Notice2024-06175
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
March 25, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 58 (Monday, March 25, 2024)</title>
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[Federal Register Volume 89, Number 58 (Monday, March 25, 2024)]
[Notices]
[Pages 20739-20744]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-06175]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99770; File No. SR-PHLX-2024-14]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7,
Section 4
March 19, 2024.
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 March 15, 2024, 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.\3\
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\3\ The Exchange initially filed the proposed pricing change on
February 29, 2024 to be operative on March 1, 2024 (SR-Phlx-2024-
07). On March 12, 2024, the Exchange withdrew SR-Phlx-2024-07 and
submitted SR-Phlx-2024-11. On March 15, 2024, the Exchange withdrew
SR-Phlx-2024-11 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
Phlx proposes to amend its Pricing Schedule within Options 7,
Section 4, ``Multiply Listed Options Fees (Includes options overlying
equities, ETFs, ETNs and indexes which are Multiply Listed) (Excludes
SPY and broad-based index options symbols listed within Options 7,
Section 5.A).'' Specifically, Phlx proposes to: (1) lower the
Professional \4\ Floor \5\ Options Transaction Charges \6\ in Multiply
Listed Penny and Non-Penny Symbols; \7\ (2) increase the Lead Market
Maker \8\ and Market Maker \9\ Floor Options Transaction Charges in
Multiply Listed Penny and Non-Penny Symbols; and (3) increase the
Monthly Firm Fee Cap. Each change will be described below.
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\4\ The term ``Professional'' applies to transactions for the
accounts of Professionals, as defined in Options 1, Section 1(b)(45)
means any person or entity that (i) is not a broker or dealer in
securities, and (ii) places more than 390 orders in listed options
per day on average during a calendar month for its own beneficial
account(s). See Phlx's Pricing Schedule at Options 7, Section 1(c).
\5\ The term ``floor transaction'' is a transaction that is
effected in open outcry on the Exchange's Trading Floor. See Phlx's
Pricing Schedule at Options 7, Section 1(c).
\6\ Options Transaction Charges are per contract. Floor
transaction fees apply to any ``as of'' or ``reversal'' adjustments
for manually processed trades originally submitted electronically or
through FBMS. See Phlx's Pricing Schedule at Options 7, Section 4,
footnote 8.
\7\ For consistency, the Exchange proposes to capitalize the
term ``non-Penny'' in the table in Options 7, Section 4 of the
Pricing Schedule.
\8\ The term ``Floor Lead Market Maker'' is a member who is
registered as an options Lead Market Maker pursuant to Options 2,
Section 12(a) and has a physical presence on the Exchange's Trading
Floor. See Phlx's Pricing Schedule at Options 7, Section 1(c).
\9\ The term ``Floor Market Maker'' is a Market Maker who is
neither an SQT or an RSQT. A Floor Market Maker may provide a quote
in open outcry. See Phlx's Pricing Schedule at Options 7, Section
1(c).
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Floor Options Transaction Charges
Today, the Exchange assesses Options Transaction Charges in
Multiply Listed options, including options overlying equities, ETFs,
ETNs and indexes and excluding options in SPY \10\ and broad-
[[Page 20740]]
based index options symbols listed within Options 7, Section 5.A. The
Exchange currently assesses the following Floor Options Transaction
Charges in Multiply Listed Penny and Non-Penny Symbols: $0.05 per
contract for a Professional, $0.35 per contract for a Lead Market Maker
and Market Maker, and $0.25 per contract for a Broker-Dealer \11\ and
Firm.\12\ Customers \13\ are not assessed an Options Transaction Charge
in Multiply Listed Penny or Non-Penny Symbols.
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\10\ Transactions in SPY originating on the Exchange floor are
subject to the Multiply Listed Options Fees (see Multiply Listed
Options Fees in Options 7, Section 4). However, if one side of the
transaction originates on the Exchange floor and any other side of
the trade was the result of an electronically submitted order or a
quote, then these fees will apply to the transactions which
originated on the Exchange floor and contracts that are executed
electronically on all sides of the transaction. The one side of the
transaction which originates on the Exchange floor will count toward
the volume which qualifies a participant for the Simple Order Rebate
for Adding Liquidity for Lead Market Makers and Market Makers in
SPY. See Options 7, Section 3, Part C.
\11\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category. See Phlx's Pricing Schedule at Options
7, Section 1(c).
\12\ The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at The Options Clearing Corporation (``OCC''). See Phlx's
Pricing Schedule at Options 7, Section 1(c).
\13\ The term ``Customer'' applies to any transaction that is
identified by a member or member organization for clearing in the
Customer range at 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 Phlx's Pricing Schedule
at Options 7, Section 1(c).
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At this time, the Exchange proposes to decrease the Professional
Floor Options Transaction Charges in Penny and Non-Penny Symbols from
$0.05 to $0.00 per contract. The Exchange believes the decreased
Professional Options Transaction Charges will attract a greater amount
of Professional orders to Phlx's Trading Floor. The Exchange notes that
NYSE Arca, Inc. (``NYSE Arca'') also assesses no Professional Customer
fee for manual executions.\14\
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\14\ NYSE Arca modified its fees for Professional Customer
manual executions from a $0.25 per contract fee for such executions,
which fee had been waived for the period August 1, 2022 to December
31, 2022, to $0.00 per contract. NYSE Arca stated that the proposed
change was intended to continue to attract manually executed
Professional Customer orders to the Exchange, and the Exchange
believed that all market participants stood to benefit from an
increase in such volume, which would promote market depth,
facilitate tighter spreads and enhance price discovery, and may lead
to a corresponding increase in order flow from other market
participants as well. See Securities Exchange Act Release No. 96763
(January 27, 2023), 88 FR 7119 (February 2, 2023) (S (SR-NYSEARCA-
2023-09).
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At this time, the Exchange proposes to increase the Lead Market
Maker and Market Maker Floor Options Transaction Charges in Penny and
Non-Penny Symbols from $0.35 to $0.50 per contract. While the Exchange
is increasing the Lead Market Maker and Market Maker Floor Options
Transaction Charge by $0.15 per contract (increase from $0.35 to $0.50
per contract), the Exchange believes that its pricing will continue to
attract order flow to the Exchange. Today, Lead Market Makers and
Market Makers are subject to a ``Monthly Market Maker Cap'' of $500,000
for: (i) electronic Option Transaction Charges, excluding surcharges
and excluding options overlying broad-based index options symbols
listed within Options 7, Section 5.A; and (ii) Qualified Contingent
Cross or ``QCC'' Transaction Fees (as defined in Exchange Options 3,
Section 12 and Floor QCC Orders, as defined in Options 8, Section
30(e)).\15\ The Exchange proposes this increased fee for business
reasons and to encourage competition on its trading floor. The Exchange
believes Lead Market Makers and Market Makers will continue to quote
aggressively, adding liquidity to the trading floor, so that they may
participate in transactions as they do today. Lead Market Makers and
Market Makers have a time and place advantage in the trading crowd
which the Exchange believes increases competition on its trading floor
to the benefit of other floor participants.
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\15\ The trading activity of separate Lead Market Maker and
Market Maker member organizations are aggregated in calculating the
Monthly Market Maker Cap if there is Common Ownership between the
member organizations. All dividend, merger, short stock interest,
reversal and conversion, jelly roll and box spread strategy
executions (as defined in this Options 7, Section 4) are excluded
from the Monthly Market Maker Cap. Floor Lead Market Makers or Floor
Market Makers that (i) are on the contra-side of an electronically-
delivered and executed Customer order, excluding responses to a PIXL
auction; and (ii) have reached the Monthly Market Maker Cap are
assessed: $0.05 per contract Fee for Adding Liquidity in Penny
Symbols; $0.18 per contract Fee for Removing Liquidity in Penny
Symbols; $0.18 per contract in Non-Penny Symbols; and $0.18 per
contract in a non-Complex electronic auction, including the Quote
Exhaust auction and, for purposes of this fee, the opening process.
A Complex electronic auction includes, but is not limited to, the
Complex Order Live Auction (``COLA''). Transactions which execute
against an order for which the Exchange broadcast an order exposure
alert in an electronic auction will be assessed $0.18 per contract.
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Monthly Firm Fee Cap
Today, Firms are subject to a $200,000 ``Monthly Firm Fee Cap.''
Today, Firm Floor Option Transaction Charges and QCC Transaction Fees,
in the aggregate, for one billing month that exceed the Monthly Firm
Fee Cap per member or member organization, when such members or member
organizations are trading in their own proprietary account, are subject
to a reduced transaction fee of $0.02 per capped contract unless there
is no fee or the fee is waived. Today, all dividend, merger, short
stock interest, reversal and conversion, jelly roll, and box spread
strategy executions (as defined in this Options 7, Section 4) are
excluded from the Monthly Firm Fee Cap. Transactions in broad-based
index options symbols listed within Options 7, Section 5.A. are
excluded from the Monthly Firm Fee Cap and QCC Transaction Fees are
included in the calculation of the Monthly Firm Fee Cap.\16\
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\16\ For purposes of the Monthly Firm Fee Cap, members and
member organizations must notify the Exchange in writing of all
accounts in which the member or member organization is not trading
in its own proprietary account. The Exchange will not make
adjustments to billing invoices where transactions are commingled in
accounts which are not subject to the Monthly Firm Fee Cap. See
Options 7, Section 4.
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At this time, the Exchange proposes to increase the Monthly Firm
Fee Cap from a cap of $200,000 to a monthly cap of $250,000 as a
competitive response to a similar change on NYSE Arca.\17\ The Exchange
believes that aligning its firm cap with NYSE Arca's firm cap will
allow it to compete for transactions on its trading floor. The Exchange
believes that increasing the Monthly Firm Fee Cap will continue to
lower fees for Firms that transact certain qualifying volume on Phlx,
thus enabling these Firms the ability to lower costs while continuing
to incentivize Firms to transact volume on the Exchange.
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\17\ NYSE Arca modified its Monthly Fee Cap in November 2023 by
raising the cap from $200,000 to $250,000. See Securities Exchange
Act Release No. 99021 (December 1, 2023), 88 FR 84030 (November 27,
2023 (SR-NYSEArca-2023-80).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\18\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\19\ 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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\18\ 15 U.S.C. 78f(b).
\19\ 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
[[Page 20741]]
broader forms that are most important to investors and listed
companies.'' \20\
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\20\ 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
\21\ (``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.\22\ 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.'' \23\
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\21\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\22\ See NetCoalition, at 534--535.
\23\ 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'. . . .'' \24\ 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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\24\ 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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Options Transaction Charges
The Exchange's proposal to decrease the Professional Floor Options
Transaction Charges in Multiply Listed Penny and Non-Penny Symbols in
Penny and Non-Penny Symbols from $0.05 to $0.00 per contract is
reasonable because the decreased fee should attract a greater amount of
Professional orders to Phlx's Trading Floor. Today, Phlx assesses
Professionals a lower Floor Options Transaction Charge as compared to
Lead Market Makers, Broker-Dealers and Firms with respect to Floor
Options Transaction Charges. Similarly, today, BOX Exchange LLC
(``BOX'') assesses Professionals lower manual transaction fees as
compared to Broker Dealers and Market Makers.\25\ By decreasing its
Professional Floor Options Transaction Charge, the Exchange believes it
will be able to compete more effectively for options order flow because
of the lower Professional fee. Also, the Exchange believes the
decreased Professional Options Transaction Charges will attract a
greater number of Professional orders to Phlx's Trading Floor. The
Exchange notes that NYSE Arca, Inc. (``NYSE Arca'') also assesses no
Professional Customer fee for manual executions.\26\
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\25\ BOX assesses Professional Customers a $0.10 per contract
manual transaction fee in Penny and Non-Penny Symbols. A Broker
Dealer is assessed a $0.025 per contract manual transaction fee in
Penny and Non-Penny Symbols and a Market Maker is assessed a $0.35
per contract manual transaction fee in Penny and Non-Penny Symbols.
BOX does not assess Public Customers or Broker Dealers facilitating
a Public Customer a Penny and Non-Penny Interval Classes manual
transactions fee. See BOX's Fee Schedule at Section V.
\26\ NYSE Arca modified its fees for Professional Customer
manual executions from a $0.25 per contract fee for such executions,
which fee had been waived for the period August 1, 2022 to December
31, 2022, to $0.00 per contract. NYSE Arca stated that the proposed
change is intended to continue to attract manually executed
Professional Customer orders to the Exchange, and the Exchange
believes that all market participants stand to benefit from an
increase in such volume, which would promote market depth,
facilitate tighter spreads and enhance price discovery, and may lead
to a corresponding increase in order flow from other market
participants as well. See Securities Exchange Act Release No. 96763
(January 27, 2023), 88 FR 7119 (February 2, 2023) (S (SR-NYSEARCA-
2023-09).
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The Exchange's proposal to decrease the Professional Floor Options
Transaction Charges in Multiply Listed Penny and Non-Penny Symbols in
Penny and Non-Penny Symbols from $0.05 to $0.00 per contract is
equitable and not unfairly discriminatory. Today, Customers are not
assessed an Options Transaction Charge in Multiply Listed Penny or Non-
Penny Symbols because Customer order flow is unique. Customer liquidity
benefits all market participants by providing more trading
opportunities, which attracts Lead Marker 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.
The Exchange believes that lowering the Professional Floor Options
Transaction Charges is similarly beneficial as the lower fees may cause
market participants to select Phlx's Trading Floor as a venue to send
Professional order flow, which benefits all market participants by
attracting valuable liquidity to the market and thereby enhancing the
trading quality and efficiency for all market participants. Today, Lead
Market Makers and Market Makers are assessed the highest Penny and Non-
Penny Floor Options Transaction Charges. Customers are not assessed a
Penny or Non-Penny Options Transaction Charge. With this proposal,
Professionals would continue to be assessed a lower Floor Options
Transaction Charges in Multiply Listed Penny and Non-Penny Symbols as
compared to Lead Market Makers and Market Makers. Lead Market Makers
and Market Makers have a time and place advantage on the Trading Floor
with respect to orders, unlike other market participants. A
Professional, Broker-Dealer or a Firm would necessarily require a Floor
Broker to represent their trading interest on the Trading Floor as
compared to a Lead Market Maker or Market Maker that could directly
transact such orders on the Trading Floor. Further, the Exchange
believes that to attract orders from Professionals, Broker-Dealers, or
Firms, via a Floor Broker, the rates must be competitive with rates at
other trading floors. With respect to Firms, the Exchange notes that
Firms are subject to a Monthly Firm Fee Cap. Firm Floor Option
Transaction Charges along with Qualified Contingent Cross Transaction
Fees, in the aggregate, for one billing month may not exceed the
Monthly Firm Fee Cap per member organization when such members are
trading in their own proprietary account.\27\ Finally, with respect to
Broker-Dealers, today the Exchange waives the Floor Options Transaction
Charge for Broker-Dealers executing facilitation orders pursuant to
Options 8, Section 30 when such members would otherwise incur this
charge for trading in their own proprietary account contra to a
Customer (``BD-Customer Facilitation''), if the member's BD-Customer
Facilitation average daily volume (including both FLEX and non-FLEX
transactions) exceeds 10,000 contracts per day in a given month.\28\
The Exchange notes that both Firms and Broker-Dealers have the ability
to reduce their Options Transaction Charges as compared to
Professionals.
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\27\ See Options 7, Section 4.
\28\ See Options 7, Section 4.
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The Exchange believes it is equitable and not unfairly
discriminatory to assess Professionals no Floor Options Transaction
Charge the same as a Customer and more favorable than Firms, and
Broker-Dealers, Lead Market Makers, and Market Makers. The potential
increased volume would create better trading opportunities that benefit
all market participants. Specifically, greater volume and liquidity
from increased order flow could create more trading opportunities and
tighter spreads. Assessing lower Floor Options Transaction Charges for
Professional Customers compared to
[[Page 20742]]
Lead Market Makers, Market Makers, Firms, and Broker-Dealers is not
novel as BOX currently assesses lower fees for Professional Customers
as compared to Broker Dealers and Market Makers.\29\
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\29\ See supra 25 above.
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The Exchange's proposal to increase the Lead Market Maker and the
Market Maker Floor Options Transaction Charges in Multiply Listed Penny
and Non-Penny Symbols from $0.35 to $0.50 per contract is reasonable,
equitable and not unfairly discriminatory because Lead Market Makers
and Market Makers benefit from having access to interact with orders
that are made available in open outcry on the Trading Floor. Lead
Market Makers and Market Makers have a time and place advantage on the
Trading Floor with respect to orders, unlike other market participants.
Further, Lead Market Makers and Market Makers have the benefit of
trading on any Trading Floor or in any electronic venue if they so
choose. The Exchange believes that it has set its Floor Options
Transaction Charges for Lead Market Makers and Market Makers in such a
way as to balance the need to attract additional orders to the trading
floor while continuing to attract Lead Market Makers and Market Makers
to its Trading Floor. The Exchange proposes this increased fee for
business reasons and to encourage competition on its trading floor. The
Exchange believes Lead Market Makers and Market Makers will continue to
quote aggressively, adding liquidity to the trading floor, so that they
may participate in transactions as they do today. Today, Lead Market
Makers and Market Makers are subject to a ``Monthly Market Maker Cap''
of $500,000 for: (i) electronic Option Transaction Charges, excluding
surcharges and excluding options overlying broad-based index options
symbols listed within Options 7, Section 5.A; and (ii) QCC Transaction
Fees (as defined in Exchange Options 3, Section 12 and Floor QCC
Orders, as defined in Options 8, Section 30(e)).\30\ The Exchange is
not proposing to amend the Monthly Market Maker Cap, which affords Lead
Market Makers and Market Makers the ability to pay lower Floor Options
Transaction Charges as compared to Non-Customers \31\ once they have
capped for the month. To the extent that Phlx's increased fee for Lead
Market Makers and Maker Makers was priced too high, the Exchange would
lose liquidity providers on its Trading Floor. Competitive forces would
serve to constrain the Exchange's ability to overprice certain services
on its market.
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\30\ The trading activity of separate Lead Market Maker and
Market Maker member organizations are aggregated in calculating the
Monthly Market Maker Cap if there is Common Ownership between the
member organizations. All dividend, merger, short stock interest,
reversal and conversion, jelly roll and box spread strategy
executions (as defined in this Options 7, Section 4) are excluded
from the Monthly Market Maker Cap. Floor Lead Market Makers or Floor
Market Makers that (i) are on the contra-side of an electronically-
delivered and executed Customer order, excluding responses to a PIXL
auction; and (ii) have reached the Monthly Market Maker Cap are
assessed: $0.05 per contract Fee for Adding Liquidity in Penny
Symbols; $0.18 per contract Fee for Removing Liquidity in Penny
Symbols; $0.18 per contract in Non-Penny Symbols; and $0.18 per
contract in a non-Complex electronic auction, including the Quote
Exhaust auction and, for purposes of this fee, the opening process.
A Complex electronic auction includes, but is not limited to, the
Complex Order Live Auction (``COLA''). Transactions which execute
against an order for which the Exchange broadcast an order exposure
alert in an electronic auction will be assessed $0.18 per contract.
\31\ 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).
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Monthly Firm Fee Cap
The Exchange's proposal to increase the Monthly Firm Fee Cap from a
cap of $200,000 to a monthly cap of $250,000 is reasonable because,
despite the increase, the Monthly Firm Fee Cap will continue to lower
fees for Firms that transact certain qualifying volume on Phlx, thus
enabling these Firms the ability to lower costs while continuing to
incentivize Firms to direct order flow to the Exchange to achieve the
benefits of reducing their fees. Further, increasing the monthly firm
cap to $250,000 is a competitive response to a similar change on NYSE
Arca.\32\ The Exchange believes that aligning its firm cap with NYSE
Arca's firm cap will allow it to compete for transactions on its
trading floor.
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\32\ NYSE Arca modified its Monthly Fee Cap in November 2023 by
raising the cap from $200,000 to $250,000. See Securities Exchange
Act Release No. 99021 (December 1, 2023), 88 FR 84030 (November 27,
2023 (SR-NYSEArca-2023-80).
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The Exchange's proposal to increase the Monthly Firm Fee Cap from a
cap of $200,000 to a monthly cap of $250,000 is equitable and not
unfairly discriminatory as other market participants benefit from an
opportunity to pay reduced fees on Phlx as do Firms. Today, Customers
are not assessed an Options Transaction Charge in Multiply Listed Penny
or Non-Penny Symbols.\33\ Customer liquidity benefits all market
participants by providing more trading opportunities. 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. Today, Lead Market Makers and
Market Makers are subject to a Monthly Market Maker Cap.\34\ With
respect to Broker-Dealers, today, the Exchange waives the Floor Options
Transaction Charge for Broker-Dealers executing facilitation orders
pursuant to Options 8, Section 30 when such members would otherwise
incur this charge for trading in their own proprietary account contra
to a Customer (``BD-Customer Facilitation''), if the member's BD-
Customer Facilitation average daily volume (including both FLEX and
non-FLEX transactions) exceeds 10,000 contracts per day in a given
month.\35\ Finally, today, Professional Floor Options Transaction
Charges are proposed to be $0.00 per contract, similar to Customers and
more favorable than Firms.\36\ Additionally, the Exchange believes that
the proposal is equitable and not unfairly discriminatory because
members and member organizations that are JBOs \37\ could be subject to
the
[[Page 20743]]
Monthly Firm Fee Cap, as are other members, as long as the JBO trades
for their own proprietary account. Additionally, the proposed change
would encourage JBOs that are not members or member organizations to
seek to become members or member organizations to further reduce their
transaction fees. Finally, other market participants may interact with
the order flow submitted by Firms to Phlx to reach the Monthly Firm Fee
Cap.
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\33\ See Options 7, Section 4.
\34\ See Options 7, Section 4. Lead Market Makers and Market
Makers are subject to a ``Monthly Market Maker Cap'' of $500,000
for: (i) electronic Option Transaction Charges, excluding surcharges
and excluding options overlying broad-based index options symbols
listed within Options 7, Section 5.A; and (ii) QCC Transaction Fees
(as defined in Exchange Options 3, Section 12 and Floor QCC Orders,
as defined in Options 8, Section 30(e)). The trading activity of
separate Lead Market Maker and Market Maker member organizations is
aggregated in calculating the Monthly Market Maker Cap if there is
Common Ownership between the member organizations. All dividend,
merger, short stock interest, reversal and conversion, jelly roll
and box spread strategy executions (as defined in this Options 7,
Section 4) is excluded from the Monthly Market Maker Cap. Lead
Market Makers or Market Makers that (i) are on the contra-side of an
electronically-delivered and executed Customer order, excluding
responses to a PIXL auction; and (ii) have reached the Monthly
Market Maker Cap will be assessed fees as follows: $0.05 per
contract Fee for Adding Liquidity in Penny Symbols; $0.18 per
contract Fee for Removing Liquidity in Penny Symbols; $0.18 per
contract in Non-Penny Symbols; and $0.18 per contract in a non-
Complex electronic auction, including the Quote Exhaust auction and,
for purposes of this fee, the opening process. A Complex electronic
auction includes, but is not limited to, the Complex Order Live
Auction (``COLA''). Transactions which execute against an order for
which the Exchange broadcast an order exposure alert in an
electronic auction will be subject to this fee.
\35\ See Options 7, Section 4.
\36\ See Options 7, Section 4. Professional Floor Options
Transaction Charges for Penny and Non-Penny Symbols are $0.05 per
contract whereas Firm Floor Options Transaction Charges for Penny
and Non-Penny Symbols are $0.25 per contract. The Exchange is
proposing to reduce the Floor Options Transaction Charges to $0.00
per contract.
\37\ The term ``Joint Back Office'' or ``JBO'' applies to any
transaction that is identified by a member or member organization
for clearing in the Firm range at OCC and is identified with an
origin code as a JBO. A JBO is priced the same as a Broker-Dealer. A
JBO participant is a member, member organization or non-member
organization that maintains a JBO arrangement with a clearing
broker-dealer (``JBO Broker'') subject to the requirements of
Regulation T Section 220.7 of the Federal Reserve System as further
discussed at Options 6D, Section 1. See Options 7, Section 1(c).
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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 venue in which to submit orders. 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
Floor Options Transaction Charges
The Exchange's proposal to decrease the Professional Floor Options
Transaction Charges in Multiply Listed Penny and Non-Penny Symbols in
Penny and Non-Penny Symbols from $0.05 to $0.00 per contract does not
impose an undue burden on competition. Today, Customers are not
assessed an Options Transaction Charge in Multiply Listed Penny or Non-
Penny Symbols because Customer order flow is unique. Customer liquidity
benefits all market participants by providing more trading
opportunities, which attracts Lead Marker 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.
The Exchange believes that lowering the Professional Floor Options
Transaction Charges is similarly beneficial as the lower fees may cause
market participants to select Phlx's Trading Floor as a venue to send
Professional order flow, which benefits all market participants by
attracting valuable liquidity to the market and thereby enhancing the
trading quality and efficiency for all market participants. Today, Lead
Market Makers and Market Makers are assessed the highest Penny and Non-
Penny Floor Options Transaction Charges. Customers are not assessed a
Penny or Non-Penny Options Transaction Charge. With this proposal,
Professionals would continue to be assessed a lower Floor Options
Transaction Charges in Multiply Listed Penny and Non-Penny Symbols as
compared to Lead Market Makers and Market Makers. Lead Market Makers
and Market Makers have a time and place advantage on the Trading Floor
with respect to orders, unlike other market participants. A
Professional, Broker-Dealer or a Firm would necessarily require a Floor
Broker to represent their trading interest on the Trading Floor as
compared to a Lead Market Maker or Market Maker that could directly
transact such orders on the Trading Floor. Further, the Exchange
believes that to attract orders from Professionals, Broker-Dealers, or
Firms, via a Floor Broker, the rates must be competitive with rates at
other trading floors. With respect to Firms, the Exchange notes that
Firms are subject to a Monthly Firm Fee Cap. Firm Floor Option
Transaction Charges along with Qualified Contingent Cross Transaction
Fees, in the aggregate, for one billing month may not exceed the
Monthly Firm Fee Cap per member organization when such members are
trading in their own proprietary account.\38\ Finally, with respect to
Broker-Dealers, today the Exchange waives the Floor Options Transaction
Charge for Broker-Dealers executing facilitation orders pursuant to
Options 8, Section 30 when such members would otherwise incur this
charge for trading in their own proprietary account contra to a
Customer (``BD-Customer Facilitation''), if the member's BD-Customer
Facilitation average daily volume (including both FLEX and non-FLEX
transactions) exceeds 10,000 contracts per day in a given month.\39\
The Exchange notes that both Firms and Broker-Dealers have the ability
to reduce their Options Transaction Charges as compared to
Professionals. Further, the Exchange believes it does not impose an
undue burden on competition to assess Professionals no Floor Options
Transaction Charge the same as a Customer and more favorable than
Firms, and Broker-Dealers, Lead Market Makers, and Market Makers. The
potential increased volume would create better trading opportunities
that benefit all market participants. Specifically, greater volume and
liquidity from increased order flow could create more trading
opportunities and tighter spreads. Assessing lower Floor Options
Transaction Charges for Professional Customers compared to Lead Market
Makers, Market Makers, Firms, and Broker-Dealers is not novel as BOX
currently assesses lower fees for Professional Customers as compared to
Broker Dealers and Market Makers.\40\
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\38\ See Options 7, Section 4.
\39\ See Options 7, Section 4.
\40\ See supra 25 above.
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Monthly Firm Fee Cap
The Exchange's proposal to increase the Monthly Firm Fee Cap from a
cap of $200,000 to a monthly cap of $250,000 does not impose an undue
burden on competition because other market participants benefit from an
opportunity to pay reduced fees on Phlx as do Firms. Today, Customers
are not assessed an Options Transaction Charge in Multiply Listed Penny
or Non-Penny Symbols.\41\ Customer liquidity benefits all market
participants by providing more trading opportunities. 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. Today, Lead Market Makers and
Market Makers are subject to a Monthly Market Maker Cap.\42\ With
respect to Broker-Dealers,
[[Page 20744]]
today, the Exchange waives the Floor Options Transaction Charge for
Broker-Dealers executing facilitation orders pursuant to Options 8,
Section 30 when such members would otherwise incur this charge for
trading in their own proprietary account contra to a Customer (``BD-
Customer Facilitation''), if the member's BD-Customer Facilitation
average daily volume (including both FLEX and non-FLEX transactions)
exceeds 10,000 contracts per day in a given month.\43\ Finally, today,
Professional Floor Options Transaction Charges are proposed to be $0.00
per contract, similar to Customers and more favorable than Firms.\44\
Additionally, the Exchange believes that the proposal does not impose
an undue burden on competition because members and member organizations
that are JBOs \45\ could be subject to the Monthly Firm Fee Cap, as are
other members, as long as the JBO trades for their own proprietary
account. Additionally, the proposed change would encourage JBOs that
are not members or member organizations to seek to become members or
member organizations to further reduce their transaction fees. Finally,
other market participants may interact with the order flow submitted by
Firms to Phlx to reach the Monthly Firm Fee Cap.
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\41\ See Options 7, Section 4.
\42\ See Options 7, Section 4. Lead Market Makers and Market
Makers are subject to a ``Monthly Market Maker Cap'' of $500,000
for: (i) electronic Option Transaction Charges, excluding surcharges
and excluding options overlying broad-based index options symbols
listed within Options 7, Section 5.A; and (ii) QCC Transaction Fees
(as defined in Exchange Options 3, Section 12 and Floor QCC Orders,
as defined in Options 8, Section 30(e)). The trading activity of
separate Lead Market Maker and Market Maker member organizations is
aggregated in calculating the Monthly Market Maker Cap if there is
Common Ownership between the member organizations. All dividend,
merger, short stock interest, reversal and conversion, jelly roll
and box spread strategy executions (as defined in this Options 7,
Section 4) is excluded from the Monthly Market Maker Cap. Lead
Market Makers or Market Makers that (i) are on the contra-side of an
electronically-delivered and executed Customer order, excluding
responses to a PIXL auction; and (ii) have reached the Monthly
Market Maker Cap will be assessed fees as follows: $0.05 per
contract Fee for Adding Liquidity in Penny Symbols; $0.18 per
contract Fee for Removing Liquidity in Penny Symbols; $0.18 per
contract in Non-Penny Symbols; and $0.18 per contract in a non-
Complex electronic auction, including the Quote Exhaust auction and,
for purposes of this fee, the opening process. A Complex electronic
auction includes, but is not limited to, the Complex Order Live
Auction (``COLA''). Transactions which execute against an order for
which the Exchange broadcast an order exposure alert in an
electronic auction will be subject to this fee.
\43\ See Options 7, Section 4.
\44\ See Options 7, Section 4. Professional Floor Options
Transaction Charges for Penny and Non-Penny Symbols are $0.05 per
contract whereas Firm Floor Options Transaction Charges for Penny
and Non-Penny Symbols are $0.25 per contract. The Exchange is
proposing to reduce the Floor Options Transaction Charges to $0.00
per contract.
\45\ The term ``Joint Back Office'' or ``JBO'' applies to any
transaction that is identified by a member or member organization
for clearing in the Firm range at OCC and is identified with an
origin code as a JBO. A JBO is priced the same as a Broker-Dealer. A
JBO participant is a member, member organization or non-member
organization that maintains a JBO arrangement with a clearing
broker-dealer (``JBO Broker'') subject to the requirements of
Regulation T Section 220.7 of the Federal Reserve System as further
discussed at Options 6D, Section 1. See Options 7, Section 1(c).
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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.\46\
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\46\ 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#f486819891d9979b9999919a8087b4879197da939b82"><span class="__cf_email__" data-cfemail="f082859c95dd939f9d9d959e8483b0839593de979f86">[email protected]</span></a>. Please include
file number SR-PHLX-2024-14 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-2024-14. 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
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-2024-14 and should be
submitted on or before April 15, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
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\47\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06175 Filed 3-22-24; 8:45 am]
BILLING CODE 8011-01-P
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