Notice2023-12578
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 4
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
June 13, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 113 (Tuesday, June 13, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 113 (Tuesday, June 13, 2023)]
[Notices]
[Pages 38580-38582]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-12578]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97666; File No. SR-Phlx-2023-23]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7,
Section 4
June 7, 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 June 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 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 Floor Transaction (Open
Outcry) Floor Broker Incentive Program.
Today, the Exchange offers an incentive program for Floor Brokers
\3\ that is designed to attract order flow to Phlx's trading floor for
execution in open outcry. Today, the Exchange pays Floor Transaction
(Open Outcry) Floor Broker Incentive Program rebates on qualifying
volume at each threshold level per the below schedule.
---------------------------------------------------------------------------
\3\ The term ``Floor Broker'' means an individual who is
registered with the Exchange for the purpose, while on the Options
Floor, of accepting and handling options orders. See Phlx Options 7,
Section 1(c).
------------------------------------------------------------------------
Per contract
Qualifying contracts rebate
------------------------------------------------------------------------
0-5,000,000............................................. $0.03
5,000,001-10,000,000.................................... 0.06
Greater than 10,000,000................................. 0.09
------------------------------------------------------------------------
[[Page 38581]]
By way of example, a Floor Broker that executes floor transactions
in a given month totaling 10,500,000 contracts is paid $0.03 for the
first 5,000,000 floor transaction contracts ($150,000), $0.06 for the
next 5,000,000 floor transaction contracts ($300,000), and $0.09 for
the final 500,000 floor transaction contracts ($45,000) for a total
rebate of $495,000 for that month. Further, as an additional clarifying
example, if a Floor Broker executes a floor transaction in the amount
of 1,000,000 contracts, represents both sides of the floor transaction,
and executes the floor transaction as a crossing transaction pursuant
to Options 8, Section 30(a) for 700,000 of the 1,000,000 contracts,
then trades the remaining 300,000 contracts with the trading crowd, the
Floor Transaction (Open Outcry) Floor Broker Incentive Program rebate
for this transaction will be paid on the qualifying floor transaction
volume of 1,000,000 contracts. The Exchange caps rebates for the Floor
Transaction (Open Outcry) Floor Broker Incentive Program at $1,000,000
per member or member organization in a given month.
Today, the following floor transactions are not subject to the
rebates offered within the Floor Transaction (Open Outcry) Floor Broker
Incentive Program: (1) Floor QCC Orders, as defined in Options 8,
Section 30(e); \4\ (2) dividend, merger, short stock interest, reversal
and conversion, jelly roll and box spread strategy executions as
defined in this Options 7, Section 4; (3) Firm Floor Options
Transactions Charges for members executing facilitation orders pursuant
to Options 8, Section 30 when such members are trading in their own
proprietary account (including Cabinet Options Transaction Charges);
and (4) Customer-to-Customer transactions.
---------------------------------------------------------------------------
\4\ Today, Floor QCC Orders are not transacted in open outcry.
The Exchange proposes to include Floor QCC Orders in the list of
exclusions to remind members and member organizations that Floor QCC
Orders will not be paid the Floor Transaction (Open Outcry) Floor
Broker Incentive Program rebate.
---------------------------------------------------------------------------
At this time, the Exchange proposes to amend the rebates that will
be paid on qualifying volume at each threshold level. The Exchange
proposes to increase the rebate from $0.03 to $0.05 per contract for
qualifying contracts from 1-5,000,000. The Exchange proposes to
increase the rebate from $0.06 to $0.08 per contract for qualifying
contracts from 5,000,001 to 10,000,000. Finally, the Exchange proposes
to increase rebate from $0.09 to $0.11 per contract for qualifying
contracts greater than 10,000,000. The Exchange is not amending
qualifying floor transactions that are subject to the rebates. The
Exchange would make corresponding changes to the example beneath the
rebate table in Options 7, Section 4.
The Exchange believes that the Floor Transaction (Open Outcry)
Floor Broker Incentive Program will continue to attract greater order
flow to Phlx's trading floor.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\5\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\6\ 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.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78f(b).
\6\ 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.'' \7\
---------------------------------------------------------------------------
\7\ 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 \8\
(``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.\9\ 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.'' \10\
---------------------------------------------------------------------------
\8\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\9\ See NetCoalition, at 534-535.
\10\ Id. at 537.
---------------------------------------------------------------------------
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'. . . .'' \11\ 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.
---------------------------------------------------------------------------
\11\ 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 increase the Floor Transaction (Open
Outcry) Floor Broker Incentive Program rebates that will be paid on
qualifying volume at each threshold level ($0.03 to $0.05 per contract
for 1-5,000,000; $0.06 to $0.08 per contract for 5,000,001 to
10,000,000; and $0.09 to $0.11 per contract for greater than
10,000,000) is reasonable because the Exchange believes that these
rebates will serve to continue to incentivize Floor Brokers to execute
a greater number of orders in the Exchange's trading crowd. Any market
participant may send an order to a Phlx Floor Broker for execution on
Phlx's trading floor. The Exchange notes that other Phlx floor members
\12\ may interact with orders exposed in open outcry on the Exchange's
trading floor.
---------------------------------------------------------------------------
\12\ Floor members include all members who have acquired a
permit to trade on Phlx's trading floor.
---------------------------------------------------------------------------
The Exchange's proposal to increase the Floor Transaction (Open
Outcry) Floor Broker Incentive Program rebates that will be paid on
qualifying volume at each threshold level ($0.03 to $0.05 per contract
for 1-5,000,000; $0.06 to $0.08 per contract for 5,000,001 to
10,000,000; and $0.09 to $0.11 per contract for greater than
10,000,000) is equitable and not unfairly discriminatory as the
Exchange would uniformly calculate all qualifying volume and uniformly
pay rebates associated with the Floor Transaction (Open Outcry) Floor
Broker Incentive Program up to $1,000,000 in rebates a month.
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
[[Page 38582]]
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 proposed Floor Broker
Incentive Program rebates should encourage Floor Brokers to send
additional order flow to Phlx to obtain rebates and lower their costs.
Any market participant may send an order to a Phlx Floor Broker for
execution on Phlx's trading floor. The Exchange believes that the
additional liquidity will enhance the quality of the Exchange's market
and increase certain trading opportunities on the Exchange's trading
floor for floor members.
The Exchange's proposal to increase the Floor Transaction (Open
Outcry) Floor Broker Incentive Program rebates that will be paid on
qualifying volume at each threshold level ($0.03 to $0.05 per contract
for 1-5,000,000; $0.06 to $0.08 per contract for 5,000,001 to
10,000,000; and $0.09 to $0.11 per contract for greater than
10,000,000) does not impose an undue burden on competition as the
Exchange would uniformly calculate all qualifying volume and uniformly
pay rebates associated with the Floor Transaction (Open Outcry) Floor
Broker Incentive Program up to $1,000,000 in rebates a month.
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.\13\
---------------------------------------------------------------------------
\13\ 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="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#1b696e777e36787476767e756f685b687e78357c746d"><span class="__cf_email__" data-cfemail="5725223b327a34383a3a323923241724323479303821">[email protected]</span></a>. Please include
File Number SR-Phlx-2023-23 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-2023-23. 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. 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-2023-23 and should be
submitted on or before July 5, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12578 Filed 6-12-23; 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>Indexed from Federal Register on June 13, 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.