[Federal Register Volume 89, Number 61 (Thursday, March 28, 2024)]
[Notices]
[Pages 21648-21653]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06574]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99841; File No. SR-Phlx-2024-15]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Fees for Top of PHLX Options (TOPO), PHLX Orders, and TOPO 
Plus Orders

March 22, 2024.
    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, 2024, 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 the Exchange's proprietary data fees 
for Top of PHLX Options (``TOPO''), PHLX Orders, and TOPO Plus Orders 
at Options 7, Section 10, as described further below.
    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 
proprietary data fees for Top of PHLX Options (``TOPO''),\3\ PHLX 
Orders,\4\ and TOPO Plus Orders at Options 7, Section 10.\5\
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    \3\ See Options 3, Section 23(a)(1) (``Top of PHLX Options 
(`TOPO') is a direct data feed product that includes the Exchange's 
best bid and offer price, with aggregate size, based on displayable 
order and quoting interest on Phlx and last sale information for 
trades executed on Phlx. The data contained in the TOPO data feed is 
identical to the data simultaneously sent to the processor for the 
OPRA and subscribers of the data feed. The data provided for each 
options series includes the symbols (series and underlying 
security), put or call indicator, expiration date, the strike price 
of the series, and whether the option series is available for 
trading on Phlx and identifies if the series is available for 
closing transactions only.'').
    \4\ See Options 3, Section 23(a)(1) (``PHLX Orders is a real-
time full Limit Order book data feed that provides pricing 
information for orders on the PHLX Order book for displayed order 
types as well as market participant capacity. PHLX Orders is 
currently provided as part of the TOPO Plus Orders data product. 
PHLX Orders provides real-time information to enable users to keep 
track of the single and complex order book(s). The data provided for 
each options series includes the symbols (series and underlying 
security), put or call indicator, expiration date, the strike price 
of the series, leg information on complex strategies and whether the 
option series is available for trading on Phlx and identifies if the 
series is available for closing transactions only. The feed also 
provides auction and exposure notifications and order imbalances on 
opening/reopening (size of matched contracts and size of the 
imbalance)'').
    \5\ The proposed changes were initially filed on November 16, 
2023, as SR-Phlx-2023-51. On December 5, 2023, SR-Phlx-2023-51 was 
withdrawn and replaced with SR-Phlx-2023-57. On January 29, 2024, 
SR-Phlx-2023-57 was withdrawn and replaced with SR-Phlx 2024-03. On 
March 20, 2024, SR-Phlx-2024-03 was withdrawn and replaced with the 
instant filing to provide additional detail regarding the proposal.
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Top of PHLX Options (``TOPO'')
    TOPO is a direct data feed that provides subscribers with PHLX Best 
Bid and Offer (``BBO'') \6\ and last sale information.\7\ The data 
distributed on TOPO is identical to the data simultaneously sent to the 
Options Price Reporting Authority (``OPRA'').\8\ The TOPO feed also 
provides administrative information to facilitate trading on the 
Exchange such as, for example, the list of symbols trading on a 
particular day.\9\ TOPO reduces the transmission and processing 
latencies for top of book information relative to the OPRA feed by 
avoiding the latencies generated by the latter in consolidating data.
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    \6\ The Best Bid and Offer includes aggregate size information 
based on displayable order and quoting interest on the Exchange.
    \7\ See PHLX, ``Top of Phlx Options,'' available at https://
www.nasdaqtrader.com/
Micro.aspx?id=TOPO#:~:text=Top%20of%20PHLX%20Options%20(TOPO,in%20the
%20consolidated%20market%20feed.
    \8\ See Options 3 (Options Trading Rules), Section 23(a)(1) 
(Data Feeds and Trade Information) (``The data contained in the TOPO 
data feed is identical to the data simultaneously sent to the 
processor for the OPRA and subscribers of the data feed.'').
    \9\ See, e.g., Nasdaq, ``Top of Phlx Options Interface 
Specifications, Version 3.4'' Section 4.3 available at https://www.nasdaqtrader.com/content/technicalsupport/specifications/dataproducts/topofphlx.pdf (describing the start of day options 
directory message, which lists all symbols eligible for the auction 
process).
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    Monthly fees for TOPO are currently $2,000 for Internal 
Distributors,\10\ $2,500 for External Distributors,\11\ $1 for a Non-
Professional Subscriber,\12\ and

[[Page 21649]]

$40 for a Professional Subscriber.\13\ None of these fees have changed 
for over a decade since January 2013.\14\
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    \10\ See Options 7, Section 10 (Proprietary Data Feed Fees) (Top 
of PHLX Options) (``A `distributor' of Nasdaq PHLX data is any 
entity that receives a feed or data file . . . directly from Nasdaq 
PHLX or indirectly through another entity and then distributes it 
either internally (within that entity) or externally (outside that 
entity). All distributors execute a Nasdaq PHLX distributor 
agreement.'').
    \11\ See id.
    \12\ See id. (``A Non-Professional Subscriber is a natural 
person who is neither: (i) registered or qualified in any capacity 
with the Commission, the Commodities Futures Trading Commission, any 
state securities agency, any securities exchange or association, or 
any commodities or futures contract market or association; (ii) 
engaged as an `investment adviser' as that term is defined in 
Section 201(11) of the Investment Advisors Act of 1940 (whether or 
not registered or qualified under that Act); nor (iii) employed by a 
bank or other organization exempt from registration under federal or 
state securities laws to perform functions that would require 
registration or qualification if such functions were performed for 
an organization not so exempt. A Non-Professional Subscriber may 
only use the data provided for personal purposes and not for any 
commercial purpose.'').
    \13\ See id. (``A Professional Subscriber is any Subscriber that 
is not a Non-Professional Subscriber. If the Nasdaq Subscriber 
agreement is signed in the name of a business or commercial entity, 
such entity would be considered a Professional Subscriber.'').
    \14\ See Securities Exchange Act Release No. 68576 (January 3, 
2013), 78 FR 1886 (January 9, 2013) (SR-Phlx-2012-145).
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PHLX Orders
    PHLX Orders is a real-time order book feed with pricing information 
for displayed orders on the PHLX order book.\15\ The data provided for 
each options series includes the symbols (series and underlying 
security), a put or call indicator, expiration date, and the strike 
price of the series. It also provides the real-time status of simple 
and complex orders \16\ on the order book, including new orders and 
changes to orders resting on the PHLX book for all PHLX-listed 
options.\17\ The PHLX Orders feed includes data on the opening 
imbalance, Price Improvement XL (PIXL),\18\ and Complex Order Live 
Auction (COLA).\19\ A notification message is sent for symbols entering 
an auction.\20\ PHLX Orders also furnishes an historical record of all 
simple and complex order message data from the PHLX Orders data feed. 
PHLX Orders information is not sent to OPRA.\21\
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    \15\ See Options 3 (Options Trading Rules), Section 23(a)(2) 
(Data Feeds and Trade Information).
    \16\ See Options 3 (Options Trading Rules), Section 23(a)(2) 
(Data Feeds and Trade Information); Section 14(a)(i) (``Complex 
Order. For purposes of the electronic trading of Complex Orders, a 
Complex Order is an order involving the simultaneous purchase and/or 
sale of two or more different options series in the same underlying 
security, priced as a net debit or credit based on the relative 
prices of the individual components, for the same account, for the 
purpose of executing a particular investment strategy.'').
    \17\ See Nasdaq, ``PHLX Orders,'' available at https://www.nasdaqtrader.com/Micro.aspx?id=PHLXOrders.
    \18\ See Options 3 (Options Trading Rules), Section 23(a)(2); 
Section 13 (Price Improvement XL) (``A member may electronically 
submit for execution an order it represents as agent on behalf of a 
Public Customer, broker-dealer, or any other entity (`PIXL Order') 
against principal interest or against any other order (except as 
provided in sub-paragraph (a)(6) below) it represents as agent (an 
`Initiating Order') provided it submits the PIXL Order for 
electronic execution into the PIXL Auction (`Auction') pursuant to 
this Rule.'').
    \19\ See Options 3, Section 14(e) (describing the process for 
the Complex Order Live Auction (``COLA'')).
    \20\ Nasdaq, ``PHLX Orders Interface Specification,'' (Version 
1.92) available at https://www.nasdaqtrader.com/content/technicalsupport/specifications/dataproducts/topoplusorders.pdf 
(describing auction notification message).
    \21\ See Limited Liability Company Agreement of Options Price 
Reporting Authority, LLC Article V, Section 5.2(c)(i) (January 1, 
2010), available at https://assets.website-files.com/
5ba40927ac854d8c97bc92d7/
;5d0bd57d87d3ccca102102d7_OPRA%20Plan%20with%20Updated%20Exhibit%20A%
20-%2006-19-2019.pdf (describing last sale and best bid and offer 
information disseminated by OPRA).
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    PHLX Orders is an alternative to PHLX Depth of Market. It is an 
optimized technical channel designed to lower technology costs, reduce 
processing time, and facilitate the ingestion of data while still 
providing customers insight beyond the top of book by viewing active 
buy and sell orders. PHLX Orders excludes quotations by market makers 
and other authorized entities that is included in PHLX Depth of 
Market.\22\
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    \22\ See Options 3 (Options Trading Rules), Section 23(a)(3) 
(Data Feeds and Trade Information) (``PHLX Depth of Market is a data 
product that provides: (i) order and quotation information for 
individual quotes and orders on the order book . . .'') (emphasis 
added); Section 4(b) (Entry and display of Quotes) (identifying the 
market participants authorized to submit quotes to the Exchange).
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    What is the utility of an orders-only data feed? It provides 
customers with the opportunity to reduce bandwidth (and therefore data 
processing costs) by several orders of magnitude relative to the full 
depth of book feed, while retaining a view of market participant orders 
(setting aside symbols where participants have not placed orders).
    The December 2023 bandwidth report shows that the PHLX Depth of 
Market feed transmitted a maximum of 14.3 billion messages per day 
during the month of December,\23\ while the PHLX Orders feed 
transmitted a maximum of 53.6 million messages over the same period 
(41.5 million messages for simple orders, and 12.1 million messages for 
complex orders). The Exchange's full depth of book feed requires the 
customer to process over 200 times more messages than the orders feed 
over the course of a day; replacing a depth of book feed with an orders 
feed allows a customer to reduce the maximum number of daily messages 
it receives by 99.6%.
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    \23\ See Nasdaq, ``December 2023 Bandwidth Report,'' available 
at https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fwww.nasdaqtrader.com%2Fcontent%2Ftechnicalsupport%2Fspecifications%2Fdataproducts%2Fbandwidthreport.xls&wdOrigin=BROWSELINK.
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    To cite another example, the 1 millisecond bandwidth peak for PHLX 
Depth of Market was 13.96 million messages; the comparable number of 
messages for orders was 1.45 million (891 thousand for simple and 561 
thousand for complex orders). Replacing depth of book with orders can 
therefore reduce the number of messages processed at peak at the 1 
millisecond bandwidth by nearly 90%.
    Approximately 56% of customers who take any data feed at all from 
the PHLX exchange take an orders feed (either Orders only or TOPO Plus 
Orders) without depth of book. Another 38% of customers take both 
orders and depth feeds. The remaining 6% take either top of book or 
depth of book alone.
    What type of customer takes an orders feed in lieu of depth? In 
general, firms that only need information on actively trading options 
do so. There are a great number of use cases that fit this broad 
description, but, for purposes of illustration, the Exchange is aware 
of at least two such types of customers.
    The first is the market participant that does not engage in order 
routing. These are broker dealers that use third parties to route 
orders, either because the originating broker-dealer is not a member of 
the exchange or to save costs. Without the need for additional 
information to inform routing decisions, such customers often focus on 
active trading alone, and therefore purchase the orders feed.
    A second category of customers are those that use options data to 
analyze trends in other markets. One example of this type of customer 
is the equity trader that analyzes equity-based options to gauge market 
sentiment in the underlying equity. For such customers, there is 
relatively little utility in the full depth feed, given that market 
sentiment is best gauged using options that are being actively traded, 
rather than those that are dormant.
    As noted above, there are some customers that purchase both orders 
and depth. Vendors are one example of this type of customer. They 
purchase market data solely for resale, not for trading on behalf of 
themselves or others. Another example is the firm that uses orders for 
analysis and depth for order routing. As noted above, the orders feed 
can be useful for assessing sentiment in equity markets, while depth is 
often used in order routing decisions. Firms that engage in both 
functions can lower overall processing requirements by using orders for 
analytics and depth for routing.

[[Page 21650]]

    Purchase of PHLX Orders is optional. Customers can obtain all of 
the data contained in PHLX Orders from PHLX Depth of Market feed, and 
may purchase the latter if they do not realize the cost savings offered 
by PHLX Orders.
    PHLX Orders is a derivative product designed as a lower-cost 
alternative to a depth of book feed. It is not a complement to any 
other product offered by the Exchange or any of its competitors. 
Customers are free to purchase PHLX Orders or not, and can reject the 
feed for any reason, including the fee charged.
    Current monthly fees for PHLX Orders are $3,000 for Internal 
Distributors, $3,500 for External Distributors, $1 for a Non-
Professional Subscriber, and $40 for a Professional Subscriber. None of 
these fees have changes for over a decade since January 2013.\24\
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    \24\ See Securities Exchange Act Release No. 68576 (January 3, 
2013), 78 FR 1886 (January 9, 2013) (SR-Phlx-2012-145).
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TOPO Plus Orders
    TOPO Plus is a direct market data product that offers subscribers 
both TOPO and PHLX Orders for a consolidated fee that is less than the 
combined fee of the two products.\25\
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    \25\ See PHLX, TOPO Plus PHLX Orders, available at https://www.nasdaqtrader.com/Micro.aspx?id=TOPOPlusOrders.
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    Monthly fees for TOPO Plus Orders are currently $4,500 for Internal 
Distributors, $5,000 for External Distributors, $1 for a Non-
Professional Subscriber, and $40 for a Professional Subscriber.
    Internal Distributor fees for TOPO Plus Orders were modified in 
January 2018, over five years ago,\26\ but the other TOPO Plus Orders 
fees have not changed since January 2013.\27\
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    \26\ See Securities Exchange Act Release No. 82495 (January 12, 
2018), 83 FR 2839 (January 19, 2018) (SR-Phlx-2018-08).
    \27\ See Securities Exchange Act Release No. 68576 (January 3, 
2013), 78 FR 1886 (January 9, 2013) (SR-Phlx-2012-145).
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Usage of TOPO, PHLX Orders, and TOPO Plus Orders
    Different types of market participants purchase TOPO, PHLX Orders 
and TOPO Plus Orders, including market makers, vendors, banks, 
proprietary traders, agency brokers (brokers that route trades on 
behalf of other market participants), hedge funds, index providers and 
other firms.
    In characterizing market participants, we must be clear that firms 
use data feeds for multiple tasks. A market maker, for example, may use 
market data for order routing, or for risk analysis used in quoting in 
their assigned option series. Banks may use market data for prime 
brokerage services, proprietary trading, or risk management. Market 
data vendors do not directly use the data at all, but rather 
disseminate data to market participants that use the data for a 
multiplicity of purposes. Other firms purchase options data to assess 
the value of equity securities.\28\
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    \28\ We do not include ``High Frequency Trading Firm'' as a 
distinct category because many market participant may engage in low 
latency trading strategies to some degree, but the Exchange does not 
have sufficient information to be able to characterize any 
particular firm as a high frequency trader.
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    Characterizing firms based on what we understand to be their 
primary market activity, and understanding that firms play multiple 
roles, we estimate that approximately half of the customers that take 
top of book data in any form, in combination with other products or 
alone, are market makers, and the remaining half are market data 
vendors, banks, proprietary traders, agency brokers, hedge funds, index 
providers, and others. Roughly the same distribution applies to 
customers that purchase PHLX Orders, whether alone or in combination 
with other products. Although the distributions are roughly similar, 
different customers are purchasing different products in different 
combinations.
    As explained above, firms generally purchase PHLX Orders rather 
than depth of book data to lower technology costs and reduce processing 
time, while still providing customers insight into open executable 
orders that could impact the BBO.
    A more specific explanation of how TOPO, PHLX Orders and TOPO Plus 
Orders is used will vary based on use case, with many firms employing 
multiple use cases. Market makers, banks, hedge funds, and proprietary 
traders often use top of book and orders feeds for trading, order 
routing and analysis. Banks may use market data for prime brokerage 
services, proprietary trading, or risk management. The clients of 
market data vendors will utilize the data for many different purposes. 
We do not have sufficient visibility into our customers' businesses and 
proprietary processes to be able to determine precise data usage by 
customer category.
Proposed Changes
    For TOPO, the Exchange proposes to increase the monthly charge for 
Internal Distributors from $2,000 to $2,500, and the monthly charge for 
External Distributors from $2,500 to $3,000. No changes are proposed 
for Non-Professional and Professional Subscriber fees.
    For PHLX Orders, the Exchange proposes to increase the monthly 
charge for Internal Distributors from $3,000 to $3,500, and the monthly 
charge for External Distributors from $3,500 to $4,000. No changes are 
proposed for Non-Professional and Professional Subscriber fees.
    For TOPO Plus Orders, the Exchange proposes to increase the monthly 
charge for Internal Distributors from $4,500 to $5,500, and the monthly 
charge for External Distributors from $5,000 to $6,000. No changes are 
proposed for Non-Professional and Professional Subscriber fees.
    The proposed changes are designed to update data fees to reflect 
their current value, rather than their value when these fees were set 5 
or 10 years ago.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\29\ in general, and furthers the objectives of 
sections 6(b)(4) and 6(b)(5) of the Act,\30\ 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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    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(4) and (5).
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    This belief is based on several factors.
    First, exchange fees are constrained because market participants 
can choose among seventeen different venues for options trading, and 
therefore no single venue can charge excessive fees without losing 
customers and market share.
    Second, fees for TOPO are constrained because the identical top of 
book data is sent to OPRA, and certain market participants may choose 
to rely exclusively on OPRA rather than purchasing the proprietary data 
product.
    Third, the purchase of PHLX Orders is optional. It is designed as a 
lower-cost alternative to depth of book, and, as such, is not a 
complement to any other product offered by the Exchange or any of its 
competitors. Customers may purchase PHLX Orders or not, and can reject 
the feed for any reason, including the fee charged.
    Fourth, the proposed fees are comparable to, and in some cases less 
than, those of similarly situated exchanges.
    Fifth, the current fees do not properly reflect the value of the 
underlying product, as fees for the products in question have been 
static in nominal terms, and therefore falling in real terms (due to 
inflation), while the amount of

[[Page 21651]]

information transmitted in those fees have more than doubled in just 
the past five years, reflecting a substantial increase in customer 
value due to the significantly higher levels of liquidity currently 
available on the Exchange.
    Sixth, higher fees for the external distribution of TOPO, PHLX 
Orders, and TOPO Plus Orders are based on the additional value vendors 
receive from distributing data to their own customers and typically 
charging for the service.
Customers Have a Choice in Trading Venue
    Customers face many choices in where to trade options. Until 
recently, sixteen exchanges have offered options trading services,\31\ 
and they are now being joined by a 17th member.\32\ Not a single 
options exchange trades more than 11 percent of the options market by 
volume.\33\ PHLX, the second largest options exchange by volume, only 
has 9 percent of the options market.\34\ Only one of the 17 options 
exchanges have a market share over 10 percent.\35\ This broad 
dispersion of market share demonstrates that market participants can 
and do exercise choice in options trading venues. As the number of 
exchanges continues to grow, competition will become fiercer and 
customer choice will continue to expand.
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    \31\ See OPRA Plan, list of OPRA Participant Exchanges, 
available at https://www.opraplan.com/faqs. (All options exchanges 
are members of the OPRA Plan.).
    \32\ See Securities Exchange Act Release No. 98388 (September 
14, 2023), 88 FR 64963 (September 20, 2023) (File No. 4-443) 
(``Joint Industry Plan; Notice of Filing and Immediate Effectiveness 
of Amendment to the Plan for the Purpose of Developing and 
Implementing Procedures Designed To Facilitate the Listing and 
Trading of Standardized Options To Add MEMX LLC as a Plan 
Sponsor'').
    \33\ See Nasdaq, Options Market Statistics (Last updated 
November 3, 2023), available at https://www.nasdaqtrader.com/Trader.aspx?id=OptionsVolumeSummary. On November 3, 2023, the total 
percentage of options market volume by exchange was as follows: 
ARCA: 11%; PHLX: 9%; CBOE: 9%; BOX: 8%; ISE: 7%; EDGX: 7%; AMEX: 7%; 
MIAX: 7%; MPRL: 7%; NOM: 6%; BATS: 6%; C2: 5%; EMLD: 4%; MRX: 3%; 
GEMX: 3%; BXOP: 3%; MEMX: 0%.
    \34\ See id.
    \35\ See id.
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    Most option contracts on the TOPO, TOPO Plus, and Orders data feeds 
are traded on multiple exchanges. A sample of trading on March 7, 2024, 
from The Options Clearing Corporation shows that 5,836 symbols were 
traded on PHLX's options exchange, of which only 53 symbols were listed 
on the PHLX options exchange only, and another 33 symbols were listed 
on multiple Nasdaq-affiliated options exchanges.
    In order to remain competitive with other options exchanges, PHLX, 
like some options exchanges, offers several proprietary options 
products that are only traded on Nasdaq-affiliated exchanges. These 
include products based on the Nasdaq 100[supreg] Index,\36\ such as NDX 
(Nasdaq 100 Index on PHLX, Nasdaq GEMX, LLC (``GEMX'') and Nasdaq ISE, 
LLC (``ISE'')), XND (Nasdaq 100 Micro Index on PHLX and ISE), and NQX 
(Nasdaq 100 Micro Index on ISE), as well as volatility products such as 
VOLQ (Nasdaq-100[supreg] Volatility Index), foreign currency options, 
and other products.
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    \36\ The NASDAQ-100 is an index which includes 100 of the 
world's largest non-financial companies listed on the wider NASDAQ 
Stock market, based on their market capitalization.
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    Some Nasdaq option proprietary products are subject to direct, 
substitution-based competition from other options exchanges. All are 
subject to the competition among exchanges for membership and market 
share. Examples of substitution-based competition include the VOLQ, 
which can be substituted with the Cboe Volatility Index[supreg] 
(``VIX'').\37\ NDX (listed in PHLX, GEMX and ISE), XND (listed on PHLX 
and ISE) and NQX (listed on ISE) all offer different ways of gaining 
exposure to the Nasdaq 100[supreg] Index, are therefore each serves as 
a direct substitute for the others.\38\ The Nasdaq 100[supreg] Index 
products also have alternatives among other exchanges.\39\
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    \37\ See Securities Exchange Act Release No. 95170 (June 29, 
2022), 87 FR 40295 (July 6, 2022) (SR-Phlx-2022-27) (explaining that 
the Nasdaq-100[supreg] Volatility Index (``VOLQ'') is subject to 
``significant substitution-based competitive forces; market 
participants can substitute options on VOLQ for products offered by 
other exchanges, for example, the options on the Cboe Volatility 
Index[supreg] (``VIX'').'').
    \38\ See, e.g., Securities Exchange Act Release No. 99141 
(December 12, 2023), 88 FR 87466 (December 18, 2023) (SR-Phlx-2023-
55) (``[M]arket participants are offered different ways to gain 
exposure to the Nasdaq 100 Index, whether through the Exchange's 
proprietary products like options overlying NDX, NDPX, or XND, or 
separately through multi-listed options overlying Invesco QQQ Trust 
(``QQQ''); Securities Exchange Act Release No. 99171 (December 14, 
2023), 88 FR 88206 (December 20, 2023) (SR-ISE-2023-36) (explaining 
that NDX, XND and NQX provide ``market participants with a variety 
of choices in selecting the product they desire to utilize in order 
to gain exposure to the Nasdaq 100 Index.'').
    \39\ See, e.g., Securities Exchange Act Release No. 99141 n.7 
(December 12, 2023), 88 FR 87466 (December 18, 2023) (SR-Phlx-2023-
55) (explaining that the fees for NDX and NDXP are in line with fees 
assessed by Cboe on its MXEA and MXEF options products).
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    Exchange proprietary products are also subject to competition among 
exchanges for membership and market share.\40\ There are many factors 
that may cause a market participant to decide to become a member of a 
particular exchange; among these are product offerings. Introducing new 
and innovative products to the marketplace designed to meet customer 
demands may attract market participants to become a member of a 
particular options venue by allowing market participants greater 
trading opportunities and new avenues to manage risks. An exchange's 
proprietary product offering may attract order flow to a particular 
exchange to trade a particular options product and generally make that 
exchange a more desirable venue to transaction options, thereby 
attracting membership to that exchange.
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    \40\ See Securities Exchange Act Release No. 95170 (June 29, 
2022), 87 FR 40295 (July 6, 2022) (SR-Phlx-2022-27) (discussing the 
role of proprietary data products in the competition among 
exchanges).
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    In light of the number of trading venues available to customers, 
the Exchange must price its products, including TOPO, PHLX Orders, and 
TOPO Plus Orders (as well as other products), competitively. If not, 
customers would move to other venues. ``If competitive forces are 
operative, the self-interest of the exchanges themselves will work 
powerfully to constrain unreasonable or unfair behavior.'' \41\ 
Accordingly, ``the existence of significant competition provides a 
substantial basis for finding that the terms of an exchange's fee 
proposal are equitable, fair, reasonable, and not unreasonably or 
unfairly discriminatory.'' \42\
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    \41\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \42\ Id.
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The Top of Book Data in TOPO Is Sent to OPRA
    The top of book data in TOPO is sent to OPRA; under OPRA rules, 
proprietary options information is available to customers that have 
equivalent access to OPRA information, and therefore is supplementary 
to the OPRA feed.\43\ Specifically, Section 5.2(c)(iii) of the OPRA 
Plan provides that ``[a] Member [of the OPRA Plan] may disseminate its 
Proprietary Information,'' provided that ``such dissemination is 
limited to other Members and to persons who also have equivalent access 
to consolidated Options Information disseminated by OPRA for the same 
classes or series of options that are included in the Proprietary 
Information . . . .'' \44\ ``Consolidated Options Information'' refers 
to ``consolidated Last Sale Reports combined with either consolidated

[[Page 21652]]

Quotation Information or the BBO furnished by OPRA.'' \45\ Access is 
deemed to be ``equivalent'' ``if both if both kinds of information are 
equally accessible on the same terminal or work station . . . .'' \46\
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    \43\ See Limited Liability Company Agreement of Options Price 
Reporting Authority, LLC Sec.  5.2(c)(iii) (January 1, 2010), 
available at https://assets.website-files.com/5ba40927ac854d8c97bc92d7/5d0bd57d87d3ccca102102d7_OPRA%20Plan%20with%20Updated%20Exhibit%20A%20-%2006-19-2019.pdf (``OPRA Plan'').
    \44\ Id.
    \45\ Id.
    \46\ Id.
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    Any customer that purchases proprietary options data from the 
Exchange, including TOPO and TOPO Plus Orders, must also have 
equivalent access to the OPRA Plan. As noted above, the best bid and 
offer and last sale information available from TOPO and TOPO Plus 
Orders fees is identical to the information simultaneously sent to OPRA 
by the Exchange.\47\ OPRA provides NBBO and last sale information on 
options transactions. TOPO and TOPO Plus Orders provide additional 
administrative information unique to trading on the Exchange, and also 
reduce the transmission and processing latencies generated through the 
process of consolidating data into the OPRA feed.\48\ Because top of 
book and last sale information is available on OPRA as well as TOPO, 
and customers who purchase TOPO have equivalent access to the OPRA 
feed, certain customers may choose to rely on the OPRA feed in lieu of 
purchasing PHLX data, thereby limiting the ability of the Exchange from 
charging excessive fees for its TOPO and TOPO Plus Orders feeds.
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    \47\ As noted above, the TOPO feed includes administrative 
information (but not data) that is not provided on the OPRA feed, 
such as symbol directory messages. See Nasdaq, ``Top of Phlx Options 
Interface Specifications, Version 3.4'' Section 4.3 available at 
https://www.nasdaqtrader.com/content/technicalsupport/specifications/dataproducts/topofphlx.pdf (describing the start of 
day options directory message, which lists all symbols eligible for 
the auction process).
    \48\ The bid and offer and last sale information provided with 
the TOPO Plus Orders product is identical to the data sent to OPRA, 
although the ``orders'' component of TOPO Plus Orders is not.
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The Purchase of PHLX Orders Is Optional
    Purchase of PHLX Orders is optional. As explained above, customers 
can obtain all of the data contained in PHLX Orders from PHLX Depth of 
Market feed, and may purchase the latter if they do not realize the 
cost savings offered by PHLX Orders. PHLX Orders is not a complement to 
any other product offered by the Exchange or any of its competitors; 
customers are free to purchase PHLX Orders or not, and can reject the 
feed for any reason, including the fee charged.
The Proposed Fees Are Comparable to Those of Other Exchanges
    The proposed fees are comparable to, and in some cases less than, 
those of other similarly situated exchange fees. Options market 
statistics show that PHLX has a market share of approximately 9%. ARCA, 
with an 11% market share, and CBOE, with a 9% market share, are its 
closest competitors.\49\
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    \49\ See Nasdaq, Options Market Statistics (Last updated 
November 3, 2023), available at https://www.nasdaqtrader.com/Trader.aspx?id=OptionsVolumeSummary.
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    To obtain top of book and depth of book information for internal 
distribution (including both simple and complex options) from ARCA, a 
customer would be required to pay an Access Fee of $3,000 per month, a 
Non-Display fee of at least $5,000 per month for simple options, and a 
Non-Display fee of $1,000 for Complex Options, for a total of $9,000 
per month.\50\ To obtain the same information from PHLX under the new 
proposal, a customer would pay the Internal Distributor fee of $2,500 
for TOPO, and an Internal Distributor fee of $4,000 for PHLX Depth 
Data,\51\ for a total of $6,500 per month.
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    \50\ See, NYSE Arca Options Proprietary Market Data Fees (as of 
July 3, 2023), available at https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
    \51\ See Options 7, Section 10 (Proprietary Data Feed Fees) 
(PHLX Depth Data). ARCA does not charge separately for top of book 
and depth of book. Although PHLX is not proposing to change fees for 
depth of book information, PHLX depth of book information is 
included here to maintain comparability.
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    To obtain comparable information for Cboe Options, a customer would 
be required to pay a combined fee of $9,000 per month.\52\ As noted 
above, a PHLX customer would pay the Internal Distributor fee of $2,500 
for TOPO, and an Internal Distributor fee of $4,000 for PHLX Depth 
Data,\53\ for a total of $6,500 per month.
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    \52\ See Cboe Data Services (CDS), Market Data Product Price 
List (updated July 1, 2023), available at https://cdn.cboe.com/resources/membership/US_Market_Data_Product_Price_List.pdf.
    \53\ See Options 7, Section 10 (Proprietary Data Feed Fees) 
(PHLX Depth Data). ARCA does not charge separately for top of book 
and depth of book. Although PHLX is not proposing to change fees for 
depth of book information, PHLX depth of book information is 
included here to ensure comparability.
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    As such, the proposed fees are comparable to fees charged by 
industry peers, and therefore presumptively reasonable.
Real Exchange Fees Have Fallen While Traffic Has Increased
    As explained above, the Internal Distributor fee for TOPO Plus 
Orders was increased in 2018,\54\ while none of the other fees have 
changed for over a decade, since January 2013.\55\ This means that fees 
for TOPO, PHLX Orders, and TOPO Plus Orders have fallen in real terms 
due to inflation. Using data generated by the Department of Commerce to 
estimate inflation in the market for portfolio management and 
investment services,\56\ inflation has increased prices by 63.9% since 
January 2013, when most of the fees at issue were set, and 15.7% since 
January 2018, when internal distributor fees for TOPO Plus Orders were 
last modified. At the same time, the average daily message count of 
PHLX has more than doubled in just five years, from approximately 3.0 
billion messages per day in 2018 to approximately 8.2 billion messages 
in 2023.\57\ PHLX grew in conjunction with options trading overall, 
which in the aggregate grew at a faster pace than PHLX alone. Between 
January 2018 and December 2023, options volume on PHLX grew by 31%, 
while options volume on all exchanges nearly doubled, from 467 million 
options to 912 million instruments.\58\
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    \54\ See Securities Exchange Act Release No. 82495 (January 12, 
2018), 83 FR 2839 (January 19, 2018) (SR-Phlx-2018-08).
    \55\ See Securities Exchange Act Release No. 68576 (January 3, 
2013), 78 FR 1886 (January 9, 2013) (SR-Phlx-2012-145).
    \56\ Bureau of Economic Analysis, U.S. Department of Commerce, 
``Personal Consumption Expenditures Price Index,'' available at 
https://www.bea.gov/data/personal-consumption-expenditures-price-index.
    \57\ PHLX Data (Average Daily Message Count was 2,979,919,551.32 
in 2018, and 8,243,516,029.17 thus far in 2023). The significant 
increases in data traffic have also required technological upgrades 
to manage the larger traffic volume and to respond to overall 
technological change in the industry. See, e.g., Securities Exchange 
Act Release No. 82495 (January 12, 2018), 83 FR 2839 (January 19, 
2018) (SR-Phlx-2018-08) (discussing a number of functional 
enhancements to both TOPO and PHLX Orders).
    \58\ Options Clearing Corporation, ``Volume and Open Interest,'' 
available at https://www.theocc.com/market-data/market-data-reports/volume-and-open-interest/volume-by-exchange.
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    Growth in options trading means better value for the consumer. The 
greater variety of options contracts traded means that customers have 
more choice. The greater number of buyers and sellers in the market 
means that there is more liquidity, resulting in tighter spreads and 
better consumer value on each trade. Greater choice and tighter spreads 
mean that the consumer obtains more value from options markets overall, 
which should be reflected in fees for exchange services, including 
market data. The proposal is therefore reasonable in light of the 
substantial increase in customer value generate by the higher levels of 
liquidity

[[Page 21653]]

now available on the Exchange, coupled with the fall in real prices due 
to inflation.
External Distributors Receive Additional Value
    External Distributors receive additional value not available to 
Internal Distributors by disseminating information externally and 
typically charging for the service. This additional value supports 
higher fees for external distribution for TOPO, PHLX Orders, and TOPO 
Plus Orders. Higher fees for external distribution of data are common 
throughout the industry, and nearly universal among exchanges. The 
difference in value between internal and external distribution is also 
reflected in the current fee schedule, which has previously been shown 
to be consistent with the Exchange Act.
* * * * *
    In summary, the proposal represents an equitable allocation of 
reasonable dues, fees and other charges because: (i) customers have a 
choice in trading venue, and will exercise that choice and trade at 
another venue if exchange fees are not set competitively; (ii) the top 
of book data sent in the TOPO feed are also sent to OPRA, and customers 
have the option of relying on OPRA data; (iii) the purchase of PHLX 
Orders is entirely optional as it is a low-cost alternative to the PHLX 
Depth of Market product; (iv) the proposed fees are comparable to those 
of other exchanges; (v) exchange fees have fallen in real terms while 
the amount of liquidity available on the exchange has increased, and 
(vi) external vendors receive additional value from distributing data 
to their own customers and typically charging for the service, and 
therefore charging higher fees for external distribution is fair and 
reasonable.
No Unfair Discrimination
    The Proposal is not unfairly discriminatory. The three market data 
feeds at issue here--TOPO, PHLX Orders, and TOPO Plus Orders--are used 
by a variety of market participants for a variety of purposes. Users 
include regulators, market makers, competing exchanges, media, retail, 
academics, portfolio managers. Market data feeds will be available to 
members of all of these groups on a non-discriminatory basis.

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.
    Nothing in the Proposal burdens inter-market competition (the 
competition among self-regulatory organizations) because approval of 
the Proposal does not impose any burden on the ability of other options 
exchanges to compete. PHLX fees are comparable to, and in some cases 
less than, those of other exchanges, as discussed above.
    Nothing in the Proposal burdens intra-market competition (the 
competition among consumers of exchange data) because PHLX market data 
is available to any customer under the same fee schedule as any other 
customer, and any market participant that wishes to purchase PHLX 
market data can do so on a non-discriminatory basis.

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.\59\
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    \59\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-Phlx-2024-15 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-2024-15. 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 
a.m. and 3 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-2024-15 and should be 
submitted on or before April 18, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\60\
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    \60\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06574 Filed 3-27-24; 8:45 am]
BILLING CODE 8011-01-P