Home/Federal/Federal Register/2023-05542

Notice2023-05542

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 4 Regarding Multiply Listed Options Fees

Primary source

Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.

Published

March 20, 2023

Issuing agencies

Securities and Exchange Commission

Full Text

<html>
<head>
<title>Federal Register, Volume 88 Issue 53 (Monday, March 20, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 53 (Monday, March 20, 2023)]
[Notices]
[Pages 16697-16700]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-05542]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97133; File No. SR-Phlx-2023-08]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7,
Section 4 Regarding Multiply Listed Options Fees

March 14, 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 March 1, 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, 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.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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, Section 4, ``Multiply Listed Options Fees (Includes options
overlying equities, ETFs, ETNs and indexes which are Multiply Listed)
(Excludes SPY).''
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

[[Page 16698]]

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, Section
4, ``Multiply Listed Options Fees (Includes options overlying equities,
ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY).''
Recently, Phlx established a QCC Growth Tier Rebate within section
B of Options 7, Section 4 to encourage Phlx members and member
organizations to transact a greater number of QCC Orders on Phlx. In
order to qualify for the QCC Growth Tier Rebate, a member's or member
organization's total floor transaction,\3\ and electronic QCC Orders
and Floor QCC Orders volume (``QCC transaction volume'') must exceed
12,500,000 contracts in a given month. In addition to the
aforementioned criteria, the member's or member organization's
respective Phlx House Account \4\ must execute QCC transaction volume
of 250,000 or more contracts in excess of the member's or member
organization's QCC transaction volume in January 2023. For members or
member organizations with no QCC transaction volume in January 2023,
the QCC transaction volume, in their respective Phlx House Account,
must be 250,000 or more contracts in a given month.
---------------------------------------------------------------------------

\3\ The term ``floor transaction'' is a transaction that is
effected in open outcry on the Exchange's trading floor. See Phlx
Options 7, Section 1(c). Of note, the term ``floor transaction'' is
more broadly defined than the term ``Open Outcry Floor Transaction''
which is discussed herein and is a subset of the term ``floor
transaction.''
\4\ Each Phlx member or member organization is required to
establish one Phlx House Account with the Exchange's Membership
Department. Only one Phlx House Account is required to transact
business on Phlx. The Exchange assesses a $50.00 a month account fee
for this account as provided for within Options 7, Section 8A. A
Phlx member or member organization has the option of acquiring
multiple Phlx House Accounts depending on a member's or member
organization's business model and how they elect to organize their
business.
---------------------------------------------------------------------------

Further, a member or member organization may alternatively achieve
the QCC Growth Tier Rebate if a member's or member organization's Open
Outcry Floor Transaction \5\ volume in a given month exceeds 500,000
contracts. In addition to the aforementioned criteria, a member's or
member organization's respective Phlx House Account must execute QCC
transaction volume of 2,500,000 or more contracts in excess of the
member's or member organization's QCC transaction volume in January
2023. For members or member organizations with no QCC transaction
volume in January 2023, the QCC transaction volume, in their respective
Phlx House Account, must be 2,500,000 or more contracts in a given
month.
---------------------------------------------------------------------------

\5\ The term ``Open Outcry Floor Transaction'' includes all
transactions executed in open outcry on Phlx's trading floor except:
(1) dividend, merger, short stock interest, reversal and conversion,
jelly roll, and box spread strategy executions as defined in this
Options 7, Section 4; (2) Cabinet Transactions as defined in Options
8, Section 33; and (3) Customer-to-Customer transactions.
---------------------------------------------------------------------------

Today, the Exchange pays the QCC Growth Tier Rebates per Phlx House
Account. Specifically, the Exchange pays a $0.20 per contract QCC
Growth Tier Rebate on a QCC Order comprised of a Customer or
Professional order on one side and a Lead Market Maker, Market Maker,
Broker-Dealer, or Firm order on the other side. Further, the Exchange
pays a $0.26 per contract QCC Growth Tier Rebate on a QCC Order
comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm
order on one side and a Lead Market Maker, Market Maker, Broker-Dealer,
or Firm order on the other side.\6\
---------------------------------------------------------------------------

\6\ Members and member organizations are entitled to one QCC
Rebate in a given month, either the QCC Rebate in Section A or the
QCC Growth Tier Rebate in Section B in a given month, but not both.
---------------------------------------------------------------------------

At this time, the Exchange proposes to continue to pay the QCC
Growth Tier Rebate on all qualifying executed electronic QCC Orders, as
defined in Options 3, Section 12, and Floor QCC Orders, as defined in
Options 8, Section 30(e), except 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, reversal and conversion, jelly roll, and box spread strategy
executions (as defined in Options 7, Section 4).
The proposed exclusions are similar to the exclusions for payments
on QCC Rebates in section A of Options 7, Section 4. Of note,
currently, QCC Growth Tier Rebates are not paid on Customer-to-
Customer, Customer-to-Professional, or Professional-to-Professional QCC
Orders because the QCC Growth Tier Rebate specifies it is only paid on
a QCC Order comprised of a Customer or Professional order on one side
and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on
the other side, and a QCC Order comprised of a Lead Market Maker,
Market Maker, Broker-Dealer, or Firm order on one side and a Lead
Market Maker, Market Maker, Broker-Dealer, or Firm order on the other
side. The Exchange is including these exclusions to the QCC Growth Tier
Rebate to mirror the exclusions within QCC Rebates in section A.
Notwithstanding, the limitation on eligible orders to receive a QCC
Growth Tier Rebate, the Exchange believes that the QCC Growth Tier
Rebate will continue to encourage market participants to send QCC
orders to Phlx for execution in an effort to earn higher QCC Rebates.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\8\ 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.
---------------------------------------------------------------------------

\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

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.'' \9\
---------------------------------------------------------------------------

\9\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------

Likewise, in NetCoalition v. Securities and Exchange Commission
\10\ (``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.\11\ 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.'' \12\
---------------------------------------------------------------------------

\10\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\11\ See NetCoalition, at 534-535.
\12\ Id. at 537.
---------------------------------------------------------------------------

Further, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S.

[[Page 16699]]

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' . . . .'' \13\
Although the court and the SEC were discussing the cash equities
markets, the Exchange believes that these views apply with equal force
to the options markets.
---------------------------------------------------------------------------

\13\ 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)).
---------------------------------------------------------------------------

The Exchange's proposal to amend the QCC Growth Tier Rebate to pay
the QCC Growth Tier on all qualifying executed electronic QCC Orders
except where the transaction is either Customer-to-Customer; Customer-
to-Professional; Professional-to-Professional; or a dividend, merger,
short stock interest, reversal and conversion, jelly roll, and box
spread strategy executions (as defined in Options 7, Section 4) is
reasonable because despite the limitation on eligible orders to receive
a QCC Growth Tier Rebate, the Exchange believes that this rebate will
continue to provide incentives for members and member organizations to
engage in substantial amounts of trading activity which would serve to
bring additional open outcry liquidity to the trading floor and
additional QCC Order Flow to Phlx. This incentive may also encourage
members and member organizations to commence sending such order flow to
Phlx for the opportunity to earn this rebate. The proposed exclusions
are similar to the exclusions for payments on QCC Rebates in section A
of Options 7, Section 4.\14\
---------------------------------------------------------------------------

\14\ Of note, currently, QCC Growth Tier Rebates are not paid on
Customer-to-Customer, Customer-to-Professional, or Professional-to-
Professional QCC Orders because the QCC Growth Tier Rebate specifies
it is only paid on a QCC Order comprised of a Customer or
Professional order on one side and a Lead Market Maker, Market
Maker, Broker-Dealer, or Firm order on the other side, and a QCC
Order comprised of a Lead Market Maker, Market Maker, Broker-Dealer,
or Firm order on one side and a Lead Market Maker, Market Maker,
Broker-Dealer, or Firm order on the other side. The Exchange is
including these exclusions to the QCC Growth Tier Rebate to mirror
the exclusions within QCC Rebates in section A.
---------------------------------------------------------------------------

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.
Inter-Market Competition
The proposal does not impose an undue burden on inter-market
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.
Intra-Market Competition
The proposed amendments do not impose an undue burden on intra-
market competition. In terms of intra-market competition, the Exchange
does not believe that its proposals will place any category of market
participant at a competitive disadvantage. The Exchange believes that
the proposed amendments to the QCC Rebate Growth Tier Rebates will
continue to provide incentives for members and member organizations to
engage in substantial amounts of trading activity which would serve to
bring additional open outcry liquidity to the trading floor and
additional QCC Order Flow to Phlx.
The Exchange's proposal to amend the QCC Growth Tier Rebate to pay
the QCC Growth Rebates on all qualifying executed electronic QCC Orders
except where the transaction is either Customer-to-Customer; Customer-
to-Professional; Professional-to-Professional; or a dividend, merger,
short stock interest, reversal and conversion, jelly roll, and box
spread strategy executions (as defined in Options 7, Section 4) does
not impose an undue burden on competition because any member or member
organization may qualify for the QCC Growth Tier Rebate. Further, the
Exchange will uniformly apply the proposed exceptions for eligible QCC
Orders.

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.\15\
---------------------------------------------------------------------------

\15\ 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#d5a7a0b9b0f8b6bab8b8b0bba1a695a6b0b6fbb2baa3"><span class="__cf_email__" data-cfemail="5624233a337b35393b3b333822251625333578313920">[email&#160;protected]</span></a>. Please include
File Number SR-Phlx-2023-08 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-2023-08. This file
number should be included on the

[[Page 16700]]

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-2023-08 and
should be submitted on or before April 10, 2023.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

\16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-05542 Filed 3-17-23; 8:45 am]
BILLING CODE 8011-01-P

</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>

View on FederalRegister.gov →Plain-text source

Indexed from Federal Register on March 20, 2023.

This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.