Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Phlx Options 7, Section 4, Multiply Listed Options Fees, 13477-13486 [2023-04357]
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Federal Register / Vol. 88, No. 42 / Friday, March 3, 2023 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–180, OMB Control No.
3235–0247]
Submission for OMB Review;
Comment Request; Extension: Form
N–8B–4
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services, 100
F Street NE, Washington, DC 20549–2736
ddrumheller on DSK120RN23PROD with NOTICES1
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to the Paperwork Reduction Act of 1995
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section 8(b) of the Investment Company
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file post-effective amendments to Form
N–8B–4.1 Commission staff estimates
that no respondents will file Form N–
8B–4 each year. There is currently only
one existing face-amount certificate
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certificate companies have filed a Form
N–8B–4 in many years. No new face1 Pursuant to section 30(b)(1) of the Act (15 U.S.C.
80a-29), each respondent keeps its registration
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thereunder. Post-effective amendments are filed
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Dated: February 28, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–04446 Filed 3–2–23; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96990; File No. SR–Phlx–
2023–06]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Phlx Options
7, Section 4, Multiply Listed Options
Fees
February 27, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
Frm 00056
Fmt 4703
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
22, 2023, 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).’’ 3
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
BILLING CODE 8011–01–P
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13477
Sfmt 4703
Phlx proposes to amend its 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).’’ Specifically, Phlx
proposes to: (1) to remove its current
Qualified Contingent Cross (‘‘QCC’’)
Rebate Schedule and propose a new
QCC Rebate and QCC Growth Tier
Rebate; (2) amend the Monthly Firm Fee
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 On February 10, 2023, the Exchange withdrew
SR–Phlx–2023–03 and replaced it with SR–Phlx–
2023–05. On February 22, 2023, SR–Phlx–2023–05
was withdrawn and replaced with the instant filing.
2 17
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Cap; and (3) propose a new Floor
Transaction (Open Outcry) Floor Broker
Incentive Program. Each change is
described below.
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QCC Rebates
Today, the Exchange assesses a $.20
per contract QCC Transaction Fee for a
Lead Market Maker,4 Market Maker,5
Firm 6 and Broker-Dealer.7 Customers 8
and Professionals 9 are not assessed a
QCC Transaction Fee. QCC Transaction
Fees apply to electronic QCC Orders 10
and Floor QCC Orders.11 Rebates are
paid on all qualifying executed
electronic QCC Orders and Floor QCC
Orders based on the below QCC Rebate
Schedule: 12
4 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. See Options 7, Section 1(c). The term
‘‘Floor Lead Market Maker’’ is a member who is
registered as an options Lead Market Maker
pursuant to Options 2, Section 12(a) and has a
physical presence on the Exchange’s trading floor.
See Options 8, Section 2(a)(3).
5 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 Floor
Market Makers. See Options 7, Section 1(c). The
term ‘‘Floor Market Maker’’ is a Market Maker who
is neither an SQT or an RSQT. A Floor Market
Maker may provide a quote in open outcry. See
Options 8, Section 2(a)(4).
6 The term ‘‘Firm’’ applies to any transaction that
is identified by a member or member organization
for clearing in the Firm range at The Options
Clearing Corporation. See Options 7, Section 1(c).
7 The term ‘‘Broker-Dealer’’ applies to any
transaction which is not subject to any of the other
transaction fees applicable within a particular
category. See Options 7, Section 1(c).
8 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)). See Options
7, Section 1(c).
9 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). See Options 7,
Section 1(c).
10 Electronic QCC Orders are described in
Options 3, Section 12.
11 Floor QCC Orders are described in Options 8,
Section 30(e).
12 Volume resulting from all executed electronic
QCC Orders and Floor QCC Orders, including
Customer-to-Customer, Customer-to-Professional,
and Professional-to-Professional transactions and
excluding dividend, merger, short stock interest or
reversal or conversion strategy executions, is
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Options 8, Section 30(e), except where
the transaction is either: (i) Customer-toRebate
Customer; (ii) Customer-to-Professional;
Tier
Threshold
per
and (iii) Professional-to-Professional.
contract
Today, the Exchange excludes dividend,
Tier 1
0 to 999,999 contracts
$0.09 merger, short stock interest or reversal
or conversion strategy executions, as
in a month.
Tier 2
1,000,000 contracts or
0.20 defined in Options 7, Section 4, as
more in a month.
qualifying transactions. At this time, the
Exchange proposes to exclude all
The Exchange does not pay a QCC
strategy executions within Options 7,
Rebate where the transaction is either:
Section 4, (dividend, merger, short stock
(i) Customer-to-Customer; (ii) Customer- interest, reversal and conversion, jelly
to-Professional; (iii) Professional-toroll, and box spread strategy executions)
Professional; or (iv) a dividend, merger,
as qualifying transactions.
short stock interest or reversal or
Further, as is the case today, volume
conversion strategy execution (as
resulting from all executed electronic
defined in Options 7, Section 4).
The Exchange proposes to remove the QCC Orders and Floor QCC Orders,
including Customer-to-Customer,
existing QCC Rebate Schedule and
Customer-to-Professional, and
replace those rebates with new QCC
Professional-to-Professional transactions
Rebates in new Section A as well as a
QCC Growth Tier Rebate in new Section and excluding dividend, merger, short
stock interest or reversal or conversion
B. The Exchange proposes to insert a
new title ‘‘QCC Transaction Fee’’ before strategy executions, is aggregated in
determining the applicable volume tier.
the paragraph which describes QCC
With this proposed change, the
fees.
Exchange would aggregate the
The Exchange proposes to add a new
applicable member or member
title ‘‘A. QCC Rebate’’ to describe its
organization qualifying QCC contract
proposed QCC Rebates. The Exchange
volume in a given month which
proposes to pay a QCC Rebate of $0.12
includes volume resulting from all
per contract on electronic QCC Orders,
as defined in Options 3, Section 12, and executed electronic QCC Orders and
Floor QCC Orders, as defined in Options Floor QCC Orders, including Customerto-Customer, Customer-to-Professional,
8, Section 30(e), when a QCC Order is
comprised of a Customer or Professional and Professional-to-Professional
transactions, as is the case today, and
order on one side and a Lead Market
Maker, Market Maker, Broker-Dealer, or would exclude all strategy executions
within Options 7, Section 4, (dividend,
Firm order on the other side. The
merger, short stock interest, reversal and
Exchange proposes to increase this
rebate to $0.17 per contract in the event conversion, jelly roll, and box spread
strategy executions) as qualifying
that a member or member organization
transactions.
executes greater than 1,000,000
qualifying QCC contracts in a given
The Exchange notes that Customers
month. The Exchange also proposes to
and Professionals are not assessed a
pay a new QCC Rebate of $0.14 per
QCC Transaction Fee while all other
contract on electronic QCC Orders, as
market participants pay a QCC
defined in Options 3, Section 12, and
Transaction Fee of $0.20 per contract.
Floor QCC Orders, as defined in Options The Exchange proposes to pay greater
8, Section 30(e), when a QCC Order is
rebates where the two contra-parties to
comprised of a Lead Market Maker,
a QCC Order are not Customers and
Market Maker, Broker-Dealer, or Firm
Professionals as greater QCC transaction
order on one side and a Lead Market
fees are being assessed to Lead Market
Maker, Market Maker, Broker-Dealer, or Maker, Market Maker, Broker-Dealer or
Firm order on the other side. The
Firm orders. These QCC Rebates are
Exchange proposes to increase this
intended to encourage Phlx members
rebate to $0.19 per contract in the event and member organizations to transact a
that a member or member organization
greater number of QCC Orders on Phlx.
executes greater than 1,000,000
Additionally, the Exchange proposes
qualifying QCC contracts in a given
to establish a new QCC Growth Tier
month.
Rebate and title that new section as ‘‘B.
As is the case today, the two new
proposed QCC rebates would be paid on QCC Growth Tier Rebate’’. This QCC
Growth Tier Rebate is intended to
all qualifying executed electronic QCC
Orders, as defined in Options 3, Section encourage Phlx members and member
12, and Floor QCC Orders, as defined in organizations to transact a greater
number of QCC Orders on Phlx. In order
to qualify for the QCC Growth Tier
aggregated in determining the applicable volume
Rebate, a member’s or member
tier.
PO 00000
QCC REBATE SCHEDULE
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organization’s total floor transaction,13
and electronic QCC Orders and Floor
QCC Orders volume (‘‘QCC transaction
volume’’) must exceed 12,500,000
contracts in a given month. In addition
to the aforementioned criteria, the
member’s or member organization’s
respective Phlx House Account 14 must
execute QCC transaction volume of
250,000 or more contracts in excess of
the member’s or member organization’s
QCC transaction volume in January
2023. For members or member
organizations with no QCC transaction
volume in January 2023, the QCC
transaction volume, in their respective
Phlx House Account, must be 250,000
or more contracts in a given month.
The Exchange also proposes to offer
an alternative qualification to achieve
the QCC Growth Tier Rebate. A
member’s or member organization’s
Open Outcry Floor Transaction volume
in a given month must exceed 500,000
contracts. In addition to the
aforementioned criteria, a member’s or
member organization’s respective Phlx
House Account must execute QCC
transaction volume of 2,500,000 or more
contracts in excess of the member’s or
member organization’s QCC transaction
volume in January 2023. For members
or member organizations with no QCC
transaction volume in January 2023, the
QCC transaction volume, in their
respective Phlx House Account, must be
2,500,000 or more contracts in a given
month.
As proposed for the QCC Growth Tier
Rebate, the term ‘‘Open Outcry Floor
Transaction’’ includes all transactions
executed in open outcry on Phlx’s
trading floor except: (1) dividend,
merger, short stock interest, reversal and
conversion, jelly roll, and box spread
strategy executions as defined in this
Options 7, Section 4; (2) Cabinet
Transactions as defined in Options 8,
Section 33; and (3) Customer-toCustomer transactions.
The Exchange proposes to pay the
QCC Growth Tier Rebates per Phlx
House Account. The Exchange will pay
13 The term ‘‘floor transaction’’ is a transaction
that is effected in open outcry on the Exchange’s
trading floor. See Phlx Options 7, Section 1(c). Of
note, the term ‘‘floor transaction’’ is more broadly
defined than the term ‘‘Open Outcry Floor
Transaction’’ which is discussed herein and is a
subset of the term ‘‘floor transaction’’.
14 Each Phlx member or member organization is
required to establish one Phlx House Account with
the Exchange’s Membership Department. Only one
Phlx House Account is required to transact business
on Phlx. The Exchange assesses a $50.00 a month
account fee for this account as provided for within
Options 7, Section 8A. A Phlx member or member
organization has the option of acquiring multiple
Phlx House Accounts depending on a member’s or
member organization’s business model and how
they elect to organize their business.
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a $0.20 per contract QCC Growth Tier
Rebate on a QCC Order comprised of a
Customer or Professional order on one
side and a Lead Market Maker, Market
Maker, Broker-Dealer, or Firm order on
the other side. Further, the Exchange
will pay a $0.26 per contract QCC
Growth Tier Rebate on a QCC Order
comprised of a Lead Market Maker,
Market Maker, Broker-Dealer, or Firm
order on one side and a Lead Market
Maker, Market Maker, Broker-Dealer, or
Firm order on the other side. Finally,
members and member organizations
will be entitled to one QCC Rebate in a
given month, either the QCC Rebate in
Section A or the QCC Growth Tier
Rebate in Section B in a given month,
but not both.
The Exchange believes that the
proposed QCC Rebates in proposed
Section A and the proposed QCC
Growth Tier Rebate in Section B will
encourage market participants to send
QCC orders to Phlx for execution in an
effort to earn higher QCC Rebates.
The Exchange proposes to add a new
title before the Monthly Market Maker
Cap rule text which states, ‘‘Monthly
Market Maker Cap’’.
Monthly Firm Fee Cap
The Exchange proposes to add a new
title prior to the paragraph which
describes Phlx’s Monthly Firm Fee Cap
which states, ‘‘Monthly Firm Fee Cap
and Facilitation’’.
Today, Firms are subject to a
maximum fee of $150,000 (‘‘Monthly
Firm Fee Cap’’). Firm Floor Option
Transaction Charges and QCC
Transaction Fees, in the aggregate, for
one billing month do not exceed the
Monthly Firm Fee Cap per member or
member organization provided such
members or member organizations are
trading in their own proprietary
account. Today, the Monthly Firm Fee
Cap and all dividend, merger, and short
stock interest strategy executions;
transactions in broad-based index
options symbols listed within Options
7, Section 5.A are excluded from the
Monthly Firm Fee Cap. Today, reversal
and conversion, jelly roll and box
spread strategy executions and QCC
Transaction Fees are included in the
Monthly Firm Fee Cap.15
At this time, the Exchange proposes
two changes to the Monthly Firm Fee
Cap. First, the Exchange proposes to
15 Members and member organizations must
notify the Exchange in writing of all accounts in
which the member or member organization is not
trading in its own proprietary account. The
Exchange will not make adjustments to billing
invoices where transactions are commingled in
accounts which are not subject to the Monthly Firm
Fee Cap.
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13479
increase the Monthly Firm Fee Cap from
$150,000 to $200,000. Second, instead
of not assessing Firms any fee once the
Monthly Firm Fee Cap is exceeded, the
Exchange proposes to instead assess a
nominal transaction fee of $0.02 per
capped contract once a Firm exceeds the
Monthly Firm Fee Cap unless no fee 16
is charged or the fee is waived.17 The
Exchange proposes to amend the text
within Options 7, Section 4 to state,
Firms are subject to a $200,000 ‘‘Monthly
Firm Fee Cap’’. Firm Floor Option
Transaction Charges and QCC Transaction
Fees, as defined in this section above, in the
aggregate, for one billing month that exceed
the Monthly Firm Fee Cap per member or
member organization, when such members or
member organizations are trading in their
own proprietary account, will be subject to
a reduced transaction fee of $0.02 per capped
contract unless there is no fee or the fee is
waived.
While the Exchange would be
increasing the cap as well as fees for
Firms with this proposal, the Exchange
believes that the Monthly Firm Fee Cap
still serves to lower fees for Firms that
transact certain qualifying volume on
Phlx, thus enabling these Firms the
ability to lower costs.
Additionally, the Exchange proposes
to amend the types of strategy
executions that will be included in the
Monthly Firm Fee Cap. Today,
dividend, merger, and short stock
interest strategies are excluded from the
Monthly Firm Fee Cap and reversal and
conversion, jelly roll and box spread
strategy executions are included in the
Monthly Firm Fee Cap. At this time, the
Exchange proposes to exclude all
strategy executions from the Monthly
Firm Fee Cap (dividend, merger, short
stock interest, reversal and conversion,
jelly roll, and box spread strategy
executions).
16 Today, Firms pay an electronic Options
Transaction Charge of $0.48 per contract in Penny
Symbols for simple orders and $0.40 per contract
in Penny Symbols for complex orders. Also, Firms
pay a Floor Options Transaction Charge of $0.25 per
contract in Penny Symbols. Today, Firms pay an
electronic Options Transaction Charge of $0.75 per
contract in Non-Penny Symbols and a Floor
Options Transactions Charge of $0.25 per contract
in Non-Penny Symbols. See Options 7, Section 4.
17 Today, the Firm Floor Options Transaction
Charges is waived for members executing
facilitation orders pursuant to Options 8, Section 30
when such members are trading in their own
proprietary account (including Cabinet Options
Transaction Charges). The Firm Floor Options
Transaction Charges will be waived for the buy side
of a transaction if the same member or its affiliates
under Common Ownership represents both sides of
a Firm transaction when such members are trading
in their own proprietary account. See Options 7,
Section 4.
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Floor Transaction (Open Outcry) Floor
Broker Incentive Program
The Exchange proposes to create a
new incentive program for Floor
Brokers 18 that is designed to attract
order flow to Phlx’s trading floor for
execution in open outcry. The Exchange
proposes to pay Floor Broker certain
rebates for transaction they execute on
Phlx’s trading floor in open outcry. The
Exchange proposes to title this new
section, ‘‘Floor Transaction (Open
Outcry) Floor Broker Incentive
Program’’.
The following floor transactions
would not be subject to the rebates
offered within the Floor Transaction
(Open Outcry) Floor Broker Incentive
Program: (1) Floor QCC Orders, as
defined in Options 8, Section 30(e); 19
(2) dividend, merger, short stock
interest, reversal and conversion, jelly
roll and box spread strategy executions
as defined in this Options 7, Section 4;
(3) Firm Floor Options Transactions
Charges for members executing
facilitation orders pursuant to Options
8, Section 30 when such members are
trading in their own proprietary account
(including Cabinet Options Transaction
Charges); and (4) Customer-to-Customer
transactions.
The Exchange would pay Floor
Transaction (Open Outcry) Floor Broker
Incentive Program rebates on qualifying
volume at each threshold level per the
below schedule.
Per
contract
rebate
Qualifying contracts
0–5,000,000 ..................................
5,000,001–10,000,000 ..................
Greater than 10,000,000 ..............
$0.03
0.06
0.09
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By way of example, a Floor Broker
that executes floor transactions in a
given month totaling 10,500,000
contracts will be paid $0.03 for the first
5,000,000 floor transaction contracts
($150,000), $0.06 for the next 5,000,000
floor transaction contracts ($300,000),
and $0.09 for the final 500,000 floor
transaction contracts ($45,000) for a
total rebate of $495,000 for that month.
Further, as an additional clarifying
example, if a Floor Broker executes a
floor transaction in the amount of
18 The term ‘‘Floor Broker’’ means an individual
who is registered with the Exchange for the
purpose, while on the Options Floor, of accepting
and handling options orders. See Phlx Options 7,
Section 1(c).
19 Today, Floor QCC Orders are not transacted in
open outcry. The Exchange proposes to include
Floor QCC Orders in the list of exclusions to remind
members and member organizations that Floor QCC
Orders will not be paid the Floor Transaction (Open
Outcry) Floor Broker Incentive Program rebate.
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1,000,000 contracts, represents both
sides of the floor transaction, and
executes the floor transaction as a
crossing transaction pursuant to Options
8, Section 30(a) for 700,000 of the
1,000,000 contracts, then trades the
remaining 300,000 contracts with the
trading crowd, the Floor Transaction
(Open Outcry) Floor Broker Incentive
Program rebate for this transaction will
be paid on the qualifying floor
transaction volume of 1,000,000
contracts.
Finally, the Exchange proposes to cap
rebates for the Floor Transaction (Open
Outcry) Floor Broker Incentive Program
at $1,000,000 per member or member
organization in a given month.
The Exchange believes that the Floor
Transaction (Open Outcry) Floor Broker
Incentive Program will attract greater
order flow to Phlx’s trading floor.
Technical Amendments
The Exchange proposes to add a title
before the rule text related to strategies
which states, ‘‘Floor Originated Strategy
Executions’’. The Exchange believes the
proposed new titles throughout Options
7, Section 4 will assist market
participants in locating certain pricing
within this rule. The Exchange also
proposes to adjust rule text within
Options 7, Section 4 in the Strategies
pricing to make clear that all dividend,
merger, short stock interest, reversal and
conversion, jelly roll and box spread
strategy executions, as defined in this
Options 7, Section 4, will be excluded
from the Monthly Firm Fee Cap as
proposed herein.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,20 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,21 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
20 15
21 15
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U.S.C. 78f(b)(4) and (5).
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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.’’ 22
Likewise, in NetCoalition v. Securities
and Exchange Commission 23
(‘‘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.24 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.’’ 25
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’ . . . .’’ 26 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.
QCC Rebates
Section A QCC Rebates
The Exchange’s proposal to remove
the existing QCC Rebate Schedule and
replace those rebates with new rebates
as well as a QCC Growth Tier Rebate is
reasonable because the Exchange
proposes to offer its members and
member organizations additional
qualifications to obtain potentially
greater QCC Rebates. The Exchange
believes the opportunity to earn larger
rebates will incentivize members and
member organizations to execute a
larger amount of floor transactions, QCC
transaction volume, and Open Outcry
Floor Transaction volume on Phlx’s
trading floor. The Exchange’s proposal
to remove the existing QCC Rebate
Schedule and replace those rebates with
22 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
23 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
24 See NetCoalition, at 534–535.
25 Id. at 537.
26 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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new rebates as well as a QCC Growth
Tier Rebate is equitable and not unfairly
discriminatory because all members and
member organizations may execute QCC
trades, electronically or on the
Exchange’s trading floor.
Today, the Exchange pays a $0.09
QCC rebate for executing up to 999,999
QCC contracts in a month and a $0.20
per contract QCC Rebate for executing
1,000,000 or more QCC contracts in a
month. With the two new proposed
QCC Rebates within Section A the
Exchange offers to pay a QCC Rebate of
$0.12 per contract on electronic QCC
Orders, as defined in Options 3, Section
12, and Floor QCC Orders, as defined in
Options 8, Section 30(e), when a QCC
Order is comprised of a Customer or
Professional order on one side and a
Lead Market Maker, Market Maker,
Broker-Dealer, or Firm order on the
other side. This proposed QCC Rebate is
greater than the lowest tier QCC Rebate
offered today ($0.09 (old) vs. $0.12
(new)). Additionally, the Exchange
proposes to pay an increased QCC
Rebate of $0.17 per contract in the event
that a member or member organization
executes greater than 1,000,000
qualifying QCC contracts in a given
month which is less than the current
QCC rebate for 1,000,000 or more
contracts today ($0.20 (old) vs. $0.17
(new)). Additionally, depending on the
contra-parties to the QCC Order, the
Exchange would pay a $0.14 per
contract QCC Rebate on electronic QCC
Orders, as defined in Options 3, Section
12, and Floor QCC Orders, as defined in
Options 8, Section 30(e), when a QCC
Order is comprised of a Lead Market
Maker, Market Maker, Broker-Dealer, or
Firm order on one side and a Lead
Market Maker, Market Maker, BrokerDealer, or Firm order on the other side.
This rebate is also greater than the
lowest tier QCC Rebate offered today
($0.09 (old) vs. $0.14 (new)).
Additionally, the Exchange proposes to
pay an increased QCC Rebate of $0.19
per contract in the event that a member
or member organization executes greater
than 1,000,000 qualifying QCC contracts
in a given month which is less than the
current QCC rebate for 1,000,000 or
more contracts today ($0.20 (old) vs.
$0.19 (new)). The Exchange believes
that while some QCC Rebates are higher
and some QCC Rebates are lower, the
range of QCC Rebates offered by Phlx
remains competitive and the Exchange
believes these QCC Rebates will
continue to attract QCC Orders to Phlx.
The Exchange believes its proposal to
offer these two new QCC Rebates is
equitable and not unfairly
discriminatory because any market
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participant may qualify for a QCC
Rebate provided they qualified for the
QCC Rebate. Further, the Exchange’s
proposal which pays greater rebates
where the two contra-parties to a QCC
Order are not Customers and
Professionals is equitable and not
unfairly discriminatory because, today,
the Exchange assesses greater fees to
Lead Market Maker, Market Maker,
Broker-Dealer and Firms for QCC
Orders. Customers and Professionals are
not assessed a QCC Transaction Fee,
while all other market participants pay
a QCC Transaction Fee of $0.20 per
contract.
The Exchange’s proposal to amend
the QCC Rebate qualifications such that
all strategy executions (dividend,
merger, short stock interest, reversal and
conversion, jelly roll, and box spread)
will be excluded and, as proposed, will
aggregate the applicable member or
member organization qualifying QCC
contract volume in a given month,
excluding all strategy executions, is
reasonable. Today, the Exchange offers
strategy caps 27 for these strategy
executions and, therefore, members and
member organizations have the ability
to pay no fees on strategy executions
once the cap is met. The Exchange’s
proposal to amend the QCC Rebate
qualification such that all strategy
executions (dividend, merger, short
stock interest, reversal and conversion,
jelly roll, and box spread) will be
excluded and, as proposed, will
aggregate the applicable member or
member organization qualifying QCC
contract volume in a given month,
excluding all strategy executions is
equitable and not unfairly
discriminatory because the Exchange
would uniformly apply the QCC Rebate
qualifications as well as calculate the
QCC Rebates.
13481
Section B QCC Growth Tier Rebate
The Exchange’s proposal to establish
a new QCC Growth Tier Rebate is
reasonable because this rebate should
provide additional incentives for
members and member organizations to
engage in substantial amounts of trading
activity which would serve to bring
additional open outcry liquidity to the
trading floor and additional QCC Order
Flow to Phlx. This incentive may also
encourage members and member
organizations to commence sending
such order flow to Phlx for the
opportunity to earn this rebate.
Additionally, the Exchange’s proposal
to establish a new QCC Growth Tier
Rebate is equitable and not unfairly
discriminatory because any member or
member organization may qualify for
this rebate.
The Exchange’s proposal offers
member and member organizations two
paths to qualify for a QCC Growth Tier
Rebate. In the first instance, a member’s
or member organization’s total floor
transaction, and electronic QCC Orders
and Floor QCC Orders volume (‘‘QCC
transaction volume’’) must exceed
12,500,000 contracts in a given month
and the member’s or member
organization’s respective Phlx House
Account must execute QCC transaction
volume of 250,000 or more contracts in
excess of the member’s or member
organization’s QCC transaction volume
in January 2023. For members or
member organizations with no QCC
transaction volume in January 2023, the
QCC transaction volume, in their
respective Phlx House Account, must be
250,000 or more contracts in a given
month. In the second instance, a
member’s or member organization’s
Open Outcry Floor Transaction volume
in a given month must exceed 500,000
contracts and a member’s or member
organization’s respective Phlx House
Account must execute QCC transaction
volume of 2,500,000 or more contracts
in excess of the member’s or member
organization’s QCC transaction volume
in January 2023. For members or
member organizations with no QCC
transaction volume in January 2023, the
QCC transaction volume, in their
respective Phlx House Account, must be
2,500,000 or more contracts in a given
month. The Exchange believes that
these qualifications are reasonable
because they offer members and
member organizations optional
qualifications to achieve a QCC Growth
Tier Rebate. Additionally, the Exchange
believes that these qualifications are
equitable and not unfairly
discriminatory as all members and
member organizations may qualify for
the QCC Growth Tier Rebate.28 All
members and member organizations
may enter order flow to obtain a QCC
Growth Tier Rebate.
The Exchange’s exclusion of strategy
executions, cabinet transactions and
27 Today, the Exchange offers certain strategy
caps for dividend, merger, short stock interest,
reversal and conversion, jelly roll, and box spread
strategy executions. To qualify for a strategy cap,
the buy and sell side of a transaction must originate
either from the Exchange’s trading floor or as a
Floor Qualified Contingent Cross Order. See
Options 7, Section 4.
28 The Exchange notes that while all Phlx member
organizations may transact an options business
electronically or on the Exchange’s trading floor,
each member located on Phlx’s trading floor must
have an individual permit. Alternatively, Phlx
members or member organizations may transact
business on the trading floor through a Floor
Broker.
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Customer-to-Customer transactions is
reasonable. Cabinet transactions and
Customer-to-Customer transactions are
excluded today from QCC Rebates. This
proposal would exclude all strategy
executions, which is a change from the
current QCC Rebate exclusions which
only excludes dividend, merger, short
stock interest, and reversal or
conversion strategies. Today, the
Exchange offers strategy caps 29 for these
types of open outcry transactions and,
therefore, members and member
organizations have the ability to pay no
fees on strategy executions once the cap
is met. The Exchange’s exclusion of
strategy executions, cabinet transactions
and Customer-to-Customer transactions
are equitable and not unfairly
discriminatory as the qualifications for
the QCC Growth Tier Rebate will be
uniformly applied.
The Exchange’s proposal to utilize
January 2023 as a baseline to add
250,000 or more contracts for the QCC
Growth Tier Rebate and permit
members or member organizations with
no QCC transaction volume in January
2023, to add 250,000 or more contracts
in a given month is reasonable as it will
create an incentive for members and
member organizations to bring liquidity
to Phlx’s trading floor relative to a
benchmark. The Exchange believes that
if the proposed incentive is effective,
then any ensuing increase in trading
activity on the Exchange will improve
the quality of the market overall, to the
benefit of all market participants.
Further, it is reasonable to consider any
new liquidity volume for members or
member organizations who have no
volume for the month of January 2023
for those members or member
organizations to qualify to receive the
proposed QCC Growth Tier Rebate
because this program is designed to
attract additional liquidity from new
members and member organizations. To
the extent this proposal attracts new
members and member organization
volume to the Exchange, all market
participants should benefit through
more trading opportunities. The
Exchange’s proposal to utilize January
2023 as a baseline to add 250,000 or
more contracts for the QCC Growth Tier
Rebate and permit members or member
organizations with no QCC transaction
volume in January 2023, to add 250,000
or more contracts in a given month is
29 Today, the Exchange offers certain strategy
caps for dividend, merger, short stock interest,
reversal and conversion, jelly roll, and box spread
strategy executions. To qualify for a strategy cap,
the buy and sell side of a transaction must originate
either from the Exchange’s trading floor or as a
Floor Qualified Contingent Cross Order. See
Options 7, Section 4.
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equitable and not unfairly
discriminatory for the reasons which
follow. The Exchange’s proposal is
designed to increase participation in
Phlx’s trading floor and reward those
members and member organizations for
the unique role they play in ensuring a
robust market. As discussed above, the
proposal is designed to encourage
members and member organizations to
substantially execute additional volume
on the trading floor. To the extent the
Exchange succeeds in increasing the
levels of liquidity and activity on the
Exchange, the Exchange will experience
improvements in market quality, which
stands to benefit all floor members. The
Exchange believes that it is equitable
and not unfairly discriminatory to
consider any new volume for members
and member organizations with no such
volume for the month of January 2023
for those members and member
organizations to qualify to receive the
proposed QCC Growth Tier Rebate
because the program is designed to
attract additional liquidity from new
members and member organizations to
the Exchange. In turn, this additional
liquidity should benefit all market
participants through increased liquidity
and order interaction.
The Exchange’s proposal to pay the
QCC Growth Tier Rebates per Phlx
House Account is reasonable, equitable
and not unfairly discriminatory. Today,
each Phlx member or member
organization is required to establish one
Phlx House Account with the
Exchange’s Membership Department.
Only one Phlx House Account is
required to transact business on Phlx.30
A Phlx member or member organization
has the option of acquiring multiple
Phlx House Accounts depending on a
member’s or member organization’s
business model and how they elect to
organize their business.
The Exchange’s proposal to pay a
$0.20 per contract QCC Growth Tier
Rebate on a QCC Order comprised of a
Customer or Professional order on one
side and a Lead Market Maker, Market
Maker, Broker-Dealer, or Firm order on
the other side and a $0.26 per contract
QCC Growth Tier Rebate on a QCC
Order is comprised of a Lead Market
Maker, Market Maker, Broker-Dealer, or
Firm order on one side and a Lead
Market Maker, Market Maker, BrokerDealer, or Firm order on the other side
is reasonable because these rebates are
both higher than the rebates offered
today for QCC Rebates. Today, the QCC
Rebate for Tier 1 is $0.09 per contract
30 The
Exchange assesses a $50.00 a month
account fee for this account as provided for within
Options 7, Section 8A.
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and the QCC Rebate for Tier 2 is $0.20
per contract. Further, the Exchange’s
proposal to pay greater rebates where
both sides are not a Customer or a
Professional is reasonable because,
today, Customers and Professionals are
not assessed a QCC Transaction Fee.
Lead Market Makers, Market Makers,
Broker-Dealers, and Firms pay a QCC
Transaction Fee of $0.20 per contract.
The Exchange’s proposal to pay a $0.20
per contract QCC Growth Tier Rebate on
a QCC Order comprised of a Customer
or Professional order on one side and a
Lead Market Maker, Market Maker,
Broker-Dealer, or Firm order on the
other side and a $0.26 per contract QCC
Growth Tier Rebate on a QCC Order is
comprised of a Lead Market Maker,
Market Maker, Broker-Dealer, or Firm
order on one side and a Lead Market
Maker, Market Maker, Broker-Dealer, or
Firm order on the other side is equitable
and not unfairly discriminatory because
the Exchange will uniformly apply the
qualifications and to pay the QCC
Growth Tier Rebate.
The Exchange’s proposal to pay
members and member organizations the
greater of the QCC Rebate in Section A
or the QCC Growth Tier Rebate in
Section B in a given month, but not both
QCC Rebates, is reasonable, equitable
and not unfairly discriminatory because
each of the Exchange’s QCC rebates
remain competitive with today’s QCC
Rebate and the Exchange would
uniformly only pay the greater of the
two QCC Rebates.
Monthly Firm Fee Cap
The Exchange’s proposal to amend
the Monthly Firm Fee Cap from
$150,000 to $200,000 and assess a
nominal fee of $0.02 per capped
contract once a Firm exceeds the
Monthly Firm Fee Cap, instead of not
assessing Firms any fee once the
Monthly Firm Fee Cap is exceeded is
reasonable. While the Exchange would
be increasing the cap as well as fees for
Firms with this proposal, the Exchange
believes that the Monthly Firm Fee Cap
still serves to lower fees for Firms that
transact certain qualifying volume on
Phlx, thus enabling these firms the
ability to lower costs. The Exchange
believes that the Monthly Firm Fee Cap
would continue to incentivize Firms to
direct order flow to the Exchange to
achieve the benefits of reducing their
fees. The Exchange’s proposal to not
assess the $0.02 per contract transaction
fee if no fee 31 is charged or the fee is
31 Today, Firms pay an electronic Options
Transaction Charge of $0.48 per contract in Penny
Symbols for simple orders and $0.40 per contract
in Penny Symbols for complex orders. Also, Firms
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waived 32 is reasonable because the
Exchange wants to ensure that members
and member organizations get the most
favorable incentive that they qualify for
under its Pricing Schedule. The
Exchange’s proposal to amend the
Monthly Firm Fee Cap from $150,000 to
$200,000 and assess a nominal fee of
$0.02 per capped contract once a Firm
exceeds the Monthly Firm Fee Cap,
instead of not assessing Firms any fee
once the Monthly Firm Fee Cap is
exceeded is equitable and not unfairly
discriminatory as other market
participants benefit from an opportunity
to pay reduced fees on Phlx as do Firms.
Today, Customers are not assessed an
Options Transaction Charge in multiplylisted Penny or non-Penny Symbols.33
Customer liquidity benefits all market
participants by providing more trading
opportunities. An increase in the
activity of these market participants in
turn facilitates tighter spreads, which
may cause an additional corresponding
increase in order flow from other market
participants. Today, Lead Market
Makers and Market Makers are subject
to a Monthly Market Maker Cap.34 With
pay a Floor Options Transaction Charge of $0.25 per
contract in Penny Symbols. Today, Firms pay an
electronic Options Transaction Charge of $0.75 per
contract in Non-Penny Symbols and a Floor
Options Transactions Charge of $0.25 per contract
in Non-Penny Symbols. See Options 7, Section 4.
32 Today, the Firm Floor Options Transaction
Charges is waived for members executing
facilitation orders pursuant to Options 8, Section 30
when such members are trading in their own
proprietary account (including Cabinet Options
Transaction Charges). The Firm Floor Options
Transaction Charges will be waived for the buy side
of a transaction if the same member or its affiliates
under Common Ownership represents both sides of
a Firm transaction when such members are trading
in their own proprietary account. See Options 7,
Section 4.
33 See Options 7, Section 4.
34 See Options 7, Section 4. Lead Market Makers
and Market Makers are subject to a ‘‘Monthly
Market Maker Cap’’ of $500,000 for: (i) electronic
Option Transaction Charges, excluding surcharges
and excluding options overlying broad-based index
options symbols listed within Options 7, Section
5.A; and (ii) QCC Transaction Fees (as defined in
Exchange Options 3, Section 12 and Floor QCC
Orders, as defined in Options 8, Section 30(e)). The
trading activity of separate Lead Market Maker and
Market Maker member organizations is aggregated
in calculating the Monthly Market Maker Cap if
there is Common Ownership between the member
organizations. All dividend, merger, short stock
interest, reversal and conversion, jelly roll and box
spread strategy executions (as defined in this
Options 7, Section 4) is excluded from the Monthly
Market Maker Cap. Lead Market Makers or Market
Makers that (i) are on the contra-side of an
electronically-delivered and executed Customer
order, excluding responses to a PIXL auction; and
(ii) have reached the Monthly Market Maker Cap
will be assessed fees as follows: $0.05 per contract
Fee for Adding Liquidity in Penny Symbols; $0.18
per contract Fee for Removing Liquidity in Penny
Symbols; $0.18 per contract in Non-Penny Symbols;
and $0.18 per contract in a non-Complex electronic
auction, including the Quote Exhaust auction and,
for purposes of this fee, the opening process. A
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respect to Broker-Dealers, today, the
Exchange waives the Floor Options
Transaction Charge for Broker-Dealers
executing facilitation orders pursuant to
Options 8, Section 30 when such
members would otherwise incur this
charge for trading in their own
proprietary account contra to a
Customer (‘‘BD-Customer Facilitation’’),
if the member’s BD-Customer
Facilitation average daily volume
(including both FLEX and non-FLEX
transactions) exceeds 10,000 contracts
per day in a given month.35 Finally,
today, Professional Floor Options
Transaction Charges are less favorable
than Customers but more favorable than
Firms.36 Additionally, the Exchange
believes that the proposal is equitable
and not unfairly discriminatory because
members and member organizations that
are JBOs 37 could be subject to the
Monthly Firm Fee Cap,38 as are other
members, as long as the JBO trades for
their own proprietary account.
Additionally, the proposed change
would encourage JBOs that are not
members or member organizations to
seek to become members or member
organizations to further reduce their
transaction fees. Finally, other market
participants may interact with the order
flow submitted by Firms to Phlx to
reach the cap. The Exchange’s proposal
to not assess the $0.02 per contract
transaction fee if no fee is charged or the
fee is waived is equitable and not
unfairly discriminatory as the Exchange
would uniformly not assess the
transaction fee in this case.
The Exchange’s proposal to amend
the types of strategy executions that will
be included in the Monthly Firm Fee
Cap to exclude all strategy executions
from the Monthly Firm Fee Cap is
reasonable because the Exchange offers
strategy caps 39 for these types of open
Complex electronic auction includes, but is not
limited to, the Complex Order Live Auction
(‘‘COLA’’). Transactions which execute against an
order for which the Exchange broadcast an order
exposure alert in an electronic auction will be
subject to this fee.
35 See Options 7, Section 4.
36 See Options 7, Section 4.
37 The term ‘‘Joint Back Office’’ or ‘‘JBO’’ applies
to any transaction that is identified by a member or
member organization for clearing in the Firm range
at OCC and is identified with an origin code as a
JBO. A JBO is priced the same as a Broker-Dealer.
A JBO participant is a member, member
organization or non-member organization that
maintains a JBO arrangement with a clearing
broker-dealer (‘‘JBO Broker’’) subject to the
requirements of Regulation T Section 220.7 of the
Federal Reserve System as further discussed at
Options 6D, Section 1. See Options 7, Section 1(c).
38 Firms are subject to a Monthly Firm Fee Cap.
See Options 7, Section 4.
39 Today, the Exchange offers certain strategy
caps for dividend, merger, short stock interest,
reversal and conversion, jelly roll, and box spread
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13483
outcry transactions and, therefore,
members and member organizations
have the ability to pay no fees on
strategy executions once the cap is met.
The Exchange’s proposal to amend the
types of strategy executions that will be
included in the Monthly Firm Fee Cap
to exclude all strategy executions from
the Monthly Firm Fee Cap is equitable
and not unfairly discriminatory because
the Exchange would uniformly calculate
qualifying transactions to arrive at the
Monthly Firm Fee Cap.
Floor Transaction (Open Outcry) Floor
Broker Incentive Program
The Exchange’s proposal to create a
new incentive program for Floor Brokers
that is designed to attract order flow to
Phlx’s trading floor for execution in
open outcry is reasonable, equitable and
not unfairly discriminatory because the
Exchange’s program seeks to attract
greater order flow to the Exchange’s
trading floor. The Exchange notes that
other Phlx floor members may interact
with orders exposed in open outcry on
the Exchange’s trading floor. Other floor
members 40 may interact with the order
flow that Floor Brokers attract to Phlx’s
trading floor.
The Exchange’s proposal to exclude
Floor QCC Orders, dividend, merger,
short stock interest, reversal and
conversion, jelly roll and box spread
strategy executions as defined in this
Options 7, Section 4; Firm Floor
Options Transaction Charges for
members executing facilitation orders
pursuant to Options 8, Section 30 when
such members are trading in their own
proprietary account (including Cabinet
Options Transaction Charges); and
Customer-to-Customer transactions from
the Floor Transaction (Open Outcry)
Floor Broker Incentive Program is
reasonable. Within this proposal, the
Exchange offers to pay significant QCC
Rebates for Floor QCC Orders. As noted
herein, with respect to strategy
transactions, the Exchange offers
strategy caps 41 for these types of open
outcry transactions and, therefore,
members and member organizations
have the ability to pay no fees on
strategy executions. To qualify for a strategy cap,
the buy and sell side of a transaction must originate
either from the Exchange’s trading floor or as a
Floor Qualified Contingent Cross Order. See
Options 7, Section 4.
40 Floor members include all members who have
acquired a permit to trade on Phlx’s trading floor.
41 Today, the Exchange offers certain strategy
caps for dividend, merger, short stock interest,
reversal and conversion, jelly roll, and box spread
strategy executions. To qualify for a strategy cap,
the buy and sell side of a transaction must originate
either from the Exchange’s trading floor or as a
Floor Qualified Contingent Cross Order. See
Options 7, Section 4.
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strategy executions once the cap is met.
The Exchange is excluding Firm Floor
Options Transaction Charges for
members executing facilitation orders
pursuant to Options 8, Section 30 when
such members are trading in their own
proprietary account (including Cabinet
Options Transaction Charges) because,
today, Firm Floor Options Transaction
Charges are waived pursuant to Options
7, Section 4. Finally, the Exchange is
excluding Customer-to-Customer
transaction as Customers are not subject
to Options Transaction Charges within
Options 7, Section 4. The Exchange’s
proposal to exclude Floor QCC Orders,
dividend, merger, short stock interest,
reversal and conversion, jelly roll and
box spread strategy executions as
defined in this Options 7, Section 4;
Firm Floor Options Transaction Charges
for members executing facilitation
orders pursuant to Options 8, Section 30
when such members are trading in their
own proprietary account (including
Cabinet Options Transaction Charges);
and Customer-to-Customer transactions
from the Floor Transaction (Open
Outcry) Floor Broker Incentive Program
is equitable and not unfairly
discriminatory because the Exchange
would uniformly apply the qualification
criteria to calculate rebates.
The Exchange’s proposal to pay Floor
Brokers rebates on qualifying open
outcry volume at each of three threshold
levels, with rebates ranging from $0.03
to $0.09 per contract, is reasonable
because the Exchange believes that
these rebates will serve to incentivize
Floor Brokers to execute a greater
number of orders in the Exchange’s
trading crowd. The Exchange’s proposal
to pay Floor Brokers rebates on
qualifying open outcry volume at each
of three threshold levels, with rebates
ranging from $0.03 to $0.09 per contract,
is equitable and not unfairly
discriminatory as the Exchange would
uniformly calculate all qualifying
volume and uniformly pay rebates
associated with the Floor Transaction
(Open Outcry) Floor Broker Incentive
Program.
The Exchange’s proposal to cap
rebates for the Floor Transaction (Open
Outcry) Floor Broker Incentive Program
at $1,000,000 per member or member
organization in a given month is
reasonable. The Exchange’s program
will pay Floor Brokers up to $1,000,000
in rebates a month to incentivize them
to bring additional order flow to the
Exchange’s trading crowd. The
Exchange believes that the incentive,
despite the cap, will attract order flow
to Phlx. All other floor members may
interact with that order flow. The
Exchange’s proposal to cap rebates for
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the Floor Transaction (Open Outcry)
Floor Broker Incentive Program at
$1,000,000 per member or member
organization in a given month is
equitable and not unfairly
discriminatory as all Floor Brokers
would be subject to the same cap.
Technical Amendments
The Exchange’s proposal to add
certain titles within Options 7, Section
4 is reasonable, equitable and not
unfairly discriminatory as the titles will
assist market participants in locating
certain pricing within Phlx’s Options 7,
Section 4 rule. The addition of these
titles are non-substantive amendments.
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.
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. 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.
Intra-Market Competition
The proposed amendments do not
impose an undue burden on intramarket competition. In terms of intramarket competition, the Exchange does
not believe that its proposals will place
any category of market participant at a
competitive disadvantage. The
Exchange believes that the proposed
QCC Rebate and QCC Rebate Growth
Tier Rebates will encourage market
participants to send a greater amount of
electronic QCC orders and Floor QCC
Orders to Phlx for execution in order to
obtain greater rebates and lower their
costs. Further, the proposed QCC
PO 00000
Frm 00063
Fmt 4703
Sfmt 4703
Growth Tier Rebate should incentivize a
greater amount of floor transactions on
Phlx, thereby allowing Phlx to compete
more effectively with other options floor
models. The proposed Floor Broker
Incentive Program should encourage
Floor Brokers to send additional order
flow to Phlx to obtain rebates and lower
their costs. Any market participant may
send an order to a Phlx Floor Broker for
execution on Phlx’s trading floor. The
Exchange believes that the additional
liquidity will enhance the quality of the
Exchange’s market and increase certain
trading opportunities on the Exchange’s
trading floor for floor members.
QCC Rebates
Section A QCC Rebates
The Exchange’s proposal to remove
the existing QCC Rebate Schedule and
replace those rebates with new rebates
as well as a QCC Growth Tier Rebate
does not impose an undue burden on
competition because all members and
member organizations may execute QCC
rebates, electronically or on the
Exchange’s trading floor. The Exchange
believes its proposal to offer these two
new QCC Rebates does not impose an
undue burden on competition because
any market participant may qualify for
a QCC Rebate provided they qualified
for the QCC Rebate. Further, the
Exchange’s proposal which pays greater
rebates where the two contra-parties to
a QCC Order are not Customers and
Professionals does not impose an undue
burden on competition because, today,
the Exchange assesses greater fees to
Lead Market Maker, Market Maker,
Broker-Dealer and Firms for QCC
Orders. Customers and Professionals are
not assessed a QCC Transaction Fee,
while all other market participants pay
a QCC Transaction Fee of $0.20 per
contract. The Exchange’s proposal to
amend the QCC Rebate qualification
such that all strategy executions
(dividend, merger, short stock interest,
reversal and conversion, jelly roll, and
box spread) will be excluded and, as
proposed, will aggregate the applicable
member or member organization
qualifying QCC contract volume in a
given month, excluding all strategy
executions does not impose an undue
burden on competition because the
Exchange would uniformly apply the
QCC Rebate qualifications as well as
calculate the QCC Rebates.
Section B QCC Growth Tier Rebate
The Exchange’s proposal to establish
a new QCC Growth Tier Rebate does not
impose an undue burden on
competition, rather is it pro-competitive
in that would serve to increase liquidity
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on Phlx, thus rendering Phlx a more
attractive and vibrant venue to market
participants. The QCC Growth Tier
Rebate qualifications do not impose an
undue burden on competition because
all members and member organizations
may qualify for the QCC Growth Tier
Rebate.42 All members and member
organizations may enter order flow to
obtain a QCC Growth Tier Rebate. The
Exchange’s exclusion of strategy
executions, cabinet transactions and
Customer-to-Customer transactions does
not impose an undue burden on
competition as the qualifications for the
QCC Growth Tier Rebate will be
uniformly applied. The Exchange’s
proposal to utilize January 2023 as a
baseline to add 250,000 or more
contracts for the QCC Growth Tier
Rebate and permit members or member
organizations with no QCC transaction
volume in January 2023, to add 250,000
or more contracts in a given month does
not impose an undue burden on
competition because the proposal is
designed to increase participation in
Phlx’s trading floor and reward those
members and member organizations for
the unique role they play in ensuring a
robust market. Further, the proposal is
designed to encourage members and
member organizations to substantially
add liquidity to the trading floor. To the
extent the Exchange succeeds in
increasing the levels of liquidity and
activity on the Exchange, the Exchange
will experience improvements in market
quality, which stands to benefit all floor
members. The proposal considers any
new volume for members and member
organizations with no such volume for
the month of January 2023 for those
members and member organizations to
qualify to receive the proposed QCC
Growth Tier Rebate. This does not
impose an undue burden on
competition because the program is
designed to attract additional liquidity
from new members and member
organizations to the Exchange. In turn,
this additional liquidity should benefit
all market participants through
increased liquidity and order
interaction. The Exchange’s proposal to
pay the QCC Growth Tier Rebates per
Phlx House Account does not impose an
undue burden on competition. Today,
each Phlx member or member
organization is required to establish one
Phlx House Account with the
42 The Exchange notes that while all Phlx member
organizations may transact an options business
electronically or on the Exchange’s trading floor,
each member located on Phlx’s trading floor must
have an individual permit. Alternatively, Phlx
members or member organizations may transact
business on the trading floor through a Floor
Broker.
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19:33 Mar 02, 2023
Jkt 259001
Exchange’s Membership Department.
Only one Phlx House Account is
required to transact business on Phlx.43
A Phlx member or member organization
has the option of acquiring multiple
Phlx House Accounts depending on a
member’s or member organization’s
business model and how they elect to
organize their business. The Exchange’s
proposal to pay a $0.20 per contract
QCC Growth Tier Rebate on a QCC
Order comprised of a Customer or
Professional order on one side and a
Lead Market Maker, Market Maker,
Broker-Dealer, or Firm order on the
other side and a $0.26 per contract QCC
Growth Tier Rebate on a QCC Order is
comprised of a Lead Market Maker,
Market Maker, Broker-Dealer, or Firm
order on one side and a Lead Market
Maker, Market Maker, Broker-Dealer, or
Firm order on the other side does not
impose an undue burden on
competition because the Exchange will
uniformly apply the qualifications and
to pay the QCC Growth Tier Rebate. The
Exchange’s proposal to pay members
and member organizations the greater of
the QCC Rebate in Section A or the QCC
Growth Tier Rebate in Section B in a
given month, but not both QCC Rebates,
does not impose an undue burden on
competition because each of the
Exchange’s QCC rebates remain
competitive with today’s QCC Rebate
and the Exchange would uniformly only
pay the greater of the two QCC Rebates.
Monthly Firm Fee Cap
The Exchange’s proposal to amend
the Monthly Firm Fee Cap from
$150,000 to $200,000 and assess a
nominal fee of $0.02 per capped
contract once a Firm exceeds the
Monthly Firm Fee Cap, instead of not
assessing Firms any fee once the
Monthly Firm Fee Cap is exceeded does
not impose an undue burden on
competition as other market participants
benefit from an opportunity to pay
reduced fees on Phlx as do Firms.
Today, Customers are not assessed an
Options Transaction Charge in multiplylisted Penny or non-Penny Symbols.44
Customer liquidity benefits all market
participants by providing more trading
opportunities. An increase in the
activity of these market participants in
turn facilitates tighter spreads, which
may cause an additional corresponding
increase in order flow from other market
participants. Today, Lead Market
Makers and Market Makers are subject
43 The Exchange assesses a $50.00 a month
account fee for this account as provided for within
Options 7, Section 8A.
44 See Options 7, Section 4.
PO 00000
Frm 00064
Fmt 4703
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13485
to a Monthly Market Maker Cap.45 With
respect to Broker-Dealers, today, the
Exchange waives the Floor Options
Transaction Charge for Broker-Dealers
executing facilitation orders pursuant to
Options 8, Section 30 when such
members would otherwise incur this
charge for trading in their own
proprietary account contra to a
Customer (‘‘BD-Customer Facilitation’’),
if the member’s BD-Customer
Facilitation average daily volume
(including both FLEX and non-FLEX
transactions) exceeds 10,000 contracts
per day in a given month.46 Finally,
today, Professional Floor Options
Transaction Charges are less favorable
than Customers but more favorable than
Firms.47 Additionally, the Exchange
believes that the proposal is equitable
and not unfairly discriminatory because
members and member organizations that
are JBOs 48 could be subject to the Firm
Related Equity Option Cap, as are other
members, as long as the JBO trades for
their own proprietary account.
Additionally, the proposed change
would encourage JBOs that are not
45 See Options 7, Section 4. Lead Market Makers
and Market Makers are subject to a ‘‘Monthly
Market Maker Cap’’ of $500,000 for: (i) electronic
Option Transaction Charges, excluding surcharges
and excluding options overlying broad-based index
options symbols listed within Options 7, Section
5.A; and (ii) QCC Transaction Fees (as defined in
Exchange Options 3, Section 12 and Floor QCC
Orders, as defined in Options 8, Section 30(e)). The
trading activity of separate Lead Market Maker and
Market Maker member organizations is aggregated
in calculating the Monthly Market Maker Cap if
there is Common Ownership between the member
organizations. All dividend, merger, short stock
interest, reversal and conversion, jelly roll and box
spread strategy executions (as defined in this
Options 7, Section 4) is excluded from the Monthly
Market Maker Cap. Lead Market Makers or Market
Makers that (i) are on the contra-side of an
electronically-delivered and executed Customer
order, excluding responses to a PIXL auction; and
(ii) have reached the Monthly Market Maker Cap
will be assessed fees as follows: $0.05 per contract
Fee for Adding Liquidity in Penny Symbols; $0.18
per contract Fee for Removing Liquidity in Penny
Symbols; $0.18 per contract in Non-Penny Symbols;
and $0.18 per contract in a non-Complex electronic
auction, including the Quote Exhaust auction and,
for purposes of this fee, the opening process. A
Complex electronic auction includes, but is not
limited to, the Complex Order Live Auction
(‘‘COLA’’). Transactions which execute against an
order for which the Exchange broadcast an order
exposure alert in an electronic auction will be
subject to this fee.
46 See Options 7, Section 4.
47 See Options 7, Section 4.
48 The term ‘‘Joint Back Office’’ or ‘‘JBO’’ applies
to any transaction that is identified by a member or
member organization for clearing in the Firm range
at OCC and is identified with an origin code as a
JBO. A JBO is priced the same as a Broker-Dealer.
A JBO participant is a member, member
organization or non-member organization that
maintains a JBO arrangement with a clearing
broker-dealer (‘‘JBO Broker’’) subject to the
requirements of Regulation T Section 220.7 of the
Federal Reserve System as further discussed at
Options 6D, Section 1. See Options 7, Section 1(c).
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members or member organizations to
seek to become members or member
organizations to further reduce their
transaction fees. Finally, other market
participants may interact with the order
flow submitted by Firms to Phlx to
reach the cap. The Exchange’s proposal
to not assess the $0.02 per contract
transaction fee if no fee is charged or the
fee is waived does not impose an undue
burden on competition as the Exchange
would uniformly not assess the
transaction fee in this case.
Floor Transaction (Open Outcry) Floor
Broker Incentive Program
The Exchange’s proposal to create a
new incentive program for Floor Brokers
that is designed to attract order flow to
Phlx’s trading floor for execution in
open outcry does not impose an undue
burden on competition because the
Exchange’s program seeks to attract
greater order flow to the Exchange.
Other floor members may interact with
the order flow that Floor Brokers attract
to Phlx’s trading floor. The Exchange’s
proposal to exclude Floor QCC Orders,
dividend, merger, short stock interest,
reversal and conversion, jelly roll and
box spread strategy executions as
defined in this Options 7, Section 4;
Firm Floor Options Transaction Charges
for members executing facilitation
orders pursuant to Options 8, Section 30
when such members are trading in their
own proprietary account (including
Cabinet Options Transaction Charges);
and Customer-to-Customer transactions
from the Floor Transaction (Open
Outcry) Floor Broker Incentive Program
does not impose an undue burden on
competition because the Exchange
would uniformly apply the qualification
criteria to calculate rebates. The
Exchange’s proposal to pay Floor
Brokers rebates on qualifying open
outcry volume at each of three threshold
levels, with rebates ranging from $0.03
to $0.09 per contract, does not impose
an undue burden on competition as the
Exchange would uniformly calculate all
qualifying volume and uniformly pay
rebates associated with the Floor
Transaction (Open Outcry) Floor Broker
Incentive Program. The Exchange’s
proposal to cap rebates for the Floor
Transaction (Open Outcry) Floor Broker
Incentive Program at $1,000,000 per
member or member organization in a
given month does not impose an undue
burden on competition as all Floor
Brokers would be subject to the same
cap.
Technical Amendments
The Exchange’s proposal to add
certain titles within Options 7, Section
4 does not impose an undue burden on
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competition as the titles will assist
market participants in locating certain
pricing within Phlx’s Options 7, Section
4 rule. The addition of these titles are
non-substantive amendments.
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.49
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–2023–06 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–2023–06. 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
49 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
Frm 00065
Fmt 4703
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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–2023–06 and should
be submitted on or before March 24,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–04357 Filed 3–2–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–202, OMB Control No.
3235–0196]
Submission for OMB Review;
Comment Request; Extension: Rule
17a–22
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services, 100
F Street NE, Washington, DC 20549–2736
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) a request for approval of
extension of the previously approved
collection of information provided for in
Rule 17a–22 (17 CFR 240.17a–22) under
the Securities Exchange Act of 1934
(‘‘Exchange Act’’) (15 U.S.C. 78a et seq.).
Rule 17a–22 requires all registered
clearing agencies to file with the
Commission three copies of all materials
50 17
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CFR 200.30–3(a)(12).
03MRN1
]]>Agencies
[Federal Register Volume 88, Number 42 (Friday, March 3, 2023)]
[Notices]
[Pages 13477-13486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-04357]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96990; File No. SR-Phlx-2023-06]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx
Options 7, Section 4, Multiply Listed Options Fees
February 27, 2023.
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 February 22, 2023, 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 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).'' \3\
---------------------------------------------------------------------------
\3\ On February 10, 2023, the Exchange withdrew SR-Phlx-2023-03
and replaced it with SR-Phlx-2023-05. On February 22, 2023, SR-Phlx-
2023-05 was withdrawn and replaced with the instant 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 Schedule at 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: (1) to remove its current Qualified
Contingent Cross (``QCC'') Rebate Schedule and propose a new QCC Rebate
and QCC Growth Tier Rebate; (2) amend the Monthly Firm Fee
[[Page 13478]]
Cap; and (3) propose a new Floor Transaction (Open Outcry) Floor Broker
Incentive Program. Each change is described below.
QCC Rebates
Today, the Exchange assesses a $.20 per contract QCC Transaction
Fee for a Lead Market Maker,\4\ Market Maker,\5\ Firm \6\ and Broker-
Dealer.\7\ Customers \8\ and Professionals \9\ are not assessed a QCC
Transaction Fee. QCC Transaction Fees apply to electronic QCC Orders
\10\ and Floor QCC Orders.\11\ Rebates are paid on all qualifying
executed electronic QCC Orders and Floor QCC Orders based on the below
QCC Rebate Schedule: \12\
---------------------------------------------------------------------------
\4\ 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. See Options 7, Section 1(c). The term ``Floor Lead Market
Maker'' is a member who is registered as an options Lead Market
Maker pursuant to Options 2, Section 12(a) and has a physical
presence on the Exchange's trading floor. See Options 8, Section
2(a)(3).
\5\ 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 Floor Market Makers. See Options
7, Section 1(c). The term ``Floor Market Maker'' is a Market Maker
who is neither an SQT or an RSQT. A Floor Market Maker may provide a
quote in open outcry. See Options 8, Section 2(a)(4).
\6\ The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at The Options Clearing Corporation. See Options 7,
Section 1(c).
\7\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category. See Options 7, Section 1(c).
\8\ 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)). See Options 7, Section 1(c).
\9\ 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). See Options 7, Section 1(c).
\10\ Electronic QCC Orders are described in Options 3, Section
12.
\11\ Floor QCC Orders are described in Options 8, Section 30(e).
\12\ Volume resulting from all executed electronic QCC Orders
and Floor QCC Orders, including Customer-to-Customer, Customer-to-
Professional, and Professional-to-Professional transactions and
excluding dividend, merger, short stock interest or reversal or
conversion strategy executions, is aggregated in determining the
applicable volume tier.
QCC Rebate Schedule
------------------------------------------------------------------------
Rebate
Tier Threshold per
contract
------------------------------------------------------------------------
Tier 1.................... 0 to 999,999 contracts in a month $0.09
Tier 2.................... 1,000,000 contracts or more in a 0.20
month.
------------------------------------------------------------------------
The Exchange does not pay a QCC Rebate where the transaction is either:
(i) Customer-to-Customer; (ii) Customer-to-Professional; (iii)
Professional-to-Professional; or (iv) a dividend, merger, short stock
interest or reversal or conversion strategy execution (as defined in
Options 7, Section 4).
The Exchange proposes to remove the existing QCC Rebate Schedule
and replace those rebates with new QCC Rebates in new Section A as well
as a QCC Growth Tier Rebate in new Section B. The Exchange proposes to
insert a new title ``QCC Transaction Fee'' before the paragraph which
describes QCC fees.
The Exchange proposes to add a new title ``A. QCC Rebate'' to
describe its proposed QCC Rebates. The Exchange proposes to pay a QCC
Rebate of $0.12 per contract on electronic QCC Orders, as defined in
Options 3, Section 12, and Floor QCC Orders, as defined in Options 8,
Section 30(e), when a QCC Order is comprised of a Customer or
Professional order on one side and a Lead Market Maker, Market Maker,
Broker-Dealer, or Firm order on the other side. The Exchange proposes
to increase this rebate to $0.17 per contract in the event that a
member or member organization executes greater than 1,000,000
qualifying QCC contracts in a given month. The Exchange also proposes
to pay a new QCC Rebate of $0.14 per contract on electronic QCC Orders,
as defined in Options 3, Section 12, and Floor QCC Orders, as defined
in Options 8, Section 30(e), when a QCC Order is comprised of a Lead
Market Maker, Market Maker, Broker-Dealer, or Firm order on one side
and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on
the other side. The Exchange proposes to increase this rebate to $0.19
per contract in the event that a member or member organization executes
greater than 1,000,000 qualifying QCC contracts in a given month.
As is the case today, the two new proposed QCC rebates would be
paid on all qualifying executed electronic QCC Orders, as defined in
Options 3, Section 12, and Floor QCC Orders, as defined in Options 8,
Section 30(e), except where the transaction is either: (i) Customer-to-
Customer; (ii) Customer-to-Professional; and (iii) Professional-to-
Professional. Today, the Exchange excludes dividend, merger, short
stock interest or reversal or conversion strategy executions, as
defined in Options 7, Section 4, as qualifying transactions. At this
time, the Exchange proposes to exclude all strategy executions within
Options 7, Section 4, (dividend, merger, short stock interest, reversal
and conversion, jelly roll, and box spread strategy executions) as
qualifying transactions.
Further, as is the case today, volume resulting from all executed
electronic QCC Orders and Floor QCC Orders, including Customer-to-
Customer, Customer-to-Professional, and Professional-to-Professional
transactions and excluding dividend, merger, short stock interest or
reversal or conversion strategy executions, is aggregated in
determining the applicable volume tier. With this proposed change, the
Exchange would aggregate the applicable member or member organization
qualifying QCC contract volume in a given month which includes volume
resulting from all executed electronic QCC Orders and Floor QCC Orders,
including Customer-to-Customer, Customer-to-Professional, and
Professional-to-Professional transactions, as is the case today, and
would exclude all strategy executions within Options 7, Section 4,
(dividend, merger, short stock interest, reversal and conversion, jelly
roll, and box spread strategy executions) as qualifying transactions.
The Exchange notes that Customers and Professionals are not
assessed a QCC Transaction Fee while all other market participants pay
a QCC Transaction Fee of $0.20 per contract. The Exchange proposes to
pay greater rebates where the two contra-parties to a QCC Order are not
Customers and Professionals as greater QCC transaction fees are being
assessed to Lead Market Maker, Market Maker, Broker-Dealer or Firm
orders. These QCC Rebates are intended to encourage Phlx members and
member organizations to transact a greater number of QCC Orders on
Phlx.
Additionally, the Exchange proposes to establish a new QCC Growth
Tier Rebate and title that new section as ``B. QCC Growth Tier
Rebate''. This QCC Growth Tier Rebate is intended to encourage Phlx
members and member organizations to transact a greater number of QCC
Orders on Phlx. In order to qualify for the QCC Growth Tier Rebate, a
member's or member
[[Page 13479]]
organization's total floor transaction,\13\ and electronic QCC Orders
and Floor QCC Orders volume (``QCC transaction volume'') must exceed
12,500,000 contracts in a given month. In addition to the
aforementioned criteria, the member's or member organization's
respective Phlx House Account \14\ must execute QCC transaction volume
of 250,000 or more contracts in excess of the member's or member
organization's QCC transaction volume in January 2023. For members or
member organizations with no QCC transaction volume in January 2023,
the QCC transaction volume, in their respective Phlx House Account,
must be 250,000 or more contracts in a given month.
---------------------------------------------------------------------------
\13\ The term ``floor transaction'' is a transaction that is
effected in open outcry on the Exchange's trading floor. See Phlx
Options 7, Section 1(c). Of note, the term ``floor transaction'' is
more broadly defined than the term ``Open Outcry Floor Transaction''
which is discussed herein and is a subset of the term ``floor
transaction''.
\14\ Each Phlx member or member organization is required to
establish one Phlx House Account with the Exchange's Membership
Department. Only one Phlx House Account is required to transact
business on Phlx. The Exchange assesses a $50.00 a month account fee
for this account as provided for within Options 7, Section 8A. A
Phlx member or member organization has the option of acquiring
multiple Phlx House Accounts depending on a member's or member
organization's business model and how they elect to organize their
business.
---------------------------------------------------------------------------
The Exchange also proposes to offer an alternative qualification to
achieve the QCC Growth Tier Rebate. A member's or member organization's
Open Outcry Floor Transaction volume in a given month must exceed
500,000 contracts. In addition to the aforementioned criteria, a
member's or member organization's respective Phlx House Account must
execute QCC transaction volume of 2,500,000 or more contracts in excess
of the member's or member organization's QCC transaction volume in
January 2023. For members or member organizations with no QCC
transaction volume in January 2023, the QCC transaction volume, in
their respective Phlx House Account, must be 2,500,000 or more
contracts in a given month.
As proposed for the QCC Growth Tier Rebate, the term ``Open Outcry
Floor Transaction'' includes all transactions executed in open outcry
on Phlx's trading floor except: (1) dividend, merger, short stock
interest, reversal and conversion, jelly roll, and box spread strategy
executions as defined in this Options 7, Section 4; (2) Cabinet
Transactions as defined in Options 8, Section 33; and (3) Customer-to-
Customer transactions.
The Exchange proposes to pay the QCC Growth Tier Rebates per Phlx
House Account. The Exchange will pay a $0.20 per contract QCC Growth
Tier Rebate on a QCC Order comprised of a Customer or Professional
order on one side and a Lead Market Maker, Market Maker, Broker-Dealer,
or Firm order on the other side. Further, the Exchange will pay a $0.26
per contract QCC Growth Tier Rebate on a QCC Order comprised of a Lead
Market Maker, Market Maker, Broker-Dealer, or Firm order on one side
and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on
the other side. Finally, members and member organizations will be
entitled to one QCC Rebate in a given month, either the QCC Rebate in
Section A or the QCC Growth Tier Rebate in Section B in a given month,
but not both.
The Exchange believes that the proposed QCC Rebates in proposed
Section A and the proposed QCC Growth Tier Rebate in Section B will
encourage market participants to send QCC orders to Phlx for execution
in an effort to earn higher QCC Rebates.
The Exchange proposes to add a new title before the Monthly Market
Maker Cap rule text which states, ``Monthly Market Maker Cap''.
Monthly Firm Fee Cap
The Exchange proposes to add a new title prior to the paragraph
which describes Phlx's Monthly Firm Fee Cap which states, ``Monthly
Firm Fee Cap and Facilitation''.
Today, Firms are subject to a maximum fee of $150,000 (``Monthly
Firm Fee Cap''). Firm Floor Option Transaction Charges and QCC
Transaction Fees, in the aggregate, for one billing month do not exceed
the Monthly Firm Fee Cap per member or member organization provided
such members or member organizations are trading in their own
proprietary account. Today, the Monthly Firm Fee Cap and all dividend,
merger, and short stock interest strategy executions; transactions in
broad-based index options symbols listed within Options 7, Section 5.A
are excluded from the Monthly Firm Fee Cap. Today, reversal and
conversion, jelly roll and box spread strategy executions and QCC
Transaction Fees are included in the Monthly Firm Fee Cap.\15\
---------------------------------------------------------------------------
\15\ Members and member organizations must notify the Exchange
in writing of all accounts in which the member or member
organization is not trading in its own proprietary account. The
Exchange will not make adjustments to billing invoices where
transactions are commingled in accounts which are not subject to the
Monthly Firm Fee Cap.
---------------------------------------------------------------------------
At this time, the Exchange proposes two changes to the Monthly Firm
Fee Cap. First, the Exchange proposes to increase the Monthly Firm Fee
Cap from $150,000 to $200,000. Second, instead of not assessing Firms
any fee once the Monthly Firm Fee Cap is exceeded, the Exchange
proposes to instead assess a nominal transaction fee of $0.02 per
capped contract once a Firm exceeds the Monthly Firm Fee Cap unless no
fee \16\ is charged or the fee is waived.\17\ The Exchange proposes to
amend the text within Options 7, Section 4 to state,
---------------------------------------------------------------------------
\16\ Today, Firms pay an electronic Options Transaction Charge
of $0.48 per contract in Penny Symbols for simple orders and $0.40
per contract in Penny Symbols for complex orders. Also, Firms pay a
Floor Options Transaction Charge of $0.25 per contract in Penny
Symbols. Today, Firms pay an electronic Options Transaction Charge
of $0.75 per contract in Non-Penny Symbols and a Floor Options
Transactions Charge of $0.25 per contract in Non-Penny Symbols. See
Options 7, Section 4.
\17\ Today, the Firm Floor Options Transaction Charges is waived
for members executing facilitation orders pursuant to Options 8,
Section 30 when such members are trading in their own proprietary
account (including Cabinet Options Transaction Charges). The Firm
Floor Options Transaction Charges will be waived for the buy side of
a transaction if the same member or its affiliates under Common
Ownership represents both sides of a Firm transaction when such
members are trading in their own proprietary account. See Options 7,
Section 4.
Firms are subject to a $200,000 ``Monthly Firm Fee Cap''. Firm
Floor Option Transaction Charges and QCC Transaction Fees, as
defined in this section above, in the aggregate, for one billing
month that exceed the Monthly Firm Fee Cap per member or member
organization, when such members or member organizations are trading
in their own proprietary account, will be subject to a reduced
transaction fee of $0.02 per capped contract unless there is no fee
---------------------------------------------------------------------------
or the fee is waived.
While the Exchange would be increasing the cap as well as fees for
Firms with this proposal, the Exchange believes that the Monthly Firm
Fee Cap still serves to lower fees for Firms that transact certain
qualifying volume on Phlx, thus enabling these Firms the ability to
lower costs.
Additionally, the Exchange proposes to amend the types of strategy
executions that will be included in the Monthly Firm Fee Cap. Today,
dividend, merger, and short stock interest strategies are excluded from
the Monthly Firm Fee Cap and reversal and conversion, jelly roll and
box spread strategy executions are included in the Monthly Firm Fee
Cap. At this time, the Exchange proposes to exclude all strategy
executions from the Monthly Firm Fee Cap (dividend, merger, short stock
interest, reversal and conversion, jelly roll, and box spread strategy
executions).
[[Page 13480]]
Floor Transaction (Open Outcry) Floor Broker Incentive Program
The Exchange proposes to create a new incentive program for Floor
Brokers \18\ that is designed to attract order flow to Phlx's trading
floor for execution in open outcry. The Exchange proposes to pay Floor
Broker certain rebates for transaction they execute on Phlx's trading
floor in open outcry. The Exchange proposes to title this new section,
``Floor Transaction (Open Outcry) Floor Broker Incentive Program''.
---------------------------------------------------------------------------
\18\ The term ``Floor Broker'' means an individual who is
registered with the Exchange for the purpose, while on the Options
Floor, of accepting and handling options orders. See Phlx Options 7,
Section 1(c).
---------------------------------------------------------------------------
The following floor transactions would not be subject to the
rebates offered within the Floor Transaction (Open Outcry) Floor Broker
Incentive Program: (1) Floor QCC Orders, as defined in Options 8,
Section 30(e); \19\ (2) dividend, merger, short stock interest,
reversal and conversion, jelly roll and box spread strategy executions
as defined in this Options 7, Section 4; (3) Firm Floor Options
Transactions Charges for members executing facilitation orders pursuant
to Options 8, Section 30 when such members are trading in their own
proprietary account (including Cabinet Options Transaction Charges);
and (4) Customer-to-Customer transactions.
---------------------------------------------------------------------------
\19\ Today, Floor QCC Orders are not transacted in open outcry.
The Exchange proposes to include Floor QCC Orders in the list of
exclusions to remind members and member organizations that Floor QCC
Orders will not be paid the Floor Transaction (Open Outcry) Floor
Broker Incentive Program rebate.
---------------------------------------------------------------------------
The Exchange would pay Floor Transaction (Open Outcry) Floor Broker
Incentive Program rebates on qualifying volume at each threshold level
per the below schedule.
------------------------------------------------------------------------
Per
Qualifying contracts contract
rebate
------------------------------------------------------------------------
0-5,000,000.................................................. $0.03
5,000,001-10,000,000......................................... 0.06
Greater than 10,000,000...................................... 0.09
------------------------------------------------------------------------
By way of example, a Floor Broker that executes floor transactions
in a given month totaling 10,500,000 contracts will be paid $0.03 for
the first 5,000,000 floor transaction contracts ($150,000), $0.06 for
the next 5,000,000 floor transaction contracts ($300,000), and $0.09
for the final 500,000 floor transaction contracts ($45,000) for a total
rebate of $495,000 for that month. Further, as an additional clarifying
example, if a Floor Broker executes a floor transaction in the amount
of 1,000,000 contracts, represents both sides of the floor transaction,
and executes the floor transaction as a crossing transaction pursuant
to Options 8, Section 30(a) for 700,000 of the 1,000,000 contracts,
then trades the remaining 300,000 contracts with the trading crowd, the
Floor Transaction (Open Outcry) Floor Broker Incentive Program rebate
for this transaction will be paid on the qualifying floor transaction
volume of 1,000,000 contracts.
Finally, the Exchange proposes to cap rebates for the Floor
Transaction (Open Outcry) Floor Broker Incentive Program at $1,000,000
per member or member organization in a given month.
The Exchange believes that the Floor Transaction (Open Outcry)
Floor Broker Incentive Program will attract greater order flow to
Phlx's trading floor.
Technical Amendments
The Exchange proposes to add a title before the rule text related
to strategies which states, ``Floor Originated Strategy Executions''.
The Exchange believes the proposed new titles throughout Options 7,
Section 4 will assist market participants in locating certain pricing
within this rule. The Exchange also proposes to adjust rule text within
Options 7, Section 4 in the Strategies pricing to make clear that all
dividend, merger, short stock interest, reversal and conversion, jelly
roll and box spread strategy executions, as defined in this Options 7,
Section 4, will be excluded from the Monthly Firm Fee Cap as proposed
herein.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\20\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\21\ 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.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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.'' \22\
---------------------------------------------------------------------------
\22\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
Likewise, in NetCoalition v. Securities and Exchange Commission
\23\ (``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.\24\ 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.'' \25\
---------------------------------------------------------------------------
\23\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\24\ See NetCoalition, at 534-535.
\25\ Id. at 537.
---------------------------------------------------------------------------
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' . . . .'' \26\ 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.
---------------------------------------------------------------------------
\26\ 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)).
---------------------------------------------------------------------------
QCC Rebates
Section A QCC Rebates
The Exchange's proposal to remove the existing QCC Rebate Schedule
and replace those rebates with new rebates as well as a QCC Growth Tier
Rebate is reasonable because the Exchange proposes to offer its members
and member organizations additional qualifications to obtain
potentially greater QCC Rebates. The Exchange believes the opportunity
to earn larger rebates will incentivize members and member
organizations to execute a larger amount of floor transactions, QCC
transaction volume, and Open Outcry Floor Transaction volume on Phlx's
trading floor. The Exchange's proposal to remove the existing QCC
Rebate Schedule and replace those rebates with
[[Page 13481]]
new rebates as well as a QCC Growth Tier Rebate is equitable and not
unfairly discriminatory because all members and member organizations
may execute QCC trades, electronically or on the Exchange's trading
floor.
Today, the Exchange pays a $0.09 QCC rebate for executing up to
999,999 QCC contracts in a month and a $0.20 per contract QCC Rebate
for executing 1,000,000 or more QCC contracts in a month. With the two
new proposed QCC Rebates within Section A the Exchange offers to pay a
QCC Rebate of $0.12 per contract on electronic QCC Orders, as defined
in Options 3, Section 12, and Floor QCC Orders, as defined in Options
8, Section 30(e), when a QCC Order is comprised of a Customer or
Professional order on one side and a Lead Market Maker, Market Maker,
Broker-Dealer, or Firm order on the other side. This proposed QCC
Rebate is greater than the lowest tier QCC Rebate offered today ($0.09
(old) vs. $0.12 (new)). Additionally, the Exchange proposes to pay an
increased QCC Rebate of $0.17 per contract in the event that a member
or member organization executes greater than 1,000,000 qualifying QCC
contracts in a given month which is less than the current QCC rebate
for 1,000,000 or more contracts today ($0.20 (old) vs. $0.17 (new)).
Additionally, depending on the contra-parties to the QCC Order, the
Exchange would pay a $0.14 per contract QCC Rebate on electronic QCC
Orders, as defined in Options 3, Section 12, and Floor QCC Orders, as
defined in Options 8, Section 30(e), when a QCC Order is comprised of a
Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one
side and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm
order on the other side. This rebate is also greater than the lowest
tier QCC Rebate offered today ($0.09 (old) vs. $0.14 (new)).
Additionally, the Exchange proposes to pay an increased QCC Rebate of
$0.19 per contract in the event that a member or member organization
executes greater than 1,000,000 qualifying QCC contracts in a given
month which is less than the current QCC rebate for 1,000,000 or more
contracts today ($0.20 (old) vs. $0.19 (new)). The Exchange believes
that while some QCC Rebates are higher and some QCC Rebates are lower,
the range of QCC Rebates offered by Phlx remains competitive and the
Exchange believes these QCC Rebates will continue to attract QCC Orders
to Phlx. The Exchange believes its proposal to offer these two new QCC
Rebates is equitable and not unfairly discriminatory because any market
participant may qualify for a QCC Rebate provided they qualified for
the QCC Rebate. Further, the Exchange's proposal which pays greater
rebates where the two contra-parties to a QCC Order are not Customers
and Professionals is equitable and not unfairly discriminatory because,
today, the Exchange assesses greater fees to Lead Market Maker, Market
Maker, Broker-Dealer and Firms for QCC Orders. Customers and
Professionals are not assessed a QCC Transaction Fee, while all other
market participants pay a QCC Transaction Fee of $0.20 per contract.
The Exchange's proposal to amend the QCC Rebate qualifications such
that all strategy executions (dividend, merger, short stock interest,
reversal and conversion, jelly roll, and box spread) will be excluded
and, as proposed, will aggregate the applicable member or member
organization qualifying QCC contract volume in a given month, excluding
all strategy executions, is reasonable. Today, the Exchange offers
strategy caps \27\ for these strategy executions and, therefore,
members and member organizations have the ability to pay no fees on
strategy executions once the cap is met. The Exchange's proposal to
amend the QCC Rebate qualification such that all strategy executions
(dividend, merger, short stock interest, reversal and conversion, jelly
roll, and box spread) will be excluded and, as proposed, will aggregate
the applicable member or member organization qualifying QCC contract
volume in a given month, excluding all strategy executions is equitable
and not unfairly discriminatory because the Exchange would uniformly
apply the QCC Rebate qualifications as well as calculate the QCC
Rebates.
---------------------------------------------------------------------------
\27\ Today, the Exchange offers certain strategy caps for
dividend, merger, short stock interest, reversal and conversion,
jelly roll, and box spread strategy executions. To qualify for a
strategy cap, the buy and sell side of a transaction must originate
either from the Exchange's trading floor or as a Floor Qualified
Contingent Cross Order. See Options 7, Section 4.
---------------------------------------------------------------------------
Section B QCC Growth Tier Rebate
The Exchange's proposal to establish a new QCC Growth Tier Rebate
is reasonable because this rebate should provide additional incentives
for members and member organizations to engage in substantial amounts
of trading activity which would serve to bring additional open outcry
liquidity to the trading floor and additional QCC Order Flow to Phlx.
This incentive may also encourage members and member organizations to
commence sending such order flow to Phlx for the opportunity to earn
this rebate. Additionally, the Exchange's proposal to establish a new
QCC Growth Tier Rebate is equitable and not unfairly discriminatory
because any member or member organization may qualify for this rebate.
The Exchange's proposal offers member and member organizations two
paths to qualify for a QCC Growth Tier Rebate. In the first instance, a
member's or member organization's total floor transaction, and
electronic QCC Orders and Floor QCC Orders volume (``QCC transaction
volume'') must exceed 12,500,000 contracts in a given month and the
member's or member organization's respective Phlx House Account must
execute QCC transaction volume of 250,000 or more contracts in excess
of the member's or member organization's QCC transaction volume in
January 2023. For members or member organizations with no QCC
transaction volume in January 2023, the QCC transaction volume, in
their respective Phlx House Account, must be 250,000 or more contracts
in a given month. In the second instance, a member's or member
organization's Open Outcry Floor Transaction volume in a given month
must exceed 500,000 contracts and a member's or member organization's
respective Phlx House Account must execute QCC transaction volume of
2,500,000 or more contracts in excess of the member's or member
organization's QCC transaction volume in January 2023. For members or
member organizations with no QCC transaction volume in January 2023,
the QCC transaction volume, in their respective Phlx House Account,
must be 2,500,000 or more contracts in a given month. The Exchange
believes that these qualifications are reasonable because they offer
members and member organizations optional qualifications to achieve a
QCC Growth Tier Rebate. Additionally, the Exchange believes that these
qualifications are equitable and not unfairly discriminatory as all
members and member organizations may qualify for the QCC Growth Tier
Rebate.\28\ All members and member organizations may enter order flow
to obtain a QCC Growth Tier Rebate.
---------------------------------------------------------------------------
\28\ The Exchange notes that while all Phlx member organizations
may transact an options business electronically or on the Exchange's
trading floor, each member located on Phlx's trading floor must have
an individual permit. Alternatively, Phlx members or member
organizations may transact business on the trading floor through a
Floor Broker.
---------------------------------------------------------------------------
The Exchange's exclusion of strategy executions, cabinet
transactions and
[[Page 13482]]
Customer-to-Customer transactions is reasonable. Cabinet transactions
and Customer-to-Customer transactions are excluded today from QCC
Rebates. This proposal would exclude all strategy executions, which is
a change from the current QCC Rebate exclusions which only excludes
dividend, merger, short stock interest, and reversal or conversion
strategies. Today, the Exchange offers strategy caps \29\ for these
types of open outcry transactions and, therefore, members and member
organizations have the ability to pay no fees on strategy executions
once the cap is met. The Exchange's exclusion of strategy executions,
cabinet transactions and Customer-to-Customer transactions are
equitable and not unfairly discriminatory as the qualifications for the
QCC Growth Tier Rebate will be uniformly applied.
---------------------------------------------------------------------------
\29\ Today, the Exchange offers certain strategy caps for
dividend, merger, short stock interest, reversal and conversion,
jelly roll, and box spread strategy executions. To qualify for a
strategy cap, the buy and sell side of a transaction must originate
either from the Exchange's trading floor or as a Floor Qualified
Contingent Cross Order. See Options 7, Section 4.
---------------------------------------------------------------------------
The Exchange's proposal to utilize January 2023 as a baseline to
add 250,000 or more contracts for the QCC Growth Tier Rebate and permit
members or member organizations with no QCC transaction volume in
January 2023, to add 250,000 or more contracts in a given month is
reasonable as it will create an incentive for members and member
organizations to bring liquidity to Phlx's trading floor relative to a
benchmark. The Exchange believes that if the proposed incentive is
effective, then any ensuing increase in trading activity on the
Exchange will improve the quality of the market overall, to the benefit
of all market participants. Further, it is reasonable to consider any
new liquidity volume for members or member organizations who have no
volume for the month of January 2023 for those members or member
organizations to qualify to receive the proposed QCC Growth Tier Rebate
because this program is designed to attract additional liquidity from
new members and member organizations. To the extent this proposal
attracts new members and member organization volume to the Exchange,
all market participants should benefit through more trading
opportunities. The Exchange's proposal to utilize January 2023 as a
baseline to add 250,000 or more contracts for the QCC Growth Tier
Rebate and permit members or member organizations with no QCC
transaction volume in January 2023, to add 250,000 or more contracts in
a given month is equitable and not unfairly discriminatory for the
reasons which follow. The Exchange's proposal is designed to increase
participation in Phlx's trading floor and reward those members and
member organizations for the unique role they play in ensuring a robust
market. As discussed above, the proposal is designed to encourage
members and member organizations to substantially execute additional
volume on the trading floor. To the extent the Exchange succeeds in
increasing the levels of liquidity and activity on the Exchange, the
Exchange will experience improvements in market quality, which stands
to benefit all floor members. The Exchange believes that it is
equitable and not unfairly discriminatory to consider any new volume
for members and member organizations with no such volume for the month
of January 2023 for those members and member organizations to qualify
to receive the proposed QCC Growth Tier Rebate because the program is
designed to attract additional liquidity from new members and member
organizations to the Exchange. In turn, this additional liquidity
should benefit all market participants through increased liquidity and
order interaction.
The Exchange's proposal to pay the QCC Growth Tier Rebates per Phlx
House Account is reasonable, equitable and not unfairly discriminatory.
Today, each Phlx member or member organization is required to establish
one Phlx House Account with the Exchange's Membership Department. Only
one Phlx House Account is required to transact business on Phlx.\30\ A
Phlx member or member organization has the option of acquiring multiple
Phlx House Accounts depending on a member's or member organization's
business model and how they elect to organize their business.
---------------------------------------------------------------------------
\30\ The Exchange assesses a $50.00 a month account fee for this
account as provided for within Options 7, Section 8A.
---------------------------------------------------------------------------
The Exchange's proposal to pay a $0.20 per contract QCC Growth Tier
Rebate on a QCC Order comprised of a Customer or Professional order on
one side and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm
order on the other side and a $0.26 per contract QCC Growth Tier Rebate
on a QCC Order is comprised of a Lead Market Maker, Market Maker,
Broker-Dealer, or Firm order on one side and a Lead Market Maker,
Market Maker, Broker-Dealer, or Firm order on the other side is
reasonable because these rebates are both higher than the rebates
offered today for QCC Rebates. Today, the QCC Rebate for Tier 1 is
$0.09 per contract and the QCC Rebate for Tier 2 is $0.20 per contract.
Further, the Exchange's proposal to pay greater rebates where both
sides are not a Customer or a Professional is reasonable because,
today, Customers and Professionals are not assessed a QCC Transaction
Fee. Lead Market Makers, Market Makers, Broker-Dealers, and Firms pay a
QCC Transaction Fee of $0.20 per contract. The Exchange's proposal to
pay a $0.20 per contract QCC Growth Tier Rebate on a QCC Order
comprised of a Customer or Professional order on one side and a Lead
Market Maker, Market Maker, Broker-Dealer, or Firm order on the other
side and a $0.26 per contract QCC Growth Tier Rebate on a QCC Order is
comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm
order on one side and a Lead Market Maker, Market Maker, Broker-Dealer,
or Firm order on the other side is equitable and not unfairly
discriminatory because the Exchange will uniformly apply the
qualifications and to pay the QCC Growth Tier Rebate.
The Exchange's proposal to pay members and member organizations the
greater of the QCC Rebate in Section A or the QCC Growth Tier Rebate in
Section B in a given month, but not both QCC Rebates, is reasonable,
equitable and not unfairly discriminatory because each of the
Exchange's QCC rebates remain competitive with today's QCC Rebate and
the Exchange would uniformly only pay the greater of the two QCC
Rebates.
Monthly Firm Fee Cap
The Exchange's proposal to amend the Monthly Firm Fee Cap from
$150,000 to $200,000 and assess a nominal fee of $0.02 per capped
contract once a Firm exceeds the Monthly Firm Fee Cap, instead of not
assessing Firms any fee once the Monthly Firm Fee Cap is exceeded is
reasonable. While the Exchange would be increasing the cap as well as
fees for Firms with this proposal, the Exchange believes that the
Monthly Firm Fee Cap still serves to lower fees for Firms that transact
certain qualifying volume on Phlx, thus enabling these firms the
ability to lower costs. The Exchange believes that the Monthly Firm Fee
Cap would continue to incentivize Firms to direct order flow to the
Exchange to achieve the benefits of reducing their fees. The Exchange's
proposal to not assess the $0.02 per contract transaction fee if no fee
\31\ is charged or the fee is
[[Page 13483]]
waived \32\ is reasonable because the Exchange wants to ensure that
members and member organizations get the most favorable incentive that
they qualify for under its Pricing Schedule. The Exchange's proposal to
amend the Monthly Firm Fee Cap from $150,000 to $200,000 and assess a
nominal fee of $0.02 per capped contract once a Firm exceeds the
Monthly Firm Fee Cap, instead of not assessing Firms any fee once the
Monthly Firm Fee Cap is exceeded is equitable and not unfairly
discriminatory as other market participants benefit from an opportunity
to pay reduced fees on Phlx as do Firms. Today, Customers are not
assessed an Options Transaction Charge in multiply-listed Penny or non-
Penny Symbols.\33\ Customer liquidity benefits all market participants
by providing more trading opportunities. An increase in the activity of
these market participants in turn facilitates tighter spreads, which
may cause an additional corresponding increase in order flow from other
market participants. Today, Lead Market Makers and Market Makers are
subject to a Monthly Market Maker Cap.\34\ With respect to Broker-
Dealers, today, the Exchange waives the Floor Options Transaction
Charge for Broker-Dealers executing facilitation orders pursuant to
Options 8, Section 30 when such members would otherwise incur this
charge for trading in their own proprietary account contra to a
Customer (``BD-Customer Facilitation''), if the member's BD-Customer
Facilitation average daily volume (including both FLEX and non-FLEX
transactions) exceeds 10,000 contracts per day in a given month.\35\
Finally, today, Professional Floor Options Transaction Charges are less
favorable than Customers but more favorable than Firms.\36\
Additionally, the Exchange believes that the proposal is equitable and
not unfairly discriminatory because members and member organizations
that are JBOs \37\ could be subject to the Monthly Firm Fee Cap,\38\ as
are other members, as long as the JBO trades for their own proprietary
account. Additionally, the proposed change would encourage JBOs that
are not members or member organizations to seek to become members or
member organizations to further reduce their transaction fees. Finally,
other market participants may interact with the order flow submitted by
Firms to Phlx to reach the cap. The Exchange's proposal to not assess
the $0.02 per contract transaction fee if no fee is charged or the fee
is waived is equitable and not unfairly discriminatory as the Exchange
would uniformly not assess the transaction fee in this case.
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\31\ Today, Firms pay an electronic Options Transaction Charge
of $0.48 per contract in Penny Symbols for simple orders and $0.40
per contract in Penny Symbols for complex orders. Also, Firms pay a
Floor Options Transaction Charge of $0.25 per contract in Penny
Symbols. Today, Firms pay an electronic Options Transaction Charge
of $0.75 per contract in Non-Penny Symbols and a Floor Options
Transactions Charge of $0.25 per contract in Non-Penny Symbols. See
Options 7, Section 4.
\32\ Today, the Firm Floor Options Transaction Charges is waived
for members executing facilitation orders pursuant to Options 8,
Section 30 when such members are trading in their own proprietary
account (including Cabinet Options Transaction Charges). The Firm
Floor Options Transaction Charges will be waived for the buy side of
a transaction if the same member or its affiliates under Common
Ownership represents both sides of a Firm transaction when such
members are trading in their own proprietary account. See Options 7,
Section 4.
\33\ See Options 7, Section 4.
\34\ See Options 7, Section 4. Lead Market Makers and Market
Makers are subject to a ``Monthly Market Maker Cap'' of $500,000
for: (i) electronic Option Transaction Charges, excluding surcharges
and excluding options overlying broad-based index options symbols
listed within Options 7, Section 5.A; and (ii) QCC Transaction Fees
(as defined in Exchange Options 3, Section 12 and Floor QCC Orders,
as defined in Options 8, Section 30(e)). The trading activity of
separate Lead Market Maker and Market Maker member organizations is
aggregated in calculating the Monthly Market Maker Cap if there is
Common Ownership between the member organizations. All dividend,
merger, short stock interest, reversal and conversion, jelly roll
and box spread strategy executions (as defined in this Options 7,
Section 4) is excluded from the Monthly Market Maker Cap. Lead
Market Makers or Market Makers that (i) are on the contra-side of an
electronically-delivered and executed Customer order, excluding
responses to a PIXL auction; and (ii) have reached the Monthly
Market Maker Cap will be assessed fees as follows: $0.05 per
contract Fee for Adding Liquidity in Penny Symbols; $0.18 per
contract Fee for Removing Liquidity in Penny Symbols; $0.18 per
contract in Non-Penny Symbols; and $0.18 per contract in a non-
Complex electronic auction, including the Quote Exhaust auction and,
for purposes of this fee, the opening process. A Complex electronic
auction includes, but is not limited to, the Complex Order Live
Auction (``COLA''). Transactions which execute against an order for
which the Exchange broadcast an order exposure alert in an
electronic auction will be subject to this fee.
\35\ See Options 7, Section 4.
\36\ See Options 7, Section 4.
\37\ The term ``Joint Back Office'' or ``JBO'' applies to any
transaction that is identified by a member or member organization
for clearing in the Firm range at OCC and is identified with an
origin code as a JBO. A JBO is priced the same as a Broker-Dealer. A
JBO participant is a member, member organization or non-member
organization that maintains a JBO arrangement with a clearing
broker-dealer (``JBO Broker'') subject to the requirements of
Regulation T Section 220.7 of the Federal Reserve System as further
discussed at Options 6D, Section 1. See Options 7, Section 1(c).
\38\ Firms are subject to a Monthly Firm Fee Cap. See Options 7,
Section 4.
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The Exchange's proposal to amend the types of strategy executions
that will be included in the Monthly Firm Fee Cap to exclude all
strategy executions from the Monthly Firm Fee Cap is reasonable because
the Exchange offers strategy caps \39\ for these types of open outcry
transactions and, therefore, members and member organizations have the
ability to pay no fees on strategy executions once the cap is met. The
Exchange's proposal to amend the types of strategy executions that will
be included in the Monthly Firm Fee Cap to exclude all strategy
executions from the Monthly Firm Fee Cap is equitable and not unfairly
discriminatory because the Exchange would uniformly calculate
qualifying transactions to arrive at the Monthly Firm Fee Cap.
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\39\ Today, the Exchange offers certain strategy caps for
dividend, merger, short stock interest, reversal and conversion,
jelly roll, and box spread strategy executions. To qualify for a
strategy cap, the buy and sell side of a transaction must originate
either from the Exchange's trading floor or as a Floor Qualified
Contingent Cross Order. See Options 7, Section 4.
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Floor Transaction (Open Outcry) Floor Broker Incentive Program
The Exchange's proposal to create a new incentive program for Floor
Brokers that is designed to attract order flow to Phlx's trading floor
for execution in open outcry is reasonable, equitable and not unfairly
discriminatory because the Exchange's program seeks to attract greater
order flow to the Exchange's trading floor. The Exchange notes that
other Phlx floor members may interact with orders exposed in open
outcry on the Exchange's trading floor. Other floor members \40\ may
interact with the order flow that Floor Brokers attract to Phlx's
trading floor.
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\40\ Floor members include all members who have acquired a
permit to trade on Phlx's trading floor.
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The Exchange's proposal to exclude Floor QCC Orders, dividend,
merger, short stock interest, reversal and conversion, jelly roll and
box spread strategy executions as defined in this Options 7, Section 4;
Firm Floor Options Transaction Charges for members executing
facilitation orders pursuant to Options 8, Section 30 when such members
are trading in their own proprietary account (including Cabinet Options
Transaction Charges); and Customer-to-Customer transactions from the
Floor Transaction (Open Outcry) Floor Broker Incentive Program is
reasonable. Within this proposal, the Exchange offers to pay
significant QCC Rebates for Floor QCC Orders. As noted herein, with
respect to strategy transactions, the Exchange offers strategy caps
\41\ for these types of open outcry transactions and, therefore,
members and member organizations have the ability to pay no fees on
[[Page 13484]]
strategy executions once the cap is met. The Exchange is excluding Firm
Floor Options Transaction Charges for members executing facilitation
orders pursuant to Options 8, Section 30 when such members are trading
in their own proprietary account (including Cabinet Options Transaction
Charges) because, today, Firm Floor Options Transaction Charges are
waived pursuant to Options 7, Section 4. Finally, the Exchange is
excluding Customer-to-Customer transaction as Customers are not subject
to Options Transaction Charges within Options 7, Section 4. The
Exchange's proposal to exclude Floor QCC Orders, dividend, merger,
short stock interest, reversal and conversion, jelly roll and box
spread strategy executions as defined in this Options 7, Section 4;
Firm Floor Options Transaction Charges for members executing
facilitation orders pursuant to Options 8, Section 30 when such members
are trading in their own proprietary account (including Cabinet Options
Transaction Charges); and Customer-to-Customer transactions from the
Floor Transaction (Open Outcry) Floor Broker Incentive Program is
equitable and not unfairly discriminatory because the Exchange would
uniformly apply the qualification criteria to calculate rebates.
---------------------------------------------------------------------------
\41\ Today, the Exchange offers certain strategy caps for
dividend, merger, short stock interest, reversal and conversion,
jelly roll, and box spread strategy executions. To qualify for a
strategy cap, the buy and sell side of a transaction must originate
either from the Exchange's trading floor or as a Floor Qualified
Contingent Cross Order. See Options 7, Section 4.
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The Exchange's proposal to pay Floor Brokers rebates on qualifying
open outcry volume at each of three threshold levels, with rebates
ranging from $0.03 to $0.09 per contract, is reasonable because the
Exchange believes that these rebates will serve to incentivize Floor
Brokers to execute a greater number of orders in the Exchange's trading
crowd. The Exchange's proposal to pay Floor Brokers rebates on
qualifying open outcry volume at each of three threshold levels, with
rebates ranging from $0.03 to $0.09 per contract, is equitable and not
unfairly discriminatory as the Exchange would uniformly calculate all
qualifying volume and uniformly pay rebates associated with the Floor
Transaction (Open Outcry) Floor Broker Incentive Program.
The Exchange's proposal to cap rebates for the Floor Transaction
(Open Outcry) Floor Broker Incentive Program at $1,000,000 per member
or member organization in a given month is reasonable. The Exchange's
program will pay Floor Brokers up to $1,000,000 in rebates a month to
incentivize them to bring additional order flow to the Exchange's
trading crowd. The Exchange believes that the incentive, despite the
cap, will attract order flow to Phlx. All other floor members may
interact with that order flow. The Exchange's proposal to cap rebates
for the Floor Transaction (Open Outcry) Floor Broker Incentive Program
at $1,000,000 per member or member organization in a given month is
equitable and not unfairly discriminatory as all Floor Brokers would be
subject to the same cap.
Technical Amendments
The Exchange's proposal to add certain titles within Options 7,
Section 4 is reasonable, equitable and not unfairly discriminatory as
the titles will assist market participants in locating certain pricing
within Phlx's Options 7, Section 4 rule. The addition of these titles
are non-substantive amendments.
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.
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. 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.
Intra-Market Competition
The proposed amendments do not impose an undue burden on intra-
market competition. In terms of intra-market competition, the Exchange
does not believe that its proposals will place any category of market
participant at a competitive disadvantage. The Exchange believes that
the proposed QCC Rebate and QCC Rebate Growth Tier Rebates will
encourage market participants to send a greater amount of electronic
QCC orders and Floor QCC Orders to Phlx for execution in order to
obtain greater rebates and lower their costs. Further, the proposed QCC
Growth Tier Rebate should incentivize a greater amount of floor
transactions on Phlx, thereby allowing Phlx to compete more effectively
with other options floor models. The proposed Floor Broker Incentive
Program should encourage Floor Brokers to send additional order flow to
Phlx to obtain rebates and lower their costs. Any market participant
may send an order to a Phlx Floor Broker for execution on Phlx's
trading floor. The Exchange believes that the additional liquidity will
enhance the quality of the Exchange's market and increase certain
trading opportunities on the Exchange's trading floor for floor
members.
QCC Rebates
Section A QCC Rebates
The Exchange's proposal to remove the existing QCC Rebate Schedule
and replace those rebates with new rebates as well as a QCC Growth Tier
Rebate does not impose an undue burden on competition because all
members and member organizations may execute QCC rebates,
electronically or on the Exchange's trading floor. The Exchange
believes its proposal to offer these two new QCC Rebates does not
impose an undue burden on competition because any market participant
may qualify for a QCC Rebate provided they qualified for the QCC
Rebate. Further, the Exchange's proposal which pays greater rebates
where the two contra-parties to a QCC Order are not Customers and
Professionals does not impose an undue burden on competition because,
today, the Exchange assesses greater fees to Lead Market Maker, Market
Maker, Broker-Dealer and Firms for QCC Orders. Customers and
Professionals are not assessed a QCC Transaction Fee, while all other
market participants pay a QCC Transaction Fee of $0.20 per contract.
The Exchange's proposal to amend the QCC Rebate qualification such that
all strategy executions (dividend, merger, short stock interest,
reversal and conversion, jelly roll, and box spread) will be excluded
and, as proposed, will aggregate the applicable member or member
organization qualifying QCC contract volume in a given month, excluding
all strategy executions does not impose an undue burden on competition
because the Exchange would uniformly apply the QCC Rebate
qualifications as well as calculate the QCC Rebates.
Section B QCC Growth Tier Rebate
The Exchange's proposal to establish a new QCC Growth Tier Rebate
does not impose an undue burden on competition, rather is it pro-
competitive in that would serve to increase liquidity
[[Page 13485]]
on Phlx, thus rendering Phlx a more attractive and vibrant venue to
market participants. The QCC Growth Tier Rebate qualifications do not
impose an undue burden on competition because all members and member
organizations may qualify for the QCC Growth Tier Rebate.\42\ All
members and member organizations may enter order flow to obtain a QCC
Growth Tier Rebate. The Exchange's exclusion of strategy executions,
cabinet transactions and Customer-to-Customer transactions does not
impose an undue burden on competition as the qualifications for the QCC
Growth Tier Rebate will be uniformly applied. The Exchange's proposal
to utilize January 2023 as a baseline to add 250,000 or more contracts
for the QCC Growth Tier Rebate and permit members or member
organizations with no QCC transaction volume in January 2023, to add
250,000 or more contracts in a given month does not impose an undue
burden on competition because the proposal is designed to increase
participation in Phlx's trading floor and reward those members and
member organizations for the unique role they play in ensuring a robust
market. Further, the proposal is designed to encourage members and
member organizations to substantially add liquidity to the trading
floor. To the extent the Exchange succeeds in increasing the levels of
liquidity and activity on the Exchange, the Exchange will experience
improvements in market quality, which stands to benefit all floor
members. The proposal considers any new volume for members and member
organizations with no such volume for the month of January 2023 for
those members and member organizations to qualify to receive the
proposed QCC Growth Tier Rebate. This does not impose an undue burden
on competition because the program is designed to attract additional
liquidity from new members and member organizations to the Exchange. In
turn, this additional liquidity should benefit all market participants
through increased liquidity and order interaction. The Exchange's
proposal to pay the QCC Growth Tier Rebates per Phlx House Account does
not impose an undue burden on competition. Today, each Phlx member or
member organization is required to establish one Phlx House Account
with the Exchange's Membership Department. Only one Phlx House Account
is required to transact business on Phlx.\43\ A Phlx member or member
organization has the option of acquiring multiple Phlx House Accounts
depending on a member's or member organization's business model and how
they elect to organize their business. The Exchange's proposal to pay a
$0.20 per contract QCC Growth Tier Rebate on a QCC Order comprised of a
Customer or Professional order on one side and a Lead Market Maker,
Market Maker, Broker-Dealer, or Firm order on the other side and a
$0.26 per contract QCC Growth Tier Rebate on a QCC Order is comprised
of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on
one side and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm
order on the other side does not impose an undue burden on competition
because the Exchange will uniformly apply the qualifications and to pay
the QCC Growth Tier Rebate. The Exchange's proposal to pay members and
member organizations the greater of the QCC Rebate in Section A or the
QCC Growth Tier Rebate in Section B in a given month, but not both QCC
Rebates, does not impose an undue burden on competition because each of
the Exchange's QCC rebates remain competitive with today's QCC Rebate
and the Exchange would uniformly only pay the greater of the two QCC
Rebates.
---------------------------------------------------------------------------
\42\ The Exchange notes that while all Phlx member organizations
may transact an options business electronically or on the Exchange's
trading floor, each member located on Phlx's trading floor must have
an individual permit. Alternatively, Phlx members or member
organizations may transact business on the trading floor through a
Floor Broker.
\43\ The Exchange assesses a $50.00 a month account fee for this
account as provided for within Options 7, Section 8A.
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Monthly Firm Fee Cap
The Exchange's proposal to amend the Monthly Firm Fee Cap from
$150,000 to $200,000 and assess a nominal fee of $0.02 per capped
contract once a Firm exceeds the Monthly Firm Fee Cap, instead of not
assessing Firms any fee once the Monthly Firm Fee Cap is exceeded does
not impose an undue burden on competition as other market participants
benefit from an opportunity to pay reduced fees on Phlx as do Firms.
Today, Customers are not assessed an Options Transaction Charge in
multiply-listed Penny or non-Penny Symbols.\44\ Customer liquidity
benefits all market participants by providing more trading
opportunities. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Today, Lead Market Makers and Market Makers are subject to a Monthly
Market Maker Cap.\45\ With respect to Broker-Dealers, today, the
Exchange waives the Floor Options Transaction Charge for Broker-Dealers
executing facilitation orders pursuant to Options 8, Section 30 when
such members would otherwise incur this charge for trading in their own
proprietary account contra to a Customer (``BD-Customer
Facilitation''), if the member's BD-Customer Facilitation average daily
volume (including both FLEX and non-FLEX transactions) exceeds 10,000
contracts per day in a given month.\46\ Finally, today, Professional
Floor Options Transaction Charges are less favorable than Customers but
more favorable than Firms.\47\ Additionally, the Exchange believes that
the proposal is equitable and not unfairly discriminatory because
members and member organizations that are JBOs \48\ could be subject to
the Firm Related Equity Option Cap, as are other members, as long as
the JBO trades for their own proprietary account. Additionally, the
proposed change would encourage JBOs that are not
[[Page 13486]]
members or member organizations to seek to become members or member
organizations to further reduce their transaction fees. Finally, other
market participants may interact with the order flow submitted by Firms
to Phlx to reach the cap. The Exchange's proposal to not assess the
$0.02 per contract transaction fee if no fee is charged or the fee is
waived does not impose an undue burden on competition as the Exchange
would uniformly not assess the transaction fee in this case.
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\44\ See Options 7, Section 4.
\45\ See Options 7, Section 4. Lead Market Makers and Market
Makers are subject to a ``Monthly Market Maker Cap'' of $500,000
for: (i) electronic Option Transaction Charges, excluding surcharges
and excluding options overlying broad-based index options symbols
listed within Options 7, Section 5.A; and (ii) QCC Transaction Fees
(as defined in Exchange Options 3, Section 12 and Floor QCC Orders,
as defined in Options 8, Section 30(e)). The trading activity of
separate Lead Market Maker and Market Maker member organizations is
aggregated in calculating the Monthly Market Maker Cap if there is
Common Ownership between the member organizations. All dividend,
merger, short stock interest, reversal and conversion, jelly roll
and box spread strategy executions (as defined in this Options 7,
Section 4) is excluded from the Monthly Market Maker Cap. Lead
Market Makers or Market Makers that (i) are on the contra-side of an
electronically-delivered and executed Customer order, excluding
responses to a PIXL auction; and (ii) have reached the Monthly
Market Maker Cap will be assessed fees as follows: $0.05 per
contract Fee for Adding Liquidity in Penny Symbols; $0.18 per
contract Fee for Removing Liquidity in Penny Symbols; $0.18 per
contract in Non-Penny Symbols; and $0.18 per contract in a non-
Complex electronic auction, including the Quote Exhaust auction and,
for purposes of this fee, the opening process. A Complex electronic
auction includes, but is not limited to, the Complex Order Live
Auction (``COLA''). Transactions which execute against an order for
which the Exchange broadcast an order exposure alert in an
electronic auction will be subject to this fee.
\46\ See Options 7, Section 4.
\47\ See Options 7, Section 4.
\48\ The term ``Joint Back Office'' or ``JBO'' applies to any
transaction that is identified by a member or member organization
for clearing in the Firm range at OCC and is identified with an
origin code as a JBO. A JBO is priced the same as a Broker-Dealer. A
JBO participant is a member, member organization or non-member
organization that maintains a JBO arrangement with a clearing
broker-dealer (``JBO Broker'') subject to the requirements of
Regulation T Section 220.7 of the Federal Reserve System as further
discussed at Options 6D, Section 1. See Options 7, Section 1(c).
---------------------------------------------------------------------------
Floor Transaction (Open Outcry) Floor Broker Incentive Program
The Exchange's proposal to create a new incentive program for Floor
Brokers that is designed to attract order flow to Phlx's trading floor
for execution in open outcry does not impose an undue burden on
competition because the Exchange's program seeks to attract greater
order flow to the Exchange. Other floor members may interact with the
order flow that Floor Brokers attract to Phlx's trading floor. The
Exchange's proposal to exclude Floor QCC Orders, dividend, merger,
short stock interest, reversal and conversion, jelly roll and box
spread strategy executions as defined in this Options 7, Section 4;
Firm Floor Options Transaction Charges for members executing
facilitation orders pursuant to Options 8, Section 30 when such members
are trading in their own proprietary account (including Cabinet Options
Transaction Charges); and Customer-to-Customer transactions from the
Floor Transaction (Open Outcry) Floor Broker Incentive Program does not
impose an undue burden on competition because the Exchange would
uniformly apply the qualification criteria to calculate rebates. The
Exchange's proposal to pay Floor Brokers rebates on qualifying open
outcry volume at each of three threshold levels, with rebates ranging
from $0.03 to $0.09 per contract, does not impose an undue burden on
competition as the Exchange would uniformly calculate all qualifying
volume and uniformly pay rebates associated with the Floor Transaction
(Open Outcry) Floor Broker Incentive Program. The Exchange's proposal
to cap rebates for the Floor Transaction (Open Outcry) Floor Broker
Incentive Program at $1,000,000 per member or member organization in a
given month does not impose an undue burden on competition as all Floor
Brokers would be subject to the same cap.
Technical Amendments
The Exchange's proposal to add certain titles within Options 7,
Section 4 does not impose an undue burden on competition as the titles
will assist market participants in locating certain pricing within
Phlx's Options 7, Section 4 rule. The addition of these titles are non-
substantive amendments.
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.\49\
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\49\ 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-2023-06 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-2023-06. 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-2023-06 and should be submitted on
or before March 24, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-04357 Filed 3-2-23; 8:45 am]
BILLING CODE 8011-01-P
