[Federal Register Volume 84, Number 189 (Monday, September 30, 2019)]
[Notices]
[Pages 51705-51707]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21099]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87073; File No. SR-Phlx-2019-37]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change Relating to the
Pricing of a Technology Infrastructure Migration
September 24, 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 September 18, 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 Phlx pricing at Options 7, Section 9
titled ``Other Member Fees.'' The amendment will describe the pricing
with respect to a technology infrastructure migration.
While the changes proposed herein are effective upon filing, the
Exchange has designated the amendments become operative on October 1,
2019.
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 Exchange proposes to amend Phlx pricing at Options 7, Section 9
titled ``Other Member Fees.'' The Exchange previously filed a fee
proposal to not assess a fee for duplicative FIX Ports \3\ and CTI
Ports \4\ to new FIX Ports and CTI Ports, during the month of September
2019, in connection with an upcoming technology infrastructure
migration.\5\ With this rule change, the Exchange proposes to not
assess a fee for duplicative FIX Ports and CTI Ports to new FIX Ports
and CTI Ports, during the month of October 2019 to allow additional
time for the Exchange to migrate its technology.
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\3\ Financial Information eXchange or ``FIX'' is an interface
that allows members and their Sponsored Customers to connect, send,
and receive messages related to orders and auction orders and
responses to and from the Exchange. Features include the following:
(1) Execution messages; (2) order messages; and (3) risk protection
triggers and cancel notifications. See Rule 1080(a)(i)(A).
\4\ Clearing Trade Interface or ``CTI'' is a real-time clearing
trade update message that is sent to a member after an execution has
occurred and contains trade details specific to that member. The
information includes, among other things, the following: (i) The
Clearing Member Trade Agreement or ``CMTA'' or ``OCC'' number; (ii)
Exchange badge or house number; (iii) the Exchange internal firm
identifier; (iv) an indicator which will distinguish electronic and
non-electronically delivered orders; (v) liquidity indicators and
transaction type for billing purposes; and (vi) capacity. See Rule
1070(b)(1).
\5\ See Securities and Exchange Act Release No. 86795 (August
28, 2019), 84 FR 46578 (September 4, 2019) (SR-Phlx-2019-30).
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Description of Migration and Pricing Impact
In connection with this migration, members may request new FIX
Ports and CTI Ports during the month of October 2019, which are
duplicative of the type and quantity of their current ports, at no
additional cost to allow for testing of the new ports and allow for
continuous connection to the match engine during the transition
period.\6\ For example, a Phlx member with 3 FIX Ports and 1 CTI Port
on October 1, 2019 could request 3 new FIX Ports and 1 new CTI Port for
the month of October 2019 at no additional cost. The Phlx member would
be assessed only for the legacy market ports, in this case 3 FIX Ports
and 1 CTI Port for the month of October 2019 and would not be assessed
for the new ports, which are duplicative of the current ports. A member
may acquire any additional legacy ports during the month of October
2019 and would be assessed the charges indicated in the current Pricing
Schedule. The migration does not require a member to acquire any
additional ports, rather the migration requires a new port to replace
any existing ports provided the member desired to maintain the same
number of ports.\7\ A member desiring to enter orders into Phlx is
required to obtain 1 FIX Port. A member may also obtain order and
execution ports, such as a CTI Port, to receive clearing messages. The
number of additional FIX or order and execution ports obtained by a
member is dependent on the member's business needs.
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\6\ Members would contact Market Operations to acquire new
duplicative FIX Ports and CTI Ports. See Options Technical Update
#2019-3.
\7\ The migration is 1:1 and therefore would not require a
member to acquire new ports, nor would it reduce the number of ports
needed to connect.
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Applicability to and Impact on Members \8\
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\8\ On May 21, 2019, the SEC Division of Trading and Markets
(the ``Division'') issued fee filing guidance titled ``Staff
Guidance on SRO Rule Filings Relating to Fees'' (``Guidance'').
Within the Guidance, the Division noted, among other things, that
the purpose discussion should address ``how the fee may apply
differently (e.g., additional cost vs. additional discount) to
different types of market participants (e.g., market makers,
institutional brokers, retail brokers, vendors, etc.) and different
sizes of market participants.'' See Guidance (available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees). The Guidance
also suggests that the purpose discussion should include numerical
examples. Where possible, the Exchange is including numerical
examples. In addition, the Exchange is providing data to the
Commission in support of its arguments herein. The Guidance covers
all aspects of a fee filing, which the Exchange has addressed
throughout this filing.
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The proposal is not intended to impose any additional fees on any
Phlx members. All members may enter orders on Phlx. As noted above, a
Phlx member may enter all orders on Phlx through one FIX Port. The
Exchange does not require a Phlx member to obtain more than one FIX
Port, however, a member may obtain multiple FIX Ports or a CTI Port to
meet its individual business needs. This proposal is intended to permit
a Phlx member to migrate its current FIX Ports and CTI Ports at no
additional costs during the month of October 2019 to allow for
continuous connection to the Exchange. Members would only be assessed a
fee for their current FIX Ports and CTI Ports and not be assessed a fee
for any new duplicative ports they acquire in connection with the
technology
[[Page 51706]]
infrastructure migration. This proposal is not intended to have a
pricing impact.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\10\ 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. The proposal is also consistent with
Section 11A of the Act relating to the establishment of the national
market system for securities. Moreover, the Exchange believes that its
proposal complies with Commission guidance on SRO fee filings that the
Commission Staff issued on May 21, 2019.\11\
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4) and (5).
\11\ See Guidance, supra note 8. Although the Exchange believes
that this filing complies with the Guidance, the Exchange does not
concede that the standards set forth in the Guidance are consistent
with the Exchange Act and reserves its right to challenge those
standards through administrative and judicial review, as
appropriate.
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The Proposal is Reasonable
The Exchange's proposal is reasonable in several respects. As a
threshold matter, the Exchange is subject to significant competitive
forces in the market for options transaction services that constrain
its pricing determinations 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'. . . .'' \12\
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\12\ 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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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options transaction services. The Exchange is one of several options
venues to which market participants may direct their order flow, and it
represents a small percentage of the overall market. The Exchange
believes its proposal is reasonable because it will not cause a pricing
impact on any Phlx member, rather the proposal is intended to permit
Phlx members to migrate their FIX Ports and CTI Ports to new technology
at no additional cost during the month of October 2019. This proposal,
which offers duplicative ports to members at no cost, will allow
members to test and maintain continuous connection to the Exchange
during the month of October 2019.
The Proposal Represents an Equitable Allocation and Is Not Unfairly
Discriminatory
The Exchange believes its proposal allocates its fees fairly among
its market participants. The proposal is equitable and not unfairly
discriminatory. All members may enter orders on Phlx. As noted above, a
Phlx member may enter all orders on Phlx through one FIX Port. The
Exchange does not require a Phlx member to obtain more than one FIX
Port, however, a member may obtain multiple FIX Ports or a CTI Port to
meet its individual business needs. This proposal is not intended to
have a pricing impact to any Phlx member.
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. This proposal does not amend pricing or functionality.
Rather, this technology migration will enable Phlx members to continue
to connect to Phlx, as is the case today, for the entry of orders.
Intra-Market Competition
The proposal does not impose an undue burden on intra-market
competition. All members may enter orders on Phlx. As noted above, a
Phlx member may enter all orders on Phlx through one FIX Port. The
Exchange does not require a Phlx member to obtain more than one FIX
Port, however, a member may obtain multiple FIX Ports or a CTI Port to
meet its individual business needs. This proposal is not intended to
have a pricing impact to any Phlx member.
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\
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\13\ 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-2019-37 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-2019-37. 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
[[Page 51707]]
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-2019-37 and should be
submitted on or before October 21, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21099 Filed 9-27-19; 8:45 am]
BILLING CODE 8011-01-P