Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 3(a), 13122-13125 [2024-03450]
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Federal Register / Vol. 89, No. 35 / Wednesday, February 21, 2024 / Notices
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:
[FR Doc. 2024–03453 Filed 2–20–24; 8:45 am]
Electronic Comments
BILLING CODE 8011–01–P
• 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–
NYSEARCA–2024–13 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.
khammond on DSKJM1Z7X2PROD with NOTICES
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Sherry R. Haywood,
Assistant Secretary.
All submissions should refer to file
number SR–NYSEARCA–2024–13. 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. Do not include
personal identifiable information in
submissions; you should submit only
information that you wish to make
available publicly. We may redact in
part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to file number SR–NYSEARCA–2024–
13, and should be submitted on or
before March 13, 2024.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99537; File No. SR–Phlx–
2024–04]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Equity 7,
Section 3(a)
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
1, 2024, 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 its
pricing schedule at Equity 7, Section
3(a), as described further below.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to provide an additional
calculation for purposes of determining
whether a member qualifies for credits
set forth in Equity 7, Section 3(a) that
pertain to providing liquidity.
Presently, the Exchange provides its
members with various credits for
executing orders that add liquidity to
the Exchange and charges them various
fees for executing orders, that remove
liquidity from the Exchange, as set forth
in Equity 7, Section 3(a) of the
Exchange’s Rules. The charges and
credits in Equity 7, Section 3(a) apply to
the use of the order execution and
routing services of the Nasdaq PSX
System by members for all securities
priced at $1 or more that it trades.
Members may qualify for tiers of
discounted fees and premium credits
based, in part, upon their volume on the
Exchange as a percentage of total
‘‘Consolidated Volume.’’
Pursuant to Equity 7, Section 3(a), the
term ‘‘Consolidated Volume’’ means the
total consolidated volume reported to
all consolidated transaction reporting
plans by all exchanges and trade
reporting facilities during a month in
equity securities, excluding executed
orders with a size of less than one round
lot. For purposes of calculating
Consolidated Volume and the extent of
a member’s trading activity, the
following are excluded from both total
Consolidated Volume and the member’s
trading activity: (1) the date of the
annual reconstitution of the Russell
Investments Indexes; (2) the dates on
which stock options, stock index
options, and stock index futures expire
(i.e., the third Friday of March, June,
September, and December); (3) the dates
of the rebalance of the MSCI Equities
Indexes (i.e., on a quarterly basis); (4)
the dates of the rebalance of the S&P
400, S&P 500, and S&P 600 Indexes (i.e.,
on a quarterly basis); and (5) the date of
the annual reconstitution of the Nasdaq100 and Nasdaq Biotechnology Indexes.
Generally, the ratio of consolidated
volumes in securities priced at or above
$1 (‘‘dollar plus volume’’) relative to
consolidated volumes inclusive of
securities priced below a dollar is
usually stable from month to month,
such that ‘‘Consolidated Volume’’ has
been a reasonable baseline for
determining tiered incentives for
members that execute dollar plus
volume on the Exchange. However,
there have been a few months where
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volumes in securities priced below a
dollar (‘‘sub-dollar volume’’) have been
elevated, thereby impacting the ratio
mentioned above.
Anomalous rises in sub-dollar volume
stand to have a material adverse impact
on members’ qualifications for pricing
tiers/incentives because such
qualifications depend members upon
achieving threshold percentages of
volumes as a percentage of Consolidated
Volume, and an extraordinary rise in
sub-dollar volume stands to elevate
Consolidated Volume. As a result,
members may find it more difficult, if
not practically impossible, to qualify for
or to continue to qualify for their
existing incentives during months
where there are such rises in sub-dollar
volumes, even if their dollar plus
volumes have not diminished relative to
prior months.
The Exchange believes that it would
be unfair for its members that execute
significant dollar plus volumes on the
Exchange to fail to achieve or to lose
their existing incentives for such
volumes due to anomalous behavior that
is extraneous to them. Therefore, the
Exchange wishes to amend its Rules to
help avoid extraordinary spikes in subdollar volumes from adversely affecting
a member’s qualification of incentives
for their dollar plus stock executions.
Accordingly, the Exchange proposes
to amend its pricing schedule at Equity
7, Section 3(a) to state that, for purposes
of calculating a member’s qualifications
for credits that pertain to providing
liquidity set forth in Section 3(a), the
Exchange will calculate a member’s
volume and total Consolidated Volume
twice. First, the Exchange will calculate
a member’s volume and total
Consolidated Volume as presently set
forth in Equity 7, Section 3(a) (i.e.,
inclusive of volume that consists of
executions in securities priced less than
$1). Second, the Exchange will calculate
a member’s volume and total
Consolidated Volume exclusive of
volume that consists of executions in
securities priced less than $1, while also
increasing the distinct qualifying
volume percentage thresholds, as set
forth in Section 3(a), by 10%.
Thereafter, the Exchange proposes to
assess which of these two calculations
would qualify the member for the most
advantageous credits for the month and
then it will apply those to the member.
Although the Exchange wishes to
avoid extraordinary spikes in sub-dollar
volumes from adversely affecting a
member’s qualification of incentives for
their dollar plus stock executions, the
Exchange proposes to include certain
limits on the proposal to efficiently
allocate the Exchange’s limited
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resources for incentives. Specifically, as
noted above, the Exchange proposes to
limit the application of the proposed
calculation excluding sub-dollar
volumes to those incentives in Section
3(a) that pertain to providing liquidity.
In addition, as noted above, the
Exchange proposes to increase the
distinct qualifying volume percentage
thresholds set forth in Section 3(a) by
10% for purposes of the proposed
calculation excluding sub-dollar
volumes.3 The Exchange wishes to
impose such limitations in order to limit
the cost impact on the Exchange, while
still providing some relief to members
in months with extraordinary spikes in
sub-dollar volumes. The Exchange has
limited resources to devote to incentive
programs, and it is appropriate for the
Exchange to reallocate these incentives
periodically in a manner that best
achieves the Exchange’s overall mix of
objectives.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with section 6(b)
of the Act,4 in general, and furthers the
objectives of sections 6(b)(4) and 6(b)(5)
of the Act,5 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The Exchange’s proposed changes to
its schedule of credits are reasonable in
several respects. As a threshold matter,
the Exchange is subject to significant
competitive forces in the market for
equity securities transaction services
that constrain its pricing determinations
in that market. The fact that this market
is competitive has long been recognized
by the courts. In NetCoalition v.
Securities and Exchange Commission,
the D.C. Circuit stated as follows: ‘‘[n]o
one disputes that competition for order
flow is ‘fierce.’ . . . As the SEC
explained, ‘[i]n the U.S. national market
3 For example, the Exchange provides a credit of
$0.0033 per share executed to members providing
liquidity for orders entered by a member that
provide 0.15% or more of total Consolidated
Volume during the month. See Equity 7, Section
3(a). Under the proposal, in addition to calculating
the member’s volume and total Consolidated
Volume exclusive of volume that consists of
executions in securities priced less than $1, the
distinct qualifying volume percentage threshold
would be increased by 10%. Therefore, for purposes
of this example, in order to qualify for the credit
using volumes excluding sub-dollar activity, the
member would need to provide 0.165% or more of
total Consolidated Volume during the month (i.e.,
0.15% + (10%)(0.15%)).
4 15 U.S.C. 78f(b).
5 15 U.S.C. 78f(b)(4) and (5).
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system, buyers and sellers of securities,
and the broker-dealers that act as their
order-routing agents, have a wide range
of choices of where to route orders for
execution’; [and] ‘no exchange can
afford to take its market share
percentages for granted’ because ‘no
exchange possesses a monopoly,
regulatory or otherwise, in the execution
of order flow from broker
dealers’. . . .’’ 6
The Commission and the courts have
repeatedly expressed their preference
for competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. In Regulation NMS, while
adopting a series of steps to improve the
current market model, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 7
Numerous indicia demonstrate the
competitive nature of this market. For
example, clear substitutes to the
Exchange exist in the market for equity
security transaction services. The
Exchange is only one of several equity
venues to which market participants
may direct their order flow. Competing
equity exchanges offer similar tiered
pricing structures to that of the
Exchange, including schedules of
rebates and fees that apply based upon
members achieving certain volume
thresholds.
Within this environment, market
participants can freely and often do shift
their order flow among the Exchange
and competing venues in response to
changes in their respective pricing
schedules.
The Exchange believes that the
proposal is reasonable and equitable
because, in its absence, members may
experience material adverse impacts on
their ability to qualify for certain
incentives during a month with an
anomalous rise in sub-dollar volumes.
The Exchange does not wish to penalize
members that execute significant
volumes on the Exchange due to
anomalous and extraneous trading
activities of a small number of firms in
sub-dollar securities. The proposed rule
would seek to provide a means for
members that provide liquidity to avoid
6 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir.
2010) (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782–83
(December 9, 2008) (SR–NYSEArca–2006–21)).
7 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
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Federal Register / Vol. 89, No. 35 / Wednesday, February 21, 2024 / Notices
such a penalty by determining whether
calculating member volume and total
Consolidated Volume to include or
exclude sub-dollar volume 8 would
result in Exchange members qualifying
for the most advantageous credits, and
then applying the calculations that
would result in the incentives for
providing liquidity that are most
advantageous to each member. The
Exchange believes it is reasonable to
limit the proposal by applying the
proposed calculation to incentives that
pertain to providing liquidity and
increasing the distinct qualifying
volume percentage thresholds by 10%
when using the proposed calculation
excluding sub-dollar volumes because
the Exchange has limited resources to
devote to incentive programs, and it is
appropriate for the Exchange to
reallocate these incentives periodically
in a manner that best achieves the
Exchange’s overall mix of objectives.
The Exchange believes that the
proposed rule change is an equitable
allocation and is not unfairly
discriminatory because the Exchange
does not intend for the proposal to
advantage any particular member and
the Exchange will apply the proposed
calculation to all similarly situated
members.
Those participants that are
dissatisfied with the changes to the
Exchange’s schedule of credits are free
to shift their order flow to competing
venues that provide more favorable fees
or generous incentives.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
Intramarket Competition
The Exchange does not believe that its
proposal will place any category of
Exchange participant at a competitive
disadvantage.
The Exchange intends for its proposal
to help avoid pricing disadvantages due
to anomalous spikes in sub-dollar
volumes and is not intended to provide
a competitive advantage to any
particular member. The Exchange also
intends for its proposal to reallocate its
limited resources more efficiently and to
align them with the Exchange’s overall
mix of objectives. The Exchange notes
that its members are free to trade on
8 As noted above, in considering whether a
member meets qualifying credit criteria using the
proposed calculation excluding sub-dollar volumes,
the distinct qualifying volume percentage
thresholds would be increased by 10%.
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other venues to the extent they believe
that the proposal is not attractive. As
one can observe by looking at any
market share chart, price competition
between exchanges is fierce, with
liquidity and market share moving
freely between exchanges in reaction to
fee and credit changes.
Intermarket Competition
In terms of inter-market competition,
the Exchange notes that it operates in a
highly competitive market in which
market participants can readily favor
competing venues if they deem fee
levels at a particular venue to be
excessive, or rebate opportunities
available at other venues to be more
favorable. In such an environment, the
Exchange must continually adjust its
credits and fees to remain competitive
with other exchanges and with
alternative trading systems that have
been exempted from compliance with
the statutory standards applicable to
exchanges. Because competitors are free
to modify their own credits and fees in
response, and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which credit
or fee changes in this market may
impose any burden on competition is
extremely limited. The proposal is
reflective of this competition.
Even the largest U.S. equities
exchange by volume has less than 20%
market share, which in most markets
could hardly be categorized as having
enough market power to burden
competition. Moreover, as noted above,
price competition between exchanges is
fierce, with liquidity and market share
moving freely between exchanges in
reaction to fee and credit changes. This
is in addition to free flow of order flow
to and among off-exchange venues,
which comprises upwards of 40% of
industry volume.
In sum, if the changes proposed
herein are unattractive to market
participants, it is likely that the
Exchange will lose market share as a
result. Accordingly, the Exchange does
not believe that the proposed changes
will impair the ability of members or
competing order execution venues to
maintain their competitive standing in
the financial markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
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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.9
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–2024–04 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–2024–04. 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,
9 15
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U.S.C. 78s(b)(3)(A)(ii).
21FEN1
Federal Register / Vol. 89, No. 35 / Wednesday, February 21, 2024 / Notices
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. Do not include
personal identifiable information in
submissions; you should submit only
information that you wish to make
available publicly. We may redact in
part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to file number SR–Phlx–2024–04, and
should be submitted on or before March
13, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Dated: February 14, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–03450 Filed 2–20–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99535; File No. SR–
NASDAQ–2024–005]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Equity 7, Section 118
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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
1, 2024, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ 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 the
Exchange’s pricing schedule at Equity 7,
Section 118, as described further below.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to (i) provide an additional
calculation for purposes of determining
whether a member qualifies for credits
set forth in Equity 7, Section 118(a) that
pertain to providing liquidity; and (ii)
amend certain fees assessed for
transactions in the Nasdaq Closing Cross
and Nasdaq Opening Cross under Equity
7, Section 118(d)(1) and Equity 7,
Section 118(e)(1) respectively.
Proposed Changes to Equity 7, Section
118(a)
Presently, the Exchange provides its
members with various credits for
executing orders that add liquidity to
the Exchange and charges them various
fees for executing orders that remove
liquidity from the Exchange, as set forth
in Equity 7, Section 118(a) of the
Exchange’s Rules. The charges and
credits in Equity 7, Section 118(a) apply
to the use of the order execution and
routing services of the Nasdaq Market
Center by members for all securities
priced at $1 or more that it trades.
Members may qualify for tiers of
discounted fees and premium credits
based, in part, upon the volume of their
activities on the Exchange as a
percentage of total ‘‘Consolidated
Volume.’’
Pursuant to Equity 7, Section 118(a),
the term ‘‘Consolidated Volume’’ means
the total consolidated volume reported
to all consolidated transaction reporting
plans by all exchanges and trade
reporting facilities during a month in
equity securities, excluding executed
orders with a size of less than one round
lot. For purposes of calculating
Consolidated Volume and the extent of
a member’s trading activity, the
following are excluded from both total
Consolidated Volume and the member’s
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13125
trading activity: (1) the date of the
annual reconstitution of the Russell
Investments Indexes; (2) the dates on
which stock options, stock index
options, and stock index futures expire
(i.e., the third Friday of March, June,
September, and December); (3) the dates
of the rebalance of the MSCI Equities
Indexes (i.e., on a quarterly basis); (4)
the dates of the rebalance of the S&P
400, S&P 500, and S&P 600 Indexes (i.e.,
on a quarterly basis); and (5) the date of
the annual reconstitution of the
Nasdaq–100 and Nasdaq Biotechnology
Indexes. For the purposes of calculating
the extent of a member’s trading activity
during the month on Nasdaq and
determining the charges and credits
applicable to such member’s activity, all
M–ELO Orders that a member executes
on Nasdaq during the month count as
liquidity-adding activity on Nasdaq. In
addition, volume from ETC Eligible LOC
Orders and ETC Orders is not utilized
to determine eligibility for any pricing
tiers set forth in Section 118(a) to the
extent that such eligibility is based upon
MOC or LOC volume.
Generally, the ratio of consolidated
volumes in securities priced at or above
$1 (‘‘dollar plus volume’’) relative to
consolidated volumes inclusive of
securities priced below a dollar is
usually stable from month to month,
such that ‘‘Consolidated Volume’’ has
been a reasonable baseline for
determining tiered incentives for
members that execute dollar plus
volume on the Exchange. However,
there have been a few months where
volumes in securities priced below a
dollar (‘‘sub-dollar volume’’) have been
elevated, thereby impacting the ratio
mentioned above.
Anomalous rises in sub-dollar volume
stand to have a material adverse impact
on members’ qualifications for pricing
tiers/incentives because such
qualifications depend members upon
achieving threshold percentages of
volumes as a percentage of Consolidated
Volume, and an extraordinary rise in
sub-dollar volume stands to elevate
Consolidated Volume. As a result,
members may find it more difficult, if
not practically impossible, to qualify for
or to continue to qualify for their
existing incentives during months
where there are such rises in sub-dollar
volumes, even if their dollar plus
volumes have not diminished relative to
prior months.
The Exchange believes that it would
be unfair for its members that execute
significant dollar plus volumes on the
Exchange to fail to achieve or to lose
their existing incentives for such
volumes due to anomalous behavior that
is extraneous to them. Therefore, the
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]]>Agencies
[Federal Register Volume 89, Number 35 (Wednesday, February 21, 2024)]
[Notices]
[Pages 13122-13125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-03450]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99537; File No. SR-Phlx-2024-04]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7,
Section 3(a)
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 1, 2024, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its pricing schedule at Equity 7,
Section 3(a), as described further below.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to provide an additional
calculation for purposes of determining whether a member qualifies for
credits set forth in Equity 7, Section 3(a) that pertain to providing
liquidity.
Presently, the Exchange provides its members with various credits
for executing orders that add liquidity to the Exchange and charges
them various fees for executing orders, that remove liquidity from the
Exchange, as set forth in Equity 7, Section 3(a) of the Exchange's
Rules. The charges and credits in Equity 7, Section 3(a) apply to the
use of the order execution and routing services of the Nasdaq PSX
System by members for all securities priced at $1 or more that it
trades. Members may qualify for tiers of discounted fees and premium
credits based, in part, upon their volume on the Exchange as a
percentage of total ``Consolidated Volume.''
Pursuant to Equity 7, Section 3(a), the term ``Consolidated
Volume'' means the total consolidated volume reported to all
consolidated transaction reporting plans by all exchanges and trade
reporting facilities during a month in equity securities, excluding
executed orders with a size of less than one round lot. For purposes of
calculating Consolidated Volume and the extent of a member's trading
activity, the following are excluded from both total Consolidated
Volume and the member's trading activity: (1) the date of the annual
reconstitution of the Russell Investments Indexes; (2) the dates on
which stock options, stock index options, and stock index futures
expire (i.e., the third Friday of March, June, September, and
December); (3) the dates of the rebalance of the MSCI Equities Indexes
(i.e., on a quarterly basis); (4) the dates of the rebalance of the S&P
400, S&P 500, and S&P 600 Indexes (i.e., on a quarterly basis); and (5)
the date of the annual reconstitution of the Nasdaq-100 and Nasdaq
Biotechnology Indexes.
Generally, the ratio of consolidated volumes in securities priced
at or above $1 (``dollar plus volume'') relative to consolidated
volumes inclusive of securities priced below a dollar is usually stable
from month to month, such that ``Consolidated Volume'' has been a
reasonable baseline for determining tiered incentives for members that
execute dollar plus volume on the Exchange. However, there have been a
few months where
[[Page 13123]]
volumes in securities priced below a dollar (``sub-dollar volume'')
have been elevated, thereby impacting the ratio mentioned above.
Anomalous rises in sub-dollar volume stand to have a material
adverse impact on members' qualifications for pricing tiers/incentives
because such qualifications depend members upon achieving threshold
percentages of volumes as a percentage of Consolidated Volume, and an
extraordinary rise in sub-dollar volume stands to elevate Consolidated
Volume. As a result, members may find it more difficult, if not
practically impossible, to qualify for or to continue to qualify for
their existing incentives during months where there are such rises in
sub-dollar volumes, even if their dollar plus volumes have not
diminished relative to prior months.
The Exchange believes that it would be unfair for its members that
execute significant dollar plus volumes on the Exchange to fail to
achieve or to lose their existing incentives for such volumes due to
anomalous behavior that is extraneous to them. Therefore, the Exchange
wishes to amend its Rules to help avoid extraordinary spikes in sub-
dollar volumes from adversely affecting a member's qualification of
incentives for their dollar plus stock executions.
Accordingly, the Exchange proposes to amend its pricing schedule at
Equity 7, Section 3(a) to state that, for purposes of calculating a
member's qualifications for credits that pertain to providing liquidity
set forth in Section 3(a), the Exchange will calculate a member's
volume and total Consolidated Volume twice. First, the Exchange will
calculate a member's volume and total Consolidated Volume as presently
set forth in Equity 7, Section 3(a) (i.e., inclusive of volume that
consists of executions in securities priced less than $1). Second, the
Exchange will calculate a member's volume and total Consolidated Volume
exclusive of volume that consists of executions in securities priced
less than $1, while also increasing the distinct qualifying volume
percentage thresholds, as set forth in Section 3(a), by 10%.
Thereafter, the Exchange proposes to assess which of these two
calculations would qualify the member for the most advantageous credits
for the month and then it will apply those to the member.
Although the Exchange wishes to avoid extraordinary spikes in sub-
dollar volumes from adversely affecting a member's qualification of
incentives for their dollar plus stock executions, the Exchange
proposes to include certain limits on the proposal to efficiently
allocate the Exchange's limited resources for incentives. Specifically,
as noted above, the Exchange proposes to limit the application of the
proposed calculation excluding sub-dollar volumes to those incentives
in Section 3(a) that pertain to providing liquidity. In addition, as
noted above, the Exchange proposes to increase the distinct qualifying
volume percentage thresholds set forth in Section 3(a) by 10% for
purposes of the proposed calculation excluding sub-dollar volumes.\3\
The Exchange wishes to impose such limitations in order to limit the
cost impact on the Exchange, while still providing some relief to
members in months with extraordinary spikes in sub-dollar volumes. The
Exchange has limited resources to devote to incentive programs, and it
is appropriate for the Exchange to reallocate these incentives
periodically in a manner that best achieves the Exchange's overall mix
of objectives.
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\3\ For example, the Exchange provides a credit of $0.0033 per
share executed to members providing liquidity for orders entered by
a member that provide 0.15% or more of total Consolidated Volume
during the month. See Equity 7, Section 3(a). Under the proposal, in
addition to calculating the member's volume and total Consolidated
Volume exclusive of volume that consists of executions in securities
priced less than $1, the distinct qualifying volume percentage
threshold would be increased by 10%. Therefore, for purposes of this
example, in order to qualify for the credit using volumes excluding
sub-dollar activity, the member would need to provide 0.165% or more
of total Consolidated Volume during the month (i.e., 0.15% +
(10%)(0.15%)).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\4\ in general, and furthers the objectives of sections
6(b)(4) and 6(b)(5) of the Act,\5\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility, and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed changes to its schedule of credits are
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for equity
securities transaction services that constrain its pricing
determinations in that market. The fact that this market is competitive
has long been recognized by the courts. In NetCoalition v. Securities
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .'' \6\
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\6\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \7\
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\7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
equity security transaction services. The Exchange is only one of
several equity venues to which market participants may direct their
order flow. Competing equity exchanges offer similar tiered pricing
structures to that of the Exchange, including schedules of rebates and
fees that apply based upon members achieving certain volume thresholds.
Within this environment, market participants can freely and often
do shift their order flow among the Exchange and competing venues in
response to changes in their respective pricing schedules.
The Exchange believes that the proposal is reasonable and equitable
because, in its absence, members may experience material adverse
impacts on their ability to qualify for certain incentives during a
month with an anomalous rise in sub-dollar volumes. The Exchange does
not wish to penalize members that execute significant volumes on the
Exchange due to anomalous and extraneous trading activities of a small
number of firms in sub-dollar securities. The proposed rule would seek
to provide a means for members that provide liquidity to avoid
[[Page 13124]]
such a penalty by determining whether calculating member volume and
total Consolidated Volume to include or exclude sub-dollar volume \8\
would result in Exchange members qualifying for the most advantageous
credits, and then applying the calculations that would result in the
incentives for providing liquidity that are most advantageous to each
member. The Exchange believes it is reasonable to limit the proposal by
applying the proposed calculation to incentives that pertain to
providing liquidity and increasing the distinct qualifying volume
percentage thresholds by 10% when using the proposed calculation
excluding sub-dollar volumes because the Exchange has limited resources
to devote to incentive programs, and it is appropriate for the Exchange
to reallocate these incentives periodically in a manner that best
achieves the Exchange's overall mix of objectives. The Exchange
believes that the proposed rule change is an equitable allocation and
is not unfairly discriminatory because the Exchange does not intend for
the proposal to advantage any particular member and the Exchange will
apply the proposed calculation to all similarly situated members.
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\8\ As noted above, in considering whether a member meets
qualifying credit criteria using the proposed calculation excluding
sub-dollar volumes, the distinct qualifying volume percentage
thresholds would be increased by 10%.
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Those participants that are dissatisfied with the changes to the
Exchange's schedule of credits are free to shift their order flow to
competing venues that provide more favorable fees or generous
incentives.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intramarket Competition
The Exchange does not believe that its proposal will place any
category of Exchange participant at a competitive disadvantage.
The Exchange intends for its proposal to help avoid pricing
disadvantages due to anomalous spikes in sub-dollar volumes and is not
intended to provide a competitive advantage to any particular member.
The Exchange also intends for its proposal to reallocate its limited
resources more efficiently and to align them with the Exchange's
overall mix of objectives. The Exchange notes that its members are free
to trade on other venues to the extent they believe that the proposal
is not attractive. As one can observe by looking at any market share
chart, price competition between exchanges is fierce, with liquidity
and market share moving freely between exchanges in reaction to fee and
credit changes.
Intermarket Competition
In terms of inter-market competition, the Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its credits and fees to remain competitive with
other exchanges and with alternative trading systems that have been
exempted from compliance with the statutory standards applicable to
exchanges. Because competitors are free to modify their own credits and
fees in response, and because market participants may readily adjust
their order routing practices, the Exchange believes that the degree to
which credit or fee changes in this market may impose any burden on
competition is extremely limited. The proposal is reflective of this
competition.
Even the largest U.S. equities exchange by volume has less than 20%
market share, which in most markets could hardly be categorized as
having enough market power to burden competition. Moreover, as noted
above, price competition between exchanges is fierce, with liquidity
and market share moving freely between exchanges in reaction to fee and
credit changes. This is in addition to free flow of order flow to and
among off-exchange venues, which comprises upwards of 40% of industry
volume.
In sum, if the changes proposed herein are unattractive to market
participants, it is likely that the Exchange will lose market share as
a result. Accordingly, the Exchange does not believe that the proposed
changes will impair the ability of members or competing order execution
venues to maintain their competitive standing in the financial markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to section
19(b)(3)(A)(ii) of the Act.\9\
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\9\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-Phlx-2024-04 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-2024-04. 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,
[[Page 13125]]
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. Do
not include personal identifiable information in submissions; you
should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-Phlx-2024-04, and should
be submitted on or before March 13, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
Dated: February 14, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-03450 Filed 2-20-24; 8:45 am]
BILLING CODE 8011-01-P
