Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Transaction Credits at Equity 7, Section 3, 59834-59836 [2020-20937]

Download as PDF 59834 Federal Register / Vol. 85, No. 185 / Wednesday, September 23, 2020 / Notices POSTAL SERVICE Board of Governors; Sunshine Act Meeting September 14, 2020, at 2:30 p.m. PLACE: Washington, DC. STATUS: Closed. MATTERS TO BE CONSIDERED: 1. Administrative Issues. 2. Strategic Issues. On September 14, 2020, a majority of the members of the Board of Governors of the United States Postal Service voted unanimously to hold and to close to public observation a special meeting in Washington, DC, via teleconference. The Board determined that no earlier public notice was practicable. General Counsel Certification: The General Counsel of the United States Postal Service has certified that the meeting may be closed under the Government in the Sunshine Act. CONTACT PERSON FOR MORE INFORMATION: Katherine Sigler, Acting Secretary of the Board, U.S. Postal Service, 475 L’Enfant Plaza SW, Washington, DC 20260–1000. Telephone: (202) 268–4800. TIME AND DATE: Michael J. Elston, Secretary. [FR Doc. 2020–21064 Filed 9–21–20; 11:15 am] BILLING CODE 7710–12–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–89913; File No. SR–Phlx– 2020–45] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange’s Transaction Credits at Equity 7, Section 3 khammond on DSKJM1Z7X2PROD with NOTICES September 17, 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 September 10, 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 2 15 U.S.C. 78s(b)(1). 17 CFR 240.19b–4. VerDate Sep<11>2014 18:02 Sep 22, 2020 Jkt 250001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Exchange’s transaction credits at Equity 7, Section 3, as described further below. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/phlx/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to revise its schedule of order execution and routing credits, at Equity 7, Section 3, to add three new credits for member organizations with non-displayed orders that provide liquidity to the Exchange. Presently, the Exchange already provides one such credit—a $0.0023 per share executed credit for all orders with midpoint pegging that provide liquidity. For all other non-display orders that provide liquidity, it presently provides no credits. Going forward, the Exchange proposes to add the following new credits for member organizations with non-displayed orders that provide liquidity to the Exchange: • A $0.0004 per share executed credit for orders entered by a member organization that provides 0.01% or more of total Consolidated Volume 3 during the month through nondisplayed orders (other than midpoint orders) that provide liquidity; • A $0.0007 per share executed credit for orders entered by a member 3 As used in this Rule, the term ‘‘Consolidated Volume’’ shall mean 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. See Equity 7, Section 3. PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 organization that provides 0.02% or more of total Consolidated Volume during the month through nondisplayed orders (other than midpoint orders) that provide liquidity; and • A $0.0012 per share executed credit for orders entered by a member organization that provides 0.05% or more of total Consolidated Volume during the month through nondisplayed orders (other than midpoint orders) that provide liquidity. The Exchange believes that the addition of these three new credits will incentivize member organizations to add non-displayed liquidity to the Exchange. Moreover, the proposal broadens the availability of credits to member organizations that add nondisplayed liquidity other than midpoint pegging orders. In incentivizing member organizations to increase the extent of their non-displayed liquidity adding activity on the Exchange, the Exchange intends to improve the overall quality and attractiveness of the PSX market. Impact of the Changes Those participants that act as significant providers of non-displayed liquidity to the Exchange will benefit directly from the proposed addition of the new credits. Other participants will also benefit from the new credits insofar as any increase in liquidity adding activity on the Exchange will improve the overall quality of the market, to the benefit of all member organizations. The Exchange notes that its proposal is not otherwise targeted at or expected to be limited in its applicability to a specific segment of market participants nor will it apply differently to different types of market participants. 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 also consistent with Section 11A of the Act relating to the establishment of the national market system for securities. The Proposal Is Reasonable The Exchange’s proposed changes to its schedule of credits are reasonable in 4 5 15 U.S.C. 78f(b). 15 U.S.C. 78f(b)(4) and (5). E:\FR\FM\23SEN1.SGM 23SEN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 85, No. 185 / Wednesday, September 23, 2020 / Notices 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 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, and it represents a small percentage of the overall market. 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. 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. Within the foregoing context, the proposal represents a reasonable 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)). 7 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). VerDate Sep<11>2014 18:02 Sep 22, 2020 Jkt 250001 attempt by the Exchange to increase its liquidity and market share relative to its competitors. The Exchange has designed its proposed schedule of credits to provide increased overall incentives to members to increase their liquidity adding activity on the Exchange. An increase in liquidity adding activity on the Exchange will, in turn, improve the quality of the PSX market and increase its attractiveness to existing and prospective participants. The Exchange notes that those participants that are dissatisfied with the proposed new credits are free to shift their order flow to competing venues that offer them higher credits. The Proposal Is an Equitable Allocation of Credits The Exchange believes its proposal will allocate its proposed new credits fairly among its market participants. It is equitable for the Exchange to increase its credits to participants whose orders add liquidity to the Exchange as a means of incentivizing increased liquidity adding activity on the Exchange as well as to base the receipt of the credits on a member organization engaging in a threshold volume of liquidity adding activity on the Exchange. An increase in overall liquidity adding activity on the Exchange will improve the quality of the PSX market and increase its attractiveness to existing and prospective participants. Any participant that is dissatisfied with the proposed new credits is free to shift their order flow to competing venues that provide more generous pricing or less stringent qualifying criteria. The Proposed Credit Is Not Unfairly Discriminatory The Exchange believes that the proposal is not unfairly discriminatory. As an initial matter, the Exchange believes that nothing about its volumebased 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 cobranded 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 PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 59835 discovery, and improves the overall quality of the equity markets. To the extent that the proposed changes succeed in increasing liquidity adding activity on the Exchange, this will improve market quality and the attractiveness of the PSX market, to the benefit of all existing and prospective participants. Moreover, any participant that is dissatisfied with the proposed new credits is free to shift their order flow to competing venues that provide more generous pricing or less stringent qualifying criteria. 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 proposal will place any category of Exchange participant at a competitive disadvantage. As noted above, all member organizations of the Exchange will benefit from any increase in market activity that the proposal effectuates. Member organizations may grow or modify their businesses so that they can receive the higher credits. Moreover, member organizations 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. Intermarket Competition Addressing whether the proposal 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 will not impose a burden on competition because the Exchange’s execution services are completely voluntary and subject to extensive competition from a multitude of other live exchanges and off-exchange venues. 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 E:\FR\FM\23SEN1.SGM 23SEN1 59836 Federal Register / Vol. 85, No. 185 / Wednesday, September 23, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Exchange must continually adjust credits 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 credits in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which credits change in this market may impose any burden on competition is extremely limited. The proposed new credits 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 has less than 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 comprises approximately 44% of industry volume. The Exchange intends for the proposed changes to its schedule of credits to increase member organization incentives to engage in the addition of non-displayed liquidity on the Exchange. These changes are procompetitive and reflective of the Exchange’s efforts to make it an attractive and vibrant venue to market participants. In sum, if the changes proposed herein is unattractive to market participants, it is likely that the Exchange will lose market share as a result. Accordingly, the Exchange does not believe that the proposed changes will impair the ability of member organizations 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.8 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–2020–45 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–Phlx–2020–45. 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–2020–45 and should be submitted on or before October 14, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–20937 Filed 9–22–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–89901; File No. SR– CboeBZX–2020–070] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the –1x Short VIX Futures ETF, a Series of VS Trust, Under Rule 14.11(f)(4) (‘‘Trust Issued Receipts’’) September 17, 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 September 4, 2020, Cboe BZX Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘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 Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) is filing with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change to list and trade shares of the –1x Short VIX Futures ETF, a series of VS Trust, 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 9 1 15 8 VerDate Sep<11>2014 18:02 Sep 22, 2020 Jkt 250001 PO 00000 15 U.S.C. 78s(b)(3)(A)(ii). Frm 00102 Fmt 4703 Sfmt 4703 E:\FR\FM\23SEN1.SGM 23SEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 185 (Wednesday, September 23, 2020)]
[Notices]
[Pages 59834-59836]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20937]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89913; File No. SR-Phlx-2020-45]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Transaction Credits at Equity 7, Section 3

September 17, 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 September 10, 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.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's transaction credits 
at Equity 7, Section 3, as described further below. The text of the 
proposed rule change is available on the Exchange's website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to revise its schedule of order execution and 
routing credits, at Equity 7, Section 3, to add three new credits for 
member organizations with non-displayed orders that provide liquidity 
to the Exchange. Presently, the Exchange already provides one such 
credit--a $0.0023 per share executed credit for all orders with 
midpoint pegging that provide liquidity. For all other non-display 
orders that provide liquidity, it presently provides no credits. Going 
forward, the Exchange proposes to add the following new credits for 
member organizations with non-displayed orders that provide liquidity 
to the Exchange:
     A $0.0004 per share executed credit for orders entered by 
a member organization that provides 0.01% or more of total Consolidated 
Volume \3\ during the month through non-displayed orders (other than 
midpoint orders) that provide liquidity;
---------------------------------------------------------------------------

    \3\ As used in this Rule, the term ``Consolidated Volume'' shall 
mean 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. See Equity 7, Section 
3.
---------------------------------------------------------------------------

     A $0.0007 per share executed credit for orders entered by 
a member organization that provides 0.02% or more of total Consolidated 
Volume during the month through non-displayed orders (other than 
midpoint orders) that provide liquidity; and
     A $0.0012 per share executed credit for orders entered by 
a member organization that provides 0.05% or more of total Consolidated 
Volume during the month through non-displayed orders (other than 
midpoint orders) that provide liquidity.
    The Exchange believes that the addition of these three new credits 
will incentivize member organizations to add non-displayed liquidity to 
the Exchange. Moreover, the proposal broadens the availability of 
credits to member organizations that add non-displayed liquidity other 
than midpoint pegging orders. In incentivizing member organizations to 
increase the extent of their non-displayed liquidity adding activity on 
the Exchange, the Exchange intends to improve the overall quality and 
attractiveness of the PSX market.
Impact of the Changes
    Those participants that act as significant providers of non-
displayed liquidity to the Exchange will benefit directly from the 
proposed addition of the new credits. Other participants will also 
benefit from the new credits insofar as any increase in liquidity 
adding activity on the Exchange will improve the overall quality of the 
market, to the benefit of all member organizations.
    The Exchange notes that its proposal is not otherwise targeted at 
or expected to be limited in its applicability to a specific segment of 
market participants nor will it apply differently to different types of 
market participants.
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 also consistent with 
Section 11A of the Act relating to the establishment of the national 
market system for securities.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

The Proposal Is Reasonable
    The Exchange's proposed changes to its schedule of credits are 
reasonable in

[[Page 59835]]

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\
---------------------------------------------------------------------------

    \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)).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow, and it represents a small percentage of the overall market. 
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.
    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. Within the 
foregoing context, the proposal represents a reasonable attempt by the 
Exchange to increase its liquidity and market share relative to its 
competitors.
    The Exchange has designed its proposed schedule of credits to 
provide increased overall incentives to members to increase their 
liquidity adding activity on the Exchange. An increase in liquidity 
adding activity on the Exchange will, in turn, improve the quality of 
the PSX market and increase its attractiveness to existing and 
prospective participants.
    The Exchange notes that those participants that are dissatisfied 
with the proposed new credits are free to shift their order flow to 
competing venues that offer them higher credits.
The Proposal Is an Equitable Allocation of Credits
    The Exchange believes its proposal will allocate its proposed new 
credits fairly among its market participants. It is equitable for the 
Exchange to increase its credits to participants whose orders add 
liquidity to the Exchange as a means of incentivizing increased 
liquidity adding activity on the Exchange as well as to base the 
receipt of the credits on a member organization engaging in a threshold 
volume of liquidity adding activity on the Exchange. An increase in 
overall liquidity adding activity on the Exchange will improve the 
quality of the PSX market and increase its attractiveness to existing 
and prospective participants.
    Any participant that is dissatisfied with the proposed new credits 
is free to shift their order flow to competing venues that provide more 
generous pricing or less stringent qualifying criteria.
The Proposed Credit Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is 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.
    To the extent that the proposed changes succeed in increasing 
liquidity adding activity on the Exchange, this will improve market 
quality and the attractiveness of the PSX market, to the benefit of all 
existing and prospective participants.
    Moreover, any participant that is dissatisfied with the proposed 
new credits is free to shift their order flow to competing venues that 
provide more generous pricing or less stringent qualifying criteria.

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 proposal will place any 
category of Exchange participant at a competitive disadvantage. As 
noted above, all member organizations of the Exchange will benefit from 
any increase in market activity that the proposal effectuates. Member 
organizations may grow or modify their businesses so that they can 
receive the higher credits. Moreover, member organizations 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.
Intermarket Competition
    Addressing whether the proposal 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 will not impose a burden on competition because the Exchange's 
execution services are completely voluntary and subject to extensive 
competition from a multitude of other live exchanges and off-exchange 
venues. 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

[[Page 59836]]

Exchange must continually adjust credits 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 credits in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
credits change in this market may impose any burden on competition is 
extremely limited.
    The proposed new credits 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 has less 
than 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 comprises 
approximately 44% of industry volume.
    The Exchange intends for the proposed changes to its schedule of 
credits to increase member organization incentives to engage in the 
addition of non-displayed liquidity on the Exchange. These changes are 
procompetitive and reflective of the Exchange's efforts to make it an 
attractive and vibrant venue to market participants.
    In sum, if the changes proposed herein is unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of member organizations 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.\8\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2020-45 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2020-45. 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-2020-45 and should be submitted on 
or before October 14, 2020.
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20937 Filed 9-22-20; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.