[Federal Register Volume 89, Number 98 (Monday, May 20, 2024)]
[Notices]
[Pages 43955-43957]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10951]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100135; File No. SR-Phlx-2024-20]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Pricing Schedule at Options 7, Section 3 To Increase SPY 
Rebates

May 14, 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 May 1, 2024, 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, 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 Pricing Schedule at 
Options 7, Section 3 to increase SPY rebates.
    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 Pricing 
Schedule at Options 7, Section 3 to increase the Simple Order Rebate 
for Adding Liquidity in SPY that is currently provided to Lead Market 
Makers \3\ and Market Makers.\4\
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    \3\ The term ``Lead Market Maker'' applies to transactions for 
the account of a Lead Market Maker (as defined in Options 2, Section 
12(a)). A Lead Market Maker is an Exchange member who is registered 
as an options Lead Market Maker pursuant to Options 2, Section 
12(a). An options Lead Market Maker includes a Remote Lead Market 
Maker which is defined as an options Lead Market Maker in one or 
more classes that does not have a physical presence on an Exchange 
floor and is approved by the Exchange pursuant to Options 2, Section 
11.
    \4\ The term ``Market Maker'' is defined in Options 1, Section 
1(b)(28) as a member of the Exchange who is registered as an options 
Market Maker pursuant to Options 2, Section 12(a). A Market Maker 
includes SQTs and RSQTs as well as Floor Market Makers.
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    Today, the Exchange pays Lead Market Makers and Market Makers a 
Simple Order Rebate for Adding Liquidity in SPY. The rebate is paid 
based on a percentage of all cleared customer volume at The Options 
Clearing Corporation in Multiply Listed Equity Options and Exchange-
Traded Products (``TCV''). Rebates are currently paid on electronically 
executed Lead Market Maker and Market Maker Simple Order contracts per 
day in a month in SPY. Today, Lead Market Makers and Market Makers are 
paid per the highest tier achieved as follows:

------------------------------------------------------------------------
                                      Adds liquidity in     Rebate for
               Tiers                 SPY as a percentage      adding
                                           of TCV            liquidity
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1.................................  up to 0.02%.........           $0.12
2.................................  up to 0.04%.........            0.15
3.................................  up to 0.10%.........            0.18
4.................................  up to 0.20%.........            0.24
5.................................  up to 0.40%.........            0.27
6.................................  greater than 0.40%..            0.32
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    The Exchange now proposes to increase the Tier 5 rebate from $0.27 
to $0.28 per contract and the Tier 6 rebate from $0.32 to $0.34 per 
contract. The Exchange is increasing the Tier 5 and Tier 6 rebates 
without changing the current tier qualifications so that Lead Market 
Makers and Market Makers can submit the same amount of liquidity adding 
volume in SPY as they do today to receive the higher rebates proposed 
above. The Exchange believes that the proposed changes will incentivize 
Lead Market Makers and Market Makers to provide greater liquidity in 
SPY to receive the higher rebates, which benefits all market 
participants through the quality of order interaction.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\6\ 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to its Pricing Schedule are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for options 
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'. . . .'' \7\
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    \7\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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    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.'' \8\
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    \8\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options security transaction services. The Exchange is only one of 
seventeen options exchanges to which market participants may direct 
their order flow.

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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 that its proposal to increase the Tier 5 and 
Tier 6 Simple Order Rebates for Adding Liquidity in SPY that will be 
provided to qualifying Lead Market Makers and Market Makers is 
reasonable because the proposed changes are designed to attract more 
liquidity in SPY to Phlx to the benefit of all market participants. As 
discussed above, the Exchange is proposing to increase the Tier 5 
rebate from $0.27 to $0.28 per contract and the Tier 6 rebate from 
$0.32 to $0.34 per contract without changing the current tier 
qualifications so that Lead Market Makers and Market Makers can submit 
the same amount of liquidity adding volume in SPY as they do today to 
receive the higher proposed rebates. Because SPY is the most actively 
traded symbol on Phlx, the Exchange believes that further incentivizing 
Lead Market Makers and Market Makers to add liquidity in this symbol 
will have a significant and beneficial impact on market quality on 
Phlx.
    The Exchange also believes that the proposed changes are equitable 
and not unfairly discriminatory as all qualifying Lead Market Makers 
and Market Makers would be eligible to receive the increased Tier 5 and 
Tier 6 Simple Order Rebates for Adding Liquidity in SPY. Furthermore, 
the Exchange continues to believe that it is not unfairly 
discriminatory to offer certain incentive programs (like the rebates 
discussed in this proposal) to only Lead Market Makers and Market 
Makers. Lead Market Makers and Market Makers add value through 
continuous quoting \9\ and are subject to additional requirements and 
obligations \10\ that other market participants are not. Incentivizing 
Lead Market Makers and Market Makers to provide greater liquidity 
benefits all market participants through the quality of order 
interaction.
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    \9\ See Options 2, Section 5.
    \10\ See Options 2, Section 4.
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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.
    In terms of intra-market competition, the Exchange does not believe 
that its proposal puts any category of market participant at a 
competitive disadvantage. As described above, while the proposed SPY 
rebates will apply to only Lead Market Makers and Market Makers, the 
Exchange believes that incentivizing Lead Market Makers and Market 
Makers to provide greater liquidity in SPY benefits all market 
participants through the quality of order interaction.
    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 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 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. 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)(ii) of the Act.\11\
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    \11\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-Phlx-2024-20 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-2024-20. 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

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SR-Phlx-2024-20 and should be submitted on or before June 10, 2024.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10951 Filed 5-17-24; 8:45 am]
BILLING CODE 8011-01-P