Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Phlx's Pricing Schedule at Options 7, Section 4, 20548-20551 [2020-07655]
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20548
Federal Register / Vol. 85, No. 71 / Monday, April 13, 2020 / Notices
participants can readily favor one of the
16 competing option exchanges if they
deem fee levels at a particular venue to
be excessive. In such an environment,
the Exchange must continually adjust its
fees to remain competitive with other
exchanges and to attract order flow to
the Exchange. Based on publiclyavailable information, and excluding
index-based options, no single exchange
currently has more than 16% of the
market share of executed volume of
multiply-listed equity and ETF options
trades.15 Therefore, no exchange
possesses significant pricing power in
the execution of multiply-listed equity &
ETF options order flow. More
specifically, in January 2020, the
Exchange had less than 10% market
share of executed volume of multiplylisted equity & ETF options trades.16
The Exchange believes that the
proposed rule change reflects this
competitive environment because it
modifies the Exchange’s fees in a
manner designed to continue to
encourage Floor Brokers to direct (open
outcry) trading interest to the Exchange,
to provide liquidity and to attract order
flow. To the extent that this purpose is
achieved, all the Exchange’s market
participants should benefit from the
improved market quality and increased
opportunities for price improvement.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 17 of the Act and
subparagraph (f)(2) of Rule 19b–4 18
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
15 See
supra note 12.
on OCC data, supra note 13, the
Exchange’s market share in equity-based options
declined from 9.82% for the month of January 2019
to 8.08% for the month of January 2020.
17 15 U.S.C. 78s(b)(3)(A).
18 17 CFR 240.19b–4(f)(2).
16 Based
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Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 19 of the Act to
determine whether the proposed rule
change 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–
NYSEAMER–2020–24 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–NYSEAMER–2020–24. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE,
Washington, DC 20549 on official
business days between the hours of
10:00 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–NYSEAMER–2020–24 and
should be submitted on or before May
4, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–07654 Filed 4–10–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88581; File No. SR–Phlx–
2020–17]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Phlx’s Pricing
Schedule at Options 7, Section 4
April 7, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 30,
2020, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Phlx’s Pricing Schedule at Options 7,
Section 4, ‘‘Multiply Listed Options
Fees (Includes options overlying
equities, ETFs, ETNs and indexes which
are Multiply Listed).’’
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
20 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
19 15
PO 00000
U.S.C. 78s(b)(2)(B).
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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 amend its pricing
within Options 7, Section 4, ‘‘Multiply
Listed Options Fees (Includes options
overlying equities, ETFs, ETNs and
indexes which are Multiply Listed)’’ to
permit the strategy caps, which
currently apply to the buy and sell side
of a transaction that originate from the
Exchange floor, to also apply to Floor
Qualified Contingent Cross Orders.
Phlx open outcry trading closed on
March 17, 2020 due to measures taken
by the Exchange to prevent the spread
of the Coronavirus Disease (COVID–
19).3 Phlx intends to permit Floor
Brokers, on a temporary basis, to access
and utilize, in a limited capacity, the
Floor options transactions—multiply listed options
20549
Floor Based Management System
(FBMS) from a remote location other
than the Phlx Trading Floor. Phlx will
permit, pursuant to Options 8, Section
32, to make all order types unavailable,
with the exception of Section 32(e)
Floor Qualified Contingent Cross Orders
(‘‘QCC’’), for execution within FBMS.4
Today, Phlx applies the below strategy
caps to the buy and sell side of a
transaction, which must originate from
the Exchange floor:
Strategy
Qualification
Lead Market Maker, Market Maker, Professional,
Firm and Broker-Dealer.
dividend ..........................................
Lead Market Maker, Market Maker, Professional,
Firm and Broker-Dealer.
reversal and conversion, merger,
short stock interest, jelly roll, and
box spread strategies.
Per member organization ...........................................
dividend, merger, short stock interest, reversal and conversion,
jelly roll and box spread strategies (‘‘Monthly Strategy Cap’’).
executed on the same trading day
in the same options class when
such members are trading: (1) In
their own proprietary accounts;
or (2) on an agency basis. If
transacted on an agency basis,
the daily cap will apply per beneficial account.
executed on the same trading day
for all options classes in the aggregate when such members
are trading (1) in their own proprietary accounts; or (2) on an
agency basis. If transacted on
an agency basis, the daily cap
will apply per beneficial account.
combined executions in a month
when trading in its own proprietary accounts.
Cap
$1,100
$1,100
$65,000
• Reversal and conversion, jelly roll and box spread strategy executions will not be included in the Monthly Strategy Cap for a Firm. Reversal
and conversion, jelly roll and box spread strategy executions (as defined in this Options 7, Section 4) are included in the Monthly Firm Fee Cap.
All dividend, merger, short stock interest, reversal and conversion, jelly roll and box spread strategy executions (as defined in this Options 7,
Section 4) will be excluded from the Monthly Market Maker Cap. NDX and NDXP Options Transactions will be excluded from Strategy Cap
pricing.
In light of the recent closure of open
outcry, the Exchange proposes to apply
the strategy caps within Options 7,
Section 4 to qualifying strategies
executed as Floor QCC Orders. The
Exchange offers strategy caps for various
types of strategies, including dividend,5
merger,6 short stock interest,7 reversal
and conversion,8 jelly roll 9 and box
spread 10 strategies. The Exchange
3 See
Options Trader Alert #2020–7.
QCC transactions do not require exposure
in open outcry. Additionally, Floor Brokers may
also place orders on the limit order book
electronically through the FBMS pursuant to
Options 8, Section 28(g).
5 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.
6 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
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proposes to amend the rule text within
Options 7, Section 4 to provide, ‘‘To
qualify for a strategy cap, the buy and
sell side of a transaction must originate
either from the Exchange Trading Floor
or as a Floor Qualified Contingent Cross
Order.’’ The Exchange is changing
‘‘floor’’ to ‘‘Trading Floor’’ to be more
specific. The Exchange believes that this
proposal will allow members to avail
themselves of the strategy caps within
Options 7, Section 4 to the extent that
they execute qualifying strategies as
Floor QCC Orders, as open outcry is
unavailable.
shareholders of record are required to elect their
respective form of consideration, i.e., cash or stock.
See Options 7, Section 4.
7 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.
8 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.
9 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.
10 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.
11 15 U.S.C. 78f(b).
PO 00000
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2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,11 in general, and furthers the
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Federal Register / Vol. 85, No. 71 / Monday, April 13, 2020 / Notices
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,12 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 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.’’ 13
Likewise, in NetCoalition v. Securities
and Exchange Commission 14
(‘‘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 costbased approach.15 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.’’ 16
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 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’. . . .’’ 17 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.
12 15
U.S.C. 78f(b)(4) and (5).
Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
14 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
15 See NetCoalition, at 534–535.
16 Id. at 537.
17 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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The Exchange’s proposal to permit
qualifying strategies executed as Floor
QCC Orders to qualify for a strategy cap
is reasonable. Since Phlx’s open outcry
trading is currently unavailable,
members are unable to qualify for
strategy caps by transacting qualifying
strategies that originate from the
Trading Floor. Members are able to
execute Floor QCC Orders through a
remote connection to FBMS as Floor
QCC Orders do not require exposure in
open outcry. Floor QCC Orders are
distinct from Qualified Contingent Cross
orders submitted electronically.18 The
Exchange continues to permit strategy
caps to apply to Trading Floor members
only with this proposal. The Exchange’s
proposal to amend Options 7, Section 4
to extend the criteria to qualify for a
strategy cap to Floor QCC Orders that
qualify as a strategy will allow members
to benefit from the strategy caps within
Options 7, Section 4.
The Exchange’s proposal to permit
qualifying strategies executed as Floor
QCC Orders to qualify for a strategy cap
is equitable and not unreasonably
discriminatory. Any member who
transacts a qualifying strategy as a Floor
QCC Order will be entitled to cap their
strategies as provided for within
Options 7, Section 4, provided the cap
qualifications within Options 7, Section
4 are met.
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 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
18 See
PO 00000
Options 3, Section 7(b)(8).
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market participants may readily adjust
their order routing practices, the
Exchange believes that the degree to
which fee changes in this market may
impose any burden on competition is
extremely limited.
Intra-Market Competition
The proposed amendments do not
impose an undue burden on intramarket competition.
The Exchange’s proposal to permit
qualifying strategies executed as Floor
QCC Orders to qualify for a strategy cap
does not impose an undue burden on
competition. Any member who transacts
a qualifying strategy as a Floor QCC
Order will be entitled to cap their
strategies as provided for within
Options 7, Section 4, provided the cap
qualifications within Options 7, Section
4 are met.
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.19
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–2020–17 on the subject line.
19 15
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U.S.C. 78s(b)(3)(A)(ii).
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Federal Register / Vol. 85, No. 71 / Monday, April 13, 2020 / Notices
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–2020–17. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 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–2020–17 and should
be submitted on or before May 4, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–07655 Filed 4–10–20; 8:45 am]
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88580; File No. SR–NYSE–
2020–24]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Extend the
Current Pilot Program Related to Rule
7.10
April 7, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on March 27,
2020, New York Stock Exchange LLC
(‘‘NYSE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to extend the
current pilot program related to Rule
7.10 (Clearly Erroneous Executions) to
the close of business on October 20,
2020. The proposed rule change is
available on the Exchange’s website at
www.nyse.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
self-regulatory organization 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to extend the current pilot
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
20 17
CFR 200.30–3(a)(12).
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20551
program related to Rule 7.10 (Clearly
Erroneous Executions) to the close of
business on October 20, 2020. The pilot
program is currently due to expire on
April 20, 2020.
On September 10, 2010, the
Commission approved, on a pilot basis,
changes to Rule 128 (Clearly Erroneous
Executions) that, among other things: (i)
Provided for uniform treatment of
clearly erroneous execution reviews in
multi-stock events involving twenty or
more securities; and (ii) reduced the
ability of the Exchange to deviate from
the objective standards set forth in the
rule.4 In 2013, the Exchange adopted a
provision to Rule 128 designed to
address the operation of the Plan.5
Finally, in 2014, the Exchange adopted
two additional provisions to Rule 128
providing that: (i) A series of
transactions in a particular security on
one or more trading days may be viewed
as one event if all such transactions
were effected based on the same
fundamentally incorrect or grossly
misinterpreted issuance information
resulting in a severe valuation error for
all such transactions; and (ii) in the
event of any disruption or malfunction
in the operation of the electronic
communications and trading facilities of
an Exchange, another SRO, or
responsible single plan processor in
connection with the transmittal or
receipt of a trading halt, an Officer,
acting on his or her own motion, shall
nullify any transaction that occurs after
a trading halt has been declared by the
primary listing market for a security and
before such trading halt has officially
ended according to the primary listing
market.6 Rule 128 is no longer
applicable to any securities that trade on
the Exchange and has been replaced
with Rule 7.10, which is substantively
identical to Rule 128.7
These changes were originally
scheduled to operate for a pilot period
to coincide with the pilot period for the
Plan to Address Extraordinary Market
Volatility (the ‘‘Limit Up-Limit Down
4 See Securities Exchange Act Release No. 62886
(Sept. 10, 2010), 75 FR 56613 (Sept. 16, 2010) (SR–
NYSE–2010–47).
5 See Securities Exchange Act Release No. 68804
(Feb. 1, 2013), 78 FR 8677 (Feb. 6, 2013) (SR–
NYSE–2013–11).
6 See Securities Exchange Act Release No. 72434
(June 19, 2014), 79 FR 36110 (June 25, 2014) (SR–
NYSE–2014–22).
7 See Securities Exchange Act Release Nos. 82945
(March 26, 2019), 83 FR 13553, 13565 (March 29,
2019) (SR–NYSE–2017–36) (Approval Order) and
85962 (May 29, 2019), 84 FR 26188, 26189 n.13
(June 5, 2019) (SR–NYSE–2019–05) (Approval
Order).
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]]>Agencies
[Federal Register Volume 85, Number 71 (Monday, April 13, 2020)]
[Notices]
[Pages 20548-20551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07655]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88581; File No. SR-Phlx-2020-17]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Phlx's
Pricing Schedule at Options 7, Section 4
April 7, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 30, 2020, 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 Phlx's Pricing Schedule at Options
7, Section 4, ``Multiply Listed Options Fees (Includes options
overlying equities, ETFs, ETNs and indexes which are Multiply
Listed).''
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
[[Page 20549]]
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 amend its pricing within Options 7, Section 4,
``Multiply Listed Options Fees (Includes options overlying equities,
ETFs, ETNs and indexes which are Multiply Listed)'' to permit the
strategy caps, which currently apply to the buy and sell side of a
transaction that originate from the Exchange floor, to also apply to
Floor Qualified Contingent Cross Orders.
Phlx open outcry trading closed on March 17, 2020 due to measures
taken by the Exchange to prevent the spread of the Coronavirus Disease
(COVID-19).\3\ Phlx intends to permit Floor Brokers, on a temporary
basis, to access and utilize, in a limited capacity, the Floor Based
Management System (FBMS) from a remote location other than the Phlx
Trading Floor. Phlx will permit, pursuant to Options 8, Section 32, to
make all order types unavailable, with the exception of Section 32(e)
Floor Qualified Contingent Cross Orders (``QCC''), for execution within
FBMS.\4\ Today, Phlx applies the below strategy caps to the buy and
sell side of a transaction, which must originate from the Exchange
floor:
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\3\ See Options Trader Alert #2020-7.
\4\ Floor QCC transactions do not require exposure in open
outcry. Additionally, Floor Brokers may also place orders on the
limit order book electronically through the FBMS pursuant to Options
8, Section 28(g).
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Floor options transactions--multiply
listed options Strategy Qualification Cap
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Lead Market Maker, Market Maker, dividend.................. executed on the same $1,100
Professional, Firm and Broker-Dealer. trading day in the same
options class when such
members are trading: (1)
In their own proprietary
accounts; or (2) on an
agency basis. If
transacted on an agency
basis, the daily cap will
apply per beneficial
account.
Lead Market Maker, Market Maker, reversal and conversion, executed on the same $1,100
Professional, Firm and Broker-Dealer. merger, short stock trading day for all
interest, jelly roll, and options classes in the
box spread strategies. aggregate when such
members are trading (1)
in their own proprietary
accounts; or (2) on an
agency basis. If
transacted on an agency
basis, the daily cap will
apply per beneficial
account.
Per member organization................. dividend, merger, short combined executions in a $65,000
stock interest, reversal month when trading in its
and conversion, jelly own proprietary accounts.
roll and box spread
strategies (``Monthly
Strategy Cap'').
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Reversal and conversion, jelly roll and box spread strategy executions will not be included in the
Monthly Strategy Cap for a Firm. Reversal and conversion, jelly roll and box spread strategy executions (as
defined in this Options 7, Section 4) are included in the Monthly Firm Fee Cap. All dividend, merger, short
stock interest, reversal and conversion, jelly roll and box spread strategy executions (as defined in this
Options 7, Section 4) will be excluded from the Monthly Market Maker Cap. NDX and NDXP Options Transactions
will be excluded from Strategy Cap pricing.
In light of the recent closure of open outcry, the Exchange
proposes to apply the strategy caps within Options 7, Section 4 to
qualifying strategies executed as Floor QCC Orders. The Exchange offers
strategy caps for various types of strategies, including dividend,\5\
merger,\6\ short stock interest,\7\ reversal and conversion,\8\ jelly
roll \9\ and box spread \10\ strategies. The Exchange proposes to amend
the rule text within Options 7, Section 4 to provide, ``To qualify for
a strategy cap, the buy and sell side of a transaction must originate
either from the Exchange Trading Floor or as a Floor Qualified
Contingent Cross Order.'' The Exchange is changing ``floor'' to
``Trading Floor'' to be more specific. The Exchange believes that this
proposal will allow members to avail themselves of the strategy caps
within Options 7, Section 4 to the extent that they execute qualifying
strategies as Floor QCC Orders, as open outcry is unavailable.
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\5\ 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.
\6\ 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.
\7\ 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.
\8\ 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.
\9\ 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.
\10\ 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.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\11\ in general, and furthers the
[[Page 20550]]
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 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.'' \13\
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\13\ 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
\14\ (``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.\15\ 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.'' \16\
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\14\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\15\ See NetCoalition, at 534-535.
\16\ 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'. . . .'' \17\ 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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\17\ 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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The Exchange's proposal to permit qualifying strategies executed as
Floor QCC Orders to qualify for a strategy cap is reasonable. Since
Phlx's open outcry trading is currently unavailable, members are unable
to qualify for strategy caps by transacting qualifying strategies that
originate from the Trading Floor. Members are able to execute Floor QCC
Orders through a remote connection to FBMS as Floor QCC Orders do not
require exposure in open outcry. Floor QCC Orders are distinct from
Qualified Contingent Cross orders submitted electronically.\18\ The
Exchange continues to permit strategy caps to apply to Trading Floor
members only with this proposal. The Exchange's proposal to amend
Options 7, Section 4 to extend the criteria to qualify for a strategy
cap to Floor QCC Orders that qualify as a strategy will allow members
to benefit from the strategy caps within Options 7, Section 4.
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\18\ See Options 3, Section 7(b)(8).
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The Exchange's proposal to permit qualifying strategies executed as
Floor QCC Orders to qualify for a strategy cap is equitable and not
unreasonably discriminatory. Any member who transacts a qualifying
strategy as a Floor QCC Order will be entitled to cap their strategies
as provided for within Options 7, Section 4, provided the cap
qualifications within Options 7, Section 4 are met.
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 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.
Intra-Market Competition
The proposed amendments do not impose an undue burden on intra-
market competition.
The Exchange's proposal to permit qualifying strategies executed as
Floor QCC Orders to qualify for a strategy cap does not impose an undue
burden on competition. Any member who transacts a qualifying strategy
as a Floor QCC Order will be entitled to cap their strategies as
provided for within Options 7, Section 4, provided the cap
qualifications within Options 7, Section 4 are met.
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.\19\
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\19\ 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-2020-17 on the subject line.
[[Page 20551]]
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-2020-17. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 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-2020-17 and should be submitted on
or before May 4, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07655 Filed 4-10-20; 8:45 am]
BILLING CODE 8011-01-P
