[Federal Register Volume 84, Number 111 (Monday, June 10, 2019)]
[Notices]
[Pages 26918-26920]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12092]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86025; File No. SR-Phlx-2019-23]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, 
Section 3, Which Governs Pricing for Phlx Members Using the Nasdaq PSX 
System

June 4, 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 22, 2019, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``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 Equity 7, Section 3, which governs 
pricing for Phlx members using the Nasdaq PSX System (``PSX'').
    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.

[[Page 26919]]

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 adopt pricing for the 
recently adopted SCAR routing strategy,\3\ which will be implemented on 
May 13, 2019.\4\ In sum, SCAR is a routing option under which orders 
check the System \5\ for available shares and simultaneously route to 
the other equity markets operated by Nasdaq, Inc., the Nasdaq BX 
Equities Market (``BX'') and The Nasdaq Stock Market (``Nasdaq'' and 
together with BX and the Exchange, the ``Nasdaq Affiliated 
Exchanges'').\6\
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    \3\ See Phlx Rule 3315(a)(1)(A)(x). See also Securities Exchange 
Act Release No. 85366 (March 20, 2019), 84 FR 11345 (March 26, 2019) 
(SR-Phlx-2019-04).
    \4\ See Equity Trader Alert #2019-29.
    \5\ The term ``System'' shall mean the automated system for 
order execution and trade reporting owned and operated by the 
Exchange. See Rule 3301(a).
    \6\ If shares remain unexecuted after routing, they are posted 
on the Exchange's book or cancelled. Once on the book, should the 
order subsequently be locked or crossed by another market center, 
the System will not route the order to the locking or crossing 
market center. See Rule 3315(a)(1)(A)(x).
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    The Exchange initially filed the proposed pricing changes on May 
13, 2019 (SR-Phlx-2019-21). On May 22, 2019, the Exchange withdrew that 
filing and submitted this filing.
    The Exchange now proposes to adopt the following pricing for SCAR 
orders in securities listed on Nasdaq (``Tape C''), NYSE (``Tape A''), 
and on exchanges other than Nasdaq and NYSE (``Tape B'') (collectively, 
``Tapes''), which execute on Nasdaq and BX: \7\
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    \7\ Orders using the SCAR routing option that execute on the 
Exchange would be subject to the Exchange's standard fees and 
rebates. Currently, members that do not meet certain volume 
thresholds that would qualify them for a discounted charge or credit 
are assessed a standard transaction fee of $0.0030 per share for 
orders in any Tape securities priced at $1 or more per share that 
execute on the Exchange. See Equity 7, Section 3, Order Execution 
and Routing.
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     SCAR orders executed on Nasdaq will be assessed a charge 
of $0.00295 per share in all Tape securities priced at $1 or more per 
share.
     SCAR orders executed on BX will be assessed a credit of 
$0.0015 per share in Tape A and Tape C securities priced at $1 or more 
per share.
     SCAR orders executed on BX will be assessed a credit of 
$0.0026 per share in Tape B securities priced at $1 or more per 
share.\8\
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    \8\ The Exchange is proposing to provide a higher credit for 
SCAR orders executed on BX in Tape B securities priced at $1 or more 
than such orders in securities in Tape A and Tape C to coordinate 
with BX pricing. BX similarly gives higher credits for orders that 
access liquidity on BX in Tape B securities priced at $1 or more per 
share than such orders in securities in Tape A and Tape C. See BX 
Equity 7, Section 118(a).
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     SCAR orders executed on Nasdaq or BX in all Tape 
securities priced below $1 per share will be assessed a charge of 0.30% 
of the total transaction cost.\9\
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    \9\ This is the same rate that the Exchange currently charges 
for all securities priced below $1 that route and execute at an away 
venue. See Equity 7, Section 3, Order Execution and Routing.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that its proposal is reasonable, equitable, 
and not unfairly discriminatory because the pricing proposed above for 
SCAR is generally set at levels intended to incentivize members to use 
this new routing strategy while also allowing the Exchange to recoup 
the costs of providing routing services. For instance, under this 
proposal, members will be provided credits of $0.0015 (for securities 
in Tapes A and C) or $0.0026 (for Tape B securities) for orders in 
securities priced at $1 or more per share that route to and execute on 
BX using the SCAR strategy. In contrast, orders that execute directly 
on BX as the home exchange (i.e., without using SCAR) are currently 
charged a standard transaction fee of $0.0003 per share.\12\ 
Furthermore, the proposed $0.00295 per share charge for orders in any 
Tape securities priced at $1 or more per share that route to and 
execute on Nasdaq using the SCAR routing strategy is lower than the 
standard transaction charge of $0.0030 per share that would apply if 
the order executed directly on Nasdaq as the home exchange.\13\ As 
such, the proposed SCAR pricing is set at rates that make it more 
economical for members to use this routing strategy, especially for 
those members that do not already add and/or remove large amounts of 
volume on Nasdaq and BX directly.
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    \12\ This fee would apply unless the member qualifies for a 
better rate (such as a liquidity removal credit) by meeting certain 
volume thresholds. See BX Equity 7, Section 118(a).
    \13\ This fee would apply unless the member qualifies for a 
better rate (such as a discounted fee or credit) by meeting certain 
volume thresholds. See Nasdaq Equity 7, Section 118(a).
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    The Exchange also believes that the proposed SCAR credits and 
charges for all Tape securities priced at $1 or more per share are set 
at appropriate levels for the reasons that follow. As noted above, the 
Exchange is proposing a higher credit for SCAR orders in Tape B 
securities than in securities in Tape A and Tape C to coordinate with 
BX pricing, which generally provides higher credits for BX members to 
remove liquidity from BX in Tape B securities priced at $1 or more per 
share than in Tape A and Tape C securities priced at $1 or more.\14\ 
The Exchange therefore believes that the credits are set at appropriate 
levels because the proposed credit of $0.0026 for Tape B securities 
corresponds to the highest Tape B liquidity removal credit currently 
provided for accessing liquidity directly on BX.\15\ As a means of 
offsetting the higher credit proposed for Tape B securities and also of 
recouping the costs of providing routing services, Exchange is 
proposing the credit of $0.0015 for Tapes A and C securities that is 
slightly lower than the highest Tapes A and C credit currently provided 
for accessing liquidity directly on BX.\16\ The Exchange still believes 
that the proposed $0.0015 credit for Tape A and Tape C securities is 
set at an appropriate level because it remains within the range of the 
Tapes A and C liquidity removal credits currently provided for 
accessing liquidity directly on BX.\17\ The proposed credit is also 
aligned with the $0.0015 rebate currently provided by Cboe BZX Exchange 
(``BZX''), Cboe EDGX Exchange (``EDGX''), and Cboe EDGA (``EDGA'') to 
their members using ALLB, a routing strategy similar to SCAR in that 
ALLB routes between affiliated exchanges only,\18\ to route orders to 
their affiliate, Cboe BYX Exchange (``BYX'').\19\ The Exchange also 
believes

[[Page 26920]]

that the proposed $0.00295 charge for SCAR orders that route and 
execute on Nasdaq is set at an appropriate level because it remains 
lower with the standard rate of $0.0030 per share currently charged for 
accessing liquidity directly on Nasdaq, as described above, as well as 
the $0.0030 fee currently assessed by BYX, EDGX, and EDGA to their 
members using the ALLB routing strategy to route orders to their 
affiliate, BZX.\20\
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    \14\ See supra note 8.
    \15\ See BX Equity 7, Section 118(a) (providing a $0.0026 credit 
for BX members entering orders in Tape B securities that access 
liquidity on BX if they meet certain criteria).
    \16\ These credits range from $0.0001 to $0.0018. See BX Equity 
7, Section 118(a).
    \17\ Id.
    \18\ Unlike SCAR, which routes simultaneously to Nasdaq, PSX, 
and BX simultaneously in accordance with the System routing table, 
the ALLB routing strategy offered by BZX, BYZ, EDGA, and EDGX first 
checks the local book before being routed to the affiliated 
exchanges in accordance with the applicable system routing table. 
See Securities Exchange Act Release No. 85366 (March 20, 2019), 84 
FR 11345 (March 26, 2019) (SR-Phlx-2019-04).
    \19\ See BZX Fee Schedule, available at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx; EDGX Fee 
Schedule, available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx; and EDGA Fee Schedule, available at 
https://markets.cboe.com/us/equities/membership/fee_schedule/edga.
    \20\ See BYX Fee Schedule, available at https://markets.cboe.com/us/equities/membership/fee_schedule/byx. See supra 
note 19.
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    The Exchange further believes that it is reasonable, equitable, and 
not unfairly discriminatory to assess the proposed charge for SCAR 
orders executed on BX or Nasdaq in any Tape securities priced below $1 
per share because it is consistent with what it currently charges for 
all orders in securities priced at less than $1 per share that route 
and execute at an away venue.\21\ Lastly, the Exchange believes that 
the proposed pricing changes are equitable and not unfairly 
discriminatory because they will apply uniformly to all members.
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    \21\ The Exchange currently charges 0.30% of the total 
transaction cost for all such orders. See Equity 7, Section 118(b).
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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. The Exchange 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. 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 pricing for SCAR orders are intended 
to recoup the Exchange's costs associated with providing routing 
services while providing incentives to members to make use of the 
Exchange's optional routing functionality. As discussed above, the 
Exchange believes that its proposed pricing remains competitive with 
other equity exchanges.\22\ In addition, because the Exchange's routing 
services are the subject of competition, including price competition, 
from other exchanges and broker-dealers that offer routing services, as 
well as the ability of members to use their own routing capabilities, 
it is likely that the Exchange will lose market share as a result of 
the changes if they are unattractive to market participants. 
Accordingly, the Exchange does not believe that the proposed changes 
will impair the ability of members or competing order execution venues 
to maintain their competitive standing in the financial markets.
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    \22\ See supra notes 19 and 20.
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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.\23\
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    \23\ 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-2019-23 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-2019-23. 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-2019-23 and should be submitted on 
or before July 1, 2019.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12092 Filed 6-7-19; 8:45 am]
 BILLING CODE 8011-01-P