Notice2025-06517
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule Equity 7, Section 3, To Eliminate the Market Data Revenue Rebate Program
Primary source
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Published
April 17, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 73 (Thursday, April 17, 2025)</title>
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[Federal Register Volume 90, Number 73 (Thursday, April 17, 2025)]
[Notices]
[Pages 16226-16229]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-06517]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102844; File No. SR-PHLX-2025-19]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rule
Equity 7, Section 3, To Eliminate the Market Data Revenue Rebate
Program
April 11, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 10, 2025, 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 a proposal to amend Rule Equity 7, Section
3, to eliminate the Market Data Revenue (``MDR'') Rebate program, as
described further below.
[[Page 16227]]
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
The purpose of the proposed rule change is to amend Rule Equity 7,
Section 3, to eliminate the Market Data Revenue (``MDR'') Rebate
program for PSX. The MDR Rebate program was designed to improve
displayed liquidity and promote order flow to the Exchange by offering
an incentive for market participants to quote on the Exchange.\3\ The
MDR Rebate program calls for 40% of MDR that exceeds fixed thresholds
in any one of two pools (``Excess MDR'') to be shared with PSX
participants in proportion to their respective eligible quoting
activity in Tape A and C securities, as described further below.
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\3\ See Securities Exchange Act Release No. 34-100060 (May 3,
2024), 89 FR 39668 (May 9, 2024) (SR-Phlx-2024-18).
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Elimination of Market Data Revenue Rebate Program
Currently, the MDR Rebate program Section (a) provides that,
assuming that the requirements of this PSX MDR Rebate Section are met,
a PSX Participant may receive a quarterly MDR rebate in proportion to
the PSX Participant's quoting of displayed orders in Tape A and C
securities from the previous calendar quarter (``MDR Rebate''), as
described further in Section (e).
Section (b) provides that, to qualify for the MDR Rebate, a PSX
Participant must quote at the National Best Bid or Offer (``NBBO'') at
least 25% of the time during Market Hours in an average of at least 250
securities for Tape A securities or at least 300 securities for Tape C
securities through the PSX Participant's MPID per day over the course
of the quarter. A PSX Participant is considered to be quoting at the
NBBO if the PSX Participant's MPID quotes a displayed order of at least
100 shares in the security and prices the order at either the national
best bid or the national best offer or both the national best bid and
offer for the security.
Section (c) provides that MDR will be calculated separately for
quotes in each Tape A and C security, for a total of two MDR pools. If
the MDR received by the Exchange in any given pool exceeds the
following thresholds in any given calendar quarter, 40% of such excess
MDR will be payable to PSX Participants in proportion to their
respective quoting of displayed orders in that pool:
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Tape A Tape C
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$110,000 $200,000
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Section (d) provides a de minimis requirement that states that a
PSX Participant will not receive an MDR Rebate in any calendar quarter
in which the total MDR Rebate attributed to the PSX Participant is less
than $500.
Section (e) describes the steps for calculating MDR Rebates:
Step 1. Calculate, on a daily basis (per MPID), the product of
three factors: number of shares in the quotation, the duration of the
quotation at the NBBO (for both the bid and the offer), and the price
of the security.
Step 2. For each security, sum the daily values from Step 1 across
the quarter, the sum of which represents the PSX Participant's quote
credits (per MPID) in each security.
Step 3. For each security, sum all PSX Participants' quote credits
to obtain the total quote credits available per security.
Step 4. Divide each PSX Participant's quote credits (per MPID)
(from Step 2) into the total quote credits available per security (from
Step 3) to obtain a Participant's percentage of the security they are
quoting (per MPID).
Step 5. Calculate the income allocation weight for each security
based on the share of revenue allocated to the symbol by the SIP that
quarter.
Step 6. For each security, multiply a PSX Participant's percentage
of security they are quoting (per MPID) (from Step 4) by the income
allocation weight of the security (from Step 5).
Step 7. For each PSX Participant's MPID, sum the values calculated
in Step 6 across all securities in the pool (i.e., in the same Tape) to
obtain the PSX Participant's allocation percentage for the excess MDR
in the pool.
Step 8. For each PSX Participant with eligible quote activity in
the pool, multiply the PSX Participant's allocation percentage (from
Step 7) by the excess MDR in the pool to determine the dollar amount of
the PSX Participant's MDR Rebate in the pool.
As for calculating the pool of funds from which MDR Rebates will be
paid, unlike the SIPs, the Exchange will derive MDR Rebate allocation
from a fixed value that will not be subject to adjustment (i.e., the
amount of MDR actually received by the Exchange on a quarterly basis).
This avoids the problem of having to adjust MDR rebates that have
already been paid to PSX Participants to comport to adjustments to MDR
made by the SIPs.\4\ As illustrated in the example provided in Section
(e), the Exchange sets forth in the proposed rule text the methodology
for calculating and distributing Excess MDR.\5\
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\4\ For example, if MDR paid to the Exchange was less than
anticipated in Q3 2024 due to an adjustment to the MDR paid to the
Exchange in Q2 2024 (i.e., actual MDR in Q2 fell short of
estimates), the Exchange will not recoup the difference from the PSX
Participants that had been paid the Q2 MDR Rebate. Instead, the MDR
Rebate for Q3 will be calculated based on the actual MDR paid to the
Exchange in Q3.
\5\ Example on MDR Rebate program available at Nasdaq PHLX LLC
Rulebook, Equity 7, Section 3, <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Equity%207">https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Equity%207</a>.
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The Exchange is proposing to remove this program because it is not
heavily utilized and has not achieved success in attracting the quoting
activity that it was intended to target. As such, this rebate program
no longer provides a growth incentive that is aligned with the
Exchange's needs.
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 Exchange's proposed changes to its schedule of credits are
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for equity
securities transaction services that constrain its pricing
determinations
[[Page 16228]]
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''; [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'. . . .'' \8\
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\8\ 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.'' \9\
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\9\ 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.
For example, clear substitutes to the Exchange exist in the market for
equity security transaction services. The Exchange is only one of
several equity venues to which market participants may direct their
order flow. Competing equity exchanges offer similar tiered pricing
structures to that of the Exchange, including schedules of rebates and
fees that apply based upon members achieving certain volume thresholds.
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 Exchange
believes it is reasonable, equitable, and not unfairly discriminatory
to eliminate the MDR program because the MDR Rebate program has had
little demonstrable impact on overall quoting quality or participation.
The program's complexity and minimal financial return do not justify
the administrative burden associated with its maintenance. The Exchange
has limited resources to devote to incentive programs, and it is
appropriate for the Exchange to reallocate these incentives
periodically in a manner that best achieves the Exchange's overall mix
of objectives. Those participants that are dissatisfied with the
elimination of this program are free to shift their order flow to
competing venues that provide incentives or qualifying criteria more in
line with participants' objectives.
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
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
exchanges and with alternative trading systems that have been exempted
from compliance with the statutory standards applicable to 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.
The Exchange does not have significant market share, to be
categorized as having enough market power to burden competition.
Moreover, as noted above, price competition between exchanges is
fierce, with liquidity and market share moving freely between exchanges
in reaction to fee and credit changes. This is in addition to free flow
of order flow to and among off-exchange venues, which comprises upwards
of 45% of industry volume.
In sum, if the change proposed herein is 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
change will impair the ability of members or competing order execution
venues to maintain their competitive standing in the financial markets.
Intramarket Competition
In terms of intramarket competition, the proposed change to the
credit available to a member does not impose a burden on competition
and will not place any category of Exchange participant at a
competitive disadvantage. The Exchange notes that its members are free
to trade on other venues to the extent they believe that these
proposals are not attractive. As one can observe by looking at any
market share chart, price competition between exchanges is fierce, with
liquidity and market share moving freely between exchanges in reaction
to fee and credit changes.
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.\10\
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\10\ 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#6614130a034b05090b0b030812152615030548010910"><span class="__cf_email__" data-cfemail="ddafa8b1b8f0beb2b0b0b8b3a9ae9daeb8bef3bab2ab">[email protected]</span></a>. Please include
file number SR-PHLX-2025-19 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 16229]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-PHLX-2025-19. 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-2025-19 and should be
submitted on or before May 8, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06517 Filed 4-16-25; 8:45 am]
BILLING CODE 8011-01-P
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