Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule, at Equity 7, Section 3, 51686-51690 [2019-21092]
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Federal Register / Vol. 84, No. 189 / Monday, September 30, 2019 / Notices
agency is involved in activities with a
more complex risk profile or whether a
covered clearing agency is systemically
important in multiple jurisdictions.
Commission staff estimates that each
respondent clearing agency incurs a
one-time burden of 10 hours and a onetime cost of $2,000 to draft and review
a determination request submitted to the
Commission, for a total of 20 hours and
$4,000 for all respondents. The total
annualized burden and cost for all
respondents are 6.66 hours and
$1,333.33.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information will have practical utility;
(b) the accuracy of the Commission
staff’s estimates of the burden of the
proposed collection of information; (c)
the ways to enhance the quality, utility,
and clarity of the information collected;
and (d) ways to minimize the burden of
the collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
Any agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a valid
OMB control number.
Please direct your written comments
to: Charles Riddle, Acting Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Candace
Kenner, 100 F Street NE, Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
Dated: September 24, 2019.
Jill M. Peterson,
Assistant Secretary.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s transaction fees at Equity 7,
Section 3, as described further below.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqphlx.cchwallstreet.com/,
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
[FR Doc. 2019–21082 Filed 9–27–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87094; File No. SR–Phlx–
2019–35]
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(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 12, 2019, 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.
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the
Exchange’s Pricing Schedule, at
Equity 7, Section 3
Presently, the Exchange has a pricing
schedule, at Equity 7, Section 3, which
sets forth several different fees that it
charges for orders in securities priced at
$1 or more per share that remove
liquidity from the Exchange and several
different credits that it providers for
orders in such securities that add
liquidity on the Exchange. The pricing
schedule also provides a supplemental
credit to member organizations that
make significant contributions to
improving the market during each
month. The Exchange proposes to
amend this pricing schedule to increase
removal activity on the Exchange and to
improve overall market quality.
September 24, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
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CFR 240.19b–4.
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Changes To Remove Fees
The Exchange proposes to largely
restate its schedule of charges for
member organizations that enter orders
that execute on the Exchange. Presently,
the Exchange charges a fee of $0.0029
per share executed in securities in all
three Tapes entered by a member
organization that accesses 0.065% or
more of Consolidated Volume 3 during a
month. For all other member
organizations, the exchange presently
charges execution fees of $0.0030 per
share executed. The Exchange proposes
to eliminate the $0.0029 fee and replace
it with two tiers of fees. First, the
Exchange proposes to charge a fee of
$0.0024 per share executed in securities
entered by a member organization that
accesses 0.055% or more of
Consolidated Volume during a month
and that adds 0.025% or more of
Consolidated Volume during a month.
Second, the Exchange proposes to
charge a fee of $0.0025 per share
executed in securities entered by a
member organization that accesses
0.01% or more of Consolidated Volume
during the month and that adds 5,000
shares or more to the Exchange during
a month. The Exchange proposes to
maintain its existing $0.0030 per share
executed fee for all other member
organizations.
The purpose of these changes, which
will reduce the overall fees that the
Exchange charges to member
organizations that remove liquidity from
the Exchange, is to increase the extent
of member organizations’ removal
activity on the Exchange. Moreover, by
tying the availability of the two new,
reduced removal fees to the extent of
member organizations’ liquidity adding
activity on the Exchange, the Exchange
intends to incentivize member
organizations to maintain or increase
their liquidity adding activity on the
Exchange at the same time that they
increase their removal activity, which in
turn will help to improve overall market
quality.
Changes To Add Credits
Additionally, the Exchange proposes
to largely restate its schedule of credits
to member organizations that provide
displayed liquidity to the Exchange.
3 As used in Equity 7, Section 3, the term
‘‘Consolidated Volume’’ means the total
consolidated volume reported to all consolidated
transaction reporting plans by all exchanges and
trade reporting facilities during a month in equity
securities, excluding executed orders with a size of
less than one round lot. For purposes of calculating
Consolidated Volume and the extent of a member’s
trading activity, the date of the annual
reconstitution of the Russell Investments Indexes
are excluded from both total Consolidated Volume
and the member’s trading activity.
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Presently, the Exchange provides the
following credits for member
organizations that provide displayed
liquidity to the Exchange: (1) A $0.0030
per share executed credit for quotes/
orders entered by member organizations
that provide and access 0.20% or more
of Consolidated Volume during a
month; (2) a $0.0027 per share executed
credit for quotes/orders entered by
member organizations that provide and
access 0.15% or more of Consolidated
Volume during a month; (3) a $0.0027
per share executed credit for quotes/
orders entered in securities listed on
exchanges other than Nasdaq or the
NYSE by member organizations that (i)
provide a minimum of 1 million shares
a day on average in securities listed on
Exchanges other than Nasdaq or NYSE
and (ii) double the daily average share
volume provided in Securities Listed on
Exchanges other than Nasdaq or NYSE
during the month versus the member
organization’s daily average share
volume provided in Securities Listed on
Exchanges other than Nasdaq or NYSE
in February 2017; 4 (4) a $0.0025 per
share executed credit for quotes/orders
entered by member organizations that
provide and access 0.05% or more of
Consolidated volume during a month;
and (5) a $0.0023 per share executed
credit for all other quotes/orders.
The Exchange proposes to replace
those credits with the following: (1) A
$0.0026 per share executed credit for
quotes/orders entered by member
organizations that provide 0.15% or
more of total Consolidated Volume
during a month; and (2) a $0.0024 per
share executed credit for quotes/orders
entered by member organizations that
provide 0.07% or more of total
Consolidated Volume during a month.
Additionally, the Exchange will
continue to provide a $0.0023 per share
executed credit for all other quotes/
orders.
The Exchange proposes these changes
to its schedule of transaction credits to
offset its costs of reducing its
transaction fees.
Changes to QMM Program
Earlier this year, the Exchange
established a Qualified Market Maker
(‘‘QMM’’) Program and related credits to
incentivize member organizations to
make significant contributions to market
quality by providing liquidity at the
4 If a member had no activity in February 2017
in Securities Listed on Exchanges other than
Nasdaq or NYSE or became a member after
February 2017, its February 2017 daily average
share volume in Securities Listed on Exchanges
other than Nasdaq or NYSE is zero for purposes of
determining that member’s eligibility for the credit
in subsequent months.
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national best bid and offer (‘‘NBBO’’) in
a large number of securities for a
significant portion of the day.5 The
program is designed to attract liquidity
both from traditional market makers and
from other firms that are willing to
commit capital to support liquidity at
the NBBO. Under existing Equity 7,
Section 3, a member organization that
qualifies as a QMM—i.e., because it
quotes at the NBBO at least 10 percent
of the time during regular market hours
in an average of at least 750 securities
per day during a month—is entitled to
receive a supplemental credit of $0.0002
per share executed for executions of
displayed orders in securities in Tape A
priced at $1 or more per share that
provide liquidity on the Exchange.
The Exchange now proposes to amend
the QMM Program in several respects.
First, the Exchange proposes to adjust
downward the average number of
securities for which a member
organization must quote at the NBBO
during a month to qualify as a QMM as
well as the amount of the credit that the
Exchange will pay to a member
organization that qualifies as a QMM.
Whereas presently, a member
organization must quote at the NBBO at
least 10 percent of the time for an
average of at least 750 securities per day
to qualify as a QMM, the Exchange
proposes to reduce this number to 500
securities per day. Under the proposal,
however, a member organization that
meets this adjusted criteria will be
entitled to a supplemental credit of
$0.0001 per share executed with respect
to all of its displayed orders in all
securities priced at $1 or more that
provide liquidity, rather than $0.0002
per share executed with respect to all of
its displayed orders only in securities in
Tape A that are priced at $1 or more that
provide liquidity.
Additionally, the Exchange proposes
to establish a new second tier QMM
Program credit for QMMs that quote at
the NBBO for the requisite time for a
larger average number of securities.
Specifically, the Exchange proposes to
provide a credit of $0.0002 per share
executed with respect to all displayed
orders of a QMM in securities priced at
$1 or more per share that provide
liquidity, provided that the QMM
quotes the NBBO at least 10 percent of
the time during Market Hours in an
average of at least 650 securities per day
during a month. To the extent that a
QMM qualifies for this new credit, it
will apply in lieu of the $0.0001 QMM
credit described above.
5 See Securities Exchange Act Release No. 34–
85862 (May 15, 2019), 84 FR 23112 (May 21, 2019)
(SR–Phlx–2019–19).
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The Exchange intends for its proposed
amendments to its QMM Program to
broaden and fortify participation in the
Program. The Exchange intends to
broaden participation in the Program by
lowering the qualifying criteria for
QMMs so that member organizations
will be able to qualify that either cannot
do so now or simply do not wish to
quote at the NBBO at least 10 percent of
the time for an average of at least 750
securities per day. The proposal intends
to fortify existing participation in the
Program by easing the burden on
existing QMMs to maintain their
qualifications as such. That is, member
organizations that quote at the NBBO at
least 10 percent of the time in as few as
an average of 500 securities per day
during a month will be able to earn a
$0.0001 per share executed
supplemental credit, whereas now,
member organizations that engage in the
same level of activity would earn no
supplemental credit at all. Meanwhile,
the $0.0002 per share executed
supplemental credit would be available
to member organizations that quote at
the NBBO in only an average of 650
securities per day during a month,
whereas now, such a credit is available
only when member organizations quote
at the NBBO for an average of at least
750 securities per day during a month.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,6 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,7 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.
The Proposal is Reasonable
The Exchange’s proposed change to
its schedule of credits and charges is
reasonable in several respects. As a
threshold matter, the Exchange is
subject to significant competitive forces
in the market for equity securities
transaction services that constrain its
pricing determinations in that market.
The fact that this market is competitive
has long been recognized by the courts.
In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit
stated as follows: ‘‘[n]o one disputes
that competition for order flow is
‘fierce.’ . . . As the SEC explained, ‘[i]n
the U.S. national market system, buyers
6 15
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and sellers of securities, and the brokerdealers 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’. . . .’’ 8
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.’’ 9
Numerous indicia demonstrate the
competitive nature of this market. For
example, clear substitutes to the
Exchange exist in the market for equity
security transaction services. The
Exchange is only one of several equity
venues to which market participants
may direct their order flow. Competing
equity exchanges offer similar tiered
pricing structures to that of the
Exchange, including schedules of
rebates and fees that apply based upon
members achieving certain volume
thresholds.10
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.11 Within the foregoing
context, the proposal represents a
reasonable attempt by the Exchange to
increase its market share relative to its
competitors.
Generally, the Exchange’s proposed
schedule of credits and charges in
Equity 7, Section 3 provide increased
8 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)).
9 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
10 See Cboe EDGX U.S. Equities Exchange Fee
Schedule, available at https://markets.cboe.com/us/
equities/membership/fee_schedule/edgx/.
11 The Exchange perceives no regulatory,
structural, or cost impediments to market
participants shifting order flow away from it. In
particular, the Exchange notes that such shifts in
liquidity and market share occur within the context
of market participants’ existing duties of Best
Execution and obligations under the Order
Protection Rule under Regulation NMS.
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overall incentives to member
organizations to increase their liquidity
removal activity on the Exchange, and
to do so broadly in orders in securities
in all Tapes. An increase in overall
liquidity removal activity on the
Exchange will, in turn, improve the
quality of the Exchange’s equity market
and increase its attractiveness to
existing and prospective participants.
The proposed new fees are consistent
with the current design of Equity 7,
Section 3 because they provide
incrementally lower fees in return for
increased removal and provision of
liquidity on the Exchange. Moreover,
the proposed credits will be comparable
to, if not favorable to, those that its
competitors provide.12
The proposed changes to the
Exchange’s QMM Program is also a
reasonable attempt to improve market
quality by broadening its QMM
Program. By lowering the thresholds for
member organizations to qualify as
QMMs and to receive supplemental
credits for quoting at the NBBO for a
significant percentage of the trading day
in a significant percentage of securities,
the Exchange will encourage new
member organizations to become QMMs
and help ensure that existing QMMs
continue to qualify as such. The
Exchange also proposes to broaden the
utility of the QMM credits it provides to
QMMs by making the credits applicable
to displayed orders in all Tapes, rather
than only to those in Tape A.
The Proposals Are an Equitable
Allocation of Credits and Charges
The Exchange believes its proposals
will allocate its proposed credits and
charges fairly among its market
participants. The proposal will provide
a member organization with an
opportunity to pay lower fees for
removing liquidity from the Exchange
than it does now. It is equitable for the
Exchange to lower its fees to
participants whose orders remove
liquidity from the Exchange as a means
of incentivizing increased liquidity
removal activity and to do so broadly in
orders in securities in all Tapes. An
increase in overall liquidity removal
activity on the Exchange will improve
the quality of the Exchange’s equity
market and increase its attractiveness to
existing and prospective participants.
Meanwhile, the Exchange believes
that it is reasonable to offset the costs of
charging lower fees for liquidity
removal by lowering its credits for
liquidity provision to the Exchange.
Although the proposed credits will be
lower, in many cases, than the existing
12 See
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n. 10, supra.
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credits, and may be harder to achieve,
the Exchange believes that the proposed
credits will continue to be comparable
to liquidity adding rebates provided by
its competitors.13 That said, the
Exchange again notes that those
participants that do not wish to receive
lower credits are free to shift their order
flow to competing venues that offer
them higher credits.
Finally, the Exchange believes its
proposal to adjust the qualification
criteria and supplemental credits
applicable to its QMM program is an
equitable allocation of proposed credits
because the modified qualification
criteria will continue to require member
organizations to quote significantly at
the NBBO for a large number of
securities and will continue to
contribute to market quality in a
meaningful way. In fact, by lowering the
thresholds for member organizations to
qualify as QMMs and to receive
supplemental credits, the Exchange will
encourage new member organizations to
become QMMs and help ensure that
existing QMMs continue to qualify as
such, which will further improve
market quality.
The Proposal Is Not Unfairly
Discriminatory
The Exchange believes that the
proposals are not unfairly
discriminatory. As an initial matter, the
Exchange believes that nothing about its
volume-based tiered pricing model is
inherently unfair; instead, it is a rational
pricing model that is well-established
and ubiquitous in today’s economy
among firms in various industries—from
co-branded credit cards to grocery stores
to cellular telephone data plans—that
use it to reward the loyalty of their best
customers that provide high levels of
business activity and incent other
customers to increase the extent of their
business activity. It is also a pricing
model that the Exchange and its
competitors have long employed with
the assent of the Commission. It is fair
because it incentivizes customer activity
that increases liquidity, enhances price
discovery, and improves the overall
quality of the equity markets.
The Exchange intends for the
proposal to improve market quality for
all members on the Exchange and by
extension attract more liquidity to the
market, improving market wide quality
and price discovery. Although net
removers of liquidity will benefit most
from the proposed lower charges, this
result is fair insofar as increased
liquidity removal activity will help to
improve market quality and the
13 See
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attractiveness of the Exchange’s equity
market to all existing and prospective
participants.
The Exchange’s proposal to modify
the QMM program is not unfairly
discriminatory because any member
organization may quote at the NBBO at
the level required by the modified
qualification criteria of the QMM
Program and, in fact, the modified
criteria will render qualification as a
QMM easier for member organizations
to achieve.
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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.
Intramarket Competition
The Exchange does not believe that its
proposals will place any category of
Exchange participant at a competitive
disadvantage. As noted above, all
members of the Exchange will benefit
from an increase in the removal of
liquidity by those that choose to meet
the tier qualification criteria. Members
may grow their businesses so that they
have the capacity to pay lower removal
fees. Moreover, members are free to
trade on other venues to the extent they
believe that the fees assessed and credits
provided are not attractive. As one can
observe by looking at any market share
chart, price competition between
exchanges is fierce, with liquidity and
market share moving freely between
exchanges in reaction to fee and credit
changes. The Exchange notes that the
tier structure is consistent with brokerdealer fee practices as well as the other
industries, as described above.
Moreover, the Exchange’s proposal to
modify its QMM program will not
burden intramarket competition because
the QMM Program, as modified, will
continue to provide all member
organizations with an opportunity to
obtain supplemental credits for
transactions if they improve the market
by providing significant quoting at the
NBBO in a large number of securities
which the Exchange believes will
improve market quality. By relaxing the
qualification criteria, the modifications
will make the Program more accessible
to new member organizations and easier
for existing QMMs to remain in the
Program.
Intermarket Competition
Addressing whether the proposed fee
could impose a burden on competition
on other SROs that is not necessary or
appropriate, the Exchange believes that
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its proposed modifications to its
schedule of credits and charges will not
impose a burden on competition
because the Exchange’s execution
services are completely voluntary and
subject to extensive competition both
from the other 12 live exchanges and
from off-exchange venues, which
include 32 alternative trading systems.
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.
The proposed restated schedule of
credits and charges and the proposed
modifications to the QMM Program are
reflective of this competition because, as
a threshold issue, the Exchange is a
relatively small market so its ability to
burden intermarket competition is
limited. In this regard, even the largest
U.S. equities exchange by volume only
has 17–18% market share, which in
most markets could hardly be
categorized as having enough market
power to burden competition. Moreover,
as noted above, price competition
between exchanges is fierce, with
liquidity and market share moving
freely between exchanges in reaction to
fee and credit changes. This is in
addition to free flow of order flow to
and among off-exchange venues which
comprised more than 37% of industry
volume for the month of July 2019.
In sum, the Exchange intends for the
proposed fees and credits and modified
QMM Program to increase member
incentives to remove liquidity from the
Exchange and to contribute to market
quality, which is reflective of fierce
competition for order flow noted above;
however, if the proposed fees and
credits are unattractive to market
participants, it is likely that the
Exchange will either fail to increase its
market share or even lose market share
as a result. Accordingly, the Exchange
does not believe that the proposed new
fees and credits will impair the ability
of members or competing order
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51689
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.14
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 rule-comments@
sec.gov. Please include File Number SR–
Phlx–2019–35 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–2019–35. 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
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Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–Phlx–2019–35 and should
be submitted on or before October 21,
2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–21092 Filed 9–27–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
khammond on DSKJM1Z7X2PROD with NOTICES
Extension:
Rule 7d–1, OMB Control No. 3235–0311,
SEC File No. 270–176
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3520), the Securities
and Exchange Commission (the
‘‘Commission’’) has submitted to the
Office of Management and Budget a
request for extension of the previously
approved collection of information
discussed below.
Section 7(d) of the Investment
Company Act of 1940 (15 U.S.C. 80a–
7(d)) (the ‘‘Act’’ or ‘‘Investment
Company Act’’) requires an investment
company (‘‘fund’’) organized outside the
United States (‘‘foreign fund’’) to obtain
an order from the Commission allowing
the fund to register under the Act before
15 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
19:16 Sep 27, 2019
Jkt 247001
making a public offering of its securities
through the United States mail or any
means of interstate commerce. The
Commission may issue an order only if
it finds that it is both legally and
practically feasible effectively to enforce
the provisions of the Act against the
foreign fund, and that the registration of
the fund is consistent with the public
interest and protection of investors.
Rule 7d–1 (17 CFR 270.7d–1) under
the Act, which was adopted in 1954,
specifies the conditions under which a
Canadian management investment
company (‘‘Canadian fund’’) may
request an order from the Commission
permitting it to register under the Act.
Although rule 7d–1 by its terms applies
only to Canadian funds, other foreign
funds generally have agreed to comply
with the requirements of rule 7d–1 as a
prerequisite to receiving an order
permitting the foreign fund’s
registration under the Act.
The rule requires a Canadian fund
proposing to register under the Act to
file an application with the Commission
that contains various undertakings and
agreements of the fund. The
requirement for the Canadian fund to
file an application is a collection of
information under the Paperwork
Reduction Act. Certain of the
undertakings and agreements, in turn,
impose the following additional
information collection requirements:
(1) The fund must file with the
Commission agreements between the
fund and its directors, officers, and
service providers requiring them to
comply with the fund’s charter and
bylaws, the Act, and certain other
obligations relating to the undertakings
and agreements in the application;
(2) The fund and each of its directors,
officers, and investment advisers that is
not a U.S. resident, must file with the
Commission an irrevocable designation
of the fund’s custodian in the United
States as agent for service of process;
(3) The fund’s charter and bylaws
must provide that (a) the fund will
comply with certain provisions of the
Act applicable to all funds, (b) the fund
will maintain originals or copies of its
books and records in the United States,
and (c) the fund’s contracts with its
custodian, investment adviser, and
principal underwriter, will contain
certain terms, including a requirement
that the adviser maintain originals or
copies of pertinent records in the United
States;
(4) The fund’s contracts with service
providers will require that the provider
perform the contract in accordance with
the Act, the Securities Act of 1933 (15
U.S.C. 77a), and the Securities Exchange
PO 00000
Frm 00183
Fmt 4703
Sfmt 4703
Act of 1934 (15 U.S.C. 78a), as
applicable; and
(5) The fund must file, and
periodically revise, a list of persons
affiliated with the fund or its adviser or
underwriter.
As noted above, under section 7(d) of
the Act the Commission may issue an
order permitting a foreign fund’s
registration only if the Commission
finds that ‘‘by reason of special
circumstances or arrangements, it is
both legally and practically feasible
effectively to enforce the provisions of
the (Act).’’ The information collection
requirements are necessary to assure
that the substantive provisions of the
Act may be enforced as a matter of
contract right in the United States or
Canada by the fund’s shareholders or by
the Commission.
Rule 7d–1 also contains certain
information collection requirements that
are associated with other provisions of
the Act. These requirements are
applicable to all registered funds and
are outside the scope of this request.
The Commission believes that one
foreign fund is registered under rule 7d–
1 and currently active. Apart from
requirements under the Act applicable
to all registered funds, rule 7d–1
imposes ongoing burdens to maintain
records in the United States, and to
update, as necessary, certain fund
agreements, designations of the fund’s
custodian as service agent, and the
fund’s list of affiliated persons. The
Commission staff estimates that each
year under the rule, the active registrant
and its directors, officers, and service
providers engage in the following
collections of information and
associated burden hours:
• For the fund and its investment
adviser to maintain records in the
United States: 1 0 hours: 0 minutes of
compliance clerk time.
• For the fund to update its list of
affiliated persons: 2 hours: 2 hours of
support staff time.
• For new officers, directors, and
service providers to enter into and file
agreements requiring them to comply
with the fund’s charter and bylaws, the
1 The rule requires an applicant and its
investment adviser to maintain records in the
United States (which, without the requirement,
might be maintained in Canada or another foreign
jurisdiction), which facilitates routine inspections
and any special investigations of the fund by
Commission staff. The registrant and its investment
adviser, however, already maintain the registrant’s
records in the United States and in no other
jurisdiction. Therefore, maintenance of the
registrant’s records in the United States does not
impose an additional burden beyond that imposed
by other provisions of the Act. Those provisions are
applicable to all registered funds and the
compliance burden of those provisions is outside
the scope of this request.
E:\FR\FM\30SEN1.SGM
30SEN1
]]>Agencies
[Federal Register Volume 84, Number 189 (Monday, September 30, 2019)]
[Notices]
[Pages 51686-51690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21092]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87094; File No. SR-Phlx-2019-35]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Pricing Schedule, at Equity 7, Section 3
September 24, 2019.
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 September 12, 2019, 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 Exchange's transaction fees at
Equity 7, Section 3, as described further below.
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqphlx.cchwallstreet.com/, 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
Presently, the Exchange has a pricing schedule, at Equity 7,
Section 3, which sets forth several different fees that it charges for
orders in securities priced at $1 or more per share that remove
liquidity from the Exchange and several different credits that it
providers for orders in such securities that add liquidity on the
Exchange. The pricing schedule also provides a supplemental credit to
member organizations that make significant contributions to improving
the market during each month. The Exchange proposes to amend this
pricing schedule to increase removal activity on the Exchange and to
improve overall market quality.
Changes To Remove Fees
The Exchange proposes to largely restate its schedule of charges
for member organizations that enter orders that execute on the
Exchange. Presently, the Exchange charges a fee of $0.0029 per share
executed in securities in all three Tapes entered by a member
organization that accesses 0.065% or more of Consolidated Volume \3\
during a month. For all other member organizations, the exchange
presently charges execution fees of $0.0030 per share executed. The
Exchange proposes to eliminate the $0.0029 fee and replace it with two
tiers of fees. First, the Exchange proposes to charge a fee of $0.0024
per share executed in securities entered by a member organization that
accesses 0.055% or more of Consolidated Volume during a month and that
adds 0.025% or more of Consolidated Volume during a month. Second, the
Exchange proposes to charge a fee of $0.0025 per share executed in
securities entered by a member organization that accesses 0.01% or more
of Consolidated Volume during the month and that adds 5,000 shares or
more to the Exchange during a month. The Exchange proposes to maintain
its existing $0.0030 per share executed fee for all other member
organizations.
---------------------------------------------------------------------------
\3\ As used in Equity 7, Section 3, the term ``Consolidated
Volume'' means the total consolidated volume reported to all
consolidated transaction reporting plans by all exchanges and trade
reporting facilities during a month in equity securities, excluding
executed orders with a size of less than one round lot. For purposes
of calculating Consolidated Volume and the extent of a member's
trading activity, the date of the annual reconstitution of the
Russell Investments Indexes are excluded from both total
Consolidated Volume and the member's trading activity.
---------------------------------------------------------------------------
The purpose of these changes, which will reduce the overall fees
that the Exchange charges to member organizations that remove liquidity
from the Exchange, is to increase the extent of member organizations'
removal activity on the Exchange. Moreover, by tying the availability
of the two new, reduced removal fees to the extent of member
organizations' liquidity adding activity on the Exchange, the Exchange
intends to incentivize member organizations to maintain or increase
their liquidity adding activity on the Exchange at the same time that
they increase their removal activity, which in turn will help to
improve overall market quality.
Changes To Add Credits
Additionally, the Exchange proposes to largely restate its schedule
of credits to member organizations that provide displayed liquidity to
the Exchange.
[[Page 51687]]
Presently, the Exchange provides the following credits for member
organizations that provide displayed liquidity to the Exchange: (1) A
$0.0030 per share executed credit for quotes/orders entered by member
organizations that provide and access 0.20% or more of Consolidated
Volume during a month; (2) a $0.0027 per share executed credit for
quotes/orders entered by member organizations that provide and access
0.15% or more of Consolidated Volume during a month; (3) a $0.0027 per
share executed credit for quotes/orders entered in securities listed on
exchanges other than Nasdaq or the NYSE by member organizations that
(i) provide a minimum of 1 million shares a day on average in
securities listed on Exchanges other than Nasdaq or NYSE and (ii)
double the daily average share volume provided in Securities Listed on
Exchanges other than Nasdaq or NYSE during the month versus the member
organization's daily average share volume provided in Securities Listed
on Exchanges other than Nasdaq or NYSE in February 2017; \4\ (4) a
$0.0025 per share executed credit for quotes/orders entered by member
organizations that provide and access 0.05% or more of Consolidated
volume during a month; and (5) a $0.0023 per share executed credit for
all other quotes/orders.
---------------------------------------------------------------------------
\4\ If a member had no activity in February 2017 in Securities
Listed on Exchanges other than Nasdaq or NYSE or became a member
after February 2017, its February 2017 daily average share volume in
Securities Listed on Exchanges other than Nasdaq or NYSE is zero for
purposes of determining that member's eligibility for the credit in
subsequent months.
---------------------------------------------------------------------------
The Exchange proposes to replace those credits with the following:
(1) A $0.0026 per share executed credit for quotes/orders entered by
member organizations that provide 0.15% or more of total Consolidated
Volume during a month; and (2) a $0.0024 per share executed credit for
quotes/orders entered by member organizations that provide 0.07% or
more of total Consolidated Volume during a month. Additionally, the
Exchange will continue to provide a $0.0023 per share executed credit
for all other quotes/orders.
The Exchange proposes these changes to its schedule of transaction
credits to offset its costs of reducing its transaction fees.
Changes to QMM Program
Earlier this year, the Exchange established a Qualified Market
Maker (``QMM'') Program and related credits to incentivize member
organizations to make significant contributions to market quality by
providing liquidity at the national best bid and offer (``NBBO'') in a
large number of securities for a significant portion of the day.\5\ The
program is designed to attract liquidity both from traditional market
makers and from other firms that are willing to commit capital to
support liquidity at the NBBO. Under existing Equity 7, Section 3, a
member organization that qualifies as a QMM--i.e., because it quotes at
the NBBO at least 10 percent of the time during regular market hours in
an average of at least 750 securities per day during a month--is
entitled to receive a supplemental credit of $0.0002 per share executed
for executions of displayed orders in securities in Tape A priced at $1
or more per share that provide liquidity on the Exchange.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 34-85862 (May 15,
2019), 84 FR 23112 (May 21, 2019) (SR-Phlx-2019-19).
---------------------------------------------------------------------------
The Exchange now proposes to amend the QMM Program in several
respects. First, the Exchange proposes to adjust downward the average
number of securities for which a member organization must quote at the
NBBO during a month to qualify as a QMM as well as the amount of the
credit that the Exchange will pay to a member organization that
qualifies as a QMM. Whereas presently, a member organization must quote
at the NBBO at least 10 percent of the time for an average of at least
750 securities per day to qualify as a QMM, the Exchange proposes to
reduce this number to 500 securities per day. Under the proposal,
however, a member organization that meets this adjusted criteria will
be entitled to a supplemental credit of $0.0001 per share executed with
respect to all of its displayed orders in all securities priced at $1
or more that provide liquidity, rather than $0.0002 per share executed
with respect to all of its displayed orders only in securities in Tape
A that are priced at $1 or more that provide liquidity.
Additionally, the Exchange proposes to establish a new second tier
QMM Program credit for QMMs that quote at the NBBO for the requisite
time for a larger average number of securities. Specifically, the
Exchange proposes to provide a credit of $0.0002 per share executed
with respect to all displayed orders of a QMM in securities priced at
$1 or more per share that provide liquidity, provided that the QMM
quotes the NBBO at least 10 percent of the time during Market Hours in
an average of at least 650 securities per day during a month. To the
extent that a QMM qualifies for this new credit, it will apply in lieu
of the $0.0001 QMM credit described above.
The Exchange intends for its proposed amendments to its QMM Program
to broaden and fortify participation in the Program. The Exchange
intends to broaden participation in the Program by lowering the
qualifying criteria for QMMs so that member organizations will be able
to qualify that either cannot do so now or simply do not wish to quote
at the NBBO at least 10 percent of the time for an average of at least
750 securities per day. The proposal intends to fortify existing
participation in the Program by easing the burden on existing QMMs to
maintain their qualifications as such. That is, member organizations
that quote at the NBBO at least 10 percent of the time in as few as an
average of 500 securities per day during a month will be able to earn a
$0.0001 per share executed supplemental credit, whereas now, member
organizations that engage in the same level of activity would earn no
supplemental credit at all. Meanwhile, the $0.0002 per share executed
supplemental credit would be available to member organizations that
quote at the NBBO in only an average of 650 securities per day during a
month, whereas now, such a credit is available only when member
organizations quote at the NBBO for an average of at least 750
securities per day during a month.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\6\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\7\ 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.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Proposal is Reasonable
The Exchange's proposed change to its schedule of credits and
charges is reasonable in several respects. As a threshold matter, the
Exchange is subject to significant competitive forces in the market for
equity securities transaction services that constrain its pricing
determinations in that market. The fact that this market is competitive
has long been recognized by the courts. In NetCoalition v. Securities
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers
[[Page 51688]]
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'. . . .'' \8\
---------------------------------------------------------------------------
\8\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------
The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \9\
---------------------------------------------------------------------------
\9\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
equity security transaction services. The Exchange is only one of
several equity venues to which market participants may direct their
order flow. Competing equity exchanges offer similar tiered pricing
structures to that of the Exchange, including schedules of rebates and
fees that apply based upon members achieving certain volume
thresholds.\10\
---------------------------------------------------------------------------
\10\ See Cboe EDGX U.S. Equities Exchange Fee Schedule,
available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/.
---------------------------------------------------------------------------
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.\11\ Within
the foregoing context, the proposal represents a reasonable attempt by
the Exchange to increase its market share relative to its competitors.
---------------------------------------------------------------------------
\11\ The Exchange perceives no regulatory, structural, or cost
impediments to market participants shifting order flow away from it.
In particular, the Exchange notes that such shifts in liquidity and
market share occur within the context of market participants'
existing duties of Best Execution and obligations under the Order
Protection Rule under Regulation NMS.
---------------------------------------------------------------------------
Generally, the Exchange's proposed schedule of credits and charges
in Equity 7, Section 3 provide increased overall incentives to member
organizations to increase their liquidity removal activity on the
Exchange, and to do so broadly in orders in securities in all Tapes. An
increase in overall liquidity removal activity on the Exchange will, in
turn, improve the quality of the Exchange's equity market and increase
its attractiveness to existing and prospective participants. The
proposed new fees are consistent with the current design of Equity 7,
Section 3 because they provide incrementally lower fees in return for
increased removal and provision of liquidity on the Exchange. Moreover,
the proposed credits will be comparable to, if not favorable to, those
that its competitors provide.\12\
---------------------------------------------------------------------------
\12\ See n. 10, supra.
---------------------------------------------------------------------------
The proposed changes to the Exchange's QMM Program is also a
reasonable attempt to improve market quality by broadening its QMM
Program. By lowering the thresholds for member organizations to qualify
as QMMs and to receive supplemental credits for quoting at the NBBO for
a significant percentage of the trading day in a significant percentage
of securities, the Exchange will encourage new member organizations to
become QMMs and help ensure that existing QMMs continue to qualify as
such. The Exchange also proposes to broaden the utility of the QMM
credits it provides to QMMs by making the credits applicable to
displayed orders in all Tapes, rather than only to those in Tape A.
The Proposals Are an Equitable Allocation of Credits and Charges
The Exchange believes its proposals will allocate its proposed
credits and charges fairly among its market participants. The proposal
will provide a member organization with an opportunity to pay lower
fees for removing liquidity from the Exchange than it does now. It is
equitable for the Exchange to lower its fees to participants whose
orders remove liquidity from the Exchange as a means of incentivizing
increased liquidity removal activity and to do so broadly in orders in
securities in all Tapes. An increase in overall liquidity removal
activity on the Exchange will improve the quality of the Exchange's
equity market and increase its attractiveness to existing and
prospective participants.
Meanwhile, the Exchange believes that it is reasonable to offset
the costs of charging lower fees for liquidity removal by lowering its
credits for liquidity provision to the Exchange. Although the proposed
credits will be lower, in many cases, than the existing credits, and
may be harder to achieve, the Exchange believes that the proposed
credits will continue to be comparable to liquidity adding rebates
provided by its competitors.\13\ That said, the Exchange again notes
that those participants that do not wish to receive lower credits are
free to shift their order flow to competing venues that offer them
higher credits.
---------------------------------------------------------------------------
\13\ See id.
---------------------------------------------------------------------------
Finally, the Exchange believes its proposal to adjust the
qualification criteria and supplemental credits applicable to its QMM
program is an equitable allocation of proposed credits because the
modified qualification criteria will continue to require member
organizations to quote significantly at the NBBO for a large number of
securities and will continue to contribute to market quality in a
meaningful way. In fact, by lowering the thresholds for member
organizations to qualify as QMMs and to receive supplemental credits,
the Exchange will encourage new member organizations to become QMMs and
help ensure that existing QMMs continue to qualify as such, which will
further improve market quality.
The Proposal Is Not Unfairly Discriminatory
The Exchange believes that the proposals are not unfairly
discriminatory. As an initial matter, the Exchange believes that
nothing about its volume-based tiered pricing model is inherently
unfair; instead, it is a rational pricing model that is well-
established and ubiquitous in today's economy among firms in various
industries--from co-branded credit cards to grocery stores to cellular
telephone data plans--that use it to reward the loyalty of their best
customers that provide high levels of business activity and incent
other customers to increase the extent of their business activity. It
is also a pricing model that the Exchange and its competitors have long
employed with the assent of the Commission. It is fair because it
incentivizes customer activity that increases liquidity, enhances price
discovery, and improves the overall quality of the equity markets.
The Exchange intends for the proposal to improve market quality for
all members on the Exchange and by extension attract more liquidity to
the market, improving market wide quality and price discovery. Although
net removers of liquidity will benefit most from the proposed lower
charges, this result is fair insofar as increased liquidity removal
activity will help to improve market quality and the
[[Page 51689]]
attractiveness of the Exchange's equity market to all existing and
prospective participants.
The Exchange's proposal to modify the QMM program is not unfairly
discriminatory because any member organization may quote at the NBBO at
the level required by the modified qualification criteria of the QMM
Program and, in fact, the modified criteria will render qualification
as a QMM easier for member organizations to achieve.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intramarket Competition
The Exchange does not believe that its proposals will place any
category of Exchange participant at a competitive disadvantage. As
noted above, all members of the Exchange will benefit from an increase
in the removal of liquidity by those that choose to meet the tier
qualification criteria. Members may grow their businesses so that they
have the capacity to pay lower removal fees. Moreover, members are free
to trade on other venues to the extent they believe that the fees
assessed and credits provided are not attractive. As one can observe by
looking at any market share chart, price competition between exchanges
is fierce, with liquidity and market share moving freely between
exchanges in reaction to fee and credit changes. The Exchange notes
that the tier structure is consistent with broker-dealer fee practices
as well as the other industries, as described above.
Moreover, the Exchange's proposal to modify its QMM program will
not burden intramarket competition because the QMM Program, as
modified, will continue to provide all member organizations with an
opportunity to obtain supplemental credits for transactions if they
improve the market by providing significant quoting at the NBBO in a
large number of securities which the Exchange believes will improve
market quality. By relaxing the qualification criteria, the
modifications will make the Program more accessible to new member
organizations and easier for existing QMMs to remain in the Program.
Intermarket Competition
Addressing whether the proposed fee could impose a burden on
competition on other SROs that is not necessary or appropriate, the
Exchange believes that its proposed modifications to its schedule of
credits and charges will not impose a burden on competition because the
Exchange's execution services are completely voluntary and subject to
extensive competition both from the other 12 live exchanges and from
off-exchange venues, which include 32 alternative trading systems. 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.
The proposed restated schedule of credits and charges and the
proposed modifications to the QMM Program are reflective of this
competition because, as a threshold issue, the Exchange is a relatively
small market so its ability to burden intermarket competition is
limited. In this regard, even the largest U.S. equities exchange by
volume only has 17-18% market share, which in most markets could hardly
be categorized as having enough market power to burden competition.
Moreover, as noted above, price competition between exchanges is
fierce, with liquidity and market share moving freely between exchanges
in reaction to fee and credit changes. This is in addition to free flow
of order flow to and among off-exchange venues which comprised more
than 37% of industry volume for the month of July 2019.
In sum, the Exchange intends for the proposed fees and credits and
modified QMM Program to increase member incentives to remove liquidity
from the Exchange and to contribute to market quality, which is
reflective of fierce competition for order flow noted above; however,
if the proposed fees and credits are unattractive to market
participants, it is likely that the Exchange will either fail to
increase its market share or even lose market share as a result.
Accordingly, the Exchange does not believe that the proposed new fees
and credits 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.\14\
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\14\ 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-2019-35 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-2019-35. 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
[[Page 51690]]
Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-Phlx-2019-35 and should be submitted on
or before October 21, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21092 Filed 9-27-19; 8:45 am]
BILLING CODE 8011-01-P
