Notice2023-00987
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Schedule of Fees and Credits at Equity 7, Section 3
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Published
January 19, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 12 (Thursday, January 19, 2023)</title>
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[Federal Register Volume 88, Number 12 (Thursday, January 19, 2023)]
[Notices]
[Pages 3456-3458]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-00987]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96666; File No. SR-Phlx-2023-01]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Its
Schedule of Fees and Credits at Equity 7, Section 3
January 13, 2023.
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 January 3, 2023, 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 and II, below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's schedule of fees and
credits at Equity 7, Section 3. The text of the proposed rule change is
available on the Exchange's website at <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rules">https://listingcenter.nasdaq.com/rulebook/phlx/rules</a>, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Exchange's
schedule of fees and credits at Equity 7, Section 3. First, the
Exchange proposes to remove a $0.0029 per share executed fee for member
organizations that remove liquidity from the Exchange. Second, the
Exchange proposes to remove several credits for displayed Quotes/
Orders, including credits of $0.0035, $0.0034, and $0.0032 per share
executed. Third, the Exchange proposes to add a new credit for
displayed Quotes/Orders of $0.0032 per share executed.
Discontinued Fee To Remove Liquidity
The Exchange proposes to amend its pricing schedule, at Equity 7,
Section 3, to remove a current $0.0029 per share executed fee for a
member organization that removes liquidity from the Exchange to the
extent that the member organization: (i) adds a daily average of at
least 2 million shares of liquidity in all securities from the Exchange
during the month; (ii) increases its average daily volume added to the
Exchange by 50% or more during the month relative to the month of
January 2022; (iii) increases its average daily volume added to and
removed from the Exchange by 100% or more during the month relative to
the month of January 2022; and (iv) adds and removes a daily average of
at least 10 million shares of liquidity in all securities from the
Exchange during the month. Currently, the $0.0029 per share executed
fee represents a discount relative to the fee of $0.0030 per share
executed for all other orders that do not meet the criteria to qualify
for the $0.0029 per share executed fee. Therefore, the effect of
removing the $0.0029 per share executed fee is that all orders that
remove liquidity from the Exchange would be subject to the $0.0030 per
share executed fee. The Exchange proposes to make a conforming change
to the existing $0.0030 per share executed fee to reflect the fact
that, going forward, it will apply to all orders that remove liquidity
from the Exchange. The Exchange has limited resources available to it
to offer its members market-improving incentives, and it allocates
those limited resources to those segments of the market where it
perceives the need to be greatest and/or where it determines that the
incentive is likely to achieve its intended objective. The Exchange
proposes to discontinue the $0.0029 per share executed fee because it
has not induced members to grow materially the extent to which they add
liquidity to the Exchange over time.
Discontinued Rebates To Add Displayed Liquidity
The Exchange proposes to remove the following credits presently
offered to member organizations that add displayed liquidity to the
Exchange: (1) $0.0035 per share executed for Quotes/Orders entered by a
member organization that provides 0.10% or more of total Consolidated
Volume during the month; (2) $0.0034 per share executed for Quotes/
Orders entered by a member organization that provides 0.05% or more of
total Consolidated Volume during the month and removes 0.02% of total
Consolidated Volume during the month; and (3) $0.0032 per share
executed for Quotes/Orders entered by a member organization that: (i)
provides a daily average of at least 2 million shares of liquidity in
all securities on the Exchange during the month; and (ii) increases its
average daily volume of Quotes/Orders added to the Exchange by 75% or
more during the month relative to the month of March 2022. The Exchange
offers these credits as a means of improving market quality by
providing its members with an incentive to increase liquidity on the
Exchange. The Exchange has limited resources available to it to offer
its members market-improving incentives, and it allocates those limited
resources to those segments of the market where it perceives the need
to be greatest and/or where it determines that the incentive is likely
to achieve its intended objective. Accordingly, the Exchange proposes
to eliminate the credits noted above.
New Rebate To Add Displayed Liquidity
The Exchange proposes to establish a new credit that will reward a
member organization with a credit of $0.0032 per share executed for
Quotes/Orders that provides 0.05% or more of total Consolidated Volume
during the month. The proposed new credit will provide an incentive to
member organizations to add liquidity to the Exchange. To the extent
that the proposed new credit succeeds in increasing liquidity on the
Exchange, the Exchange hopes that additional liquidity will improve the
quality of the market and help to grow it over time.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\3\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\4\ in particular, in that it provides
for the equitable allocation of
[[Page 3457]]
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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\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed changes to its schedule of credits are
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for equity
securities transaction services that constrain its pricing
determinations in that market. The fact that this market is competitive
has long been recognized by the courts. In NetCoalition v. Securities
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .'' \5\
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\5\ NetCoalition v. SEC, 615 F.3d 525, 539 (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 in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \6\
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\6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
equity security transaction services. The Exchange is only one of
several equity venues to which market participants may direct their
order flow. Competing equity exchanges offer similar tiered pricing
structures to that of the Exchange, including schedules of rebates and
fees that apply based upon members achieving certain volume thresholds.
Within this environment, market participants can freely and often
do shift their order flow among the Exchange and competing venues in
response to changes in their respective pricing schedules. As such, the
proposal represents a reasonable attempt by the Exchange to increase
its liquidity and market share relative to its competitors.
The Exchange believes it is reasonable, equitable, and not unfairly
discriminatory to eliminate the $0.0029 per share executed fee for
member organizations that remove liquidity from the Exchange and make
conforming changes to the fee schedule. The fee has not been successful
in inducing members to grow materially the extent to which they add
liquidity to the Exchange over time. The Exchange has limited resources
to allocate to incentives and it must, from time to time, reallocate
those resources to maximize their net impact on the Exchange, market
quality, and participants.
It is also reasonable, equitable, and not unfairly discriminatory
for the Exchange to streamline its schedule of credits for adding
displayed liquidity to the Exchange, including removing three credits
and adding a new credit. These adjustments will better align incentives
with the Exchange's needs. Again, the Exchange has limited resources to
devote to incentive programs, and it is appropriate for the Exchange to
reallocate these incentives periodically in a manner that best achieves
the Exchange's overall mix of objectives.
Those participants that are dissatisfied with the proposed changes
to the Exchange's schedule of fees and credits are free to shift their
order flow to competing venues that provide more generous incentives or
less stringent qualifying criteria.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intramarket Competition
The Exchange does not believe that its proposals will place any
category of Exchange participant at a competitive disadvantage.
The Exchange intends for its proposed changes to its fees and
credits to reallocate its limited resources more efficiently and to
align them with the Exchange's overall mix of objectives. The Exchange
notes that its members are free to trade on other venues to the extent
they believe that these proposals are not attractive. As one can
observe by looking at any market share chart, price competition between
exchanges is fierce, with liquidity and market share moving freely
between exchanges in reaction to fee and credit changes.
Intermarket Competition
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 credits and 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 credits and
fees in response, and because market participants may readily adjust
their order routing practices, the Exchange believes that the degree to
which credit or fee changes in this market may impose any burden on
competition is extremely limited. The proposals are reflective of this
competition.
Even as one of the largest U.S. equities exchanges by volume, the
Exchange has less than 20% market share, which in most markets could
hardly be categorized as having enough market power to burden
competition. Moreover, as noted above, price competition between
exchanges is fierce, with liquidity and market share moving freely
between exchanges in reaction to fee and credit changes. This is in
addition to free flow of order flow to and among off-exchange venues,
which comprises upwards of 50% of industry volume.
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.
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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) of the Act \7\ and paragraph (f) of Rule 19b-4
thereunder.\8\ 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.
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#740601181159171b1919111a0007340711175a131b02"><span class="__cf_email__" data-cfemail="9ceee9f0f9b1fff3f1f1f9f2e8efdceff9ffb2fbf3ea">[email protected]</span></a>. Please include
File Number SR-Phlx-2023-01 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-2023-01. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549 on official business days between the hours of 10
a.m. and 3 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-2023-01 and should be
submitted on or before February 9, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00987 Filed 1-18-23; 8:45 am]
BILLING CODE 8011-01-P
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