Notice2022-10416
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 3 To Add a New Transaction Credit
Primary source
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Published
May 16, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 94 (Monday, May 16, 2022)</title>
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[Federal Register Volume 87, Number 94 (Monday, May 16, 2022)]
[Notices]
[Pages 29766-29768]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-10416]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94882; File No. SR-Phlx-2022-20]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7,
Section 3 To Add a New Transaction Credit
May 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 May 2, 2022, 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.
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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 add a new
transaction 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.
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 amend the Exchange's schedule of credits to add a new
growth credit for displayed orders.
Pursuant to Equity 7, Section 3, the Exchange presently provides a
series of credits to member organizations that enter displayed orders/
quotes that execute on the Exchange. The Exchange presently offers the
following credits to member organizations that add displayed liquidity
to the Exchange: (i) $0.0035 per share executed for Quotes/Orders
entered by a member organization that provides 0.10% or more of total
Consolidated Volume \3\ during the month; (ii) $0.0034 per share
executed for Quotes/Orders entered by a member organization that
provides 0.05% or more of total Consolidated Volume during the month
and removes 0.02% of total Consolidated Volume during the month; (iii)
0.0030 per share executed for Quotes/Orders entered by a member
organization that provides a daily average of at least 1 million shares
of liquidity in all securities on the Exchange during the month and
increases its average daily volume of Quotes/Orders added to the
Exchange by 100% or more during the month relative to the month of
October 2021; and (iv) $0.0020 per share executed for all other quotes/
orders.
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\3\ Pursuant to Equity 7, Section 3, the term ``Consolidated
Volume'' means the total consolidated volume reported to all
consolidated transaction reporting plans by all exchanges and trade
reporting facilities during a month in equity securities, excluding
executed orders with a size of less than one round lot. For purposes
of calculating Consolidated Volume and the extent of a member
organization's trading activity, the date of the annual
reconstitution of the Russell Investments Indexes is excluded from
both total Consolidated Volume and the member organization's trading
activity.
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The Exchange proposes to establish a new growth credit that will
reward a member organization with a credit of $0.0032 per share
executed to the extent that it adds a daily average of at least 2
million shares of liquidity in all securities on the Exchange during
the month and increases its average daily volume of quotes/orders added
to the Exchange by 75% or more during the month relative to the month
of March 2022.
The proposed new growth credit will provide an additional incentive
to member organizations to add and increase the extent to which they
add liquidity to the Exchange. Insofar as the proposed growth credit
will require a qualifying member organization to provide double the
daily average number of shares of liquidity on the Exchange as it must
to qualify for the existing $0.0030 per share executed growth tier
credit, the Exchange believes it is reasonable for the amount of the
proposed credit to be larger, at $0.0032 per share executed. To the
extent that the proposed new credit succeeds in increasing liquidity on
the Exchange, the Exchange hopes that additional liquidity will improve
the quality of the market and help to grow it over time.
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
[[Page 29767]]
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 its proposal to add a new growth credit
tier of $0.0032 per share executed is reasonable, equitable, and not
unfairly discriminatory. The Exchange assesses a particular need to
increase the extent to which its member organizations add liquidity to
the Exchange as a means of improving market quality. The proposal
serves that purpose by adding a new credit to reward member
organizations that add a substantial amount of liquidity to the
Exchange, and which grow the extent to which they add such liquidity by
a substantial percentage relative to a baseline month of March 2022.
Although the proposal will benefit net adders of liquidity, the
Exchange believes that this is equitable and not unfairly
discriminatory because all market participants stand to benefit to the
extent that the proposal is successful in increasing liquidity on the
Exchange and improving market quality. Insofar as the proposed growth
credit will require a qualifying member organization to provide double
the daily average number of shares of liquidity on the Exchange as it
must to qualify for the existing $0.0030 per share executed growth tier
credit, the Exchange believes it is reasonable, equitable, and not
unfairly discriminatory for the amount of the proposed credit to be
larger, at $0.0032 per share executed.
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 credit 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 credits 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 credits and fees in response, and because market
participants may readily adjust their order routing practices, the
Exchange believes that the degree to which credit changes in this
market may impose any burden on competition is extremely limited.
The proposed new growth credit 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 credit to incent
member organizations to add liquidity to the Exchange and to thereby
contribute to market quality, which is reflective of fierce competition
for order flow noted above; however, if the change proposed herein 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 change 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\
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\9\ 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#ddafa8b1b8f0beb2b0b0b8b3a9ae9daeb8bef3bab2ab"><span class="__cf_email__" data-cfemail="0c7e796069216f6361616962787f4c7f696f226b637a">[email protected]</span></a>. Please include
File Number SR-Phlx-2022-20 on the subject line.
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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-2022-20. 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="https://www.sec.gov/rules/sro.shtml">https://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-2022-20 and should be
submitted on or before June 6, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10416 Filed 5-13-22; 8:45 am]
BILLING CODE 8011-01-P
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