Notice2022-14293
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Pricing for Options on a Nasdaq-100® Volatility Index
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
July 6, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 87, Number 128 (Wednesday, July 6, 2022)]
[Notices]
[Pages 40295-40299]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-14293]
[[Page 40295]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95170; File No. SR-Phlx-2022-27]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Adopt Pricing
for Options on a Nasdaq-100[supreg] Volatility Index
June 29, 2022.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on June 16, 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\ 15 U.S.C. 78a.
\3\ 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 Pricing Schedule at
Options 7, Section 5, Index and Singly Listed Options (Includes options
overlying FX Options, equities, ETFs, ETNs, and indexes not listed on
another exchange), to adopt pricing for options on a Nasdaq-100[supreg]
Volatility Index (``VOLQ'').\4\
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\4\ VOLQ a new index that measures changes in 30-day implied
volatility of the Nasdaq-100[supreg] Index. See Securities Exchange
Act Release No. 91781 (May 5, 2021), 86 FR 25918 (May 11, 2021) (SR-
Phlx-2020-41) (Notice of Filing of Amendment Nos. 1 and 2 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment Nos. 1 and 2, To List and Trade Options on a Nasdaq-100
Volatility Index). See also Securities Exchange Act Release No.
93628 (November 19, 2021), 86 FR 67555 (November 26, 2021) (SR-Phlx-
2021-56) (Order Approving a Proposed Rule Change To Amend Options
4A, Section 12 Regarding the Calculation of the Closing Volume
Weighted Average Price for Options on the Nasdaq-100 Volatility
Index in Certain Circumstances).
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Additionally, the proposal amends Options 7, Section 2, Customer
Rebate Program; Options 7, Section 4, Multiply Listed Options Fees
(Includes options overlying equities, ETFs, ETNs and indexes which are
Multiply Listed) (Excludes SPY); and Options 7, Section 6, Other
Transaction Fees.
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 received approval to list index options on VOLQ.\5\
The Exchange will commence listing VOLQ options on June 14, 2022. At
this time, the Exchange proposes to amend its Pricing Schedule at
Options 7, Section 5.A., Broad-Based Index Options, to adopt pricing
for VOLQ Options for transactions executed electronically and on the
floor.\6\
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\5\ See note 3 above.
\6\ The term ``floor transaction'' is a transaction that is
effected in open outcry on the Exchange's Trading Floor. See Options
7, Section 1(c).
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Additionally, the proposal amends Options 7, Section 2, Customer
Rebate Program; Options 7, Section 4, Multiply Listed Options Fees
(Includes options overlying equities, ETFs, ETNs and indexes which are
Multiply Listed) (Excludes SPY); and Options 7, Section 6, Other
Transaction Fees. Each change is described below.
The Exchange proposes to assess Professionals,\7\ Lead Market
Makers,\8\ Market Makers,\9\ Broker-Dealers \10\ and Firms \11\ a $0.40
per contract fee to transact simple and complex VOLQ options
electronically and on the floor. Customers \12\ will not be assessed a
transaction fee to transact VOLQ options electronically or on the
floor.
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\7\ The term ``Professional'' applies to transactions for the
accounts of Professionals, as defined in Options 1, Section 1(b)(45)
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(c).
\8\ 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 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(c). The term ``Floor Lead Market
Maker'' is a member who is registered as an options Lead Market
Maker pursuant to Options 2, Section 12(a) and has a physical
presence on the Exchange's trading floor. See Options 8, Section
2(a)(3).
\9\ 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 Floor Market Makers. See Options
7, Section 1(c). The term ``Floor Market Maker'' is a Market Maker
who is neither an SQT or an RSQT. A Floor Market Maker may provide a
quote in open outcry. See Options 8, Section 2(a)(4).
\10\ 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(c).
\11\ The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at The Options Clearing Corporation. See Options 7,
Section 1(c).
\12\ 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(c).
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Additionally, the Exchange will assess a surcharge \13\ of $0.10
per contract to Non-Customers \14\ who transact VOLQ options, in
addition to the transaction fees.
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\13\ The surcharge is assessed because VOLQ is a proprietary
product and there is a license associated with this product.
\14\ The term ``Non-Customer'' applies to transactions for the
accounts of Lead Market Makers, Market Makers, Firms, Professionals,
Broker-Dealers and JBOs. The term ``Joint Back Office'' or ``JBO''
applies to any transaction that is identified by a member or member
organization for clearing in the Firm range at OCC and is identified
with an origin code as a JBO. A JBO will be priced the same as a
Broker-Dealer. A JBO participant is a member, member organization or
non-member organization that maintains a JBO arrangement with a
clearing broker-dealer (``JBO Broker'') subject to the requirements
of Regulation T Section 220.7 of the Federal Reserve System as
further discussed at Options 6D, Section 1. See Options 7, Section
1(c).
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The Exchange proposes to pay a rebate of $0.40 per contract to Lead
Market Makers and Market Makers who add liquidity in VOLQ. The Exchange
proposes to note within the rule text that, with respect to Section 5
of this Options 7 Pricing Schedule, the order that is received by the
trading system first in time shall be considered an order adding
liquidity and an order that trades against that order shall be
considered an order removing liquidity.
The Exchange also proposes to amend various sections of the Pricing
Schedule to make clear that pricing for broad-based index options
symbols listed within Options 7, Section 5.A. is
[[Page 40296]]
governed by the pricing within Options 7, Section 5.A. Today, the
Pricing Schedule makes note where options symbols currently listed
within Options 7, Section 5.A. (NDX, NDXP and XND) are excluded from
pricing. For example, Options 7, Section 2 Customer Rebates are not
paid on NDX, NDXP, or XND contracts. The Exchange proposes to also
exclude VOLQ options from Customer Rebates, similar to NDX, NDXP, and
XND. The pricing for certain broad-based proprietary index options,
NDX, NDXP, and XND, and now VOLQ, is specified within Options 7,
Section 5.A. and other pricing within Options 7 does not apply to these
products. The Exchange specifically makes clear within Options 7,
Sections 2, 4, and 6 that the pricing within Options 7, Section 5.A.
will govern for NDX, NDXP, XND and now VOLQ.
Also, today, a member's transacted options volume for broad-based
options symbols currently listed within Options 7, Section 5.A. (NDX,
NDXP, and XND) may count toward certain volume requirements despite
these symbols not being eligible for corresponding rebates. For
example, NDX, NDXP, and XND contracts count toward the volume
requirement to qualify for a Customer Rebate Tier within Options 7,
Section 2, and continue to not be eligible for Customer rebates. VOLQ
will also count toward the volume requirement to qualify for a Customer
Rebate Tier within Options 7, Section 2, and not be eligible for
Customer rebates.
The Exchange is replacing rule text within Options 7 concerning
NDX, NDXP, and XND with rule text that instead refers to ``broad-based
index options symbols within Options 7, Section 5.A.'' which
exclusively includes NDX, NDXP, XND and now VOLQ. Within Options 7,
Section 4, the Exchange proposes to amend the title of the rule to
state that broad-based index options symbols listed within Options 7,
Section 5.A are excluded in place of noting the exclusion by symbol
within the table in that section. Additionally, the Exchange proposes
to note that broad-based index options symbols listed within Options 7,
Section 5.A are excluded from the $0.12 per contract surcharge assessed
to Non-Customer electronic Complex Orders that remove liquidity from
the Complex Order Book and auctions within Options 7, Section 4. The
surcharges for NDX, NDXP, XND, and VOLQ are noted within Options 7,
Section 5.A. Likewise, broad-based index options symbols listed within
Options 7, Section 5.A are excluded from the Monthly Market Maker Cap,
Monthly Firm Fee Cap, Firm Floor Options Transaction Charge and Broker-
Dealer Floor Options Transaction Charge waivers, Monthly Strategy Cap,
and Marketing Fees within Options 7, Section 4 and the PIXL Pricing,
FLEX Transaction Fees and MARS pricing within Options 7, Section 6.
Making clear which section of the Options 7 Pricing Schedule governs
for particular products will provide members and member organizations
easy references to how Phlx's pricing will be applied.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\15\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4) and (5).
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The proposed changes to the pricing schedule are reasonable in
several respects. As a threshold matter, the Exchange is subject to
significant competitive forces in the market for order flow, which
constrains its pricing determinations. The fact that the market for
order flow is competitive has long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated, ``[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'. . . .'' \17\
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\17\ See NetCoalition, 615 F.3d at 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 to determine
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.'' \18\
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\18\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Congress directed the Commission to ``rely on `competition,
whenever possible, in meeting its regulatory responsibilities for
overseeing the SROs and the national market system.' '' \19\ As a
result, the Commission has historically relied on competitive forces to
determine whether a fee proposal is equitable, fair, reasonable, and
not unreasonably or unfairly discriminatory. ``If competitive forces
are operative, the self-interest of the exchanges themselves will work
powerfully to constrain unreasonable or unfair behavior.'' \20\
Accordingly, ``the existence of significant competition provides a
substantial basis for finding that the terms of an exchange's fee
proposal are equitable, fair, reasonable, and not unreasonably or
unfairly discriminatory.'' \21\
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\19\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep.
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that
the national market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed.'').
\20\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\21\ Id.
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Proposed Pricing Is Reasonable
The Exchange believes that it is reasonable to assess
Professionals, Lead Market Makers, Market Makers, Broker-Dealers and
Firms a $0.40 per contract fee to transact simple and complex VOLQ
options electronically and on the floor while assessing Customers no
such fee. Additionally, the Exchange believes that it is reasonable to
assess a surcharge of $0.10 per contract to Non-Customers who transact
VOLQ options, in addition to transaction fees. Finally, the Exchange
believes that it is reasonable to offer a rebate of $0.40 per contract
to Lead Market Makers and Market Makers who add liquidity in VOLQ. The
proposed pricing is reasonably designed because it is intended to
incentivize market participants to transact VOLQ index options on the
Exchange, which enables the Exchange to improve its overall
competitiveness and strengthen its market quality for all market
participants.
VOLQ is subject to significant substitution-based competitive
forces; market participants can substitute options on VOLQ for products
offered by other exchanges, for example, the options on the Cboe
Volatility Index[supreg]
[[Page 40297]]
(``VIX'') \22\ and options on the SPIKES Volatility Index
(``SPIKES[supreg]'').\23\ The proposed fees and rebates are in line
with those of other options markets for similar products. The Exchange
notes that if the fees are not within the range of fees offered by
competitors, the proposed pricing may cause market participants to
select other substitutes to Phlx's VOLQ product, so the most efficient
price-setting strategy is to set prices at the same level as competing
products.
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\22\ The VIX Index is a financial benchmark designed to be an
up-to-the-minute market estimate of expected volatility of the S&P
500 Index, and is calculated by using the midpoint of real-time S&P
500[supreg] Index (SPX) option bid/ask quotes.
\23\ The SPIKES Volatility Index is a measure of the expected
30-day volatility in the SPDR S&P 500 ETF.
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Today, Cboe Exchange, Inc. (``Cboe'') assesses Customers VIX simple
order fees based on tiered premium price which ranges from $0.10 to
$0.45 per contract and complex order fees based on tiered premium price
which ranges from $0.05 to $0.45 per contract.\24\ A Clearing Trading
Permit Holder Proprietary is assessed a VIX fee based on a VIX sliding
scale which ranges from $0.25 to $0.01 per contract.\25\ A Cboe Options
Market-Maker/DPM/LMM are assessed fees based on tiered premium price
which ranges from $0.05 to $0.23 per contract.\26\ Joint Back Office,
Non-Trading Permit Holder Market Makers, and Professionals are assessed
a VIX $0.40 per contract fee.\27\ VIX transactions are assessed a
Surcharge Fee/Index License of $0.10 ($0.00 for capacity codes F and L
for VIX transactions where the VIX Premium is <=$0.10 and the related
series has an expiration of seven (7) calendar days or less).\28\
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\24\ See Cboe's Fee Schedule. Transactions fees will be waived
for Customer orders executed in VIX options during GTH through
December 31, 2022.
\25\ See Cboe's Fee Schedule.
\26\ See Cboe's Fee Schedule.
\27\ See Cboe's Fee Schedule.
\28\ See Cboe's Fee Schedule. The Surcharge Fees apply to all
non-public customer transactions (i.e., Cboe Options and non-Trading
Permit Holder market-maker, Clearing Trading Permit Holder, JBO
participant, and broker-dealer), including professionals.
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Miami International Securities Exchange, LLC (``MIAX'') assesses
SPIKE fees as follows: Priority Customers are assessed no fees; Market
Makers are assessed a $0.20 per contract simple/complex taker fee and a
$0.15 per contract simple opening fee; Non-MIAX Market Makers are
assessed a $0.10 per contract simple/complex maker fee, a $0.25 per
contract simple/complex taker fee and a $0.15 per contract simple
opening fee; Broker-Dealers are assessed a $0.10 per contract simple/
complex maker fee, a $0.25 per contract simple/complex taker fee and a
$0.15 per contract simple opening fee; Firm Proprietary are assessed a
$0.00 per contract simple/complex maker fee, a $0.20 per contract
simple/complex taker fee \29\ and a $0.15 per contract simple opening
fee; and Public Customer that is not a Priority Customer are assessed a
$0.10 per contract simple/complex maker fee, a $0.25 per contract
simple/complex taker fee and a $0.15 per contract simple opening
fee.\30\ MIAX also offers a SPIKES Market Maker Incentive Program
wherein Market Makers that satisfy the quote width requirement, 70%
time in market requirement, and average quote size of 25 contracts are
entitled to receive Incentive 1 for that particular month ($10,000 per
Market Maker).\31\
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\29\ Taker fees for options with a premium price of $0.10 or
less will be charged $0.05 per contract. See MIAX's Options Exchange
Fee Schedule.
\30\ See MIAX's Options Exchange Fee Schedule.
\31\ The compensation pool for Incentive 1 is capped at a total
of $40,000 per month. If more than four (4) Market Makers satisfy
the requirements for Incentive 1, each Market Maker will receive a
pro-rata share of the compensation pool based on the total number of
Market Makers that qualify in that particular month. Each Market
Maker that meets or exceeds all the requirements of Incentive 1,
(``qualifying Market Maker''), may earn an additional rebate each
month. Each qualifying Market Maker's spread width for eligible ITM
and OTM SPIKES options is calculated and ranked relative to each
other qualifying Market Maker. Market Makers with the highest
quality width spread (i.e., the tightest spread) are eligible for
compensation under Incentive 2. Each qualifying Market Maker
receives a rebate, capped at $25,000 per Member per month, based on
their relative ranking to each other qualifying Market Maker, with
the top performer receiving the largest rebate amount and the bottom
performer receiving the smallest rebate amount. The compensation
pool size for Incentive 2 is generated by the market quality that is
created by qualifying Market Makers, where $5,000 per basis point
improvement over the market quality baseline, as established by
MIAX, is contributed to fund Incentive Pool 2, which is capped at
$100,000 per month.
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Unlike Cboe's Customer fees for VIX, VOLQ will assess no fees to
Customers. Today, Customers are not assessed fees for NDX, NDXP or XND.
The $0.40 per contract fee proposed for Professionals, Lead Market
Makers, Market Makers, Broker-Dealers and Firms to transact VOLQ simple
and complex options electronically and on the floor is within the range
of fees assessed by Cboe for VIX. Also, Phlx currently assesses a $0.75
per contract fee to Non-Customers for options transacted in NDX, a
broad-based index. VOLQ is similarly a broad-based index. Because VOLQ
is a new index, the Exchange proposes a lower fee as compared to NDX, a
more mature product ($0.40 per contract for VOLQ vs. $0.75 per contract
for NDX).
The $0.10 per contract surcharge proposed for Non-Customers who
transact VOLQ options is within the range of the VIX surcharge.
Customers would not pay a VOLQ surcharge as is the case today for all
index option surcharges assessed by Phlx. Today, the Exchange assesses
a $0.25 per contract surcharge for options transactions in NDX. The
proposed VOLQ options surcharge is less than half the surcharge for
NDX. The Exchange believes this surcharge is appropriate for options
transactions on this new broad based index.
Finally, today MIAX offers a SPIKES Market Maker Incentive Program.
The Exchange proposes offering Lead Market Makers and Market Makers a
$0.40 per contract rebate when adding liquidity in VOLQ to offset the
proposed transaction fee.\32\ The Exchange believes that this rebate
would incentivize Lead Market Makers and Market Makers to add liquidity
to the Exchange in VOLQ.
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\32\ The order that is received by the trading system first in
time shall be considered an order adding liquidity and an order that
trades against that order shall be considered an order removing
liquidity.
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The Exchange believes that there are many factors that may cause a
market participant to decide to become a member of a particular
exchange. Among various factors, the Exchange believes market
participants consider when deciding to become a member are product
offerings. Introducing new and innovative products to the marketplace
designed to meet customer demands may attract market participants to
become a member of a particular options venue. New products in the
options industry may allow market participants greater trading and
hedging opportunities, as well as new avenues to manage risks. The
listing of new options products enhances competition among market
participants by providing investors with additional investment
vehicles, as well as competitive alternatives, to existing investment
products. An exchange's proprietary product offering may attract order
flow to a particular exchange to trade a particular options product and
generally make that exchange a more desirable venue to transaction
options, thereby attracting membership to that exchange.
Specifically, VOLQ introduces a cash-settled options contract
focused on equity exposure using options on the NDX, which are actively
traded equity option products, into the marketplace. The Exchange
believes that VOLQ's novel structure will enhance competition among
market participants, to the benefit of investors and the marketplace.
The introduction of VOLQ is intended to attract market
[[Page 40298]]
participants to Phlx in order to transact this solely listed product.
The Exchange's proposal to amend Options 7, Sections 2, 4, and 6 to
make clear that the pricing within Options 7, Section 5.A. will govern
for NDX, NDXP, XND and now VOLQ is reasonable, equitable and not
unfairly discriminatory. Also, making clear within Options 7, Section
2, where VOLQ options volume would count toward the volume requirement
to qualify for a Customer Rebate Tier within Options 7, Section 2, and
not be eligible for Customer rebates, is reasonable, equitable and not
unfairly discriminatory. The proposed rule text will make clear to
members and member organizations how Phlx's pricing will be applied.
Also, applying VOLQ options volume in the Customer Rebate Tiers is
consistent with the manner in which other index options currently
listed on Phlx are treated. The Exchange believes that excluding the
broad-based index options symbols within Options 7, Section 5.A from
other multiply-listed options pricing \33\ on the Exchange is
reasonable, equitable, and not unfairly discriminatory because
multiply-listed options pricing assesses fees, pays rebates, waives
pricing or discounts pricing for most multiply-listed option symbols
generally, regardless of symbol.\34\ In contrast, pricing for
proprietary broad-based index options is specific to the product. It is
not novel to assess different pricing for multiply-listed options as
compared to proprietary singly-listed options.\35\
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\33\ Broad-based index options symbols within Options 7, Section
5.A are excluded from Customer Rebates within Options 7, Section 2,
the $0.12 per contract surcharge assessed to Non-Customer electronic
Complex Orders that remove liquidity from the Complex Order Book and
auctions, Monthly Market Maker Cap, Monthly Firm Fee Cap, Firm Floor
Options Transaction Charge and Broker-Dealer Floor Options
Transaction Charge waivers, Monthly Strategy Cap, and Marketing Fees
within Options 7, Section 4 and the PIXL Pricing, FLEX Transaction
Fees and MARS pricing within Options 7, Section 6.
\34\ Today, Phlx prices options in SPY differently than other
multiply-listed options symbols.
\35\ Today, Cboe, MIAX and Phlx assess different pricing for
singly-listed options and multiply-listed options.
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Finally, pricing by symbol is a common practice on many U.S.
options exchanges as a means to incentivize order flow to be sent to an
exchange for execution in particular products. Other options exchanges
price by symbol.\36\ Finally, it is reasonable, equitable and not
unfairly discriminatory to assess the proposed fees and rebates for
both simple and complex executions in VOLQ options, as is the case for
other index options currently listed on Phlx.
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\36\ See pricing NQX on Nasdaq ISE, LLC.
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Proposed Pricing Is Equitable and Not Unfairly Discriminatory
The Exchange believes that it is equitable and not unfairly
discriminatory to assess Professionals, Lead Market Makers, Market
Makers, Broker-Dealers and Firms a $0.40 per contract fee to transact
simple and complex VOLQ options electronically and on the floor, and a
$0.10 per contract surcharge, while assessing Customers no such
transaction fee or surcharge. Customer order flow enhances liquidity on
the Exchange for the benefit of all market participants. Customer
liquidity provides more trading opportunities, which attracts Market
Makers. An increase in the activity of these market participants in
turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
The proposed pricing for Customer orders in VOLQ is intended to attract
Customer trading volume to the Exchange. In addition, the proposed VOLQ
pricing for Customers will apply equally to all Customer orders. Non-
Customers (Professionals, Lead Market Makers, Market Makers, Broker-
Dealers and Firms) would be uniformly assessed a $0.40 per contract fee
to transact simple and complex VOLQ options electronically and on the
floor and a $0.10 per contract surcharge in VOLQ. All Non-Customers may
transact VOLQ options and would be assessed the same fees.
The Exchange believes that it is equitable and not unfairly
discriminatory to pay Lead Market Makers and Market Makers a $0.40 per
contract rebate when adding liquidity in VOLQ. Maker Makers take on a
number of obligations,\37\ including quoting obligations,\38\ unlike
other market participants. Further, the proposed pricing for Lead
Market Makers and Market Makers in VOLQ is intended to incentivize them
to quote and trade more on the Exchange, thereby providing more trading
opportunities for all market participants. As noted above, the $0.40
per contract rebate when adding liquidity in VOLQ is intended to offset
the $0.40 per contract VOLQ transaction fee. The Exchange believes the
proposed pricing will incentivize Lead Market Makers and Market Makers
to provide liquidity in the new product. Additionally, the proposed
VOLQ rebate will be applied equally to all Lead Market Makers and
Market Makers.
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\37\ See Options 2, Section 4.
\38\ See Options 2, Section 5 and Options 3, Section 8.
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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 believes its
proposal remains competitive with other options markets that offer
similar substitute products, and will offer market participants with
another choice of venue to transact options. While VOLQ options are
singly-listed on Phlx, 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. The Exchange notes that there are other volatility products
available today on other options markets, such as VIX and SPIKES, which
allow investors to gauge volatility. In sum, if the changes proposed
herein are unattractive to market participants, it is likely that the
Exchange will lose market share as a result.
In terms of intra-market competition, the Exchange believes that
the proposed pricing does not impose an undue burden on competition.
Assessing no transaction fees or surcharge fees to Customer orders in
VOLQ does not impose an undue burden on competition because Customer
order flow enhances liquidity on the Exchange for the benefit of all
market participants. Customer liquidity provides more trading
opportunities, which attracts Market Makers. An increase in the
activity of these market participants in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants. The proposed pricing for Customer
orders in VOLQ is intended to attract Customer trading volume to the
Exchange. In addition, the proposed VOLQ pricing for Customers will
apply equally to all Customer orders. Further, uniformly assessing Non-
Customers (Professionals, Lead Market Makers, Market Makers, Broker-
Dealers and Firms) a $0.40 per contract fee to transact simple and
complex VOLQ options electronically and on the floor and a $0.10 per
contract surcharge in VOLQ does not impose an undue burden on
competition. All Non-Customers may transact VOLQ options and would be
assessed the same fees. Finally, paying Lead Market Makers and
[[Page 40299]]
Market Makers a $0.40 per contract rebate when adding liquidity in VOLQ
does not impose an undue burden on competition. Maker Makers take on a
number of obligations,\39\ including quoting obligations,\40\ unlike
other market participants. Further, the proposed pricing for Lead
Market Makers and Market Makers in VOLQ is intended to incentivize them
to quote and trade more on the Exchange, thereby providing more trading
opportunities for all market participants. As noted above, the $0.40
per contract rebate when adding liquidity in VOLQ is intended to offset
the $0.40 per contract VOLQ transaction fee. The Exchange believes the
proposed pricing will incentivize Lead Market Makers and Market Makers
to provide liquidity in the new product. Additionally, the proposed
VOLQ rebate will be applied equally to all Lead Market Makers and
Market Makers.
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\39\ See Options 2, Section 4.
\40\ See Options 2, Section 5 and Options 3, Section 8.
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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.\41\
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\41\ 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#94e6e1f8f1b9f7fbf9f9f1fae0e7d4e7f1f7baf3fbe2"><span class="__cf_email__" data-cfemail="1c6e697079317f7371717972686f5c6f797f327b736a">[email protected]</span></a>. Please include
File Number SR-Phlx-2022-27 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-2022-27. 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-2022-27, and should be submitted on
or before July 27, 2022.
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\42\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-14293 Filed 7-5-22; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on July 6, 2022.
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