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Notice2022-24142

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Phlx's Pricing Schedule

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Published

November 7, 2022

Issuing agencies

Securities and Exchange Commission

Full Text

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<title>Federal Register, Volume 87 Issue 214 (Monday, November 7, 2022)</title>
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[Federal Register Volume 87, Number 214 (Monday, November 7, 2022)]
[Notices]
[Pages 67091-67098]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-24142]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96197; File No. SR-Phlx-2022-41]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx's
Pricing Schedule

November 1, 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 October 17, 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 Phlx's Pricing Schedule at Options
7.\3\
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\3\ The Exchange initially filed the proposed pricing changes on
October 3, 2022 as SR-Phlx-2022-40. The instant filing replaced SR-
Phlx-2022-40 which was withdrawn on October 17, 2022.
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The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rules">https://listingcenter.nasdaq.com/rulebook/phlx/rules</a>, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
Phlx proposes to amend its Pricing Schedule at Options 7.
Specifically, Phlx proposes to amend: (1) Options 7, Section 3, Rebates
and Fees for Adding and Removing Liquidity in SPY, with respect to its
pricing for Price Improvement XL (``PIXL'') executions in SPY; (2)
Options 7, Section 4, Multiply Listed Options Fees (Includes options
overlying equities, ETFs, ETNs and indexes which are Multiply Listed)
(Excludes SPY and broad-based index options symbols listed within
Options 7, Section 5.A), with respect to its Qualified Contingent Cross
(``QCC'') Rebates and Monthly Firm Fee Cap; and (3) Options 7, Section
6, Other Transaction Fees, with respect to PIXL pricing other than
options in SPY. Each change will be described below.
Options 7, Section 3
The Exchange proposes to amend Options 7, Section 3, Rebates and
Fees for Adding and Removing Liquidity in SPY, with respect to its PIXL
executions in SPY. Today, SPY PIXL Initiating Orders \4\ are assessed a
$0.05 per contract fee, however, members or member organizations that
qualify for Options 7, Section 2, Customer \5\ Rebate Tiers 2 through 6
or qualify for the Monthly Firm Fee Cap \6\ are eligible for a rebate
of $0.12 per contract for all SPY Complex PIXL Orders greater than 499
contracts, provided the member or member organization executes an
average of 2,500 contracts per day of SPY Complex PIXL Orders in a
month.\7\ The Exchange separately assesses fees for PIXL Orders contra
the Initiating Order \8\ which are not being amended at this time.
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\4\ An order entered into a PIXL Auction mechanism shall be
comprised of two orders, a PIXL agency order and a contra-side
Initiating Order. See Options 3, Section 13.
\5\ 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).
\6\ Today, Firms are subject to a Monthly Firm Fee Cap of
$75,000. See Options 7, Section 4.
\7\ A member may electronically submit for execution an order it
represents as agent on behalf of a public customer, broker-dealer,
or any other entity (``PIXL Order'') against principal interest or
against any other order (except as provided in Options 3, Section
13(a)(6)) it represents as agent (``Initiating Order'') provided it
submits the PIXL order for electronic execution into the PIXL
Auction (``Auction'') pursuant to Options 3, Section 13.
\8\ When the PIXL Order is contra to the Initiating Order, a
Customer PIXL Order is assessed $0.00 per contract and all other
Non-Customer market participants are assessed a $0.38 per contract
fee when contra to an Initiating Order. Further, when the PIXL Order
is contra to other than the Initiating Order, the PIXL Order is
assessed $0.00 per contract, unless the PIXL Order is a Customer, in
which case the Customer receives a rebate of $0.40 per contract.
Finally, all other Non-Customer contra parties to the PIXL Order
that are not the Initiating Order are assessed a Fee for Removing
Liquidity of $0.50 per contract or are entitled to receive the
Rebate for Adding Liquidity. When the PIXL Order is contra to a Lead
Market Maker or Market Maker quote, which was established at the
initiation of a PIXL auction, the Customer PIXL Order is not be
eligible for a rebate. See Options 7, Section 3.
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At this time, the Exchange proposes to continue to assess SPY PIXL
Initiating Orders a $0.05 per contract fee. Members or member
organizations that qualify for Options 7, Section 2, Customer Rebate
Tiers 2 through 6 or qualify for the Monthly Firm Fee Cap will continue
to be eligible for a rebate of $0.12 per contract for all SPY Complex
PIXL Orders greater than 499 contracts when contra to an Initiating
Order, provided the member or member organization executes an average
of 2,500 contracts per day of SPY Complex PIXL Orders in a month. The
Exchange's proposal to further qualify that the SPY Complex PIXL Orders
greater than 499 contracts must be contra to an Initiating Order, in
addition to the member or member organization having executed an
average of 2,500 contracts per day of SPY Complex PIXL Orders in a
month. As is the case today, when the PIXL Order is contra to other
than the Initiating Order, the PIXL Order is assessed $0.00 per
contract, unless the PIXL Order is a Customer, in which case the
Customer receives a rebate of $0.40 per contract.
Below is an example of the proposed change which presumes the
market participant has met the qualifications for the rebate.

[[Page 67092]]

Assume:

NBBO and PHLX are both $1.00 x $1.50
Initiator sends PIXL Complex Order in SPY to buy 500 spreads (1000
contracts) for $1.45 (Market Maker not assigned in SPY is contra-side)
Instance 1
When no outside response to interact with the PIXL order--no change
from Sep to Oct in pricing.
Oct 3 Pricing
Public Customer fee to execute PIXL Complex Order = $0.00 per contract
Initiating Order fee = $0.05 fee--$50.00
PIXL Order rebate = $0.12 per contract ($120.00)

The rebate is achieved because the PIXL Order trades against the
Initiating Order in its entirety.
Instance 2
Assume:

Responders to the PIXL Complex Order indicate the following allocation
process:
Initiating Order = 40% (400 contracts)
Auction Responders = 60% (600 contracts)
Sept Pricing
Public Customer fee to execute PIXL Complex Order = $0.00
(paired) = $0.05 fee--$20.00 ($0.05 x 400 contracts)
Responder fee = $0.50 per contract--$300.00
Break-Up rebate = ($0.40) per contract ($240.00)
PIXL Order rebate = $0.12 per contract ($120.00)
Oct 3 Pricing
Public Customer Charge to execute PIXL Complex Order = $0.00
Initiating Order (paired) = $0.05 fee--$20.00 ($0.05 x 400 contracts)
Responder fee = $0.50 per contract--$300.00
Break-Up rebate = ($0.40) per contract ($240.00)
Additional PIXL Order rebate = ($0.12) per contract ($48.00) ($0.12 x
400 contracts contra PIXL order)

With this change the rebate would be paid only to PIXL Complex
Order contracts that were executed against the Initiating Order. The
prior pricing rebate was for $120 (1000 contracts x $0.12) and the
October pricing would be $48 (400 contracts x $0.12).
The Exchange desires to continue to incentivize members and member
organizations to transact a greater number of SPY Complex PIXL Orders
while also incentivizing members and member organizations to submit
Customer order flow on Phlx. While the proposal no longer offers the
$0.12 per contract rebate that is available today for the PIXL Agency
Order when that PIXL Order is contra to other than the Initiating
Order, the Exchange believes that market participants will continue to
be incentivized to submit PIXL Agency Orders to Phlx because the
Exchange continues to offer a rebate of $0.40 per contract when the
PIXL Order is contra to other than the Initiating Order.
Options 7, Section 4
QCC
The Exchange proposes to amend Options 7, Section 4, Multiply
Listed Options Fees (Includes options overlying equities, ETFs, ETNs
and indexes which are Multiply Listed) (Excludes SPY and broad-based
index options symbols listed within Options 7, Section 5.A) with
respect to its QCC Rebates.
Today, the Exchange assesses a $0.20 per contract QCC Transaction
Fees \9\ to a Lead Market Maker,\10\ Market Maker,\11\ Firm \12\ and
Broker-Dealer.\13\ Customers and Professionals \14\ are not assessed a
QCC Transaction Fee. QCC Transaction Fees apply to electronic QCC
Orders \15\ and Floor QCC Orders.\16\ Rebates are paid on all
qualifying executed electronic QCC Orders and Floor QCC Orders based on
the following six tier rebate schedule:\17\
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\9\ QCC Transaction Fees apply to electronic QCC Orders, as
defined in Options 3, Section 12, and Floor QCC Orders, as defined
in Options 8, Section 30(e).
\10\ 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).
\11\ 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).
\12\ 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).
\13\ 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).
\14\ 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).
\15\ Electronic QCC Orders are described in Options 3, Section
12.
\16\ Floor QCC Orders are described in Options 8, Section 30(e).
\17\ Volume resulting from all executed electronic QCC Orders
and Floor QCC Orders, including Customer-to-Customer, Customer-to-
Professional, and Professional-to-Professional transactions and
excluding dividend, merger, short stock interest or reversal or
conversion strategy executions, is aggregated in determining the
applicable volume tier.

QCC Rebate Schedule
----------------------------------------------------------------------------------------------------------------
Tier Threshold Rebate per contract
----------------------------------------------------------------------------------------------------------------
Tier 1................................ 0 to 99,999 contracts in a month.................. $0.00
Tier 2................................ 100,000 to 299,999 contracts in a month........... 0.05
Tier 3................................ 300,000 to 499,999 contracts in a month........... 0.07
Tier 4................................ 500,000 to 699,999 contracts in a month........... 0.08
Tier 5................................ 700,000 to 999,999 contracts in a month........... 0.09
Tier 6................................ Over 1,000,000 contracts in a month............... 0.11
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The Exchange does not pay a QCC Rebate where the transaction is
either: (i) Customer-to-Customer; (ii) Customer-to-Professional; (iii)
Professional-to-Professional; or (iv) a dividend, merger, short stock
interest or reversal or conversion strategy execution (as defined in
Options 7, Section 4).

[[Page 67093]]

At this time, the Exchange proposes to reduce the six tier rebate
schedule to a two tier schedule as follows:

The Exchange would pay a Tier 1 QCC Rebate of $0.09 per contract on
all qualifying executed electronic QCC Orders and Floor QCC Orders up
to 999,999 contracts in a month. The Exchange would pay a Tier 2 QCC
Rebate of $0.17 per contract on all qualifying executed electronic QCC
Orders and Floor QCC Orders of $1,000,000 contracts or more in a month.
With this change, the Exchange would pay a $0.09 per contract QCC
Rebate for each contract from the first execution up to 999,999
contracts in a month. Today, Members that execute 0 to 99,999 contracts
in a month do not receive a QCC Tier 1 Rebate. Additionally, while
today the Exchange pays a Tier 5 QCC Rebate of $0.09 per contract for
700,000 to 999,999 contracts in a month, with this proposal the
proposed $0.09 per contract Tier 1 QCC Rebate may be up to 999,999
contracts in a month. Also, while today, the Exchange pays a Tier 6 QCC
Rebate of $0.11 per contract for qualifying executed electronic QCC
Orders and Floor QCC Orders over $1,000,000 contracts in a month, the
proposed Tier 2 QCC Rebate would be increased to $0.17 per contract for
$1,000,000 contracts or more in a month.
The Exchange believes that its proposal will incentivize members
and member organizations to submit a greater amount of QCC Orders to
Phlx in order to obtain a rebate.
Monthly Firm Fee Cap
The Exchange proposes to amend Options 7, Section 4, Multiply
Listed Options Fees (Includes options overlying equities, ETFs, ETNs
and indexes which are Multiply Listed) (Excludes SPY and broad-based
index options symbols listed within Options 7, Section 5.A), with
respect to its Monthly Firm Fee Cap. Today, Firms are subject to a
maximum fee of $75,000 known as the ``Monthly Firm Fee Cap''. Firm
Floor Option Transaction Charges and QCC Transaction Fees, as defined
in Options 7, Section 4, in the aggregate, for one billing month may
not exceed the Monthly Firm Fee Cap per member organization when such
members are trading in their own proprietary account. The following
pricing is excluded from the Monthly Firm Fee Cap: (1) all dividend,
merger, and short stock interest strategy executions, as defined in
Options 7, Section 4; (2) transactions in broad-based index options
symbols listed within Options 7, Section 5.A.; and (3) reversal and
conversion, jelly roll and box spread strategy executions as defined in
this Options 7, Section 4. QCC Transaction Fees are included in the
calculation of the Monthly Firm Fee Cap.\18\
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\18\ Member organizations are required to notify the Exchange in
writing of all accounts in which the member is not trading in its
own proprietary account.
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At this time, the Exchange proposes to amend the Monthly Firm Fee
Cap from $75,000 to $150,000. The Monthly Firm Fee Cap has remained at
$75,000 since 2010.\19\ The Exchange believes that while this cap is
being increased, Firms will continue to be incentivized by the cap.
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\19\ The Monthly Firm Fee Cap was previously called the Firm
Related Equity Option Cap. See Securities Exchange Act Release No.
65888 (December 5, 2011), 76 FR 77046 (December 9, 2011) (SR-Phlx-
2011-160).
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Options 7, Section 6
The Exchange proposes to amend Options 7, Section 6, Other
Transaction Fees, at A. PIXL Pricing with respect to PIXL pricing other
than options in SPY. Today, an Initiating Order in PIXL is assessed a
$0.07 per contract fee, with the exception of SPY PIXL Orders which are
assessed the pricing within Options 7, Section 4. Today, if the member
or member organization qualifies for the Tier 3, 4 or 5 Customer Rebate
in Options 7, Section 2 the member or member organization is assessed
$0.05 per contract. If the member or member organization executes equal
to or greater than 3.00% of National Customer Volume in Multiply-Listed
equity and ETF Options Classes (excluding SPY Options) in a given
month, the member or member organization is not assessed a fee for
Complex PIXL Orders. Any member or member organization under Common
Ownership with another member or member organization that qualifies for
a Customer Rebate Tier 4 or 5 in Options 7, Section 2, or executes
equal to or greater than 3.00% of National Customer Volume in Multiply-
Listed equity and ETF Options Classes (excluding SPY Options) in a
given month receives one of the PIXL Initiating Order discounts noted
herein. Finally, members or member organizations that qualify for
Customer Rebate Tiers 2 through 6 or qualify for the Monthly Firm Fee
Cap are eligible for a rebate of $0.12 per contract for all Complex
PIXL Orders (excluding SPY Options) greater than 499 contracts,
provided the member or member organization executes an average of 2,500
contracts per day of Complex PIXL Orders in a month.
Similar to the change proposed for SPY PIXL within Options 7,
Section 3, the Exchange proposes to amend Options 7, 6A. to provide
that members or member organizations that qualify for Customer Rebate
Tiers 2 through 6 or qualify for the Monthly Firm Fee Cap are eligible
for a rebate of $0.12 per contract for all Complex PIXL Orders
(excluding SPY Options) greater than 499 contracts when contra to an
Initiating Order, provided the member executes an average of 2,500
contracts per day of Complex PIXL Orders in a month.
Below is an example of the proposed change which presumes the
market participant has met the qualifications for the rebate.
Assume for Options 7, Section 6A:

NBBO and PHLX are both $1.00 x $1.50
Initiator sends PIXL Complex Order in AAPL to buy 500 spreads (1000
contracts) for $1.45 (Market Maker not assigned in AAPL is contra-side)
PIXL Agency Order qualifies for Customer Rebate Tier 5
Instance 1
When no outside response to interact with the PIXL order--no change
from Sep to Oct in pricing.
Oct 3 Pricing
Public Customer fee to execute PIXL Complex Order = $0.00 per contract
Initiating Order fee = $0.07 fee--$70.00
PIXL Order rebate = $0.12 per contract ($120.00)

[[Page 67094]]

The rebate is achieved because the PIXL Complex Order trades
against the Initiating Order in its entirety.
Instance 2
Assume:

Responders to the PIXL Complex Order indicate the following allocation
process:

Initiating Order = 40% (400 contracts)
Auction Responders = 60% (600 contracts)
PIXL Agency Order qualifies for Customer Rebate Tier 5
Sept Pricing
Public Customer fee to execute PIXL Complex Order = $0.00
(paired) = $0.07 fee--$28.00 ($0.07 x 400 contracts)
Market Maker Responder Penny Symbol fee = $0.25 per contract ($0.25 x
600 contracts)--$150.00
PIXL Order rebate = $0.12 per contract ($0.12 x 1000 = $120.00)
PIXL Agency Order qualifies for $0.22 per contract rebate ($132.00) for
Category C Customer Rebate which applies to PIXL Complex Orders ($0.22
x 600 contracts)
Oct 3 Pricing
Public Customer Charge to execute PIXL Complex Order = $0.00
Initiating Order (paired) = $0.07 fee--$28.00 ($0.07 x 400 contracts)
Market Maker Responder Penny Symbol fee = $0.25 per contract ($0.25 x
600 contracts)--$150.00
PIXL Order rebate = $0.12 per contract ($0.12 x 400 = $48.00)
PIXL Agency Order qualifies for $0.22 per contract rebate ($132.00) for
Category C Customer Rebate which applies to PIXL Complex Orders ($0.22
x 600 contracts)

With this change the rebate would be paid only to PIXL Complex
Order contracts that were executed against the Initiating Order. The
prior pricing rebate was for $120 (1,000 contracts x $0.12) and the
October pricing would be $48 (400 contracts x $0.12).
The Exchange desires to continue to incentivize members and member
organizations to transact a greater number of Complex PIXL Orders while
also incentivizing members and member organizations to submit Customer
order flow on Phlx. While the proposal no longer offers the $0.12 per
contract rebate that is available today for the PIXL Agency Order when
that PIXL Order is contra to other than the Initiating Order, the
Exchange believes that market participants will continue to be
incentivized to submit PIXL Agency Orders to Phlx because the Exchange
continues to offer Category C and D rebate for Complex Orders when the
PIXL Order is contra to other than the Initiating Order.\20\
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\20\ When a PIXL Order is contra to a PIXL Auction Responder, a
Customer PIXL Order will be assessed $0.00 per contract, other Non-
Customer PIXL Orders will be assessed $0.30 per contract in Penny
Symbols or $0.38 per contract in Non-Penny Symbols. A Responder that
is a Lead Market Maker or a Market Maker will be assessed $0.25 per
contract in Penny Symbols or $0.40 per contract in Non-Penny
Symbols. Other Non-Customer Responders will be assessed $0.48 per
contract in Penny Symbols or $0.70 per contract in Non-Penny Symbols
when contra to a PIXL Order. A Responder that is a Customer will be
assessed $0.00 per contract in Penny Symbols and Non-Penny Symbol.
When a PIXL Order is contra to a resting order or quote a Customer
PIXL Order will be assessed $0.00 per contract, other Non-Customer
will be assessed $0.30 per contract and the resting order or quote
will be assessed the appropriate Options Transaction Charge in
Options 7, Section 4.
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Technical Amendments
The Exchange proposes to add the terms ``member'' and member
organization,'' where applicable, within the proposed rule text.
Pursuant to General 1, Section 1(16), the term ``member'' means:

a permit holder which has not been terminated in accordance with the
By-Laws and these Rules of the Exchange. A member is a natural
person and must be a person associated with a member organization.
Any references in the rules of the Exchange to the rights or
obligations of an associated person or person associated with a
member organization also includes a member.

Pursuant to General 1, Section 1(17) the term ``member
organization'' means:

a corporation, partnership (general or limited), limited liability
partnership, limited liability company, business trust or similar
organization, transacting business as a broker or a dealer in
securities and which has the status of a member organization by
virtue of (i) admission to membership given to it by the Membership
Department pursuant to the provisions of General 3, Sections 5 and
10 or the By-Laws or (ii) the transitional rules adopted by the
Exchange pursuant to Section 6-4 of the By-Laws. References herein
to officer or partner, when used in the context of a member
organization, shall include any person holding a similar position in
any organization other than a corporation or partnership that has
the status of a member organization.

An entity may be either a member or member organization on Phlx and
therefore both terms apply when describing transaction fees and caps
applicable to entities that have been approved for membership on Phlx.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\21\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\22\ 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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\21\ 15 U.S.C. 78f(b).
\22\ 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 broader forms that are most
important to investors and listed companies.'' \23\
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\23\ 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
\24\ (``NetCoalition''), the D.C. Circuit upheld the Commission's use
of a market-based approach in evaluating the fairness of market data
fees against a challenge claiming that Congress mandated a cost-based
approach.\25\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \26\
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\24\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\25\ See NetCoalition, at 534-535.
\26\ Id. at 537.
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Further, ``[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'. . . .'' \27\ Although the court and
the SEC were discussing the cash equities markets, the Exchange
believes

[[Page 67095]]

that these views apply with equal force to the options markets.
---------------------------------------------------------------------------

\27\ 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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Options 7, Section 3
The Exchange's proposal to amend Options 7, Section 3, with respect
to its PIXL pricing for SPY options is reasonable because it will
continue to incentivize members and member organizations to transact a
greater number of SPY Complex PIXL Orders while also incentivizing
members and member organizations to submit Customer order flow on Phlx.
While the proposal no longer offers the $0.12 per contract rebate that
is available today for the PIXL Agency Order when that PIXL Order is
contra to other than the Initiating Order, the Exchange believes that
market participants will continue to be incentivized to submit PIXL
Agency Orders to Phlx because the Exchange continues to offer a rebate
of $0.40 per contract when the PIXL Order is contra to other than the
Initiating Order. Requiring SPY Complex PIXL Orders greater than 499
contracts to be contra to an Initiating Order to receive the rebate,
provided the member or member organization executes an average of 2,500
contracts per day of SPY Complex PIXL Orders in a month, will continue
to encourage members and member organizations to submit order flow to
Phlx to obtain the rebate. As is the case today, when the PIXL Order is
contra to other than the Initiating Order, the PIXL Order is assessed
$0.00 per contract, unless the PIXL Order is a Customer, in which case
the Customer receives a rebate of $0.40 per contract.
The Exchange's proposal to amend Options 7, Section 3, Rebates and
Fees for Adding and Removing Liquidity in SPY, with respect to its PIXL
pricing for SPY options is equitable and not unfairly discriminatory
because all members and member organizations are eligible for the
proposed rebate, provided they met the requisite qualifications. Any
member or member organization may enter a qualifying order into the
PIXL Auction. Members and member organizations would be uniformly paid
the applicable rebate. Additionally, all market participants may
interact with order flow which members and member organizations must
transact in connection with this rebate.
Options 7, Section 4
QCC
The Exchange's proposal to amend Options 7, Section 4, with respect
to its QCC Rebates, to reduce the current six tier rebate schedule to a
proposed two tier schedule is reasonable because the proposal will
incentivize members and member organizations to submit a greater amount
of QCC Orders to Phlx. With this proposal, the Exchange would pay a
Tier 1 QCC Rebate of $0.09 on all qualifying executed electronic QCC
Orders and Floor QCC Orders up to 999,999 contracts in a month. The QCC
Rebate would be paid for each contract from the first execution up to
999,999 contracts in a month. Today, a Member will not receive a Tier 1
QCC Rebate if they enter 99,999 contracts or fewer in a month, however
once a Member enters 100,000 or more contracts, the Member would
qualify for the current Tier 2 QCC Rebate for all 100,000 contracts.
With this proposal all qualifying executed electronic QCC Orders and
Floor QCC Orders up to 999,999 contracts in a month would be entitled
to the proposed $0.09 per contract Tier 1 QCC Rebate. Additionally,
while today the Exchange pays a Tier 5 QCC rebate of $0.09 per contract
for qualifying executed electronic QCC Orders and Floor QCC Orders from
700,000 to 999,999 contracts in a month, with this proposal the $0.09
per contract Tier 1 QCC Rebate would be paid to Members who submit up
to 999,999 contracts in a month. Also, the Exchange would pay a Tier 2
QCC Rebate of $0.17 per contract on all qualifying executed electronic
QCC Orders and Floor QCC Orders of $1,000,000 contracts or more in a
month. Today, the Exchange pays a Tier 6 QCC Rebate of $0.11 per
contract for qualifying executed electronic QCC Orders and Floor QCC
Orders over $1,000,000 contracts in a month. The proposed Tier 2 QCC
Rebate would be increased to $0.17 per contract for $1,000,000
contracts or more in a month.
The Exchange's proposal to amend Options 7, Section 4, with respect
to its QCC Rebates, to reduce the current six tier rebate schedule to a
proposed two tier schedule is equitable and not unfairly discriminatory
because all members and member organizations may qualify for a QCC
Rebate provided the member or member organization executed qualifying
electronic QCC Orders and Floor QCC Orders.
Monthly Firm Fee Cap
The Exchange's proposal to amend Options 7, Section 4, with respect
to the Monthly Firm Fee Cap, to increase the Monthly Firm Fee Cap from
$75,000 to $150,000 is reasonable because despite the increase, the
Exchange believes Firms will continue to be incentivized by the
opportunity to pay no fees beyond the $150,000 cap. The Monthly Firm
Fee Cap has remained at $75,000 since 2010. Other members and member
organizations may interact with the order flow submitted by Firms to
Phlx to reach the cap.
The Exchange's proposal to amend Options 7, Section 4, with respect
to the Monthly Firm Fee Cap, to increase the Monthly Firm Fee Cap from
$75,000 to $150,000 is equitable and not unfairly discriminatory as
other market participants benefit from an opportunity to pay reduced
fees on Phlx as do Firms. Today, Customers are not assessed an Options
Transaction Charge in multiply-listed Penny or non-Penny Symbols.\28\
Customer liquidity benefits all market participants by providing more
trading opportunities. 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. Today, Lead Market Makers and Market Makers are subject
to a Monthly Market Maker Cap of $500,000 for: (i) electronic Option
Transaction Charges, excluding surcharges and excluding options
overlying broad-based index options symbols listed within Options 7,
Section 5.A; and (ii) QCC Transaction Fees (as defined in Exchange
Options 3, Section 12 and Floor QCC Orders, as defined in Options 8,
Section 30(e)).\29\ With respect to Broker-Dealers, today, the Exchange
waives the Floor Options Transaction Charge for Broker-Dealers
executing facilitation orders pursuant to Options 8, Section 30 when
such members would otherwise incur this charge for trading in their own
proprietary account contra to a Customer (``BD-Customer
Facilitation''), if the member's BD-Customer Facilitation average daily
volume

[[Page 67096]]

(including both FLEX and non-FLEX transactions) exceeds 10,000
contracts per day in a given month.\30\ Finally, today, Professional
Floor Options Transaction Charges are less favorable than Customers but
more favorable than Firms as Broker-Dealers are assessed a lower
Options Transaction Charge as compared to Floor Lead Market Makers,
Floor Market Makers. Additionally, the Exchange believes that the
proposal is equitable and not unfairly discriminatory because members
and member organizations that are JBOs \31\ could be subject to the
Firm Related Equity Option Cap, as are other members, as long as the
JBO trades for their own proprietary account. Additionally, the
proposed change would encourage JBOs that are not members or member
organizations to seek to become members or member organizations to
further reduce their transaction fees.
---------------------------------------------------------------------------

\28\ See Options 7, Section 4.
\29\ See Options 7, Section 4. The trading activity of separate
Lead Market Maker and Market Maker member organizations is
aggregated in calculating the Monthly Market Maker Cap if there is
Common Ownership between the member organizations. All dividend,
merger, short stock interest, reversal and conversion, jelly roll
and box spread strategy executions (as defined in Options 7, Section
4) are excluded from the Monthly Market Maker Cap. Lead Market
Makers or Market Makers that (i) are on the contra-side of an
electronically-delivered and executed Customer order, excluding
responses to a PIXL auction; and (ii) have reached the Monthly
Market Maker Cap will be assessed fees as follows: $0.05 per
contract Fee for Adding Liquidity in Penny Symbols; $0.18 per
contract Fee for Removing Liquidity in Penny Symbols; $0.18 per
contract in Non-Penny Symbols; and $0.18 per contract in a non-
Complex electronic auction, including the Quote Exhaust auction and,
for purposes of this fee, the opening process. A Complex electronic
auction includes, but is not limited to, the Complex Order Live
Auction (``COLA''). Transactions which execute against an order for
which the Exchange broadcast an order exposure alert in an
electronic auction will be subject to this fee.
\30\ See Options 7, Section 4, which states, ``. . . In
addition, the Broker-Dealer Floor Options Transaction Charge
(including Cabinet Options Transaction Charges) will be waived for
members executing facilitation orders pursuant to Options 8, Section
30 when such members would otherwise incur this charge for trading
in their own proprietary account contra to a Customer (`BD-Customer
Facilitation'), if the member's BD-Customer Facilitation average
daily volume (including both FLEX and non-FLEX transactions) exceeds
10,000 contracts per day in a given month. NDX, NDXP, and XND
Options Transactions will be excluded from each of the waivers set
forth in the above paragraph.''
\31\ 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).
---------------------------------------------------------------------------

Options 7, Section 6
The Exchange's proposal to amend Options 7, Section 6, with respect
to its PIXL pricing \32\ is reasonable because it will continue to
incentivize members and member organizations to transact a greater
number of Complex PIXL Orders while also incentivizing members and
member organizations to submit Customer order flow on Phlx. While the
proposal no longer offers the $0.12 per contract rebate that is
available today for the PIXL Agency Order when that PIXL Order is
contra to other than the Initiating Order, the Exchange believes that
market participants will continue to be incentivized to submit PIXL
Agency Orders to Phlx because the Exchange continues to offer Category
C and D rebates for Complex Orders when the PIXL Order is contra to
other than the Initiating Order.\33\ Requiring Complex PIXL Orders
greater than 499 contracts to be contra to an Initiating Order to
receive the rebate, provided the member or member organization executes
an average of 2,500 contracts per day of Complex PIXL Orders in a
month, will continue to encourage members and member organizations to
submit order flow to Phlx to obtain the rebate.
---------------------------------------------------------------------------

\32\ The PIXL pricing in Options 7, Section excludes SPY
options.
\33\ When a PIXL Order is contra to a PIXL Auction Responder, a
Customer PIXL Order will be assessed $0.00 per contract, other Non-
Customer PIXL Orders will be assessed $0.30 per contract in Penny
Symbols or $0.38 per contract in Non-Penny Symbols. A Responder that
is a Lead Market Maker or a Market Maker will be assessed $0.25 per
contract in Penny Symbols or $0.40 per contract in Non-Penny
Symbols. Other Non-Customer Responders will be assessed $0.48 per
contract in Penny Symbols or $0.70 per contract in Non-Penny Symbols
when contra to a PIXL Order. A Responder that is a Customer will be
assessed $0.00 per contract in Penny Symbols and Non-Penny Symbol.
When a PIXL Order is contra to a resting order or quote a Customer
PIXL Order will be assessed $0.00 per contract, other Non-Customer
will be assessed $0.30 per contract and the resting order or quote
will be assessed the appropriate Options Transaction Charge in
Options 7, Section 4.
---------------------------------------------------------------------------

The Exchange's proposal to amend Options 7, Section 6, with respect
to its PIXL pricing is equitable and not unfairly discriminatory
because all members and member organizations are eligible for the
proposed rebate, provided they met the requisite qualifications. Any
member or member organization may enter a qualifying order into the
PIXL Auction. Members and member organizations would be uniformly paid
the applicable rebate. Additionally, all market participants may
interact with order flow which members or member organizations must
transact in connection with this rebate.

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.
Intermarket Competition
The proposal does not impose an undue burden on intermarket
competition. The Exchange believes its proposal remains competitive
with other options markets and will offer market participants with
another choice of where to transact options. The Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges. 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.
Intramarket Competition
The proposed amendments do not impose an undue burden on
intramarket competition.
Options 7, Section 3
The Exchange's proposal to amend Options 7, Section 3, Rebates and
Fees for Adding and Removing Liquidity in SPY, with respect to its PIXL
pricing for SPY options does not impose an undue burden on competition
because all members and member organizations are eligible for the
proposed rebate, provided they met the requisite qualifications. Any
member or member organization may enter a qualifying order into the
PIXL Auction. Members and member organizations would be uniformly paid
the applicable rebate. Additionally, all market participants may
interact with order flow which members and member organizations must
transact in connection with this rebate.
Options 7, Section 4
QCC
The Exchange's proposal to amend Options 7, Section 4, with respect
to its QCC Rebates, to reduce the current six tier rebate schedule to a
proposed two tier schedule does not impose an undue burden on
competition because all members and member organizations may qualify
for a QCC Rebate provided the member or member organization executed
qualifying electronic QCC Orders and Floor QCC Orders.
Monthly Firm Fee Cap
The Exchange's proposal to amend Options 7, Section 4, with respect
to the Monthly Firm Fee Cap, to increase the Monthly Firm Fee Cap from
$75,000 to $150,000 does not impose an undue burden on competition as
other market participants benefit from an opportunity to pay reduced
fees on Phlx as do Firms. Today, Customers are not assessed an Options
Transaction Charge in multiply-listed Penny or non-Penny Symbols.\34\
Customer liquidity benefits all market participants by providing more
trading opportunities. An increase in the

[[Page 67097]]

activity of these market participants in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants. Today, Lead Market Makers and
Market Makers are subject to a Monthly Market Maker Cap of $500,000
for: (i) electronic Option Transaction Charges, excluding surcharges
and excluding options overlying broad-based index options symbols
listed within Options 7, Section 5.A; and (ii) QCC Transaction Fees (as
defined in Exchange Options 3, Section 12 and Floor QCC Orders, as
defined in Options 8, Section 30(e)).\35\ With respect to Broker-
Dealers, today, the Exchange waives the Floor Options Transaction
Charge for Broker-Dealers executing facilitation orders pursuant to
Options 8, Section 30 when such members would otherwise incur this
charge for trading in their own proprietary account contra to a
Customer (``BD-Customer Facilitation''), if the member's BD-Customer
Facilitation average daily volume (including both FLEX and non-FLEX
transactions) exceeds 10,000 contracts per day in a given month.\36\
Finally, today, Professional Floor Options Transaction Charges are less
favorable than Customers but more favorable than Firms as Broker-
Dealers are assessed a lower Options Transaction Charge as compared to
Floor Lead Market Makers, Floor Market Makers. Additionally, the
Exchange believes that the proposal is equitable and not unfairly
discriminatory because members and member organizations that are JBOs
\37\ could be subject to the Firm Related Equity Option Cap, as are
other members, as long as the JBO trades for their own proprietary
account. Additionally, the proposed change would encourage JBOs that
are not members or member organizations to seek to become members or
member organizations to further reduce their transaction fees.
---------------------------------------------------------------------------

\34\ See Options 7, Section 4.
\35\ See Options 7, Section 4. The trading activity of separate
Lead Market Maker and Market Maker member organizations is
aggregated in calculating the Monthly Market Maker Cap if there is
Common Ownership between the member organizations. All dividend,
merger, short stock interest, reversal and conversion, jelly roll
and box spread strategy executions (as defined in Options 7, Section
4) are excluded from the Monthly Market Maker Cap. Lead Market
Makers or Market Makers that (i) are on the contra-side of an
electronically-delivered and executed Customer order, excluding
responses to a PIXL auction; and (ii) have reached the Monthly
Market Maker Cap will be assessed fees as follows: $0.05 per
contract Fee for Adding Liquidity in Penny Symbols; $0.18 per
contract Fee for Removing Liquidity in Penny Symbols; $0.18 per
contract in Non-Penny Symbols; and $0.18 per contract in a non-
Complex electronic auction, including the Quote Exhaust auction and,
for purposes of this fee, the opening process. A Complex electronic
auction includes, but is not limited to, the Complex Order Live
Auction (``COLA''). Transactions which execute against an order for
which the Exchange broadcast an order exposure alert in an
electronic auction will be subject to this fee.
\36\ See Options 7, Section 4, which states, ``. . . In
addition, the Broker-Dealer Floor Options Transaction Charge
(including Cabinet Options Transaction Charges) will be waived for
members executing facilitation orders pursuant to Options 8, Section
30 when such members would otherwise incur this charge for trading
in their own proprietary account contra to a Customer (`BD-Customer
Facilitation'), if the member's BD-Customer Facilitation average
daily volume (including both FLEX and non-FLEX transactions) exceeds
10,000 contracts per day in a given month. NDX, NDXP, and XND
Options Transactions will be excluded from each of the waivers set
forth in the above paragraph.''
\37\ 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).
---------------------------------------------------------------------------

Options 7, Section 6
The Exchange's proposal to amend Options 7, Section 6, with respect
to its PIXL pricing does not impose an undue burden on competition
because all members and member organizations are eligible for the
proposed rebate, provided they met the requisite qualifications. Any
member or member organization may enter a qualifying order into the
PIXL Auction. Members and member organizations would be uniformly paid
the applicable rebate. Additionally, all market participants may
interact with order flow which members and member organizations must
transact in connection with this rebate.

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.\38\
---------------------------------------------------------------------------

\38\ 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#b3c1c6dfd69ed0dcdeded6ddc7c0f3c0d6d09dd4dcc5"><span class="__cf_email__" data-cfemail="1e6c6b727b337d7173737b706a6d5e6d7b7d30797168">[email&#160;protected]</span></a>. Please include
File Number SR-Phlx-2022-41 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-2022-41. 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-2022-41 and
should

[[Page 67098]]

be submitted on or before November 28, 2022.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
---------------------------------------------------------------------------

\39\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24142 Filed 11-4-22; 8:45 am]
BILLING CODE 8011-01-P

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