Notice2022-13151
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend its Schedule of Credits, at Equity 7, Section 3
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Published
June 21, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 118 (Tuesday, June 21, 2022)</title>
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[Federal Register Volume 87, Number 118 (Tuesday, June 21, 2022)]
[Notices]
[Pages 36906-36908]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-13151]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95103; File No. SR-Phlx-2022-24]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend its
Schedule of Credits, at Equity 7, Section 3
June 14, 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 June 1, 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 the Exchange's schedule of credits,
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: (1) adopt a new $0.0025 per share executed credit for
member organizations that provide non-displayed liquidity with midpoint
pegging of at least one million shares average daily value during the
month; and (2) modify the per share executed credit for member
organizations that provide non-displayed liquidity with midpoint
pegging for all other orders from $0.0023 to $0.0018.
Pursuant to Equity 7, Section 3, the Exchange currently provides a
credit of $0.0023 per share executed to member organizations for all
non-displayed orders with midpoint pegging that provide liquidity. The
Exchange proposes to establish credit tiers for member organizations
providing liquidity for non-displayed orders with midpoint pegging to
provide an incentive for member organizations to engage in a
significant amount of liquidity adding activity on the Exchange.
The Exchange proposes establishing a new credit that will reward a
member organization with a credit of $0.0025 per share executed to the
extent that it provides a daily average volume of at least one million
shares of non-displayed liquidity with midpoint pegging during the
month. The proposed new credit for non-displayed orders with midpoint
pegging will provide an additional incentive to member organizations to
add liquidity to the Exchange. Insofar as the proposed new credit will
require a qualifying member organization to provide at least one
million shares average daily value during the month in order to qualify
for the $0.0025 per share credit, the Exchange believes it is
reasonable for
[[Page 36907]]
the amount of the proposed credit to be larger than the credit for
other non-displayed orders with midpoint pegging, which the Exchange
proposes to modify to $0.0018. To the extent that the proposed new
credit structure succeeds in increasing liquidity on the Exchange, the
quality of the Exchange's market will improve, to the benefit of all
participants.
In addition, the Exchange proposes lowering the credit to member
organizations for all other non-displayed orders with midpoint pegging
that provide liquidity during the month from $0.0023 to $0.0018 per
share executed. The Exchange has limited resources available to it to
offer its member organizations market-improving incentives, and it
allocates those limited resources to those segments of the market where
it perceives the need to be greatest and/or where it determines that
the incentive is likely to achieve its intended objective, such as the
proposed new credit and away from those that are less effective, such
as this existing credit for midpoint pegged orders that add liquidity
to the Exchange. Accordingly, the Exchange is reducing the amount of
this credit from $0.0023 to $0.0018 per share executed.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\3\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\4\ 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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\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed changes to its schedule of credits are
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'. . . .'' \5\
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\5\ NetCoalition v. SEC, 615 F.3d 525, 539 (DC 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.'' \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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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. Competing equity exchanges offer similar tiered pricing
structures to that of the Exchange, including schedules of rebates and
fees that apply based upon member organizations achieving certain
volume thresholds.
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 believes that its proposals are reasonable, equitable,
and not unfairly discriminatory to: (1) establish a new $0.0025 per
share executed credit for non-displayed orders with midpoint pegging
that provide liquidity of at least one million shares average daily
value during the month; and (2) reduce from $0.0023 to $0.0018 per
share executed its existing credit for all other non-displayed orders
with midpoint pegging that provide liquidity to the Exchange. The
Exchange assesses a particular need to increase liquidity on the
Exchange as a means of improving market quality. The proposal is
reasonable in serving that purpose by providing a new incentive for
member organizations to add a substantial amount of liquidity to the
Exchange, while reducing an existing incentive for member organizations
that add a lesser amount of liquidity to the Exchange. As noted above,
the Exchange has limited resources available to it to offer its member
organizations market-improving incentives, and it allocates those
limited resources to those segments of the market where it perceives
the need to be greatest and/or where it determines that the incentive
is likely to achieve its intended objective. It is reasonable and
equitable to address the need for increased liquidity on the Exchange
by allocating its limited resources to establish a new credit that
rewards member organizations that provide a substantial volume of
liquidity to the Exchange and reduce an existing credit that rewards
member organizations for providing a lesser volume of liquidity to the
Exchange.
The Exchange also believes that these proposals are an equitable
allocation 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 $0.0025 credit will require a member
organization to provide a daily average volume of at least one million
shares of liquidity on the Exchange during the month, the Exchange
believes it is reasonable, equitable, and not unfairly discriminatory
for the amount of the proposed credit to be larger than the credit for
all other non-displayed orders with midpoint pegging.
Any member organization that is dissatisfied with the proposed
credits is free to shift their order flow to competing venues that
provide more favorable rates or less stringent qualifying criteria.
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
credits provided are not attractive or
[[Page 36908]]
the qualifying criteria for such credits is too stringent. 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 the proposed changes to its schedule of
credits for non-displayed orders with midpoint pegging 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 changes to the Exchange's credits for non-displayed
orders with midpoint pegging are 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 changes to credits
for non-displayed orders with midpoint pegging 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.\7\
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\7\ 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#f684839a93db95999b9b93988285b6859395d8919980"><span class="__cf_email__" data-cfemail="750700191058161a1818101b0106350610165b121a03">[email protected]</span></a>. Please include
File Number SR-Phlx-2022-24 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-2022-24. 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-2022-24 and should be submitted on
or before July 12, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13151 Filed 6-17-22; 8:45 am]
BILLING CODE 8011-01-P
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