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, 23404-23407 [2020-08821]

Download as PDF lotter on DSKBCFDHB2PROD with NOTICES 23404 Federal Register / Vol. 85, No. 81 / Monday, April 27, 2020 / Notices of applying this condition); section 17(a) (except insofar as relief is provided by the order requested herein); section 17(d) (except insofar as relief is provided by the order requested herein); section 17(e); section 17(f); section 17(h); section 18 (although (a) the interests issued by PDPF and PCP REIT will be regarded as voting securities under section 2(a)(42) of the Act for purposes of applying this condition, (b) PCP REIT will be permitted to incur loans from Non-bank Commercial Lenders, subject to the asset coverage limit, (c) PCP REIT will not be required to restore 300% asset coverage within three days, as required under section 18(f), if such asset coverage falls below 300% solely as a result of a decline in the value of PCP REIT’s real estate holdings, and (d) each Fund and Other Account limited partner of PDPF will have identical rights, duties, and obligations under the limited partnership agreement as each other Fund and Other Account limited partner, and if Outside Investors are permitted to invest in PDPF, PDPF may distinguish between Fund and Other Account limited partners, on the one hand, and Outside Investors, on the other, by entitling the Funds and Other Accounts to purchase, hold, and redeem Units with more favorable rights, duties and obligations pursuant to the terms of the limited partnership agreement with respect to the following issues: (1) Utilization of redemption gates; (2) limitation of rights of redemption; and/ or (3) the level of expenses charged in connection with an investment in PDPF); 22 section 21; section 36; and sections 37–53. In addition, PDPF and PCP REIT will comply with the rules under section 17(f) and section 17(g) of the Act, as well as rule 22c–1 under the Act as if each of PDPF and PCP REIT were an open-end management investment company registered under the Act. PGI will cause PDPGP, PDPF and PCP REIT to, and PDPGP, PDPF and PCP REIT will, adopt policies and procedures designed to ensure that each of PDPF and PCP REIT complies with the aforementioned sections of the Act and rules under the Act. PGI will cause PDPGP, PDPF and PCP REIT to, and PDPGP, PDPF and PCP REIT will, periodically review and periodically update as appropriate such policies and procedures, maintain books and records describing such policies and procedures, and maintain the records required by rules 31a–1(b)(1), 31a– 1(b)(2)(ii) and 31a–1(b)(9) under the Act. All books and records required to be made pursuant to this condition will be maintained and preserved for a period of not less than six years from the end of the fiscal year in which any transaction occurs, the first two years in an easily accessible place, and will be subject to examination by the Commission and its staff. For purposes of implementing condition 12, any action that the abovereferenced statutory and regulatory provisions require to be taken or made by the directors, officers and/or employees of a registered investment company will be performed by PDPGP with respect to PDPF, and by PGI, as managing member with respect to PCP REIT. As noted in this Application, the PDPF Committee will oversee the valuation of the assets of PDPF and PCP REIT for which market quotations are not readily available, which also will be relevant to the implementation of condition 12. 13. To engage in Cross Transactions, the Funds will comply with rule 17a– 7 under the Act in all respects other than the requirement that the parties to the transaction be affiliated persons (or affiliated persons of affiliated persons) of each other solely by reason of having a common investment adviser or investment advisers which are affiliated persons of each other, common officers, and/or common directors, solely because a Fund and Other Account might become affiliated persons within the meaning of section 2(a)(3)(A), (B) or (C) of the Act due to their investments in PDPF. 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. For the Commission, by the Division of Investment Management, under delegated authority. J. Matthew DeLesDernier, Assistant Secretary. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2020–08824 Filed 4–24–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88708; File No. SR–Phlx– 2020–25] 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 April 21, 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 April 14, 1 15 22 See supra, footnote 12. VerDate Sep<11>2014 17:32 Apr 24, 2020 2 17 Jkt 250001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00080 Fmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Exchange’s pricing schedule at Equity 7, Section 3. 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. 1. Purpose Presently, the Exchange has a pricing schedule, at Equity 7, Section 3, which sets forth several different credits that it provides for orders in securities priced at $1 or more per share that add liquidity to 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 lower the volume threshold for receiving a credit when a member organization adds liquidity to the Exchange. Presently, the Exchange provides a $0.0026 per share executed credit for quotes/orders entered by member organizations that provide 0.15% or more of Consolidated Volume 3 during a 3 As used in Equity 7, Section 3, the term ‘‘Consolidated Volume’’ means the total Sfmt 4703 E:\FR\FM\27APN1.SGM 27APN1 Federal Register / Vol. 85, No. 81 / Monday, April 27, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES month. The Exchange proposes to decrease the percentage of Consolidated Volume to 0.10%. The purpose of this change, which will make it easier for a member organization to receive the credit, is to incentivize member organizations to maintain or increase their liquidity adding activity on the Exchange, which in turn will help to improve overall market quality. The Exchange also proposes to add the word ‘‘total’’ prior to the words ‘‘Consolidated Volume’’ in the description of credit to member organizations providing liquidity. This is a non-substantive change intended to provide clarity and to the description of Consolidated Volume. The Exchange also proposes to make changes to its Qualified Market Maker (‘‘QMM’’) Program. More specifically, the Exchange proposes to adjust downward the average number of securities for which a member organization must quote at the national best bid and offer (‘‘NBBO’’) during a month to qualify as a QMM. Presently, a member organization must quote at the NBBO at least 10% of the time during market hours -, for an average of at least 500 securities per day during a month to qualify as a QMM and to receive a supplemental credit of $0.0001 per share executed with respect to all of its displayed orders priced at $1.00 or more per share that provide liquidity. The Exchange proposes to reduce the threshold number of securities to 400. Additionally, the Exchange proposes to adjust downward the average number of securities for which a member organization must quote at the NBBO at least 10% of the time during market hours during a month to receive a supplemental credit of $0.0002 per share executed. Currently, a member organization must quote at the NBBO at least 10% of the time during market hours for an average of at least 650 securities per day to qualify for the $0.0002 per share executed supplemental credit. The Exchange proposes to reduce this number to 500 securities. Reducing the average number of securities in which a member organization must quote at the NBBO for at least 10% of the time during market hours during a month will fortify existing participation in the QMM 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. VerDate Sep<11>2014 17:32 Apr 24, 2020 Jkt 250001 Program by easing the burden on members to qualify as QMMs and to better enable existing QMMs to maintain their qualifications as such. It will also ease the burden on QMMs to qualify for the supplemental credits. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,4 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,5 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 changes to its schedule of credits and QMM Program are 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 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’ . . . .’’ 6 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 4 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 6 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)). 5 15 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 23405 broader forms that are most important to investors and listed companies.’’ 7 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.8 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.9 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 proposal to decrease the required percentage of total consolidated volume for liquidity provided by member organizations improves the overall incentive to member organizations to increase their liquidity addition activity on the Exchange. An increase in overall liquidity addition activity on the Exchange, in turn, will improve the quality of the Exchange’s equity market and increase its attractiveness to existing and prospective participants. Moreover, the proposed credits will be comparable to, if not favorable to, those provided by its competitors.10 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 quoting threshold 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, the Exchange will encourage new member organizations to 7 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). 8 See Cboe EDGX U.S. Equities Exchange Fee Schedule, available at https://markets.cboe.com/us/ equities/membership/fee_schedule/edgx/. 9 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. 10 See Cboe EDGX U.S. Equities Exchange Fee Schedule at n. 1 (Add Volume Tiers), available at https://markets.cboe.com/us/equities/membership/ fee_schedule/edgx/. E:\FR\FM\27APN1.SGM 27APN1 23406 Federal Register / Vol. 85, No. 81 / Monday, April 27, 2020 / Notices become QMMs and help ensure that existing QMMs continue to qualify as such. lotter on DSKBCFDHB2PROD with NOTICES The Proposals Are an Equitable Allocation of Credits The Exchange believes its proposals will allocate its proposed credits fairly among its market participants. The proposals will provide a member organization with an easier opportunity to receive a credit for adding liquidity to the Exchange than it does now. It is equitable for the Exchange to make it easier to receive a credit for member organizations whose orders add liquidity to the Exchange as a means of incentivizing increased liquidity addition activity. An increase in overall liquidity addition activity on the Exchange will improve the quality of the Exchange’s equity market and increase its attractiveness to existing and prospective participants. Finally, the Exchange believes its proposal to adjust the qualification and supplemental credit criteria applicable to its QMM program is equitable 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. VerDate Sep<11>2014 17:32 Apr 24, 2020 Jkt 250001 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 adders of liquidity will benefit most from the proposed lower total consolidated volume percentage requirement, this result is fair insofar as an uptick in liquidity addition activity will help to improve market quality and the 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 levels required by the modified qualification criteria of the QMM Program and, in fact, the modified criteria will allow qualification as a QMM easier for member organizations to achieve. Additionally, the Exchange’s inclusion of the word ‘‘total’’ is a nonsubstantive change solely intended to add clarification to the term Consolidated Volume. 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 participants at a competitive disadvantage. As noted above, all members of the Exchange will benefit from an increase in the addition of liquidity by those that choose to meet the criteria. Members may grow their businesses so that they have the capacity to receive credits for providing liquidity. Moreover, members are free to trade on other venues to the extent they believe that the 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 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 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 33 alternative trading systems that trade national market system stock. 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 credit for adding liquidity 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 E:\FR\FM\27APN1.SGM 27APN1 Federal Register / Vol. 85, No. 81 / Monday, April 27, 2020 / Notices comprised more than 38% of industry volume for the month of February 2020. In sum, the Exchange intends for the proposed credit and modified QMM Program to increase member incentives to add liquidity to the Exchange and to contribute to market quality, which is reflective of fierce competition for order flow noted above; however, if the proposed credit and QMM Program incentives 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.11 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 lotter on DSKBCFDHB2PROD with NOTICES 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: 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 No. SR–Phlx–2020–25. 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 No. SR–Phlx–2020–25, and should be submitted on or before May 18, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–08821 Filed 4–24–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meetings • 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 No. SR– Phlx–2020–25 on the subject line. TIME AND DATE: U.S.C. 78s(b)(3)(A)(ii). VerDate Sep<11>2014 17:32 Apr 24, 2020 MATTERS TO BE CONSIDERED: Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters also may be present. In the event that the time, date, or location of this meeting changes, an announcement of the change, along with the new time, date, and/or place of the meeting will be posted on the Commission’s website at https:// www.sec.gov. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B) and (10) and 17 CFR 200.402(a)(3), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and (a)(10), permit consideration of the scheduled matters at the closed meeting. The subject matter of the closed meeting will consist of the following topic: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; Resolution of litigation claims; General counsel matter; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting agenda items that may consist of adjudicatory, examination, litigation, or regulatory matters. CONTACT PERSON FOR MORE INFORMATION: For further information; please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551–5400. Dated: April 22, 2020. Vanessa A. Countryman, Secretary. [FR Doc. 2020–08977 Filed 4–23–20; 11:15 am] BILLING CODE 8011–01–P 12:00 p.m. on Wednesday, April 29, 2020. PLACE: The meeting will be held via remote means and/or at the Commission’s headquarters, 100 F Street NE, Washington, DC 20549. 12 17 Jkt 250001 This meeting will be closed to the public. STATUS: Electronic Comments 11 15 PO 00000 CFR 200.30–3(a)(12). Frm 00083 Fmt 4703 23407 Sfmt 9990 E:\FR\FM\27APN1.SGM 27APN1

Agencies

[Federal Register Volume 85, Number 81 (Monday, April 27, 2020)]
[Notices]
[Pages 23404-23407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08821]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88708; File No. SR-Phlx-2020-25]


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

April 21, 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 April 14, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's pricing schedule at 
Equity 7, Section 3.
    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 credits that it provides 
for orders in securities priced at $1 or more per share that add 
liquidity to 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 lower the volume threshold 
for receiving a credit when a member organization adds liquidity to the 
Exchange.
    Presently, the Exchange provides a $0.0026 per share executed 
credit for quotes/orders entered by member organizations that provide 
0.15% or more of Consolidated Volume \3\ during a

[[Page 23405]]

month. The Exchange proposes to decrease the percentage of Consolidated 
Volume to 0.10%. The purpose of this change, which will make it easier 
for a member organization to receive the credit, is to incentivize 
member organizations to maintain or increase their liquidity adding 
activity on the Exchange, which in turn will help to improve overall 
market quality. The Exchange also proposes to add the word ``total'' 
prior to the words ``Consolidated Volume'' in the description of credit 
to member organizations providing liquidity. This is a non-substantive 
change intended to provide clarity and to the description of 
Consolidated Volume.
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    \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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    The Exchange also proposes to make changes to its Qualified Market 
Maker (``QMM'') Program. More specifically, the Exchange proposes to 
adjust downward the average number of securities for which a member 
organization must quote at the national best bid and offer (``NBBO'') 
during a month to qualify as a QMM. Presently, a member organization 
must quote at the NBBO at least 10% of the time during market hours -, 
for an average of at least 500 securities per day during a month to 
qualify as a QMM and to receive a supplemental credit of $0.0001 per 
share executed with respect to all of its displayed orders priced at 
$1.00 or more per share that provide liquidity. The Exchange proposes 
to reduce the threshold number of securities to 400. Additionally, the 
Exchange proposes to adjust downward the average number of securities 
for which a member organization must quote at the NBBO at least 10% of 
the time during market hours during a month to receive a supplemental 
credit of $0.0002 per share executed. Currently, a member organization 
must quote at the NBBO at least 10% of the time during market hours for 
an average of at least 650 securities per day to qualify for the 
$0.0002 per share executed supplemental credit. The Exchange proposes 
to reduce this number to 500 securities. Reducing the average number of 
securities in which a member organization must quote at the NBBO for at 
least 10% of the time during market hours during a month will fortify 
existing participation in the QMM Program by easing the burden on 
members to qualify as QMMs and to better enable existing QMMs to 
maintain their qualifications as such. It will also ease the burden on 
QMMs to qualify for the supplemental credits.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal is Reasonable
    The Exchange's proposed changes to its schedule of credits and QMM 
Program are 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 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' . . . .'' \6\
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    \6\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \7\
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    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
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.\8\
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    \8\ See Cboe EDGX U.S. Equities Exchange Fee Schedule, available 
at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/.
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    Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules.\9\ Within 
the foregoing context, the proposal represents a reasonable attempt by 
the Exchange to increase its market share relative to its competitors.
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    \9\ 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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    Generally, the Exchange's proposal to decrease the required 
percentage of total consolidated volume for liquidity provided by 
member organizations improves the overall incentive to member 
organizations to increase their liquidity addition activity on the 
Exchange. An increase in overall liquidity addition activity on the 
Exchange, in turn, will improve the quality of the Exchange's equity 
market and increase its attractiveness to existing and prospective 
participants. Moreover, the proposed credits will be comparable to, if 
not favorable to, those provided by its competitors.\10\
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    \10\ See Cboe EDGX U.S. Equities Exchange Fee Schedule at n. 1 
(Add Volume Tiers), available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/.
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    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 quoting threshold 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, the Exchange will 
encourage new member organizations to

[[Page 23406]]

become QMMs and help ensure that existing QMMs continue to qualify as 
such.
The Proposals Are an Equitable Allocation of Credits
    The Exchange believes its proposals will allocate its proposed 
credits fairly among its market participants. The proposals will 
provide a member organization with an easier opportunity to receive a 
credit for adding liquidity to the Exchange than it does now. It is 
equitable for the Exchange to make it easier to receive a credit for 
member organizations whose orders add liquidity to the Exchange as a 
means of incentivizing increased liquidity addition activity. An 
increase in overall liquidity addition activity on the Exchange will 
improve the quality of the Exchange's equity market and increase its 
attractiveness to existing and prospective participants.
    Finally, the Exchange believes its proposal to adjust the 
qualification and supplemental credit criteria applicable to its QMM 
program is equitable 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 adders of liquidity will benefit most from the proposed lower total 
consolidated volume percentage requirement, this result is fair insofar 
as an uptick in liquidity addition activity will help to improve market 
quality and the 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 levels required by the modified qualification criteria of the QMM 
Program and, in fact, the modified criteria will allow qualification as 
a QMM easier for member organizations to achieve.
    Additionally, the Exchange's inclusion of the word ``total'' is a 
non-substantive change solely intended to add clarification to the term 
Consolidated Volume.

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 participants at a competitive disadvantage. As 
noted above, all members of the Exchange will benefit from an increase 
in the addition of liquidity by those that choose to meet the criteria. 
Members may grow their businesses so that they have the capacity to 
receive credits for providing liquidity. Moreover, members are free to 
trade on other venues to the extent they believe that the 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 33 alternative trading systems that 
trade national market system stock. 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 credit for adding liquidity 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

[[Page 23407]]

comprised more than 38% of industry volume for the month of February 
2020.
    In sum, the Exchange intends for the proposed credit and modified 
QMM Program to increase member incentives to add liquidity to the 
Exchange and to contribute to market quality, which is reflective of 
fierce competition for order flow noted above; however, if the proposed 
credit and QMM Program incentives 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.\11\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-Phlx-2020-25 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 No. SR-Phlx-2020-25. 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 No. SR-Phlx-2020-25, and should be submitted on or 
before May 18, 2020.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08821 Filed 4-24-20; 8:45 am]
 BILLING CODE 8011-01-P
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