[Federal Register Volume 90, Number 72 (Wednesday, April 16, 2025)]
[Notices]
[Pages 16038-16041]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-06411]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102811; File No. SR-Phlx-2025-16]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx
Options 7, Section 2
April 10, 2025.
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 1, 2025, 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.
---------------------------------------------------------------------------
\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 Pricing Schedule at Options 7,
Section 2, Customer Rebate Program, to provide that if a member or
member organization qualifies for two rebate incentives offered by the
Exchange in notes ``*'' and ``#'' in a given month, the Exchange will
only pay the higher of the two rebates in that month.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/rulefilings,
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 Exchange proposes to amend the Pricing Schedule at Options 7,
Section 2, Customer Rebate Program, to provide that if a member or
member organization qualifies for two rebate incentives offered by the
Exchange in notes ``*'' and ``#'' in a given month, the Exchange will
only pay the higher of the two rebates in that month.
Customer Rebate
The Exchange proposes to amend the Pricing Schedule at Options 7,
Section 2, ``Customer Rebate Program.'' Today, the Exchange pays
rebates on five Customer Rebate Tiers according to four categories. The
Customer Rebate Tiers below are calculated by totaling Customer volume
in Multiply Listed Options (including SPY) that are electronically-
delivered and executed, except volume associated with electronic
Qualified Contingent Cross Orders, as defined in Options 3, Section
12.\3\
---------------------------------------------------------------------------
\3\ Members and member organizations under Common Ownership may
aggregate their Customer volume for purposes of calculating the
Customer Rebate Tiers and receiving rebates. Affiliated Entities may
aggregate their Customer volume for purposes of calculating the
Customer Rebate Tiers and receiving rebates. See Options 7, Section
2.
----------------------------------------------------------------------------------------------------------------
Percentage
thresholds of
national
customer volume
in multiply-
Customer rebate tiers listed equity Category A Category B Category C Category D
and ETF options
classes,
excluding SPY
options
(monthly)
----------------------------------------------------------------------------------------------------------------
Tier 1........................ 0.00%-0.60%..... $0.00 $0.00 $0.00 $0.00
Tier 2&....................... Above 0.60%- * 0.10 * 0.10 * 0.16 * 0.21
1.10%.
Tier 3........................ Above 1.10%- 0.15 * 0.12 * 0.18 * 0.22
1.60%.
Tier 4........................ Above 1.60%- 0.20 0.16 0.22 0.26
2.50%.
Tier 5........................ Above 2.50%..... 0.21 0.17 0.22 0.27
----------------------------------------------------------------------------------------------------------------
The Exchange pays a Category A Rebate to members who execute
electronically-delivered Customer Simple Orders in Penny Symbols and
Customer Simple Orders in Non-Penny Symbols in Options 7, Section 4
symbols.\4\
---------------------------------------------------------------------------
\4\ Options 7, Section 4 describes pricing for Multiply Listed
Options Fees (Includes options overlying equities, ETFs, ETNs and
indexes which are Multiply Listed) (Excludes SPY and broad-based
index options symbols listed within Options 7, Section 5.A).
---------------------------------------------------------------------------
The Exchange pays a Category B Rebate on Customer PIXL Orders \5\
in Options 7, Section 4 symbols that execute against non-Initiating
Order interest. In the instance where member organizations qualify for
Tier 4 or higher in the Customer Rebate Program, Customer PIXL Orders
that execute against a PIXL Initiating Order are paid a rebate of $0.14
per contract. Rebates on Customer PIXL Orders are capped at 4,000
contracts per order for Simple PIXL Orders.
---------------------------------------------------------------------------
\5\ PIXL Orders are entered into the Exchange's Price
Improvement XL (``PIXL'') Mechanism as described in Options 3,
Section 13.
---------------------------------------------------------------------------
The Exchange pays a Category C Rebate to members executing
electronically-delivered Customer Complex Orders \6\ in Penny Symbols
in Options 7, Section 4 symbols. Rebates are paid on Customer PIXL
Complex Orders in Options 7, Section 4 symbols
[[Page 16039]]
that execute against non-Initiating Order interest. Customer Complex
PIXL Orders that execute against a Complex PIXL Initiating Order are
not paid a rebate under any circumstances. The Category C Rebate is not
paid when an electronically-delivered Customer Complex Order, including
Customer Complex PIXL Order, executes against another electronically-
delivered Customer Complex Order.
---------------------------------------------------------------------------
\6\ Complex Orders are described in Options 3, Section 14.
---------------------------------------------------------------------------
The Exchange pays a Category D Rebate to members executing
electronically-delivered Customer Complex Orders in Non-Penny Symbols
in Options 7, Section 4 symbols. Rebates are paid on Customer PIXL
Complex Orders in Options 7, Section 4 symbols that execute against
non-Initiating Order interest. Customer Complex PIXL Orders that
execute against a Complex PIXL Initiating Order are not paid a rebate
under any circumstances. The Category D Rebate is not paid when an
electronically-delivered Customer Complex Order, including Customer
Complex PIXL Order, executes against another electronically-delivered
Customer Complex Order.\7\
---------------------------------------------------------------------------
\7\ Rebates are not paid on broad-based index options symbols
listed within Options 7, Section 5.A. in any Category, however
broad-based index options symbols listed within Options 7, Section
5.A. will count toward the volume requirement to qualify for a
Customer Rebate Tier. See Options 7, Section 2.
---------------------------------------------------------------------------
Today, in note ``*'' the Exchange pays a $0.02 per contract
Category A and B rebate and a $0.03 per contract Category C and D
rebate in addition to the applicable Tier 2 and 3 rebate, provided the
Lead Market Maker,\8\ Market Maker \9\ or Appointed MM \10\ has reached
the Monthly Market Maker Cap \11\ as defined in Options 7, Section 4,
to: (1) a Lead Market Maker or Market Maker who is not under Common
Ownership \12\ or is not a party of an Affiliated Entity; \13\ or (2)
an Order Flow Provider or ``OFP'' member or member organization
affiliate under Common Ownership; or (3) an Appointed OFP \14\ of an
Affiliated Entity.
---------------------------------------------------------------------------
\8\ 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. See Options 7, Section 1(c).
\9\ 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. The term
``Streaming Quote Trader'' or ``SQT'' is defined in Options 1,
Section 1(b)(55) 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. The term ``Remote
Streaming Quote Trader'' or ``RSQT'' is defined in Options 1,
Section 1(b)(49) as a Market Maker that is a member affiliated with
an RSQTO with no physical trading floor presence who has received
permission from the Exchange to generate and submit option
quotations electronically in options to which such RSQT has been
assigned. A Remote Streaming Quote Trader Organization or ``RSQTO,''
which may also be referred to as a Remote Market Making Organization
(``RMO''), is a member organization in good standing that satisfies
the RSQTO readiness requirements in Options 2, Section 1(a). See
Options 7, Section 1(c).
\10\ The term ``Appointed MM'' is a Phlx Market Maker or Lead
Market Maker who has been appointed by an Order Flow Provider
(``OFP'') for purposes of qualifying as an Affiliated Entity. An OFP
is a member or member organization that submits orders, as agent or
principal, to the Exchange. See Options 7, Section 1(d).
\11\ Lead Market Makers and Market Makers are subject to a
``Monthly Market Maker Cap'' of $500,000 for: (i) electronic Option
Transaction Charges, excluding surcharges and excluding options
overlying broad-based index options symbols listed within Options 7,
Section 5.A; and (ii) QCC Transaction Fees (as defined in Exchange
Options 3, Section 12 and Floor QCC Orders, as defined in Options 8,
Section 30(e)). See Options 7, Section 4.
\12\ The term ``Common Ownership'' shall mean members or member
organizations under 75% common ownership or control. See Options 7,
Section 1(c).
\13\ The term ``Affiliated Entity'' is a relationship between an
Appointed MM and an Appointed OFP for purposes of qualifying for
certain pricing specified in the Pricing Schedule. Market Makers or
Lead Market Makers, and OFPs are required to send an email to the
Exchange to appoint their counterpart, at least 3 business days
prior to the last day of the month to qualify for the next month.
The Exchange will acknowledge receipt of the emails and specify the
date the Affiliated Entity is eligible for applicable pricing, as
specified in the Pricing Schedule. Each Affiliated Entity
relationship will commence on the 1st of a month and may not be
terminated prior to the end of any month. An Affiliated Entity
relationship will automatically renew each month until or unless
either party terminates earlier in writing by sending an email to
the Exchange at least 3 business days prior to the last day of the
month to terminate for the next month. Members and member
organizations under Common Ownership may not qualify as a
counterparty comprising an Affiliated Entity. Each member or member
organization may qualify for only one (1) Affiliated Entity
relationship at any given time. See Options 7, Section 1(d).
\14\ The term ``Appointed OFP'' is an OFP who has been appointed
by a Phlx Market Maker or Lead Market Maker for purposes of
qualifying as an Affiliated Entity. See Options 7, Section 1(d).
---------------------------------------------------------------------------
In addition, today, in note ``#'' the Exchange pays a $0.04 per
contract Category C rebate and a $0.02 per contract Category D rebate
in addition to the applicable Tier 2, 3, 4 and 5 rebates to members or
member organizations or member or member organization affiliated under
Common Ownership provided the member or member organization qualified
for any Market Access and Routing Subsidy or ``MARS'' Payments in
Options 7, Section 6, Part E.
Proposal
At this time, the Exchange proposes to provide that in the event
that a member or member organization has qualified for the rebates in
both notes * and # in a given month, the Exchange will only pay the
higher of the two rebates in that month. While the Exchange is
proposing to pay only the higher of the two potential rebates, note *
or note #, for which the member or member organization qualified for in
a given month, the Exchange believes that the Customer Rebates and the
additional incentives in these two notes will continue to incentivize
members and member organizations to execute against Customer orders on
Phlx for the opportunity to earn these rebates.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\15\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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.'' \17\
---------------------------------------------------------------------------
\17\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
Likewise, in NetCoalition v. Securities and Exchange Commission
\18\ (``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.\19\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements'
[[Page 16040]]
play a role in determining the market data . . . to be made available
to investors and at what cost.'' \20\
---------------------------------------------------------------------------
\18\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\19\ See NetCoalition, at 534-535.
\20\ Id. at 537.
---------------------------------------------------------------------------
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'. . . .'' \21\ 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.
---------------------------------------------------------------------------
\21\ 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)).
---------------------------------------------------------------------------
Customer Rebate Program
The Exchange's proposal to pay only the higher of the note * or
note # rebates in the event that a member or member organization has
qualified for both rebates in a given month is reasonable because the
Exchange will continue to pay the Customer Rebates in Options 7,
Section 2 in addition to the higher of the note * and note # rebates in
that month to any qualifying member or member organization. The
Exchange will no longer aggregate both rebates (note * and note #) in
addition to the Customer Rebate Tier in a given month, even if the
member or member organization qualified for both rebates in note * and
note #. Despite this proposal, the Exchange believes that the Customer
Rebates and the additional incentives will continue to incentivize
members and member organizations to execute against Customer orders on
Phlx for the opportunity to earn these rebates.
The Exchange's proposal to pay only the higher of note * or note #
rebates in a given month in the event that a member or member
organization has qualified for both rebates (note * and note #) is
equitable and not unfairly discriminatory because the Exchange would
uniformly pay only the higher of the note * and note # rebates in
addition to the Customer Rebate Tier in a given month to any member or
member organization who qualified for the rebates.
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. Because competitors are free to modify their own fees in
response, and because market participants may readily adjust their
order routing practices, the Exchange believes that the degree to which
fee changes in this market may impose any burden on competition is
extremely limited.
Intra-Market Competition
The Exchange's proposal to pay only the higher of note * or note #
rebates in a given month in the event that a member or member
organization has qualified for both rebates (note * and note #) does
not impose an undue burden on competition because the Exchange would
uniformly pay only the higher of the note * and note # rebates in
addition to the Customer Rebate Tier in a given month to any member or
member organization who qualified for the rebates.
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.\22\
---------------------------------------------------------------------------
\22\ 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-2025-16 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-2025-16. 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-2025-16 and should be
submitted on or before May 7, 2025.
[[Page 16041]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
---------------------------------------------------------------------------
\23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06411 Filed 4-15-25; 8:45 am]
BILLING CODE 8011-01-P