[Federal Register Volume 84, Number 157 (Wednesday, August 14, 2019)]
[Notices]
[Pages 40454-40456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17390]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86610; File No. SR-Phlx-2019-27]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend SCAR
Credits at Equity 7, Section 3(a)
August 8, 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 July 25, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend SCAR credits at Equity 7, Section
3(a), as described further below. While these amendments are effective
upon filing, the Exchange has designated the proposed amendments to be
operative on August 1, 2019. The text of the proposed rule change is
available on the
[[Page 40455]]
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 adopt revised pricing
for the recently adopted SCAR routing strategy.\3\ In sum, SCAR is a
routing option under which orders check the System \4\ for available
shares and simultaneously route to the other equity markets operated by
Nasdaq, Inc., Nasdaq BX, Inc. (``BX'') and The Nasdaq Stock Market LLC
(``Nasdaq'').\5\
---------------------------------------------------------------------------
\3\ See Rule 3315(a)(1)(A). See also Securities Exchange Act
Release No. 85366 (March 20, 2019), 84 FR 11345 (March 26, 2019)
(SR-Phlx-2019-04).
\4\ The term ``System'' shall mean the automated system for
order execution and trade reporting owned and operated by the
Exchange. See Rule 3301(a).
\5\ 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).
---------------------------------------------------------------------------
The Exchange proposes to adopt revised credits 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 BX.\6\ BX recently updated its fee
schedule whereby it generally increased the credits provided for orders
that access liquidity,\7\ and the Exchange is proposing to adjust its
fee schedule relating to SCAR to increase credits provided for SCAR
executions occurring on BX Tapes A and C securities and to decrease the
credit provided for SCAR executions occurring on BX Tape B securities.
Currently in securities priced at $1 or more per share, the Exchange
provides a credit of $0.0015 per share for SCAR orders in Tapes A and C
securities executed at BX, and a credit of $0.0026 per share for SCAR
orders in Tape B securities executed at Nasdaq BX.\8\ The Exchange is
proposing to provide a credit of $0.0025 per share executed for SCAR
orders executed on BX in the securities of any of the Tapes priced at
$1 or more per share, which will align the credits with recent changes
to the BX fee schedule.\9\
---------------------------------------------------------------------------
\6\ The Exchange currently provides pricing for execution on BX
using SCAR that is better than a market participant would otherwise
receive for removing liquidity from BX if it did not meet certain
volume thresholds that would qualify them for a better rate (such as
a liquidity removal credit), which is $0.0003 per share executed for
orders in any Tape securities priced at $1 or more per share that
access liquidity on the Exchange. See BX Equity 7, Section 118(a).
Thus, the Exchange's current fees are more reflective of the pricing
a market participant would receive if it provided certain levels of
volume. The Exchange is proposing to adjust the credit provided for
BX executions to reflect recent changes to the credits provided to
BX members for removing liquidity. See Securities Exchange Act
Release No. 34-86447 (July 24, 2019) (SR-BX-2019-026) (awaiting
publication in the Federal Register).
\7\ Id.
\8\ BX operates on the ``taker-maker'' model, whereby it
generally pays credits to members that take liquidity and charges
fees to members that provide liquidity.
\9\ See supra note 6.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange believes that the pricing structure proposed above for
SCAR is reasonable, equitable, and not unfairly discriminatory because
the new credits are generally set at a level intended to incentivize
members to use this new routing strategy. The proposed $0.0025 per
share executed credit for orders in any Tape securities priced at $1 or
more per share that route to, and execute on, BX using the SCAR routing
strategy is significantly higher than the current credit provided in
such transactions in securities of Tapes A and C, and is a modest
decrease to the credit provided for executions in such transactions in
securities of Tape B. This is reflective of the Exchange's desire to
increase incentives to members to use the routing strategy and its
assessment of the costs incurred in providing the routing strategy.
Alignment of the incentive for executions on BX will strike a balance
between these factors. In this regard, the Exchange notes that if the
order executed directly on BX as the home exchange, (i.e., without
using SCAR) the member would be charged the standard transaction fee of
$0.0003 per share executed.\12\ As such, the proposed SCAR credit is
set at a rate that makes it more economical for members to use this
routing strategy, especially for those members that do not already add
and/or remove volume on BX directly. Last, the Exchange believes that
the proposed pricing changes are equitable and not unfairly
discriminatory because they will apply uniformly to all members.
---------------------------------------------------------------------------
\12\ 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 BX Equity 7, Section 118(a).
---------------------------------------------------------------------------
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 is intended
to provide incentive to members to use the Exchange's SCAR routing
strategy, balanced against the need to recoup the Exchange's costs
associated with providing its completely optional routing services.
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.
[[Page 40456]]
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.
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.\13\
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
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-2019-27 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-2019-27. 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-2019-27, and should be submitted on
or before September 4, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17390 Filed 8-13-19; 8:45 am]
BILLING CODE 8011-01-P