[[Page 48792]]
order execution venues to maintain their competitive standing in the
financial markets.
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.\10\
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\10\ 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#c1b3b4ada4eca2aeacaca4afb5b281b2a4a2efa6aeb7"><span class="__cf_email__" data-cfemail="d6a4a3bab3fbb5b9bbbbb3b8a2a596a5b3b5f8b1b9a0">[email protected]</span></a>. Please include
File Number SR-Phlx-2021-47 on the subject line.
Paper Comments
<bullet> 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-2021-47. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-2021-47 and should be submitted on
or before September 21, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18676 Filed 8-30-21; 8:45 am]
BILLING CODE 8011-01-P
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