[Federal Register Volume 88, Number 84 (Tuesday, May 2, 2023)]
[Notices]
[Pages 27543-27545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-09208]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97384; File No. SR-Phlx-2023-11]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Its 
Schedule of Fees and Credits at Equity 7, Section 3

April 26, 2023.
    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 April 12, 2023, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I and II, 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 the Exchange's schedule of fees and 
credits at Equity 7, Section 3. The text of the proposed rule change is 
available on the Exchange's website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, 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 amend the Exchange's 
schedule of fees and credits at Equity 7, Section 3.\3\ Currently, the 
Exchange has a schedule at Equity 7, Section 3(a), which consists of 
several different credits that it provides for orders in securities 
priced at $1 or more per share that add liquidity on the Exchange and 
several different charges that it assesses for orders in such 
securities that access liquidity on the Exchange. The Exchange has a 
schedule at Equity 7, Section 3(b), which consists of charges and 
credits that apply for securities priced at less than $1 per share. The 
Exchange proposes to amend Equity 7, Section 3(a) to: (i) add two new 
credit tiers for displayed Quotes/Orders; (ii) adjust an existing 
credit for displayed Quotes/Orders; and (iii) add a supplemental credit 
for displayed Quotes/Orders. In addition, the Exchange proposes to 
amend Equity 7, Section 3(b) to adjust an existing charge for 
securities priced at less than $1 per share.
---------------------------------------------------------------------------

    \3\ The Exchange initially filed the proposed pricing changes on 
April 3, 2023 (SR-PHLX-2023-10). The instant filing replaces SR-
PHLX-2023-10, which was withdrawn on April 12, 2023.
---------------------------------------------------------------------------

Proposed Changes to Equity 7, Section 3(a)
    The Exchange proposes to establish two new rebates to member 
organizations for adding displayed liquidity. First, the Exchange 
proposes to establish a new credit that will reward a member 
organization with a credit of $0.0033 per share executed for Quotes/
Orders that provide 0.15% or more of total Consolidated Volume during 
the month. Second, the Exchange proposes to establish a new credit that 
will reward a member organization with a credit of $0.0032 per share 
executed for Quotes/Orders that provide 0.07% or more of total 
Consolidated Volume during the month. The Exchange also proposes to 
adjust an existing credit from $0.0032 per share executed to $0.0030 
per share executed for Quotes/Orders that provide 0.05% or more of 
total Consolidated Volume during the month. Finally, the Exchange 
proposes to establish a new supplemental rebate that will reward a 
member organization with a supplemental credit of $0.00005 per share 
executed for displayed Quotes/Orders that: (i) provides 0.10% or more 
of total Consolidated Volume during the prior month; and (ii) provides 
0.10% or more of total Consolidated Volume during the month.
    The proposed new credits will provide incentives to member 
organizations to add liquidity to the Exchange. To the extent that the 
proposed new credits succeed in increasing liquidity on the Exchange, 
the Exchange hopes that additional liquidity will improve the quality 
of the market and help to grow it over time. The Exchange offers these 
credits as a means of improving market quality by providing its members 
with an incentive to increase liquidity on the Exchange. The Exchange 
also proposes to reduce an existing credit, as noted above. The 
Exchange has limited resources available to it to offer its members 
market-improving incentives, and it allocates those limited resources 
to those segments of the market where it perceives the need to be 
greatest and/or where it determines that the incentive is likely to 
achieve its intended objective.

[[Page 27544]]

Proposed Change to Equity 7, Section 3(b)
    The Exchange proposes to adjust the charge to member organizations 
for accessing liquidity on the Exchange in securities priced at less 
than $1 per share from the current rate of 0.20% of the total 
transaction cost to 0.30% of the total transaction cost. Again, the 
Exchange has limited resources available to it to offer its members 
market-improving incentives, and it allocates those limited resources 
to those segments of the market where it perceives the need to be 
greatest and/or where it determines that the incentive is likely to 
achieve its intended objective. Accordingly, the Exchange proposes to 
adjust the charge for accessing liquidity on the Exchange in securities 
priced at less than $1 per share, as noted above.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ 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.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange's proposed changes to its schedule of credits are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for equity 
securities 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'. . . .'' \6\
---------------------------------------------------------------------------

    \6\ 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)).
---------------------------------------------------------------------------

    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.'' \7\
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow. Competing equity exchanges offer similar tiered pricing 
structures to that of the Exchange, including schedules of rebates and 
fees that apply based upon members achieving certain volume thresholds.
    Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules. As such, the 
proposal represents a reasonable attempt by the Exchange to increase 
its liquidity and market share relative to its competitors.
    The Exchange believes it is reasonable, equitable, and not unfairly 
discriminatory to amend Equity 7, Section 3(a) to: (i) add two new 
credit tiers for displayed Quotes/Orders; (ii) adjust an existing 
credit for displayed Quotes/Orders; and (iii) add a supplemental credit 
for displayed Quotes/Orders. Taken together, these amendments will 
better align incentives with the Exchange's needs. The Exchange has 
limited resources to devote to incentive programs, and it is 
appropriate for the Exchange to reallocate these incentives 
periodically in a manner that best achieves the Exchange's overall mix 
of objectives. In addition, the proposed new credits would provide 
incentives to member organizations to add liquidity to the Exchange. To 
the extent that the proposed new credits succeed in increasing 
liquidity on the Exchange, the Exchange hopes that additional liquidity 
will improve the quality of the market and help to grow it over time.
    The Exchange also believes it is reasonable, equitable, and not 
unfairly discriminatory to amend Equity 7, Section 3(b) to adjust an 
existing charge for securities priced at less than $1 per share as the 
Exchange has limited resources to devote to incentive programs, and it 
is appropriate for the Exchange to reallocate these incentives 
periodically in a manner that best achieves the Exchange's overall mix 
of objectives.
    Those participants that are dissatisfied with the changes to the 
Exchange's schedule of credits and fees are free to shift their order 
flow to competing venues that provide more generous incentives or less 
stringent qualifying criteria.

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.
Intramarket Competition
    The Exchange does not believe that its proposals will place any 
category of Exchange participant at a competitive disadvantage.
    The Exchange intends for its proposed changes to its fees and 
credits to reallocate its limited resources more efficiently and to 
align them with the Exchange's overall mix of objectives. The Exchange 
notes that its members are free to trade on other venues to the extent 
they believe that these proposals are not attractive. As one can 
observe by looking at any market share chart, price competition between 
exchanges is fierce, with liquidity and market share moving freely 
between exchanges in reaction to fee and credit changes.
Intermarket Competition
    In terms of inter-market competition, 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 credits and fees to remain competitive with 
other exchanges and with alternative trading systems that have been 
exempted from compliance with the statutory standards applicable to 
exchanges. Because competitors are free to modify their own credits and 
fees in response, and because market participants may readily adjust 
their order routing practices, the Exchange

[[Page 27545]]

believes that the degree to which credit or fee changes in this market 
may impose any burden on competition is extremely limited. The 
proposals are reflective of this competition.
    Even as one of the largest U.S. equities exchanges by volume, the 
Exchange has less than 20% market share, which in most markets could 
hardly be categorized as having enough market power to burden 
competition. Moreover, as noted above, price competition between 
exchanges is fierce, with liquidity and market share moving freely 
between exchanges in reaction to fee and credit changes. This is in 
addition to free flow of order flow to and among off-exchange venues, 
which comprises upwards of 50% of industry volume.
    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. 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) of the Act \8\ and paragraph (f) of Rule 19b-4 
thereunder.\9\ 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2023-11 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-2023-11. 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 (https://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. Do 
not include personal identifiable information in submissions; you 
should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to File Number SR-Phlx-2023-11 and should 
be submitted on or before May 23, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09208 Filed 5-1-23; 8:45 am]
BILLING CODE 8011-01-P