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, 73033-73038 [2021-27808]
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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Notices
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be 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:
jspears on DSK121TN23PROD with NOTICES1
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–
CboeEDGX–2021–052 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–CboeEDGX–2021–052. 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
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to make available publicly. All
submissions should refer to File
Number SR–CboeEDGX–2021–052, and
should be submitted on or before
January 13, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–27819 Filed 12–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93823; File No. SR–Phlx–
2021–74]
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
December 17, 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 December
9, 2021, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Equity 7, Section 3 to restate the
Exchange’s schedule of transaction
credits and charges, to eliminate the
Qualified Market Maker Program (the
‘‘QMM Program’’), and to eliminate the
Enhanced Market Quality Program (the
‘‘EMQ Program’’), 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.
24 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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 purpose of the proposed rule
change is to amend Equity 7, Section 3
to restate the Exchange’s schedule of
credits and charges, to eliminate the
QMM Program, which the Exchange
established in 2019 and amended in
2021,3 and to eliminate the EMQ
Program, which the Exchange both
established and modified in 2021.4 The
Exchange also proposes to eliminate
obsolete text from Equity 7, Section 3(a).
Restatement of Schedule of Credits and
Charges
Pursuant to Equity 7, Section 3, and
under the heading ‘‘Order Execution
and Routing,’’ the Exchange presently
provides a series of credits to member
organizations that enter displayed and
non-displayed orders/quotes that
execute on the Exchange and impose
charges upon member organizations that
remove liquidity from the Exchange. To
the extent that member organizations
satisfy additional volume-based criteria,
they may qualify for credits that are
higher than or charges that are lower
than standard transaction rates. As part
of its periodic efforts to invigorate and
grow the Exchange by increasing the
attractiveness and effectiveness of the
incentives it offers to its member
organizations, the Exchange proposes to
substantially restate its schedule of
credits and charges. These changes will
provide increased overall rebate
opportunities available to members that
3 See Securities Exchange Act Release No. 34–
91159 (February 18, 2021), 86 FR 11343 (February
24, 2021) (SR–Phlx–2021–09); Securities Exchange
Act Release No. 34–85862 (May 15, 2019), 84 FR
23112 (May 21, 2019) (SR–Phlx–2019–19).
4 See Securities Exchange Act Release No. 34–
93406 (October 22, 2021), 86 FR 59767 (October 28,
2021) (SR–Phlx–2021–64); Securities Exchange Act
Release No. 34–92754 (August 25, 2021), 86 FR
48789 (August 31, 2021) (SR–Phlx–2021–47).
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add liquidity to the Exchange, while
imposing a single flat fee for member
organizations that remove liquidity from
the Exchange.
Presently, member organizations that
enter orders that execute on the
Exchange pay the following fees: (i)
$0.0024 per share executed in securities
entered by a member organization that
accesses 0.055% or more of
Consolidated Volume 5 during the
month and adds 0.025% or more of
Consolidated Volume during the month;
(ii) $0.0025 per share executed in
securities entered by a member
organization that accesses 0.01% or
more of Consolidated Volume during
the month and adds 5,000 shares or
more to the Exchange during the month;
and (iii) $0.0030 per share executed for
all other member organizations. The
Exchange proposes to eliminate all but
the last of these fee tiers, such that going
forward, the Exchange will charge all
member organizations that remove
liquidity from the Exchange a flat fee of
$0.0030 per share executed. This change
will allow the Exchange to reallocate its
limited resources to increase incentives
for adding liquidity to the Exchange—an
activity it believes is needed to improve
the quality of the Exchange’s market.
The Exchange presently offers the
following credits to member
organizations that add displayed
liquidity to the Exchange: (i) $0.0026
per share executed for Quotes/Orders
entered by a member organization that
provides 0.10% or more of total
Consolidated Volume during the month;
(ii) $0.0024 per share executed for
Quotes/Orders entered by a member
organization that provides 0.07% or
more of total Consolidated Volume
during the month; and (iii) $0.0020 per
share executed for all other quotes/
orders. The Exchange proposes to
restate this schedule, as follows, with
the overall aims of increasing incentives
for member organizations to add
substantial volumes of displayed
liquidity to the Exchange and providing
a new incentive for member
organizations to grow the extent of their
liquidity adding activity relative to a
baseline month.
5 Pursuant to 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
organization’s trading activity, the date of the
annual reconstitution of the Russell Investments
Indexes is excluded from both total Consolidated
Volume and the member organization’s trading
activity.
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First, the Exchange proposes modify
its top $0.0026 per share executed credit
by increasing the amount of that credit
to $0.0035 per share executed. It also
proposes to modify its $0.0024 per share
executed credit by: (i) Increasing the
amount of the credit to $0.0034 per
share executed; (ii) decreasing the
liquidity add volume threshold to
qualify for the credit from 0.07% to
0.05% of Consolidated Volume; and (iii)
by adding a requirement that the
member organization must remove at
least 0.02% of total Consolidated
Volume during the month.6 Third, the
Exchange proposes to establish a new
growth tier that will reward a member
organization with a credit of $0.0030 per
share executed to the extent that it adds
a daily average of at least 1 million
shares of liquidity in all securities on
the Exchange during the month and
increases its average daily volume of
quotes/orders added to the Exchange by
100% or more during the month relative
to the month of October 2021. Finally,
the Exchange notes that it will not
change its existing baseline credit of
$0.0020 per share executed for the
addition of displayed liquidity to the
Exchange.
The Exchange presently offers the
following credits to member
organizations that add non-displayed
liquidity to the Exchange: (i) A $0.0023
per share executed credit for all orders
with midpoint pegging that provide
liquidity; (ii) a $0.0004 per share
executed credit for orders entered by a
member organization that provides
0.01% or more of total Consolidated
Volume during the month through nondisplayed orders (other than midpoint
orders) that provide liquidity; (iii) 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 nondisplayed orders (other than midpoint
orders) that provide liquidity; (iv) 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; and (v) a
$0.0000 per share executed credit for
other non-displayed orders that provide
liquidity. The Exchange proposes to
restate this schedule of credits with the
aim of increasing overall incentives to
6 By tying receipt of this liquidity adding credit
to a member organization also achieving a baseline
level of liquidity removal activity, the Exchange
intends to continue incenting member organizations
to remove liquidity even as it focuses more of its
resources on adding liquidity to the Exchange.
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add non-displayed liquidity, while
simplifying the credit structure by
collapsing the schedule to three nondisplayed tiers.
First, the Exchange will continue to
provide a $0.0023 per share executed
credit for all orders with midpoint
pegging that provide liquidity. Second,
the Exchange will continue to provide a
credit to a member organization that
provides 0.01% or more of total
Consolidated Volume during the month
through non-displayed orders (other
than midpoint orders) that provide
liquidity, but it will increase the amount
of that credit from $0.0004 to $0.0015
per share executed. Third, the Exchange
will increase from $0.0000 to $0.0005
the base credit it provides to member
organizations that add non-displayed
liquidity to the Exchange.
The proposed restatement of the
Exchange’s schedule of credits will
focus the Exchange’s limited resources
to incenting member organizations to
add and increase the extent to which
they add liquidity to the Exchange. To
the extent that this effort is successful,
the Exchange hopes that additional
liquidity will improve the quality of the
market and help to grow it over time.
Elimination of the QMM Program
As set forth in Equity 7, Section 3, the
QMM Program provides supplemental
incentives to member organizations that
qualify as ‘‘Qualified Market Makers’’ or
‘‘QMMs’’ 7 by making significant
contribution to market quality by
providing liquidity at the national best
bid and offer (‘‘NBBO’’) 8 in a large
number of securities for a significant
portion of the day. A QMM may be, but
is not required to be, a registered market
maker in any security; thus, the QMM
designation does not by itself impose a
two-sided quotation obligation or
convey any of the benefits associated
with being a registered market maker.
The QMM 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. In return for
providing the required contribution of
market-improving liquidity, the
Exchange provides a QMM with the
following non-cumulative supplemental
credits for executions of displayed
orders in securities priced at $1 or more
7 To be designated as a QMM, a member
organization must quote at the NBBO at least 15%
of the time during regular market hours in an
average of at least 400 securities per day during a
month.
8 For purposes of the QMM Program, a member
organization is deemed to quote at the NBBO in a
security if one of its MPIDs has a displayed order
at either the national best bid or the national best
offer or both the national best bid and offer.
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per share that provide liquidity on the
Exchange:
1. $0.0001 per share executed with respect
to all displayed orders of a QMM in
securities priced at $1 or more per share that
provide liquidity; or
2. $0.0002 per share executed with respect
to all displayed orders of a QMM in
securities priced at $1 or more per share that
provide liquidity, provided that the QMM
quotes the NBBO at least 10% of the time
during Market Hours in an average of at least
650 securities per day during a month; or
3. $0.0003 per share executed in Tape A
securities and a credit of $0.0002 per share
executed in Tape B and Tape C securities
with respect to all displayed orders of a
QMM in securities priced at $1 or more per
share that provide liquidity, provided that
the QMM provides 0.12% or more of total
Consolidated Volume during the month and
quotes the NBBO at least 10% of the time
during Market Hours in an average of at least
800 securities per day during a month.
The QMM credits are in addition to
any credit that the Exchange provides
under Equity 7, Section 3.
Through the use of the QMM
Program, the Exchange hoped 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 QMM Program reflected
an effort to use financial incentives to
encourage a wider variety of members to
make positive commitments to promote
market quality.
Unfortunately, the QMM Program did
not accomplish its objectives, as it did
not meaningfully improve market
quality on the Exchange. Accordingly,
and because the Exchange has limited
resources to allocate to incentive
programs like this one, the Exchange
proposes to eliminate the QMM
Program. Going forward, it plans to
develop new incentive programs that it
hopes will be more impactful.
Elimination of the Enhanced Market
Quality Program
The EMQ Program provides
supplemental incentives to member
organizations that meet certain quality
standards in acting as market makers for
securities on the Exchange. It rewards
member organizations that make
significant contributions to market
quality by providing liquidity at the
NBBO in a large number of securities for
a significant portion of the day.9
Specifically, the Exchange makes 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 qualifying securities per day
during the month, as specified below
(satisfying the ‘‘NBBO requirement’’).
On a daily basis, the Exchange
determines the number of securities in
which each of a member organization’s
MPIDs satisfies the NBBO requirement.
The Exchange aggregates a member
organization’s MPIDs to determine the
number of securities for purposes of the
NBBO requirement.
The Exchange determines the amount
of the Fixed Payment that it pays to a
qualifying member organization, as
follows. First, it determines which of
five Tiers a member organization meets
by virtue of the average daily number of
qualifying securities for which it meets
the NBBO requirement during the
month (rounded to the nearest whole
number) in Tapes A and B. Qualifying
securities are limited to the top 1,500
securities in each of these Tapes, as
determined by their total value traded
during the second month prior to the
current month. A member organization
meets the NBBO requirement for a
qualifying Tape A security on a given
day to the extent that it quotes at the
73035
NBBO for at least 30% of the time
during Market Hours on that day, and
for a qualifying Tape B security, a
member organization must quote such
security at the NBBO for at least 50% of
the time during Market Hours on that
day.
For each tier of the EMQ Program, the
Exchange has three groupings or
‘‘Classes.’’ The Exchange establishes the
Classes by dividing the qualifying 1,500
securities into three equal groups for
each Tape, with the top 500 ranked
securities placed in Class 3, the middle
500 ranked securities placed in Class 2,
and the lowest ranked 500 securities
placed in Class 1.
The Exchange assigns Fixed Payment
amounts to each of the three Classes in
each Tape and in each of five Tiers,
with these amounts generally increasing
from Class 1 to Class 3, and from Tiers
1–5.
In sum, a member organization that
meets the NBBO requirement for a
requisite number of qualifying securities
during a month to qualify for a
particular Tier is entitled to receive the
Fixed Payment that corresponds to the
combination of: (i) That Tier; and (ii) the
Class in which the Exchange has placed
the qualifying securities for that month.
A member organization that qualifies
for a Fixed Payment for securities in
each of Tapes A and B and in multiple
Classes within each Tape receive Fixed
Payments covering qualifying securities
in both Tapes, and within each Tape, for
the each of the applicable Classes, but
within each Tape and Class, a member
organization may only qualify for one
Tier during a month. The Exchange
makes the Fixed Payment in addition to
other rebates or fees provided under
Equity 7, Sections 3 (a)–(c).
The existing schedules of Tiers,
Classes, and Fixed Payments are as
follows:
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TAPE A SECURITIES
Tiers
Average daily
number of
securities
quoted at the
NBBO for at least
30% of the time
during Market
Hours during the
month
Fixed payment for securities in
Tape A in Class 1
Fixed payment for securities in
Tape A in Class 2
Fixed payment for securities in
Tape A in Class 3
1 .............
0–24 .......................
$0 per qualified security per month
$0 per qualified security per month
2 .............
25–49 .....................
$0 per qualified security per month
$0 per qualified security per month
$0 per qualified security per
month.
$200 per qualified security over 24
per month.
9 For purposes of the Enhanced Market Quality
Program, a member organization is deemed to quote
at the NBBO in a security if it quotes a displayed
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order of at least 100 shares in the security and
prices the order at either the national best bid or
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the national best offer or both the national best bid
and offer for the security.
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TAPE A SECURITIES—Continued
Tiers
Average daily
number of
securities
quoted at the
NBBO for at least
30% of the time
during Market
Hours during the
month
3 .............
50–149 ...................
4 .............
150–249 .................
5 .............
250 or greater ........
Fixed payment for securities in
Tape A in Class 1
Fixed payment for securities in
Tape A in Class 2
Fixed payment for securities in
Tape A in Class 3
$50 per qualified security [sic] per
month.
$5,000 + ($100 per qualified security over 149) per month.
$15,000 + ($150 per qualified security over 249) per month.
$200 per qualified security over 49
per month.
$20,000 + ($300 per qualified security over 149) per month.
$50,000 + ($350 per qualified security over 249) per month.
$5,000 + ($450 per qualified security over 49) per month.
$50,000 + ($600 per qualified security over 149) per month.
$50,000 + ($600 per qualified security over 149) per month.
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TAPE B SECURITIES
Tiers
Average daily
number of
securities
quoted at the
NBBO for at least
50% of the time
during Market
Hours during the
month
Fixed payment for securities in
Tape B in Class 1
Fixed payment for securities in
Tape B in Class 2
Fixed payment for securities in
Tape B in Class 3
1 .............
0–24 .......................
$0 per qualified security per month
$0 per qualified security per month
2 .............
25–49 .....................
$0 per qualified security per month
$0 per qualified security per month
3 .............
50–149 ...................
$0 per qualified security per month
4 .............
150–249 .................
5 .............
250 or greater ........
$50 per qualified security over 149
per month.
$5,000 + ($75 per qualified security over 249) per month.
$25 per qualified security over 49
per month.
$2,500 + ($50 per qualified security over 149) per month.
$7,500 + ($150 per qualified security over 249) per month.
$0 per qualified security per
month.
$100 per qualified security over 24
per month.
$2,500 + ($150 per qualified security over 49) per month.
$17,500 + ($300 per qualified security over 149) per month.
$17,500 + ($300 per qualified security over 149) per month.
A member organization may, but is
not required to be, a registered market
maker in any security to qualify for the
EMQ Program; thus, the EMQ 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 EMQ 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.
In establishing the EMQ Program, the
Exchange hoped 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 EMQ Program reflected an
effort by the Exchange to use its
financial incentives to encourage a
wider variety of member organizations
other than market makers to make
positive commitments to promote
market quality.
Unfortunately, the Exchange’s hopes
for the EMQ Program have not been
realized, notwithstanding refinements
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made to the EMQ Program earlier this
year in an attempt to enhance its
effectiveness. Indeed, while the EMQ
Program has succeeded in incenting
market participants to increase their
quoting at the NBBO in qualifying
securities, the number of EMQ Program
participants has been small, as has been
the corresponding impact on the market
quality. Because the EMQ Program has
not been effective in achieving its
intended purposes, and because the
Exchange has limited resources to
allocate to incentive programs like this
one, the Exchange proposes to eliminate
the Enhanced Market Quality Program.
Going forward, it plans to develop new
incentive programs that it hopes will be
more impactful.
Deletion of Obsolete Text
Finally, the Exchange proposes to
eliminate text from this Rule that has
become obsolete as it applied solely to
Consolidated Volume calculations
during the month of October 2020. The
text that the Exchange proposes to
delete is as follows:
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(For purposes of determining which of the
execution charges and credits listed below a
member organization qualifies for during the
month of October 2020, the Exchange will
calculate the member organization’s total
Consolidated Volume on the Exchange for
the full month of October as well as for the
month of October excluding the week of
October 26–30, 2020. The Exchange will then
assess which total Consolidated Volume
calculations would qualify the member
organization for the most advantageous
credits and charges for the month of October
and then it will apply those credits and
charges to the member organization.)
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,10 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,11 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
10 15
11 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
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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.’’ 12
Likewise, in NetCoalition v. Securities
and Exchange Commission 13
(‘‘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’. . . .’’ 14
The Exchange believes that the
proposed elimination of the QMM and
EMQ Programs is reasonable and is an
equitable allocation of Exchange credits
because neither program has proven to
be effective in meeting its objectives,
which include increasing the extent to
which member organizations quote
securities on the Exchange at the NBBO
and improving overall market quality.
Insofar as the Exchange has limited
resources to devote to its incentive
programs, the Exchange believes that it
is reasonable and equitable for it to
eliminate these two Programs and to
reallocate its resources for other, more
productive purposes. For similar
reasons, the proposal is not unfairly
discriminatory. The Exchange does not
believe that the benefits enjoyed by the
member organizations that participate in
the QMM and EMQ Program are
sufficient to justify maintaining them, as
the resources the Exchange allocates to
12 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
13 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
14 Id. at 539 (quoting Securities Exchange Act
Release No. 59039 (December 2, 2008), 73 FR
74770, 74782–83 (December 9, 2008) (SR–
NYSEArca–2006–21)).
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it could be put to broader and more
productive use.
The Exchange also believes that its
proposal is reasonable, equitable, and
not unfairly discriminatory to restate its
schedule of transaction credits and
charges. As discussed above, the
Exchange assesses a particular need to
increase the extent to which its member
organizations add liquidity to the
Exchange as a means of improving
market quality. The proposals serve that
purpose by directly increasing credits
for adding displayed and non-displayed
liquidity, and by reallocating some
resources that it currently devotes to
providing discounted fees to member
organizations which remove liquidity
from the Exchange. Although the
proposals will benefit net adders of
liquidity at the expense of net removers
of liquidity, the Exchange believes that
this is equitable and not unfairly
discriminatory because all market
participants stand to benefit to the
extent that the proposals are successful
in increasing liquidity on the Exchange
and improving market quality. The
Exchange also believes that it is
reasonable, equitable, and not unfairly
discriminatory to simplify its schedule
of credits and charges insofar as the
Exchange believes that a simpler credit/
fee structure may be more
comprehensible and administrable and
thus, more appealing to, member
organizations.
Finally, the Exchange believes that it
is reasonable, equitable, and not
unfairly discriminatory to delete text
from the Rule that has become obsolete
insofar as it applied only to calculations
of Consolidated Volume for the month
of October 2020. Deletion of obsolete
rule text ensures that the Rulebook
remains current and free from
extraneous and potentially confusing
text.
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
PO 00000
Frm 00121
Fmt 4703
Sfmt 4703
73037
with the statutory standards applicable
to exchanges. Because competitors are
free to modify their own credits and 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 proposals 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 offexchange venues. Thus, the proposed
restatement of the Exchange’s schedule
of credits and charges will not unduly
burden competition, even as it will
increase overall incentives to net adders
of liquidity to the Exchange and reduce
overall incentives to net removers of
liquidity from the Exchange. The
Exchange believes that its need to
refocus its limited resources on
increasing liquidity on the Exchange as
a means of improving its overall market
quality justifies the costs of this
proposal to member organizations that
are net liquidity removers.
Additionally, given that neither the
QMM nor the EMQ Program has been
utilized as extensively as the Exchange
expected, the proposed elimination of
those two Programs will not impact
more than a handful of its member
organizations. To the extent that
elimination of the EMQ and QMM
Programs do impact these member
organizations, the Exchange notes that it
continues to provide other financial
incentives for member organizations to
participate on the Exchange.
The Exchange does not believe that
any competitive impact will ensue from
its proposal to eliminate obsolete rule
text relating to the calculation of
Consolidated Volume in October 2020.
Given that the text no longer applies, its
deletion will have no effect on member
organizations or the Exchange
whatsoever.
In sum, the proposals are designed to
render the Exchange more efficient in
the allocation of its limited resources
and more effective in improving the
quality of the Exchange’s market;
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
order execution venues to maintain
their competitive standing in the
financial markets.
E:\FR\FM\23DEN1.SGM
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73038
Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Notices
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.15
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:
jspears on DSK121TN23PROD with NOTICES1
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–2021–74 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–2021–74. 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–2021–74 and should
be submitted on or before January 13,
2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–27808 Filed 12–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93819; File No. SR–CBOE–
2021–071]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Adopt a
New Trading Session That Will Operate
After the Close of the Regular Trading
Hours Session
December 17, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
15, 2021, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘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.
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
15 15
U.S.C. 78s(b)(3)(A)(ii).
VerDate Sep<11>2014
20:50 Dec 22, 2021
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Frm 00122
Fmt 4703
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to adopt a
new trading session that will operate
after the close of the Regular Trading
Hours session. The text of the proposed
rule change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegalRegulatory
Home.aspx), at the Exchange’s Office of
the Secretary, 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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
Rules to allow trading on the Exchange
during a new forty-five-minute trading
session called the ‘‘Curb Trading Hours’’
or ‘‘Curb’’ session. The proposed rule
change to adopt a third trading session
aims to increase the overlap in time that
SPX, VIX and Mini-SPX Index (‘‘XSP’’)
options are open alongside the related
futures contracts.3
3 For example, related futures products such as
Cboe Volatility Index (VX) Futures are currently
available for trading on Cboe Futures Exchange,
LLC (‘‘CFE’’) during an extended trading hours
session from 4:00 p.m. to 5:00 p.m. Eastern Time
(ET) Monday through Friday. See CFE Rule 1202,
which sets forth the trading hours for VX futures
(times referenced in CFE Rule 1202 are Central
Standard Time (CT)). Related future contracts are
also offered on the Chicago Mercantile Exchange
(‘‘CME’’) during the proposed hours of Curb. See
https://www.cmegroup.com/trading-hours.html#
equityIndex and https://www.cmegroup.com/
markets/equities/sp/e-mini-sandp500.html which
reflects, among other things, that E-mini S&P 500
Futures trade between 6:00 p.m. Sunday through
5:00 p.m. Friday ET (5:00 p.m.–4:00 p.m. CT) with
a daily maintenance period from 5:00 p.m.–6:00
p.m. ET (4:00 p.m.–5:00 p.m. CT).
E:\FR\FM\23DEN1.SGM
23DEN1
]]>Agencies
[Federal Register Volume 86, Number 244 (Thursday, December 23, 2021)]
[Notices]
[Pages 73033-73038]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27808]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93823; File No. SR-Phlx-2021-74]
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
December 17, 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 December 9, 2021, 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 Equity 7, Section 3 to restate the
Exchange's schedule of transaction credits and charges, to eliminate
the Qualified Market Maker Program (the ``QMM Program''), and to
eliminate the Enhanced Market Quality Program (the ``EMQ Program''), 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 purpose of the proposed rule change is to amend Equity 7,
Section 3 to restate the Exchange's schedule of credits and charges, to
eliminate the QMM Program, which the Exchange established in 2019 and
amended in 2021,\3\ and to eliminate the EMQ Program, which the
Exchange both established and modified in 2021.\4\ The Exchange also
proposes to eliminate obsolete text from Equity 7, Section 3(a).
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 34-91159 (February
18, 2021), 86 FR 11343 (February 24, 2021) (SR-Phlx-2021-09);
Securities Exchange Act Release No. 34-85862 (May 15, 2019), 84 FR
23112 (May 21, 2019) (SR-Phlx-2019-19).
\4\ See Securities Exchange Act Release No. 34-93406 (October
22, 2021), 86 FR 59767 (October 28, 2021) (SR-Phlx-2021-64);
Securities Exchange Act Release No. 34-92754 (August 25, 2021), 86
FR 48789 (August 31, 2021) (SR-Phlx-2021-47).
---------------------------------------------------------------------------
Restatement of Schedule of Credits and Charges
Pursuant to Equity 7, Section 3, and under the heading ``Order
Execution and Routing,'' the Exchange presently provides a series of
credits to member organizations that enter displayed and non-displayed
orders/quotes that execute on the Exchange and impose charges upon
member organizations that remove liquidity from the Exchange. To the
extent that member organizations satisfy additional volume-based
criteria, they may qualify for credits that are higher than or charges
that are lower than standard transaction rates. As part of its periodic
efforts to invigorate and grow the Exchange by increasing the
attractiveness and effectiveness of the incentives it offers to its
member organizations, the Exchange proposes to substantially restate
its schedule of credits and charges. These changes will provide
increased overall rebate opportunities available to members that
[[Page 73034]]
add liquidity to the Exchange, while imposing a single flat fee for
member organizations that remove liquidity from the Exchange.
Presently, member organizations that enter orders that execute on
the Exchange pay the following fees: (i) $0.0024 per share executed in
securities entered by a member organization that accesses 0.055% or
more of Consolidated Volume \5\ during the month and adds 0.025% or
more of Consolidated Volume during the month; (ii) $0.0025 per share
executed in securities entered by a member organization that accesses
0.01% or more of Consolidated Volume during the month and adds 5,000
shares or more to the Exchange during the month; and (iii) $0.0030 per
share executed for all other member organizations. The Exchange
proposes to eliminate all but the last of these fee tiers, such that
going forward, the Exchange will charge all member organizations that
remove liquidity from the Exchange a flat fee of $0.0030 per share
executed. This change will allow the Exchange to reallocate its limited
resources to increase incentives for adding liquidity to the Exchange--
an activity it believes is needed to improve the quality of the
Exchange's market.
---------------------------------------------------------------------------
\5\ Pursuant to 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
organization's trading activity, the date of the annual
reconstitution of the Russell Investments Indexes is excluded from
both total Consolidated Volume and the member organization's trading
activity.
---------------------------------------------------------------------------
The Exchange presently offers the following credits to member
organizations that add displayed liquidity to the Exchange: (i) $0.0026
per share executed for Quotes/Orders entered by a member organization
that provides 0.10% or more of total Consolidated Volume during the
month; (ii) $0.0024 per share executed for Quotes/Orders entered by a
member organization that provides 0.07% or more of total Consolidated
Volume during the month; and (iii) $0.0020 per share executed for all
other quotes/orders. The Exchange proposes to restate this schedule, as
follows, with the overall aims of increasing incentives for member
organizations to add substantial volumes of displayed liquidity to the
Exchange and providing a new incentive for member organizations to grow
the extent of their liquidity adding activity relative to a baseline
month.
First, the Exchange proposes modify its top $0.0026 per share
executed credit by increasing the amount of that credit to $0.0035 per
share executed. It also proposes to modify its $0.0024 per share
executed credit by: (i) Increasing the amount of the credit to $0.0034
per share executed; (ii) decreasing the liquidity add volume threshold
to qualify for the credit from 0.07% to 0.05% of Consolidated Volume;
and (iii) by adding a requirement that the member organization must
remove at least 0.02% of total Consolidated Volume during the month.\6\
Third, the Exchange proposes to establish a new growth tier that will
reward a member organization with a credit of $0.0030 per share
executed to the extent that it adds a daily average of at least 1
million shares of liquidity in all securities on the Exchange during
the month and increases its average daily volume of quotes/orders added
to the Exchange by 100% or more during the month relative to the month
of October 2021. Finally, the Exchange notes that it will not change
its existing baseline credit of $0.0020 per share executed for the
addition of displayed liquidity to the Exchange.
---------------------------------------------------------------------------
\6\ By tying receipt of this liquidity adding credit to a member
organization also achieving a baseline level of liquidity removal
activity, the Exchange intends to continue incenting member
organizations to remove liquidity even as it focuses more of its
resources on adding liquidity to the Exchange.
---------------------------------------------------------------------------
The Exchange presently offers the following credits to member
organizations that add non-displayed liquidity to the Exchange: (i) A
$0.0023 per share executed credit for all orders with midpoint pegging
that provide liquidity; (ii) a $0.0004 per share executed credit for
orders entered by a member organization that provides 0.01% or more of
total Consolidated Volume during the month through non-displayed orders
(other than midpoint orders) that provide liquidity; (iii) 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; (iv) 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; and (v) a $0.0000
per share executed credit for other non-displayed orders that provide
liquidity. The Exchange proposes to restate this schedule of credits
with the aim of increasing overall incentives to add non-displayed
liquidity, while simplifying the credit structure by collapsing the
schedule to three non-displayed tiers.
First, the Exchange will continue to provide a $0.0023 per share
executed credit for all orders with midpoint pegging that provide
liquidity. Second, the Exchange will continue to provide a credit to a
member organization that provides 0.01% or more of total Consolidated
Volume during the month through non-displayed orders (other than
midpoint orders) that provide liquidity, but it will increase the
amount of that credit from $0.0004 to $0.0015 per share executed.
Third, the Exchange will increase from $0.0000 to $0.0005 the base
credit it provides to member organizations that add non-displayed
liquidity to the Exchange.
The proposed restatement of the Exchange's schedule of credits will
focus the Exchange's limited resources to incenting member
organizations to add and increase the extent to which they add
liquidity to the Exchange. To the extent that this effort is
successful, the Exchange hopes that additional liquidity will improve
the quality of the market and help to grow it over time.
Elimination of the QMM Program
As set forth in Equity 7, Section 3, the QMM Program provides
supplemental incentives to member organizations that qualify as
``Qualified Market Makers'' or ``QMMs'' \7\ by making significant
contribution to market quality by providing liquidity at the national
best bid and offer (``NBBO'') \8\ in a large number of securities for a
significant portion of the day. A QMM may be, but is not required to
be, a registered market maker in any security; thus, the QMM
designation does not by itself impose a two-sided quotation obligation
or convey any of the benefits associated with being a registered market
maker.
---------------------------------------------------------------------------
\7\ To be designated as a QMM, a member organization must quote
at the NBBO at least 15% of the time during regular market hours in
an average of at least 400 securities per day during a month.
\8\ For purposes of the QMM Program, a member organization is
deemed to quote at the NBBO in a security if one of its MPIDs has a
displayed order at either the national best bid or the national best
offer or both the national best bid and offer.
---------------------------------------------------------------------------
The QMM 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. In return for
providing the required contribution of market-improving liquidity, the
Exchange provides a QMM with the following non-cumulative supplemental
credits for executions of displayed orders in securities priced at $1
or more
[[Page 73035]]
---------------------------------------------------------------------------
per share that provide liquidity on the Exchange:
1. $0.0001 per share executed with respect to all displayed
orders of a QMM in securities priced at $1 or more per share that
provide liquidity; or
2. $0.0002 per share executed with respect to all displayed
orders of a QMM in securities priced at $1 or more per share that
provide liquidity, provided that the QMM quotes the NBBO at least
10% of the time during Market Hours in an average of at least 650
securities per day during a month; or
3. $0.0003 per share executed in Tape A securities and a credit
of $0.0002 per share executed in Tape B and Tape C securities with
respect to all displayed orders of a QMM in securities priced at $1
or more per share that provide liquidity, provided that the QMM
provides 0.12% or more of total Consolidated Volume during the month
and quotes the NBBO at least 10% of the time during Market Hours in
an average of at least 800 securities per day during a month.
The QMM credits are in addition to any credit that the Exchange
provides under Equity 7, Section 3.
Through the use of the QMM Program, the Exchange hoped 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 QMM Program reflected an effort to
use financial incentives to encourage a wider variety of members to
make positive commitments to promote market quality.
Unfortunately, the QMM Program did not accomplish its objectives,
as it did not meaningfully improve market quality on the Exchange.
Accordingly, and because the Exchange has limited resources to allocate
to incentive programs like this one, the Exchange proposes to eliminate
the QMM Program. Going forward, it plans to develop new incentive
programs that it hopes will be more impactful.
Elimination of the Enhanced Market Quality Program
The EMQ Program provides supplemental incentives to member
organizations that meet certain quality standards in acting as market
makers for securities on the Exchange. It rewards member organizations
that make significant contributions to market quality by providing
liquidity at the NBBO in a large number of securities for a significant
portion of the day.\9\
---------------------------------------------------------------------------
\9\ For purposes of the Enhanced Market Quality Program, a
member organization is 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.
---------------------------------------------------------------------------
Specifically, the Exchange makes 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 qualifying securities per day
during the month, as specified below (satisfying the ``NBBO
requirement'').
On a daily basis, the Exchange determines the number of securities
in which each of a member organization's MPIDs satisfies the NBBO
requirement. The Exchange aggregates a member organization's MPIDs to
determine the number of securities for purposes of the NBBO
requirement.
The Exchange determines the amount of the Fixed Payment that it
pays to a qualifying member organization, as follows. First, it
determines which of five Tiers a member organization meets by virtue of
the average daily number of qualifying securities for which it meets
the NBBO requirement during the month (rounded to the nearest whole
number) in Tapes A and B. Qualifying securities are limited to the top
1,500 securities in each of these Tapes, as determined by their total
value traded during the second month prior to the current month. A
member organization meets the NBBO requirement for a qualifying Tape A
security on a given day to the extent that it quotes at the NBBO for at
least 30% of the time during Market Hours on that day, and for a
qualifying Tape B security, a member organization must quote such
security at the NBBO for at least 50% of the time during Market Hours
on that day.
For each tier of the EMQ Program, the Exchange has three groupings
or ``Classes.'' The Exchange establishes the Classes by dividing the
qualifying 1,500 securities into three equal groups for each Tape, with
the top 500 ranked securities placed in Class 3, the middle 500 ranked
securities placed in Class 2, and the lowest ranked 500 securities
placed in Class 1.
The Exchange assigns Fixed Payment amounts to each of the three
Classes in each Tape and in each of five Tiers, with these amounts
generally increasing from Class 1 to Class 3, and from Tiers 1-5.
In sum, a member organization that meets the NBBO requirement for a
requisite number of qualifying securities during a month to qualify for
a particular Tier is entitled to receive the Fixed Payment that
corresponds to the combination of: (i) That Tier; and (ii) the Class in
which the Exchange has placed the qualifying securities for that month.
A member organization that qualifies for a Fixed Payment for
securities in each of Tapes A and B and in multiple Classes within each
Tape receive Fixed Payments covering qualifying securities in both
Tapes, and within each Tape, for the each of the applicable Classes,
but within each Tape and Class, a member organization may only qualify
for one Tier during a month. The Exchange makes the Fixed Payment in
addition to other rebates or fees provided under Equity 7, Sections 3
(a)-(c).
The existing schedules of Tiers, Classes, and Fixed Payments are as
follows:
Tape A Securities
----------------------------------------------------------------------------------------------------------------
Average daily number of
securities quoted at the NBBO Fixed payment for Fixed payment for Fixed payment for
Tiers for at least 30% of the time securities in Tape A securities in Tape securities in Tape
during Market Hours during in Class 1 A in Class 2 A in Class 3
the month
----------------------------------------------------------------------------------------------------------------
1................ 0-24......................... $0 per qualified $0 per qualified $0 per qualified
security per month. security per month. security per
month.
2................ 25-49........................ $0 per qualified $0 per qualified $200 per qualified
security per month. security per month. security over 24
per month.
[[Page 73036]]
3................ 50-149....................... $50 per qualified $200 per qualified $5,000 + ($450 per
security [sic] per security over 49 qualified security
month. per month. over 49) per
month.
4................ 150-249...................... $5,000 + ($100 per $20,000 + ($300 per $50,000 + ($600 per
qualified security qualified security qualified security
over 149) per month. over 149) per over 149) per
month. month.
5................ 250 or greater............... $15,000 + ($150 per $50,000 + ($350 per $50,000 + ($600 per
qualified security qualified security qualified security
over 249) per month. over 249) per over 149) per
month. month.
----------------------------------------------------------------------------------------------------------------
Tape B Securities
----------------------------------------------------------------------------------------------------------------
Average daily number of
securities quoted at the NBBO Fixed payment for Fixed payment for Fixed payment for
Tiers for at least 50% of the time securities in Tape B securities in Tape securities in Tape
during Market Hours during in Class 1 B in Class 2 B in Class 3
the month
----------------------------------------------------------------------------------------------------------------
1................ 0-24......................... $0 per qualified $0 per qualified $0 per qualified
security per month. security per month. security per
month.
2................ 25-49........................ $0 per qualified $0 per qualified $100 per qualified
security per month. security per month. security over 24
per month.
3................ 50-149....................... $0 per qualified $25 per qualified $2,500 + ($150 per
security per month. security over 49 qualified security
per month. over 49) per
month.
4................ 150-249...................... $50 per qualified $2,500 + ($50 per $17,500 + ($300 per
security over 149 qualified security qualified security
per month. over 149) per over 149) per
month. month.
5................ 250 or greater............... $5,000 + ($75 per $7,500 + ($150 per $17,500 + ($300 per
qualified security qualified security qualified security
over 249) per month. over 249) per over 149) per
month. month.
----------------------------------------------------------------------------------------------------------------
A member organization may, but is not required to be, a registered
market maker in any security to qualify for the EMQ Program; thus, the
EMQ 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 EMQ 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.
In establishing the EMQ Program, the Exchange hoped 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 EMQ Program reflected an effort by
the Exchange to use its financial incentives to encourage a wider
variety of member organizations other than market makers to make
positive commitments to promote market quality.
Unfortunately, the Exchange's hopes for the EMQ Program have not
been realized, notwithstanding refinements made to the EMQ Program
earlier this year in an attempt to enhance its effectiveness. Indeed,
while the EMQ Program has succeeded in incenting market participants to
increase their quoting at the NBBO in qualifying securities, the number
of EMQ Program participants has been small, as has been the
corresponding impact on the market quality. Because the EMQ Program has
not been effective in achieving its intended purposes, and because the
Exchange has limited resources to allocate to incentive programs like
this one, the Exchange proposes to eliminate the Enhanced Market
Quality Program. Going forward, it plans to develop new incentive
programs that it hopes will be more impactful.
Deletion of Obsolete Text
Finally, the Exchange proposes to eliminate text from this Rule
that has become obsolete as it applied solely to Consolidated Volume
calculations during the month of October 2020. The text that the
Exchange proposes to delete is as follows:
(For purposes of determining which of the execution charges and
credits listed below a member organization qualifies for during the
month of October 2020, the Exchange will calculate the member
organization's total Consolidated Volume on the Exchange for the
full month of October as well as for the month of October excluding
the week of October 26-30, 2020. The Exchange will then assess which
total Consolidated Volume calculations would qualify the member
organization for the most advantageous credits and charges for the
month of October and then it will apply those credits and charges to
the member organization.)
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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
[[Page 73037]]
unfair discrimination between customers, issuers, brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 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.'' \12\
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\12\ 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
\13\ (``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'. . . .'' \14\
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\13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\14\ 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 elimination of the QMM and
EMQ Programs is reasonable and is an equitable allocation of Exchange
credits because neither program has proven to be effective in meeting
its objectives, which include increasing the extent to which member
organizations quote securities on the Exchange at the NBBO and
improving overall market quality. Insofar as the Exchange has limited
resources to devote to its incentive programs, the Exchange believes
that it is reasonable and equitable for it to eliminate these two
Programs and to reallocate its resources for other, more productive
purposes. For similar reasons, the proposal is not unfairly
discriminatory. The Exchange does not believe that the benefits enjoyed
by the member organizations that participate in the QMM and EMQ Program
are sufficient to justify maintaining them, as the resources the
Exchange allocates to it could be put to broader and more productive
use.
The Exchange also believes that its proposal is reasonable,
equitable, and not unfairly discriminatory to restate its schedule of
transaction credits and charges. As discussed above, the Exchange
assesses a particular need to increase the extent to which its member
organizations add liquidity to the Exchange as a means of improving
market quality. The proposals serve that purpose by directly increasing
credits for adding displayed and non-displayed liquidity, and by
reallocating some resources that it currently devotes to providing
discounted fees to member organizations which remove liquidity from the
Exchange. Although the proposals will benefit net adders of liquidity
at the expense of net removers of liquidity, the Exchange believes that
this is equitable and not unfairly discriminatory because all market
participants stand to benefit to the extent that the proposals are
successful in increasing liquidity on the Exchange and improving market
quality. The Exchange also believes that it is reasonable, equitable,
and not unfairly discriminatory to simplify its schedule of credits and
charges insofar as the Exchange believes that a simpler credit/fee
structure may be more comprehensible and administrable and thus, more
appealing to, member organizations.
Finally, the Exchange believes that it is reasonable, equitable,
and not unfairly discriminatory to delete text from the Rule that has
become obsolete insofar as it applied only to calculations of
Consolidated Volume for the month of October 2020. Deletion of obsolete
rule text ensures that the Rulebook remains current and free from
extraneous and potentially confusing text.
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 credits and 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 proposals 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. Thus, the proposed restatement
of the Exchange's schedule of credits and charges will not unduly
burden competition, even as it will increase overall incentives to net
adders of liquidity to the Exchange and reduce overall incentives to
net removers of liquidity from the Exchange. The Exchange believes that
its need to refocus its limited resources on increasing liquidity on
the Exchange as a means of improving its overall market quality
justifies the costs of this proposal to member organizations that are
net liquidity removers.
Additionally, given that neither the QMM nor the EMQ Program has
been utilized as extensively as the Exchange expected, the proposed
elimination of those two Programs will not impact more than a handful
of its member organizations. To the extent that elimination of the EMQ
and QMM Programs do impact these member organizations, the Exchange
notes that it continues to provide other financial incentives for
member organizations to participate on the Exchange.
The Exchange does not believe that any competitive impact will
ensue from its proposal to eliminate obsolete rule text relating to the
calculation of Consolidated Volume in October 2020. Given that the text
no longer applies, its deletion will have no effect on member
organizations or the Exchange whatsoever.
In sum, the proposals are designed to render the Exchange more
efficient in the allocation of its limited resources and more effective
in improving the quality of the Exchange's market; 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 order
execution venues to maintain their competitive standing in the
financial markets.
[[Page 73038]]
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.\15\
---------------------------------------------------------------------------
\15\ 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-2021-74 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-2021-74. 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-2021-74 and should be submitted on
or before January 13, 2022.
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\16\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27808 Filed 12-22-21; 8:45 am]
BILLING CODE 8011-01-P
