[Federal Register Volume 90, Number 162 (Monday, August 25, 2025)]
[Notices]
[Pages 41459-41462]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-16186]
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SECURITIES AND EXCHANGE COMMISSION
Release No. 34-103754; File No. SR-Phlx-2025-37]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Options
7, Sections 2 and 4
August 20, 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 August 11, 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.
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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 Customer \3\ Rebate Program in
Options 7, Section 2 and the strategy caps in Options 7, Section 4.\4\
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\3\ The term ``Customer'' applies to any transaction that is
identified by a member or member organization for clearing in the
Customer range at The Options Clearing Corporation (``OCC'') which
is not for the account of a broker or dealer or for the account of a
``Professional'' (as that term is defined in Options 1, Section
1(b)(45)). See Options 7, Section 1(c).
\4\ On August 1, 2025, the Exchange filed SR-Phlx-2025-33. On
August 11, 2025, the Exchange withdrew SR-Phlx-2025-33 and filed
this proposal.
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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
Phlx proposes to: (1) amend its tier thresholds within Options 7,
Section 2 with respect to the Customer Rebate Program; and (2) amend
strategy caps in Options 7, Section 4.
Customer Rebates
Today, the Exchange pays Customer rebates based on five tier
according to four categories. The Customer Rebate Tiers shown 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.\5\
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\5\ 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.
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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)
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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
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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.\6\ The Exchange pays a Category B Rebate on Customer PIXL
Orders \7\ 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. The
Exchange pays a Category C Rebate to members executing electronically-
delivered Customer Complex Orders \8\ in 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 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. 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
[[Page 41460]]
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.\9\
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\6\ 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).
\7\ PIXL Orders are entered into the Exchange's Price
Improvement XL (``PIXL'') Mechanism as described in Options 3,
Section 13.
\8\ Complex Orders are described in Options 3, Section 14.
\9\ 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.
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At this time, the Exchange proposes to amend the Tier 2, 4 [sic]
and 4 thresholds. The Exchange proposes to amend the current Tier 2
threshold of ``above 0.60% to 1.10%'' to ``above ``0.60% to 1.30%.''
The Exchange also proposes to amend the current Tier 3 threshold of
``above 1.10%-1.60%'' to ``above 1.30% to 1.80%''. Finally, the
Exchange proposes to amend the Tier 4 threshold from ``above 1.60%-
2.50%'' to ``above 1.80%-2.50%.''
With this proposed amendments, the Exchange believes that certain
members and member organizations that qualified for the Tier 3 Customer
Rebate may now qualify for the Tier 2 Customer Rebate and certain
members and member organizations that qualified for the Tier 4 Customer
Rebate may now qualify for the Tier 3 Customer Rebate. The Exchange
also notes that some members and member organizations may continue to
qualify for their current tiers despite the change. The Exchange seeks
to incentivize members and member organizations to bring a greater
amount of Customer volume to qualify for these tier rebates. The
Exchange notes that other market participants may transact with the
additional Customer order flow the Exchange seeks to attract as a
result of this fee change.
Strategy Caps
Today, the Exchange permits the following of strategy executions:
(1) dividend strategy,\10\ merger strategy,\11\ short stock interest
strategy,\12\ reversal and conversion strategies,\13\ jelly roll
strategy,\14\ and a box spread strategy.\15\ To qualify for a strategy
cap,\16\ the buy and sell side of a transaction must originate either
from the Exchange Trading Floor or as a Floor Qualified Contingent
Cross Order.\17\ The Exchange offers certain daily and month caps as
well. For a dividend strategy, a Lead Market Maker,\18\ Market
Maker,\19\ Professional,\20\ Firm \21\ and Broker-Dealer \22\ that
executed on the same trading day in the same class of options when such
members are trading: (1) in their own proprietary accounts; or (2) on
an agency basis is subject to a daily cap of $1,100.\23\ For a merger,
short stock interest and box spread strategy, a Lead Market Maker,
Market Maker, Professional, Firm and Broker-Dealer that executed on the
same trading day for all classes of options in the aggregate when such
members are trading (1) in their own proprietary accounts; or (2) on an
agency basis is subject to a daily cap of $1,000 if more than one class
of options, or a daily cap of $700 if only in a single class of
options.\24\ Finally, for reversal and conversion and jelly roll
strategies, a Lead Market Maker, Market Maker, Professional, Firm and
Broker-Dealer that executed on the same trading day for all classes of
options in the aggregate when such members are trading (1) in their own
proprietary accounts; or (2) on an agency basis is subject to a daily
cap of $200.\25\ Finally, today, the Exchange offers a $65,000 monthly
cap per member organization for combined executions of dividend,
merger, short stock interest, reversal and conversion, jelly roll and
box spread strategies when trading in its own proprietary accounts
(``Monthly Strategy Cap'').
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\10\ A dividend strategy is defined as transactions done to
achieve a dividend arbitrage involving the purchase, sale and
exercise of in-the-money options of the same class, executed the
first business day prior to the date on which the underlying stock
goes ex-dividend. See Options 7, Section 4.
\11\ A merger strategy is defined as transactions done to
achieve a merger arbitrage involving the purchase, sale and exercise
of options of the same class and expiration date, executed the first
business day prior to the date on which shareholders of record are
required to elect their respective form of consideration, i.e., cash
or stock. See Options 7, Section 4.
\12\ A short stock interest strategy is defined as transactions
done to achieve a short stock interest arbitrage involving the
purchase, sale and exercise of in-the-money options of the same
class. See Options 7, Section 4.
\13\ Reversal and conversion strategies are transactions that
employ calls and puts of the same strike price and the underlying
stock. Reversals are established by combining a short stock position
with a short put and a long call position that shares the same
strike and expiration. Conversions employ long positions in the
underlying stock that accompany long puts and short calls sharing
the same strike and expiration. See Options 7, Section 4.
\14\ A jelly roll strategy is defined as transactions created by
entering into two separate positions simultaneously. One position
involves buying a put and selling a call with the same strike price
and expiration. The second position involves selling a put and
buying a call, with the same strike price, but with a different
expiration from the first position. See Options 7, Section 4.
\15\ A box spread strategy is a strategy that synthesizes long
and short stock positions to create a profit. Specifically, a long
call and short put at one strike is combined with a short call and
long put at a different strike to create synthetic long and
synthetic short stock positions, respectively. See Options 7,
Section 4.
\16\ Of note, NDX, NDXP, and XND Options Transactions are
excluded from strategy cap pricing.
\17\ See Phlx's Pricing Schedule at Options 7, Section 4. A
Floor Qualified Contingent Cross Order is comprised of an
originating order to buy or sell at least 1,000 contracts that is
identified as being part of a qualified contingent trade coupled
with a contra-side order or orders totaling an equal number of
contracts. The term ``qualified contingent trade'' shall have the
same meaning set forth in Options 3, Section 12(a)(3). See Options
8, Section 30(e).
\18\ 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).
\19\ 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).
\20\ The term ``Professional'' applies to transactions for the
accounts of Professionals, as defined in Options 1, Section 1(b)(45)
means any person or entity that (i) is not a broker or dealer in
securities, and (ii) places more than 390 orders in listed options
per day on average during a calendar month for its own beneficial
account(s). See Options 7, Section 1(c).
\21\ The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at The Options Clearing Corporation. See Options 7,
Section 1(c).
\22\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category. See Options 7, Section 1(c).
\23\ If transacted on an agency basis, the daily cap will apply
per beneficial account.
\24\ See id. For example, if a Lead Market Maker executed
reversal and conversion strategies only in AAPL options, and
otherwise met the qualifications for a reversal and conversion cap,
the proposed $700 daily cap would apply. If the Lead Market Maker
executed reversal and conversion strategies in AAPL and SPY options,
and otherwise met the qualifications for a reversal and conversion
cap, the proposed $1,000 daily cap would apply.
\25\ See id.
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At this time, the Exchange is proposing to reduce all daily caps to
$0.00 so that no transaction charge
[[Page 41461]]
would be paid on any permissible strategy execution defined in Options
7, Section 4 that meet the qualifications noted above. The Exchange
would reduce the daily cap amounts to $0.00 in Options 7, Section 4.
The Exchange also proposes to eliminate the Monthly Strategy Cap
because no cap is needed if there are no transaction fees being
assessed for qualifying strategy transactions. The Exchange's proposal
to no longer assess fees on strategy transactions will incentivize Lead
Market Makers, Market Makers, Professionals, Firms and Broker-Dealers
to transact a greater number of strategies on Phlx. Today, Customers
pay no fees on strategy transactions. The Exchange notes that Customers
were not subject to the strategy cap because Customers are not assessed
Options Transaction Charges within Options 7, Section 4.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\26\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\27\ 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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\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(4) and (5).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \28\
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\28\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission
\29\ (``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.\30\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \31\
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\29\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\30\ See NetCoalition, at 534-535.
\31\ Id. at 537.
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Further, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .'' \32\ Although the court and
the SEC were discussing the cash equities markets, the Exchange
believes that these views apply with equal force to the options
markets.
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\32\ Id. at 539 (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008)
(SR-NYSEArca-2006-21)).
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Customer Rebates
The Exchange's proposal to amend the Tier 2, 3 and 4 thresholds is
reasonable because it is designed to bring a greater amount of Customer
volume to Phlx to qualify for these tier rebates. The Exchange notes
that other market participants may transact with the additional
Customer order flow the Exchange seeks to attract as a result of this
fee change. As a result of the fee change, certain members and member
organizations that qualified for the Tier 3 Customer Rebate may now
qualify for the Tier 2 Customer Rebate and certain members and member
organizations that qualified for the Tier 4 Customer Rebate may now
qualify for the Tier 3 Customer Rebate. The Exchange also notes that
some members and member organizations may continue to qualify for their
current tiers despite the change.
The Exchange's proposal to amend the Tier 2, 3 and 4 thresholds is
equitable and not unfairly discriminatory because any Phlx member or
member organization may qualify for a Customer rebate provided they
meet the qualifications. Also, the percentage tier threshold
qualifications will be applied uniformly to all Phlx members and member
organizations. Finally, paying rebates only to Customers is equitable
and not unfairly discriminatory because Customer liquidity benefits all
market participants by providing more trading opportunities which
attracts market makers. An increase in the activity of these market
participants (particularly in response to pricing) in turn facilitates
tighter spreads which may cause an additional corresponding increase in
order flow from other market participants.
Strategy Caps
The Exchange's proposal to reduce all daily caps to $0.00 is
reasonable because no cap is needed if there are no transaction fees
being assessed for qualifying strategy transactions. The Exchange's
proposal to no longer assess fees on strategy transactions will
incentivize Lead Market Makers, Market Makers, Professionals, Firms and
Broker-Dealers to transact a greater number of strategies on Phlx.
The Exchange's proposal to reduce all daily caps to $0.00 is
equitable and not unfairly discriminatory as no Phlx member or member
organization would pay a fee on a qualifying strategy transaction.
Today, Customers are not assessed a strategy transaction fee. The
Exchange's proposal to no longer offer a monthly cap is equitable and
not unfairly discriminatory because no member would be subject to fee
for a qualifying strategy transaction.
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
In terms of intra-market competition, the Exchange's proposal to
amend the
[[Page 41462]]
Tier 2, 3 and 4 thresholds does not impose an undue burden on
competition because any Phlx member or member organization may qualify
for a Customer rebate provided they meet the qualifications. Also, the
percentage tier threshold qualifications will be applied uniformly to
all Phlx members and member organizations. Finally, paying rebates only
to Customers does not impose an undue burden on competition because
Customer liquidity benefits all market participants by providing more
trading opportunities which attracts market makers. An increase in the
activity of these market participants (particularly in response to
pricing) in turn facilitates tighter spreads which may cause an
additional corresponding increase in order flow from other market
participants.
The Exchange's proposal to reduce all daily caps to $0.00 does not
impose an undue burden on competition as no Phlx member or member
organization would pay a fee on a qualifying strategy transaction.
Today, Customers are not assessed a strategy transaction fee. The
Exchange's proposal to no longer offer a monthly cap does not impose an
undue burden on competition because no member would be subject to fee
for a qualifying strategy transaction.
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.\33\
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\33\ 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-2025-37 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-2025-37. 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 filing 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-2025-37 and should be submitted on
or before September 15, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-16186 Filed 8-22-25; 8:45 am]
BILLING CODE 8011-01-P