Notice2023-27927
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 9
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Published
December 20, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 243 (Wednesday, December 20, 2023)</title>
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[Federal Register Volume 88, Number 243 (Wednesday, December 20, 2023)]
[Notices]
[Pages 88191-88193]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-27927]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99186; File No. SR-Phlx-2023-56]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7,
Section 9
December 14, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 5, 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 Rules at Options 7, Section 9,
Other Member Fees.\3\
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\3\ The Exchange initially filed the proposed pricing changes on
November 28, 2023 (SR-Phlx-2023-52). On December 5, 2023, the
Exchange withdrew that filing and submitted this 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 Options 7, Section 9, B, Port Fees,
to increase the SQF Port \4\ Fee cap.
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\4\ ``Specialized Quote Feed'' or ``SQF'' is an interface that
allows Lead Market Makers, Streaming Quote Traders (``SQTs'') and
Remote Streaming Quote Traders (``RSQTs'') to connect, send, and
receive messages related to quotes, Immediate-or-Cancel Orders, and
auction responses into and from the Exchange. Features include the
following: (1) options symbol directory messages (e.g., underlying
and complex instruments); (2) system event messages (e.g., start of
trading hours messages and start of opening); (3) trading action
messages (e.g., halts and resumes); (4) execution messages; (5)
quote messages; (6) Immediate-or-Cancel Order messages; (7) risk
protection triggers and purge notifications; (8) opening imbalance
messages; (9) auction notifications; and (10) auction responses. The
SQF Purge Interface only receives and notifies of purge requests
from the Lead Market Maker, SQT or RSQT. Lead Market Makers, SQTs
and RSQTs may only enter interest into SQF in their assigned options
series. Immediate-or-Cancel Orders entered into SQF are not subject
to the Order Price Protection, the Market Order Spread Protection,
or Size Limitation in Options 3, Section 15(a)(1), (a)(2) and
(b)(2), respectively. See Options 3, Section 7(a)(i)(B).
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Today, Phlx assesses $1,250 per port, per month up to a maximum of
$42,000 per month for an SQF Port that receives inbound quotes at any
time within that month.\5\ Today, member organizations are not assessed
an active SQF Port Fee for additional ports acquired for ten business
days for the purpose of transitioning technology.\6\ The Exchange
proposes to add the words ``active port'' in parenthesis at the end of
the description of SQF Port Fee to tie the definition of an active port
to the description for the port.\7\
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\5\ An active port shall mean that the port was utilized to
submit a quote to the System during a given month. See Options 7,
Section 9, B.
\6\ The member organization is required to provide the Exchange
with written notification of the transition and all additional
ports, provided at no cost, will be removed at the end of the ten
business days. See Options 7, Section 9, B.
\7\ The Exchange also proposes a technical amendment to add a
comma between ``per port'' and ``per month'' for the SQF Port Fee in
Options 7, Section 9, B.
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At this time, the Exchange proposes to increase the maximum SQF
Port Fee of $42,000 per month to $50,000 per month. The Exchange is not
amending the $1,250 per port, per month fee. As is the case today, the
Exchange would not assess a member organization an SQF Port Fee beyond
the monthly cap once the member organization has exceeded the monthly
cap for the respective month. Despite increasing the maximum SQF Port
Fee from $42,000 per month to $50,000 per month, the Exchange will
continue to offer member organizations the opportunity to cap their SQF
Port Fees so that they would not be assessed these fees beyond the cap.
A Phlx Market Maker requires only one SQF Port to submit quotes in its
assigned options series into Phlx. A Phlx Market Maker may submit all
quotes through one SQF Port. While a Phlx Market Maker may elect to
obtain multiple SQF Ports to organize its business,\8\ only one SQF
Port is necessary for a Phlx Market Maker to fulfill its regulatory
quoting obligations.\9\
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\8\ For example, a Phlx Market Maker may desire to utilize
multiple SQF Ports for accounting purposes, to measure performance,
for regulatory reasons or other determinations that are specific to
that member organization.
\9\ Phlx Market Makers have various regulatory requirements as
provided for in Options 2, Section 4. Additionally, Phlx Market
Makers have certain quoting requirements with respect to their
assigned options series as provided in Options 2, Section 5. SQF
Ports are the only quoting protocol available on Phlx and only
Market Makers may utilize SQF Ports.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
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The proposed pricing change to increase the maximum SQF Port Fee is
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for options
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';
[[Page 88192]]
[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'. . . .''
\12\
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\12\ 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.'' \13\
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\13\ 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.
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.
The proposed pricing change to increase the maximum SQF Port Fee
from $42,000 to $50,000 per month is reasonable because despite the
increase in the maximum SQF Port Fee, the Exchange will continue to
offer member organizations the opportunity to cap their SQF Port Fees
so that they would not be assessed SQF Port Fees beyond the cap.
Additionally, a Phlx Market Maker requires only one SQF Port to submit
quotes in its assigned options series into Phlx. A Phlx Market Maker
may submit all quotes through one SQF Port. While a Phlx Market Maker
may elect to obtain multiple SQF Ports to organize its business,\14\
only one SQF Port is necessary for a Phlx Market Maker to fulfill its
regulatory quoting obligations.\15\
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\14\ For example, a Phlx Market Maker may desire to utilize
multiple SQF Ports for accounting purposes, to measure performance,
for regulatory reasons or other determinations that are specific to
that member organization.
\15\ Phlx Market Makers have various regulatory requirements as
provided for in Options 2, Section 4. Additionally, Phlx Market
Makers have certain quoting requirements with respect to their
assigned options series as provided in Options 2, Section 5. SQF
Ports are the only quoting protocol available on Phlx and only
Market Makers may utilize SQF Ports.
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The proposed pricing change to increase the maximum SQF Port Fee
from $42,000 to $50,000 per month is equitable and not unfairly
discriminatory because the Exchange would uniformly not assess any
Market Makers that exceeded the maximum SQF Port Fee any SQF Port Fees
beyond the maximum amount. Market Makers are the only market
participants that are assessed an SQF Port Fee because they are the
only market participants that are permitted to quote on the Exchange.
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.
Intermarket Competition
The proposal does not impose an undue burden on intermarket
competition. The Exchange believes its proposal remains competitive
with other options markets who also offer order entry protocols. 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. 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 proposed pricing change to increase the maximum SQF Port Fee
from $42,000 to $50,000 per month does not impose an undue burden on
competition because the Exchange would uniformly not assess any Market
Makers that exceeded the maximum SQF Port Fee any SQF Port Fees beyond
the maximum amount. Market Makers are the only market participants that
are assessed an SQF Port Fee because they are the only market
participants that are permitted to quote on the Exchange.
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.\16\
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\16\ 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#6e1c1b020b430d0103030b001a1d2e1d0b0d40090118"><span class="__cf_email__" data-cfemail="6b191e070e46080406060e051f182b180e08450c041d">[email protected]</span></a>. Please include
file number SR-Phlx-2023-56 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-2023-56. 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,
[[Page 88193]]
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-2023-56 and should be
submitted on or before January 10, 2024.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27927 Filed 12-19-23; 8:45 am]
BILLING CODE 8011-01-P
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