Notice2021-22566
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 4, Multiply Listed Options Fees
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Published
October 18, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 198 (Monday, October 18, 2021)</title>
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[Federal Register Volume 86, Number 198 (Monday, October 18, 2021)]
[Notices]
[Pages 57709-57711]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-22566]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93295; File No. SR-Phlx-2021-57]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7,
Section 4, Multiply Listed Options Fees
October 12, 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 October 6, 2021, 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 and II, 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, ``Multiply Listed Options Fees (Includes options
overlying equities, ETFs, ETNs and indexes which are Multiply Listed)
(Excludes SPY).''
While the changes proposed herein are effective upon filing, the
Exchange has designated the amendments become operative on October 1,
2021.
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.
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 at Options 7, Section 4,
``Multiply Listed Options Fees (Includes options overlying equities,
ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY).'' The
Exchange proposes to amend the way it calculates qualifying Qualified
Contingent Cross or ``QCC'' Orders for purposes of paying a QCC rebate.
Today, the Exchange assesses a $0.20 per contract QCC Transaction
Fee to Lead Market Makers ,\3\ Market Makers ,\4\ Firms ,\5\ and
Broker-Dealers .\6\ Customers \7\ and Professionals \8\ are not
assessed a QCC Transaction Fee. QCC Transaction Fees apply to
electronic QCC Orders, as defined in Options 3, Section 12,\9\ and
Floor QCC Orders, as defined in Options 8, Section 30(e) (collectively
``Combined QCC Orders'').
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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 Rule 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.
\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 on and Floor Market Makers. See
Options 7, Section 1.
\5\ The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at OCC. See Options 7, Section 1.
\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.
\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.
\8\ The term ``Professional'' applies to transactions for the
accounts of Professionals, as defined in Exchange Rule 1000(b)(43)
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.
\9\ QCC Orders within Options 3, Section 12 are submitted
electronically. The Exchange proposes to add the word ``electronic''
before QCC Orders in several places within Options 7, Section 4 for
clarity.
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Today, the Exchange pays rebates on all qualifying executed
Combined QCC Orders, 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 or reversal or conversion strategy execution, pursuant to the
below QCC rebate schedule, up to a maximum of $550,000 in a given
month.
QCC Rebate Schedule
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Rebate per
Tier Threshold contract
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Tier 1................... 0 to 99,999 contracts in a $0.00
month.
Tier 2................... 100,000 to 299,999 contracts 0.05
in a month.
Tier 3................... 300,000 to 499,999 contracts 0.07
in a month.
Tier 4................... 500,000 to 699,999 contracts 0.08
in a month.
Tier 5................... 700,000 to 999,999 contracts 0.09
in a month.
Tier 6................... Over 1,000,000 contracts in a 0.11
month.
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Today, the Exchange aggregates volume from all executed Combined
QCC Orders and excludes QCC transactions where the transaction is
either: (i) Customer-to-Customer; (ii) Customer-to-Professional; (iii)
[[Page 57710]]
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 amend the way it calculates
qualifying Combined QCC Orders for purposes of paying a QCC rebate.
With this proposal, the Exchange would aggregate volume from all
executed Combined QCC Orders, including Customer-to-Customer, Customer-
to-Professional, and Professional-to-Professional transactions for
purposes of determining the QCC rebate tier threshold. The Exchange
would continue to exclude dividend, merger, short stock interest or
reversal or conversion strategy executions from the QCC rebate tier
qualification.
The Exchange believes that this amendment will encourage market
participants to execute additional Customer-to-Customer, Customer-to-
Professional, and Professional-to-Professional Combined QCC Orders for
purposes of qualifying for a higher QCC rebate tier.\10\
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\10\ The Exchange also proposes two technical amendments to
Options 7, Section 4. First, the Exchange proposes to change a ``,''
to a ``;'' after ``(ii) Customer-to-Professional.'' Second, the
Exchange proposes to add a ``;'' after ``(iii) Professional-to-
Professional.''
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\11\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4) and (5).
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The proposed changes to Phlx's Pricing Schedule are reasonable in
several respects. As a threshold matter, the Exchange is subject to
significant competitive forces in the market for options securities
transaction services that constrain its pricing determinations in that
market. The fact that this market is competitive has long been
recognized by the courts. In NetCoalition v. Securities and Exchange
Commission, 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'. . . .'' \13\
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\13\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(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 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.'' \14\
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\14\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options security transaction services. The Exchange is only one of
sixteen options exchanges to which market participants may direct their
order flow. Within this environment, market participants can freely and
often do shift their order flow among the Exchange and competing venues
in response to changes in their respective pricing schedules. As such,
the proposal represents a reasonable attempt by the Exchange to
increase its liquidity and market share relative to its competitors.
The Exchange's proposal to amend the way it calculates qualifying
Combined QCC Orders for purposes of paying a QCC rebate is reasonable.
The proposed amendment to qualify for a QCC rebate is intended to
incentivize market participants to execute a greater amount of
Customer-to-Customer, Customer-to-Professional, and Professional-to-
Professional Combined QCC Orders on Phlx to qualify for a higher QCC
rebate tier. While the Exchange would continue not to pay a QCC rebate
for Customer-to-Customer, Customer-to-Professional, and Professional-
to-Professional Combined QCC Orders, market participants would benefit
by executing these orders by potentially qualifying for higher QCC
rebate tiers. Today, Customer-to-Customer, Customer-to-Professional,
and Professional-to-Professional Combined QCC Orders are not counted in
the tier qualification calculation for QCC rebates but would be counted
with this proposal. Also, today, dividend, merger, short stock interest
or reversal or conversion strategy executions are not counted in the
tier qualification calculation for QCC rebates and would continue to
not be counted.
The Exchange's proposal to amend the way it calculates qualifying
Combined QCC Orders for purposes of paying a QCC Rebate is equitable
and not unfairly discriminatory. The Exchange uniformly would apply the
proposed QCC tier qualification to all market participants when paying
QCC rebates on Combined QCC Orders for all qualifying transactions
executed on Phlx.
Amending rule text within Options 7, Section 4 to add the word
``electronic'' before QCC Orders in several places within Options 7,
Section 4, where the reference applies to QCC Orders as defined in
Options 3, Section 12, is reasonable, equitable and not unfairly
discriminatory because the amendments will bring additional clarity to
the rule text.
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 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.
[[Page 57711]]
Intra-Market Competition
The Exchange's proposal to amend the way it calculates qualifying
Combined QCC Orders for purposes of paying a QCC Rebate does not impose
an undue burden on competition. The Exchange uniformly would apply the
proposed QCC tier qualification to all market participants when paying
QCC rebates on Combined QCC Orders for all qualifying transactions
executed on Phlx.
Amending rule text within Options 7, Section 4 to add the word
``electronic'' before QCC Orders in several places within Options 7,
Section 4, where the reference applies to QCC Orders as defined in
Options 3, Section 12, does not impose an undue burden on competition
because the amendments will bring additional clarity to the rule text.
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 is effective upon filing pursuant to
Section 19(b)(3)(A) \15\ of the Act and subparagraph (f)(2) of Rule
19b-4 \16\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(2).
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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 necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \17\ of the Act to determine whether the proposed
rule should be approved or disapproved.
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\17\ 15 U.S.C. 78s(b)(2)(B).
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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#3745425b521a54585a5a525943447744525419505841"><span class="__cf_email__" data-cfemail="b5c7c0d9d098d6dad8d8d0dbc1c6f5c6d0d69bd2dac3">[email protected]</span></a>. Please include
File Number SR-Phlx-2021-57 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-2021-57. 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; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.
All submissions should refer to File Number SR-Phlx-2021-57 and
should be submitted on or before November 8, 2021.
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\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22566 Filed 10-15-21; 8:45 am]
BILLING CODE 8011-01-P
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