Notice2024-16549
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Fees for Nasdaq 100 Index Options in Options 7, Section 5.A
Primary source
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Published
July 29, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 145 (Monday, July 29, 2024)</title>
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[Federal Register Volume 89, Number 145 (Monday, July 29, 2024)]
[Notices]
[Pages 60956-60958]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-16549]
[[Page 60956]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100579; File No. SR-Phlx-2024-33]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the Fees
for Nasdaq 100 Index Options in Options 7, Section 5.A
July 23, 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 July 12, 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 the fees for Nasdaq 100 Index
options in the Exchange's Pricing Schedule at Options 7, Section 5.A.
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 purpose of the proposed rule change is to amend the fees for
NDX \3\ and NDXP.\4\ The Exchange initially filed the proposed pricing
changes on July 1, 2024 (SR-Phlx-2024-30). On July 12, 2024, the
Exchange withdrew that filing and submitted this filing.
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\3\ NDX represents A.M.-settled options on the full value of the
Nasdaq 100 Index traded under the symbol NDX.
\4\ NDXP represents P.M.-settled options on the full value of
the Nasdaq 100 Index traded under the symbol NDXP.
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As set forth in Options 7, Section 5.A, the Exchange currently
charges all Non-Customer \5\ orders in NDX and NDXP a $0.75 per
contract transaction fee. Customer \6\ orders are currently assessed a
$0.25 per contract transaction fee in NDX and NDXP. These transaction
fees apply to electronic simple and complex executions as well as floor
transactions.
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\5\ The term ``Non-Customer'' applies to transactions for the
accounts of Lead Market Makers, Market Makers, Firms, Professionals,
Broker-Dealers and JBOs.
\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)).
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The Exchange now proposes to assess a surcharge of $0.25 per
contract to all market participants for simple and complex executions
in NDX and NDXP with a premium price of $25.00 or greater.\7\ The fees
for simple and complex executions in NDX and NDXP with a premium price
of less than $25.00 will remain unchanged under this proposal. The
Exchange notes that charging different fees based on the option premium
is consistent with how other options are priced at another options
exchange.\8\ The Exchange further notes that the proposed surcharge
amount is within the range of surcharges assessed for transactions in
other products at other options exchanges.\9\
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\7\ See proposed note 7 in Options 7, Section 5.A.
\8\ For example, Cboe Options (``Cboe'') currently assesses
customers a $0.36 per contract fee (if premium < $1.00) or $0.45 per
contract fee (if premium >= $1.00) for SPX and SPESG options. Cboe
also currently assesses market-makers a $0.05 per contract fee (if
premium is $0.00-$0.10) or $0.23 per contract (if premium >= $0.11)
for VIX options. See Cboe Fees Schedule.
\9\ For example, Cboe currently assesses customers a $0.25 per
contract exotic surcharge and a $0.21 per contract execution
surcharge in SPX and SPESG options. See Cboe Fees Schedule. In
addition, the Exchange's affiliate, Nasdaq Phlx LLC (``Phlx'')
current assesses a $0.25 per contract complex surcharge for
executions in singly-listed U.S. dollar-settled foreign currency
options. See Phlx Options 7, Section 5.D.
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The Exchange notes that less than 50% of total NDX and NDXP
executed volume is in NDX and NDXP contracts with a premium of $25.00
or greater, as shown in the chart below.\10\
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\10\ The chart includes A.M. and P.M. settled options on the
full value of the Nasdaq 100[supreg] Index on Nasdaq ISE, LLC,
Nasdaq GEMX, LLC, and Nasdaq Phlx LLC.
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[GRAPHIC] [TIFF OMITTED] TN29JY24.001
Notably, the majority of NDX and NDXP contracts have a premium
price of below $25.00. The Exchange believes that on the whole, while
it is proposing a $0.25 per contract surcharge on NDX and NDXP
executions with a premium price of $25.00 or greater, market
participants will continue to be incentivized to transact in NDX and
NDXP, especially given that the majority of such transactions would
occur below the threshold at which the proposed surcharge would be
assessed.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\11\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that its proposal to add a $0.25 per contract
surcharge to all market participants for simple and complex executions
in NDX and NDXP with a premium price of $25.00 or greater is reasonable
because the proposed pricing reflects the proprietary nature of these
products. Similar to other proprietary products like options overlying
the Nasdaq 100 Micro Index (``XND''), the Exchange seeks to recoup the
operational costs of listing proprietary products.\13\ Also, pricing by
symbol is a common practice on many U.S. options exchanges as a means
to incentivize order flow to be sent to an exchange for execution in
particular products. Other options exchanges price by symbol and based
on the option premium.\14\ Further, the Exchange notes that market
participants are offered different ways to gain exposure to the Nasdaq
100 Index, whether through the Exchange's proprietary products like
options overlying NDX, NDXP, or XND, or separately through multi-listed
options overlying Invesco QQQ Trust (``QQQ'').\15\ Offering such
products provides market participants with a variety of choices in
selecting the product they desire to utilize in order to gain exposure
to the Nasdaq 100 Index. When exchanges are able to recoup costs
associated with offering proprietary products, it incentivizes growth
and competition for the innovation of additional products. The Exchange
further believes that the proposed surcharge described above is
reasonable because the new fee is in line with surcharges assessed on
other index products at other options exchanges.\16\
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\13\ By way of example, in analyzing an obvious error, the
Exchange would have additional data points available in establishing
a theoretical price for a multiply listed option as compared to a
proprietary product, which requires additional analysis and
administrative time to comply with Exchange rules to resolve an
obvious error.
\14\ See supra note 8.
\15\ QQQ is an exchange-traded fund based on the same Nasdaq 100
Index as NDX, NDXP, and XND.
\16\ See supra note 9.
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The Exchange believes that its proposal is equitable and not
unfairly discriminatory because it will be applied uniformly to all
market participants. Assessing a surcharge only for executions in NDX
and NDXP whose premium is $25.00 or greater is equitable and not
unfairly discriminatory for the reasons that follow. As shown in the
chart above, the majority of NDX and NDXP contracts have a premium of
less than $25.00, and the Exchange is limiting the proposed surcharge
to higher-priced NDX and NDXP contracts (i.e., $25.00 or greater),
while maintaining lower costs on lower-priced NDX and NDXP contracts
(i.e., below $25.00). As such, the Exchange believes that its proposal
will continue to promote liquidity in these products, to the benefit of
all market participants because the majority of NDX contracts would not
incur the proposed $0.25 surcharge as they would fall below the premium
price threshold at which the surcharge would be assessed.
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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.
In terms of intra-market competition, the Exchange will apply the
proposed surcharge uniformly to all market participants. As discussed
above, the majority of NDX and NDXP contracts have a premium of less
than $25.00 and these contracts would not incur the proposed $0.25
surcharge as they would fall under the premium price threshold at which
the surcharge would be assessed. By limiting the proposed surcharge to
higher-priced NDX and NDXP contracts (i.e., with a premium price of
$25.00 or higher), the Exchange believes that its proposal will
continue to promote liquidity in these products by maintaining lower
costs for lower-priced NDX and NDXP contracts. Greater liquidity
benefits all market participants by providing more trading
opportunities, tighter spreads, and added market transparency and price
discovery.
In terms of inter-market competition, 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
options 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. As noted above, market participants are offered
an opportunity to transact in NDX, NDXP, or XND, or separately execute
options overlying QQQ. Offering these products provides market
participants with a variety of choices in selecting the product they
desire to use to gain exposure to the Nasdaq 100 Index. Furthermore,
the proposed surcharge is in line with surcharges assessed on other
products at another options exchange.\17\
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\17\ See supra note 9.
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In addition to the Exchange, market participants have alternative
options exchanges that they may participate on and direct their order
flow, which list proprietary products that compete with NDX and
NDXP.\18\ In sum, if the changes proposed herein are unattractive to
market participants, it is likely that the Exchange will lose market
share as a result. Accordingly, the Exchange does not believe that the
proposed changes will impair the ability of members or competing
options exchanges to maintain their competitive standing in the
financial markets.
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\18\ See e.g., pricing for Russell 2000 Index (``RUT'') on
Cboe's Fees Schedule and Cboe C2 Exchange, Inc.'s (``C2'') Fees
Schedule. See also SPX pricing on Cboe's Fees Schedule. Both RUT and
SPX are proprietary products on the Cboe markets that are broad-
based index options, like NDX and NDXP.
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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.\19\
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\19\ 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#483a3d242d652b2725252d263c3b083b2d2b662f273e"><span class="__cf_email__" data-cfemail="4e3c3b222b632d2123232b203a3d0e3d2b2d60292138">[email protected]</span></a>. Please include
file number SR-Phlx-2024-33 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-2024-33. 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-2024-33 and should be
submitted on or before August 19, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-16549 Filed 7-26-24; 8:45 am]
BILLING CODE 8011-01-P
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