Notice2023-13790
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Phlx Options 7 Regarding PXL Order Pricing
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 29, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 124 (Thursday, June 29, 2023)</title>
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[Federal Register Volume 88, Number 124 (Thursday, June 29, 2023)]
[Notices]
[Pages 42117-42123]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-13790]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97788; File No. SR-Phlx-2023-26]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx
Options 7 Regarding PXL Order Pricing
June 22, 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 13, 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 its Pricing Schedule at Options 7:
Section 1, General Provisions; Section 3, Rebates and Fees for Adding
and Removing Liquidity in SPY; and Section 6, Other Transaction
Fees.\3\
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\3\ On June 2, 2023, the Exchange withdrew SR-Phlx-2023-20 and
replaced it with SR-Phlx-2023-24. On June 5, 2023, the Exchange
withdrew SR-Phlx-2023-24 and replaced it with SR-Phlx-2023-25. On
June 13, 2023, the Exchange withdrew SR-Phlx-2023-25 and replaced it
with the instant filing.
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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
The Exchange proposes to amend Phlx's Pricing Schedule at Options
7: Section 1, General Provisions; Section 3, Rebates and Fees for
Adding and Removing Liquidity in SPY; and Section 6, Other Transaction
Fees. Specifically, Phlx proposes to: (1) introduce new references in
Options 7, Section 1; and (2) amend its Price Improvement XL (``PIXL'')
\4\ pricing for both options overlying SPY and other options to provide
more detail regarding the pricing of unrelated market or marketable
interest and make other amendments to utilize the proposed references.
Each change is described below.
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\4\ A member may electronically submit for execution an order it
represents as agent on behalf of a Public Customer, broker-dealer,
or any other entity (``PIXL Order'') against principal interest or
against any other order it represents as agent (an ``Initiating
Order'') provided it submits the PIXL Order for electronic execution
into the PIXL Auction pursuant to Options 3, Section 13.
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Options 7, Section 1
The Exchange proposes to amend Options 7, Section 1(c) to introduce
four new references: ``Initiating Order'', ``PIXL Auction Order'',
``PIXL Order'', and ``PIXL Response.''
The Exchange proposes to provide that the term ``Initiating Order''
is one-side of a PIXL Auction Order that represents principal or other
interest which is paired with a PIXL Order.
The Exchange proposes to provide that a ``PIXL Auction Order'' is a
two-sided, paired order, comprised of a PIXL Order and an Initiating
Order.
The Exchange proposes to provide that a ``PIXL Order'' is one-side
of a PIXL Auction Order that represents an agency order on behalf a
Public Customer, broker-dealer or other entity which is paired with an
Initiating Order.
Finally, the Exchange proposes to provide that a ``PIXL Response''
is interest that executed against the PIXL Order pursuant to Options 3,
Section 13.
The Exchange believes that these references will bring more
transparency to Phlx's PIXL pricing.\5\
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\5\ The Exchange also proposes a technical amendment in Options
7, Section 1(c) to add a period to the end of the reference to
``floor transaction.''
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Options 7, Section 3
The Exchange proposes to amend PIXL pricing for options overlying
SPY in Options 7, Section 3, Part C. The Exchange proposes to replace
the current text below with a proposed table. The current text of
Options 7, Section 3, related to PIXL Executions in SPY, provides,
<bullet> Initiating Order: $0.05 per contract. Members or member
organizations that qualify for Options 7, Section 2, Customer Rebate
Tiers 2 through 6 or qualify for the Monthly Firm Fee Cap are
eligible for a rebate of $0.12 per contract for all SPY Complex PIXL
Orders greater than 499 contracts when contra to an Initiating
Order, provided the member or member organization executes an
average of 2,500 contracts per day of SPY Complex PIXL Orders in a
month.
<bullet> When the PIXL Order is contra to the Initiating Order,
a Customer PIXL Order will be assessed $0.00 per contract and all
other Non-Customer market participants will be assessed a $0.38 per
contract fee when contra to an Initiating Order.
<bullet> When the PIXL Order is contra to other than the
Initiating Order, the PIXL Order will be assessed $0.00 per
contract, unless the PIXL Order is a Customer, in which case the
Customer will receive a rebate of $0.40 per contract.
<bullet> All other Non-Customer contra parties to the PIXL Order
that are not the Initiating Order will be assessed a Fee for
Removing Liquidity of $0.50 per contract or will receive the Rebate
for Adding Liquidity. When the PIXL Order is contra to a Lead Market
Maker or Market Maker quote, which was established at the initiation
of a PIXL auction, the Customer PIXL Order will not be eligible for
a rebate.
In lieu of the current rule text, the Exchange proposes the below
table.
[[Page 42118]]
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Type of market participant PIXL Order executes
against Initiating Order
\1\
PIXL Order executes against a PIXL Response or
unrelated market or marketable interest
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Initiating PIXL Order PIXL Order PIXL Order PIXL Response or Unrelated market or marketable
Order fee fee rebate fee unrelated market interest received prior to a
or marketable PIXL Auction fee
interest received
during a PIXL
Auction fee
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Customer...................................... $0.05 $0.00 \2\ $0.40 N/A $0.00 Options 7, Section 3, Part A
Rebate for Adding Liquidity/
Options 7, Section 3, Part B Fee
for Adding Liquidity.
Non-Customer.................................. 0.05 0.38 N/A $0.00 0.50 Options 7, Section 3 Part A
Rebate for Adding Liquidity/
Options 7, Section 3 Part B Fee
for Adding Liquidity.
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The current rule text in the first bullet states that the
Initiating Order is $0.05 per contract. This fee currently applies to
Customers \6\ and Non-Customers \7\ and is reflected in the proposed
table in a manner consistent with the current rule text. The remainder
of the sentence was relocated to footnote 1. The Exchange proposes to
amend the original rule text by breaking the current sentence into two
sentences and restating the rebate that will be paid by the Exchange
for SPY Complex Orders in a succinct manner. This non-substantive
amendment to new footnote 1 would provide,
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\6\ The term ``Customer'' applies to any transaction that is
identified by a member or member organization for clearing in the
Customer range at The Options Clearing Corporation (``OCC'') which
is not for the account of a broker or dealer or for the account of a
``Professional'' (as that term is defined in Options 1, Section
1(b)(45)). See Options 7, Section 1(c).
\7\ The term ``Non-Customer'' applies to transactions for the
accounts of Lead Market Makers, Market Makers, Firms, Professionals,
Broker-Dealers and JBOs. See Options 7, Section 1(c).
A rebate of $0.12 will be paid to members or member
organizations that qualify for Options 7, Section 2, Customer Rebate
Tiers 2 through 6 or qualify for the Monthly Firm Fee Cap. The
rebate will be paid on all SPY Complex PIXL Orders greater than 499
contracts when contra to an Initiating Order, provided the member or
member organization executes an average of 2,500 contracts per day
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of SPY Complex PIXL Orders in a month.
The current rule text in the second bullet applies to the scenario
where the PIXL Order is contra to the Initiating Order. In this case,
the Customer PIXL Order is assessed $0.00 per contract and Non-Customer
PIXL Orders are assessed a $0.38 per contract fee. The proposed table
reflects these current PIXL Order fees and does not substantively amend
the rule text in this second bullet.
The current rule text in the third bullet applies to the scenario
when the PIXL Order is contra to a PIXL Response or unrelated market or
marketable interest. In this case, the PIXL Order is $0.00 for Non-
Customers and the Customer receives a rebate of $0.40 per contract. The
proposed table reflects these current PIXL Order fees and does not
substantively amend the rule text in this third bullet.
Finally, the current rule text in the fourth bullet provides that
Non-Customer PIXL Responses or unrelated market or marketable interest
that trades with a PIXL Order are assessed a Fee for Removing Liquidity
of $0.50 per contract. The Exchange notes that this fee is currently
appliable to unrelated market or marketable interest that was received
during the PIXL Auction. This fee is reflected in the proposed table
but is not referred to as a Fee to Remove Liquidity, rather simply as a
fee. The rule text states that Non-Customers could also receive a
Rebate for Adding Liquidity, but such a rebate is not possible in this
scenario as the PIXL Responses and unrelated market or marketable
interest would be removing liquidity in this scenario. Because the
Rebate for Adding Liquidity is not possible in this scenario, it is
being removed. The last sentence of the final bullet is reflected in
footnote 2 to the table and the language has been amended to replace
the words ``contra to'' with ``executed against.'' Also, the word
``unrelated'' was added before Lead Market Maker or Market Maker quote
because that interest would have been placed on the order book. The
Exchange amended the language to clearly state ``which was received
prior to the PIXL Auction'' instead of ``established at the initiation
of a PIXL auction.'' \8\ The Exchange believes the proposed rule text
adds clarity to understand the particular scenario.
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\8\ See Securities Exchange Act Release No. 80064 (February 24,
2017), 82 FR 11666 (February 24, 2017) (SR-Phlx-2017-15).
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The current rule text does not make clear the fee that a Customer
PIXL Response or unrelated market or marketable interest, received
during a PIXL Auction, would be assessed when that response or interest
executes against a PIXL Order. Today, the Customer PIXL Response or
unrelated market or marketable interest received during a PIXL Auction
is not assessed a fee in this scenario. The Exchange proposes to
memorialize the $0.00 per contract rate in this proposed table at this
time to add transparency to the SPY PIXL pricing. This fee is not
changing, rather it is being memorialized in the proposed table.
The Exchange notes that unrelated market or marketable interest
received in SPY during a PIXL Auction is noted in the current rule
text, other than the Customer PIXL Response or unrelated market or
marketable interest described above. Today, unrelated market or
marketable interest in SPY received prior to the PIXL Auction is
subject to the simple order book pricing within Options 7, Section 3,
Part A and the complex order book pricing within Options 7, Section 3,
Part B. At this time, the Exchange proposes to memorialize this pricing
in the proposed table. The Exchange applies the order book pricing
within Options 7, Section 3, Parts A and B to interest received prior
to the PIXL Auction, which is considered unrelated market or marketable
interest for purposes of the PIXL Auction, because at the time the
interest was submitted to the order book, the Phlx members and member
organizations would have known \9\ that
[[Page 42119]]
there was no ongoing PIXL Auction and would not expect to be subject to
the PIXL pricing. Rather, these market participants would be subject to
SPY order book pricing similar to all other orders entered into Phlx's
order book. In contrast, the Exchange applies the SPY PIXL pricing
within Options 7, Section 3 to the unrelated market or marketable
interest that interest arrived during a PIXL Auction because Phlx seeks
to incentivize members and member organizations to submit PIXL Auction
Orders to receive a guaranteed execution and potential price
improvement. Phlx members and member organizations submitting interest
to the order book during a PIXL Auction are aware that they may be
allocated in the PIXL Auction. The Exchange assesses the SPY PIXL
pricing within Options 7, Section 3 in the same manner that responders
to the PIXL Auction are assessed fees for their PAN responses. The
unrelated market or marketable interest that received an allocation
within the PIXL Auction would be uniformly subject to the same fees as
those Phlx members and member organizations who submitted PAN responses
and were allocated, thereby receiving a guaranteed execution and
potential price improvement. The pricing for unrelated market or
marketable interest received during a PIXL Auction is not changing,
this is the pricing being assessed today by Phlx.
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\9\ Phlx members and member organizations become aware of
ongoing PIXL Auctions when Phlx disseminates a PIXL Auction
Notification or ``PAN.'' When the Exchange receives a PIXL Order for
Auction processing, a PAN detailing the side and size and option
series of the PIXL Order is sent over the Exchange's TOPO data feed
pursuant to Options 3, Section 23(a)(1) and Specialized Quote Feed
pursuant to Options 3, Section (a)(i)(B). See Phlx Options 3,
Section 13(b)(1)(C).
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Options 7, Section 6
The Exchange proposes to amend Options 7, Section 6.A, PIXL
Pricing. The Exchange proposes to create paragraphs in lieu of the
single block text within Options 7, Section 6.A which describes the
Initiating Order, and demarcate each paragraph with a symbol. The
Exchange is not otherwise amending that paragraph.
Next, the Exchange proposes to amend the rule text under the
heading, ``PIXL Order Executions in Options 7, Section 4, Multiply
Listed Options (including ETFs, ETNs and indexes which are Multiply
Listed):'' The Exchange is amending the current rule text in the second
bullet which currently states,
When a PIXL Order is contra to a PIXL Auction Responder, a
Customer PIXL Order will be assessed $0.00 per contract, other Non-
Customer PIXL Orders will be assessed $0.30 per contract in Penny
Symbols or $0.38 per contract in Non-Penny Symbols. A Responder that
is a Lead Market Maker or a Market Maker will be assessed $0.25 per
contract in Penny Symbols or $0.40 per contract in Non-Penny
Symbols. Other Non-Customer Responders will be assessed $0.48 per
contract in Penny Symbols or $0.70 per contract in Non-Penny Symbols
when contra to a PIXL Order. A Responder that is a Customer will be
assessed $0.00 per contract in Penny Symbols and Non-Penny Symbols.
The Exchange proposes to create two separate bullets in lieu of
this one bullet. The first bullet would provide,
When a PIXL Order executes against a PIXL Response or unrelated
market or marketable interest received during a PIXL Auction, a
Customer PIXL Order will be assessed $0.00 per contract, and other
Non-Customer PIXL Orders will be assessed $0.30 per contract in
Penny Symbols or $0.38 per contract in Non-Penny Symbols.
In amending this sentence, the Exchange proposes to replace the
words ``is contra to'' with ``executes against.'' Also, the Exchange
proposes to replace the words ``Auction Responder'' with ``PIXL
Response or unrelated market or marketable interest received during a
PIXL Auction.'' Finally, the Exchange is adding an ``and'' in the
sentence to make the sentence clear. These non-substantive changes
utilize the references proposed within Options 7, Section 1. As
amended, the second bullet would provide,
A PIXL Response or unrelated market or marketable interest
received during a PIXL Auction from a Lead Market Maker or a Market
Maker will be assessed $0.25 per contract in Penny Symbols or $0.40
per contract in Non-Penny Symbols. Other Non-Customer PIXL Responses
and unrelated market or marketable interest received during a PIXL
Auction will be assessed $0.48 per contract in Penny Symbols or
$0.70 per contract in Non-Penny Symbols when contra to a PIXL Order.
A PIXL Response or unrelated market or marketable interest received
during a PIXL Auction from a Customer will be assessed $0.00 per
contract in Penny Symbols and Non-Penny Symbols.
Similar to the first bullet, the Exchange proposes to replace
``Responder'' with ``PIXL Response or unrelated market or marketable
interest received during a PIXL Auction.'' \10\ These non-substantive
changes utilize the references proposed within Options 7, Section 1.
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\10\ The Exchange proposes other technical amendments for
readability of the sentence.
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The Exchange is also amending the current rule text in the third
bullet which currently states,
When a PIXL Order is contra to a resting order or quote a
Customer PIXL Order will be assessed $0.00 per contract, other Non-
Customer will be assessed $0.30 per contract and the resting order
or quote will be assessed the appropriate Options Transaction Charge
in Options 7, Section 4.
The Exchange proposes to create two separate bullets in lieu of
this one bullet. The first bullet would provide,
When a PIXL Order is a Customer order and executes against
unrelated market or marketable interest received prior to a PIXL
Auction, the Customer order will be assessed $0.00 per contract.
Unrelated market or marketable interest received prior to a PIXL
Auction will be assessed the appropriate Options Transaction Charge
in Options 7, Section 4.
In amending this sentence, the Exchange proposes to replace the
words ``is contra to a resting order or quote'' with ``executes against
unrelated market or marketable interest received prior to a PIXL
Auction'' and ``PIXL Order'' with ``Customer PIXL Order.'' Any order
resting on the order book would have been received prior to the PIXL
Auction. The Exchange also proposes to add a new sentence that states,
``Unrelated market or marketable interest received prior to a PIXL
Auction will be assessed the appropriate Options Transaction Charge in
Options 7, Section 4.'' Today, the rule text does not describe the
manner in which the Exchange prices unrelated market or marketable
interest received prior to the commencement of a PIXL Auction. This new
sentence memorializes the current pricing that Phlx members and member
organizations are assessed for such interest, which is order book
pricing. As amended, the second bullet would provide,
Non-Customer PIXL Orders will be assessed $0.30 per contract
when trading with an unrelated market or marketable interest
received prior to the PIXL Auction and the unrelated market or
marketable interest received prior to the PIXL Auction will be
assessed the appropriate Options Transaction Charge in Options 7,
Section 4.
The Exchange is adding the words ``PIXL Order'' after Non-Customer
since it started a new sentence to retain the original reference to a
PIXL Order at the beginning of the current sentence.\11\ To add more
context to this scenario, the Exchange is also noting that ``when
trading with an unrelated market or marketable interest received prior
to the PIXL Auction'' to make clear the type of interest trading with
the Non-Customer PIXL Order. The Exchange is also replacing the phrase
``resting order or quote'' with ``unrelated market or marketable
interest received prior to the PIXL Auction.'' These non-substantive
amendments utilize the references within Options 7, Section 1. Also, of
note, any order resting on the order
[[Page 42120]]
book would have been received prior to the PIXL Auction.
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\11\ The Exchange is also making other technical changes to
start a new paragraph, removing ``, other.''
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As noted herein, the Exchange applies the order book pricing within
Options 7, Section 4 to interest received prior to the PIXL Auction,
which is considered unrelated market or marketable interest for
purposes of the PIXL Auction, because at the time the interest was
submitted to the order book, the Phlx members and member organizations
would have known that there was no ongoing PIXL Auction and would not
expect to be subject to the PIXL pricing. In contrast, the Exchange
applies PIXL pricing within Options 7, Section 6 to the unrelated
market or marketable interest when interest arrived during a PIXL
Auction because Phlx seeks to incentivize members and member
organizations to submit PIXL Auction Orders to receive a guaranteed
execution, and potential price improvement. Phlx members and member
organizations submitting interest to the order book during a PIXL
Auction are aware that they may be allocated in the PIXL Auction. These
market participants would be subject to order book pricing similar to
all other orders entered into Phlx's order book. The Exchange assesses
the PIXL pricing in Options 7, Section 6 in the same manner that
responders to the PIXL Auction are assessed fees for their PAN
responses. The unrelated market or marketable interest that received an
allocation within the PIXL Auction would be uniformly subject to the
same fees as those Phlx members and member organizations who submitted
PAN responses and were allocated, thereby receiving a guaranteed
execution and potential price improvement.
The Exchange's pricing models for the order book and PIXL Auction
each seek to attract liquidity to Phlx and reward members and member
organizations differently for the order flow. To this end, the
Exchange's pricing considers the manner in which orders interact with
the PIXL Auction based on the timing of when the order entered the
order book. The Exchange's pricing is consistent with its current
practice of assigning the applicable pricing for auctions versus order
book pricing depending on how and when the order was submitted to the
Exchange.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\12\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4) and (5).
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The proposed changes to its Pricing Schedule are reasonable in
several respects. As a threshold matter, the Exchange is subject to
significant competitive forces in the market for options 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 \14\
(``NetCoalition''), the D.C. Circuit stated, ``[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'. . . .'' \15\
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\14\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\15\ 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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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options transaction services. The Exchange is only one of sixteen
options exchanges to which market participants may direct their order
flow. 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. Within the
foregoing context, the proposal represents a reasonable attempt by the
Exchange to attract additional order flow to the Exchange and increase
its market share relative to its competitors.
Options 7, Section 1
The Exchange's proposal to amend Options 7, Section 1(c) to
introduce four new references: ``Initiating Order'', ``PIXL Auction
Order'', ``PIXL Order'', and ``PIXL Response'' is reasonable, equitable
and not unfairly discriminatory because these references will bring
more transparency to Phlx's PIXL pricing and also apply in the same
manner to all PIXL transactions executed on the Exchange.
Options 7, Section 3
The Exchange's proposal to amend PIXL pricing for options overlying
SPY in Options 7, Section 3, Part C by replacing the current text below
with a proposed table is reasonable, equitable and not unfairly
discriminatory because the proposed table reflects the current pricing
offered today on Phlx and adds transparency to that pricing. The
proposed table does not amend the current rule text except to add the
Customer PIXL Response or unrelated market or marketable interest
received during a PIXL Auction, which is currently not described in the
rule text, and to specify the pricing for unrelated market or
marketable interest received during a PIXL Auction.
Assessing a SPY Customer PIXL Response or unrelated market or
marketable interest received during a PIXL Auction is reasonable
because the Exchange currently does not assess a Customer a PIXL Order
fee when the PIXL Order trades against a PIXL Response or unrelated
market or marketable interest. The Exchange believes that not assessing
a fee will attract more SPY Customer liquidity to Phlx's PIXL Auction.
The proposed SPY Customer PIXL Response and unrelated market or
marketable interest of $0.00 per contract reflects the current rate
assessed today to these participants.
Assessing a SPY Customer PIXL Response or unrelated market or
marketable interest received during a PIXL Auction is equitable and not
unfairly discriminatory because Customer orders bring valuable
liquidity to the market, which liquidity benefits other market
participants. Customer liquidity benefits all market participants by
providing more trading opportunities, which attracts Lead Market Makers
and Market Makers. An increase in the activity of these market
participants in turn facilitates tighter spreads, which may cause an
additional corresponding increase in order flow from other market
participants.
Assessing unrelated market or marketable interest in SPY received
prior to a PIXL Auction the simple order book pricing within Options 7,
Section 3, Part A and the complex order book pricing within Options 7,
Section 3, Part B is reasonable because at the time the interest was
submitted to the order book, the Phlx members and member organizations
would have known that there was no ongoing PIXL Auction and would not
expect to be subject to the PIXL pricing. In contrast, applying SPY
PIXL pricing within Options 7, Section
[[Page 42121]]
3 to the unrelated market or marketable interest that interest arrived
during a PIXL Auction is reasonable because Phlx seeks to incentivize
members and member organizations to submit PIXL Auction Orders to
receive a guaranteed execution and potential price improvement. Phlx
members and member organizations submitting interest to the order book
during a PIXL Auction are aware that they may be allocated in the PIXL
Auction. The Exchange's pricing models for the order book and PIXL
Auction each seek to attract liquidity to Phlx and reward members and
member organizations differently for the order flow. To this end, the
Exchange's pricing considers the manner in which orders interact with
the PIXL Auction based on the timing of when the order entered the
order book. The Exchange's pricing is consistent with its current
practice of assigning the applicable pricing for auctions versus order
book pricing depending on how and when the order was submitted to the
Exchange.
Assessing unrelated market or marketable interest in SPY received
prior to a PIXL Auction the simple order book pricing within Options 7,
Section 3, Part A and the complex order book pricing within Options 7,
Section 3, Part B is equitable and not unfairly discriminatory because
all Phlx members and member organizations who submitted unrelated
market or marketable interest which rested on the order book prior to
the commencement of a PIXL Auction will be uniformly assessed the
applicable order book pricing for adding liquidity. The Exchange's
proposal would treat Phlx members and member organizations who
submitted unrelated market or marketable interest in SPY which rested
on the order book prior to the commencement of a PIXL Auction in the
same manner as other Phlx members and member organizations who posted
liquidity on the order book as they would both be considered makers of
liquidity. Conversely, the Exchange assesses the SPY PIXL pricing
within Options 7, Section 3 in the same manner that responders to the
PIXL Auction are assessed fees for their PAN responses. The unrelated
market or marketable interest that received an allocation within the
PIXL Auction would be uniformly subject to the same fees as those Phlx
members and member organizations who submitted PAN responses and were
allocated, thereby receiving a guaranteed execution and potential price
improvement.
The Exchange's proposal to amend the rule text in the last sentence
of the final bullet that is being relocated to footnote 2 to state
``which was received prior to the PIXL Auction'' instead of
``established at the initiation of a PIXL auction'' is reasonable,
equitable and not unfairly discriminatory because the proposed new
language continues to reflect the intent of the original language.\16\
The amended rule text makes clear that the Lead Market Maker or Market
Maker quote that is being referenced would have been resting on the
order book prior to the PIXL Order. Today, the rebate is paid to the
PIXL Order where the Lead Market Maker or Market Maker executes against
the PIXL Order portion of the paired order as a response. The Exchange
would apply new footnote 2 uniformly to Customer PIXL Orders.
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\16\ See Securities Exchange Act Release No. 80064 (February 24,
2017), 82 FR 11666 (February 24, 2017) (SR-Phlx-2017-15).
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Options 7, Section 6
The Exchange's proposal to amend Options 7, Section 6.A, PIXL
Pricing to make technical non-substantive rule changes and replace
certain text with the proposed references within Options 7, Section 1
is reasonable, equitable and not unfairly discriminatory as it will
clarify and harmonize the current rule text by utilizing specified
terms.
The Exchange's proposal to add a new sentence that states,
``Unrelated market or marketable interest received prior to a PIXL
Auction will be assessed the appropriate Options Transaction Charge in
Options 7, Section 4,'' is reasonable because the proposed rule text
will describe the manner in which the Exchange prices unrelated market
or marketable interest received prior to the commencement of a PIXL
Auction. This new sentence memorializes the current pricing that Phlx
members and member organizations are assessed for such interest, which
is order book pricing. The Exchange applies the order book pricing
within Options 7, Section 4 to interest received prior to the PIXL
Auction, which is considered unrelated market or marketable interest
for purposes of the PIXL Auction, because at the time the interest was
submitted to the order book, the Phlx members and member organizations
would have known that there was no ongoing PIXL Auction and would not
expect to be subject to the PIXL pricing. In contrast, the Exchange
applies PIXL pricing within Options 7, Section 6 to the unrelated
market or marketable interest when interest arrived during a PIXL
Auction because Phlx seeks to incentivize Participants to submit PIXL
Auction Orders to receive a guaranteed execution and potential price
improvement. Phlx members and member organizations submitting interest
to the order book during a PIXL Auction are aware that they may be
allocated in the PIXL Auction. Additionally, the Exchange's pricing
models for the order book and PIXL Auction each seek to attract
liquidity to Phlx and reward members and member organizations
differently for the order flow. To this end, the Exchange's pricing
considers the manner in which orders interact with the PIXL Auction
based on the timing of when the order entered the order book. The
Exchange's pricing is consistent with its current practice of assigning
the applicable pricing for auctions versus order book pricing depending
on how and when the order was submitted to the Exchange.
The Exchange's proposal to add a new sentence that states,
``Unrelated market or marketable interest received prior to a PIXL
Auction will be assessed the appropriate Options Transaction Charge in
Options 7, Section 4,'' is equitable and not unfairly discriminatory
because all Phlx members and member organizations who submitted
unrelated market or marketable interest which rested on the order book
prior to the commencement of a PIXL Auction will be uniformly assessed
the applicable order book pricing for adding liquidity. The Exchange's
proposal would treat Phlx members and member organizations who
submitted unrelated market or marketable interest which rested on the
order book prior to the commencement of a PIXL Auction in the same
manner as other Phlx members and member organizations who posted
liquidity on the order book as they would both be considered makers of
liquidity. Conversely, the Exchange assesses the SPY PIXL pricing
within Options 7, Section 3 in the same manner that responders to the
PIXL Auction are assessed fees for their PAN responses. The unrelated
market or marketable interest that received an allocation within the
PIXL Auction would be uniformly subject to the same fees as those Phlx
members and member organizations who submitted PAN responses and were
allocated, thereby receiving a guaranteed execution and potential price
improvement.
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.
[[Page 42122]]
Intermarket 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 to initiate a price improvement auction. 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.
Intramarket Competition
The Exchange's proposal to amend Options 7, Section 1(c) to
introduce four new references: ``Initiating Order'', ``PIXL Auction
Order'', ``PIXL Order'', and ``PIXL Response'' does not impose an undue
burden on competition because these references will apply in the same
manner to all PIXL transactions executed on the Exchange.
Assessing a Customer PIXL Response or unrelated market or
marketable interest received during a PIXL Auction does not impose an
undue burden on competition because Customer orders bring valuable
liquidity to the market, which liquidity benefits other market
participants. Customer liquidity benefits all market participants by
providing more trading opportunities, which attracts Lead Market Makers
and Market Makers. An increase in the activity of these market
participants in turn facilitates tighter spreads, which may cause an
additional corresponding increase in order flow from other market
participants.
Assessing unrelated market or marketable interest within Options 7,
Section 3, related to SPY, that was received prior to a PIXL Auction
the simple order book pricing within Options 7, Section 3, Part A and
the complex order book pricing within Options 7, Section 3, Part B does
not impose an undue burden on competition because all Phlx members and
member organizations who submitted unrelated market or marketable
interest which rested on the order book prior to the commencement of a
PIXL Auction will be uniformly assessed the applicable order book
pricing for adding liquidity. The Exchange's proposal would treat Phlx
members and member organizations who submitted unrelated market or
marketable interest in SPY which rested on the order book prior to the
commencement of a PIXL Auction in the same manner as other Phlx members
and member organizations who posted liquidity on the order book as they
would both be considered makers of liquidity. Conversely, the Exchange
assesses the SPY PIXL pricing within Options 7, Section 3 in the same
manner that responders to the PIXL Auction are assessed fees for their
PAN responses. The unrelated market or marketable interest that
received an allocation within the PIXL Auction would be uniformly
subject to the same fees as those Phlx members and member organizations
who submitted PAN responses and were allocated, thereby receiving a
guaranteed execution and potential price improvement. The Exchange
would apply new footnote 2 uniformly to Customer PIXL Orders.
The Exchange's proposal to add a new sentence that states,
``Unrelated market or marketable interest received prior to a PIXL
Auction will be assessed the appropriate Options Transaction Charge in
Options 7, Section 4,'' does not impose an undue burden on competition
because all Phlx members and member organizations who submitted
unrelated market or marketable interest which rested on the order book
prior to the commencement of a PIXL Auction will be uniformly assessed
the applicable order book pricing for adding liquidity. The Exchange's
proposal would treat Phlx members and member organizations who
submitted unrelated market or marketable interest which rested on the
order book prior to the commencement of a PIXL Auction in the same
manner as other Phlx members and member organizations who posted
liquidity on the order book as they would both be considered makers of
liquidity. Conversely, the Exchange assesses the SPY PIXL pricing
within Options 7, Section 3 in the same manner that responders to the
PIXL Auction are assessed fees for their PAN responses. The unrelated
market or marketable interest that received an allocation within the
PIXL Auction would be uniformly subject to the same fees as those Phlx
members and member organizations who submitted PAN responses and were
allocated, thereby receiving a guaranteed execution and potential price
improvement.
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.\17\
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\17\ 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<ls-thn-eq> Send an email to <a href="/cdn-cgi/l/email-protection#9be9eef7feb6f8f4f6f6fef5efe8dbe8fef8b5fcf4ed"><span class="__cf_email__" data-cfemail="b2c0c7ded79fd1dddfdfd7dcc6c1f2c1d7d19cd5ddc4">[email protected]</span></a>. Please
include file number SR-Phlx-2023-26 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-2023-26. 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
[[Page 42123]]
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-2023-26 and should be
submitted on or before July 20, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2023-13790 Filed 6-28-23; 8:45 am]
BILLING CODE 8011-01-P
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