Notice2023-09208
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
May 2, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 84 (Tuesday, May 2, 2023)</title>
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[Federal Register Volume 88, Number 84 (Tuesday, May 2, 2023)]
[Notices]
[Pages 27543-27545]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-09208]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97384; File No. SR-Phlx-2023-11]
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
April 26, 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 April 12, 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.\3\ Currently, the
Exchange has a schedule at Equity 7, Section 3(a), which consists of
several different credits that it provides for orders in securities
priced at $1 or more per share that add liquidity on the Exchange and
several different charges that it assesses for orders in such
securities that access liquidity on the Exchange. The Exchange has a
schedule at Equity 7, Section 3(b), which consists of charges and
credits that apply for securities priced at less than $1 per share. The
Exchange proposes to amend Equity 7, Section 3(a) to: (i) add two new
credit tiers for displayed Quotes/Orders; (ii) adjust an existing
credit for displayed Quotes/Orders; and (iii) add a supplemental credit
for displayed Quotes/Orders. In addition, the Exchange proposes to
amend Equity 7, Section 3(b) to adjust an existing charge for
securities priced at less than $1 per share.
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\3\ The Exchange initially filed the proposed pricing changes on
April 3, 2023 (SR-PHLX-2023-10). The instant filing replaces SR-
PHLX-2023-10, which was withdrawn on April 12, 2023.
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Proposed Changes to Equity 7, Section 3(a)
The Exchange proposes to establish two new rebates to member
organizations for adding displayed liquidity. First, the Exchange
proposes to establish a new credit that will reward a member
organization with a credit of $0.0033 per share executed for Quotes/
Orders that provide 0.15% or more of total Consolidated Volume during
the month. Second, 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 provide 0.07% or more of total
Consolidated Volume during the month. The Exchange also proposes to
adjust an existing credit from $0.0032 per share executed to $0.0030
per share executed for Quotes/Orders that provide 0.05% or more of
total Consolidated Volume during the month. Finally, the Exchange
proposes to establish a new supplemental rebate that will reward a
member organization with a supplemental credit of $0.00005 per share
executed for displayed Quotes/Orders that: (i) provides 0.10% or more
of total Consolidated Volume during the prior month; and (ii) provides
0.10% or more of total Consolidated Volume during the month.
The proposed new credits will provide incentives to member
organizations to add liquidity to the Exchange. To the extent that the
proposed new credits succeed 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. 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
also proposes to reduce an existing credit, as noted above. 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.
[[Page 27544]]
Proposed Change to Equity 7, Section 3(b)
The Exchange proposes to adjust the charge to member organizations
for accessing liquidity on the Exchange in securities priced at less
than $1 per share from the current rate of 0.20% of the total
transaction cost to 0.30% of the total transaction cost. Again, 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
adjust the charge for accessing liquidity on the Exchange in securities
priced at less than $1 per share, as noted above.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\4\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\5\ 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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\4\ 15 U.S.C. 78f(b).
\5\ 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'. . . .'' \6\
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\6\ 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.'' \7\
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\7\ 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 amend Equity 7, Section 3(a) to: (i) add two new
credit tiers for displayed Quotes/Orders; (ii) adjust an existing
credit for displayed Quotes/Orders; and (iii) add a supplemental credit
for displayed Quotes/Orders. Taken together, these amendments will
better align incentives with the Exchange's needs. 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. In addition, the proposed new credits would provide
incentives to member organizations to add liquidity to the Exchange. To
the extent that the proposed new credits succeed 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.
The Exchange also believes it is reasonable, equitable, and not
unfairly discriminatory to amend Equity 7, Section 3(b) to adjust an
existing charge for securities priced at less than $1 per share as 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 changes to the
Exchange's schedule of credits and fees 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
[[Page 27545]]
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.
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 \8\ and paragraph (f) of Rule 19b-4
thereunder.\9\ 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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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 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#1c6e697079317f7371717972686f5c6f797f327b736a"><span class="__cf_email__" data-cfemail="6113140d044c020e0c0c040f1512211204024f060e17">[email protected]</span></a>. Please include
File Number SR-Phlx-2023-11 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-2023-11. 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
10:00 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. Do
not include personal identifiable information in submissions; you
should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to File Number SR-Phlx-2023-11 and should
be submitted on or before May 23, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09208 Filed 5-1-23; 8:45 am]
BILLING CODE 8011-01-P
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