Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 3 To Adopt an Enhanced Market Quality Program, 48789-48792 [2021-18676]
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Federal Register / Vol. 86, No. 166 / Tuesday, August 31, 2021 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–491; OMB Control No.
3235–0548]
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
khammond on DSKJM1Z7X2PROD with NOTICES
Extension:
Rule 35d–1
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
Rule 35d–1 (17 CFR 270.35d–1) under
the Investment Company Act of 1940
(15 U.S.C. 80a–1 et seq.) defines as
‘‘materially deceptive and misleading’’
for purposes of Section 35(d), among
other things, a name suggesting that a
registered investment company or series
thereof (a ‘‘fund’’) focuses its
investments in a particular type of
investment or investments, in
investments in a particular industry or
group of industries, or in investments in
a particular country or geographic
region, unless, among other things, the
fund adopts a certain investment policy.
Rule 35d–1 further requires either that
the investment policy is fundamental or
that the fund has adopted a policy to
provide its shareholders with at least 60
days prior notice of any change in the
investment policy (‘‘notice to
shareholders’’). The rule’s notice to
shareholders provision is intended to
ensure that when shareholders purchase
shares in a fund based, at least in part,
on its name, and with the expectation
that it will follow the investment policy
suggested by that name, they will have
sufficient time to decide whether to
redeem their shares in the event that the
fund decides to pursue a different
investment policy.
The Commission estimates that there
are approximately 11,502 open-end and
closed-end funds that have names that
are covered by the rule. The
Commission estimates that of these
11,502 funds, approximately 38 will
provide prior notice to shareholders
pursuant to a policy adopted in
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accordance with this rule per year. The
Commission estimates that the annual
burden associated with the notice to
shareholders requirement of the rule is
20 hours per response, for annual total
of 760 hours per year.
SECURITIES AND EXCHANGE
COMMISSION
Estimates of average burden hours are
made solely for the purposes of the
Paperwork Reduction Act and are not
derived from a comprehensive or even
representative survey or study of the
costs of Commission rules and forms.
Providing prior notice to shareholders
under rule 35d–1 is not mandatory. An
investment company may choose to
have a name that does not indicate that
the fund focuses its investments in a
particular type of investment or
investments, or in investments in a
particular industry or group of industry.
If an investment company does choose
such a name, it will only need to
provide prior notice to shareholders of
a change in its 80% investment policy
if it first has adopted a policy to provide
notice and then has decided to change
this investment policy. The information
provided under rule 35d–1 will not be
kept confidential. An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information unless it displays a
currently valid OMB control number.
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Equity 7,
Section 3 To Adopt an Enhanced
Market Quality Program
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comments
to David Bottom, Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Cynthia
Roscoe, 100 F Street NE, Washington,
DC 20549; or send an email to: PRA_
Mailbox@sec.gov.
Dated: August 25, 2021.
Jill M. Peterson,
[Release No. 34–92754; File No. SR–Phlx–
2021–47]
August 25, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
12, 2021, Nasdaq PHLX LLC
(‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Equity 7, Section 3 to adopt an
Enhanced Market Quality Program and
a related credit, 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.
Assistant Secretary.
[FR Doc. 2021–18700 Filed 8–30–21; 8:45 am]
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U.S.C. 78s(b)(1).
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Federal Register / Vol. 86, No. 166 / Tuesday, August 31, 2021 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend Equity 7, Section 3
to adopt an Enhanced Market Quality
Program and a related credit.
The Enhanced Market Quality
Program is intended to provide
supplemental incentives to member
organizations that meet certain quality
standards in acting as market makers for
securities on the Exchange by
incentivizing such member
organizations to make a significant
contribution to market quality by
providing liquidity at the national best
bid and offer (‘‘NBBO’’) in a large
number of securities for a significant
portion of the day. Specifically, the
Exchange proposes to make a lump sum
payment at the end of each month (a
‘‘Fixed Payment’’) to a member
organization to the extent that the
member organization, through one or
more of its MPIDs, quotes at the NBBO
for at least a threshold percentage of the
time during Market Hours in an average
number of securities per day during the
month, as specified below. On a daily
basis, the Exchange will determine the
number of securities in which each of a
member organization’s MPIDs satisfied
the NBBO requirement. The Exchange
will aggregate all of a member
organization’s MPIDs to determine the
number of securities for purposes of the
NBBO requirement. The program is
open to all member organizations. A
member organization may but is not
required to be, a registered market
maker in any security; thus, the program
does not by itself impose a two-sided
quotation obligation or convey any of
the benefits associated with being a
registered market maker. Accordingly,
the program is designed to attract
liquidity both from traditional market
makers and from other firms that are
willing to commit capital to support
liquidity at the NBBO.
For purposes of the Enhanced Market
Quality Program, a member organization
will be deemed to quote at the NBBO in
a security if it quotes a displayed order
of at least 100 shares in the security and
prices the order at either the national
best bid or the national best offer or both
the national best bid and offer for the
security. The Exchange will determine
the amount of the Fixed Payment that it
pays to a qualifying member
organization by multiplying the average
daily number of its qualifying securities
during the month within the range set
forth in the highest qualifying Tier
(rounded to the nearest whole number)
by the applicable amounts set forth in
the following tables below and adding
the specified lump sum, where
applicable. For a particular Tape A
security to count towards the threshold
for qualifying for the Fixed Payment on
a particular day, and receiving the Fixed
Payment, a member organization has to
quote such security at the NBBO for at
least 30% of the time during Market
Hours on that day. For a particular Tape
B security to count towards the
threshold for qualifying for the Fixed
Payment on a particular day, and
receiving the Fixed Payment, a member
organization has to quote such security
at the NBBO for at least 50% of the time
during Market Hours on that day. A
member organization that qualifies for
the Fixed Payment for securities in each
of Tapes A and B will receive Fixed
Payments covering qualifying securities
in both Tapes, but within each Tape, a
member organization may only qualify
for one Tier during a month.3
The Exchange proposes to set the tiers
and the Fixed Payments as follows:
TAPE A SECURITIES
Average daily number of securities quoted at the NBBO for
at least 30% of the time during Market Hours during the
month
Tiers
1
2
3
4
5
..............................
..............................
..............................
..............................
..............................
0–199 .....................................................................................
200–299 .................................................................................
300–399 .................................................................................
400–499 .................................................................................
500 or greater ........................................................................
Fixed payment
$0 per qualified security per month.
$25 per qualified security over 199.
$2,500 + ($200 per qualified security over 299).
$22,500 + ($300 per qualified security over 399).
$52,500 + ($400 per qualified security over 499).
TAPE B SECURITIES
Average daily number of securities quoted at the NBBO for
at least 50% of the time during Market Hours during the
month
Tiers
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1
2
3
4
..............................
..............................
..............................
..............................
0–299 .....................................................................................
300–399 .................................................................................
400–499 .................................................................................
500 or greater ........................................................................
Fixed payment
$0 per qualified security per month.
$100 per qualified security over 299.
$10,000 + ($200 per qualified security over 399).
$30,000 + ($300 per qualified security over 499).
Through the use of this incentive
program, the Exchange hopes to provide
improved trading conditions for all
market participants through narrower
bid-ask spreads and increased depth of
liquidity available at the inside market.
In addition, the program reflects an
effort to use financial incentives to
encourage a wider variety of member
organizations to make positive
commitments to promote market
quality. The Exchange believes that
different member organizations may
respond to different incentives, and
therefore the Enhanced Market Quality
Program is designed to promote market
quality through quoting activity. The
Exchange recognizes that while
generally market participants will
provide quotes with the intention of
trading, market makers and liquidity
3 Example 1: A member firm quotes an average of
250 symbols a day in tape A over the 30% time
threshold in a particular month. The Fixed Payment
due to such firm is calculated as follows: 51 (the
number of symbols over 199) times $25, which
equals to $1,275 for the month. This example shows
a tape A Tier 2 Fixed Payment. Example 2: A
member firm quotes an average of 350 symbols a
day in tape A over the 30% time threshold in a
particular month. The Fixed Payment due to such
firm is calculated as follows: $2,500 plus 51 (the
number of symbols over 299) times $200, which
equals to $12,700 for the month. This example
shows a tape A Tier 3 Fixed Payment.
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Federal Register / Vol. 86, No. 166 / Tuesday, August 31, 2021 / Notices
providers cannot control when counter
parties choose to interact with those
quotes and therefore the Exchange
believes it is beneficial to the market to
offer this incentive based on quoting
activity directly.
The Exchange notes that it will make
the Fixed Payment in addition to other
rebates or fees provided under Equity 7,
Sections 3 (a)–(c).
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 member organizations and
issuers and other persons using any
facility, and is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
The Commission and the courts have
repeatedly expressed their preference
for competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. In Regulation NMS, while
adopting a series of steps to improve the
current market model, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 6
Likewise, in NetCoalition v. Securities
and Exchange Commission 7
(‘‘NetCoalition’’) 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 brokerdealers that act as their order-routing
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’. . . .’’ 8
The Exchange believes that the
proposed Enhanced Market Quality
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4 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
7 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
8 Id. at 539 (quoting Securities Exchange Act
Release No. 59039 (December 2, 2008), 73 FR
74770, 74782–83 (December 9, 2008) (SR–
NYSEArca–2006–21)).
5 15
6 Securities
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Program is reasonable because it is
similar to other incentive programs
offered by the Exchange for displayed
orders that provide liquidity, like the
Qualified Market Maker Program set
forth in Equity 7, Sections 3(c). The
proposed Fixed Payment will provide
an opportunity to member organizations
to receive an additional credit in return
for certain levels of participation on the
Exchange as measured by quoting at the
NBBO. The proposed credit is set at a
level that is reflective of the beneficial
contributions of market participants that
quote significantly at the NBBO for a
wide range of symbols. The Exchange
believes that it is appropriate to limit
applicability of the proposed credit to
displayed orders in securities in Tape A
and Tape B, and set the credits higher
for the Tape A securities, insofar as the
Exchange seeks to incentivize member
organizations to add liquidity to the
Exchange in such securities and
improve the market therefor.
The Exchange believes that the
proposed Fixed Payments set forth by
the Enhanced Market Quality Program
are an equitable allocation and are not
unfairly discriminatory because the
Exchange will offer the same credit to
all similarly situated member
organizations. Moreover, the proposed
qualification criteria requires a member
organization to quote significantly at the
NBBO therefore contributing to market
quality in a meaningful way on the
Exchange. Any member organization
may quote at the NBBO at the level
required by the qualification criteria of
the Enhanced Market Quality Program.
The Exchange notes that it has a similar
Qualified Market Maker Program in
which member organizations are
required to quote at the NBBO more
than a certain amount of time during
regular market hours.9 For these
reasons, the Exchange believes that the
proposed Enhanced Market Quality
Program Fixed Payments and
qualification criteria are an equitable
allocation and are not unfairly
discriminatory.
The Exchange believes that the
proposal is equitable and is not unfairly
discriminatory because the Exchange
proposes to offer the same Fixed
Payments to all similarly situated
member organizations. The Exchange
also believes that it is equitable and not
unfairly discriminatory to establish the
Enhanced Market Quality Program only
for Tape A and Tape B securities, and
set the credits higher for the Tape A
securities, because the Exchange has
limited resources and the Exchange
9 See Qualified Market Maker Program, Equity 7,
Section 3(c).
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48791
believes that the best current
application of such limited resources is
to improve the market quality for Tape
A and Tape B securities, as proposed.
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. In terms of
inter-market competition, 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.
In this instance, the proposed changes
to the Exchange’s credits provided to
member organizations do not impose a
burden on competition because the
Exchange’s execution services are
completely voluntary and subject to
extensive competition both from other
exchanges and from off-exchange
venues. The proposed Fixed Payment
provides member organizations with the
opportunity to be given higher credits
for quotations 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.
In terms of intra-market 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 because the program
is open to all member organizations on
the same terms.
In sum, the proposed changes are
designed to make the Exchange a more
desirable venue on which to transact;
however, if the changes proposed herein
are 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
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Federal Register / Vol. 86, No. 166 / Tuesday, August 31, 2021 / Notices
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.10
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:
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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–2021–47 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–2021–47. 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
10 15
U.S.C. 78s(b)(3)(A)(ii).
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20:08 Aug 30, 2021
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–2021–47 and should
be submitted on or before September 21,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021–18676 Filed 8–30–21; 8:45 am]
BILLING CODE 8011–01–P
(Catalog of Federal Domestic Assistance
Number 59008)
James Rivera,
Associate Administrator for Disaster
Assistance.
[FR Doc. 2021–18731 Filed 8–30–21; 8:45 am]
BILLING CODE 8026–03–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #17119 and #17120;
California Disaster Number CA–00340]
Presidential Declaration of a Major
Disaster for the State of California
SMALL BUSINESS ADMINISTRATION
U.S. Small Business
Administration.
ACTION: Notice.
[Disaster Declaration #17114 and #17115;
Tennessee Disaster Number TN–00130]
SUMMARY:
AGENCY:
Presidential Declaration Amendment of
a Major Disaster for the State of
Tennessee
U.S. Small Business
Administration.
ACTION: Amendment 1.
AGENCY:
This is an amendment of the
Presidential declaration of a major
disaster for the State of Tennessee
(FEMA–4609–DR), dated 08/23/2021.
Incident: Severe Storm and Flooding.
Incident Period: 08/21/2021.
DATES: Issued on 08/25/2021.
Physical Loan Application Deadline
Date: 10/22/2021.
Economic Injury (EIDL) Loan
Application Deadline Date: 05/23/2022.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
SUMMARY:
11 17
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U.S. Small Business Administration,
409 3rd Street SW, Suite 6050,
Washington, DC 20416, (202) 205–6734.
SUPPLEMENTARY INFORMATION: The notice
of the President’s major disaster
declaration for the State of Tennessee,
dated 08/23/2021, is hereby amended to
include the following areas as adversely
affected by the disaster:
Primary Counties (Physical Damage and
Economic Injury Loans): Dickson,
Hickman, Houston.
Contiguous Counties (Economic Injury
Loans Only):
Tennessee: Cheatham, Lewis, Maury,
Montgomery, Stewart, Williamson.
All other information in the original
declaration remains unchanged.
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CFR 200.30–3(a)(12).
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This is a Notice of the
Presidential declaration of a major
disaster for the State of California
(FEMA–4610–DR), dated 08/24/2021.
Incident: Wildfires.
Incident Period: 07/14/2021 and
continuing.
DATES: Issued on 08/24/2021.
Physical Loan Application Deadline
Date: 10/25/2021.
Economic Injury (EIDL) Loan
Application Deadline Date: 05/24/2022.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW, Suite 6050,
Washington, DC 20416, (202) 205–6734.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
President’s major disaster declaration on
08/24/2021, applications for disaster
loans may be filed at the address listed
above or other locally announced
locations. The following areas have been
E:\FR\FM\31AUN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 166 (Tuesday, August 31, 2021)]
[Notices]
[Pages 48789-48792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-18676]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92754; File No. SR-Phlx-2021-47]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7,
Section 3 To Adopt an Enhanced Market Quality Program
August 25, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 12, 2021, Nasdaq PHLX LLC (``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 Equity 7, Section 3 to adopt an
Enhanced Market Quality Program and a related credit, 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.
[[Page 48790]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend Equity 7,
Section 3 to adopt an Enhanced Market Quality Program and a related
credit.
The Enhanced Market Quality Program is intended to provide
supplemental incentives to member organizations that meet certain
quality standards in acting as market makers for securities on the
Exchange by incentivizing such member organizations to make a
significant contribution to market quality by providing liquidity at
the national best bid and offer (``NBBO'') in a large number of
securities for a significant portion of the day. Specifically, the
Exchange proposes to make a lump sum payment at the end of each month
(a ``Fixed Payment'') to a member organization to the extent that the
member organization, through one or more of its MPIDs, quotes at the
NBBO for at least a threshold percentage of the time during Market
Hours in an average number of securities per day during the month, as
specified below. On a daily basis, the Exchange will determine the
number of securities in which each of a member organization's MPIDs
satisfied the NBBO requirement. The Exchange will aggregate all of a
member organization's MPIDs to determine the number of securities for
purposes of the NBBO requirement. The program is open to all member
organizations. A member organization may but is not required to be, a
registered market maker in any security; thus, the program does not by
itself impose a two-sided quotation obligation or convey any of the
benefits associated with being a registered market maker. Accordingly,
the program is designed to attract liquidity both from traditional
market makers and from other firms that are willing to commit capital
to support liquidity at the NBBO.
For purposes of the Enhanced Market Quality Program, a member
organization will be deemed to quote at the NBBO in a security if it
quotes a displayed order of at least 100 shares in the security and
prices the order at either the national best bid or the national best
offer or both the national best bid and offer for the security. The
Exchange will determine the amount of the Fixed Payment that it pays to
a qualifying member organization by multiplying the average daily
number of its qualifying securities during the month within the range
set forth in the highest qualifying Tier (rounded to the nearest whole
number) by the applicable amounts set forth in the following tables
below and adding the specified lump sum, where applicable. For a
particular Tape A security to count towards the threshold for
qualifying for the Fixed Payment on a particular day, and receiving the
Fixed Payment, a member organization has to quote such security at the
NBBO for at least 30% of the time during Market Hours on that day. For
a particular Tape B security to count towards the threshold for
qualifying for the Fixed Payment on a particular day, and receiving the
Fixed Payment, a member organization has to quote such security at the
NBBO for at least 50% of the time during Market Hours on that day. A
member organization that qualifies for the Fixed Payment for securities
in each of Tapes A and B will receive Fixed Payments covering
qualifying securities in both Tapes, but within each Tape, a member
organization may only qualify for one Tier during a month.\3\
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\3\ Example 1: A member firm quotes an average of 250 symbols a
day in tape A over the 30% time threshold in a particular month. The
Fixed Payment due to such firm is calculated as follows: 51 (the
number of symbols over 199) times $25, which equals to $1,275 for
the month. This example shows a tape A Tier 2 Fixed Payment. Example
2: A member firm quotes an average of 350 symbols a day in tape A
over the 30% time threshold in a particular month. The Fixed Payment
due to such firm is calculated as follows: $2,500 plus 51 (the
number of symbols over 299) times $200, which equals to $12,700 for
the month. This example shows a tape A Tier 3 Fixed Payment.
---------------------------------------------------------------------------
The Exchange proposes to set the tiers and the Fixed Payments as
follows:
Tape A Securities
------------------------------------------------------------------------
Average daily
number of
securities quoted
at the NBBO for at
Tiers least 30% of the Fixed payment
time during Market
Hours during the
month
------------------------------------------------------------------------
1............................... 0-199............. $0 per qualified
security per
month.
2............................... 200-299........... $25 per qualified
security over
199.
3............................... 300-399........... $2,500 + ($200 per
qualified
security over
299).
4............................... 400-499........... $22,500 + ($300
per qualified
security over
399).
5............................... 500 or greater.... $52,500 + ($400
per qualified
security over
499).
------------------------------------------------------------------------
Tape B Securities
------------------------------------------------------------------------
Average daily
number of
securities quoted
at the NBBO for at
Tiers least 50% of the Fixed payment
time during Market
Hours during the
month
------------------------------------------------------------------------
1............................... 0-299............. $0 per qualified
security per
month.
2............................... 300-399........... $100 per qualified
security over
299.
3............................... 400-499........... $10,000 + ($200
per qualified
security over
399).
4............................... 500 or greater.... $30,000 + ($300
per qualified
security over
499).
------------------------------------------------------------------------
Through the use of this incentive program, the Exchange hopes to
provide improved trading conditions for all market participants through
narrower bid-ask spreads and increased depth of liquidity available at
the inside market. In addition, the program reflects an effort to use
financial incentives to encourage a wider variety of member
organizations to make positive commitments to promote market quality.
The Exchange believes that different member organizations may respond
to different incentives, and therefore the Enhanced Market Quality
Program is designed to promote market quality through quoting activity.
The Exchange recognizes that while generally market participants will
provide quotes with the intention of trading, market makers and
liquidity
[[Page 48791]]
providers cannot control when counter parties choose to interact with
those quotes and therefore the Exchange believes it is beneficial to
the market to offer this incentive based on quoting activity directly.
The Exchange notes that it will make the Fixed Payment in addition
to other rebates or fees provided under Equity 7, Sections 3 (a)-(c).
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 member organizations 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 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.'' \6\
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\6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission \7\
(``NetCoalition'') 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'. . . .'' \8\
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\7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\8\ Id. at 539 (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008)
(SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------
The Exchange believes that the proposed Enhanced Market Quality
Program is reasonable because it is similar to other incentive programs
offered by the Exchange for displayed orders that provide liquidity,
like the Qualified Market Maker Program set forth in Equity 7, Sections
3(c). The proposed Fixed Payment will provide an opportunity to member
organizations to receive an additional credit in return for certain
levels of participation on the Exchange as measured by quoting at the
NBBO. The proposed credit is set at a level that is reflective of the
beneficial contributions of market participants that quote
significantly at the NBBO for a wide range of symbols. The Exchange
believes that it is appropriate to limit applicability of the proposed
credit to displayed orders in securities in Tape A and Tape B, and set
the credits higher for the Tape A securities, insofar as the Exchange
seeks to incentivize member organizations to add liquidity to the
Exchange in such securities and improve the market therefor.
The Exchange believes that the proposed Fixed Payments set forth by
the Enhanced Market Quality Program are an equitable allocation and are
not unfairly discriminatory because the Exchange will offer the same
credit to all similarly situated member organizations. Moreover, the
proposed qualification criteria requires a member organization to quote
significantly at the NBBO therefore contributing to market quality in a
meaningful way on the Exchange. Any member organization may quote at
the NBBO at the level required by the qualification criteria of the
Enhanced Market Quality Program. The Exchange notes that it has a
similar Qualified Market Maker Program in which member organizations
are required to quote at the NBBO more than a certain amount of time
during regular market hours.\9\ For these reasons, the Exchange
believes that the proposed Enhanced Market Quality Program Fixed
Payments and qualification criteria are an equitable allocation and are
not unfairly discriminatory.
---------------------------------------------------------------------------
\9\ See Qualified Market Maker Program, Equity 7, Section 3(c).
---------------------------------------------------------------------------
The Exchange believes that the proposal is equitable and is not
unfairly discriminatory because the Exchange proposes to offer the same
Fixed Payments to all similarly situated member organizations. The
Exchange also believes that it is equitable and not unfairly
discriminatory to establish the Enhanced Market Quality Program only
for Tape A and Tape B securities, and set the credits higher for the
Tape A securities, because the Exchange has limited resources and the
Exchange believes that the best current application of such limited
resources is to improve the market quality for Tape A and Tape B
securities, as proposed.
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. In terms of inter-market
competition, 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.
In this instance, the proposed changes to the Exchange's credits
provided to member organizations do not impose a burden on competition
because the Exchange's execution services are completely voluntary and
subject to extensive competition both from other exchanges and from
off-exchange venues. The proposed Fixed Payment provides member
organizations with the opportunity to be given higher credits for
quotations 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.
In terms of intra-market 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
because the program is open to all member organizations on the same
terms.
In sum, the proposed changes are designed to make the Exchange a
more desirable venue on which to transact; however, if the changes
proposed herein are 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
[[Page 48792]]
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.\10\
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\10\ 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-2021-47 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-2021-47. 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-2021-47 and should be submitted on
or before September 21, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18676 Filed 8-30-21; 8:45 am]
BILLING CODE 8011-01-P
