[Federal Register Volume 84, Number 98 (Tuesday, May 21, 2019)]
[Notices]
[Pages 23112-23114]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10512]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85862; File No. SR-Phlx-2019-19]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Transaction Fees at Equity 7, Section 3 To Adopt a Qualified 
Market Maker Program and a Related Credit, and To Modify Two Existing 
Fees

May 15, 2019.
    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 May 1, 2019, 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 Exchange's transaction fees at 
Equity 7, Section 3 to adopt a Qualified Market Maker Program and a 
related credit, and to modify two existing fees, as described further 
below. The text of the proposed rule change is available on the 
Exchange's website at http://nasdaqphlx.cchwallstreet.com/, 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 Equity 7, 
Section 3 to: (i) Adopt a Qualified Market Maker Program and a related 
credit; and (ii) amend two existing fees.
    The first purpose of this change is to adopt a Qualified Market 
Maker (``QMM'') Program and a related fee. A QMM is a member 
organization that makes a significant contribution to market quality by 
providing liquidity at the national best bid and offer (``NBBO'') in a 
large number of securities for a significant portion of the day. A QMM 
may be, but is not required to be, a registered market maker in any 
security; thus, the QMM designation does not by itself impose a two-
sided quotation obligation or convey any of the benefits associated 
with being a registered market maker. The designation will, however, 
reflect the QMM's commitment to provide meaningful and consistent 
support to market quality and price discovery by extensive quoting at 
the NBBO in a large number of securities. Thus, the program is designed 
to attract liquidity both from traditional market makers and from other 
firms that are willing to commit capital to support liquidity at the 
NBBO. In return for providing the required contribution of market-
improving liquidity, a QMM will be provided with a supplemental credit 
for executions of displayed orders in securities in Tape A priced at $1 
or more per share that provide liquidity on the Exchange System. 
Through the use of this incentive, the Exchange hopes to provide 
improved trading conditions for all market participants through 
narrower bid-ask spreads and increased depth of liquidity available at 
the inside market. In addition, the program reflects an effort to use 
financial incentives to encourage a wider variety of members to make 
positive commitments to promote market quality. To be designated as a 
QMM, a member organization must quote at the NBBO at least 10% of the 
time during regular market hours in an average of at least 750 
securities per day during a month. In return for its contributions, the 
Exchange will provide a credit for executions of displayed orders in 
securities priced at $1 or more per share that provide liquidity on the 
Exchange System. Specifically, the Exchange is proposing to provide a 
credit of $0.0002 per share executed with respect to all displayed 
orders in securities in Tape A priced at

[[Page 23113]]

$1 or more per share that provide liquidity. This credit will be in 
addition to any credit that the Exchange provides under Equity 7, 
Section 3.
    The second purpose of this change is to amend two fees that the 
Exchange charges to member organizations that enter orders on the 
Exchange that access more than certain specified volumes during a 
month. For a member organization that accesses 0.065% or more of 
Consolidated Volume \3\ during a month, the Exchange presently charges 
a fee of $0.0029 per share executed in Nasdaq-Listed Securities, a fee 
of $0.0028 per share executed in NYSE-Listed Securities, and a fee of 
$0.0028 per share executed in Securities Listed on Exchanges other than 
Nasdaq and NYSE. The Exchange also charges a $0.0030 per share executed 
fee for all other member organizations.
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    \3\ As used in Equity 7, Section 3, the term ``Consolidated 
Volume'' means the total consolidated volume reported to all 
consolidated transaction reporting plans by all exchanges and trade 
reporting facilities during a month in equity securities, excluding 
executed orders with a size of less than one round lot. For purposes 
of calculating Consolidated Volume and the extent of a member's 
trading activity the date of the annual reconstitution of the 
Russell Investments Indexes are excluded from both total 
Consolidated Volume and the member's trading activity.
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    The Exchange proposes to increase, from $0.0028 per share executed 
to $0.0029 per share executed, its fees in NYSE-listed securities and 
in securities listed on exchanges other than NYSE and Nasdaq for member 
organizations that access 0.065% or more of Consolidated Volume during 
a month. This proposed change will equalize the Exchange's liquidity 
removal fees for securities in all three Tapes for member organizations 
that access 0.065% or more of Consolidated Volume during a month. The 
Exchange will continue to assess a $0.0030 per share executed fee to 
all other member organizations that remove liquidity from the Exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 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.'' \6\
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    \6\ 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 \7\ 
(``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.\8\ 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.'' \9\
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    \7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \8\ See NetCoalition, at 534--535.
    \9\ 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' . . . .'' \10\ 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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    \10\ 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 its proposed supplemental $0.0002 per 
share executed credit for displayed orders of QMMs in securities in 
Tape A priced at $1 or more per share that provide liquidity is 
reasonable because it is similar to other credits offered by the 
Exchange for displayed orders that provide liquidity. In addition to 
the proposed $0.0002 per share executed credit described above, the 
Exchange also has other credit tiers for displayed orders ranging from 
$0.0030 per share executed to $0.0023 per share executed. The proposed 
credit will provide an opportunity to member organizations to receive 
an additional credit in return for certain levels of participation on 
the Exchange as measured by quoting at the NBBO. The proposed credit is 
set at a level that is reflective of the beneficial contributions of 
market participants that quote significantly at the NBBO for a wide 
range of symbols. The Exchange believes that it is appropriate to limit 
applicability of the proposed credit to displayed orders in securities 
in Tape A insofar as the Exchange seeks to incentivize member 
organizations to add liquidity to the Exchange in such securities and 
improve the market therefor.
    The Exchange believes that the proposed $0.0002 per share executed 
credit and qualification criteria of the QMM Program are an equitable 
allocation and are not unfairly discriminatory because the Exchange 
will offer the same credit to all similarly situated member 
organizations. Moreover, the proposed qualification criteria requires a 
member to quote significantly at the NBBO therefore contributing to 
market quality in a meaningful way on the Exchange. Any member 
organization may quote at the NBBO at the level required by the 
qualification criteria of the QMM Program. The Exchange notes that 
Nasdaq and BX also have similar QMM programs in which Nasdaq and BX 
members are required to quote at the NBBO more than a certain amount of 
time during regular market hours.\11\ For these reasons, the Exchange 
believes that the proposed QMM Program credit and qualification 
criteria are an equitable allocation and are not unfairly 
discriminatory.
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    \11\ See Nasdaq Equity 7, Section 114(d); BX Equity 7, Section 
118(f). In contrast to the Exchange's proposal, Nasdaq and BX 
require members to quote at the NBBO more than 25% of the time. 
Nasdaq also requires a member to quote at the NBBO in an average of 
at least 1,000 securities per day during the month, while BX 
requires a member to quote at the NBBO in an average of at least 400 
securities during the month. BX also charges a fee, rather than 
assesses a credit, due to the fact that it operates on the ``taker-
maker'' model.
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    Likewise, the Exchange believes that it is reasonable to increase 
its per share executed fees, for orders in securities (i) listed on 
NYSE and (ii) on exchanges other than NYSE and Nasdaq, which it 
assesses to member organizations that access at least 0.065% of 
Consolidated Volume during a month. This proposal will equalize the 
fees for executions of securities in all three Tapes that the Exchange 
assesses to members that access liquidity of at least 0.065% of 
Consolidated Volume in a month.

[[Page 23114]]

    The proposal is equitable and is not unfairly discriminatory 
because the Exchange proposes to offer the same credits to all 
similarly situated members and because the increased fees will be the 
same for securities in all three Tapes.

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 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.
    In this instance, the proposed changes to the Exchange's fees 
assessed and credits provided to member organizations do not impose a 
burden on competition because the Exchange's execution services are 
completely voluntary and subject to extensive competition both from 
other exchanges and from off-exchange venues. The proposed QMM Program 
credit provides member organizations with the opportunity to be 
assessed higher credits for transactions if they improve the market by 
providing significant quoting at the NBBO in a large number of 
securities which the Exchange believes will improve market quality. The 
proposed increases to fees that the Exchange assesses to member 
organizations that access at least 0.0065% [sic] of Consolidated Volume 
during a month are intended to harmonize these fees for executions of 
orders in all three Tapes.
    In sum, the proposed changes are designed to make the Exchange a 
more desirable venue on which to transact; however, 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 member organizations or competing order execution venues to 
maintain their competitive standing in the financial markets.

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.\12\
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    \12\ 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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2019-19 on the subject line.

Paper Comments

     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-2019-19. 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 (http://www.sec.gov/rules/sro.shtml). 
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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-Phlx-2019-19 and should be submitted on 
or before June 11, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-10512 Filed 5-20-19; 8:45 am]
BILLING CODE 8011-01-P