Notice2022-03279
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Fee Schedule, at Equity 7, Section 3
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 16, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 32 (Wednesday, February 16, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 32 (Wednesday, February 16, 2022)]
[Notices]
[Pages 8898-8901]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-03279]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Release No. 34-94219; File No. SR-Phlx-2022-05]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Its Fee
Schedule, at Equity 7, Section 3
February 10, 2022.
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 February 1, 2022, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule
[[Page 8899]]
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 its fee schedule, at Equity 7,
Section 3, 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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its pricing schedule, at Equity 7,
Section 3, to adopt a new $0.0029 per share executed fee for a member
organization that removes liquidity from the Exchange to the extent
that the member organization: (i) Adds a daily average of at least 2
million shares of liquidity in all securities from the Exchange during
the month; (ii) increases its average daily volume added to the
Exchange by 50% or more during the month relative to the month of
January 2022; (iii) increases its average daily volume added to and
removed from the Exchange by 100% or more during the month relative to
the month of January 2022; and (iv) adds and removes a daily average of
at least 10 million shares of liquidity in all securities from the
Exchange during the month. The propose fee represents a discount
relative to the existing fee of $0.0030 per share executed.\3\
---------------------------------------------------------------------------
\3\ The Exchange proposes to make a conforming change to the
existing $0.0030 per share executed fee to reflect the fact that,
going forward, it will apply to all other orders that remove
liquidity from the Exchange to the extent that a member organization
does not meet the criteria for its orders to qualify for the new
$0.0029 per share executed fee.
---------------------------------------------------------------------------
The Exchange proposes to add this new discounted fee tier to
provide an incentive for member organizations to engage in a
significant amount of activity on the Exchange as to increase the
extent that they do so relative to a recent baseline month. If the
proposal is effective in achieving these objectives, then overall
activity on the Exchange will increase, and the quality of the market
will improve, to the benefit of all participants.
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 members and issuers and other persons using any facility, and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Proposal Is Reasonable and Is an Equitable Allocation of Fees
The Exchange's proposed change to its schedule of fees is
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for equity
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'. . . .'' \6\
---------------------------------------------------------------------------
\6\ 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)).
---------------------------------------------------------------------------
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.'' \7\
---------------------------------------------------------------------------
\7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
equity security transaction services. The Exchange is only one of
several equity venues 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.\8\ Within
the foregoing context, the proposal represents a reasonable attempt by
the Exchange to increase its market share relative to its competitors.
---------------------------------------------------------------------------
\8\ The Exchange perceives no regulatory, structural, or cost
impediments to market participants shifting order flow away from it.
In particular, the Exchange notes that such shifts in liquidity and
market share occur within the context of market participants'
existing duties of Best Execution and obligations under the Order
Protection Rule under Regulation NMS.
---------------------------------------------------------------------------
The Exchange believes that it is reasonable and equitable to adopt
the new $0.0029 per share executed fee. The Exchange seeks to increase
the extent of overall activity in the market. It is reasonable and
equitable to address this need by allocating its limited resources to
offer member organizations a discounted fee, relative to the existing
$0.0030 per share executed removal fee, to incent member organizations
that remove liquidity from the Exchange to engage in significant
activity overall activity on the Exchange, and to increase the extent
to which they do so relative to a baseline month. If the proposal is
effective in achieving this purpose, then the quality of the Exchange's
market will improve, to the benefit of all participants.
The Proposal Is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory. The Exchange intends for its proposal to increase the
extent to which member organizations add to and remove
[[Page 8900]]
liquidity from the Exchange. Increased activity on the Exchange helps
to maintain and improve its market quality. Although member
organizations that will benefit directly from this proposal are those
that are able to add and remove liquidity in the threshold volumes and
to grow their activity by the threshold percentages, any improvement in
market quality that the proposal facilitates will ultimately benefit
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.
Intramarket Competition
The Exchange does not believe that its proposal will place any
category of Exchange participants at a competitive disadvantage. As
noted above, all member organizations of the Exchange will benefit from
an increase in activity on the exchange. Moreover, member organizations
are free to trade on other venues to the extent they believe that the
discounted fee provided is not attractive. As one can observe by
looking at any market share chart, price competition between exchanges
is fierce, with liquidity and market share moving freely between
exchanges in reaction to fee and credit changes.
Intermarket Competition
The Exchange believes that its proposed new fee will not impose a
burden on competition because the Exchange's execution services are
completely voluntary and subject to extensive competition both from the
other live exchanges and from off-exchange venues, which include
alternative trading systems that trade national market system stock.
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.
The proposed discounted fee is reflective of this competition
because, as a threshold issue, the Exchange is a relatively small
market so its ability to burden intermarket competition is limited. In
this regard, even the largest U.S. equities exchange by volume only has
17-18% market share, which in most markets could hardly be categorized
as having enough market power to burden competition. Moreover, as noted
above, price competition between exchanges is fierce, with liquidity
and market share moving freely between exchanges in reaction to fee and
credit changes. This is in addition to free flow of order flow to and
among off-exchange venues which comprises more than 40% of industry
volume in recent months.
In sum, the Exchange intends for the proposed fee to incent member
organizations that remove liquidity from the Exchange to also engage in
heightened activity on the Exchange and to thereby contribute to market
quality, which is reflective of fierce competition for order flow noted
above; however, if the proposed fee is unattractive to market
participants, it is likely that the Exchange will either fail to
increase its market share or even lose market share as a result.
Accordingly, the Exchange does not believe that the proposed new fee
will impair the ability of member organizations or competing 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.\9\
---------------------------------------------------------------------------
\9\ 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
<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#2250574e470f414d4f4f474c5651625147410c454d54"><span class="__cf_email__" data-cfemail="1062657c753d737f7d7d757e6463506375733e777f66">[email protected]</span></a>. Please include
File Number SR-Phlx-2022-05 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-2022-05. 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-2022-05 and should be submitted on
or before March 9, 2022.
[[Page 8901]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
---------------------------------------------------------------------------
\10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03279 Filed 2-15-22; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on February 16, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.