Notice2025-05588
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Phlx Options 7, Section 4
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Published
April 2, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 62 (Wednesday, April 2, 2025)</title>
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[Federal Register Volume 90, Number 62 (Wednesday, April 2, 2025)]
[Notices]
[Pages 14500-14502]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-05588]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102737; File No. SR-Phlx-2025-14]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx
Options 7, Section 4
March 27, 2025.
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 20, 2025, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II 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, 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, the Exchange proposes to note that Floor
Qualified Contingent Cross (``QCC'') Rebates are paid to Floor
Brokers.\3\
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\3\ The term ``Floor Broker'' means an individual who is
registered with the Exchange for the purpose, while on the Options
Floor, of accepting and handling options orders. See Options 7,
Section 1(c).
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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/rulefilings">https://listingcenter.nasdaq.com/rulebook/phlx/rulefilings</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 Phlx's Pricing Schedule at Options 7,
Section 4, Multiply Listed Options Fees (Includes options overlying
equities, ETFs, ETNs and indexes which are Multiply Listed) (Excludes
SPY and broad-based index options symbols listed within Options 7,
Section 5.A). Specifically, the Exchange proposes to note that Floor
Qualified Contingent Cross (``QCC'') Rebates are paid to Floor Brokers.
Floor QCC Orders, as defined in Options 8, Section 30(e), is an
order comprised of an originating order to buy or sell at least 1,000
contracts that is identified as being part of a qualified contingent
trade, as that term is defined in Options 3, Section 12(a)(3), coupled
with a contra-side order or orders totaling an equal number of
contracts. The Exchange separately defines [sic].
Today, Options 7, Section 4 describes QCC Rebates that are offered
by Phlx. Today, Phlx pays a QCC Rebate of $0.12 per contract on
electronic QCC Orders, as defined in Options 3, Section 12, and Floor
QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is
comprised of a Customer or Professional order on one side and a Lead
Market Maker, Market Maker, Broker-Dealer, or Firm order on the other
side. This rebate is $0.17 per contract in the event that a member or
member organization executes greater than 750,000 qualifying QCC
contracts in a given month. Additionally, Phlx pays a rebate of $0.22
per contract in the event that a member or member organization
executes: (1) greater than 750,000 qualifying QCC contracts in a given
month, (2) Floor Originated Strategy Executions \4\ in excess of
1,250,000 contracts in a given month, and (3) at least 40% of the
member or member organization's QCC executed contracts in that month
are comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or
Firm order on one side and Lead Market Maker, Market Maker, Broker-
Dealer, or Firm order on the other side.
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\4\ Floor Originated Strategy Executions are defined as a
dividend, merger, short stock interest, reversal and conversion,
jelly roll or box spread strategy as described in Options 7, Section
4.
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Today, Phlx also pays a QCC Rebate of $0.14 per contract on
electronic QCC Orders, as defined in Options 3, Section 12, and Floor
QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is
comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm
order on one side and a Lead Market Maker, Market Maker, Broker-Dealer,
or Firm order on the other side. This rebate is $0.19 per contract in
the event that a member or member organization executes greater than
750,000 qualifying QCC contracts in a given month. Additionally, Phlx
pays a rebate of $0.27 per contract in the event that a member or
member organization executes: (1) greater than 750,000 qualifying QCC
contracts in a given month, (2) Floor Originated Strategy Executions in
excess of 1,250,000 contracts in a given month, and (3) at least 40% of
the member or member
[[Page 14501]]
organization's QCC executed contracts in that month are comprised of a
Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one
side and Lead Market Maker, Market Maker, Broker-Dealer, or Firm order
on the other side.
Today, these QCC rebates are paid on all qualifying executed
electronic QCC Orders, as defined in Options 3, Section 12, and Floor
QCC Orders, as defined in Options 8, Section 30(e), except where the
transaction is either: (i) Customer-to-Customer; (ii) Customer-to-
Professional; (iii) Professional-to-Professional or (iv) a dividend,
merger, short stock interest, reversal and conversion, jelly roll, and
box spread strategy executions (as defined in Options 7, Section 4).
Further, today, volume resulting from all executed electronic QCC
Orders and Floor QCC Orders, including Customer-to-Customer, Customer-
to-Professional, and Professional-to-Professional transactions and
excluding dividend, merger, short stock interest, reversal and
conversion, jelly roll, and box spread strategy executions, will be
aggregated in determining the applicable member or member organization
qualifying QCC contract volume in a given month.
At this time, the Exchange proposes to note in the rule text that
rebates for qualifying executed Floor QCC Orders are paid to Floor
Brokers. The Exchange previously noted that rebates for Floor QCC
Orders are paid to a Floor Broker.\5\ The Exchange believes that adding
this rule text to Options 7, Section 4 will provide more clarity as to
the manner in which rebates for Floor QCC Orders are paid.
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\5\ See Securities Exchange Act Release No. 66145 (January 11,
2012), 77 FR 2579 (January 18, 2012) (SR-Phlx-2011-189); and 78116
(June 21, 2016), 81 FR 41629) (SR-Phlx-2016-69).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\6\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\7\ 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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\6\ 15 U.S.C. 78f(b).
\7\ 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 broader forms that are most
important to investors and listed companies.'' \8\
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\8\ 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 \9\
(``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.\10\ 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.'' \11\
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\9\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\10\ See NetCoalition, at 534-535.
\11\ 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'. . . .'' \12\ 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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\12\ 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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The Exchange believes that it is reasonable to pay QCC Rebates for
Floor QCC Orders to a Floor Broker, because it is necessary from a
competitive standpoint to offer this rebate to the executing Floor
Broker on a Floor QCC order.\13\ The Exchange expects that the rebate
offered to executing Floor Brokers will allow them to price their
services at a level that will enable them to attract Floor QCC order
flow from participants who would otherwise enter these orders
electronically from off the floor. To the extent that Floor Brokers are
able to attract these Floor QCC orders, they will gain important
information that will allow them to solicit the parties to the Floor
QCC orders for participation in other trades, which will in turn
benefit all other Exchange participants through the additional
liquidity and price discovery that may occur as a result. Other options
markets similarly pay QCC rebates to floor brokers.\14\
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\13\ The Floor Broker is in receipt of Floor QCC Orders and
enters those orders into The Options Floor Based Management System
or ``FBMS''. Specifically, Options 8, Section 30(e) permits Floor
QCC Orders to be submitted to the System by Floor Brokers on the
trading floor via FBMS. These orders are not required to be exposed
in open outcry.
\14\ See NYSE American Options Fee Schedule (QCC Fees and
Credits) and NYSE Arca Options Fees and Charges (Manual Billable
Rebate Program).
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The Exchange believes that it is equitable and not unfairly
discriminatory to pay the rebate for Floor QCC Orders to Floor Brokers
because it would uniformly apply to all Floor QCC Orders entered by a
Floor Broker into FBMS for execution. The rebate is not unfairly
discriminatory to firms that enter electronic QCC Orders because the
transaction fees and rebates for electronic orders do not require a
Floor Broker. In addition, pursuant to Options 8, Section 30(e), only
Floor Brokers may enter a Floor QCC order from the trading floor of the
Exchange, therefore, providing the rebate for Floor QCC Orders to Floor
Brokers does not discriminate against electronic QCC orders entered off
the floor. Any participant may engage a Floor Broker in a discussion
surrounding the appropriate level of fees that they may be charged for
entrusting the entry of the Floor QCC Order to the Floor Broker into
FBMS for execution. The additional order flow attracted by this rebate
should benefit all participants. Finally, the rebate is meant to assist
Floor Brokers to recruit business on an agency basis. The Floor Broker
may use all or part of the rebate to offset its fees.
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 choice of where to transact options. The Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be
[[Page 14502]]
excessive, or rebate opportunities available at other venues to be more
favorable. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
Intra-Market Competition
The Exchange believes paying the rebate for Floor QCC Orders to
Floor Brokers does not impose an undue burden on competition because it
would uniformly apply to all Floor QCC Orders entered by a Floor Broker
into FBMS for execution. Firms that enter electronic QCC Orders do not
require a Floor Broker as compared to Floor QCC Orders which must be
entered by a Floor Broker from the trading floor pursuant to Options 8,
Section 30(e). Any participant may engage a Floor Broker in a
discussion surrounding the appropriate level of fees that they may be
charged for entrusting the entry of the Floor QCC Order to the Floor
Broker into FBMS for execution. The additional order flow attracted by
this rebate should benefit all participants. Finally, the rebate is
meant to assist Floor Brokers to recruit business on an agency basis.
The Floor Broker may use all or part of the rebate to offset its fees.
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 \15\ and Rule 19b-4(f)(2) \16\ thereunder.
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\15\ 15 U.S.C. 78s(b)(3)(A)(ii).
\16\ 17 CFR 240.19b-4(f)(2).
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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 necessary or
appropriate in the public interest, for the protection of investors, or
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 change 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#8bf9fee7eea6e8e4e6e6eee5fff8cbf8eee8a5ece4fd"><span class="__cf_email__" data-cfemail="ccbeb9a0a9e1afa3a1a1a9a2b8bf8cbfa9afe2aba3ba">[email protected]</span></a>. Please include
file number SR-Phlx-2025-14 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-2025-14. 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-2025-14 and should be
submitted on or before April 23, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-05588 Filed 4-1-25; 8:45 am]
BILLING CODE 8011-01-P
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