Notice2023-09678
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 4 Regarding Qualified Contingent Cross Growth Tier Rebate
Primary source
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Published
May 8, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 88 (Monday, May 8, 2023)</title>
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[Federal Register Volume 88, Number 88 (Monday, May 8, 2023)]
[Notices]
[Pages 29769-29771]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-09678]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97416; File No. SR-Phlx-2023-14]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7,
Section 4 Regarding Qualified Contingent Cross Growth Tier Rebate
May 2, 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 20, 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.
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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, Section 4, ``Multiply Listed Options Fees (Includes options
overlying equities, ETFs, ETNs and indexes which are Multiply Listed)
(Excludes SPY).'' \3\
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\3\ On April 20, 2023 the Exchange withdrew SR-Phlx-2023-12 and
replaced it with the instant rule change.
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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, Section
4, ``Multiply Listed Options Fees (Includes options overlying equities,
ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY).''
Specifically, Phlx proposes to amend its Qualified Contingent Cross
(``QCC'') Growth Tier Rebate, in Section B of Options 7, Section 4, to
sunset the QCC Growth Tier Rebate. The QCC Growth Tier Rebate will be
available through July 31, 2023.
Today, the Exchange offers a QCC Growth Tier Rebate 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,\4\ and
electronic QCC Orders
[[Page 29770]]
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 \5\ 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.
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\4\ 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''.
\5\ 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.
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The Exchange also offers an alternative qualification to achieve
the QCC Growth Tier Rebate. A member's or member organization's Open
Outcry Floor Transaction volume \6\ in a given month must exceed
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.
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\6\ 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.
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Today, 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. The Exchange pays 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 30I
[sic], 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). Finally, 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 sunset the QCC Growth Tier
Rebate. The QCC Growth Tier Rebate will be available through July 31,
2023.\7\ Despite only offering this program for 6 months, the Exchange
believes that it will continue to encourage members and member
organizations to earn larger QCC rebates by executing a larger amount
of floor transactions, QCC transaction volume, and Open Outcry Floor
Transaction volume on Phlx's trading floor.
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\7\ The QCC Growth Tier Rebate will be available through the
close of business on July 31, 2023 but would not be available
thereafter. For example, as of August 1, 2023 the Exchange would no
longer offer the QCC Growth Tier Rebate.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\8\ in general, and furthers the objectives of sections
6(b)(4) and 6(b)(5) of the Act,\9\ 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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\8\ 15 U.S.C. 78f(b).
\9\ 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.'' \10\
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\10\ 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
\11\ (``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.\12\ 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.'' \13\
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\11\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\12\ See NetCoalition, at 534-535.
\13\ 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' . . . .'' \14\ 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.
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\14\ 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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The Exchange's proposal to sunset the QCC Growth Tier Rebate is
reasonable because the Exchange believes that despite only offering
this program for 6 months, the rebate will continue to encourage
members and member organizations to earn larger QCC rebates by
executing a larger amount of floor transactions, QCC transaction
volume, and Open Outcry Floor Transaction volume on Phlx's trading
floor during the remaining months of the program. The Exchange believes
the rebate will continue to incentivize 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. Also, this
incentive should continue to encourage members and member organizations
to commence sending such order flow to Phlx for the
[[Page 29771]]
opportunity to earn this rebate until the program expires.
The Exchange's proposal to sunset the QCC Growth Tier Rebate is
equitable and not unfairly discriminatory because all members and
member organizations will be subject to the program during the 6 months
it is offered. The Exchange would no longer offer the rebate to any
member or member organization after the sunset date. Additionally, the
Exchange's proposal to establish a QCC Growth Tier Rebate is equitable
and not unfairly discriminatory because any member or member
organization may qualify for 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.
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's proposal to sunset the QCC Growth Tier Rebate does not
impose an undue burden on competition because all members and member
organizations will be subject to the program during the 6 months it is
offered. The Exchange would no longer offer the rebate to any member or
member organization after the sunset date. Additionally, the Exchange's
proposal to establish a QCC Growth Tier Rebate is equitable and not
unfairly discriminatory because any member or member organization may
qualify for 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.\15\
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\15\ 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="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#f280879e97df919d9f9f979c8681b2819791dc959d84"><span class="__cf_email__" data-cfemail="cab8bfa6afe7a9a5a7a7afa4beb98ab9afa9e4ada5bc">[email protected]</span></a>. Please include
File Number SR-Phlx-2023-14 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-2023-14. 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-2023-14 and should
be submitted on or before May 30, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09678 Filed 5-5-23; 8:45 am]
BILLING CODE 8011-01-P
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