[Federal Register Volume 85, Number 66 (Monday, April 6, 2020)]
[Notices]
[Pages 19185-19187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07081]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88525; File No. SR-Phlx-2020-12]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Waive Certain 
Trading Floor Fees as Well as Adopt a Trading Floor Credit

March 31, 2020.
    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 March 20, 2020, 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's Pricing Schedule. 
Specifically, the Exchange proposes to amend certain fees within 
Options 7, Section 8, ``Membership Fees'' and Options 7, Section 9, 
``Other Member Fees'' as well as propose a credit.
    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
    In light of the recent closure of open outcry trading on the Phlx 
Trading Floor as of March 17, 2020,\3\ Phlx proposes to waive certain 
floor-related fees within Options 7, Section 8, ``Membership Fees'' and 
Options 7, Section 9, ``Other Member Fees.'' Additionally, Phlx 
proposes to credit Phlx Trading Floor member organizations a fee for 
Clerks.\4\ Each proposal is discussed below.
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    \3\ See Options Trader Alert #2020-7.
    \4\ The term ``Clerk'' means any registered on-floor person 
employed by or associated with a member or member organization who 
is not a member and is not eligible to effect transactions on the 
Options Floor as a Lead Market Maker, Floor Market Maker, or Floor 
Broker. An Inactive Nominee is deemed a Clerk. See Options 8, 
Section 12(a).
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Options 7, Section 8, Membership Fees and Section 9, Other Member Fees
    Today, the Exchange assesses certain fees related to the Phlx 
Trading Floor within Options 7, Section 8. Among those fees, the 
Exchange assesses a Permit Fee of $4,000 per month to Floor Brokers.\5\ 
The Exchange also assesses a Clerk Fee \6\ of $100 per month. Finally, 
the Exchange assesses Streaming Quote Trader (``SQT'') \7\ Fees within 
Options 8, Section 8B. The SQT Fees are tiered fees. Phlx's 7 tier SQT 
Fees are as follows:
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    \5\ See Phlx Rules at Options 7, Section 8A.
    \6\ The Clerk Fee is imposed on any registered on-floor person 
employed by or associated with a member or member organization 
pursuant to Options 3, Section 19, including Inactive Nominees 
pursuant to Options 8, Section 7. The Clerk Fee is not imposed on 
permit holders. See Phlx Rules at Options 7, Section 8A.
    \7\ The term ``Streaming Quote Trader'' is defined in Options 1, 
Section 1(b)(54) as a Market Maker who has received permission from 
the Exchange to generate and submit option quotations electronically 
in options to which such SQT is assigned. See Options 7, Section 1. 
Further, Options 1, Section 1(b)(54) provides that an SQT means a 
Market Maker who has received permission from the Exchange to 
generate and submit option quotations electronically in options to 
which such SQT is assigned. An SQT may only submit such quotations 
while such SQT is physically present on the trading floor of the 
Exchange. An SQT may only submit quotes in classes of options in 
which the SQT is assigned.

------------------------------------------------------------------------
    Number of option class assignments                SQT Fees
------------------------------------------------------------------------
Tier 1: Up to 200 classes.................  $0.00 per calendar month.
Tier 2: Up to 400 classes.................  $2,200 per calendar month.
Tier 3: Up to 600 classes.................  $3,200.00 per calendar
                                             month.
Tier 4: Up to 800 classes.................  $4,200.00 per calendar
                                             month.
Tier 5: Up to 1,000 classes...............  $5,200.00 per calendar
                                             month.
Tier 6: Up to 1,200 classes...............  $6,200.00 per calendar
                                             month.
Tier 7: All equity issues.................  $7,200 per calendar month.
------------------------------------------------------------------------

    In calculating the number of option class assignments for SQT Fees, 
equity options including ETFs and ETNs are counted. Currencies and 
indexes are not counted in the number of option class assignments.
    The Exchange proposes to waive the Floor Broker Permit Fee, the 
Clerk Fee and the SQT Fees during the month of April 2020 and for the 
month of May 2020, in the event that open outcry trading is unavailable 
as of May 1, 2020. The Exchange is waiving these fees based on the 
recent closure of open outcry trading on the Phlx Trading Floor. The 
Exchange notes, with respect to SQTs, that these participants may only 
submit quotations while physically present on the Trading Floor, 
therefore the closure of open outcry trading prevents SQTS from 
quoting.
    Today, the Exchange assesses certain fees related to the Phlx 
Trading Floor within Options 7, Section 9. Among those fees, the 
Exchange assesses a Floor Facility Fee of $330 per month, which is 
applicable Clerks (excluding Inactive Nominees pursuant to Options 8, 
Section 7), Floor Brokers, Market Makers (including SQTs) and 
individual Lead Market Makers). The Exchange proposes to waive the 
Floor Facility Fee within Options 7, Sections 8 and 9 due to the 
closure of open outcry trading on the Phlx Trading Floor.
Credits for Clerks
    The Exchange proposes to pay a credit to Trading Floor member 
organizations based on the number of Clerks those member organizations 
have registered as of April 1, 2020. The Exchange proposes to pay each 
member organization a credit of $5,000 per Clerk that is registered as 
of April 1, 2020 for the month of April 2020. Phlx will also pay the 
aforementioned credit for the month of May 2020, in the event that open 
outcry trading is unavailable as of May 1, 2020 and the Clerk is 
registered as of May 1, 2020. The Exchange is proposing this credit for 
each registered Clerk to

[[Page 19186]]

offer Phlx Trading Floor member organizations certain relief to 
continue to maintain its business operations.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\9\ 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 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.'' \10\
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    \10\ 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 
\11\ (``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.\12\ 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.'' \13\
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    \11\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \12\ See NetCoalition, at 534-535.
    \13\ 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'. . . .'' \14\ 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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    \14\ 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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Section 8, Membership Fees
    The Exchange's proposal to waive the Floor Broker Permit Fee, the 
Clerk Fee, SQT Fee and the Floor Facility Fee during the month of April 
2020 and for the month of May 2020, in the event that open outcry 
trading is unavailable as of May 1, 2020 is reasonable as open outcry 
on the Phlx Trading Floor is not available.\15\ The Exchange's proposal 
to waive these fees, which apply to transacting an options business on 
the Trading Floor, is intended to alleviate costs for member 
organizations while these member organizations are unable to transact 
options in open outcry on the Phlx Trading Floor.
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    \15\ The Exchange announced that as of March 17, 2020 open 
outcry trading was not available. See Options Trader Alert #2020-7.
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    The Exchange's proposal to waive the Floor Broker Permit Fee, the 
Clerk Fee, SQT Fee and the Floor Facility Fee during the month of April 
2020 and for the month of May 2020, in the event that open outcry 
trading is unavailable as of May 1, 2020 is equitable and not unfairly 
discriminatory as the Exchange will apply these proposed waivers 
uniformly to all member organizations on the Trading Floor. Phlx 
continues to permit electronic trading and therefore fees associated 
with electronic trading have not been waived.
Credits for Clerks
    The Exchange's proposal to pay a credit in April 2020 (and for the 
month of May 2020, in the event that open outcry trading is unavailable 
as of May 1, 2020 and the Clerk is registered as of May 1, 2020) to 
Trading Floor member organizations based on the number of Clerks those 
member organizations have registered as of April 1, 2020 (and 
potentially May 1, 2020) is reasonable. For the month of April 2020 
(and for the month of May 2020, in the event that open outcry trading 
is unavailable as of May 1, 2020 and the Clerk is registered as of May 
1, 2020), Phlx proposes to pay each member organization a credit of 
$5,000 per Clerk, which the firm has registered as of April 1, 2020 
(and potentially May 1, 2020), to provide relief to member 
organizations that are currently unable to transact options in open 
outcry on the Phlx Trading Floor. Phlx is proposing this credit to 
assist member organizations to continue to maintain their business 
operations during April 2020, and potentially May 2020 based on whether 
open outcry trading is available in May 2020.
    The Exchange's proposal to pay a credit in April 2020 (and 
potentially May 2020) to Trading Floor member organizations based on 
the number of Clerks those member organizations have registered as of 
April 1, 2020 (and potentially May 1, 2020) is equitable and not 
unfairly discriminatory. The Exchange proposes to pay all member 
organizations a credit for each Clerk the firm has registered as of 
April 1, 2020 (and potentially May 1, 2020) in a uniform manner. The 
Exchange believes that paying a credit to member organizations for each 
Clerk would alleviate some of the financial burden for each member 
organization. A Clerk is any registered on-floor person employed by or 
associated with a member or member organization who is not a member and 
is not eligible to effect transactions on the Options Floor as a Lead 
Market Maker, Floor Market Maker, or Floor Broker. As such, Clerks are 
employees of Phlx Trading Floor member organizations that would not 
otherwise be able to transact an options business as a Lead Market 
Maker, Floor Market Maker, or Floor Broker. The Exchange believes that 
paying a credit to member organizations for each Clerk registered as of 
April 1, 2020 (and potentially May 1, 2020) will assist member 
organizations in continuing to employee Clerks during the closure of 
open outcry trading.

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. The Exchange believes its proposal remains competitive 
with other options markets and will offer market participants with 
another choice of where to transact options. 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 that have been exempted

[[Page 19187]]

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.
Intra-Market Competition
    The proposed amendments do not impose an undue burden on intra-
market competition.
Section 8, Membership Fees
    The Exchange's proposal to waive the Floor Broker Permit Fee, the 
Clerk Fee, SQT Fee and the Floor Facility Fee during the month of April 
2020, and for the month of May 2020, in the event that open outcry 
trading is unavailable as of May 1, 2020 does not impose an undue 
burden on competition as the Exchange will apply these proposed waivers 
uniformly to all member organizations on the Trading Floor. Phlx 
continues to permit electronic trading and therefore fees associated 
with electronic trading have not been waived.
Credits for Clerks
    The Exchange's proposal to pay a credit in April 2020 (and 
potentially May 2020) to Trading Floor member organizations based on 
the number of Clerks those member organizations have registered as of 
April 1, 2020 (and potentially May 1, 2020) does not impose an undue 
burden on competition. The Exchange proposes to pay all member 
organizations a credit for each Clerk the firm has registered as of 
April 1, 2020 (and potentially May 1, 2020) in a uniform manner. The 
Exchange believes that paying a credit to member organizations for each 
Clerk would alleviate some of the financial burden for each member 
organization. Clerks are any registered on-floor person employed by or 
associated with a member or member organization who is not a member and 
is not eligible to effect transactions on the Options Floor as a Lead 
Market Maker, Floor Market Maker, or Floor Broker. As such, Clerks are 
employees of Phlx Trading Floor member organizations that would not 
otherwise be able to transact an options business as a Lead Market 
Maker, Floor Market Maker, or Floor Broker. The Exchange believes that 
paying a credit to member organizations for each Clerk registered as of 
April 1, 2020 (and potentially May 1, 2020) will assist member 
organizations in continuing to employee Clerks during the closure of 
open outcry trading.

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.\16\
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    \16\ 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-2020-12 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-2020-12. 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-2020-12 and should be submitted on 
or before April 27, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07081 Filed 4-3-20; 8:45 am]
 BILLING CODE 8011-01-P