Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Strategy Caps for Reversal and Conversion and Jelly Roll Strategies, 11108-11111 [2022-04079]
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Federal Register / Vol. 87, No. 39 / Monday, February 28, 2022 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not (i) significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and; (iii)
become operative for 30 days from the
date on which it was filed, or such
shorter time as the Commission may
designate, it has become effective
pursuant to Section 19(b)(3)(A) of the
Act 10 and Rule 19b–4(f)(6) 11
thereunder.
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 necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Electronic Comments
[FR Doc. 2022–04083 Filed 2–25–22; 8:45 am]
• 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–
NYSE–2022–09 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.
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All submissions should refer to File
Number SR–NYSE–2022–09. 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–NYSE–2022–09 and should
be submitted on or before March 21,
2022.
10 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
11 17
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Jill M. Peterson,
Assistant Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94293; File No. SR–Phlx–
2022–07]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Strategy Caps
for Reversal and Conversion and Jelly
Roll Strategies
February 22, 2022.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on February
9, 2022, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Phlx’s Pricing Schedule at Options 7,
Section 4, ‘‘Multiply Listed Options
Fees (Includes options overlying
equities, ETFs, ETNs and indexes which
are Multiply Listed) (Excludes SPY).’’
The Exchange originally filed the
proposed pricing changes on February
1, 2022 (SR–PHLX–2022–06). On
February 9, 2022, the Exchange
withdrew that filing and submitted this
filing.
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
Phlx proposes to amend its pricing
within Options 7, Section 4, ‘‘Multiply
Listed Options Fees (Includes options
overlying equities, ETFs, ETNs and
indexes which are Multiply Listed)
(Excludes SPY).’’ Specifically, Phlx
proposes to amend the daily strategy
12 17
2
1
3
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CFR 200.30–3(a)(12).
15 U.S.C. 78s(b)(1).
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15 U.S.C. 78a.
17 CFR 240.19b–4.
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cap for reversal and conversion 4 and
jelly roll 5 strategies.
Today, to qualify for a strategy cap,
the buy and sell side of a transaction
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Floor options transactions—
multiply listed options
must originate either from the Exchange
Trading Floor or as a Floor Qualified
Contingent Cross Order.6 Currently, the
Exchange offers the following strategy
caps:
Strategy
Qualification
Daily/monthly cap
Lead Market Maker, Market
Maker, Professional, Firm
and Broker-Dealer.
dividend ..................................
Lead Market Maker, Market
Maker, Professional, Firm
and Broker-Dealer.
reversal and conversion,
merger, short stock interest,
jelly roll, and box spread
strategies.
Per member organization .........
dividend, merger, short stock
interest, reversal and conversion, jelly roll and box
spread strategies (‘‘Monthly
Strategy Cap’’).
executed on the same trading day in the
same class of options when such members
are trading: (1) In their own proprietary accounts; or (2) on an agency basis. If transacted on an agency basis, the daily cap
will apply per beneficial account..
executed on the same trading day for all
classes of options in the aggregate when
such members are trading (1) in their own
proprietary accounts; or (2) on an agency
basis. If transacted on an agency basis,
the daily cap will apply per beneficial account..
combined executions in a month when trading in its own proprietary accounts.
$1,100 (daily).
$1,000 (daily) if more than
one class of options, $700
(daily) if only in a single
class of options.
$65,000 (monthly).
The Exchange offers strategy caps for
various types of strategies, including
dividend,7 merger,8 short stock
interest,9 reversal and conversion, jelly
roll, and box spread 10 strategies. Of
note, NDX, NDXP, and XND Options
Transactions are excluded from strategy
cap pricing.
Specifically, today, the Exchange
offers a reversal and conversion, merger,
short stock interest, jelly roll and box
spread strategy cap, which is applicable
to Lead Market Makers,11 Market
Makers,12 Professionals,13 Firms 14 and
Broker-Dealers,15 of $1,000 (daily) if
more than one class of options, and
$700 (daily) if only in a single class of
options.16 The aforementioned strategy
cap applies to reversal and conversion,
merger, short stock interest, jelly roll
and box spread strategies executed on
the same trading day for all classes of
options in the aggregate when such
members are trading (1) in their own
proprietary accounts; or (2) on an
agency basis.17
The Exchange is proposing to lower
the daily strategy cap for Lead Market
Makers, Market Makers, Professionals,
Firms and Broker-Dealers who execute
reversal and conversion and jelly roll
strategies on the same trading day. The
Exchange proposes to cap reversal and
conversion and jelly roll strategies for
all classes of options in the aggregate
when such members are trading (1) in
their own proprietary accounts; or (2) on
an agency basis at $200 daily. As is the
case today, if transacted on an agency
4 Reversal and conversion strategies are
transactions that employ calls and puts of the same
strike price and the underlying stock. Reversals are
established by combining a short stock position
with a short put and a long call position that shares
the same strike and expiration. Conversions employ
long positions in the underlying stock that
accompany long puts and short calls sharing the
same strike and expiration. See Options 7, Section
4.
5 A jelly roll strategy is defined as transactions
created by entering into two separate positions
simultaneously. One position involves buying a put
and selling a call with the same strike price and
expiration. The second position involves selling a
put and buying a call, with the same strike price,
but with a different expiration from the first
position. See Options 7, Section 4.
6 See Phlx’s Pricing Schedule at Options 7,
Section 4. A Floor Qualified Contingent Cross Order
is comprised of an originating order to buy or sell
at least 1,000 contracts that is identified as being
part of a qualified contingent trade coupled with a
contra-side order or orders totaling an equal number
of contracts. The term ‘‘qualified contingent trade’’
shall have the same meaning set forth in Options
3, Section 12(a)(3). See Options 8, Section 30(e).
7 A dividend strategy is defined as transactions
done to achieve a dividend arbitrage involving the
purchase, sale and exercise of in-the-money options
of the same class, executed the first business day
prior to the date on which the underlying stock goes
ex-dividend. See Options 7, Section 4.
8 A merger strategy is defined as transactions
done to achieve a merger arbitrage involving the
purchase, sale and exercise of options of the same
class and expiration date, executed the first
business day prior to the date on which
shareholders of record are required to elect their
respective form of consideration, i.e., cash or stock.
See Options 7, Section 4.
9 A short stock interest strategy is defined as
transactions done to achieve a short stock interest
arbitrage involving the purchase, sale and exercise
of in-the-money options of the same class. See
Options 7, Section 4.
10 A box spread strategy is a strategy that
synthesizes long and short stock positions to create
a profit. Specifically, a long call and short put at
one strike is combined with a short call and long
put at a different strike to create synthetic long and
synthetic short stock positions, respectively. See
Options 7, Section 4.
11 As provided in the Pricing Schedule within
Options 7, Section 1(c), ‘‘The term ‘‘Lead Market
Maker’’ applies to transactions for the account of a
Lead Market Maker (as defined in Options 2,
Section 12(a)). A Lead Market Maker is an Exchange
member who is registered as an options Lead
Market Maker pursuant to Options 2, Section 12(a).
An options Lead Market Maker includes a Remote
Lead Market Maker which is defined as an options
Lead Market Maker in one or more classes that does
not have a physical presence on an Exchange floor
and is approved by the Exchange pursuant to
Options 2, Section 11.’’
12 As provided in the Pricing Schedule within
Options 7, Section 1(c), ‘‘The term ‘‘Market Maker’’
is defined in Options 1, Section 1(b)(28) as a
member of the Exchange who is registered as an
options Market Maker pursuant to Options 2,
Section 12(a). A Market Maker includes SQTs and
RSQTs as well as on and Floor Market Makers.’’
13 As provided in the Pricing Schedule within
Options 7, Section 1(c), ‘‘The term ‘‘Professional’’
applies to transactions for the accounts of
Professionals, as defined in Options 1, Section
1(b)(45) means any person or entity that (i) is not
a broker or dealer in securities, and (ii) places more
than 390 orders in listed options per day on average
during a calendar month for its own beneficial
account(s).’’
14 As provided in the Pricing Schedule within
Options 7, Section 1(c), ‘‘The term ‘‘Firm’’ applies
to any transaction that is identified by a member or
member organization for clearing in the Firm range
at OCC.’’
15 As provided in the Pricing Schedule within
Options 7, Section 1(c), ‘‘The term ‘‘Broker-Dealer’’
applies to any transaction which is not subject to
any of the other transaction fees applicable within
a particular category.’’
16 For example, if a Lead Market Maker executed
reversal and conversion strategies only in AAPL
options, and otherwise met the qualifications for a
reversal and conversion cap, the proposed $700
daily cap would apply. If the Lead Market Maker
executed reversal and conversion strategies in
AAPL and SPY options, and otherwise met the
qualifications for a reversal and conversion cap, the
proposed $1,000 daily cap would apply.
17 If transacted on an agency basis, the daily cap
applies per beneficial account.
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Federal Register / Vol. 87, No. 39 / Monday, February 28, 2022 / Notices
basis, the daily strategy cap would
apply per beneficial account. The
Exchange would not amend the current
strategy caps for merger, short stock
interest, and box spread strategies. The
qualifications for the reversal and
conversion and jelly roll strategy cap
remains the same. Finally, the proposed
daily strategy cap continues to apply to
executions for all classes of options.
The Exchange believes that its
proposal will incentivize members to
transact a greater number of reversal and
conversion and jelly roll strategies
because the strategy cap would be
lowered from $1,000/$700 daily
(depending on the class of options) to
$200 daily.
2. Statutory Basis
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The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,18 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,19 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The Commission and the courts have
repeatedly expressed their preference
for competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. In Regulation NMS, while
adopting a series of steps to improve the
current market model, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 20
Likewise, in NetCoalition v. Securities
and Exchange Commission 21
(‘‘NetCoalition’’) the D.C. Circuit upheld
the Commission’s use of a market-based
approach in evaluating the fairness of
market data fees against a challenge
claiming that Congress mandated a costbased approach.22 As the court
emphasized, the Commission ‘‘intended
in Regulation NMS that ‘market forces,
rather than regulatory requirements’
play a role in determining the market
15 U.S.C. 78f(b).
15 U.S.C. 78f(b)(4) and (5).
20 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
21 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
22 See NetCoalition, at 534–535.
18
19
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data . . . to be made available to
investors and at what cost.’’ 23
Further, ‘‘[n]o one disputes that
competition for order flow is ‘fierce.’
. . . As the SEC explained, ‘[i]n the U.S.
national market system, buyers and
sellers of securities, and the brokerdealers that act as their order-routing
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’ . . ..’’ 24 Although the court and
the SEC were discussing the cash
equities markets, the Exchange believes
that these views apply with equal force
to the options markets.
The Exchange’s proposal to decrease
the reversal and conversion and jelly
roll strategy cap applicable to Lead
Market Makers, Market Makers,
Professionals, Firms and Broker-Dealers
from $1,000/$700 daily (depending on
the class of options) to $200 daily, with
the same qualifications as today, is
reasonable because it will incentivize
Lead Market Makers, Market Makers,
Professionals, Firms and Broker-Dealers
to execute a greater number of reversal
and conversion and jelly roll strategies
for the opportunity to qualify for the
lower daily strategy cap. Strategy fee
caps defray brokerage costs associated
with executing strategy transactions.
Today, NYSE Arca, Inc. (‘‘NYSE
Arca’’) and NYSE American LLC
(‘‘NYSE American’’) cap certain strategy
fees as low as $200.25 The Exchange
believes that lowering the reversal and
conversion and jelly roll strategy cap
from $1,000/$700 daily (depending on
the class of options) to $200 daily will
allow the Exchange to more effectively
compete with other options exchanges
who offer lower strategy caps for these
two particular strategies. The Exchange
notes that reversal and conversion and
jelly roll strategies are popular strategies
that may be transacted by any Phlx
member or member organization. To the
extent that the proposed change attracts
more reversal and conversion and jelly
roll strategy executions to the Exchange,
this increased (open outcry) order flow
would continue to make the Exchange a
more competitive venue for order
execution. To the extent the proposed
change continues to attract greater
volume and liquidity, the Exchange
believes the proposed change would
improve the Exchange’s overall
competitiveness and strengthen its
market quality for all market
participants. In the backdrop of the
competitive environment in which the
Exchange operates, the proposed rule
change is a reasonable attempt by the
Exchange to effectively compete for
strategy trades. Finally, the Exchange
cannot predict with certainty whether
any, or how many, Phlx members and
member organizations would avail
themselves of this proposed fee change.
The Exchange believes that Phlx
members and member organizations that
execute reversal and conversion and
jelly roll strategies on the Exchange can
achieve the proposed daily cap of $200
and that this proposal may encourage
Phlx members and member
organizations to execute reversal and
conversion and jelly roll strategies on
the Exchange.
The Exchange’s proposal to decrease
the reversal and conversion and jelly
roll strategy cap applicable to Lead
Market Makers, Market Makers,
Professionals, Firms and Broker-Dealers
from $1,000/$700 daily (depending on
the class of options) to $200 daily, with
the same qualifications as today, is
equitable and not unfairly
discriminatory because all Lead Market
Makers, Market Makers, Professionals,
Firms and Broker-Dealers may qualify
for the reversal and conversion and jelly
roll strategy cap provided those
strategies are executed on the same
trading day for all classes of options in
the aggregate when such members are
trading either in their own proprietary
accounts or on an agency basis. While
Customers 26 are not offered strategy
caps, Customers are not assessed
Options Transaction Charges within
Options 7, Section 4.
Id. at 537.
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)).
25 NYSE Arca and NYSE American applies a
strategy cap of $200 on transactions fees for
qualifying strategies traded on the same trading day
for those ATP Holders that trade at least 25,000
monthly billable contract sides in qualifying
Strategy Executions. The strategies include: (a)
Reversals and conversions, (b) box spreads, (c) short
stock interest spreads, (d) merger spreads, and (e)
jelly rolls.
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
23
24
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
26 As provided in the Pricing Schedule within
Options 7, Section 1(c), ‘‘The term ‘Customer’
applies to any transaction that is identified by a
member or member organization for clearing in the
Customer range at The Options Clearing
Corporation (‘OCC’) which is not for the account of
a broker or dealer or for the account of a
‘Professional’ (as that term is defined in Options 1,
Section 1(b)(45)).’’
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necessary or appropriate in furtherance
of the purposes of the Act.
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Inter-Market Competition
The proposal does not impose an
undue burden on inter-market
competition. The Exchange believes its
proposal remains competitive with
other options markets and will offer
market participants with another choice
of where to transact options. The
Exchange notes that it operates in a
highly competitive market in which
market participants can readily favor
competing venues if they deem fee
levels at a particular venue to be
excessive, or rebate opportunities
available at other venues to be more
favorable. In such an environment, the
Exchange must continually adjust its
fees to remain competitive with other
exchanges that have been exempted
from compliance with the statutory
standards applicable to exchanges.
Because competitors are free to modify
their own fees in response, and because
market participants may readily adjust
their order routing practices, the
Exchange believes that the degree to
which fee changes in this market may
impose any burden on competition is
extremely limited.
Moreover, the proposal is designed to
encourage Phlx members and member
organizations to execute reversal and
conversion and jelly roll strategies on
the Exchange as a primary execution
venue. To the extent that the proposed
change attracts more reversal and
conversion and jelly roll strategies to the
Exchange, this increased order flow
would continue to make the Exchange a
more competitive venue for order
execution.
Intra-Market Competition
The proposed amendments do not
impose an undue burden on intramarket competition.
The Exchange’s proposal to decrease
the reversal and conversion and jelly
roll strategy cap applicable to Lead
Market Makers, Market Makers,
Professionals, Firms and Broker-Dealers
from $1,000/$700 daily (depending on
the class of options) to $200 daily, with
the same qualifications as today, does
not impose an undue burden on
competition because all Lead Market
Makers, Market Makers, Professionals,
Firms and Broker-Dealers may qualify
for the reversal and conversion and jelly
roll strategy cap provided those
strategies are executed on the same
trading day for all classes of options in
the aggregate when such members are
trading either in their own proprietary
accounts or on an agency basis. While
Customers are not offered strategy caps,
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Customers are not assessed Options
Transaction Charges within Options 7,
Section 4.
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.27
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2022–07 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–2022–07. 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
27
PO 00000
15 U.S.C. 78s(b)(3)(A)(ii).
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11111
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–2022–07, and should
be submitted on or before March 21,
2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022–04079 Filed 2–25–22; 8:45 am]
BILLING CODE 8011–01–P
SOCIAL SECURITY ADMINISTRATION
[Docket No: SSA–2022–0009]
Agency Information Collection
Activities: New Emergency Request
The Social Security Administration
(SSA) publishes a list of information
collection packages requiring clearance
by the Office of Management and
Budget (OMB) in compliance with
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28
17 CFR 200.30–3(a)(12).
E:\FR\FM\28FEN1.SGM
28FEN1
]]>Agencies
[Federal Register Volume 87, Number 39 (Monday, February 28, 2022)]
[Notices]
[Pages 11108-11111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-04079]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94293; File No. SR-Phlx-2022-07]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Strategy
Caps for Reversal and Conversion and Jelly Roll Strategies
February 22, 2022.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on February 9, 2022, Nasdaq PHLX LLC (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III, below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Phlx's Pricing Schedule at Options
7, Section 4, ``Multiply Listed Options Fees (Includes options
overlying equities, ETFs, ETNs and indexes which are Multiply Listed)
(Excludes SPY).''
The Exchange originally filed the proposed pricing changes on
February 1, 2022 (SR-PHLX-2022-06). On February 9, 2022, the Exchange
withdrew that filing and submitted this filing.
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
Phlx proposes to amend its pricing within Options 7, Section 4,
``Multiply Listed Options Fees (Includes options overlying equities,
ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY).''
Specifically, Phlx proposes to amend the daily strategy
[[Page 11109]]
cap for reversal and conversion \4\ and jelly roll \5\ strategies.
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\4\ Reversal and conversion strategies are transactions that
employ calls and puts of the same strike price and the underlying
stock. Reversals are established by combining a short stock position
with a short put and a long call position that shares the same
strike and expiration. Conversions employ long positions in the
underlying stock that accompany long puts and short calls sharing
the same strike and expiration. See Options 7, Section 4.
\5\ A jelly roll strategy is defined as transactions created by
entering into two separate positions simultaneously. One position
involves buying a put and selling a call with the same strike price
and expiration. The second position involves selling a put and
buying a call, with the same strike price, but with a different
expiration from the first position. See Options 7, Section 4.
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Today, to qualify for a strategy cap, the buy and sell side of a
transaction must originate either from the Exchange Trading Floor or as
a Floor Qualified Contingent Cross Order.\6\ Currently, the Exchange
offers the following strategy caps:
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\6\ See Phlx's Pricing Schedule at Options 7, Section 4. A Floor
Qualified Contingent Cross Order is comprised of an originating
order to buy or sell at least 1,000 contracts that is identified as
being part of a qualified contingent trade coupled with a contra-
side order or orders totaling an equal number of contracts. The term
``qualified contingent trade'' shall have the same meaning set forth
in Options 3, Section 12(a)(3). See Options 8, Section 30(e).
----------------------------------------------------------------------------------------------------------------
Floor options transactions--multiply
listed options Strategy Qualification Daily/monthly cap
----------------------------------------------------------------------------------------------------------------
Lead Market Maker, Market Maker, dividend............... executed on the same $1,100 (daily).
Professional, Firm and Broker-Dealer. trading day in the
same class of options
when such members are
trading: (1) In their
own proprietary
accounts; or (2) on an
agency basis. If
transacted on an
agency basis, the
daily cap will apply
per beneficial
account..
Lead Market Maker, Market Maker, reversal and executed on the same $1,000 (daily) if more
Professional, Firm and Broker-Dealer. conversion, merger, trading day for all than one class of
short stock interest, classes of options in options, $700 (daily)
jelly roll, and box the aggregate when if only in a single
spread strategies. such members are class of options.
trading (1) in their
own proprietary
accounts; or (2) on an
agency basis. If
transacted on an
agency basis, the
daily cap will apply
per beneficial
account..
Per member organization.............. dividend, merger, short combined executions in $65,000 (monthly).
stock interest, a month when trading
reversal and in its own proprietary
conversion, jelly roll accounts.
and box spread
strategies (``Monthly
Strategy Cap'').
----------------------------------------------------------------------------------------------------------------
The Exchange offers strategy caps for various types of strategies,
including dividend,\7\ merger,\8\ short stock interest,\9\ reversal and
conversion, jelly roll, and box spread \10\ strategies. Of note, NDX,
NDXP, and XND Options Transactions are excluded from strategy cap
pricing.
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\7\ A dividend strategy is defined as transactions done to
achieve a dividend arbitrage involving the purchase, sale and
exercise of in-the-money options of the same class, executed the
first business day prior to the date on which the underlying stock
goes ex-dividend. See Options 7, Section 4.
\8\ A merger strategy is defined as transactions done to achieve
a merger arbitrage involving the purchase, sale and exercise of
options of the same class and expiration date, executed the first
business day prior to the date on which shareholders of record are
required to elect their respective form of consideration, i.e., cash
or stock. See Options 7, Section 4.
\9\ A short stock interest strategy is defined as transactions
done to achieve a short stock interest arbitrage involving the
purchase, sale and exercise of in-the-money options of the same
class. See Options 7, Section 4.
\10\ A box spread strategy is a strategy that synthesizes long
and short stock positions to create a profit. Specifically, a long
call and short put at one strike is combined with a short call and
long put at a different strike to create synthetic long and
synthetic short stock positions, respectively. See Options 7,
Section 4.
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Specifically, today, the Exchange offers a reversal and conversion,
merger, short stock interest, jelly roll and box spread strategy cap,
which is applicable to Lead Market Makers,\11\ Market Makers,\12\
Professionals,\13\ Firms \14\ and Broker-Dealers,\15\ of $1,000 (daily)
if more than one class of options, and $700 (daily) if only in a single
class of options.\16\ The aforementioned strategy cap applies to
reversal and conversion, merger, short stock interest, jelly roll and
box spread strategies executed on the same trading day for all classes
of options in the aggregate when such members are trading (1) in their
own proprietary accounts; or (2) on an agency basis.\17\
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\11\ As provided in the Pricing Schedule within Options 7,
Section 1(c), ``The term ``Lead Market Maker'' applies to
transactions for the account of a Lead Market Maker (as defined in
Options 2, Section 12(a)). A Lead Market Maker is an Exchange member
who is registered as an options Lead Market Maker pursuant to
Options 2, Section 12(a). An options Lead Market Maker includes a
Remote Lead Market Maker which is defined as an options Lead Market
Maker in one or more classes that does not have a physical presence
on an Exchange floor and is approved by the Exchange pursuant to
Options 2, Section 11.''
\12\ As provided in the Pricing Schedule within Options 7,
Section 1(c), ``The term ``Market Maker'' is defined in Options 1,
Section 1(b)(28) as a member of the Exchange who is registered as an
options Market Maker pursuant to Options 2, Section 12(a). A Market
Maker includes SQTs and RSQTs as well as on and Floor Market
Makers.''
\13\ As provided in the Pricing Schedule within Options 7,
Section 1(c), ``The term ``Professional'' applies to transactions
for the accounts of Professionals, as defined in Options 1, Section
1(b)(45) means any person or entity that (i) is not a broker or
dealer in securities, and (ii) places more than 390 orders in listed
options per day on average during a calendar month for its own
beneficial account(s).''
\14\ As provided in the Pricing Schedule within Options 7,
Section 1(c), ``The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at OCC.''
\15\ As provided in the Pricing Schedule within Options 7,
Section 1(c), ``The term ``Broker-Dealer'' applies to any
transaction which is not subject to any of the other transaction
fees applicable within a particular category.''
\16\ For example, if a Lead Market Maker executed reversal and
conversion strategies only in AAPL options, and otherwise met the
qualifications for a reversal and conversion cap, the proposed $700
daily cap would apply. If the Lead Market Maker executed reversal
and conversion strategies in AAPL and SPY options, and otherwise met
the qualifications for a reversal and conversion cap, the proposed
$1,000 daily cap would apply.
\17\ If transacted on an agency basis, the daily cap applies per
beneficial account.
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The Exchange is proposing to lower the daily strategy cap for Lead
Market Makers, Market Makers, Professionals, Firms and Broker-Dealers
who execute reversal and conversion and jelly roll strategies on the
same trading day. The Exchange proposes to cap reversal and conversion
and jelly roll strategies for all classes of options in the aggregate
when such members are trading (1) in their own proprietary accounts; or
(2) on an agency basis at $200 daily. As is the case today, if
transacted on an agency
[[Page 11110]]
basis, the daily strategy cap would apply per beneficial account. The
Exchange would not amend the current strategy caps for merger, short
stock interest, and box spread strategies. The qualifications for the
reversal and conversion and jelly roll strategy cap remains the same.
Finally, the proposed daily strategy cap continues to apply to
executions for all classes of options.
The Exchange believes that its proposal will incentivize members to
transact a greater number of reversal and conversion and jelly roll
strategies because the strategy cap would be lowered from $1,000/$700
daily (depending on the class of options) to $200 daily.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\18\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\19\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and issuers and other persons using any
facility, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\18\ 15 U.S.C. 78f(b).
\19\ 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.'' \20\
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\20\ 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
\21\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of
a market-based approach in evaluating the fairness of market data fees
against a challenge claiming that Congress mandated a cost-based
approach.\22\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \23\
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\21\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\22\ See NetCoalition, at 534-535.
\23\ Id. at 537.
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Further, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers' . . ..'' \24\ Although the court and
the SEC were discussing the cash equities markets, the Exchange
believes that these views apply with equal force to the options
markets.
---------------------------------------------------------------------------
\24\ 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's proposal to decrease the reversal and conversion and
jelly roll strategy cap applicable to Lead Market Makers, Market
Makers, Professionals, Firms and Broker-Dealers from $1,000/$700 daily
(depending on the class of options) to $200 daily, with the same
qualifications as today, is reasonable because it will incentivize Lead
Market Makers, Market Makers, Professionals, Firms and Broker-Dealers
to execute a greater number of reversal and conversion and jelly roll
strategies for the opportunity to qualify for the lower daily strategy
cap. Strategy fee caps defray brokerage costs associated with executing
strategy transactions.
Today, NYSE Arca, Inc. (``NYSE Arca'') and NYSE American LLC
(``NYSE American'') cap certain strategy fees as low as $200.\25\ The
Exchange believes that lowering the reversal and conversion and jelly
roll strategy cap from $1,000/$700 daily (depending on the class of
options) to $200 daily will allow the Exchange to more effectively
compete with other options exchanges who offer lower strategy caps for
these two particular strategies. The Exchange notes that reversal and
conversion and jelly roll strategies are popular strategies that may be
transacted by any Phlx member or member organization. To the extent
that the proposed change attracts more reversal and conversion and
jelly roll strategy executions to the Exchange, this increased (open
outcry) order flow would continue to make the Exchange a more
competitive venue for order execution. To the extent the proposed
change continues to attract greater volume and liquidity, the Exchange
believes the proposed change would improve the Exchange's overall
competitiveness and strengthen its market quality for all market
participants. In the backdrop of the competitive environment in which
the Exchange operates, the proposed rule change is a reasonable attempt
by the Exchange to effectively compete for strategy trades. Finally,
the Exchange cannot predict with certainty whether any, or how many,
Phlx members and member organizations would avail themselves of this
proposed fee change. The Exchange believes that Phlx members and member
organizations that execute reversal and conversion and jelly roll
strategies on the Exchange can achieve the proposed daily cap of $200
and that this proposal may encourage Phlx members and member
organizations to execute reversal and conversion and jelly roll
strategies on the Exchange.
---------------------------------------------------------------------------
\25\ NYSE Arca and NYSE American applies a strategy cap of $200
on transactions fees for qualifying strategies traded on the same
trading day for those ATP Holders that trade at least 25,000 monthly
billable contract sides in qualifying Strategy Executions. The
strategies include: (a) Reversals and conversions, (b) box spreads,
(c) short stock interest spreads, (d) merger spreads, and (e) jelly
rolls.
---------------------------------------------------------------------------
The Exchange's proposal to decrease the reversal and conversion and
jelly roll strategy cap applicable to Lead Market Makers, Market
Makers, Professionals, Firms and Broker-Dealers from $1,000/$700 daily
(depending on the class of options) to $200 daily, with the same
qualifications as today, is equitable and not unfairly discriminatory
because all Lead Market Makers, Market Makers, Professionals, Firms and
Broker-Dealers may qualify for the reversal and conversion and jelly
roll strategy cap provided those strategies are executed on the same
trading day for all classes of options in the aggregate when such
members are trading either in their own proprietary accounts or on an
agency basis. While Customers \26\ are not offered strategy caps,
Customers are not assessed Options Transaction Charges within Options
7, Section 4.
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\26\ As provided in the Pricing Schedule within Options 7,
Section 1(c), ``The term `Customer' applies to any transaction that
is identified by a member or member organization for clearing in the
Customer range at The Options Clearing Corporation (`OCC') which is
not for the account of a broker or dealer or for the account of a
`Professional' (as that term is defined in Options 1, Section
1(b)(45)).''
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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
[[Page 11111]]
necessary or appropriate in furtherance of the purposes of the Act.
Inter-Market Competition
The proposal does not impose an undue burden on inter-market
competition. The Exchange believes its proposal remains competitive
with other options markets and will offer market participants with
another choice of where to transact options. The Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges that have been exempted from compliance with the statutory
standards applicable to exchanges. Because competitors are free to
modify their own fees in response, and because market participants may
readily adjust their order routing practices, the Exchange believes
that the degree to which fee changes in this market may impose any
burden on competition is extremely limited.
Moreover, the proposal is designed to encourage Phlx members and
member organizations to execute reversal and conversion and jelly roll
strategies on the Exchange as a primary execution venue. To the extent
that the proposed change attracts more reversal and conversion and
jelly roll strategies to the Exchange, this increased order flow would
continue to make the Exchange a more competitive venue for order
execution.
Intra-Market Competition
The proposed amendments do not impose an undue burden on intra-
market competition.
The Exchange's proposal to decrease the reversal and conversion and
jelly roll strategy cap applicable to Lead Market Makers, Market
Makers, Professionals, Firms and Broker-Dealers from $1,000/$700 daily
(depending on the class of options) to $200 daily, with the same
qualifications as today, does not impose an undue burden on competition
because all Lead Market Makers, Market Makers, Professionals, Firms and
Broker-Dealers may qualify for the reversal and conversion and jelly
roll strategy cap provided those strategies are executed on the same
trading day for all classes of options in the aggregate when such
members are trading either in their own proprietary accounts or on an
agency basis. While Customers are not offered strategy caps, Customers
are not assessed Options Transaction Charges within Options 7, Section
4.
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.\27\
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\27\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-Phlx-2022-07 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-2022-07. 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-2022-07, and should be submitted on
or before March 21, 2022.
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\28\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-04079 Filed 2-25-22; 8:45 am]
BILLING CODE 8011-01-P
