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Notice2022-25353

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Pricing Schedule at Options 7, Section 5

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Published

November 22, 2022

Issuing agencies

Securities and Exchange Commission

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<title>Federal Register, Volume 87 Issue 224 (Tuesday, November 22, 2022)</title>
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[Federal Register Volume 87, Number 224 (Tuesday, November 22, 2022)]
[Notices]
[Pages 71372-71375]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-25353]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96329; File No. SR-Phlx-2022-46]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Pricing Schedule at Options 7, Section 5

November 16, 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 November 1, 2022, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III, below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to amend the Exchange's Pricing Schedule at
Options 7, Section 5.D.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rules">https://listingcenter.nasdaq.com/rulebook/phlx/rules</a>, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.

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

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

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

1. Purpose
The Exchange proposes to amend the pricing for its singly-listed
U.S. dollar-settled foreign currency options (``FX options'' or
``FCOs'') \3\ in Options 7, Section 5.D. Today, the Exchange assesses
fees and rebates for executions that add or remove liquidity in simple
and complex FX options orders. For simple FX options, Part A of Section
5.D outlines the following rebates for adding liquidity and fees for
removing liquidity:
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\3\ The Exchange will add the term ``FCOs'' in the Options 7,
Section 5.D header. FCOs include XDB, XDE, XDN, XDS, XDA, XDZ and
XDC, and trade pursuant to Options 4C.

----------------------------------------------------------------------------------------------------------------
Lead
Customer market Market Firm Broker- Professional
maker maker dealer
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Rebate for Adding Liquidity.... $0.00 $0.20 $0.20 $0.00 $0.00 $0.00
Fee for Removing Liquidity..... 0.40 0.40 0.40 0.40 0.40 0.40
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For complex FX options, Part B of Section 5.D outlines the
following fees for removing liquidity:

[[Page 71373]]

Fee for Removing Liquidity..... 0.40 0.40 0.40 0.40 0.40 0.40
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Simple FX options orders that are executed against the individual
components of complex FX options orders are assessed the fees and paid
the rebates in Part A. However, the individual components of complex FX
options orders are assessed the fees in Part B. Transactions in FX
options originating on the Exchange floor are subject to the fees for
removing liquidity described above. However, if one side of the
transaction originates on the Exchange floor and any other side of the
trade was the result of an electronically submitted order or a quote,
then the fees for removing liquidity apply to the transactions which
originated on the Exchange floor, and the contracts that are executed
electronically are subject to the rebates and fees, as applicable, for
simple and complex orders.
The fees for FX options executions in all electronic auctions
including, but not limited to, the Quote Exhaust auction,\4\ the
opening process and complex electronic auction, including the Complex
Order Live Auction (``COLA''),\5\ are $0.40 per contract for
Customer,\6\ Professional,\7\ Firm,\8\ Broker-Dealer,\9\ Lead Market
Maker \10\ and Market Maker.\11\ Furthermore, PIXL \12\ executions in
FX options are charged as follows: $0.20 per contract for Initiating
Orders,\13\ and $0.40 per contract for all other participants.
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\4\ A Quote Exhaust occurs when the Exchange's disseminated
market at a particular price level includes a quote, and such market
is exhausted by an inbound contra-side quote or order (``initiating
quote or order''), and following such exhaustion, contracts remain
to be executed from the initiating quote or order through the
initial execution price. See Options 3, Section 6(a)(2)(B)(2).
\5\ Complex orders on the complex order book may be subject to
an automated auction process pursuant to Options 3, Section 14(e).
\6\ 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)).
\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).
\8\ The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at OCC.
\9\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category.
\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.
\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.
\12\ PIXL is the Exchange's electronic price improvement
auction. See Options 3, Section 13.
\13\ 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 sub-
paragraph (a)(6) of Options 3, Section 13) it represents as agent
(an ``Initiating Order'') provided it submits the PIXL Order for
electronic execution into the PIXL Auction (``Auction'') pursuant to
Options 3, Section 13. See Options 3, Section 13.
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The Exchange now proposes to replace the pricing described above
for simple and complex FCOs with a streamlined pricing schedule that
would remove the maker/taker model as well as the current auction,
floor/electronic, and simple/complex segmentations. As proposed, all
Non-Customers \14\ will be assessed a uniform Options Transaction
Charge of $0.50 per contract for all transactions in FCOs while
Customers will not be assessed any Options Transaction Charges. To
effectuate the foregoing changes, the Exchange proposes to delete Parts
A and B of Section 5.D in their entirety and replace them with the
following fee schedule:
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\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.

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Lead market
Customer Professional maker and Broker- dealer Firm
market maker
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Options Transaction Charge......................................... $0.00 $0.50 $0.50 $0.50 $0.50
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The Exchange also proposes to assess all market participants a
surcharge of $0.25 per contract for all complex orders traded in FCOs.
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 Exchange believes that the proposed changes in Options 7,
Section 5.D in connection with the standard options transaction fees
and complex surcharges for singly-listed FCOs are reasonable,
equitable, and not unfairly discriminatory because the proposed changes
will streamline FCO pricing for all market participants, and will
incentivize market participants to transact in more FCOs on Phlx.
Specifically, the Exchange will simplify pricing by removing the maker/
taker model as well as the current auction, floor/electronic, and
simple/complex segmentations. The Exchange believes that it is
reasonable to eliminate the $0.20 per contract rebate currently offered
to Lead Market Makers and Market Makers for adding liquidity in simple
FCOs because this incentive has not been effective at encouraging these
market participants to add increased liquidity in simple FCOs. The
Exchange further believes that eliminating the differentiated pricing
between maker/taker, auction, floor/electronic, and

[[Page 71374]]

simple/complex FCO transactions is reasonable as it will simplify the
fee structure in a manner that may make the fee schedule more
comprehensible and administrable and thus, more appealing to, market
participants.
As proposed, all Non-Customers will instead be assessed a uniform
Options Transaction Charge of $0.50 per contract for all transactions
in FCOs while Customers will not be assessed any Options Transaction
Charges. While Non-Customers will be charged higher Options Transaction
Fees under the proposed pricing program,\17\ the Exchange believes that
the proposal is reasonable and would continue to incentivize these
market participants to transact in singly-listed FCOs because the
proposed fees generally remain lower than the fees currently charged
for the Exchange's other singly-listed options.\18\ In addition,
Customers would no longer be assessed any standard transaction charges
for FCOs whereas today, they would be assessed a $0.40 per contract fee
for removing liquidity. As a result, the Exchange believes that the
proposed pricing is structured in a way that continues to encourage
market participants, including Customers in particular, to transact in
singly-listed FCOs on Phlx.
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\17\ As discussed above, Non-Customers are currently charged a
$0.40 per contract fee for removing liquidity in simple and complex
FCOs. For simple FCOs, Firms, Broker-Dealers, and Professionals have
the opportunity to receive free executions for adding liquidity in
FCOs, while Lead Market Makers and Market Makers may receive a $0.20
per contract rebate for adding liquidity. See Options 7, Section
5.D.
\18\ As set forth in Options 7, Section 5.C, the Exchange
currently charges Firms, Broker-Dealers, and Professionals an
Options Transaction Charge of $0.75 per contract in singly-listed
options. Lead Market Makers and Market Makers are currently charged
$0.40 per contract. Lastly, Customers are charged $0.40 per contract
for transactions in singly-listed options.
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The Exchange believes that the proposed standard Options
Transaction Charges are equitable and not unfairly discriminatory
because they will apply uniformly to all similarly situated market
participants. With respect to the proposal to assess no Options
Transaction Charges to Customers, the Exchange notes that there is a
history in the options markets of providing preferential treatment to
customers, and customer order flow attracts additional liquidity to the
Exchange. The Exchange believes that additional Customer order flow in
FCOs will provide all market participants with more trading
opportunities and encourage an increase in Lead Market Maker and Market
Maker activity, which facilitates tighter spreads. This may cause an
additional corresponding increase in order flow from other market
participants, contributing overall towards a robust and well-balance
market ecosystem, particularly in FCOs.
The Exchange believes that the proposed complex surcharge is
reasonable as the surcharge is designed to update fees for Phlx's
services to reflect their current value--rather than their value when
the FCO pricing was adopted in its present form eight years ago \19\--
based on Phlx's ability to deliver value to its customers by offering
singly-listed products on its market like FCOs. Even with the complex
surcharge, all market participants except Lead Market Makers and Market
Makers would be assessed consistent or lower fees for their singly-
listed FCO orders compared to the fees currently assessed to other
singly-listed options orders.\20\ Customer FCO transactions, in
particular, will continue to get the benefit of lower pricing even with
the complex surcharge. Customer orders bring valuable liquidity to the
market, which liquidity benefits other market participants through more
trading opportunities. This, in turn, attracts Lead Market Maker and
Market Maker activity, which facilitates tighter spreads, which may
cause an additional corresponding increase in order flow from other
market participants. Further, the Exchange believes that applying the
complex surcharge consistently across all market participants, in
conjunction with the uniform pricing described above, will streamline
the fee structure in a manner that may make the fee schedule may be
more comprehensible and administrable to the benefit of all market
participants. Lastly, the Exchange believes that the proposed complex
surcharge is equitable and not unfairly discriminatory as the surcharge
will apply uniformly to all market participants.
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\19\ The Exchange has not amended pricing for FCOs since 2014.
See Securities Exchange Act Release No. 72806 (August 11, 2014), 79
FR 48269 (August 15, 2014) (SR-Phlx-2014-51).
\20\ Aggregating the proposed complex surcharge and options
transaction charges, all Non-Customers would be assessed $0.75 per
contract for complex trades in singly-listed FCOs while Customers
would be assessed $0.25 per contract. In contrast, under the singly-
listed options pricing schedule in Options 7, Section 5.C, Firms,
Broker-Dealers, and Professionals would be assessed $0.75 per
contract, and Lead Market Makers, Market Makers, and Customers would
be charged $0.40 per contract.
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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 intra-market
competition, the proposed pricing for singly-listed FCOs will apply
uniformly to all similarly situated market participants. Specifically,
all Non-Priority Customers will be assessed a uniform Options
Transaction Charge while Customers will not be assessed any Options
Transaction Charges. In addition, all market participants will be
assessed a uniform surcharge on their complex FCO transactions. Even
with the complex surcharge, Customers will continue to be charged lower
fees for FCO trades. Accordingly, the proposed FCO pricing is designed
to incentivize Customer order flow in particular, which the Exchange
believes will benefit all market participants by providing more trading
opportunities, which attracts other market participants, thus
facilitating tighter spreads and increased order flow.
In terms of inter-market competition, the Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges and with alternative trading systems that have been exempted
from compliance with the statutory standards applicable to exchanges.
Because competitors are free to modify their own fees in response, and
because market participants may readily adjust their order routing
practices, the Exchange believes that the degree to which fee changes
in this market may impose any burden on competition is extremely
limited. 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. Accordingly, the Exchange does not believe that the
proposed changes will impair the ability of members or competing order
execution venues to maintain their competitive standing in the
financial markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

No written comments were either solicited or received.

[[Page 71375]]

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.\21\
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\21\ 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 send an email to <a href="/cdn-cgi/l/email-protection#0d7f786168206e6260606863797e4d7e686e236a627b"><span class="__cf_email__" data-cfemail="097b7c656c246a6664646c677d7a497a6c6a276e667f">[email&#160;protected]</span></a>. Please include File Number SR-Phlx-2022-46 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-2022-46. 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-2022-46 and
should be submitted on or before December 13, 2022.
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\22\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25353 Filed 11-21-22; 8:45 am]
BILLING CODE 8011-01-P

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