[Federal Register Volume 85, Number 116 (Tuesday, June 16, 2020)]
[Notices]
[Pages 36438-36442]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12904]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89041; File No. SR-Phlx-2020-28]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx 
Pricing Schedule at Options 7, Section 8, Membership Fees and Options 
7, Section 9, Other Member Fees

June 10, 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 May 28, 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 at Options 
7, Section 8, ``Membership Fees'' and Options 7, Section 9, ``Other 
Member Fees.''
    While the changes proposed herein are effective upon filing, the 
Exchange has designated the amendments become operative on June 1, 
2020.
    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.

[[Page 36439]]

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
    Phlx proposes to amend its pricing within Options 7, Section 8, 
``Membership Fees'' and Options 7, Section 9, ``Other Member Fees.'' 
Each change will be described below.
Credit
    Phlx proposes to amend Options 7, Section 8, ``Membership Fees,'' 
at Part A, ``Permit and Registration Fees,'' to offer a credit of 
$3,400, for the month of June 2020, to any member or member 
organization on the Trading Floor if that member or member organization 
was eligible for the $2,300 reduced Permit Fee as a result of having 
executed at least 100 options in a Phlx house account for the months of 
February and March 2020, and paid the $4,000 Permit Fee in April and 
May 2020. Open outcry on the Exchange's Trading Floor was closed on 
March 17, 2020 \3\ and will not re-open until June 1, 2020.\4\ The 
Exchange proposes to issue the $3,400 credit to those members or member 
organizations on the Trading Floor who demonstrated they did execute at 
least 100 options in a Phlx house account, for the months of February 
and March 2020, in order to qualify for the reduced Permit Fee of 
$2,300. The Exchange believes that these members and member 
organizations may have also qualified for the credit in April or May 
2020, if open outcry trading was available.
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    \3\ See Options Trader Alert #2020-07.
    \4\ See Options Trader Alert #2020-08.
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    The Exchange proposes to credit those qualifying members and member 
organizations the difference ($1,700 a month) as between the $4,000 a 
month Permit Fee and the reduced Permit Fee of $2,300 a month, for the 
months of April and May 2020 when open outcry was not available, 
provided the member or member organization is able to demonstrate that 
they qualified for the credit in February and March 2020.
    This credit would not be offered to Floor Brokers,\5\ Floor Lead 
Market Makers, or Floor Market Makers,\6\ who are not eligible today 
for a reduced Permit Fee. Also, the credit would not be offered to 
member organizations who transact an electronic options business, as 
those member organizations remain able to transact at least 100 options 
in a Phlx house account.\7\
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    \5\ See Options 7, Section 8A. Phlx assesses a Floor Broker 
Permit Fee of $4,000 per month. Additionally, the Exchange proposes 
to waive the Floor Broker Permit Fee for the month of June 2020 as 
described below.
    \6\ See Options 7, Section 8A. Phlx assesses a Floor Lead Market 
Maker and Floor Market Maker Permit Fee of $6,000 per month.
    \7\ Remote Lead Market Makers and Remote Market Makers access 
the market electronically and are therefore excluded.
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Waivers
    Today, the Exchange waives certain fees related to the Phlx Trading 
Floor within Options 7, Section 8. Specifically, for the months of 
April and May 2020, the Exchange waived the Floor Broker Permit Fee of 
$4,000 per month to Floor Brokers.\8\ The Exchange also waived the 
Clerk Fee \9\ of $100 per month. Finally, the Exchange waived the 
Streaming Quote Trader (``SQT'') \10\ Fees within Options 8, Section 
8B. The SQT Fees are tiered fees.\11\ Phlx's 7 tier SQT Fees \12\ are 
as follows:
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    \8\ See Phlx Rules at Options 7, Section 8A.
    \9\ 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.
    \10\ 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.
    \11\ The Exchange notes, with respect to SQTs, that these 
participants may only submit quotations while physically present on 
the Trading Floor.
    \12\ 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.

------------------------------------------------------------------------
    Number of option class
         assignments                            SQT Fees
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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 1000 classes...  5,200.00 per calendar month.
Tier 6: Up to 1200 classes...  6,200.00 per calendar month.
Tier 7: All equity issues....  7,200 per calendar month.
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    The Exchange waived the Floor Broker Permit Fee, the Clerk Fee and 
the SQT Fees, during the months of April and May 2020, to account for 
the closure of open outcry trading. As noted herein, the Trading Floor 
will remain closed until June 1, 2020.\13\ The Exchange proposes to 
continue to waive these fees for the month of June 2020 to account for 
the fact that the Trading Floor has been closed since March 17, 
2020.\14\ Also, the Exchange proposes to remove obsolete language, 
which was relevant in April and May 2020 regarding a credit, which is 
no longer being offered.
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    \13\ See note 4 above.
    \14\ See note 3 above.
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Options 7, Section 9
    Today, the Exchange waives certain fees related to the Phlx Trading 
Floor within Options 7, Section 9. Specifically, the Exchange waived 
the 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), for the months of April and May 2020. The Exchange proposes to 
continue to waive the Floor Facility Fee for the month of June 2020 to 
account for the fact that the Trading

[[Page 36440]]

Floor has been closed since March 17, 2020.\15\
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    \15\ Id.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\16\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\17\ 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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    \16\ 15 U.S.C. 78f(b).
    \17\ 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.'' \18\
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    \18\ 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 
\19\ (``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.\20\ 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.'' \21\
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    \19\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \20\ See NetCoalition, at 534-535.
    \21\ 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' . . . .'' \22\ 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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    \22\ 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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Options 7, Section 8
    Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,'' 
at Part A, ``Permit and Registration Fees,'' to offer a credit of 
$3,400, for the month of June 2020, to any member or member 
organization on the Trading Floor, if that member or member 
organization was eligible for the $2,300 reduced Permit Fee as a result 
of having executed at least 100 options in a Phlx house account for the 
months of February and March 2020, is reasonable. Open outcry trading 
was closed on March 17, 2020,\23\ and will not re-open until June 1, 
2020.\24\ The Exchange proposes to issue the $3,400 credit to those 
members or member organizations on the Trading Floor who demonstrated 
they executed at least 100 options in a Phlx house account for the 
months of February and March 2020, and paid the $4,000 Permit Fee in 
April and May 2020, in order to qualify for the reduced Permit Fee of 
$2,300. The Exchange believes that these members and member 
organizations may have also qualified for the credit in April or May 
2020, if open outcry trading were available. The Exchange proposes to 
credit those qualifying member and member organizations on the Trading 
Floor the difference ($1,700 per month) as between the $4,000 a month 
Permit Fee and the reduced Permit Fee of $2,300 a month for the two 
full months (April and May 2020) when open outcry trading was closed. 
The Exchange believes it is reasonable to pay the difference based on 
whether the member or member organization qualified in both the two 
full prior months, when open outcry trading was unavailable. This 
credit would not apply to Floor Brokers,\25\ Floor Lead Market Makers, 
or Floor Market Makers, as these members do not have the ability to 
qualify for a reduced Permit Fee today. The credit would also not apply 
to members accessing Phlx electronically.\26\
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    \23\ See note 3 above.
    \24\ See note 4 above.
    \25\ The Floor Broker Permit Fee was waived in April and May 
2020. The Exchange proposes herein to also waive that fee for June 
2020.
    \26\ Remote Lead Market Makers and Remote Market Makers access 
the market electronically and are therefore excluded.
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    Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,'' 
at Part A, ``Permit and Registration Fees,'' to offer a credit of 
$3,400, for the month of June 2020, to any member or member 
organization on the Trading Floor, if that member or member 
organization was eligible for the $2,300 reduced Permit Fee as a result 
of having executed at least 100 options in a Phlx house account for the 
months of February and March 2020 and paid the $4,000 Permit Fee in 
April and May 2020, is equitable and not unreasonably discriminatory. 
The Exchange proposes to uniformly offer all Trading Floor members and 
member organizations who currently pay the $4,000 Permit Fee, a credit 
of $3,400, provided they executed at least 100 options in a Phlx house 
account for the months of February and March 2020, and paid the $4,000 
Permit Fee in April and May 2020. The Exchange notes that it is 
equitable and not unfairly discriminatory to not offer the credit to 
Floor Brokers, Floor Lead Market Makers, or Floor Market Makers as 
these members do not have the ability to qualify for a reduced Permit 
Fee today.\27\ Also, it is equitable and not unfairly discriminatory to 
not offer the credit to member organizations who transact an electronic 
options business, as those member organizations remain able to transact 
at least 100 options in a Phlx house account.\28\
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    \27\ The Floor Broker Permit Fee is proposed to be waived for 
the month of June 2020.
    \28\ Remote Lead Market Makers and Remote Market Makers access 
the market electronically and are therefore excluded.
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Fee Waivers
    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 June 
2020, is reasonable as open outcry on the Phlx Trading Floor has not 
been available since March 17, 2020.\29\ 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 
in consideration of their inability to transact options in open outcry 
on the Phlx Trading Floor since March 17, 2020.
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    \29\ See note 3 above.
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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 June 
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

[[Page 36441]]

electronic trading and, therefore, fees associated with electronic 
trading have not been waived.
Obsolete Text
    The Exchange's proposal to remove obsolete language from Options 7, 
Section 8, related to an obsolete credit is reasonable, equitable and 
not unfairly discriminatory as the credit is no longer applicable. No 
member or member organization may obtain the credit.

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 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
    Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,'' 
at Part A, ``Permit and Registration Fees,'' to offer a credit of 
$3,400, for the month of June 2020, to any member or member 
organization on the Trading Floor, if that member or member 
organization was eligible for the $2,300 reduced Permit Fee as a result 
of having executed at least 100 options in a Phlx house account for the 
months of February and March 2020, and paid the $4,000 Permit Fee in 
April and May 2020, does not impose an undue burden on competition. The 
Exchange would uniformly offer all Trading Floor members and member 
organizations who currently pay the $4,000 Permit Fee, a credit of 
$3,400, provided they executed at least 100 options in a Phlx house 
account for the months of February and March 2020, and paid the $4,000 
Permit Fee in April and May 2020. The Exchange notes that it does not 
impose an undue burden on competition to not offer the credit to Floor 
Brokers, Floor Lead Market Makers, or Floor Market Makers as these 
members do not have the ability to qualify for a reduced Permit Fee 
today.\30\ Also, it does not impose an undue burden on competition to 
not offer the credit to member organizations who transact an electronic 
options business, as those member organizations remain able to transact 
at least 100 options in a Phlx house account.\31\
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    \30\ The Floor Broker Permit Fee is proposed to be waived for 
the month of June 2020.
    \31\ Remote Lead Market Makers and Remote Market Makers access 
the market electronically and are therefore excluded.
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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 June 
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.
    The Exchange's proposal to remove obsolete language from Options 7, 
Section 8, related to an obsolete credit, does not impose an undue 
burden on competition as the credit is no longer applicable. No member 
or member organization may obtain the credit.

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.\32\
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    \32\ 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-2020-28 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-2020-28. 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-2020-28 and should be submitted on 
or before July 7, 2020.


[[Page 36442]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12904 Filed 6-15-20; 8:45 am]
BILLING CODE 8011-01-P